James Hardie Industries PLC (JHX) 2007 Q2 法說會逐字稿

Okay, good morning. We'll go ahead and get started. So, I appreciate you coming to this results announcement. We'll do it just like we normally do. I'll cover a quick overview and drill down a little bit on the businesses. Russell Chenu, the CFO, will cover the financials. He'll also cover the Asbestos Agreement, and then we'll finish up with questions.

I guess most of you will have seen our results pretty hard to read with the Asbestos adjustments in the quarter. Basically a Q2 charge of $47.2m, half year, up to $74.4. So headline number in operating profit down 56% at 45.

When you move through those non-cash-type adjustments and you look at what the business did, first look at it says Q2 up 43%, and half year 27%. But there's a few more adjustments in there. And I think the better -- and Russell will give you the details on that, but better numbers to look at, Q2 up about 23% and half year up on 19%, when you take out all the one offs.

We announced a dividend of $0.05. You'll be aware we've got the final tax ruling that we were waiting for on the SPF. So moving forward there. And I hope to be in a position to have the shareholders meeting in February.

Top line. Of course, everyone knows the U.S. markets coming off quite a bit, and pretty quickly now. So we did grow to top line, which was. The gross profit line can follow the top line percentage-wise. And with the Asbestos adjustments, obviously the EBIT line and net operating profit line were [inaudible].

Coming to highlights, the U.S. business continues to run very well. Good top line and bottom line. Australia had a better quarter that came out of the gate, but a weak quarter. They got the volume up a bit, so the market share's up. The market's still soft. It gets some traction and there's growth initiative. So, Australia looks good. New Zealand is okay, and a softer market in the Philippines is also steady, stayed in a pretty soft market.

Hardie Pipes, [a deal] in this second quarter. And they've had positive EBIT, so they've gotten themselves out of trouble. And that business is running a lot better and the dividend will be payable on January 8.

If you want to run normal pictures here, Steve just told me this is a development in Seattle. I don't think there's too many new people in the room, but this is basically what we do. This is the kind of architecture you'd like to see. I don't see any bricks there. So while you'll see some of our different products, you'll see our shingle product, blank product, [drum] product, stuff like that.

U.S. Fiber Cement, to review the businesses in some detail. So net sales up 10%, volume up 3%. So obviously we had 7% in price. EBIT up to 14% and the EBIT margin very good at 28.8%

The situation in the U.S. is basically no-one knows where it's going to end. So, we say the builders have less confidence or low confidence. Basically, no-one knows exactly where it's going to land, so we're all hedging our bets a bit. It seems to be just strictly driven by affordability in that sustained period two or three years where mortgage rates were very low. Just below that boom and it -- the interest rates have really come off a bit -- come up a bit. But it is, in percentage of the mortgage payment, it does show up there. So it becomes an affordability problem for at least a portion of the market.

Similar luck with more sellers than buyers right now. And the builders get into a correction where they try and sort out a production process to master their sales levels. And that's what we're going through. And it is regional. It's market by market. Some are worse than others. But just generally, it's across the board. And then some are worse and some are a little better. But everyone's feeling it. Repair and remodel's been fine.

So, the keys that are the U.S. is we are, as we said, we are going to lose some base demands as the market comes off, and we're going to buffer it with market share growth. And that's basically what we're doing. We feel we'll continue to do that. Our position against wood and vinyl, even in a down market, is still very favorable.

ColorPlus continues to take -- penetrate. So that helps us. We get the revenue bump. But we also did a contribution bump now of that color. Interior products is growing faster than exterior. So, you say we only had three, well, exterior was a little bit flatter than interior. Higher rate of selling price, which we already talked about. Good margins, despite the higher costs.

You saw the cement guys are still looking for increases, even in a down market. We think they're where they should be coming off, but they think they can keep adding. Pulp ran -- pulp runs in a different cycle, but we use a lot of pulp. So we've got to watch pulp. And it had a good run up earlier in the year. It seems to have leveled off a bit and it's starting to come off. But it was up significantly in the quarter.

As I said, there's regional differences. Basically in the U.S., we do have a sun-belt bias. And there's probably a -- the sun-belt is probably going to do better than the northern markets in the slow down. But, having said that, there's some markets in the sun-belt that are down quite a bit. So if we had an advantage regionally, it's hard to make much out of it. So, we just -- what we try and do is follow it market by market and make sure we're still growing our share. So, that's what we're focused on.

We have continued, so we haven't put a halt on any of the key growth initiatives. So we're still spending there. And then obviously though, we will have to reset the business from a production scheduling standpoint and we'll be looking for other cost savings in the business to try and offset the lower volumes.

So the outlook in the U.S. is, like I think I said earlier, it's not done. It's still coming off. And we ride the market. So we're definitely not done as far as the loss of base demand. R&R should be pretty good. We say here volume growth will be affected further in Q3. I think that probably is Q3/Q4. And then we'll see where we sit. Maybe it's Q1. Maybe it's now. We'll just see when it settles out.

There seems to be two camps. Usually you get a range of views. And now they're all joining one point or the other. One camp would say this thing's coming off a lot, and it's going to come off for a fairly long period of time. The other camp would be, it's almost cleaned itself up, and money's still cheap. And it'll flatten out and at least flatten out and maybe get a little better.

From a [inaudible] standpoint, we don't plan for the second scenario. We basically plan more for the first scenario because we have a good ability to flex up. And taking off is always harder. Taking off a little bit at a time is harder for us than just going down to a certain level. You feel comfortable when it hits the bottom or close to the bottom. And then if you need a bit more, you just flex it out. So we have plenty of capacity to do that.

We do believe that our business model we will out-perform building materials companies in a downturn, just like it has in the boom for the most part. And we do expect a gross input cost to remain high for a while.

There's a chart on the U.S. business. You can see we had a 15-year period from '91 to 2006. We had a few bumps in the road. But it was mostly straight up on housing starts. And you can see the blue lines now turning down at a pretty steep angle already. I guess the good news is the yellow line, which is our revenue line. It's still pointing up in the right direction. And the volume line you can see flattening out a bit, reflecting that 3% last quarter.

Some price continues to improve. There's still a bit of market price in there and a bit of mix. I think if the downturn is sustained, and you'll -- every quarter you'll have more product mix and less market. And it may be flatten out. But we see this separate outline from 00 up to 05 as being pretty good for the short to medium term. We can do that sort I think.

Even margin, again we hit our target, 20/25. We're running above the target. And we've given guidance that, in the near term, we though we'd stay above that target. There is certainly a chance that we will -- depends on the downturn, I think we'll follow in that target if the market comes off a lot more. But, I don't see it falling below that target, with the forecast we have out there as being something I would expect.

So the strategy hasn't changed in the U.S. Boom market downturn doesn't matter. We've got a market share of that, whatever it is, 13, 14, 15, currently. And we think the term of share's more like 35, 40. So you've got a lot of room to grow. That's what we need to stay focused on.

Of course, we can -- that's our current market, product market initiatives. Maybe we want to explain that a bit. All in all we want to protect the category share for Hardies, so there's no reason to create an industry for someone else. So we're pretty focused on a strategy that does both. And we do it through technology and product leadership basically.

We have more than -- bit of an organizational change. We put out a notice when Dave Merkley left the business in, I think it was September, early September. Dave had been with us 12 years. He had been a key player at Hardie. So we put out the announcement and we put an interim organization in place. The decision by Dave was pretty quick. So it wasn't something we were planning for.

But we did have, in our plans, to break in three divisions. Just basically established markets, was getting pretty large, and we were getting ready to launch ColorPlus in the division. We have a [inaudible] getting plan to launch next year in that division. And then just a slew of other things. So the division was getting a bit big. So we did have a split for how we like to mange the business anyway. I know other companies have much larger divisions.

But, anyway, we wanted it in three. The break is pretty simple. For those of you who don't know the geography, it's just Texas on over to Florida, becomes the Southern Division, and everything West of that becomes the Western Division. And the Northern Division now remains the same. They will all continue to be managed by a General Manager that has basically full functional responsibility.

And you'll see, I do have on the next slide, you see the people -- well you see, what happened is, as [inaudible] Robert Russell, some of you know Robert Russell pretty well and he's been in the business about 10 years. He started in engineering and went onto product management -- went into product management, then went into sales management and then onto GM. But he has a very good aim around the engineering manufacturing side of the business. I've been able to slide him in with Dave departing. And he was running Established Division.

So then I've split that in two, and we recruited both individuals for those divisions, one with a no name in it, because he joins in January, still working for his other company at this point. But -- and these two new GM's, I've really gone for the market side experience.

So, Hardie, traditionally, we've grown up on the operation side, and we've turned a lot of operators into market-side executives. And it's worked very well for us. But right now is, as we have so many initiatives going on in the market, I really look for people with a lot more experience in the sales marketing side.

So both Gigi Myung, and the new individual taking on the Southern Division look a lot more like Nigel. By the way, Nigel Rigby is sitting in the back there taking notes, and I am sure he could be keeping track. So, all through, the GMs will be basically market -- come up through the market side rather than the operations, which will be a bit of a switch for Hardie.

Go to Asia Pac, I got a question earlier on the media conference on the new Scyon brand, which is basically an umbrella brand that we are going to put our new technology products on there in the Australian market, to make sure that Hardie is being seen as the Fiber Cement Company that's really developed in the market for fiber cement [rough-hewn] technology.

As I commented earlier, the results were a little bit better. Probably not bad considering the market is as flat as it is. But the net sales is flat, and [offsetting], EBIT down a bit over the last year same quarter, and EBIT margin down a bit.

We basically run the U.S. strategy over in Australia, New Zealand now. And it is working. We are starting to get traction on it. So, that's reflected in the new product launches and initial success we are having in the market.

Two points on Asia Pac, the housing markets, I think it's stabilized there. At least in my mind it has, but it's not booming obviously. The volumes are up. Obviously that's been a flat market. And up volumes, you get a little bit of market share gain. We are getting traction on the new products.

The EBIT down slightly. And that's mainly on price, although there are some manufacturing costs in [stuffed] pulp and cement and stuff like that. But pricing is down as the three players here fight over the products all three companies make. That's there on the cost position. Obviously we are not just going to walk away and let the discounters take the business. So we started to pull in. But if the numbers keep going down, at some point we will respond and close the gap. And then Philippines remain positive EBIT.

The outlook in Asia Pac is we are not expecting any help from the market. And we are going to stay focused, in what I call that U.S. strategy. I should just call it a Hardie strategy now, where you grow the market for fiber cement, and as it grows you keep the piece that grew. You don't split up the piece that grew. And you do that through differentiation in the products.

And we'll be looking for more efficiencies out of manufacturing down here as they put the product [like linear], or whatever air-flowing product in the market, they use more capacity that a standard medium-density flat-sheet products. So they have to continue to ramp up their manufacturing in order to absorb that new product basically.

We've got Hardie Pipe. It's been fine. Finally get that thing settle down to where we are learning what to do with that product in the industry. And we expect that to continue to get incrementally better. And here fiber cement is small. They are still growing steadily. But we haven't found a big turn up in the penetration curve in Europe. We haven't found the big thing to go after in Europe yet.

Outlook overall, like I've said a couple of times now, we don't know where the market is going to go. But we now plan for a certain that should deliver the business results that we are looking for. And if it doesn't quite go there, we'll probably -- the bottom line will do a little bit better.

Asia Pac, same thing. We are not looking for help in the market. I guess I already commented on that. Our focus here is on primary demand on the new products we've launched.

At this point, I'll hand it over to Russell for the financial and asbestos update.

Thanks very much, Louis. And good morning, ladies and gentlemen.

The results for the quarter end for the half year have been significantly affected by charges resulting from asbestos provision adjustments. These are due to two factors, one being foreign exchange movements where, for the quarter, we had a $5.4m charge arising from the appreciation of the A dollar against the U.S. dollar. And in the prior quarter that was about $27m. So for the half year its $32.6m resulting from currency appreciation.

And the second factor was the actuarial reassessment that was undertaken at September 30, in anticipation of us going to a shareholder meeting in the near term, for a consideration of the asbestos compensation proposal. And that resulted in a $41.8m charge, an increase in the provision as a result of that reassessment. And I'll speak more to that later on.

But that total movement between March and September was $74.4m. Just to highlight, although it's probably unnecessary for this audience, but that is a non-cash charge, with no current period impact in terms of cash. It's a provision booked for expected future payments rather than current payments.

Now notwithstanding that asbestos provision adjustment, the balance sheet remains very strong. We have cash and unused term facilities at $267m at September 30, and net debt at quarter end at $87.7m. That movement in debt, or that debt position is actually something that we've been unaccustomed to. We've been running at either close to zero debt or, in fact, a net cash position for some considerable time.

But the payment of the ATO assessment as at the 1999 year, an amended assessment of AUD189 Australian dollars is what's tipped us over into a net debt position. $141.1m U.S. dollars was paid in July as a result of that amended assessment. We've declared an interim dividend of $0.05, with a record date of December 15, and a payment date of January 8, 2007. That's up 25% on last year.

Turning now to the results for Q2 in a little more detail. Net sales were up 9% to $411m. The gross profit was up 13% to $155m. SG&A up 15% to $57m, reflecting Louis' reference before to the fact that we are sustaining our growth initiatives and looking to the future. And those obviously come with a cost. And that's what's led to that increase, or largely what's led to that increase of 15% in SG&A.

R&D expense a little down on the prior corresponding period. SCI costs also showing some reduction. And the asbestos provision for the quarter of $47.2m that movement reflected there, to give an EBIT of $41m, which was 46% down on the prior corresponding quarter.

The net interest was an income for the period, largely because we had some capitalization of interest. So we were running debt. But under U.S. GAAP we have to capitalize interest in relation to capital expenditure. And that meant that we finished up with net interest income.

We also are paying interest to the ATO on a quarterly basis on the unpaid amount of that income tax assessment balance. And that also is capitalized. It increases the receivable that we disclosed on a quarterly basis. And that's compared with a $1m expense for the quarter two of last year. The income tax expense was $21m, and the net operating profit was $21m as well, which is a 56% reduction.

In this next slide we show, or attempt to show, the underlying performance of the core business by adjusting for what we consider to be non-recurring items. Using the net operating profit as the starting point from the previous slide, of $21m, adding back the adjustment to the asbestos provision as at the quarter of $47m, also adding back SCI and other related expenses, which we are sure is going to finish at some time in the near future, and a tax provision write back that we adjusted in the quarter as a result of that provision no longer being required, of $7.4m, produces a net operating profit of $63.9m, which is a 23% increase on $52m one year ago.

A similar analysis for the half year, the first half net sales up 12% to $827m. Gross profit up 11% to $313m, SG&A up 14% to $109m, R&D showing an increase of very modest proportions to the half year. And SCI costs down 43% to $5.6m, again, the adjustment to the asbestos provision at $74.4m. And some minor items in net interest income and expense and income tax down 8% to $53m for the half year. There was also a minor adjustment to compensation through options of $0.9m, giving a net operating profit reported of $56.6m which was down 45%.

And looking at the core business performance, adding back to that reported net operating profit the $74.4m adjustment to asbestos provision, $5.2m on SCI and other related expenses. In the first quarter we incurred a net of tax charge of $5.6m as a result of the make-whole payment on a debt prepayment. So we've brought that to account as non-recurring. And the tax provision write back of $7.4m from Q2 to give a net operating profit of $134.4m, which is up 19% on the $113m from Q2 in FY06, where there were no period adjustments, other than the SCI and other related expenses.

Turning now to net sales, in Q2, our U.S. fiber cement sales up 10%. No change in Asia Pac fiber cement, and other reflecting a little bit of growth in Europe, but more particularly some growth in the U.S. pipe business. 51% increase there, giving a total sales of $411m, which was up 9%. For the half year, sales of $688m up 16%. Asia Pac flat also, and other very flat. The total $827m, up 12% for the half year.

Turning to EBIT, I think this is fairly self explanatory. But fairly good growth in U.S. fiber cement at 14%, particularly in the circumstances of a housing downturn, some improvement in other, reflecting the improved EBIT performance of the pipes business in the U.S. An R&D item which is very flat, to give total segment EBIT, before corporate expenses, of $104m which was up 13%, a 3% increase in general corporate costs for the quarter. And then the adjustment to the asbestos provision to produce a total EBIT of $41m, which was down 46%.

And for the half year a somewhat similar story. Good growth in U.S. fiber cement to $201m in terms of EBIT. Asia Pac fiber cement down slightly. Some improvement in other, including U.S. pipes and also Europe. R&D slight increase in expenditure, general corporate costs down, because that includes SCI costs. And then the adjustment to the asbestos provision, to provide a total EBIT of $110m which is down 33%.

In terms of the corporate costs, the slide that we normally show for Q2 shows underlying other costs of $10.3m. That's up 13%, and that reflects some increase in consulting costs for the period. And the total costs, $15.5m, showing a slight increase on the prior corresponding period.

And for the half year, a somewhat similar story, reduction in SCI and related expenses, and a slight increase in the underlying other costs to give a total reduction of 8% to $25.7m.

Net interest expense, for the reasons that I highlighted earlier, has moved from expense to income for the period. And for the half year, very modest numbers. The half year to -- for 2007 includes the $6m [make-whole] payment made in May of this year.

Moving onto income tax expense, and this walks through the adjustment to the asbestos provision of $47.2 for Q2, also the tax provision write back of $7.4m to show an underlying income tax expense for the quarter of $28.3m, which is the tax rate, an effective tax rate of 31.7%. That is a little bit lower than we've given guidance of previously. And that reflects the fact that each quarter we reassess our expected tax expense for the full year.

And so we've done that in this period and there's been some slight adjustments, some slight favorable adjustments, which resulted in that 31.7% being a bit lower than in previous periods.

I wouldn't wish anybody to think that we are going to provide guidance that leads to a downwards revision. We still think that the underlying income tax expense rate, effective rate will be mid 30s.

And the next slide for the half year, you can see in fact that the ETR for the full half is 33.1 and that's about in line with what we previously indicated, perhaps at the lower end of the range.

Moving onto Q2 EBITDA, the EBIT numbers we've discussed previously. Depreciation and amortization for the U.S.A. Fiber Cement business at $10m for the quarter. Perhaps the fact that that's a little lower than the prior corresponding period requires a little bit of explanation, because it doesn't sit well with the fact that we've had an increase in assets, and, for example, the [Polaski] plant has come on this year and therefore has been depreciated. But we've also had other assets such as ColorPlus production facilities. And so you'd expect that to increase.

But in fact, the Q2 of financial '06 reflected some accelerated depreciation on some assets in the Flat Sheet operations and that's why there's a reduction relative to -- in '07 relative to '06. Some slight increase in depreciation and amortization in the Australian business reflecting -- or in the AsiaPac business, reflecting new assets in Australia. And, as a consequence of that, the reported EBITDA was down 39% to $54m.

For the half year the U.S.A. Fiber Cement business here showing the sort of increase in depreciation and amortization that you'd expect as a consequence of growth in the asset base, a 10% increase. And also, for the AsiaPac business, a 9% increase, to show a total reported EBITDA of $134m, which is down 28%, largely reflecting that asbestos provision adjustment and the other one-off items.

CapEx for the half year running at $61m which is down a little on the $75 of a year ago. In the U.S. Fiber Cement business $54m reflects mostly capacity increase tied to the Polaski facility where we've had some ongoing expenditure in this period, some carry over of line one and a fair bit of expenditure on line two at Polaski. And also the expansion of ColorPlus capacity which has been ongoing. And a few other capacity enhancements as well.

We would expect that reduction relative to prior periods will continue in the foreseeable future. And AsiaPac Fiber Cement also showing some increase connected with the introduction of new production facilities for the introduction of new products in this marketplace.

Looking at some key indicators, a strong EPS for the year, or for the half year, reflecting the fact that we've adjusted therefore the asbestos provision. The dividend paid per share of $0.04, reflecting the final dividend for financial 2006. Return on shareholders funds at 28.8%. Return on capital 32.2%. EBIT to sales at 22.3%, all showing very good performance. A slight dilution in return on shareholders funds reflects the fact that we've had a growth in shareholders funds as a result of retaining earnings, or retaining more earnings than we distribute. And that results in some dilution there.

The gearing ratio of 38.4% isn't nearly as meaningful as the net interest expense cover and the net interest paid cover and the net debt payback, all of which is showing very good and extremely strong positions. Gearing ratio obviously affected by the reduction in the shareholders funds as a result of the asbestos provision taken at the end of March 2007 -- sorry, end of March 2006.

Turning now to asbestos issues, in the period August through October, following the ATO's advice to us in June that it would not grant the special purpose fund, or proposed special purpose fund charitable status and therefore tax-exempt status, we made submissions for new private ruling applications as a result of some restructuring of the compensation arrangements. And, as a consequence of that, on November 9, we received favorable tax rulings from the ATO which we announced to the market.

And these amendments and the favorable rulings achieved the intended tax outcome that was consistent with what we proposed when we put the heads of agreement together in 2004 and then the final funding agreement in 2005. And from James Hardie's perspective, we consider that those ATO rulings are acceptable for us to move forward.

We are now in the process of finalizing an amended final funding agreement and related documents with the New South Wales government. That includes amendments to the facilitating legislation sponsored by the State. And from our point of view we can see no good reason why an agreement, or revised agreements, could not be entered into by the end of next week. And, should that occur, then we'll move into implementation of the amended final funding agreement arrangements.

That will require obviously execution of relevant documents, the New South Wales government passing the facilitating legislation. The updated actuarial report has been obtained as at September 30. But if there's any delay, that may require a further update. We need to obtain an independent expert's report. That's well in hand, but has not been finalized. We need to prepare an explanatory memorandum for shareholders. That's obviously also well advanced. And we need to obtain lender approval and then go for shareholder approval after that.

So, on the basis of an assumption that we actually do execute agreements and that the new facilitating legislation is passed by State Parliament in this session, we anticipate a meeting in February of next year. And we are currently on track for that. But clearly things are not all within our control. And the MRCF is running fairly low on funds. It's expected to have enough funds up through to early 2007 to make claims. But we are arranging interim funding to support MRCF in the event that cash runs short or there is further delay experienced beyond what we've already experienced.

The initial payment that we expect to make to the SPF following shareholder approval is of the order of AUD200m. And from thereon, after shareholder approval, the fund and the structure that's in place will be consolidated with James Hardie Industries' normal results. I stress that's after implementation.

The real assessment of liabilities of September 30 by KPMG actuaries was, reworking using the same methodology as KPMG has used in its previous estimates particularly the one of March 31. And the important number here isn't the AUD1.517b. It's more what KPMG forecast the position would be at 30 March looking forward to September 30. And if you split out the claims that KPMG forecast would be paid in that period, of AUD35m, that six month period, and unwind the discount effect for moving forward six months of AUD41m, the expected liability was AUD1.522b.

Then we've put in here the relative adjustments by calls, claim numbers and peak year movement resulted in an increase of AUD62.6m. There was an improvement in the nil settlement rate, which means that the assumptions relating to those claims made on [inaudible] that which led to a nil settlement for [inaudible], which presumes that other defendants pick up the costs. So it's largely where [inaudible] are incorrectly named as the defendant. But they do get booked in the assessment until they're proved otherwise.

There's an increase -- sorry a decrease resulting from average claims costs and legal costs reductions. A claims inflation amount of AUD43.4m increase and some emerging experience on reported claims and pending claims of AUD15m, leading to a total development in the net liability and increase of AUD32.3m to AUD1.555b as at September 30.

Now before anybody assumes that that increase is the result of adverse claims experience, I'd just like to highlight that during this period, there was a reassessment made in relation to the completeness of the MRCF's database. And it was found that it doesn't have, or didn't have, complete integrity. A reworking of that has resulted in KPMG effectively increasing the estimate by about AUD40m. In other words, if that database had been complete in prior periods, it's fair to assume that KPMG's estimate would have been AUD40m higher in each period, or roughly AUD40m higher in each period.

So the thing I think we want to emphasize here is that it doesn't reflect an adverse movement in claims experience. It more reflects the fact that there's more complete data which the actuaries are now working with. That's the AUD40, that's largely captured in that claims inflation number of AUD43.4m here.

Looking at KPMG's estimate over time, and I think this is a useful slide and will continue to be a useful slide in terms of trend analysis. The central estimate discounted we don't put as significant a weighting on that as we do on the undiscounted central estimate because obviously the discounted central estimate is tainted a little -- or not tainted a little, tainted fairly substantially by whatever discount rate applies. The undiscounted central estimate obviously not affected by any movement in the discount rate. And you can see that it's not as volatile as the discounted one.

The range on the discounted does move around and it's currently AUD1.8 to AUD5.7b dollars. So that's moving away from the central estimate to show the likelihood of a high and a low range. And that range has widened in the latest estimate.

Some further detail here showing what has contributed to any -- well, effectively a reconciliation between the asbestos provision, as per the assessment made by KPMG, and what we book in our accounts. We're very conscious of the fact that we didn't do this at March 31. We had a number of questions from people about how we resolved or how we arrived at the provision that we booked.

So, as we move forward, in any period of change as a result of a reassessment rather that a foreign exchange movement, we will detail for you how we have arrived at the provision. This moves from the AUD1.55b at September 30, '06, through to the AUD1,056m number that we've booked in the accounting liability -- or as the accounting liability post tax.

Moving through the undiscounted, uninflated estimated liability of AUD1.44b, there's some U.S. GAAP related adjustments of AUD30m [sic - see presentation] and then claims handling costs of AUD35m. Accounting liability pre tax of AUD1.5b and leading to a post-tax liability of AUD1,056m in Australian dollar terms.

In this slide is designed to highlight the foreign exchange impact. You can see here that the foreign exchange impact for the half year is $32.6m and for Q2 was $5.4m in the right hand column. Showing that at September 30, 2006 the U.S. dollar liability was U.S.$790m after tax.

In summary, we think the results for the half and for the quarter are showing a very strong overall operating performance for the quarter and half year, despite the fact that all markets are showing some softness. That's been the case in Australia and, to a lesser extent, New Zealand for some time. But it's now more apparent in the United States.

The Company's financial position remains very, very strong. And we're showing some good progress with the asbestos compensation proposal. And we hope to hold the shareholder meeting in early 2007.

Our results will continue to be subject to fluctuation as a result of movement in the Australia/U.S. dollar exchange rate for the foreseeable future. And, just to highlight, any appreciation in the Australian dollar does lead to an adverse movement in the impact on James Hardie's accounts.

We intend to continue reporting results, including and excluding asbestos-related charges, so that you can more easily determine what the performance of the underlying business is. And, as an elaboration on that, I think everybody's aware that as at March 31 and September 30 we booked the asbestos arrangements on a net basis. U.S. GAAP requires that after we have shareholder approval, we'll begin to account for it on a gross basis. So we'll be reporting liabilities as well as assets.

That will lead to, for example, insurance recoveries and the future tax benefit being recorded as assets. And the asbestos provision itself will be grossed up as a consequence of booking those assets, or asbestos-related assets, separately. Just to highlight that that is a U.S.-GAAP requirement. We cannot not do that.

And finally just to highlight that the KPMG assessment was released this morning to the [ASX]. And I hope by now it's up on our website. It should be. It's about a 200-page report for anybody who has a really keen interest in that subject. So at this point I'll just hand it over for questions and answers.