CSR entering a new phase of growth

Press, 24 June 1986, Page 23

CSR entering a new phase of growth

CSR, Ltd, the Australian resources giant, is entering a co w phase of growth by injecting capital into existing businesses, and making further acquisitions into key business areas.

The CSR executive director finance, Mr Gene Herbert, says the renewed investment reflects continuing strong growth in the Australian domestic economy despite international trade difficulties.

"CSR is really a microcosm of the Australian economy and the strong domestic demand is showing up in our domestic operations,” Mr Herbert said.

He said the group’s Readymix Concrete division experienced a record month in May as demand for building materials continued at a high level, despite a downturn in the home building industry earlier this year. But although the buoyant domestic economy is boosting some of CSR’s

businesses, Mr Herbert says the group’s new growth phase is largely associated with its transformation into a leaner and more efficient corporation. During the past year CSR’s directors have vigorously pursued a policy of streamlining the group’s operations, disposing of secondary businesses and assuming 100 per cent ownership of some core operations. As well, CSR has restructured its sAustl6so million investment in its oil and gas arm, Delhi Petroleum Pty, Ltd, and clipped about $1 billion from its debt. Mr Herbert was commenting after the release of CSR, Ltd’s 1986 annual report, which highlighted the group’s 36 per cent rise in operating profit to $125 million. In the annual report the directors said they were seeking business opportunities which complement existing businesses. In the building products

division, which contributed $62 million to CSR’s 1985-86 earnings, the directors said opportunities were being pursued within Australia and overseas for further investment. Mr Herbert said CSR saw opportunities for further investment in the United States, and particularly California, as the building products division already had a proven track record there. Within Australia the building products division has strengthened its position by purchasing the outstanding 50 per cent in Hardboards Australia, Ltd, which, the directors said, would add directly to profit.

As well, CSR is looking to increase its Australian manufacturing capacity with the view to reduce its input costs.

“With the devaluation of the Australian dollar, we see some opportunities for further investments in Australia. We are considering manufacturing some

inputs," Mr Herbert said.

Although the Australian dollar has depreciated more than 30 per cent during the past year against the U.S. dollar, Mr Herbert said CSR’s increased export competitiveness as a result of the dollar fall had been offset by increased costs of imports. Meanwhile, Mr Herbert says, the outlook for CSR’s core business is reasonably optimistic in view of persisting low world commodity prices. CSR is looking for further contributions from its coal division, which increased profit sAustB.9 million in 1985-86 to $15.1 million. CSR’s chief executive, Mr Bryan Kelman, admitted in the company’s annual report that its investment in coal, along

with its investments in aluminium and oil and gas, all made in 1979, had not yielded the returns which had been expected. Nevertheless, Mr Herbert sees a continued improvement from the coal division as volume increases in line with rising demand for steaming coal.

“All our mines apart from the Western Collieries, where contracts call for volume cuts over the next two years, will be increasing volume this year,” he said. The oil and gas division has been knocked by the fall in world oil prices this year.

The annual report estimated Delhi’s contribution to cash flow would be reduced by $7O million this year to about $5O million, given an oil price of SUSIS a barrel com-

pared with the prevailing previous level of SUS 26. As the Delhi investment was previously off the CSR balance sheet, the oil price fall will have little effect on group profit, while the restructuring of the investment has given CSR early access to profits now flowing from the oil and gas arm.

In the 1985-86 year, Delhi made an sAust4s.4 million profit compared with a $5.6 million loss the previous year and despite the oil price fall, Mr Herbert expects cuts made in exploration and development should compensate for lower revenue per barrel in the current year.

Mr Herbert sees continuing profit growth for CSR, with potential for significant improvement in the return on share-

holders’ funds that at 7.9 per cent in the 1985-86 year was still too low, the CSR directors continue to complain. However, he argues that there is now reason to use this fact as a basis for suggesting control of the company should change. Mr Herbert rejects any claims that shareholders could be enticed by a take-over offer, which market speculators say is on the cards.

He argues that CSR has got its main businesses in order and with careful and continued investment in core businesses, performance will continue to improve even in the absence of the significant upturn in world commodity prices which would brighten both the future of CSR and the Australian economy.