James Hardie Industries PLC (JHX) 2011 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the third quarter FY11 results briefing. (Operator Instructions). I must advise you that this conference is being recorded today, Friday, 18 February, 2011.

I'd now like to hand the conference over to your speaker today, Mr Louis Gries. Thank you Sir, please go ahead.

Thank you. Hi, everybody, this is Louis Gries. I'm here in Dublin with Russell Chenu, and we'll go through our results in the same way we do every quarter and we'll finish up with questions and answers.

They're flipping the slides for me in Sydney so we'll try and stay synchronised. If we go to slide number 5, which is the first slide of the section I normally do, showing our bottom line results for the quarter and the nine months. You can see the quarter came in at $21 million, which is pretty far short of last year, even though you'll see the US had a similar volume. So we'll be talking through kind of how that result came up short on account basis till last year.

If we go to slide number 6, we get right into it with the US business which is where the shortfall was. You can see volume was up just a bit, average price up just a bit as well, but EBITDA off 34%. Even margin very un-Hardie like, 14.4%. The 14.4% is kind of an outlier number. As you know, I said it's un-Hardie like; you're not used to seeing that from us. It had a few things in it -- one, there was a non-cash charge in the US business that hit the unit cost line. That was a couple of million bucks; as far as [comping] against the last quarter it was actually oddly enough a $4 million swing in that area. Like I said, it was non-cash.

In addition to that, you would remember that we had planned for the better market coming into the year. We had an inventory rundown in the second quarter which resulted in higher unit cost. Most of that was flushed out in the second quarter but some did spill over in the third quarter, actually more than we were first forecasting. So that also impacted the quarterly result.

But I think the thing to keep in mind, you can see through the three quarters were 19.8% EBIT margin. We think the fourth quarter's going to be maybe a hair above that and we'll probably finish at the bottom of the 20% to 25% range. Again, considering the year, the market's very unfavourable, as you know. We acknowledge we made a mistake and planning for the year we planned for that jumpstart and got a false start and that resulted in unit cost inefficiencies where pulp's been relatively expensive this year and freight's been relatively expensive.

We also covered earlier in the year in a couple of different presentations the fact that when we got our price increase earlier in the year we did have a loss of category share which is in the process of being reset. So even though we got our full price increase, we obviously paid back some of that in category share.

So, all in all, it's not a great year either from the market perspective or from the fact that we made a few mistakes in business, probably a few more than we're used to, and we're still coming in in pretty good shape we feel for the fourth quarter.

Now, as far as the fourth quarter goes [order file] well you can see the volume comp in third quarter was okay. Fourth quarter order file started out fine, ran almost a full month of January in pretty good shape and then we did have it get very soft on us for a couple of weeks. Just recently it's kind of returned what we'd consider normal levels, and when I say recently I'm really talking about this week.

So we're anticipating we'll have a normal order file the rest of the way, and when we say normal meaning basically where we forecast it. If that were to soften up, obviously our forecast would be a little bit different, but right now we're planning a certain volume that allows us to kind of meet our expectations for EBIT margins. You'll see we did downgrade our guidance a little bit which reflects really the third quarter and not fourth quarter planning but third quarter results.

So anyway we'll go to slide 7, of course for nine months there's a lot happening during that nine months, more than usual, but we're in pretty good shape. Obviously price up 3%, volumes down on the soft demand year, and EBIT is down over last year, but we covered that both last year and this year that open freight were on the inexpensive side last year and they're both on the expensive side relative to market this year.

So we've come through to three quarters just below the 20% and, as I've just indicated, probably work our way in the (inaudible) range by the time the fourth quarter's up.

Go to slide 8 - selling price, obviously you can see the trend there continues. It's always the same; it's part mix, part market. This quarter, in addition to that, we did have some recently implemented rebate programs that were accrued in the fourth quarter so that was actually part of the - sorry in the third quarter - that was part of 14.4%. That was just a quick accrual of rebate. It doesn't reflect significantly high rebates; it's just because it was a new program we wanted to get up-to-date on it quick.

Slide 9, EBIT margin, I guess I've already talked about that. You see most years, as you probably know, our fourth quarter is our lowest quarter and obviously there's three years in this period that it wasn't and we expect - now there's two years in this period that it wasn't and we expect this will be the third year where our fourth quarter EBIT margin is actually higher than our third quarter EBIT margin.

Go to slide 10 - I guess there's not much to learn from this chart anymore. It used to track the history of the business. Everyone knows early on we were growing market share at the same time the market opportunity was growing, housing started to track down and it's been more difficult to grow market share during the downturn. Early on it was easier than it has been lately, but we expect when we get into less purchasing driven market, get into a more normal market, we'll start growing that market share again.

Of course during the period, even in the decline, we have revenue - revenue has outstripped volume. It's hard to see on the chart but obviously it has and that's been the price that's been driven by some increases we took during the period of the downturn and also product mix improvements during the same time.

If we go to slide 11, our primary demand chart, again you guys would be familiar and we talked about it, both at the last results and the US tour. The PDG turned upside down on us this year. It was driven by two things -- one, that category share loss during the or shortly after the price increase; and also the tax incentive driving market activity towards the bottom of the market where we have less of a position than the middle or the top of the market.

The quarter - actually, we've given you a little guidance in this chart which we didn't mean to - anyway, the third quarter turned positive and we expect the fourth quarter to be positive as well.

Slide number 12 is the Asia Pac business. The Asia Pac is the opposite story to the US business. It's really outperformed what we expected. The market's been pretty good, although recently with the storms and then the floods in Queensland demand has been off up there, but just generally the Australian market's been good. Our Australian business is running extremely well.

The New Zealand market hasn't been that great obviously; the business is running okay. Then the Philippines market has been good, and outside of a ball mill problem we had in the Philippines that business has been running really well.

So our Asia Pac, of course we're getting some help from foreign exchange, but even when you look in local currencies that division is run very strongly.

Both this quarter - and if you go to slide 13, the same thing under nine months results. We expect to have a decent quarter in the fourth quarter in Asia Pac. We are somewhat impacted by the situation, mainly in Queensland, but again we think we'll work through it fine and we'll have a good quarter.

Slide number 14 has kind of just your summary bullet points. You all know it's winter in the US, so seasonally these are our slow quarters. We are facing high input costs, especially pulp. We started to think we were going to get some relief there and now the forecasts for pulp are that it'll get tighter and more expensive.

Freight - freight kind of has settled back a little bit like we thought it would in the winter months so we're expecting a little bit lower freight for the fourth quarter.

All the inventory, production planning and all that's been straightened out. You probably saw that in the cash generation through the year. So that's all done. We're basically building a little bit now but not very much, just a very normal or very conservative seasonal build. Obviously we did get the price earlier so we have higher net prices, and SG&A expenses are being well-controlled but we are still supporting our key growth initiatives. Basically we're still right on strategy even though we're not happy with the third quarter result. We haven't overreacted and pulled the plug on anything.

Asia Pac - as the points say, I mean it's hard to say anything that's not positive about the business in Australia, other than the fact that we believe temporarily demand's been dampened a bit by the storms.

You go to slide 15 - I think this is the first time we've given you a pulp chart. We wouldn't expect to give it - sorry, that's the housing starts. Housing starts - I can't remember if we gave you this last time. I think the thing to look at there is since the downturn started the only positive comp quarters were the two - you know the (inaudible) was creating some artificial demand.

Right now we are in that bumping along the bottom scenario and we have been for several quarters. When we gave our original guidance in August I guess it was a bit of a surprise because the housing forecasts were higher then, and for once I guess we guessed right and we said we didn't think they were going to come on where the forecasts were and they clearly haven't.

So even though we planned wrong in the beginning of the year, we did plan right in the middle of the year. Basically going into next year we made sure we have enough flex in case the market is better, not that anyone's really - any of the forecasters that we follow aren't really forecasting a much better year. So we think we're going to be bump along the bottom. Now, if that changes we're ready to react, but we're not spending money to get in that position.

Slide 16 is the pulp cost forecast, and I do believe this is the first time we've given it to you. You can see where it started to come off in 2009 and quickly went back up and then it was forecast that it would start coming off again. Most recent forecast is Deutsche Bank's forecast I guess - most recent forecast it's going to be strong for three years.

Now, I've told you many times that we don't have any economists that work at Hardie, and certainly that includes me, so we don't spend a lot of time worrying about the forecast because we don't feel like the different forecasts, whether it be housing or pulp, are really that key to our business. Of course, pulp is an expensive input cost but it's not a situation where when it's high we can't make a profit, when it's low we make a big profit. I mean we make good returns and it's higher when pulp is a little bit lower than the average and the returns are normally less when it's higher.

The only thing I will say about that forecast is a $1000 pulp is a very good price. Pulp mills would be making huge returns with a $1000 pulp price. So it's hard for me to believe that that can last for four years. On a basic commodity four years at super premium prices just seems hard for me to believe. But having said that, if it does end up to be that way, it doesn't really threaten our basic business model cost position. It just means we have a little bit less contribution margin.

Slide number 17 - just a bit of an outlook. I've probably covered it. The market, in our mind, will stay flat and it's at the bottom. It may get a little better in new housing. It may get a little better in the big remodel jobs, repair and remodel. It may get a little better as far as the mix in the type of houses that are built so it's not as unfavourable as this year was.

But at the end of the day our job's to grow market share, our job's to generate returns. It's hard to grow market share in this market but that is our main focus running our growth strategy, running our differentiated price strategy, and we will continue to make good returns.

We talked about the pulp cost. And then Asia Pac, I guess you guys would know better than me. Most people believe the housing market in Australia has come off a little bit but we're well positioned down there to continue to deliver good returns. Even if it does come off, we believe our New Zealand business is getting better. It's questionable how much better the market's going to get, but the business is getting better. It's a really good business, as most of you know; and like I said, the Philippines business, although small, is really starting to generate good returns for us and we expect that to continue.

Slide number 18 - it's all the stuff you guys already know. I kind of mentioned earlier we're on strategy which is probably the most amazing thing about the downturn, is that as long as it's gone and as low as the market has gone, we've been able to deliver returns and [stand] strategy, and we don't expect that'll change.

So at this point I'll hand it over to Russell who can go through the financials and then I'll come back on the phone for the Q&A session.

Thanks, Louis, and good morning everybody in Australia and other people in other parts of the world.

So let's maybe skip slide 20, I think, because it's not covering anything that hasn't already been addressed by Louis. We'll go straight to slide 21 which looks at the currency, and again the Australian dollar during the last quarter has continued to appreciate with some fairly material impacts in our results.

We had a favourable impact on translation of the Asia Pac results because of the weakness of the US dollar and relative strength of those currencies, and we had an unfavourable impact on corporate costs which is actually not as great this quarter as it has been in the past because we had a lower level of costs incurred in Australia. But it's certainly again had a big - the appreciation of the Australian dollar had a big impact through the translation of the asbestos liability balance.

If you turn to slide 22, that actually becomes apparent. Net sales were up 4% to $272 million for the Group, so that's taking account of sales in all regions. SG&A expenses were up 5% to almost $50 million. R&D was down just a little bit, and asbestos adjustment solely through foreign exchange movement was $46 million for the quarter as a result of the appreciation of the Australian dollar.

I'll just highlight to those people who hadn't maybe followed Hardie prior to this that that's almost wholly a non-cash charge, so it's a change that's just reflected in a very long term provision and doesn't actually impact the cash earnings or cashflow of the Group in the near term.

The EBIT loss as a result of all of that was $16.9 million for the quarter versus $25 million EBIT positive for the prior corresponding period, and the net operating loss after interest and tax was a loss of $26.4 million versus $15 million for the prior corresponding quarter at FY10.

Turning now to slide 23, the adjusted results for the quarter to take out the one-off items to show the recurring profitability of the underlying business, just has one adjustment for asbestos which is $46.4 million add back, tax adjustments similarly of $1 million add back, and the normalised profit is $21 million for the quarter versus $29.8 million for the FY10 period, and that's a 30% reduction and we'll have a look at the causes of that in a few minutes.

For the nine month period, fairly similar sort of trends at least. Net sales up 3% for the nine months to $879 million. SG&A was down 5%. R&D down a little bit. Asbestos $91 million year to date to produce a positive EBIT of $53.9 million versus a loss of $32 million the prior year because of a very large asbestos adjustment in FY10 at this point.

Income tax showing a very material charge of $391.2 million which was largely a $345 million charge we took in the second quarter relating to the loss of the 1999 amended assessment which we were litigating with the ATO. In Q2 we actually received judgment in relation to the first hearing and that triggered a change in the accounting treatment and we booked the accounting loss. It didn't have a cash impact in that period and it hasn't had a cash impact in this quarter either, but nevertheless it's had a very big impact in the results. The net operating loss produced as a consequence of that was also $345.2 million for the nine months compared with an $83 million loss for the nine months last year.

Again, adjusting for the non-recurring items to produce a normalised result, you can see that on slide 25. I won't go through the items because they're largely the same. The net operating profit on a normalised basis is $82.2 million for the nine month period versus $109.3 million for the year ago period, and that is down 25%.

On slide 26 we can see net sales for Q3. US and Europe Fibre Cement up 2%, volume was up 1% and average selling price produced a 1% gain as well. Asia Pac Fibre Cement was also up 10% but that was all currency driven and the total was up 4% to $272 million.

For the nine month period shown on slide 27, US and Europe Fibre Cement at $116 million is down 2%. That's the result of a volume decline of 5% and a selling price increase of 3% partially offsetting that to give a net 2% downturn in revenue in that segment.

Asia Pac Fibre Cement has sales of $262 million for the first three quarters, up 20%, and of that 20%, 5% is due to a volume increase, 3% due to selling price and 12% due to currency, so currency accounting for more than half of that increase. The total sales revenue for the period of the nine months is $879 million, up 3%.

On slide 28, segment EBIT, you can see on this slide that for the third quarter the US and Europe Fibre Cement segment had a decline of $13 million in EBIT to $26 million which was down 34%. Asia Pac Fibre Cement was up $2.7 million, up 16%. As I highlighted, R&D spend is down a little bit. Our total segment EBIT as a result of those movements was down 17% to $42 million with an increase in general corporate costs of some $5 million or so, but it's a little artificial. That's not actually reflecting underlying spending. In the third quarter of last year we had a $7 million write-back of a provision to produce a $7 million expense, so in fact the underlying level of corporate expense is going down. It was affected by a one-time adjustment a year ago. So the EBIT line prior to asbestos and other expenses there, we've got a $30 million EBIT versus $43.8 million in the prior year, so it's down 31%.

On slide 29, on a nine month basis, EBIT in the US and Europe fibre segment is down by $52 million to $121.8 million, a decline of 30%. Asia Pac fibre cement EBIT of $60 million, which is up $15 million, and R&D was down 14%. General corporate costs also down slightly to produce a total EBIT, excluding asbestos and ASIC, of $137 million which is down 19% on the ECP.

Turning to income tax expense, for the three months shown on slide 30 - three months in Q3 - the ETR was 32% versus 29.3% last year, and for the nine months as shown on slide 31 the ETR is a hair under 33% versus 35% for FY10 first nine months. Those results are very comparable I think with previous periods.

On slide 32 looking at the cashflow - and I suspect that this was along with the good result that we continue to achieve in the Asia Pac business - this is probably the highlight of the quarter. The net operating cashflow year to date is shown on here as $105.8 million versus $198.6 million last year, but the $105.8 million is after a contribution to the asbestos fund of $63.7 million which we paid in the middle of calendar 2010. If you add back for that contribution to make the result more comparable with last year when we didn't have the contribution to AICF, the net operating cash flow before the contribution is $169.5 which is down 15% on last year, but given the profited results it's actually I think a very creditable net operating cashflow. In fact in the quarter the net operating cashflow was almost $100 million so we've made some significant progress in the past three months in improving the performance in cash management and general cashflow position.

On slide 33 - sorry one other thing I highlighted on that slide 32 is the capital expenditure. It's up a little bit on last year, $37.3 million, but it's still very constrained and I'd expect that within this year it'll come out somewhere close to $50 million for the full year.

Looking now at debt on slide 33, as a result of the very strong cashflow we've had a significant reduction in debt during the quarter - net borrowings of $57.8 million and the net facilities of $265 million at the end of December has been increased during the period. Since balance date we've added some new facilities in place and it's increased debt facilities by a net $55 million so it's now standing at $320 million. So I think that that's a pretty good position for us to be in at this point in the business cycle.

Slide 34 - just some update on legacy issues for the ATO case. As noted earlier in the presentation, our initial appeal was dismissed by the Federal Court in September 2010. We're appealing to the full Federal Court or we have appealed to the full Federal Court and we're expecting the case to be heard in mid-2011. We've taken a charge of $345 million effective on 1 September which was the judgment date, and the only remaining impact of this case if we ultimately lose it, is that we have to pay a further AUD184 million to the ATO. So it's a cash impact with really no further material impact on the Group.

The ASIC proceedings - the Court of Appeal judgment was handed down just prior to Christmas. The Company's appeal was dismissed. The Company is not appealing that decision. The non-executive Directors' appeals were upheld and subsequent to the judgment being handed down in early January, ASIC and two former Executives advise that they were seeking special leave to appeal certain aspects of the Court of Appeal judgment to the High Court of Australia. As most of you will be aware, a right to appeal into the High Court is not automatic. The High Court itself grants leave only in response to applications and we're expecting that the special leave applications will be heard in August and we'll hear sometime after that. No material impact expected on the Group but we will be continuing to incur some costs in relation to the ASIC proceedings for the remaining months while this is not resolved.

In respect of asbestos, the facility that was announced in November or the intention to put in place the facility announced in November 2009 was finally completed and so AICF now has available to it a facility of up to AUD320 million from the New South Wales and Australian Governments. It's really a standby loan facility and will not be drawn in the ordinary course but may be drawn in the event that James Hardie's contributions to the fund are insufficient to fund claims to the extent of a hundred cents in the dollar, and the fund is not in that position at the moment.

The fund is in the process of satisfying conditions precedent. There were no drawings as at 31 December and I'd just highlight that there's no impact on Hardie as a consequence of this or no adverse impact. We haven't guaranteed the facility. We don't provide any security in relation to the facility. It is on a standalone, arm's length basis between AICF and the New South Wales Government. Further details relating to that are included in the financial statements that were released earlier today.

On slide 35 just a bit of an update on the asbestos funding position. The liquid assets of the fund at the end of December were AUD85 million so it's in reasonably strong condition and the fund has obviously one more quarter to go in relation to this year, two quarters to go before Hardie will be making what is expected to be a contribution in July of 2011 and that will be at the level of 35% of James Hardie's net operating cashflow for the full year.

On slide 36, our key ratio slide, I think most of the numbers there are heading in right direction. The return on shareholders' funds is down somewhat because of reduced profitability and also higher shareholders' funds , but the other numbers are generally quite strong and in particular the debt capacity indicators in the last four lines are showing very strong results.

On slide 37, just a summary of the results. Clearly the US business result was a little disappointing for us. We had a number of headwinds in the quarter and we're expecting that to be not repeated in this current quarter. Asia Pac had a very strong result, a significant increase in EBIT for the year to date of 35% to $60 million for the nine month period, and for the full year or the nine months to the date the Group's profitability after tax is $82.2 million and a very strong cash flow as we indicated in an earlier slide.

In relation to guidance, at Q2 results - so that was in November - we provided guidance of a range of $110 million to $125 million for the full year earnings, excluding asbestos, ASIC expenses and tax adjustments. We guided towards the lower end of that range as a result of the conditions that we experienced in the third quarter.

You can see in the media release and also in this presentation that we've downgraded that range to $105 million to $115 million.

So the outlook is a continuing difficult environment in the US, and some pretty adverse trends continuing in relation to pulp price. We had anticipated that pulp price, at least the forward pulp price, was indicating that at this point it was going to be fairy steeply declining. But what's actually occurred is that pulp prices have recovered for the producers so it's actually again back pretty close to $1000 a tonne.

However, notwithstanding that, we believe that the Company's continuing to perform well. We remain very focused on our long-term strategies and we're not being distracted by the external conditions, particularly in the US business.

So I'll this back to Louis for some Q&A. Lou, over to you.

Laura, could you kick off the Q&A for me, please? Investors' calls first and at the end of those we'll take calls from the media, if there's any media on the line.

(Operator Instructions). Your first question comes from Douglas Macphillamy from Macquarie. Please ask your question

Thank you and good morning, Louis, and good morning all. Just a quick question. I guess I've got a few quick questions. Firstly, around quantifying the actual inventory rundown if possible over the quarter. Secondly, guys, if you wouldn't mind just extrapolating a little bit further. You mentioned a somewhat conservative seasonal build in the business as we stand here today. Does that reflect your expectations for the upcoming spring selling season, or are you kind of taking a more wait and see approach at this stage?

Thirdly, just a bit of detail on geographic performance, if possible, just around which states or regions are performing better than expectations and which areas are performing below your expectations?

Actual inventory rundown, I'm not sure. I don't know if Russell has that number either.

Is that in Q3?

Yes, well--

It actually built a little bit.

Yes, no, but where did we peak and how much has come off? I guess the way to answer that, without giving you hard data, is we built for last season because we thought we were getting the benefit of the seasonal demand increase and a market recovery, which was going to be started with the tax incentive in April and May.

I don't know if you remember but last year this time we were getting positive monthly comps. So it was looking like the market was coming back. So rather than run a risk of coming up short, we built some inventory, put some shifts on in plants and built some inventory.

The market kind of came to a halt mid to late May, so when we went into the July quarter we had too much inventory. So we started running it down pretty aggressively because at that point it became clear that it wasn't a jump start, it was a false start.

So we brought it back down to normal inventory levels at the end of the second quarter. Third quarter, in the winter months you'd produce a little bit more than you sell for two reasons, and it's just levelling out your production you expect.

So that leads to your second question, is since we're not building much inventory does that mean we don't expect a very strong season. I think the answer is we expect a normal seasonal upturn but we don't expect a market upturn.

That really goes into the last half of your second question, so are we taking a wait and see? We are taking a wait and see on the market demand but we're obviously planning for some seasonal demand.

Your third question, which was about geography, probably nothing worth commenting on. It's changed quite a bit. It's not like any one region is running super strong in the US right now. I'm not sure if there's any new news on any one region that's kind of off the map. Those markets that kind of dropped out of sight - Florida, Arizona, California - early on, they went way down and they may be doing a little bit better relative to the last year but extremely low levels as compared to the historics.

Texas has been a bit of a problem this year and we have a big position in Texas. When I say it's been a bit of a problem, it outperformed for the most part through the early years at a downturn and then this year I would guess, I'd say it is, underperforming a little bit.

But I think I've said it before, we run a national business, we're going to have some ups and downs geographically. It kind of all washes out for us, and that's what I'd say now. It may be a little bit against us now but it's not worth talking about.

Excellent, thank you for that.

Your next question comes from Michael Ward from CBA. Please ask your question.

Hi, Louis, just a few quick questions. Firstly, on where your head might be at, at the moment, regarding a market price increase for May, given you've had a bit of a history of doing that over the last couple of years?

Where my head is at is a good way of putting it. We've certainly discussed it a lot in the business and right now our focus is - a comment I didn't make earlier, which I meant to make, when we did results in August I felt that I was pretty direct in saying I wasn't happy with the way we ran the business that first four or five months.

It was mainly around getting overly enthusiastic about a potential market recovery and the ramifications of that. By November, I made the statement that the business is running well. Now we roll 14.4 and I'm going to tell you the business is running better now than it was running in November.

So after we got out of that summer funk, which was triggered by the production planning mistake, we got traction in the business. So we acknowledge that the last price increase was tough. I think it went through but it was tough on the market. The other people that sell me-too fibre cement that always discount ended up discounting more heavily. We lost some category share because of it.

I would say where we're at right now, when you say what's in my head, I'd say it's in the head of almost every manager in Hardie, is that this is about share. It's about market share and it's about category share. It's not a good market to grow market share but there's no reason that we can't get our category share back.

We're in that kind of self-correcting process of category share, and that's certainly much more on our minds than a potential market increase. So we don't have any plans at this point for a market increase. That would normally be, as you indicated, announced on 1 April. Right now we don't have anything in the works for that.

Just also on Asia Pac pricing, it was very strong last quarter and then, in absolute dollar terms, seems to have dipped back quite significantly this quarter. Can you just give us a bit of an explanation around that?

Yes. I think it's probably mixed. I didn't dig into it, so I can't tell you for sure. But I know we're not doing anything aggressive with price, either up or down in Australia right now. So I would it's probably mixed.

Just finally, maybe one for Russell, you said you'd increased your debt facilities. Can you just give us a bit of a sense around what the motivation behind that is, given you've got actually so much headroom already?

Michael, the opportunity was available to us to do so. We had some facilities expiring in February, so around now. The lenders who we had involved in those maturing facilities were interested in increasing their exposure and extending. So we took the opportunity to go with it. So no particular motivation, other than it was opportunistic.

Thank you.

Your next question comes from Rohan Gallagher from Credit Suisse. Please ask your question.

Thank you, gentlemen. Good morning, everybody. Louis, can you just clarify, in your EBIT you said that there was a non-cash charge of about a couple of million dollars for the quarter for the US business, is that correct?

It is correct.

Then on that basis you're looking at a normalised quarter of about 15.5% margin. What gives you the confidence that you'll be getting 20%, 21% in the fourth quarter?

Well, that wasn't the only thing in the third quarter. That was just one of the things I highlighted. I also highlighted the cost spill over that we had from the second quarter and the inventory rundowns. I also highlighted a rebate accrual.

But your question is still a good one, and the only way to answer is because that's what we're tracking at and we don't see any surprises ahead.

Okay, terrific. Just in terms of your market share, your circular sort of penetration growth story, obviously that slipped with the price increases and the mix of housing activity earlier in the year, early last year now. Have you seen that market share recover in the last quarter?

Yes. The term I use, it's kind of correcting. I don't want to mislead anyone. It's easier to lose than it is to regain, so it's not a flip of the switch. But we're right into all the segments where there's been category share slippage. We understand the underlying cause; we're addressing the issues from the customers' perspective. We're confident that we're correcting that number.

But having said that, we've just been in this downturn for a long time. People's risk-reward decisions are different now than they've ever been, because they need to reward more so they're willing to take more risk. So going to discounted brands is probably something that more customers consider now than they would have even a couple of years amid a downturn.

Having said that, it's not a shift. I don't see it as a shift. I still see our capabilities to be pretty well understood by the market. I see our pricing to be appropriate for the value we create for the customer. Everyone in our industry's a bit more desperate than they've ever been, so the discounting's got more aggressive, but to take the discounting that we see in the market probably isn't sustainable for the discounters.

Louis, on that, have you seen a switch in your product mix towards your discounted range, like Cemplank?

Yes, the way to think of that, quite honestly Rohan, is if you take Cemplank and add together the other generics, so you've got (inaudible), the four of them together have gone up. But Cemplank has not gone up to the point that we thought it would. But if you think about that, if we would have held that category share, that extra business probably would have been in our Cemplank brand, and the brand would have been higher for Hardie, probably more where we forecasted it.

But right now, the Cemplank market share, category share I should say, is actually lower than we thought it would be. But that's probably because the other guys got a few extra points on us.

Just finally, a financial one for Russell. Russell, your tax rate's lower. I think previously we were working on a 35% rate for the full year. It's running at 32.5%, 33%. Where do you see it for the full year and where do you see it going forward? Are you still seeing it trending back towards that 35% level?

(multiple speakers)

I'd be surprised. There's a little bit of geographic mix in that. Obviously, US at the highest tax rate is a lower proportion of earnings. Asia Pac is a higher proportion of earnings and so that dilutes the ETR.

But in addition, in the quarter and in the full year, we'll have a much lower dollar spend on matters that we really used to get virtually no tax deduction or tax deduction only at a very low rate in relation to a small portion. So things like some of the legacy costs for example.

So we've had some unwinding of some of the adverse things that led to us having quite a high ETR for quite a long period of time over a few years.

Thank you gentlemen.

Your next question comes from Simon Thackray from Nomura. Please ask your question.

Thanks. Morning, Russell, morning, Lou. Rohan kind of touched on where I wanted to go anyway. But just something a little bit more on mix. Your point about Cemplank, category share, it's probably a little big large. The competitors took a couple of points from you.

But your market, you mid to high market for housing, are we saying the trend in there is that it's stable in terms of the use of the higher end product? You're not seeing any erosion of share? Albeit on very small volumes, acknowledge that, but not seeing any erosion of share in Hardie or in ColorPlus? Is that what I'm hearing from you, Lou?

I would say ColorPlus is rock solid. It's still growing.

What percentage is that now? I think you told us last time, it was up near 30% or something, wasn't it?

I don't think we disclosed it this quarter--

The trends we do but not the percentages.

But I think we actually disclosed it in the September tour and we plan to do that each September. But it's going up. It's going up both in real terms and in percentage terms.

So that's pushing the mix up and the average price up, presumably?

Yes. That pushes average price up. Trim, which is also growing as a percentage of our business, pushes the average price up. Then Hardibacker, which is a larger percentage, pulls it down.

So we're still in that same place where we usually get some price through mix, but that's despite the fact that you've got Backer. Backer is a bigger share of business, which has been due to downturn--

I presume that's fairly constant but I mean what percentage are we talking now on volume for Backer, G2 and G4?

I don't think we disclose that either. So you've asked me a bunch of questions I can't answer.

But anyhow, the Backer business, I mean, just go through it real quickly, we're still in our same position. Depot and Lowes carry our product. That's the only fibre cement they carry. We've grown in their stores. We've grown against the glass-mesh boards.

In recent years you've had gypsum kind of me toos trying to come in against our fibre cement boards. But no, we continue to grow market share. We're 100% at a category for the most part. I mean Menards buys a little fibre cement backer board from someone else but they're a very small factor.

So that's gone fine. Keep in mind, we went into the downturn with our backer business biased towards repair and remodel and our siding business biased towards new construction. So that's why Backer board have gotten to be a bigger part of our business. Even though we've gained ground with siding in the R&R market, we had a head start with the backer in the R&R market. That's been less impacted by a downturn in construction.

You asked me another interesting question. You said are you telling me that in the mid and high end projects you're not getting any share loss due to competitors? I can tell you for the most part that's true, but not right across the Board. You have some pockets, whether they be small markets, whether they be a few isolated markets, in the country where our direct competitors have been more successful than they have been in other markets.

So there's been some swapping of business there but certainly not anything that you could see in our results. So it's pretty small.

Okay, that's helpful. I guess that answers my question about competitive activity. It's been predominantly restricted to the lower end then, is what you're suggesting?

What they chase, Simon, is - where they started out is they chase the big fibre cement pieces of business. So they'll chase those southern markets, they'll chase large projects. If you remember, they used to chase the big builders.

Most of the big builders are backing a Hardie brand. I think it's 19 out of 20 now or something. As they've lost those initial contracts, as the builders have tried the me toos and they moved back to one of our brands, they've had to go elsewhere. So they do. I mean, they're going to pop up in distant markets, they're going to pop up in smaller markets where they don't think we are - and they'd be right. You know, unfortunately we proved them right. We don't have our thumb on the pulse as closely and in every market, and they found some markets and they gained some ground.

That wouldn't be just at the bottom of the market. If you go into a market like say a Birmingham market, our category share would be lower than we'd want it for sure, and that would be across the market. It wouldn't just be the bottom of the market.

That's very helpful. Just one really quick one, just a lead time on the order book now. What's that looking like in terms of time to delivery from order? I'm just trying to understand, because you're looking at your order book for the quarter.

Are you talking Color or Primed?

Actually, talking both, Color and Primed.

Our order books, we usually ship an order within a two-week window. So it would be unusual if we'd be taking orders further out than that, because most people know that we can service their business. I think you're probably asking me how confident I am in the order file--

Yes, exactly, sensitivity to the end of the year, basically.

Yes, okay. There's still a March risk. March is normally the first month of the seasonal build. So if that doesn't happen, we don't know it yet. So we're not certain of our fourth quarter volumes. If we didn't have the bounce back this week, I would probably be a little less confident.

As you guys know, we never talk about weather. You guys know we've had a lot of weather. So right now, our theory is the softness was probably weather-related rather than market-related. So that's our assumption.

Okay, that's helpful. Thanks very much guys.

Your next question comes from Hugh Dive from Citi Investment Research. Please ask your question.

I've just got a quick question about margin. Obviously, it was down about anywhere from 6% to 7%, depending on the non-cash charge. How much of that is from inventory rundown and, to give us an idea, how much of it is from higher pulp and freight prices?

You know what, I'm not going to break it down, and I apologise for that. You've got to look at this stuff like we always do. I mean, I know a 14.4 is a headline number, that's hard to believe out of Hardie. But it's not the first time we've had them. I've been in this role about six years and this is like the third time.

So 18 quarters and about three times we had a goofy EBIT margin. A few times they're goofy high and a few times a goofy low. This is a goofy low margin. I'm telling you it's an outlier. I'm not going to build it all up for you. We're going to wait until the end of the year. Certainly if we're low again in the fourth quarter, then you guys can grill me on it and I'll have to give you a little bit more information.

But right now, I'm saying it's not a normal quarterly variance but it's a quarterly variance. Let's not dwell on it, let's wait for the full year to finish and you can look at the year as a year rather than as a three month period.

Okay. Louie, have you changed your - the utilisation rates have changed in the US. Has this given you a revised outlook?

No, because you saw in the third quarter our volume comp was slack, and our (inaudible) were bumping along the bottom. So we're not taking things off. The only thing we took off recently was what we put on last winter and spring we took off in the summer. Since then we've been kind of right sized on the production size.

Just one final question, if I may, you said you're expecting a strong fourth quarter in the Asia Pacific, but given that we've seen a higher degree of rainfall in your growth market of Queensland and a continuing slowing in the Australian housing markets, how confident are you of that?

If that was my quote, I probably said it wrong. What I meant to say is even with the bumps in the road, whether it's due to the floods or maybe a little bit coming off the market, the business is in such good shape I'm confident we're going to deliver a good result. I didn't mean to say it was going to get better. It's just going to stay solid.

Thanks very much.

Your next question comes from David Leitch from UBS. Please ask your question.

My questions have been answered, thanks very much.

Your next question comes from Jason Steed from JP Morgan. Please ask your question.

Your next question comes from Emily Behncke from Deutsche Bank. Please ask your question.

Thank you and good morning. A couple of questions which have sort of been asked in a different way. I'm just looking at your guidance for the full year $105 million to $115 million and the mid-point of around $110 million. That kind of implies that you will be delivering a net profit in the fourth quarter of around $30 million. Given pulp prices remain high and demand remains pretty low, I'm just wondering what you're seeing in the fourth quarter that I can't at the moment?

I mean, the main thing we're seeing is good performance out of Asia Pac, kind of bounceback performance in the fourth quarter by the US business. Obviously, we see our tax rate and our corporate spend.

So I agree, it's hard to get there coming off 14.4. It's not easy arithmetic. We have the advantage of seeing our numbers up through today, so like I said earlier it's kind of where we're tracking. We're not expecting any big surprises but I guess they wouldn't call them surprises if you knew they were coming.

But that's how we get there, Emily. We're expecting Asia Pac to stay strong. We're expecting a bounceback to more normal EBIT margins in the US. We understand what our tax rate is likely to be, and also on the corporate side, the spend.

Just in terms of the pulp prices, obviously they're staying at pretty high levels. You mentioned earlier that that is something that you obviously are considering. I'm just wondering if you could expand on how you plan on absorbing those pulp prices going forward or if, as you mentioned before, you're focusing on market share?

I should have mentioned, we also know our pulp costs for the fourth quarter. So there's another thing that's (inaudible).

So how do we absorb higher pulp costs? We absorb it in our EBIT margin, which is the same way we always have. So I think everyone on the phone knows - if they've been following the Company - we don't hedge our pulp and we don't hedge it just because hedges cost money. The main benefit of a hedge would be smoothing of earnings and cash flow. We don't see much value in smoothing earnings and in our cash position we don't see much value in smoothing cash flow. So we choose not to spend the money.

Like I said, now the chart says that pulp's going to be expensive for four years. So when you guys hang up you can all go buy stock in pulp companies, because they'll have very good returns if that ends up being the case.

Even if wanted to hedge now, we couldn't hedge. The hedges would be super-expensive based on forecast. So we just ride it out. We don't cost-plus price, so we're not going to price our way out of it. It's fine. We'll absorb it in our EBIT margin and when it turns the other way, our EBIT margins go the other way as well.

So that does mean if you know what your pulp price is for the Q4, do you buy ahead six or eight weeks, or how do you buy your pulp?

We buy 30 days behind in index, I think, and then when we buy about 30 days. But it's 18 February so--

Yes. So it's not an issue for you?

Yes.

Okay, perfect, thanks a lot.

Your next question comes from Matthew McNee from Goldman Sachs. Please ask your question.

Louis, just a couple of quick ones. Firstly, I suppose one of the positives in the result for me was that your volumes were quite strong in the quarter, and actually up on last year. Now, I think you've sort of answered this a little bit, but can you give us a feel for how much of that was recovering category share versus maybe getting a little bit of penetration back into the business again?

We do try to keep category share, so my answer would be unlike those first two quarters, we weren't losing any category share. Then you say okay, and you get a little bit back. So it was a category share benefit but I don't want to lead you to believe that we've got 2, 3, 4 points back in category share. We haven't--

Sorry Louis, you would have done better than the underlying market, though. Have you also gained a little bit of market share then, separate from the category share?

You can see for the quarter our PDG is saying we're positive. Through a mistake, I think we put in our fourth quarter PDG estimate, which is also positive. So we do think we're back in positive PDG after those two quarters where we got whacked negative on it.

Now some of that is arithmetic driven, the amount that it was negative and when it comes back. So PDG, it's really a chart. You've got to look at the solid line not the dotted line. The solid line tells you this year's going to be a negative year for us and we certainly believe it will be.

A couple of main contributors there would be the category share thing, which we talked a lot about; tax incentive, which biased the market toward the bottom; and then probably to a much lesser degree but still a factor is how price conscious the market has gotten, as this thing has dragged on and on and on.

Now just two points for clarification which have been done to death but I'll ask them anyway. In the last quarter you said that you sold more than you produced and it had about a $5 million impact. Are you saying you sold more than you produced this quarter, or not? Or did you actually build a bit in the inventory?

No, we didn't sell more than we produced.

So you did actually build a little bit in inventory just not as much as you normally would?

That's correct. We built some inventory in the third, we'll build some during the fourth.

What I meant to kind of indicate is that we did take some higher cost product out of inventory and sold it in the third quarter.

The final one, again done to death, but I think your year to date margin in Europe, US is about 19.8% and I think you said that you expected to be at the lower end of that 20 to 25, which implied something above 20 for the last quarter. Is that consistent with what you did say?

We're going to end up to where you can round it off to 20. It's just a matter of how many decimals you have to (inaudible).

Okay, no worries, thanks.

Your next question comes from Keith [Chau] from JP Morgan. Please ask your question.

Just a couple of questions. Firstly, pulp - I don't mean to harp on about this, but given the one-off events last year, which bumped the pulp price in Chile and the Finnish port strikes, where do you think in the shorter term are pulp prices are going to go?

Second question, given the difficult macro environment in the US, what level of discounting have you seen from your competitors?

Where do I think pulp price is going to go? Like I say, I'm not an economist. I can tell you what's happened is it did start coming off and now it's going the other way. As it's started to go the other way the forecast, they've really extended that out over multiple years.

So there's someone out there believe in the supply and demand - you know, balance for pulp is really going to be tight for several years. I'm not sure that's right or wrong.

Okay.

Sorry, I already forgot your second question.

Second question was given the difficult macro environment are you seeing more discounting from your competitors? What level of discounting have you seen?

No, I think it's the same. I think if you take two snapshots and say, well, what was discounting like when you started the downturn and what's it like today, it's dramatically different.

Now is it different today than when we talked in November and talked in August. That's saying, no, it's probably about the same. Everyone does the same thing in our industry. They worry about a lot of capacity utilisation. They feel like they can buy market share. They make a run at buying market share. If it works they try and buy more. If it doesn't work they kind of hunker down for a while and then decide they've got to get some market share, so then they'll discount further.

So I don't see any big changes. We're not in a kind of normal category so it doesn't quite work like the other building material categories in the US. But clearly, because we took the two price increases over the last couple of years, and the other guys that originally targeted big builders and then targeted another segment and then targeted another segment, you know, those two things together probably ends up in more and more discounting. But it's a train line; it's not something dramatic happened this quarter. Nothing dramatic happened this quarter.

Okay, thanks Lou.

Your next question comes from Hugh Dive from Citi Investment Research. Please ask your question.

Sorry Lou, I don't want to harp on pulp prices and also casting aspersions on Emily's forecast but looking at the futures curve going out, it does look to be showing a fair bit of weakening. Are you able to purchase any of your pulp through futures?

No. We're not smart enough to speculate.

Right. Okay, that's it?

Yes.

Your next question comes from Philip Wen from Fairfax Media. Please ask your question.

I just wanted to ask a question on category and market share. Now I know you're sort of saying that there hasn't been a great shift towards the lower end of the market and you're very pleased with the value that your products creating, but the longer the recovery goes in the US how much harder will it be to continue to defend and recovery that category share?

It's a good question because it is a level of market demand and time you're kind of below, kind of normal market demand or natural market demand or underlying demand. So you're right, if this thing goes on 4 or 5 years more it becomes harder and harder. As I said, everyone's in a different risk reward equation than they were even 2 years into the downturn. You know, two years into the downturn there was a lot of shock to business models but everyone found a way, or everyone was designing a way, to get through what they anticipated the downturn would be. You know, maybe 800,000 starts, maybe 900,000 starts, a V shaped recovery like we normally get.

Now I think none of us actually believe we know when this thing's going to end and none of us actually believe it's going to be a V recovery. So a company like Hardie has the luxury of staying on strategy because we still generate good cash and good returns. But most companies in our industry don't actually have that luxury. When I say most companies, I'm not only talking manufacturers, I'm talking manufacturers, people in the supply chains, [home building] companies.

So everyone kind of gets a little bit more desperate and the risk reward changes, and when the risk reward changes that means price is more important and the other longer term value things become less important. Well, Hardie is a company, we sell the longer term value stuff. So yes, it's a tougher market, there's no question.

Now what I want to do is I want to circle back with that and say our category share is about our brands' total volume. So Cemplank is the lowest unit cost product in the US market. So if this thing drags on, do I think we'll sell relatively more Cemplank than we would have if the recovery ends this year? The answer to that is yes. But we don't make the super returns on Cemplank that we made on our Color product or a few other things. But we do make returns on Cemplank.

So I don't want to pain you a rosy picture. We don't know how this thing's going to end. All we know is we're the Company that's still on strategy and everyone else is kind of scratching and clawing for what they can get.

So do I think this extended downturn damages our Company? I think if you can step way back - and I mean way back - you can actually make an argument it helps our Company, because we're on strategy. We're still doing the things that are going to create the huge value for shareholders in the end, that's going to create the 35 share for fibre cement, that's going to create the differentiated position around Color and (inaudible) and Trim.

So we're still doing all those things while other manufacturers are strictly hunkered down trying to get through every month, every quarter without burning too much cash.

You mentioned that this sort of extended period of depression in the US housing market hasn't led you to deviate from your long-term strategy. Could you just provide a bit more colour on that and what exactly are you doing in preparing for the longer term? Perhaps in terms of R&D, is that still continuing and--

Yes, the R&D - now, actually what we did when we went into the downturn we said there's certain initiatives that are very important but they're going to use a lot of cash in the first 3 or four years. So basically, we're going to put those on hold.

Any initiative that sits currently cash negative or maybe close to break even, let's get those over the line so we can get them break even, and run them and not worry about if we're in a downturn or not.

So we've got a couple that we put on hold. We put Artisan on hold - Artisan's the equivalent of Linear in the Asia Pac business - and we put our wet area flooring on hold. We have not taken wet area off hold. We have taken Artisan off hold. We took it off last year when we thought the market was going to rebound. When it didn't rebound we made a decision, hey, we've relaunched it, let's stay with it. So we are active in the market with Artisan.

That is a product that the more Artisan we sell the less it goes to our bottom line. The reality is right now we're not selling enough for you guys to really see it. We see it internally but you don't see it.

Now the reason I say that is with our Artisan product we're basically selling against ourselves. So if you sell 10 homes of Artisan, which is the right thing to do, probably 9 of those home owners might have bought our ColorPlus product. Our ColorPlus product, because it's produced in multiple plants, we've been through all the learning curves and both the [substrate] and the Color is a much higher margin than our Artisan product.

Artisan doesn't have colour on it currently so you don't get your paint margin, you're shipping it all out of Reno Nevada, so you've got long freight hauls. We've got the learning curve, we're still going through on our sheet machine and also on our finishing line.

So just generally, whenever you sell Artisan you make less money but strategically it's the right thing to do because we think that third of the market ends up on an Artisan-like product, that's what's going to see us buy that part of the market.

We haven't cut our R&D. You'd probably be aware we launched our whole Hardie's own product lines last year last year. We enhanced them all this year. We've got market development going on in non-metro markets. We've got a very big market development initiative that's been running about three years now at a pretty high spend in the R&R markets.

We've done a lot of product develop on trim. We've done market development on trim on the east coast. We're now in the mid-west with that. So that's what I mean by we're on strategy. We're not trying to optimize EBIT; we're trying to balance the return with the implementing of strategy.

So there's been a little bit of backing off, being the examples I gave you (inaudible) but for the most part we're doing the same things we would have done if the market had never gone down to the degree it has.

As far as you can see in terms of your competitors, you say they're sort of scratching and clawing, perhaps am I right in suggesting they're not quite as focused on developing products, they're just really trying to survive? In that respect, that's why you think you can perhaps outlast them and come out all the more better for it compared to your competitors?

Again, remember our competitors really make vinyl siding, wood siding, to a certain extent (inaudible) systems. The fibre cement guys are more like your normal building materials companies that compete in our industry. They don't - most building materials companies don't do much R&D. Most building materials companies don't do much market development. Most building materials companies don't do much machine development. And for good reason, because it's hard for them to get paid back, because if you've got a 25 share and you invest that kind of money into the market or into technology, you're unlikely to be able to make a return on it, because when the product hits the market and gets spread to three or four different companies, then you're only getting 25% of the new business back, where Hardie gets the lion's share in new business back.

So we just run a fundamentally different model, and yes, I think it's fair to say that our direct competitors don't run the same model as us and our indirect competitors, meaning the vinyl companies, the wood companies, they don't run the same model as us either.

Great, thank you.

Your next question comes from Jenny Wiggins from AFR. Please ask your question.

Hi, Louis. I was wondering - if, as you say, the housing market is going to take some time to recover, is James Hardie considering introducing more relatively low cost products along the lines of Cemplank to target people who are chasing the discounted products at the moment?

It's a good question. We don't have Cemplank available in all of our markets. That is probably something that you'll see change over time. It was anticipated that would change over time, but probably more over three or four years. That timeline's probably getting depressed because of the buying behaviours in the market currently.

So we like selling starter homes. We sell starter homes in a lot of markets. The challenge for us, in some of our northern markets where we just started market development seven, eight years ago, you really have to start at the top of the market when you're running a market development program like ours and work your way down.

So it's not that we don't want to sell starter homes in the mid-west; it's just that we haven't gotten there yet and we won't be there for another four or five years. So mid-west, northeast, Canada, a lot of our markets we participate in, we do participate more at the top of the market. Other markets like Texas, we're right through the market. Georgia, we'd be right through the market, and a few others like that.

In terms of housing starts, are you still confident that the US will eventually see a return to historical levels of housing starts or do you think that could be in some danger?

I'm not an economist, but I don't think we're all going to start living together and I don't think many of us are going to leave. So we've got to live somewhere, so we're going to build houses at some point. The question is, when does that happen and is it a single family house or is it more attached housing? So there is a lot of possibilities, but there's going to have to be housing for our population, which continues to grow. It may be more affordable housing, like I said. It might be more attached and less single family and maybe relatively smaller housing units. But there's still going to be housing.

The thing to understand about our company is we're not really focused on the size of the total opportunity. We know it's plenty large for us. At one point it was 12 billion feet and the estimates today are probably more like 7 billion feet. That's plenty big for us. So our job is to grow market share, and then our volume will go up and down with the market, which is fine with us.

We don't need a certain amount of volume to make a profit. That's probably one of the things we proved during this downturn. We can make our profit go up and down with our volume. So we don't make as many total dollars when the market opportunity's down, but we still make a similar amount of dollars per home built, a similar amount of dollars per truck shipped.

Could you discuss the Australian market, what trends you're seeing? I note that you say you're seeing a shift toward differentiated products. What does that mean exactly?

In our business - I can comment clearly on our business - I'm not an Australian so I don't understand the Australian market as much as most people would on the phone, but the business itself is set up just like the US business. What makes it interesting is the US business is a relatively young business, only 20 or so years old. The Australian business, we invented non asbestos fibre cement in the late '70s. So our fibre cement business in Australia is about another 10, 12 years older than our US business.

What's been interesting there is they had a core set of products that were good products used by the builders in Australia, used by people repairing their homes, renovations market; everyone was satisfied. Now, what happened is the returns were pretty good so a couple of other companies got into the market - CSR (inaudible). Now, three companies are splitting up what one company used to basically have to itself, so returns went down in Australia.

Now, our response was to go to more of a US-style strategy, which means let's not sit on our product mix. Let's develop new products that customers will value and the competitors won't easily match. So when we talk about differentiated products, we're talking about new product lines. We put them under a Scyon brand umbrella. They're new product lines that are growing quickly in the market, so it's taking market share from our core products, they're taking market share from other fibre cement products, but more importantly they're taking market share from bricks. So that's new growth in Australia and they're products that the other guys can't seem to replicate because they don't have the technology.

Right, and are they sold at higher prices? Do they have higher profit margins?

They definitely are higher prices. I haven't looked at all the profit margins, but they definitely have higher prices.

Lastly, what's driving higher pulp prices? What's behind the long term surge?

Pulp is a [straight] commodity. It's a global commodity; it's all about global supply and demand. So basically you either have to have demand going up or supply down. I think when the global recession started, supply went down. I think demand is now increasing and they're slow to bring back high cost supply. But at $1000 a tonne, there's not many paper mills that can't make a return. So I would guess some more supply has to come online. Whether that supply is enough to outstrip the increased demand, I'm not sure. But I would guess more supply needs to come on.

Right, okay, thank you.

There are no further questions at this time. Please continue.

No more questions. That was a lot of questions. We got the message - throw out a bad result, get a lot of questions. So we'll try to have a better result next time. We appreciate everyone participating this time. Thanks.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.