CSR Ratings Lowered To A-/A-2 By S&P.

MELBOURNE--(BUSINESS WIRE)--Sept. 15, 1998--Standard & Poor's CreditWire 9/15/98--Standard & Poor's today lowered its corporate credit ratings on CSR Ltd. (CSR), and the long-term and short-term ratings of the guaranteed debt issues of CSR Finance Ltd. and CSR America Inc., to single-'A'-minus/'A-2' from single-'A'/'A-1', and removed the ratings from CreditWatch where they were placed on May 20, 1998.

The rating outlook is stable.

The downgrade reflects profitability and operating cash flow-to-debt measures that are expected to remain subpar through the cycle, and the less conservative prudential profile that CSR is likely to retain through the present construction cycle.

Standard & Poor's expects that while CSR's earnings outlook will improve in the short term, earnings measures will weaken through the full construction and commodity cycle. The company's operating performance is expected to reflect a weakening domestic building cycle in an already oversupplied building materials sector and the softness in aluminium and sugar export markets, partially mitigated by a favorable cyclical upside from CSR's domestic and U.S. construction materials businesses. Standard & Poor's expects that CSR's well- positioned U.S. construction materials businesses will continue to assume greater strategic and earnings importance for CSR. While U.S. demand fundamentals appear solid, CSR nonetheless competes with a number of well-established and soundly capitalized companies. The impact, however, of a potential synchronized domestic construction downturn post 2000 on earnings remains of concern, despite CSR's restructuring efforts to reduce the company's cost base. CSR has globally a low cost position in sugar milling and aluminium; however, exposure to weak Asian markets is the common denominator for both these businesses and will restrain export earnings upside in the medium term, although the weaker trade-weighted Australian dollar and forward hedging partially mitigate short-term earnings volatility.

CSR's portfolio review, commenced in early 1998, may see a more focused CSR in future years; however, the implications of the review will not become apparent until late in 1998, when the resolve of management to deliver on strategic and financial intentions will become clearer. Future growth is expected to be in areas where CSR has existing competencies, but, nonetheless, in cyclical and commodity sectors. CSR's timber business performance, however, remains unsatisfactory, and while the company continues to explore restructuring options, difficult market conditions are likely to impede rationalization progress.

While CSR's preabnormal profitability improved moderately in fiscal 1998 off a low base, net profit was about 18% lower than in the last cyclical peak in 1995, and 35% less than in 1990. Preabnormal cash flows also improved in fiscal 1998; however, for this stage of the building cycle, funds from operations-to-debt of 35.7% was weak and is not expected to improve sufficiently through the cycle. Standard & Poor's expects CSR to maintain a less conservative financial profile through the cycle, with the company's gearing levels having become relatively entrenched (average debt levels from 1996-1998 were 27% above the average debt levels of 1991-1995). While inroads were made into reducing debt in 1998 partly as a result of asset sales, further material debt reduction is likely to be hindered by the pace of restructuring and risks coinciding with weakening building and commodity markets.

OUTLOOK: Stable.

CSR's credit quality is supported by leading market positions in diverse and cyclical geographic and product sectors, and by adequate financial flexibility, Standard & Poor's said.---CreditWire. Copyright 1998, Standard & Poor's Rating Services

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