James Hardie Industries PLC (JHX) 2008 Q2 法說會逐字稿

Okay, good morning, everybody. Welcome to the second quarter results announcement. Follow the same format we always follow. I'll kind of overview the results very quickly, walk through the operations, and Russell Chenu will cover the financials. We'll finish up with q-and-a. I mean, q-and-a will handle all the analyst and investor questions first, and then give them an opportunity to excuse themselves if they want to before we move to media questions.

The-- I think probably a lot of you have seen the result. Everyone knows the market in the U.S. for housing is down substantially. I think most of you know we're about two-thirds siding in new construction, so our base demand for the business has been impacted. But having said that, the business is performing very well in the downturn, very similar to what we kind of forecasted we thought it might going into the downturn. So you can see the results there. Of course, with Hardie you always have to look at not only the net operating profit, but excluding asbestos and that Q2 result, $46.5 million U.S., and that was impacted by several variables, which we'll go into later.

The story is in the U.S., a down market, a lot of pressure on volumes and price, but our business model is holding up well because we are kind of insulated from all the price competition. We sell outside of our category for the most part, or we compete outside of our category, so builders make their decisions on installed costs rather than material price. So it really doesn't help us much to cut prices, so we don't have to be tempted by that.

Asia-Pac had a solid quarter, which we'll go into that a little bit. Obviously, they got help from the foreign exchange, but even in A-dollars or local dollars, they were in good shape as well.

We did continue to grow our market share in the U.S. We refer to it as primary demand. And the Asia-Pac and New Zealand business, really Australia and New Zealand more so than the Philippines, also increased their market share during the quarter. Strong cash flow, as you'll see later when Russell walks through those.

That is, most of you would be aware in September we launched Artisan in the U.S., launched it in Atlanta and it's since been rolled out in the Pacific Northwest as well. Artisan is kind of a next generation lap siding. We developed the product in New Zealand, launched it in New Zealand, I think it was probably four years ago now. Launched it in Australia a couple of years ago, so we have a lot of information on how the customer values this product relative to our standard HardiePlank, so we placed it at the top of the market, and the market launch in Atlanta went very well.

Second quarter results, you can see the numbers. Sales were off, volume's off a little bit more because we did get a little bit of a bump on price due to product mix, mainly. The EBIT was down 14% and the EBIT margin was still strong, although it was down 1.4 points.

Combine that with the first quarter, which when we announced first quarter, we talked about we got a bit of a spike in our first quarter results. When you put the two together, you probably see a smoothing out result somewhat. Net sales down 5%, volume down 8%, price up a bit. EBIT at this point is pretty flat, and EBIT margin probably higher than you would expect.

What do we expect? I mean, most of this stuff almost everyone knows. There will be further weakness for us further coming off in the new construction in the U.S. I think the, we're showing two quarters there, 24% and 21%. I think the quarter prior to that was 31%, so it is still coming down pretty sharply, although starting to come off a little bit less each quarter just because the comp's a little bit different. And the things in the bottom, it's about the situation, the mortgages. Not so much that they're all that much more expensive, but they're harder to get, and the builders are reeling from that, obviously. So they've really slowed down their businesses and cutting back quite a bit, trying to get their production down to the level where their sales is at.

Repair and remodel, about a bullet. It is up a little bit. Nothing like new construction.

The summary on the results. These slides actually become very repetitious, because it's a pretty easy story. The market's coming off strongly and we're performing well in a bad market, but we continue to go through the points. We did get the market penetration, got a little bit of price growth, second point. Generally, there are a few markets that are performing better than others in the U.S., but generally, if you think of it nationally, it's just the whole housing market has been pulled down. The few markets that are doing better, obviously, we do better in. We've had a lot of success on the West Coast this year, even though the market is off pretty significantly on the West Coast. Other than that, everything else is pretty much down on the exterior side.

The new products, XLD and ColorPlus, still continue to grow, so they're growing their share much more rapidly, but they're still growing on a real term basis. And also, our interiors business, HardieBacker, it says slightly lower volume. It's lower than the last quarter, but it's up from the last year. The raw material inputs are higher. We've been talking about this every quarter, and they continue. Pulp is the most significant one that's increasing on us, and as I covered earlier, we launched Artisan in September.

We did, we went into this year planning for about 1.3 million starts. That was below the forecast. I think the actual starts are going to end up somewhere around 1.3 or maybe a little bit more. But since then, obviously, the forecasts have been coming off. We now have reset the business for about 1.1 million starts, and because we have a seasonal slowdown in the U.S. every year, we normally kick the production off going into winter. So the most significant change we made was with Blandon. It is our highest cost plant. Most of you probably know the history on Blandon. We purchased it as part of the Cemplank acquisition. We've done some work there, but we've never got it up to Hardie standards as far as throughputs or unit cost. So it was by far the easiest plant to take down and the most benefit for shareholders. We also took some production off in Reno, and we took some production off in Plant City, but that was just taking shifts back and working around regional demand.

We will take the write-off based on U.S. GAAP requirements in the third quarter of this year for Blandon. The, I think we covered in the announcement, basically Blandon's a good plant from an industry standpoint, cost plant. But it is higher than our network costs. So we'll be doing some work while the plant's down to just look at whether it's a plant that we would restart--which is our bias right now because we need capacity in the Northeast--or if an investment in new capacity as the need becomes, as the need develops, is a more appropriate investment. So we'll be doing that analysis over the next three or four months.

The outlook in the U.S., as I indicated already, it will continue to come off. We haven't hit the bottom yet. The repair and remodel market we don't track as closely as new construction, but like I said, that is softer, but it's nothing like the new construction. It's kind of flat to maybe 5% to 8% off, I would guess.

We continue to invest in our growth initiatives. The roll-out of Artisan is one good example. But we have other growth initiatives that are still fully funded. You guys know our job is market share growth, so that's a focus. It doesn't matter how many starts there are. We can still get more business from the other materials, and that's what most of our programs are built to do.

The cost pressures will be there on the input costs. Pulp continues to increase. Most of you know that's our highest, highest input cost for our product. We buy it on an index against the market, so it's fairly easy to track, for those of you that want to track it.

The, and I already indicated it wasn't just Blandon. We took a shift off Reno and we took some production off Plant City as well.

Getting to our graphs, you can see the black line being housing starts, off quite a bit. The slope of that line's greater than the slope of our volume line, which is greater than the slope of our revenue line, which is basically how we intend the whole thing to work out. So we're two-thirds exposed to new construction, so the volume, we lose the base demand at about two-thirds rate and then we build back with market share. And then we've been getting some price improvement through, mainly through product mix at this point.

The primary demand growth, I think you'll recall, I think we started putting this graph in about a year ago when the market started coming off. It's clearly harder to grow market share in a down market, as most builders are very focused on the purchasing side of their business to get their cost of their homes down so they can sell them at a lower price and try and sell them faster. But we still are growing market share, you can see, and I think the last two quarters--at the first quarter announcement, we talked about the first quarter result was a blip. I mean, it was better than it should have been. And the second quarter result has come back a little bit, but I think if you take the two quarters together, you can draw the conclusion we're doing better now, growing primary demand in a declining market than we were when it first started to decline.

The average selling price has flattened out quite a bit, so the key to this chart is you've got a couple of product lines that sell at a much higher price--ColorPlus and XLD--that are growing, still growing even in a down market. And then you have a couple of product lines that are below our average price, and that's HardieBacker and Cemplank, and they're growing in a down market. So where it ends up quarter to quarter is a bit unclear, but we are still getting a little bit benefit on price.

The strategy in the U.S. hasn't changed. I mean, we went in at a downturn with a solid strategy. We've been running it for, I think, five or six years now. It's basically what our guys do every day. It still works well. We haven't tweaked it at all. I mean, we've tweaked it tactically once in a while. But the basic strategy remains the same.

EBIT margin was good in the quarter, above our target again, even though the market's so soft. We indicated, I think, at our U.S. tour last December, when we were asked a question of if we could stay above the target at 1.3 million starts, and we indicated that we felt there was a good possibility we could. I think at this point in the year, with the year developing like a 1.3 year, it's clear that we have been able to do that. I'm sure when we get to questions, because I've already received a couple, what can we do at 1.1? So we'll defer those until I get those questions.

Go through Asia-Pac. Holiday House in western Australia with PrimeLine weatherboards and Scyon Matrix cladding. So what they've done in Australia is shifted, I think I talk about it a little bit later, but they shifted to kind of our U.S. type approach to marketing about three years ago. And that was to develop a much more differentiated position in the Australian market than we had four or five years ago. And it's all around the new product launches.

Now, what they've done is they've put them all under the umbrella of Scyon. And you'll see later, I think actually I think in our MD&A, we talk about how much the sales are up in that particular family of products. And that's pretty important in re-establishing ourselves as by far the preferred producer in Australia. We've always had the leading market share, but it's up to right around 60, maybe a little bit below 60, it's one point in our backup, either at or near 70. So, and this is since we shifted our strategy toward a more differentiated position. Anyway, the business is performing really well right now. Sales are up, market share's up. Everyone knows this market's nothing like the U.S. It's not dropping like the U.S., but it's not a great market. It's a fairly weak market. The EBIT line looks pretty good. Half-year results are kind of, very similar to the second quarter, basically the same story.

This is what I talked about, how they have a little different challenge in that third bullet point, because U.S. housing has been frame construction for so long that we didn't have the challenge of shifting building practice. We had the challenge of just shifting product preference. But a lot of work in Australia is around shifting building practice, so that's what their third point is.

And then, like I said, they had a 60 or so share. Two other players in the market that like run a commodity strategy. So basically, when they were rebuilding the strategy here, rebuilding the business model, they didn't want to leave the bottom or the core products behind as they emphasized the differentiated position they wanted to basically defend and grow on the top end, and they're doing that well.

I don't think there's many surprising key points. I guess the fourth one down talks about the success with the Scyon range. New Zealand, which was our test market for the, what we call Artisan in the U.S., what we call Linea in Asia-Pac, or the new Hardie lap product, that continues to go well. And actually, the market in the Philippines is in pretty good shape right now, so our domestic demand there is in pretty good shape.

So the outlook in New Zealand, again, I don't think there's, Australia/New Zealand, there's no surprises. We're going to run our strategy that means we're going to focus on, especially in Australia, pulling the business model up a little bit with a differentiated position, growing market share, defending ourselves in the core product range.

And the Australian manufacturing plants have never had the same opportunities in the U.S., where we could really take advantage of our scale and add throughput. But as they grow their demand for their product, that's becoming more and more of an opportunity for them, so that second from last point appears every quarter, and I think that will be something that's just part of their new strategy and probably stays in place for several years.

Yet another category which is the stuff that doesn't make money. U.S. Pipes did hit EBIT positive results, I think it was last year for about six quarters in a row, if I remember correctly. Unfortunately, we are overweight in residential with our segment mix, and when Florida fell off, demand for the product has fallen off, so we are back in EBIT loss position. We definitely fixed up the manufacturing side of that business, and we've got our price right, but the demand just isn't there because we're not addressing the commercial and infrastructure segment as well as we are the residential. But anyway, at this point we monitor that business closely. Obviously, it hasn't been one of our successes to this point. But like I said, we have fixed up the internal pieces, so now it's more of an external exercise.

Europe fiber cement actually is doing much better this year. From a sales standpoint, it's growing at about the same rate, and they're getting enough scale now to where the EBIT loss has almost been eliminated in Europe, so that's soon to be--hopefully, that's soon to be a self-funding initiative.

Yes, there's a bit of repetition there, but that's kind of the story. Of course, the two points is the message for today and probably the next three or four, six or eight quarters to come. Even in a weak market, we're going to outperform, and we're going to deliver good financial results and good cash flow.

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

Market conditions weren't very favorable for us, so we had a headwind in most of the quarter. The businesses notwithstanding that, I think we had a pretty solid quarter and a half-year operating performance, given those conditions. The comparison in our net operating profit is clouded this quarter by the fact that we had some very heavy tax differences relative to the prior corresponding quarter of FY '07. We had some write-back of tax provisions in that prior corresponding period, and not so in the current quarter, but we had some adverse, slightly adverse tax outcomes, so the result has been heavily affected by that on the post-tax result head.

The current year tax rate has increased slightly due to a change in the geographic mix of earnings, and also as a result of low capital expenditure relative to expectations and down on prior periods as well, which impacts our Netherlands tax rate.

We had some asbestos adjustments again in this quarter. The Australian dollar was $0.85 U.S. at the 30th of June and $0.883 U.S. at the end of September. And as a result of that, we had a $27 million unfavorable impact as a result of that appreciation against the U.S. dollar. That, of course, is mostly a non-cash cost, and that will go up and down over time, obviously working off a very significant liability, and it will be pretty wicky as the U.S. dollar/A-dollar rate moves around.

We also had $1.9 million of unfavorable other adjustments through the accounting for the grossing up of the liability and the assets associated with asbestos. That's an ongoing issue that we trim up every quarter. However, claims costs, as you'll see in a subsequent slide, are going along reasonably well relative to prior periods, and particularly against the actuarial assessment that was released in May relative to March 2007.

Turning briefly now to capital management, our balance sheet continues to be very strong. Net debt is about $90 million U.S. and we have over $250 million U.S. of cash and unused term facilities. We've announced an increase in the dividend from $0.05 U.S., last year's interim dividend to this year's dividend of $0.12 U.S., so a very material increase, and that dividend will be paid before this calendar year end.

In addition, we announced and commenced the share buyback. We announced that with the Q1 results, but it was about a month before we actually got underway through that process, and we purchased 2.5% with capital to date. That's an average price of $6.36 U.S., and it's U.S. dollars that are actually the driver of that, not the Australian dollar share price, because we account in U.S. GAAP, and therefore we measure the performance of the share buyback in U.S. dollar terms. So far we've expended $74 million U.S. on that to date, $47 million U.S. before quarter end, and another $27 million U.S. subsequently. We've been in a holding pattern since the 12th of October, but I expect that in the next couple of days after the result has been digested for Q2, that we'll be in a position to re-appraise further purchases, and that will be done opportunistically subject to market conditions and also the operating environment.

Just one slide on the asbestos front. You might recall that in February, after shareholders had approved the establishment of the final funding agreement, we set up the Asbestos Injuries Compensation Fund, and James Hardie paid A$184 million to that fund in mid-Feb. It still has a substantial part of that, A$184 million. In fact, very close to A$160 million is still held by the fund.

And in the table underneath on this slide, we've actually shown here how the cash outlays by the fund have been going relative to the actuarial assessment and also relative to the way in which the MRCF, its predecessor, was spending money in the corresponding half of last year before AICF was established. You can see that the type of net claims costs just under A$25 million in the first half, compared with A$32 million in the KPMG estimate. That A$32 million, I should add, KPMG does not forecast on a quarter or semiannual basis. It just does it on an annual basis, but it's not a seasonal pattern, so we just have KPMG's full year estimate for FY '08. That was A$32 million, and MRCF in the same period of last year had expended A$28.2 million. So that's a relatively good position, I think, given the claims paid and the offsetting legal costs relating to defendants and plaintiffs and an above-expected recovery from cross-claims and insurers.

In the following slides, we'll look at the financial results for Q2 and the first half for the group. Net sales for Q2 in this slide are down 5%, reflecting the volume movement in the U.S. in particular. Gross profit was off 11%, reflecting both the volume downturn and also some cost input increases that we've had. And our SG&A expenses are fairly flat, R&D up a little bit, no SCI costs in this period, although there were $3.2 million U.S. last year, and the asbestos adjustments are less in this Q2 FY '08 than they were in FY '07. That $47.2 million U.S. in FY '07 also reflects not just foreign exchange movement, but also there was an actuarial reassessment done at that time a year ago in preparation for the shareholder meeting and the explanatory memorandum which was issued for that, so there was a current adjustment that was made at this time last year.

Total EBIT was up 9% as a result largely of those lesser movements in asbestos in this period, and the net operating profit after tax is down by 9% as a result of some fairly significant differences in the income tax expense relative to profit.

This slide adjusts the Q2 reported earnings for asbestos items and reflecting the shift in the foreign exchange rate in the period. The net profit excluding asbestos was $46.5 million U.S., which was a 32% reduction on last year's $68.3 million U.S., also excluding asbestos.

For the same slide or similar formats for the results for the half year, net sales were relatively flat. Asbestos adjustments we've already mentioned, an improvement there. Income tax expense up 20% to $64 million U.S. for the half year, and the net operating profit was up 3%, so relatively flat at $58.2 million U.S. after all of those items.

Again, adding back the asbestos charges and items, interesting to see, actually, the way in which the currency has moved. The asbestos adjustment or asbestos liability at September FY '07 was set at an exchange rate of $0.75 U.S. At this latest period it's $0.883 U.S., so a very significant appreciation. There was $2.1 million U.S. in adverse sundry adjustments, so the net profit, excluding asbestos, for the half year was $115 million U.S. relative to just over $130 million U.S., and that's a reduction of 12%.

Turning to sales revenues by segment, for Q2 U.S. fiber cement sales down 9%. That was the net effect of volume being down 11% and our average selling price up 2%. Asia-Pac fiber cement was 19% increase in U.S. dollar terms, but in Australian dollars it was up 7%, reflecting a volume movement of 4% increase and an average selling price increase of 3%. And the other, being a reduction of 30%, is largely the net effect of the downturn in the U.S. Pipes business, which is based around Florida, which is one of the areas that's been hardest hit by the housing downturn. And the net effect was a 5% reduction in sales to $390 million U.S.

For the half year, U.S. fiber cement volume is down 8%, average selling price up 3%, so there is a 5% adverse movement there. Asia-Pac fiber cement up 20% in U.S. dollar terms, but up 7% only in Australian dollar terms, which was a net effect of a volume increase of 5% and an average selling price of 2%. And the total was very flat, just a 1% movement.

Turning now to segment EBIT, U.S. fiber cement was down 14%, reflecting downturns in volume and also some costs in Q2. Asia-Pac was an improvement of 8%, reflecting the improved business performance as well as the stronger A-dollar translated into more U.S. dollars. The total segment EBIT was 13% down at $90 million U.S., and in fact, the dollar movement there is just down about $13 million or $14 million U.S. is all, virtually (inaudible) building products in the U.S. fiber cement business. And the total EBIT for the group was up 9% to $44.7 million U.S. on a reported basis.

For the half year, a similar sort of story, although the downturn, I guess, in the U.S., bit more heavily for us in Q2 than it did in the full half. General corporate costs were up 21% to $31 million U.S., and I'll detail that a little later in the presentation. The total EBIT was up 9% to $120 million U.S. from $110 million U.S.

Looking now at corporate costs for the quarter, a total of $15.3 million U.S. showed a slight downturn on the $15.5 million U.S. for the second quarter of the last financial year. Two items worthy of comment there. Last year the SCI and related expenses was $3.2 million U.S. We're obviously not incurring that any longer, but we are incurring costs relating to the ASIC proceedings. They were $1.9 million U.S. for the quarter. And we expect those costs will continue, and they may become more material as things progress towards the court hearings, which are probably some way off yet.

The main line in this slide is actually the Other Costs line, $9.3 million U.S., reflecting a slight downturn on last year's $9.8 million U.S.

Starting the presentation for the half year, I've commented already on SCI and also on ASIC. The other items on this slide that are worthy of note are earnings related to bonus. There was a credit last year of $1.3 million U.S. which was the wash-up of a year-end accrual from FY '06, and of course we haven't seen an increase in earnings which would justify earnings-related bonuses, but this does reflect just a balancing out of accruals between the two, the two periods.

Then we had a non-U.S. warranty provision taken in the first quarter at $4 million U.S. that's carried through to the second quarter, and the other costs at $16.8 million U.S. are running slightly below last year's $17.2 million U.S.

Turning to interest income and expense, this is a new slide that we've put in. The numbers are not material, so I don't want to spend any time on it. But suffice to say that the interest numbers for James Hardie are a little more complex than most people in this market would be accustomed to, firstly because of the U.S. GAAP, we are required to capitalize interest on capital expenditure funding, and also because our own interest is also impacted by the interest income that AICF earns on its deposits and assets. So in the future, we thought it might be useful to just present to you how we've arrived at the net interest income on a reported basis which, as you can see, at $2 million U.S. for Q2 '08 is not significant. But it's just, this slide just does help you to monitor the reconciliation.

Turning now to income tax expense, this is just explaining the underlying effective tax rate and how we moved through the different numbers, particularly given asbestos adjustments. Income tax expense of $27.6 million U.S. was much higher than last year, as I've already noted, for the corresponding quarter. The effective tax rate was 37.2% versus last year's 31.7%. That does, as we indicated, reflect the geographic mix of earnings in the quarter. And last year's quarter was impacted by a $7.4 million U.S. write-back on tax provisions. That tax provision was no longer required, so that resulted in a very significant impact on tax expense last year which is not carried through.

Income tax expense for the half year of a reported $64.0 million U.S., excluding asbestos and the tax provision write-back, is $63.6 million U.S. for this year versus $60.6 million U.S. for last year, and the tax rate, effective tax rate at 35.6% versus 33.1% for last year.

Turning now to EBITDA, we've already seen those EBIT numbers. Depreciation, amortization, reflecting an increase overall of $13.5 million U.S. from $13.2 million U.S., and the total EBITDA was up 7% for the quarter to $58.2 million U.S. from $54.0 million U.S. last year. And for the half year, a 10% increase to $147.4 million U.S.

Looking at the cash flow for the half year, you can see that EBIT was up 9%. Then there's a number of non-cash items, the asbestos adjustments being the major ones there, reflecting the fact that their foreign exchange impacts largely, which don't flow through into cash, then other non-cash items and net working capital movements. Just highlighting the relation to the net working capital movement, last year through the first half, we were actually building inventory, because that followed the commissioning of the Pulaski plant in Virginia, and we had a very low inventory at the beginning of the FY '07 financial year, and that improved during the period as Pulaski commenced its commissioning and got fully operational.

This half, the result has been a little bit the reverse. We've actually been drawing down inventory during this first half, which is the more normal pattern given that it's the building season in the U.S. But the major item in the net working capital movement's the $41.5 million U.S. in this latest half was in fact related to the share buyback. We had fairly heavy purchases in the last couple of days of September, and that carried through as a $25 million U.S. item in that $41.5 million U.S.

Going down to purchases of property, plant, and equipment, the capital expenditures reduced from $61 million U.S. last year to $24 million U.S. this year. That's pretty much in line with expectations, and we don't have any new greenfields plants under construction. Dividends paid, we increased nearly $20 million U.S. to $70 million U.S. That was reflecting an increase in the dividend, interim dividend from $0.04 U.S. to $0.12 U.S.--sorry, from $0.04 U.S. to $0.15 U.S. as the final dividend. And the Treasury stock purchased is the U.S. term relating to the share buyback activity prior to the 30th of September.

The other item of minus $27.4 million U.S. is the foreign exchange effect on cash held through the, or at the end of the half year. And you can see that the wash-up of all of that is that our net debt is at $89.9 million U.S., which is a pretty similar level to where we were one year ago.

I just would like to add, I guess, that $280 million U.S. cash generated by trading activities is a very strong number. It's unlikely that that will repeated in the second half at that same level, largely because we go into the winter now, and we'll be building inventory during the next few months ahead of the final quarter. So it's unlikely that we'll see that $280 million U.S. repeated. But it was a very strong highlight of the first half.

Moving to capital expenditure, just a breakdown by division. U.S.A. fiber cement, you can see, is the most substantial contributor to that lesser rate of spending. And that is very much in line with expectations.

Some of the key ratios. The FY '07 requires six numbers of full year numbers, and the FY '08 number is just for the first half, but you can see that we continue to achieve very satisfactory results, from EPS through to the return numbers on shareholders' funds and capital employed, and our EBIT to sales margin as a group. We've had pretty good years in FY '07 and FY '06, but that continues to be, to improve at 22.1%, actually reflecting some of the valuation impacts coming through from the stronger Australian dollar and New Zealand dollar. Gearing and net interest expense in very healthy position, and overall, I think the ratios are looking very sound indeed.

Just to wrap up, we had a very solid performance considering the business environment. We didn't have too many tailwinds this quarter, and that is a little bit in contrast to the first quarter. It was certainly a more challenging environment for us to be working in, not just in the U.S. but elsewhere as well.

The strong cash generation, I think, was a real highlight for us. And share buyback is underway, and we anticipate that subject to, everything going according to plan, that we will be active in the market in the very near future, much stronger in placing the interim dividend, from $0.05 U.S. to $0.12 U.S.

And just moving forward in Q3, the current quarter, we will be taking charges relating to the closure of Blandon. We hope that's only a temporary closure, but U.S. accounting standards are pretty strict on the way in which you account the shutdown of a plant, and we're taking a write-down on the asset as well as shutdown costs, which we expect it to total $33.5 million U.S. And that will be booked in Q3. And as usual, results will be subject to fluctuations in exchange rates, but particularly the A-dollar/U.S. dollar exchange rate, which has proved to be very volatile in the last couple of years and does impact us more than most because of the asbestos liability being carried in Australian dollars.

So at that point, I'd like to hand it back to Lou and to conduct questions and answers. Thank you.

Thanks, Russell.