James Hardie Industries PLC (JHX) 2012 Q3 法說會逐字稿

Thank you for standing by and welcome to the James Hardie Third Quarter Results briefing.

At this time all participants are in listen only mode.

There will be a presentation, followed by a questions and answer session.

(Operator Instructions).

I also must advise that this conference call is being recorded today, 28 February 2012.

Thank you, I would now like to hand the conference over to your first speak for today, Mr Louis Gries.

Go ahead, thank you, Mr Gries.

Hi everyone, thanks for joining the call today.

Russell and I are in Dublin but we'll handle the call as we usually do.

I'll run through the business results, Russell will run through the financial results in more detail.

Then we'll go to questions.

Under questions for investors and then when we're through with investors, media questions if there are any today.

So we'll go from the cover slide, Slide 2, which is our disclosure statement, Slide 3, which is our short agenda, Slide 4, which looks like another title page and then we get to Slide 5.

So you can see from Slide 5, the accounts were good for both the third quarter and the nine months at the operating profit level, excluding asbestos and ASIC adjustments.

Basically the businesses all ran well, so you know things are really pretty much going as planned, although we've had market weakness in our Asia-Pac region and the US market's still struggling to come off the bottom.

If you go to Slide 6, you'll see the US for the third quarter.

I guess the most noteworthy item on this slide is the fact our price was down 2%, this is the first time price has been off for a while.

It's driven mainly by the win back in category share in multi-family segment and with Cemplank basically pulling down the overall mix.

We'll talk about that a bit more later.

You can see on the EBIT margin, because the volume was up, we were able to pick up some EBIT margin versus last year.

Slide 7 is your nine months accounts.

Basically everything falls in line, sales, volume and EBIT all up 4%, price flat.

Obviously price stronger early in the year and weaker now, so for the nine months it's flat.

EBIT margin down just a hair over last year, reflecting just a little bit extra cost in the business, that's mainly due to freight we'll call it -- we'll talk about that as well.

Slide 8, which is the price slide.

As I said it's flat for nine months, so first time we connect the dot without a positive slope.

For the full year it'll be flat to slightly down, so our pricing is weaker in the second than it was in the first half.

So it would be expected to be slightly down for the full year.

Slide 9, which is your EBIT margin, we got our typical Q3 decline.

I think most of you that follow the Company know that this is our -- you know our most challenging quarter because of the Winter season in the northern markets, plus the holidays in the US.

So we normally expect a bounce back in the fourth quarter, so we'd say the quarterly EBIT margin was in line with our forecast.

Slide 10, primary demand growth and again it's better to look at the solid lines, basically the graph shows that we had the negative category share -- negative PDG last indicating the category share losses and the bias toward the bottom of the market, due to the tax incentive around starter homes.

Then this year's been a bounce back year, both from category share standpoint and from housing market bias.

So we're in a more normal housing mix now, although still at a low level.

Slide 11, going to Asia-Pac.

Prices up a bit this quarter, as you know the Australian market's come off a bit.

The business has done a good job at kind of running through that.

As you can see from the slide, down a little bit on volume but picked it up on price this quarter; down just a bit on the EBIT and a little bit on EBIT margin.

For the nine months our sales are up in -- that's in US dollars -- sales volume down a bit, price flat, EBIT up a bit -- again in US dollars -- and pretty flat on EBIT margin.

Slide 13, the summary for the quarter kind of, as I said, everything kind of went as we thought it would.

Demand stayed pretty stable.

We say here quarterly demand has stabilized.

Actually since June in the US our monthly demand has been pretty steady and slightly above last year in every case right through that period.

The decrease in unit price, I already talked about that.

There's a little bit of geography in the mix there, but it's mainly around the multi-family segment picking up some of our category share there, and also with the Cemplank product.

Now, I don't want you to think Cemplank is eroding into our Hardie brand volumes, it's more a case if you put all the kind of commodities, fibre cements together, Cemplank plus a competitive brands.

The percentage of commodity fibre cement in the US market looks very similar to what it was last year, it's just that we have a bigger portion of that commodity fibre cement with our Cemplank and multi-family brand this year than we did last year.

The increase in SG&A is really the result of us putting more field sales reps in the market to work on our initiatives, and as you know we had positive primary demand growth.

Asia-Pac, the comments there obviously, weaker markets, certainly in Australia and somewhat in New Zealand; Philippines are fine.

A little bit of an unfair comment here in our second bullet under Asia-Pac, we say, unfavorable marketing -- manufacturing performance, that's only unfavorable relative to our forecast.

So we've been forecasting improved manufacturing in Asia-Pac region.

To some extent we have realized that but not fully at the forecasted rate.

And we talked about the price increase.

Slide 14, you can see the last two quarters have been positive housing starts but we're still at a low level.

We'll talk a bit about the forecast in a little bit.

Slide 15, I guess we're going to talk about housing right here.

We say there's no -- there remains no evidence of sustainable recovery, and I guess we're referring to what we see in our business.

We do see our accounts being positive month to month, but you know actually housing starts this year are lower than last year.

So it's not so much market opportunity because we see Repair and Remodel flat to slightly down this year.

So that positive count for us we believe is category share gains to a much smaller extent, maybe a little March share gain.

Now you will see some positive comments from some industry participants, specifically a few builders out there, and we wouldn't say that the market's definitely not going to get better, but we're going to hold our position of planning on a market that's a little bit below what forecasters are saying.

We'll have to react up if the market is as good as some of the forecasters are saying it may be.

Next, you know, the Spring season if it starts early sometimes it starts in March, it really starts in February, and although we've seen again good volumes in January -- and when I say good right around forecast, and same in February -- we certainly haven't seen any Spring pick-up yet.

So it's too early for us to call even what the Spring season's going to look like.

On the pulp, the pulp has come off some and it may be sustained for a while.

We're not obviously becoming pulp forecasters, but it has been coming down which is helping us a bit.

Freight costs, although they come down seasonally in the Winter, they're still running higher than last year, and we would expect especially with the fuel increases recently we expect to see higher freight, again in the fourth quarter and even going into next year.

As far as the -- as far as what we're working on, the businesses are running well.

So everything we're working on is getting the right amount of focus, and we're getting traction in some areas that we've been working hard on for several quarters now.

Asia-Pac's done good job; Australia's done a good job.

Kind of on the first part of the downturn here that they've experienced, we're pretty confident that they'll continue to do a good job despite the softer market condition.

New Zealand market is very soft, as you know, and Philippines is okay even though it's a little bit slower than it was.

So you know basically we talked about the Group outlook.

I guess first we're coming up to the end of the fiscal year, it's still a bit early to call, I mean March is always a pick-up month for us, so we'll see -- we don't know exactly how March is going to go but we're pretty confident we're going to bring things in right around where we've been forecasting.

We see no reason to really change our forecast any real degree.

I think when you look at the year we're in the process of accomplishing what we set out to accomplish, and that's the category share, kind of back to what we considered a normal.

We were able to largely offset the freight increases that we've faced, and we've been able to do this despite lower housing starts in the US markets, a little bit lower opportunity for us when you factor in R&R as well.

In Asia Pac, as I've already commented, has responded well in the declining market.

So, really no change on what we're trying to accomplish.

We look forward to a better market.

If we do get a better market we'll get more serious, I think, about market share gains and putting a little bit money in the market side.

Right now we're kind of holding the position we talked about 12, 15 months ago.

So at this point I'll hand it over to Russell Chenu.

Thanks very much, Lou.

Hi folks.

This quarter we had a bit of a tailwind with sales volume, particularly in the US, we were up 8%, largely as a result of the category and market share gains.

We also had a currency assistance, so it turned out to be a quarter that produced quite stronger earnings than the prior corresponding quarter.

In addition we had a very good quarter with net operating cash flow, as we'll see later on, we had about $72 million of operating cash flow in the quarter alone and that produced a net cash position for us, so we've moved out of a debt position into net cash of $26 million at the end of calendar 2011.

Subsequent to that we've paid an interim dividend of $0.04 per security; that amounted to about $17 million.

We also had a little amount of share buyback activity in the quarter.

That was early in the quarter, we acquired a million shares at a price per security of $5.33.

But probably the main event for us outside of operations occurred after the quarter end.

Earlier in February the High Court of Australia declined the ATOs application for leave to appeal the full Federal Court decision, and I'll take everybody through some of the chronology and the expected events relating to that in a subsequent slide.

On Slide 19, just a bit of history of the movements in the Australian dollar versus the US dollar and their impact.

You can see that the strength of the Australian dollar's now getting to be a much longer event as each quarter goes by, so it's still sticking around parity or maybe a little bit stronger, with occasional dives below parity, but only for brief periods of time.

So this has now become a fairly stable picture.

On Slide 20 looking at the results for Q3, you can see that net sales were up about 4% to $283 million, gross profit up 7%, research and development expenses were up 24% to give EBIT of $1.8 million, compared with a loss of $16.9 million in the prior year.

In the prior year obviously a pretty material -- or a more material change in the asbestos adjustment driven by foreign exchange movements.

After all of the taxes and interest expense at the bottom, you can see that we had a net loss for the quarter of $4.8 million versus $26.4 million in the prior corresponding period.

On Slide 21 we have the adjusted earnings for Q3, so this is looking more on a recurring or normalized basis, and you can see there that produces a $27.7 million net profit, excluding asbestos, ASIC expenses and tax adjustments, which was up 32% on the prior year.

So on a net sales increase of 4%, gross profit was up 7% and we had a good fall through the bottom line with a 32% increase.

A lot of that is attributable to tax, as you'll see later on but a very good improvement in results.

For the nine months on Slide 22, net sales revenue was up 6%, gross profit up 6%, SG&A is down 9%, research and development up 10% to produce an EBIT after asbestos adjustments of $162.9 million, compared with $53.9 million in the prior corresponding period.

At the bottom line a profit of $123.6 million for the nine months ,versus a loss last year of $345.2 million, which reflected a $345 million adjustment as a result of losing the Federal Court decision in the RCI case.

Subsequently obviously that's changed dramatically, although we haven't booked the accounting impacts of the latest decision, so that is yet to flow through to the profit line and also the equity position.

On Slide 23 we look at the adjusted earnings for the nine months year to date.

You can see there that the adjusted earnings is a net profit, excluding asbestos, ASIC expenses and tax adjustments of $108.3 million, which is a 32% increase on last year's $82.2 million for the nine months.

So, again, a relatively modest increase in sales revenue of 6%, increase in gross profit of 6%, but as a result of the way it falls through we get a 32% increase in the net operating profit, again with a big benefit from reduced tax expense.

On Slide 24, we have the segment net sales for Q3.

We won't dwell on this much but clearly US and Europe Fibre Cement was up 6%, Asia-Pac Fibre Cement was very steady reflecting a change in the Australian dollar value on somewhat weaker sales.

On Slide 25, looking at the nine months, Europe -- sorry USA and Europe Fibre Cement up 4%, Asia Pac Fibre Cement up 9% and the total is up 6% to $928 million.

On Slide 26, looking at the segment EBIT you can see that the for Q3 the US and Europe Fibre Cement EBIT was up 18% to $31 million, and Asia-Pac was down 3% but 2% of it was the result of the depreciation of the A dollar.

We've had a reduction in general corporate expenses, they were down 27% to $8.9 million.

So some reasonably encouraging numbers there that increased the total EBIT, excluding asbestos and ASIC expenses to $36 million [sic - see Presentation], which was up 21%.

In the nine months, a somewhat similar picture, increase in US and Europe of 4%, Asia-Pac Fibre Cement up 10% on an 11% appreciation of the A dollar, and again a reduction in corporate expenses of 15%.

The net effect is an EBIT there of $151 million which is up 10% from the prior corresponding period.

On Slide 28, looking at the tax expense.

The effective tax rate is 22.6% which reflects the fact that we have reduced the full year estimated effective tax rate, which is 25.3% as you can see on Slide 29.

For the quarter the 22.6% just reflects a true-up of the Q2 rate compared with the new full year rate -- expected rate of 25.3%.

So we've had a slight reduction in the effective tax rate for the year to date and that's given rise to quite a magnified adjustment to ETR in the quarter because the earnings are relatively low this quarter it magnifies.

On Slide 30, the cash flow.

You can see here that the net operating cash flow after trading activities after tax after working capital adjustments of the payment to the AICF is $109.2 million for FY2012 year to date.

That's relatively consistent with the $105.8 million we reported for the prior corresponding period, but there's a lot of different movements in there including obviously slightly different payments to AICF in the respective years.

We also had a $35 million one-off tax payment, withholding tax, that we paid early in 2012, or the FY2012 year, so during 2011.

But, so, in spite of the individual movements being quite material, the end result is pretty similar to the prior year.

We had a very strong Q3 cash flow of $72 million.

This quarter is usually a very strong quarter for our cash flow because activity declines but we get a pick-up in collections.

So it's usually a very strong quarter for us.

Capital expenditure is at $25.5 million for the nine month period, which is down on the $37.3 million for the prior corresponding period.

We finished the quarter, or the nine months, with a net cash position of $25.8 million, which is also reflected on Slide 31.

This is the first time for many years we've been carrying net cash.

It's something that will be remedied in due course but, clearly, we were holding a very conservative position ahead of the High Court hearing -- unsure how that would necessarily play out, and so we are carrying a large amount of unutilized facilities, as well as very conservative debt position in the run up to that decision.

On slide 32, a bit of an update on legacy issues, which is now pleasantly restricted just to the one issue relating to the 1999 amended assessment that was issued by the ATO in 2006.

We paid half of the amount at that time, which was -- the half of the amount we paid was $184 million.

We appealed into the Federal Court on the first round in the Federal Court.

The judge found in favor of the ATO, so we lost that round.

We took a charge of $345 million on 1 September 2010, even though it had no impact on net operating cash flow in the financial year 2011.

On 22 August 2011 the full Federal Court -- which consisted of three judges -- found unanimously in favor of RCI and ordered that RCI's objection be allowed in full and awarded costs.

Within a month the ATO had filed an application for special leave to appeal the full Federal Court's decision in favor of RCI and, on 10 February, the hearing of the leave application was in the High Court, and the High Court -- the three judges who heard the case found in favor of RCI, effectively dismissing the ATO's application.

So with that now finalized in RCI's favor, because there is no further appeal possible within the Australian legal system, we received yesterday a notice of amended assessment, as well as an initial payment from the ATO of AUD248 million, which is equivalent to $265.8 million.

In the fourth quarter we will reverse the provision that we took at September 2010.

In relation to the amount that we took the adjustment will be a reversal of $393.8 million but, in addition, we are to receive interest, both an unwind of the interest that we paid, and then interest income on the amount that we have had, effectively, deposited with the Australian Tax Office.

We do not have all the details of that yet, but we will be adding to that $393.8 million write-back of the provision additional interest income.

I am hoping that we will know that within the next few days.

In all likelihood we will be making a statement to the ASX relating to receipt of the monies and, once we have calculated the accounting impact of that on earnings and on shareholders' funds, we will advise of that outcome.

We have also commenced recovery of a portion of the legal costs incurred in the -- in litigating the amended assessment.

That will date back to 2006.

We are also in the process of preparing for a 35% amount of the refund to flow to the Asbestos Injuries Compensation Fund and, in addition to that, we may well make that payment early.

The normal due date would be 1 July, but there are a number of reasons why we think it might make sense to actually make an early payment to the fund.

So we are in discussions with the New South Wales Government and with the Asbestos Fund about that possibility.

We will incur a tax liability on the reversal of the general interest charges and the interest income and legal costs recovered, and we will be detailing that in any subsequent announcement that we make.

So I guess people might be interested in what we're going to do with the amount because, clearly, this is a very material amount for Hardie.

So management and Board are considering options for the use of the balance of that refund.

We don't have any debt to repay and we don't have any major acquisitions in the pipeline.

So during the next month or so we will be giving thought to that, and then it will be taken up in the full year results announcement, I would expect.

On slide 33, an update on the Asbestos Fund.

As you can see in this slide, the fund had assets of $59.9 million at March 2011.

At the end of December 2011 the Fund had $56.3 million, so approximately the amount that Hardie had contributed in July had been absorbed by net outflows because there was not much difference in the net asset position of the Fund on those two dates.

During February, the Fund has drawn down on the facility with the New South Wales Government that was put in place in the past couple of years.

That is the first drawdown.

The amount that was drawn was $29.7 million.

As I understand it, the reason that that was done was in expectation that the Fund would have to get through to the 1 July 2011 without a further contribution from Hardie.

At that time there was an expected contribution due from our FY 2012 cash flows, so with the Fund looking at some outflows and wanting to keep a reasonable buffer, a drawdown of $29.7 million was made.

On slide 34, the financial indicators.

Obviously an improved EPS given the 32% increase in earnings compared with the nine months prior, as well as a slightly reduced -- or a share capital base reduced slide -- a bit of share buyback activity, improved EBIT to sales and very, very strong debt capacity indicators there in the form of interest expansion, cover and net debt payback.

So a summary is a very strong quarter and a strong nine months, as shown on slide 35, particularly given the conditions that we are trading in, in both the US and the slightly softer conditions in Asia-Pac, particularly Australia; but the markets are -- at least in the US -- very stable, and in Asia-Pac they are relatively stable, even if they are a little bit in decline.

The appreciation of the Asia-Pac currencies has helped the results against the US dollar and we have had higher SG&A expenses for the nine months; currently the result of a $10.3 million credit that we had in the prior year period in relation to recoveries in respect of ASIC expenses.

On slide 36, just reiterating the guidance.

When we did the guidance for at quarter 2 results we advised at $126 million to $140 million.

We have narrowed the range in this quarter to $130 million to $140 million.

That is on the basis of excluding asbestos, ASIC expenses and tax adjustments and, obviously, that is before any write-back of the RCI provision that we took in 2010.

So on that basis I will hand it over to Lou for questions, and happy to take any questions that you guys might have.

Thank you.

The first question we have is from Simon Thackray from Nomura.

Go ahead, thank you.

Thanks very much.

Morning, guys, or afternoon, guys.

I have got a question on guidance.

Historically, you looked at analysts' expectations as to guide, which has always explained the range.

You put a definitive guidance of $130 million to $140 million.

You have done $108 million ex-asbestos to the end of the third quarter, which implies $22 million to $32 million to finish the year, which is a $10 million spread, or 30% of the fourth quarter which, given where we are in the year, seems a fairly large range.

Can you explain why we get a 30%, or a 33% spread in the fourth quarter expectations first of all, from where we were?

Yes, sure, Simon.

I can respond to that.

There are a couple of reasons.

One is we are unsure always about the movement in the Australian dollar.

That used not to be such a big deal for Hardie because Asia-Pac accounted for 15% of earnings, assets and sales revenue approximately.

But these days Asia-Pac's -- because of the relative decline of the US business and the strength of the Asia-Pac business in recent years and the strength of the Australian dollar, the Asia-Pac business is now accounting for 30% to 35%.

So any movement in the Australian dollar versus the US dollar has a substantial impact now that used not to be quite so important.

I would normally understand that, Russell, but you have actually said in here that the guidance assumes a stable exchange rate.

Yes, yes.

So that's correct, and we do take--

So why would we have the spread then?

Why would we have that spread for exchange?

We take a conservative position in relation to the impact of that.

The second reasons, Simon, is that our results are very heavily impacted by equity compensation and, under US GAAP, we have to mark to market the -- any equity compensation that is outstanding to the current levels of the James Hardie share price.

During this year we have seen substantial volatility in the share price, and so we're just being very cautious about the impact of that.

So you've got normal trading volatility.

We've got a couple of extra factors that might well be material in what's a relatively short period until the end of the year.

So we are just being a bit cautious about that.

Okay; and just talking about conditions generally, the text and the description and your own descriptions, the conditions in the US have certainly been more stable; so I was trying to get to how we get to the fourth quarter; but can we talk briefly -- the price was obviously somewhat of a surprise to me and the mix.

Can we talk a bit more about that mix shift maybe, Lou, and also talk about this apparent war between Lowe's and Home Depot, and is that having any impact in the channel, in the R&R market and the DIY market for product as well?

Yes, I will take your questions this time.

The product situation is kind of as I described it.

So as I know you are aware, when we went for the price increase -- what, a year and a half ago or more now -- we lost some category share in that metro markets and also in multi-family.

Late stage multi-family is the lowest priced segment, so as we pulled our category share to what we considered normal, all that new business comes at a much lower than our average price.

Similar in the Cemplank that was used in the non-metro markets to bring our category share back into line.

That would be not as low as multi-family, but that would be our lower price brand, obviously.

So what we actually had happen is when our category share went down, our prices are almost artificially high because you lost the bottom of your mix.

Now, this year, as we bring the bottom of our mix back in, then the price gets pulled down.

So it probably looks like a bigger delta than it is, but the reality is that's kind of what happened.

Now, there was a geographic shift as well toward more Texas and less Color in the north.

Again, that's just a regional shift.

So that is where we'd price.

I think our price for the current quarter will probably look very much like the third quarter.

As far as next year, at this point we do not have any market prices planned, so it is going to be that mix question again as the extra Color and trim offset the Boards at the bottom, whether they be HardieBacker, which is lower priced, or Cemplank or multi-family board.

So I think -- I can see why the price would have surprised you and maybe some others.

What I am really telling you is just see it at the level it is at now.

It might be slightly up from that.

It might be slightly down, but I do not see, necessarily, anything big moves, going forward.

As far as the battle between Home Depot and Lowe's, I am not really aware one, certainly our Business with each of those organizations continues to track well, so our position in the stores is good.

Our market share, especially in the backer boards is growing, so no issues for us with Home Depot or Lowe's or any other ramifications in the channel because of Home Depot and Lowe's.

Okay.

One more thing I would like to say, Russell handled your comments or question our guidance, and I understand it is difficult arithmetic.

I don't know, for some reason our fourth quarter is always difficult to arithmetic.

We have not really changed our guidance.

I think we were $126 million, $140 million.

Certainly the $126 million is too low.

We do not necessarily think the $140 million is too high.

So we are just comfortable with that range; and you are right, we did not tie it to analysts' ranges when -- I think analysts' ranges went up -- I think anticipating the better housing market that we are currently seeing.

So, like I said, we are going to be dealing with less starts this year rather than more starts, even though a lot of the press now is talking about a better housing market.

That is great.

Thanks, Lou.

Yes.

Thank you.

The next question is from Doug Macphillamy from Macquarie.

Go ahead, thank you.

Thank you.

Good morning, everyone.

Just a quick question to follow up on Simon's, if you don't mind; just on average price over the quarter.

I guess it would be easy to assume that a seasonally mild winter that you guys and the industry have experienced would result in less interior products, which tend to be lower priced.

Would I be right in thinking that any benefits from that kind of situation, on a year-on-year basis, has been offset by the improved -- or the increased proportion of the Cemplank and lower priced products?

Yes.

It is an interesting comment you led with, but I wouldn't know that to be true.

It is certainly not anything we have talked around -- not in the Business.

I think our backer mix is where we would expect it.

It goes up a bit in the Winter and we do not see a big shift from last winter.

Good point.

Would you mind just commenting a little bit about the specific markets that you are looking to grow in R&R?

I think in the past, Louis, you have mentioned that you are only in a limited proportion of your top 20 markets in R&R, and there are certainly some that you are targeting to improve your penetration in.

Yes.

I can't tick them off for you, but you are right.

We do have a top 20 and we have a bell curve -- our traction in the 20.

We've got four or five running strong, four or five lagging, and the most of them in the middle.

So a lot of you have been seeing our emphasis on R&R for three, four years now.

It is a -- we continue to push that program forward.

We continue to put some more resources in it when we feel like we can get the payback we are looking for, and we continue to build on the program, both the concept and the tactics.

So, as you know, our ultimate goal for fibre cement -- market share at 35% -- you do not get there without R&R.

We are on a track in the R&R segment and it is all good.

It is not exploding, but we have good traction; and, like I say, some of the 20 markets are obviously running better than others.

Okay, thank you.

Thank you.

The next question is from Andrew Johnston from CLSA.

Go ahead please.

Good morning, gentlemen.

A couple of questions.

The first one -- you mentioned higher employment costs in the US.

Is that anything out of the ordinary?

Or is that just a small up-tick in inflation?

No, no, no.

That is not so much the dollars per person as the number of people.

So we have a few more reps in the field trying to support so many initiatives we have in the market.

Okay.

You mentioned you are getting traction in areas of your Business where you are being focused, and then you mentioned there was three or four areas there.

Can you -- did you want to -- can you expand a little bit more on that?

As far market-by-market I tell you, I would really rather you guys be a little patient and see that once a year at our September tour, because it is just way more guidance than we want to give, certainly to competitors, but even to investors.

It's just a little bit too regular market-by-market, how we are doing.

Okay.

Lou, just finally on Asia-Pacific pricing.

You mentioned there was some improvement pricing there.

Can you talk a little more about that?

Yes.

I think it was mainly mix.

I mean they did take a bit of a market increase.

I think the way to think of Asia-Pac in a downturn is although they are not -- businesses in Australia are not crazy like the US, and a downturn where they just start slashing prices -- but there is more price pressure on kind of those core products that other companies can kind of get close to producing Hardie-like product.

Then our Scyon brand, which is a highly differentiated product line would probably price at more around penetration in the market rather than what competition is up to.

So this quarter we had a favorable mix and we enjoyed a bit of the market increase.

So, going forward, it is a little bit harder to read, but I would say we are probably going to be slightly up, quarter to quarter, in Asia-Pac.

Now, keep in mind the Philippines is growing faster than the ANZ businesses, so the Philippines has a lower overall number, so that has a mix impact pointed down; but our price in Australia is good.

Our price in New Zealand is good.

Our price in the Philippines is good when -- it is just going to divide out differently depending on the activity in the markets relative to each other.

Okay, great.

Thanks very much.

Thank you.

The next question is from Michael Ward from CBA.

Go ahead please.

Hi, guys.

There was a bit in there about the strength in the multi-family market.

Louis, can you just talk through what impact that strength in the -- the underlying strength in Multifamily might have on your outlook for market share growth?

Well, our share in multi-family is pretty good.

I mean we are not underway in multi-family, but it is--

Is that your category share or your market share?

Our market share for fibre cement.

Right.

So if you catch it late at a low price -- if we catch it early with Color -- which is obviously our goal, to catch as much early as we can and go Color, which has a good value proposition for multi-family, especially for developers that are not going to continue to own the property, it works out okay.

I think, this year we caught way more late stage than we caught early stage, and we would be hoping, next year, to catch it a little bit earlier; but it will be up a couple -- I can't remember -- the forecasters, some of them have it up three or four points, I think.

So I think the way to look at that, we probably have a higher share, but there are less opportunities per start, so it's a lower overall opportunity and it's a lower price.

So it doesn't play to our favor, but we are happy to have a good position in multi-family.

Right; but the bottom line is multi-family -- I mean you're not over or underweight, market share wise, in multi-family?

Yes, but the more multi-family against single family the less the opportunity for a start, yes.

Okay.

Just also, on the labor costs, you are talking about putting more people in the field.

Is that largely done?

Or is that something that is going to continue, maybe, into next year?

I think we'll continue.

I mean it is a matter of what we can put into the system well and get paid for.

So I would think our head count would be up, when we see you guys again in September, from where it is now.

Okay; and then maybe one for Russell.

I mean, look, I know you can't talk around what you are going to do with the cash that you got from the RCI, but can you just talk through how you maybe think the balance sheet of Hardies should look, going forward, and what sort of factors you take into consideration to arrive at a sensible level of gearing, I guess?

Yes.

So, Michael, clearly, we have been running a very conservative capital structure, to the point of being inefficient for the last three years or so, because we were not sure whether we were going to have to fund an additional $200 million or so to the ATO at some stage.

So that does focus one's mind a fair bit, particularly during what has been a relatively depressed period in the Company's core business in the US.

So I don't think I want to go into the detail of it.

We might have something more to say at a later time; but just to note that, clearly, this has cleared what was a very major issue for Hardie, and it is really the last of the material legacy issues that could have an adverse financial impact on the Company; and, in fact, it is going to turn into something that has a beneficial impact on the Company because we get a lot of cash back and we reverse the provision that we took in September 2010.

So the reasons for running that conservative position that we have for the last few years has actually disappeared.

Yes, but I mean--

That is as far as I would want to go at this stage, I think, and then have more to say later on.

Do you -- okay, all right.

I will leave it there, thanks.

Thank you.

The next question is from Jason Steed from JP Morgan.

Go ahead, thank you.

Hi.

Good morning, Louis.

Good morning, Russell.

Maybe a question for Russell, to start; just on the tax rates.

I appreciate that you have given guidance for the full year at that 25.3% mark.

I guess that has come down from the second quarter, where you were guiding 26% to 27%.

Should we be banking on that 25% mark, going forward?

It depends very much on the geographic mix of earnings, Jason.

So as long as we have got the geographic mix that we have got now, which, as I said, is about 30% to 35% Asia-Pac -- and the corporate tax rates in those jurisdictions are pretty low, at around 30%.

As long as that sort of proportion exists, then yes, the 25% or so that we have got at the moment is likely to continue in the future; but if that geographic mix shifts back to the US, then it will not necessarily follow that it will be the same sort of guidance.

Okay.

Thanks, Russell.

Then, just on the R&R side, you mentioned in the presentation that it is probably flat to slightly down as you look forward.

Is that a market comment or more related to where you are; and maybe, more broadly, just some commentary on R&R in general and conditions relative to the new build market?

Yes, that is with hindsight.

We had the market, based on how we figure out our comps, we have the market down about 2.5% last year.

You know so it's close enough to where I'd say flat to slightly down.

As far as going forward if the housing does start recovering I'd be more optimistic that we'd go flat to slightly up on R&R.

That's not being -- there's no science to that.

I just think it's hard to invest in your own home, I mean remember we have -- we're a big ticket item for a homeowner that's going to do a re-site.

So to start to invest in a big ticket item in your own home, unless you see some activity in the new construction I think a better new construction market probably brings us from flat down to slightly down to flat to slightly up, that's how we'd be thinking about it.

And maybe just added to that, with your targeting around R&R those specific markets and strategically would you generally expect to be running ahead of average market growth given your strategic positioning and gaining market share through that channel?

Yes I mean it's our PDG kind of tells a story and if you factor in the negatives in '11 and the positives in '12, you come with a slight PDG growth when you wash out the category share and the bias that was created with the tax incentives.

So we think we're in that 4 to 6 range on our position against the market.

I tell you it's so tight that it's hard to be super confident in that number.

So I wouldn't want you guys to hang on that number, but we do expect to stay positive PDG or positive against the market index going forward.

Having said that I think we've given you heads up this is the last year of the PDG graph and calculation because we just feel it's a little bit too inexact to be used externally.

So I'm afraid you guys are going to have to kind of come up with your own index.

I just am concerned that we're making that formula look more exact than it is and I don't want to mislead anyone with it.

So we talked about that in September and we plan to do that at the end of the year.

But to answer your question, do we think we're growing against the market index and the answer is yes unlike 2011.

We think 2012 and all the calculations show that 2012 was positive against the market index.

Okay, great, thanks, Louis.

Thank you the next question is from Emma Alcock from Credit Suisse, go ahead please.

Oh, hi guys, it's actually Andrew Peros here, Credit Suisse.

Firstly just a follow up question on pricing.

I think at the last quarter you mentioned that you were willing to be a little more flexible on your pricing strategy to claw back some previously lost share.

I'm just wondering how long you expect that to continue of what level of housing activity do you think you'll be able to push through higher prices?

Maybe just a second question around freight.

Obviously it's an ongoing feature, wondering if you are able to dis-aggregate or maybe just give some guidance in terms of how much the higher freight costs relate to fuel or adverse product mix?

Thanks.

Yes, most of the freight this year related to supply and demand for the truckers, so they were able to get better pricing because demand was a bit more than the capacity that was on the road for our type of equipment.

I think at the end of the year we'll probably give you an idea how much the freight increase was in fiscal year '12 versus '11.

It was pretty significant.

Unfortunately we see it going up again next year and certainly at the market we're better than some of the forecasters think.

Freight will go up both for the supply and demand reason they'll be tighter still plus obviously we're looking at least in the short to medium term we're looking at higher fuel surcharges.

So we're going to add that headwind.

We're thinking, like I say we're not good forecasters on pulp, we just kind of follow the forecasts.

But we're thinking that we're going to maybe be a bit better on pulp next year and that will offset some of the freight.

But overall I'd say you know we still have a bit to make up on freight.

If you had a first question, I've forgotten it, so why don't you give it to me again.

Just on pricing, you've obviously got a more (inaudible) pricing strategy.

The pricing, I guess if I said in November that I'm kind of shaking my head because I would have anticipated, you know we've been kind of communicating that before November.

Like I said whenever you're in a situation where you're winning share back and you're in the most price conscious part of the market those buyers are very price conscious.

So that's going to be your low cross ford and the efforts you have to make to win it back and the efforts competitors are going to make to try and hold their position is going to lead to still lower pricing.

So it hasn't been a disaster, it's mainly just the mix situation.

Like I said when we lost our category share we probably were posting a little bit hither price than you would think we would.

WE probably should have been smart enough to explain at the time, but I don't think I ever did.

So I think what you have to realize in the pricing is, we make very good returns on pretty much every product line we sell, or I should say every product line we sell.

There's a few that are still early in the development that we wouldn't make good returns on.

But those aren't the products I'm talking about.

You know we kind of missed the beat and lost the share and now we've got it back and I understand why it may look like a price problem.

I'm basically encouraging you to ride it out for a while and I think you'll see everything settles down at a very good level, as far as pricing and obviously our contribution margins associated with those prices.

Okay, great, thanks.

Thank you, the next question is from Emily Behncke from Deutsche Bank.

Go ahead thank you.

Hi, Louis, just a couple of questions just for the two of the market share comments.

I'm just wondering if some of the market share gain is really because of multi-residential if you have increased your share relatively more there and that might also explain some of the price reduction?

Secondly, just looking at the guidance $22 million to $32 million is implied for the fourth quarter given you're expecting Q4 EBIT margins in the US to increase seasonally.

Just wondering what you'd need to see to be at the bottom end of that range.

Just finally a question for Russell please in terms of if there's anything for us to be aware of from an Irish taxation perspective with any sort of payment of special dividend or capital returns?

Okay, I always make the mistake of not writing when the question starts.

But anyway multi-family I think we've covered.

I don't want anyone to think that the moves in multi-family, the shift to multi-family and the deltas in our share on multi-family are large enough to kind of whip up price around.

It's more that we picked our category share up in the multi-family segment.

The segment has grown a little bit relative to the rest and then pricing obviously has been under pressure as we've brought our share back up to what we consider normal.

So certainly regaining our position in multi-family has had a negative impact on our average price.

Again it's an average price so it's just arithmetic at that point as I just said.

We're happy to have our category share at the more normal level and we're not disappointed in our pricing.

As far as our guidance I don't have that exact arithmetic for you the difference between $22 million and $32 million.

What I will say is I mean we try and give guidance that we're fairly comfortable we're going to meet, we never stretch our guidance.

The year is not done there's a few things you know still to be delivered.

A good March is one of those.

Like I said, we run very close to forecast right through since June, so I'm not anticipating any March problems.

But you know we haven't booked our March business yet so we don't know.

March is always a pick up month for us so it's more important than January and February.

Then there's a couple of things that Russell touched on.

I just think you know we're giving guidance like we normally give guidance.

I can remember this conversation other third quarter results, where you don't know how we're going to do so bad in the fourth quarter.

Not you personally but the market and you know sometimes our guidance ends up being pretty accurate and sometimes it ends up being a little bit conservative.

But it doesn't ever end up being overly aggressive.

Just maybe a follow on there.

Are you happy with the ColorPlus growth at the moment?

Yes, I think well firs there is ColorPlus growth so still on a good track.

But I do think, you know there's a lot of emphasis on the business right now to accelerate the ColorPlus growth.

Because I guess when you see what more on the bottom and that's your price you want to sell more on the top end.

ColorPlus is right on the top end of our range, so we've got a lot more resources.

Some of the stuff we talked about in September, job packs and I can't remember all the initiatives I would have covered with you, but how customers order and how we support the channel.

All that stuff is being vested in.

We've added more people in the ColorPlus over the last three or four months.

I think we'll probably get accelerated growth on Color Plus in the coming year.

But our percentage of ColorPlus continues to increase so we're happy with the program.

But we're now seeing it as a core strategy.

I know, Emily, you've been following us long enough to know we started out ColorPlus was more an incremental strategy for north and now it's really developed into a core strategy for the Company in the US and we're certainly resourcing accordingly and investing in that way.

Right, thanks and Russell, do you have a comment in terms of any Irish tax things I should be aware of?

Yes, I don't think there's anything too specific to be aware of, Emily.

Ireland is a relatively benign environment for companies like us paying dividends to the shareholders providing they are resident of a country with which Ireland has a tax treaty.

That applies -- Ireland has a very substantial portfolio or tax treaties and covers almost all of the countries in which James Hardie's shareholders are resident.

Now there will be a bit of form filling to be done going forward but that's fairly normal.

We had some of that sort of thing in the Netherlands as well.

But it's not going to be disadvantageous for shareholders in terms of what they receive as a net position providing they live in a country that has a tax treaty with Ireland.

Perfect, thanks so much.

Okay.

Thank you, the next question is from Matthew McNee from Goldman Sachs.

Go ahead thank you.

Louis, just a very quick one just on pricing.

You've talked a lot about what's impacted pricing in the last quarter or so, but this is the sort of time of year you start thinking about whether you're going to take market price increases in sort of April.

What's your thought on that going forward?

Yes, no we don't have any market increases planned in any of our businesses right now.

Okay and so that, last year you didn't have one either, did you?

So that would be sort of two years in a row you won't take any you don't think?

That would be correct, we're trying to focus on share growth and so we don't want to add price into the mix at this point.

Yes and just one other question, just for Russell.

Russell, I think your payout policy at the moment is 20% to 30%.

Again a lot of people have talked about what you may do with the cash.

But where do you see that normalizing at once things all get back to sort of normal?

Just the way you expressed it, Matt, I expect.

We have, you're right that we have in May I think it was of last year that we announced that we'd be reinstating dividends and the expected payout ratio would be in the range of 20% to 30%.

We've just paid the interim dividend.

There's a final that will come up and I'd expect the ordinary dividend to fall within that range of 20% to 30% and on a go forward basis as well.

Okay, no worries, thanks.

Thank you the next question is from Andrew Scott from RBS.

Go ahead thank you.

Hi thank you, guys.

Lou, when we were in the States in September you hinted at potentially doubling down on the Artisan business I assume that's what you were referring to in some of your concluding comments, just about investing there?

Can you maybe tell us what you need to see to sort of spur that on and maybe some orders of magnitude of the spend that we'd be seeing?

Now the Artisan we have not, as you say, doubled down.

Most of our extra resource going into field sales is going to be around the things that we've been talking about which is Color, Repair and Remodel and non-metro, trim as well, sorry, I missed trim.

Is that mainly driven by what you're seeing the market doing or internal Hardie's initiatives?

Yes internal Hardie initiatives and kind of our ability to manage more resource as well.

So I think our management structure is -- and the traction in the programs is getting to a point where we can put more there and feel like we're going to generate extra demand.

Sure, and then if you just come to Australia, just your thoughts on some new capital for the Australian businesses.

It's probably been flagged for a while, the market is not there now but with a couple of year build time, you'd be hoping you'd sort of -- it would come on into an improving market.

I would have thought you may be not too far away from pulling the trigger on some capital in Australia?

Yes, we're certainly working on it.

With our growth rates in the Sycon range, we're going to need new capital in Australia.

So our guys are working on that and I don't know if we'll have an announcement for you this year or not, but it wouldn't surprise me if we did.

Thanks and finally for Russell, just the timing.

You said you might pre-pay or pay early to the Asbestos Fund.

If you could just -- it sounded like you might have been being intentionally vague -- but if there's any more you can tell us about that.

Then I guess most importantly where that falls into the FY12 year or still '13, but just earlier than July?

Andrew, unfortunately I can't be more specific, because it's something that's still subject to discussion with relevant stakeholders.

So I hope we'll have an outcome fairly soon.

Yes, just a little clarity there, we're not talking about more than 35%, so we're just talking about timing.

Yes, okay, thank you.

Thanks, guys.

Thank you there are no further questions in the queue.

Okay, that's it.

Yes, still no further questions.

Thank you.

All right, thank you very much, appreciate everyone joining the call.

Thanks, folks.

Thanks very much that concludes today's conference call, thank you all for attending.