CSR Annual Report 2020 - CSR Limited

CSR LIMITED

Annual Report 2020

CSR LIMITED | CONTENTS

CONTENTS

1 FINANCIAL OVERVIEW 2 CHAIRMAN'S MESSAGE 4 MANAGING DIRECTOR'S REVIEW 6 OPERATING AND FINANICAL REVIEW 11 SUSTAINABILITY AND PEOPLE 15 CORPORATE GOVERNANCE STATEMENT AND RISK

MANAGEMENT 28 BOARD OF DIRECTORS 30 DIRECTORS' REPORT 34 REMUNERATION REPORT 56 FINANCIAL REPORT 100 DIRECTORS' DECLARATION 101 INDEPENDENT AUDITOR'S REPORT 104 SHAREHOLDER INFORMATION

ABOUT CSR

CSR is a leading building products company in Australia and New Zealand.

Formed in 1855, CSR is one of Australia's oldest manufacturing companies. Today it is a leading building products company in Australia and New Zealand and is the name behind some of the market's most trusted and recognised brand names including Gyprock plasterboard, Bradford insulation, Cemintel fibre cement, Hebel autoclaved aerated concrete panels, PGH Bricks, Monier rooftiles and AFS walling systems.

CSR generates additional earnings from its Property division which focuses on maximising financial returns by developing surplus former manufacturing sites and industrial land. CSR is also a joint venture participant in the Tomago aluminium smelter, located near Newcastle, NSW.

COVID-19 AND CSR'S ANNUAL REPORT

CSR was nearing the end of its financial year when the COVID-19 pandemic was declared in March 2020. The company acted quickly to bolster CSR's financial position and ensure there was sufficient liquidity to operate in the uncertain economic environment. This has included an immediate cash preservation focus and ceasing or deferring all non-essential expenditure. In line with this position, CSR has streamlined its annual report this year to reduce costs.

CSR's Annual General Meeting (AGM) will be held on 24 June 2020 at 10am (AEST). Details on arrangements for the AGM are included in the Notice of Meeting.

Further updates to the market can be found on the company's website .au.

CSR Limited ABN 90 000 001 276

$2.2b

Revenue in YEM20

$125m

Statutory net profit after tax in YEM20

180+

Manufacturing and distribution sites across Australia and NZ

18,000+

Customers across Australia and NZ

2,800+

CSR employees

8%

Lost time injuries down 8% in YEM20

2%

Reduction in waste production in 2019

3%

Reduction in greenhouse gas emissions in 2019

CSR LIMITED | FINANCIAL OVERVIEW

FINANCIAL OVERVIEW

Trading revenue of $2.2 billion was down 5% reflecting the slowdown in residential construction.

FIVE YEAR PERFORMANCE OVERVIEW Year ended 31 March ($ million) unless stated

Operating results

Trading revenue

Continuing operations 1

2020

2019

2018

2,212.5

2,322.8

2,237.7

2017 2,468.3

2016 2,298.8

Earnings before interest and tax (EBIT) Building Products 2 Property Aluminium Viridian Segment total Corporate and restructuring and provisions 2, 3 CSR EBIT

170.5 (1.5) 59.6 -

228.6 (11.8) 216.8

206.5 38.8 36.6 -

281.9 (16.9) 265.0

214.1 47.8 79.5 -

341.4 (21.1) 320.3

202.8 15.0 93.1 7.0

317.9 (19.9) 298.0

167.6 23.3

104.1 8.1

303.1 (26.3) 276.8

Net profit after tax (before significant items)

Net profit after tax and discontinued operations (after significant items)

134.8 125.3

181.7 78.0

210.6 188.8

183.8 177.9

166.0 142.3

Financial position Shareholders' funds Total assets Net cash / (debt)

1,125.5 2,404.5

94.8

1,231.1 1,991.1

50.0

1,274.1 2,136.0

(14.3)

1,206.5 2,097.1

(11.4)

1,317.2 2,215.8

70.9

Key data per share Earnings before significant items (cents) Earnings after significant items and discontinued operations (cents) Dividend (cents) Payout ratio

27.3 25.4

14.0 51.3

36.1 15.5

26.0 72.0

41.9 37.5

27.0 64.4

36.5 35.3

26.0 71.2

32.9 28.2

23.5 71.4

Key measures Profit margin (EBIT/trading revenue) (%) Return on funds employed (ROFE) (%) 4 Employees (Number of people employed) 5

9.8 17.8 2,823

11.4 21.8 2,960

14.3 27.8 4,282

12.1 21.6 4,193

12.0 20.7 3,578

1. From continuing operations for 2018 and 2019, which excludes the Viridian Glass business which was sold on 31 January 2019. 2. From 1 April 2016 there was a change in internal reporting which resulted in a transfer of operating expenditure from Corporate to Building Products. 3. Represents unallocated overhead expenditure and other revenues. 4. ROFE is calculated as EBIT before significant items for the 12 months to 31 March divided by average funds employed which excludes cash, tax balances and certain other

non-trading assets and liabilities as at 31 March. 5. 2019 excludes employees of Viridian Glass.

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CSR LIMITED | CHAIRMAN'S MESSAGE

CHAIRMAN'S MESSAGE

Retaining CSR's position of operational and financial strength.

While the financial year ended 31 March 2020 (YEM20) clearly came to an unusual close for CSR, I am pleased to share some of our significant achievements with you.

We ended the year with a solid result in our Building Products business. The residential market has slowed after a period of very high activity over the last few years. Increased diversification of our business in both product and market positioned us well against this backdrop. As a result, our revenue was down 6%, which was ahead of the weakness in the residential building market which was down on average 21%.

In Property, while no transactions were completed during the year, we announced the $142.5 million sale of industrial land at Horsley Park, NSW. Aluminium delivered a stronger result which benefitted from the lower Australian dollar.

Our statutory net profit was $125.3 million, up significantly from $78.0 million in the prior year which included impairment charges from the Viridian Glass business (sold on 31 January 2019).

CSR's net profit after tax from continuing operations (before significant items) was $134.8 million, down 26%.

COVID-19 Response

As the COVID-19 pandemic emerged toward the end of our financial year, CSR acted quickly to ensure that health and safety of our employees, contractors, customers and suppliers was the first and overriding priority. We have worked closely with key stakeholders to support building sites remaining open in Australia. This has enabled us to help our customers continue working on the many projects which started well before COVID-19, while ensuring safety on site.

We also focused on retaining CSR's strong financial position and plan for the longer-term resilience of our business. CSR ended the year in a position of financial strength and we have taken a number of steps to maximise our nearterm liquidity.

As of 31 March 2020, CSR had net cash of $95 million and a strong liquidity position which ensures we are well prepared for the year ahead. Since the year end, we have secured additional facilities of $200 million to ensure we have additional liquidity and strengthen our financial position.

A key part of our strategy to bolster our financial position was to take a cash preservation approach across all of our businesses. This ensured we could focus on business critical and safety related expenditure.

We also applied this approach to our capital management programs. As a result, CSR's on-market share buyback was paused. Prior to being paused the share buyback returned over $69 million to shareholders since its commencement in March 2019.

Due to the uncertain economic environment, the board has also made the prudent decision that no final dividend will be paid this year.

In December 2019 shareholders received dividends of $69 million comprising an interim (10 cents per share) and special dividend (4 cents per share) following receipt of deferred Property proceeds during the first half of the year.

We will continue to review our financial position and resume our capital management programs when it is appropriate to do so in the future.

While our lives today remain focused on the COVID-19 pandemic, you will recall that just over four months ago, we were witnessing the devastating bushfires and the huge impact on many communities in Australia. We have since raised a total of $50,000 from employee donations and matching by CSR for the Salvation Army Bushfire appeal. We will also be supporting other charity bushfire projects with CSR product donations as the rebuild continues.

$95m

Net cash of $95m with a strong liquidity position

$75m

Completed $75m expansion of Hebel Somersby operation

$69m

Total dividends paid for YEM20

$69m

Returned to shareholders through the share buyback

2030 targets

Sustainability targets in place for 2030

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CSR LIMITED | CHAIRMAN'S MESSAGE

Completion of $75 million Hebel expansion

A key milestone this year was the completion of the $75 million new Hebel factory at Somersby, NSW. This project was a long time in the making. CSR first began production of Hebel almost 30 years ago and today remains the only manufacturer of autoclaved aerated concrete (AAC) in Australia and New Zealand.

This is the most significant expansion project undertaken by CSR for many years. Planning for the new factory began over four years ago to identify areas where CSR could develop a world class facility which minimises raw materials and energy use, improves safety and leverages our product expertise.

An overriding objective was to focus on the local economy and minimise our carbon footprint by working with local suppliers, manufacturers and products sourced in the region where possible.

This factory is a strong endorsement of the manufacturing skills we have here in Australia.

Thank you to the CSR team

On behalf of the board, I want to thank the 2,800 CSR employees for their efforts this year. In the last two months, you have managed a difficult environment by focusing on what we can control and supporting each other and our customers.

This year CSR has achieved a significant milestone as we reached our 165th year in Australia. CSR has operated over this extensive period as the company has adapted to change and continues to grow and evolve as the markets around us keep changing. This will continue as we manage the business during COVID-19 and ensuring we are strong and fitter in the recovery.

A sincere thanks to all of the team at CSR and to our shareholders for your continued support during this challenging time.

Welcome to CSR's new Managing Director & CEO Julie Coates

Another major milestone this year was the appointment of Julie Coates as CSR's new Managing Director & CEO. Julie joined CSR on 2 September 2019 and brings extensive experience leading large manufacturing companies with a deep understanding of product branding, marketing, digital transformation and global sourcing.

These combined skills are invaluable as we continue to adapt to change, innovate and pursue growth. Since Julie joined CSR, she has worked with the team to align our strategic priorities with a focus on productivity and cost discipline. This is particularly important during the COVID19 pandemic where she has led the team by focusing on two key principles ? the health and safety of all of our people and ensuring the resilience of our business over the long-term.

JOHN GILLAM CHAIRMAN 12 MAY 2020

2.5

2.3

2.3

2.2

2.2

16 17 18 19 20

TRADING REVENUE Year ended 31 March ($bn)

188.8 177.9

142.3

125.3

78.0

16 17 18 19 20

STATUTORY NET PROFIT AFTER TAX Year ended 31 March ($m)

94.8

70.9 50.0

(11.4) (14.3) 16 17 18 19 20

NET CASH/(DEBT) Year ended 31 March ($m)

3

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