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TM
2
Agenda
Introduction
- Peter Kirby
MD & CEO, CSR Limited CSR Limited
- Alec Brennan
MD & CEO, CSR Limited (post- demerger) Deputy MD and Director Strategy & Investments, CSR Limited (currently) Rinker Group Limited
- David Clarke
Introduction Peter Kirby Managing Director and CEO Analyst - - PDF document
Introduction Peter Kirby Managing Director and CEO Analyst - - PDF document
TM Introduction Peter Kirby Managing Director and CEO Analyst Presentation 10 February 2003 Agenda Introduction - Peter Kirby MD & CEO, CSR Limited CSR Limited - Alec Brennan MD & CEO, CSR Limited ( post- demerger )
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Timetable
Item Date Lodge Scheme Booklet 10 February 2003 Transaction launch 10 February 2003 Institutional and retail roadshow Shareholder meeting Final court approval hearing 11 February – 27 March 2003 25 March 2003 28 March 2003 (est.) CSR and RGL shares begin trading separately 31 March 2003 (est.)
The expected timetable shows the shareholder meetings will be held on 25 March, followed by the court sign off before we conclude – hopefully as planned on 31 March.
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Heavy building materials 70%
- f CSR group earnings
at end Sept 02 (business EBIT)
Y/E Sept 02 Y/E Mar 95
Sugar 16% Aluminium 16% Timber 13% Building Products Aust NZ & Asia 18% Construction Aust & Asia 19% Rinker Materials (US) 18% Aluminium 12% Construction Aust & Asia 9% Rinker Materials Corporation (US) 61% (pre Kiewit) Sugar 6% Building Products Aust NZ & Asia 13% Heavy building materials – aggregates, concrete, cement and concrete pipe & products
Note: Based on business EBIT from CSR Annual Reports; excludes corporate costs and unallocated gains/losses (eg major land sales)
Around three quarters of CSR group EBIT today comes from heavy building materials…that is aggregates, concrete, cement and concrete pipes and products You can see the very significant change in the portfolio
- ver the past few years.
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EBITDA margin & cash flow up
Operating cash flow A$m* EBITDA / Sales %
* Net operating cash flow after tax
15.3 16.4 18.2 20.8 19.7 19.9 20.9 H Y E S 2 H Y E S 1 00 01 02 99 9 8
Year- ended March 6 Months
- nly
832 912 1048 1024 1195 545 554 00 01 02 99 9 8
Year- ended March 6 Months
- nly
2 1
- The next few charts just give you a quick
reprise of our results over the past few years.
- This one shows the EBITDA to sales margin
and operating cash flow have continued the upward trend of the past five years.
- Cash generation is one of the great
strengths of CSR.
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Financial ratios
1
Return on funds employed % Return on Equity %
10.9 12.6 15.9 14.6 15.5 14.5 17.0* 00 01 02 99 9 8
Year- ended March Year ended Sept * Excludes funds employed for Kiewit Materials Corporation – purchased 26 Sept 02 with no sales
- r profit contribution during HYESO2
Y E S 2 Y E S 1 8.7 10.1 12.9 12.7 13.7 12.7 14.3 Y ES 1 Y ES 2 00 01 02 99 9 8
Year- ended March Year ended Sept
- The return on funds employed also continues
to improve – although it does bounce around with acquisitions.
- Return on equity has more than doubled over
the past five years.
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Strong financial position
Gearing %
(net debt / net debt + equity)
Interest cover
(times)
34.2 32.6 22.2 34.0 29.7 34.0 35.2* 00 01 02 99 9 8
March Sept
SE P T 2 SE P T 1 4.3 5.3 9.1 6.8 8.5 8.0 11.8 00 01 02 99 9 8
Year- ended March 6 Months
- nly
H Y 1 H Y 2
* Includes Kiewit Materials. Red line shows the gearing ratio at 24% if Kiewit excluded.
- CSR’s financial position is very strong.
- Gearing is up this year due to the
acquisition of Kiewit.
- But interest cover of almost 12 times at the
half year ended September is extremely comfortable.
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Return on Equity
4.1 7.2 9.0 9.2 9.5 9.8 10.3 10.6 11.0 12.4 13.7 13.9 14.4 15.9 16.8 R M C G r
- u
p T e x a s I n d u s t r i e s J a m e s Hardie H a n s
- n
L a f a r g e G r
- u
p B
- r
a l Limited Martin Marietta Holcim A g g r e g a t e I n d u s . Lafarge Nth A m e r C S R L i m i t e d Vulcan Materials C e m e x CRH Florida Rock Ind Source: Annual Reports As at last reported FY to 17 Jan 03
We have also managed to lift our return on equity to within the top quartile of our peers – with a return up to 14.3% at the end of September 2002.
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Price/ Earnings ratio
6.4 10.0 10.0 10.5 10.6 10.7 11.9 12.0 12.5 12.5 12.7 14.0 14.8 15.7 C e m e x Lafarge Nth A m e r Texas Industries CSR Limited CRH Aggregate Indus. Lafarge Group R M C G r
- u
p Holcim Boral Limited H a n s
- n
Martin Marietta Florida Rock Ind Vulcan Materials Source: Company records; CSR research Price at 17 Jan 03 / latest published annual financial data CSR Share price = $6.13
Yet on ratios such as price / earnings – based on latest reported profit – we continue to rate in the bottom quartile
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EV / free cash flow
10.6 11.1 11.1 11.2 13.4 13.4 13.5 15.2 16.3 17.4 20.5 20.7 31.1 C S R L i m i t e d F l
- r
i d a R
- c
k I n d L a f a r g e G r
- u
p H a n s
- n
L a f a r g e N t h A m e r C R H R M C G r
- u
p T e x a s I n d u s t r i e s H
- l
c i m B
- r
a l L i m i t e d A g g r e g a t e I n d u s . V u l c a n M a t e r i a l s M a r t i n M a r i e t t a
Source: Bloomberg FCF is latest published T12mths Share price as at 17 Jan 03. CSR = $6.13
Similarly with enterprise value to free cash flow, where we are right at the bottom of the pack
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DEMERGE
Rinker Materials Corporation (US) 88% Construction Materials Aust & Asia 12%
CSR group strategy… a demerger into 2 different companies is the logical next step to complete the separation process
Aluminium 40% Building Products Aust, NZ & Asia 42% Sugar 18%
CSR group CSR group today today Rinker Rinker Group Group CSR CSR post post demerger demerger
70% 30% Based on YES02 business EBIT from CSR Annual Reports; excludes c
- rporate costs and
unallocated gains/losses (eg major land sales)
- The logical next step in our strategy to build value
then is to complete this separation process through a demerger.
- The demerger involves spinning off the heavy building
materials assets out of CSR…..and forming a new company called Rinker Group Ltd (“Rinker Group”).
- CSR Limited will then comprise :
- the Building Products business – which is the leading
manufacturer of building products in Australia
- ur Aluminium interest – which holds a 25%
stake in the Tomago aluminium smelter near Newcastle, and
- CSR Sugar, which is among the largest and most
efficient sugar cane milling businesses in the world.
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Two strong Australian listed companies, appealing to different groups of investors
Rinker Group Limited (RGL)
One of the world’s top 10 heavy building materials companies, growing strongly and building strong regional market positions in its key products…
CSR Limited
A higher dividend yielding, diversified company, with a stable earnings history, strong cash flows and some of Australia’s best known household brands…
We will then have two separate Australian companies – both listed on the Australian Stock Exchange, both expected to be within the ASX Top 100 and both headquartered in Australia.
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Strategic rationale and benefits of a demerger
In line with CSR strategy since 1998 for separation and growth of heavy building materials while lifting shareholder value Creates two strong, focused companies – both investment grade, and expected to be in ASX Top 100 Precedents show step change in management and board focus lead to improved performance over time Improved ability to pursue growth options, including longer term flexibility for RGL equity as acquisition currency, if appropriate Separation offers a clear outcome and provides shareholder choice Dividend policy and capital allocation to better facilitate individual business strategies Clearer alignment of employee compensation plans with shareholder value for Rinker people Opportunity for stock market re- rating
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Costs of the demerger
Transaction cost of $75 million before tax or est. A$54m after tax, ie a one- off impact of 5 .8 cents per share
– adviser, legal and expert fees, stamp duty, insurance (A$32m) – once- up cost of establishing RGL as a separate entity (A$28m) – refinancing costs (including restructuring US bonds) (A$15m)
Lower LT credit ratings but ratings agencies have indicated investment grade for both RGL and CSR Short term impact on CSR’s ability to pay fully- franked dividends; Rinker’s franking capacity will be lower but solid earnings from Readymix will underpin franking for shareholders Post- demerger, additional cost of RGL and CSR operating as independent, separately listed companies
The demerger is estimated to cost around $75 million pre- tax and around $54 million after tax – or a one- off cost of just 5.8 cents per share. That compares with $65 million for each of the BHP Steel and One Steel demergers – both
- f which were significantly smaller – and
around $127 million for Western Mining.
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