James Hardie Industries PLC (JHX) 2012 Q4 法說會逐字稿

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  • Louis Gries - CEO

  • Okay it looks like we're ready to go.

  • Good morning.

  • Thanks for coming to hear the results announcement.

  • We'll do it the exact same way we always do it.

  • I'll run through the business units really quick.

  • Russell will run through financials and then we'll come back for questions.

  • So you can see in the result, but again the net operating outfit excluding the asbestos and others, very flat in the fourth quarter.

  • Up on the year mainly because the tax rate was better, non-US was better, US was pretty flat.

  • So that's how kind of we got to the result.

  • In US, which also includes our volume in Europe, volume was strong, price was off 2%.

  • EBIT was up a little bit because SG&A was up a bit in the US as we're adding headcount in anticipation of a little better market demand.

  • Full year like I said it's kind of what we see as a flat year because the volume was higher and the price was a little bit down.

  • The EBIT margin is down a little bit more than the EBIT, but a pretty flat year.

  • Much higher costs on freight.

  • Had some good savings in manufacturing.

  • Organisational costs were a little bit higher as we get ready for a better market.

  • But all in all the year came in kind of where we're trying to bring it in, meaning we did the things we wanted to do and we also got the result we were kind of aiming for in the US.

  • I commented on this in February.

  • This is the first year you've seen kind of that downward -- little bit of a downward trend in pricing.

  • We talked about it quite a bit last quarter.

  • We didn't take any market increases this year.

  • If you remember two years ago when we took our market increase we didn't do as good a job as we should have.

  • We lost track of our category share in some of the smaller markets and also we lost some of our category share in multi-family segment.

  • So this year -- and that doesn't normally involve our Hardie product lines, it normally involves either a Cemplank product line or what we call Prevail, which is our multi-family product line.

  • So this year -- and about a third of the market, a third of the fibre cement market is kind of down in that category where Cemplank, Prevail, CertainTeed, [Nichiha], Maxi all kind of live at the bottom of the market mainly serving the most price conscious buyers and segments.

  • So our win back in those segments basically was at a lower number -- it was at a lower number just because those segments buy at a lower number and was also at a lower number because when we came in to regain our share obviously it got a lot more price competitive at the bottom so the numbers dropped a little bit at the bottom.

  • The result because you saw this mainly in the last two quarters -- the result is a little bit different pattern on our EBIT margin.

  • You can see normally we have kind of a drop for one quarter and then bounce back up.

  • We do expect to bounce back but basically it's been in that 16% range two quarters in a row which is unusual for us.

  • On the primary demand growth -- primary demand growth is basically what it means is how well does fibre cement grow against other products dissimilar products like vinyl or wood.

  • The reality is this chart reflects what happened more in fibre cement over the last couple of years than it does against the other materials because you can see in fiscal year '11 where it went negative on us that was the other fibre cements grabbing some at the bottom of the market.

  • In fiscal year '12 a lot of our primary demand growth is a gain back of that bottom of the market fibre cement share.

  • Some if it is due to more fibre cement relative to the other products but again that also reflects a market difference because two years ago it was more biased towards starter homes where vinyl has a much more dominant share.

  • Then last year we went kind of back to a normal market so that's also indicated in the primary demand growth that we've seen this year.

  • Asia Pac, we kind of have the opposites going again.

  • As our US market looks like it's going to get better the Australian market is coming off.

  • So this quarter looks worse than it is.

  • We had a fairly material adjustment in the Asia Pac business.

  • Our stake in (inaudible) is kind of impacting numbers pretty significantly when you look at the deltas between the quarters.

  • Basically the Australian business is doing very well.

  • The New Zealand business I think I have commented quarter-to-quarter.

  • We went into the downturn not as prepared as we should have been in New Zealand and we've been kind of building our capability and improving our position but it's been slower than what we would have hoped.

  • It's still a very good business I'd just like to see it be doing better than it is.

  • Then the Philippines business has performed well over the last couple of years and certainly performed well right through this last year.

  • Full year in Asia Pac like I said a lot of our improvement in the business over the year was either tax or outside the US.

  • So full year Asia Pac was a pretty good result although EBIT up only 1% but again the way the market is declining I think we've done a good job contributing at a higher rate this year.

  • So the summary is all the businesses ran kind of like we thought they should so no issues on the business side.

  • The low prices -- relatively lower price as you've seen in the US over the last couple of quarters have a little ways to run yet.

  • I think last result I said I expect prices to be flat to slightly up/slightly down -- basically flat plus or minus 2%.

  • I think that's the way it will go for a while.

  • It will start out soft and then firm up a little bit as we go through next year.

  • We do have some tune-up on our pricing going on in the US.

  • We are taking some price on [RE] back, or pretty much in every market but not major price increases.

  • On Hardie Siding products we're not taking anything on prime boards and we're just kind of tuning up colour plus pricing in a few markets.

  • So we don't expect a big bump from market increases next year but we will get the mix impact will kind of work its way out as we hold our category share rather than build it next year.

  • Asia Pac -- obviously Australian market is pretty soft but I think, like the US, our guys are pretty well positioned to perform well in the softer market.

  • Maybe not a return as strongly as they did last year but certainly not drop off anywhere near the rate that the market's expected to drop off.

  • Housing starts in the US -- we went into the year and we planned our market to be flat to slightly up.

  • Forecasters got more bullish as the year went on and some of them had some pretty high forecasts out there.

  • You can see the last two quarters have comped very well.

  • So I think the reality is right now we're below where the market is going to be with our planning and we've already made one adjustment on production scheduling already this year to kind of factor that in.

  • But I also don't believe even though our order file is good I don't believe the external forecasts are quite in line here.

  • I think they're a little bit high.

  • So I think we're a little bit low, external forecasts are a little bit high.

  • I think the reality is it's going to fall somewhere in between.

  • Like I said before the reason we plan low is because we can stretch up a lot easier than we can pull back.

  • So no issue on losing any business if the market is as good as the external forecasts say but we'll get a much better return if we don't just run out and plan that way and it doesn't show up then we're in a bit of trouble.

  • So I guess that's what the first bullet point says.

  • Freight will be higher again this year.

  • [Pulp] it's hard to call.

  • We're not seeing a big move either way.

  • We are putting more costs in the business mainly on the sales side.

  • So we're putting more people in the market and we're putting more money behind some of our initiatives.

  • We think we are very early in the window where market development will be a lot easier than it has been over the last two or three years so we're starting to ramp up anticipating that.

  • Australia especially but Asia Pac in general we will just be kind of more careful with how we run the business in a declining market.

  • Our priorities don't change.

  • I mean that's the boring thing about Hardie -- we try and do the same thing every year -- we just tweak it based on what the market looks like.

  • The ColorPlus strategy is running well.

  • The Trim strategy is running well so those two things allow us or enable us to get to the job pack strategy that you guys have seen us invest in over the last three or four years.

  • That's going well.

  • Again the overall Group strategy we run the same strategy now country to country.

  • It's product leadership strategy and you just go heavier in a good market and pull it back a little bit in a lower demand market which is normally a more price conscious market.

  • So in the US we'll be going a little bit more toward the investment side and in Australia we will be pulling things back a little bit.

  • Okay we'll hand it over to Russell.

  • Russell Chenu - CFO

  • Thank you Louis and good morning everybody.

  • So this is a slightly unusual result for Hardie which has been substantially affected by some tax outcomes.

  • Last year we took a large charge -- that was FY11 -- $385 million as a result of losing a case in the Federal Court.

  • Then this year as a result of a win in the High Court we have a $485 million gain.

  • It's produced a $950 million turnaround in Hardie's net result which is fairly unprecedented for us to have a swing of that much given the size of this Company.

  • So as you're interpreting the results you'll see that that's really the biggest factor in the movement in earnings.

  • It is hopefully just a one off.

  • We certainly don't expect to see it again in the future.

  • We're very cashed up.

  • As a result of that the ATO was fairly prompt in paying the cash to us after the High Court decision in February.

  • By the end of March we'd received $396 million in cash from the ATO.

  • That's left us in a very strong cash position.

  • Partly as a consequence of that we're paying a dividend of $0.38 per security in July of this year.

  • Moving on to the foreign exchange rates -- not a lot of movement this year.

  • A little bit but the strength of the Australian dollar continued through the year.

  • Certainly was a bit uneven but on average it didn't have a big impact on our results or not as big an impact on our results as in prior years.

  • So I won't dwell on that.

  • Net sales for the Group in Q4 were up 7% to $309 million.

  • Gross profit was very flat.

  • SG&A expenses up for the reason that Louis mentioned -- higher organisational costs particularly in the US business.

  • A slight bump up in research and development expense and the really big item as I said is the bottom line, the income tax benefit we had this year relative to the charge we took in the prior year.

  • The net operating profit for the quarter was $481 million.

  • Looking at it on a normalised basis I think we can go straight to the net profit line at the very bottom here, $32.1 million in the quarter versus $33.3 million last year for Q4 is a 4% downturn, so just a fairly slight downturn in the result.

  • For the full year net sales up 6%, a fairly flat gross profit just up 4%.

  • SG&A expenses up by 10% to $191 million.

  • In looking at that result, just bear in mind that the $173.4 million for FY2011 was down by $10 million, as a result of a recovery from third parties relating to ASIC costs.

  • So the $173.4 million and the $191 million are not directly comparable.

  • It was more $183 million versus $191 million, or $191 million versus $183 million.

  • Asbestos adjustments this year was a mix of both foreign exchange and actuarial reappraisal of the liability; but the net this year at $15.8 million was a -- actually I think the smallest we've had in the history of carrying the asbestos liability for the past six years or so.

  • With the income tax benefit this year versus the expense last year, the net operating profit was $604 million versus a loss last year of $347 million, giving that $950 million or so turnaround that I referred to before.

  • On a normalised basis, obviously reversing the tax adjustments being the big item here.

  • The net profit after tax adjustments -- ASIC asbestos and asset impairment that we took -- was $140 million versus $116.7 million last year.

  • So a result that was up 20%.

  • So quite a pleasing result given that the fourth quarter itself was down just a little bit.

  • Looking at net sales, US and Europe were up for Q4 up 12% to $221 million.

  • Asia Pac was down 2% which was a result of A dollar sales -- Australian dollar sales being down by 7% and appreciation of the currency producing a plus 5% movement, resulting in a net downturn of 2%.

  • So the total was up 7% to $309 million.

  • On a full year basis, a somewhat similar result; US and Europe up 6%, Asia Pac up 6% that was Australian dollar results down 4%, FX rates up 10%.

  • So a net gain of 6% for Asia Pac and a 6% result overall.

  • So a very even result, even if distorted a little by foreign exchange rate movement for the Asia Pac.

  • Segment EBIT for Q4; you can see here that we had a slightly lower result in US and Europe driven a lot by cost but also a little bit by price in the US business for the reasons that Louis mentioned to do with the structure of the market at the moment.

  • Asia Pac fibre cement down 26%.

  • Louis also referred to the fact that we'd taken a fairly material adjustment in the Asia Pac business in Q4.

  • So the total segment EBIT was down 13% to $45 million.

  • We hit a slight bump in general corporate expenses.

  • The $6.7 million spend being more in line with the normal quarterly spend -- last year's $5 million was a very low result.

  • So the total EBIT before the adjustments was down 18% to $38.5 million.

  • For the full year, very even across the whole result.

  • You can see US and Europe 1% up -- Asia Pac 1% up in US dollar terms.

  • Corporate expenses down for the full year bearing out the point that it can be a bit volatile from quarter to quarter.

  • The overall result before adjustments was up 3% to $190 million.

  • Moving onto income tax expense; Q4 came in at 13.7%.

  • I'd invite people not to read too much into that result.

  • As you will have seen the profit that we reported was very low in Q4 relative to other quarters.

  • What we were really doing here was just balancing up to the full year tax expense and given the low profitability, a couple of benefits that we took in Q4 in order to balance up the year end resulted in a very low effective tax rate for the quarter.

  • It's not indicative of what will be happening going forward.

  • I think it's the case that the full year ETR of 23% or so is more likely to reflect the go-forward position.

  • So 25% plus or minus a couple of percent as we've guided previously would be the expected result.

  • We did have a lower -- or sorry a different geographic mix of earnings which produced the downturn in the ETR from last year.

  • But as I said it was within the guidance we've given during the past 12 months or so.

  • In terms of cash flow obviously significantly impacted by the receipt of cash during the fourth quarter following the High Court decision on the RCI matter.

  • As I said, the ATO was very prompt in refunding the cash to us.

  • It put us in a position where we could pay 35% of that amount via an early contribution to the asbestos fund and that wasn't paid by 31 March but under US GAAP we recorded the amount of $138.7 million which you can see there as restricted cash.

  • In fact it was paid on 2 April.

  • But the normal operating cash flow was quite a good result for us.

  • It was down a little on last year but it was impacted by a number of unusual payments.

  • We had a dividend withholding tax payment to the IRS at the beginning of this financial year of $35 million.

  • That was in last year's result but the cash went through this year.

  • So there has been some rather unusual moves in cash, but the operating business is continuing to produce very strong cash flow.

  • Capital expenditure at $36 million was below last year's $50 million.

  • We had an acquisition that we reported in early April; we'd drawn the cash to make the payment for that which was an additional $14 million.

  • The share buyback that we undertook during FY12 was an outflow of $19 million and we paid dividends in cash of $17 million in the year.

  • The end result of all of that is that we'd repaid our debt.

  • We had $40 million of debt at the beginning of this financial year with the strong cash flows during the year and relatively minor outflows.

  • We finished up with a $265 million net cash position and that's after putting aside the $138.7 million that we'd paid to the ARCF in April.

  • So a very strong financial position for the Group.

  • We announced a dividend today of $0.38 per security, payable in July of this year.

  • We paid an interim dividend of $0.04 in January, so the total for the year is $0.42 per share.

  • That's just a tad over 30% of the result, based on the net profit after tax but excluding asbestos adjustments, which is the profit on which we based the dividend payout ratio guidance.

  • We are looking at making further distributions to shareholders in the short to medium term.

  • We're reviewing our dividend payout ratio.

  • We announced a 5% share buyback this year this morning having the one that we announced about a year ago closing off last Thursday.

  • So we've renewed that via a new share buyback announcement.

  • We'll also be looking at capital returns.

  • So everything's on the table and we'd expect to have some announcements in due course.

  • During the quarter we cancelled $40 million of credit facilities which were surplus to requirements but we've retained $280 million of facilities as of now.

  • We have net cash at the end of the year of $265 million as I reported, so about $545 million of liquidity available to us.

  • Our debt covenants were -- obviously very comfortably within those -- the average debt maturity is coming down because we haven't renewed any facilities recently but I would anticipate that we will be doing something within this financial year.

  • I won't dwell too much on the RCI case because it is thankfully now history but I just will say that the $396 million that the ATO refunded to us enabled us to make an early payment to the ARCF as I highlighted.

  • There is still one matter outstanding on this which is recovery of legal costs.

  • I'm hoping that we can conclude that fairly quickly.

  • It's unlikely to be material, but we will report it in due course.

  • Likewise with ASIC, I don't want to dwell too much on this.

  • We did see a result from the High Court in early May as a result of ASIC's appeal.

  • James Hardie as a company was not a party to the High Court proceedings but we will finish up wearing some additional costs from that.

  • Some matters arising from that appeal by ASIC and the High Court findings have been referred back to the New South Wales Court of Appeal.

  • I understand there's a directions hearing in late June and we'll undoubtedly hear more after that but we're not in a position to assess the costs that the Company will bear and so we'll report those as they come through on an incurred basis.

  • Turning now to asbestos, a new actuarial report was available today and we've released that to the ASX around the same time as we released the results earlier this morning.

  • The liability as assessed by KPMG, using the discounted central estimate, is increased.

  • It's gone from AUD1.478 billion to AUD1.58 billion, which on the face of it doesn't sound like a great outcome but the main reason for that increase is actually a reduction in the discount rates, as a result of a fall in Commonwealth bond yields.

  • So it's not the result of an increase in case load or any other adverse factors than just the movement in Treasury bond yields in Australia.

  • As I said we've made an early contribution to the fund, $138.7 million.

  • We'll be making a further contribution on 1 July at $45.4 million, so $184 million to the fund this year which will substantially improve its cash position obviously.

  • Looking at the actuarial assessment you can see here the impact that the discounting has had, $267 million this year versus $113 million so a very big shift.

  • The net liability in Australian dollar terms has fallen from $984 million after tax to $906 million so it's actually coming down.

  • In US dollar terms it's also down but not quite as much because of the minor exchange rate movement.

  • I think this is probably the most informative slide of all in relation to what's going on with the asbestos liability.

  • This is the 11th actuarial assessment that the KPMG Actuarial has made since mid 2004.

  • The blue line at the bottom is the discounted central estimate which has a lot of noise in it always relating to discount rates and various other factors.

  • You can see that that's actually very flat.

  • It usually comes in a range of about $1.4 billion to $1.7 billion and a lot of that is due to the fact that the peak year of cash outflows is still predicted to be around 2020 and, so, as we get nearer to 2020, those high annual values are actually being discounted at a lesser rate.

  • So, that's what keeps that line very flat.

  • If it stays flat, my view is that's actually representing an improvement.

  • But the more important line in my view, is the yellow or orange line on the slide.

  • You can see that that's had a fairly steady decline in the last four years.

  • That's the undiscounted central estimate, so there's no noise in that from the movement in discount rates or bond yields.

  • The other one is that the bar represents the sensitivity range and you can see that over the past four years or so the top end of that range has also been going through a steady decline.

  • So, some relatively encouraging news in that, notwithstanding the increase in the accounting value of the actuarial liability.

  • Looking at the asbestos fund's current financing -- the fund had $60 million of assets at the end of March 2011.

  • This year it had $62.5 million.

  • That is after a $30 million borrowing from the New South Wales Government under the standby loan arrangements.

  • Those -- that borrowing was repaid on 3 April after Hardie's early contribution.

  • So, the fund has no liability under that standby facility currently.

  • During the year, the fund paid claims of $88 million, which was down a little bit on the 2011 financial year.

  • It recovered also a large amount -- $24 million from insurance and cross claim recoveries and the total net claims was $75 million, which was again a very good outcome relative to the actuarial estimate, which was a net outflow of $94 million.

  • Okay.

  • Looking at key ratios.

  • As you can see, quite a few of these are showing slight improvement on last year.

  • EPS is up to $0.321.

  • We reinstated a dividend this year -- so a $0.04 dividend paid during the year.

  • Return on shareholders' funds and ROCE were up slightly on the prior year.

  • EBIT to sales down for the reasons that Louis has explained to do with the structure of the US market at the moment.

  • The key debt capacity indicators are extremely strong.

  • In summary, we think it was a very good result in the circumstances; up 20% in what has been fairly difficult markets, both in terms of the way the markets were moving as well as in the structure of them.

  • We've had a -- I think seen some improvement in the US market.

  • We see Asia Pac slowing, but with our business expected to continue to do perhaps better than the market overall.

  • We've had higher sales volumes in the US and Europe segment; increased SG&A expenses, which will probably be the situation through this coming year as well; and we've had appreciation of the Asia Pac business's currencies during FY12, which obviously helped our reported US dollar results.

  • That at the moment looks as though it's unwinding, at least at this point, but it does have the potential to be quite a big impact on our FY13 results -- the movement in the Asia Pac currencies relative to the US dollar.

  • So, the bottom line is that we're in a very strong financial position.

  • Zero debt, which is obviously very inefficient in a capital sense and we're intending to move away from that and move to a more leveraged position than we've been carrying for a little while, as a result of most of the contingencies that we've been managing for now being dealt with and put behind us.

  • We will, I'd anticipate, over the next two or three years be moving to an increased leveraged position -- subject to all the environmental factors, the external factors and our own internal needs.

  • So, that concludes the presentation and I'll hand it back to Louis to take questions.

  • Louis Gries - CEO

  • Okay.

  • We'll do the questions the same as always.

  • This room first -- not sure any media here, but we'll do investor questions first.

  • Then we'll go to phone and then we'll take care of media.

  • And I guess we should probably do price before everything else.

  • Andrew Peros - Analyst

  • Thanks, Louis.

  • Andrew Peros, Credit Suisse here.

  • I appreciate your comments you made a little earlier you made about outlook and market conditions, but with SG&A costs up 14% for the quarter, 10% for the year, perhaps that suggests you're being a little conservative.

  • Just wondering how you reconcile that and how long you expect to sacrifice short-term margins in anticipation of better conditions?

  • Louis Gries - CEO

  • Yes.

  • That's a good question.

  • I don't anticipate, really, sacrificing short-term margins because I do think the market's going to be better and that will keep us in the 20% to 25% range if it is, even with the increase in costs.

  • But if the market's not there, then the reality is I'm not going to pull back the programs we're funding right now.

  • So, it would fall the 20% and maybe even below the 19%.

  • So, I think where we're at in the US -- of course, everything can change -- but I think where we're at in the US is -- two years ago we had a false start.

  • That was driven by a tax incentive.

  • This year it's more real.

  • It's more fundamentally sound as far as how it's happening.

  • It's not going to be straight through the roof.

  • It's going to be fairly slow, I think.

  • But I think our organisation is -- when you look at the downturn as a whole, we've done a very good job going from being a kind of a growth business to kind of bottom line in a period of decreasing demand.

  • But we just need to get back to growth.

  • If we're a year early, we're a year early, but I don't think we are.

  • I think we'll be fine.

  • So, that's where we're going.

  • Andrew Peros - Analyst

  • Okay, thanks.

  • Some questions for Russell.

  • Firstly on the buyback, just wondering if this new buyback comes with any change in the approach to actually undertake the buyback as we saw in the previous buyback last year?

  • Secondly, on the tax rate, just perhaps some guidance around tax going forward.

  • I think the last result you guided the 25%.

  • And following your comments around the capital structure, just wondering where you see the optimal capital structure going forward.

  • Louis Gries - CEO

  • I can actually handle those since none of them are very difficult.

  • The buyback, same as the past.

  • Now, we're pretty opportunist in our buyback.

  • You can see that in what we paid for the shares we bought.

  • We may become a little bit more proactive, a little less opportunist in the buyback.

  • As far as the capital structure, I mean, you guys know our business generates a lot of demand.

  • We're going to start spending money on capacity again -- I mean it generates a lot of cash.

  • We're going to start spending money on a lot of capacity again but it's not going to be the type of money that's going to prevent us from returning cash to shareholders.

  • So, I think Russell's comments -- short to medium-term, return cash to shareholders.

  • That's the plan.

  • We don't want to be an unlevered company.

  • We want to lever up the balance sheet.

  • That's why we'd be looking at renewing the lines and maybe increasing the lines in the next couple of years.

  • You had your third question which I've already forgot.

  • Andrew Peros - Analyst

  • (Inaudible question - microphone inaccessible)

  • Louis Gries - CEO

  • Oh yes, tax.

  • 25% plus or minus 2%.

  • Let's stay with that.

  • I think it'll be good.

  • Emily.

  • Emily Behncke - Analyst

  • Thanks Louis.

  • Emily Behncke from Deutsche Bank.

  • Just a few questions on market share.

  • From my recollection where you lost some of the share a year or two or ago in fibre cement was in the first-time buyer or in that new home market.

  • It seems that the repair and remodel share or primary demand has accelerated a little bit.

  • Just wondering if you can comment on the performance within the repair and remodel market?

  • Secondly, just a question maybe for Russell on the balance sheet.

  • Given that you are in a net cash position, just wondering why perhaps you didn't return a little bit more to shareholders?

  • Louis Gries - CEO

  • So, I'll just run through all the segments.

  • Emily had a couple of questions.

  • So, big builders; we lost a little bit of category share, that's back.

  • I think we have 18 out of 20 big builders on Hardie programs again.

  • I can't remember, I think it fell to 14 out of 20, so a clawback there.

  • Multi-family the same.

  • In the South East, Pacific Northwest we lost our position a bit in multi-family, we've regained that.

  • Then in smaller markets when we went to our price increase two years ago we weren't close enough to the customers in the smaller markets and we lost some category share there and we've largely gained that back -- more in the southern part of the US, a little bit less in the northern part of the US.

  • So, on category share, we're where we want to be.

  • So, we're not trying to grow through increase of category share, we're trying to grow, now, against vinyl and wood.

  • The market's still very price conscious, but I think, every quarter, if the market demand goes up and people shift from, how do I build a cheaper house, to how do I sell more houses, I think we just have a better opportunity with the market development initiatives that we have ready to go.

  • As far as why didn't we return more than -- what was it?

  • $166 million?

  • Russell Chenu - CFO

  • Yes.

  • Louis Gries - CEO

  • I guess we're just a conservative company and we don't have everything lined out exactly like we want to with the various pieces.

  • We have investors around the world and certain investors prefer one thing over the other.

  • So, we've taken our first step and, like I said, short to medium-term, more cash coming back from Hardie will be the norm.

  • It's not a one-off event, the $166 million.

  • Emily Behncke - Analyst

  • And that R&R market, could you make a comment about what's happening?

  • Louis Gries - CEO

  • Oh yes.

  • Sorry, that's the only one I skipped.

  • Sorry about that.

  • I actually think we're doing quite well in the R&R market.

  • It's hard to measure.

  • No one publishes numbers that's why we've flagged in the past we're not going to continue to provide an equity basis PDG-type data, just because we do have a way of getting the data through our customers, but there's no external verification of the data.

  • So, it's a little bit hard to estimate.

  • The way I think I talked about it last quarter, we've got 20 target R&R markets.

  • If you put those markets on a bell curve, we've got five or six running really well and then you've got five or six, or four or five, that are lagging.

  • Quite honestly we're better in vinyl markets than we are in fibre cement markets.

  • So, in vinyl markets where we designed the program -- Chicago, Washington DC, and now Philadelphia -- we're really good at it because the consumer can see the benefit of their decision from the curb.

  • In other words, when they decide not to use vinyl and they decide to use our product and they decide to pay a premium for that, they can actually see it from the curb.

  • In the southern markets, you can't see it from the curb, because we're normally going to upgrade them to ColorPlus and they're going to get a better product because of it.

  • But their neighbours driving down the street don't actually see that.

  • So, I think we've got a little bit of redesign work in the West and in the South.

  • Of course, we get a very high share of the R&R that happens in those markets now, but we also think it's a little bit undifferentiated and it would be a lot better if it was on colour than if it's on prime.

  • So that's what we're working on there.

  • Simon Thackray - Analyst

  • Louis.

  • Simon Thackray from Nomura.

  • Just a couple of questions.

  • Going forward, multi-family's obviously representing a bigger chunk of the pie in US housing starts at the moment, as it is in Australia as well, so can you give us a feel for what you expectations are on mix between multi-family and single in '13?

  • You've obviously got a headline start number but presumably with all these initiatives you've also got an assumption about mix.

  • So, could you help us out by giving us a feel on mix?

  • Louis Gries - CEO

  • Yes, so we don't participate in high rises.

  • Other than that, we participate in multi-family.

  • So, what our guys do, is they work out addressable starts.

  • They just knock the high rises out.

  • The other thing with multi-family is your siding per start is much lower in multi-family than it is single-family.

  • I think that something like -- the ratio is maybe 40% of the siding on a multi-family start versus a single-family.

  • So, it all does get factored into the overall opportunity that we're going after.

  • We don't get too concerned about that.

  • I think the reality is, in the US, the long term trend will be for more multi-family because everything's coming back closer to city centre and land's not going to be available.

  • So, it's going to get denser and then you go zero lot line, but a lot of its going to go, obviously, multi-family.

  • The key for us is are we advantaged or disadvantaged in multi-family and our advantages in multi-family are pretty much the same as single-family.

  • So, right now, our market share in multi-family would probably be no different than single-family.

  • The other key for us is how much of it do we find early and move them on to a full wrap Hardie package versus find late where it's in the bid process.

  • When it's in the bid process it's normally going to go to commodity, fibre cement, whether it's our Prevail line or CertainTeed, Nichiha.

  • So when it goes late, basically we ensure that we get 90% to align with our category share goals.

  • But really what we want to do is catch it early because the multi-family builder, who a lot of times ends up being a multi-family owner, really benefits from the lower maintenance you get with the full wrap model.

  • Simon Thackray - Analyst

  • Sorry.

  • Is that where your SG&A, therefore, is going in part?

  • Louis Gries - CEO

  • Our SG&A's going up because it's time to go up.

  • Simon Thackray - Analyst

  • That's what I'm saying, are you deliberately addressing the market so you can be earlier?

  • Louis Gries - CEO

  • Yes.

  • We have more emphasis on multi-family early stage.

  • To be quite honest, it's not driven by SG&A concerns in the past, it's that we stubbed our toe and we had to get our late-stage category share back up.

  • So, that's been our focus for about 18 months.

  • So, now we're getting back to where we should have been, which is early stage.

  • Simon Thackray - Analyst

  • So, that leads neatly nicely into the pricing finish for the year, which is $628, $644 Q3, $661 at Q2, so that's down 5% --

  • (Multiple speakers)

  • Simon Thackray - Analyst

  • -- so are we sliding into further -- just in terms of our jump off point for Q1?

  • Louis Gries - CEO

  • I'll give you my guidance on pricing.

  • It's flat -- minus 2%.

  • Simon Thackray - Analyst

  • That's for the year.

  • I'm asking for the quarter.

  • Louis Gries - CEO

  • The quarter will be softer on price in the early part of the year and stronger later part of the year.

  • Simon Thackray - Analyst

  • Okay, cool.

  • Finally, just on pulp, looking at the graph for pulp, obviously it's come off from where it was a year ago.

  • Probably would have expected, maybe naively, a bit of assistance from that in the margins but not seeing that and now the price is starting to tick up again.

  • Is there any period in which we should be looking for some assistance given the lag between the pricing and the impact to Hardie?

  • Louis Gries - CEO

  • Assistance from pulp?

  • Simon Thackray - Analyst

  • Yes.

  • Louis Gries - CEO

  • I had the guys look at pulp for me quick (inaudible) but they didn't know.

  • So, then I don't know.

  • So, we're assuming it's flat.

  • Now we could be wrong, but if we're wrong -- US dollar -- I don't know.

  • It probably depends on what happens to the US dollar.

  • If the US dollar were to get stronger, not saying it is or could, pulp would go down.

  • If the US dollar doesn't get stronger, then I think it stays pretty much where it's at.

  • Simon Thackray - Analyst

  • Okay, thanks.

  • Jason Steed - Analyst

  • Louis, good morning.

  • Jason Steed, JP Morgan.

  • Perhaps starting with CapEx.

  • You suggested CapEx was going to tick up in the US.

  • I guess if we go back to September last year and the last quarter, the question marks about that artisan spend, you're looking at obviously --

  • Louis Gries - CEO

  • We should do that.

  • Jason Steed - Analyst

  • Can you -- given you're trying to get ahead, I think you were talking about April being the point at which you might put it to the Board?

  • Louis Gries - CEO

  • Yes, we didn't do that.

  • Jason Steed - Analyst

  • So, where are you?

  • Louis Gries - CEO

  • All right.

  • So, I'll give you the overall on capital spend.

  • So, as far as in our plan right now -- internal plan right now -- we've got normal capital spending, but the reality is, like I said, the last two quarters there's definitely been some pickup in market momentum.

  • So the good news -- and actually Russell covered it with one of our impairments.

  • The good news is all the capital spending we want to do is because things have gone well during the downturn and what I mean by that, not the optimising of the bottom line, but the shifting of the product mix.

  • So, our product mix coming out of the downturn is much different than going in.

  • So, what we need to do is we need to get more trim capacity ready.

  • What happened with that impairment -- our work over the last year or so on trim has been so positive, both on the manufacturing side with our second generation trim capacity in Peru, versus the first generation trim capacity in Cleburne, which when we ran trim capacity down early on in the downturn.

  • And when we did that, that was a hard decision because it actually made a slightly better product at a lower cost.

  • So that's why we didn't take an impairment at the time.

  • We really felt that Cleburne trim capacity was going to restart.

  • Now, it was a difficult decision because the capacity at Cleburne couldn't serve the market, so we couldn't shut down Peru.

  • So we had to either keep running both -- and it was a slightly better economic return to do that -- or shut down Cleburne and bet on Peru.

  • We made that bet and the guys at Peru have done a very good job and now Peru has been really -- it's really leapfrogged what we can do out of Cleburne.

  • So, it's 12 feet long.

  • It's a much stronger product and now it's much lower cost.

  • So that's what caused the impairment.

  • Now, we do need more trim capacity, so initially we thought we'd just start up Cleburne.

  • Now we look at it and (technical difficulty) what we have to do is debottleneck Peru because we get a better product, at lower costs, with lower freight rates out of Peru.

  • So, that's one piece of capacity addition we're going to do.

  • The other is Fontana plant and the Somerville plant are both currently down and on our books.

  • In both cases, we're going to re-engineer those plants for our current product line so we can make them competitive for the next 20 years rather than just bring them up for the incremental capacity.

  • Let them make the products they used to make and we'll have slightly higher freight costs as we stretch those plants out, or we can re-engineer them for the new products mix and have them be much more competitive.

  • Jason Steed - Analyst

  • (Inaudible question - microphone inaccessible)

  • Louis Gries - CEO

  • On trim in Peru, we're going to spend money when we restart Fontana.

  • We're going to spend money when we restart Somerville.

  • We're going to spend more money on colour capacity in the South and we're going to spend money on artisan capacity in the East.

  • And then we're going to spend money on more capacity in Australia as well.

  • So, how we prioritise these and time things -- because it's partly money but it's also partly capability.

  • So, you don't want to be trying to build (inaudible) things at the same time.

  • So we'll want to sequence them.

  • So, I can't tell you for sure, which will come first, but we are going to get busy again with capacity additions.

  • It's not so much driven by housing starts as much as the change in product mix from when we started the downturn to where we're at now.

  • So we have much more Color, much more trim, much more shingle.

  • So the products that are sitting at the top of the product line are a much heavier mix compared to when we started.

  • Jason Steed - Analyst

  • I appreciate that detail.

  • Obviously, difficult to say on an annual basis.

  • If you put that together very broadly --

  • Louis Gries - CEO

  • I don't know.

  • I'd guess -- because we're very early in it -- I'd guess in the downturn, we were spending $50 million and just off product mix changing around, I'd say you'd probably need to spend a $100 million for several years.

  • Then whenever you get a new slug of sheet machine capacity, that's probably another $100 million on top of that.

  • So, you could see a year we'll spend $200 million.

  • But I think most of our years would be somewhat between the $50 million and $100 million.

  • We did a lot of other type of CapEx during the downturn, which we've completed now, so we don't have to worry about that.

  • So the $50 million a year we were spending in the downturn was pretty well spent, but we've got that behind us.

  • That was more spot-to-site specific stuff rather than demand or product specific stuff.

  • Jason Steed - Analyst

  • Thanks for that Louis and just one more question.

  • With the departure of Nigel, what's -- is your intention to stay at the direct helm of the US business for the foreseeable future?

  • Do you see --?

  • Louis Gries - CEO

  • That's a good question.

  • So, most of you know Nigel.

  • He ran the US business for basically two years.

  • Prior to that we had three GMs in the US -- Nigel being one of them.

  • Right now, our plan -- I shouldn't even qualify it with right now because we've already implemented it.

  • The plan is for me to run the US business without the GM structure for two years.

  • Then two to three years from now, we'll go back to three GM structure.

  • I actually don't believe we'll go back to the US president structure.

  • It's just too much of our business falling on the shoulders of one executive.

  • We're a fairly small business with a focused strategy, so the three GM structure -- actually you end up with four GMS.

  • Non-US, 3 GMS reporting to the CEO, which I think is the right structure.

  • But for right now, we're going to run it directly under me so, again, you guys know the head of manufacturing, the three division sales managers, the two lead product guys, Sullivan and Donofrio, Barnett on finance, Sandra on HROD, they'll report directly to me.

  • So, I'm basically running the USMT for a two to three year period.

  • Jason Steed - Analyst

  • Was that one of the reasons for Nigel's departure?

  • That sort of weight on --?

  • (Multiple speakers)

  • Louis Gries - CEO

  • No, I think that's more of a reaction to Nigel leaving rather than a reason for Nigel to leave.

  • Nigel and I were right in line on the business.

  • I was aware of his personal preference to live closer to his home base, so it was just a mutual decision as to how Nigel wanted to end up and what we were doing with the Company.

  • So we're going to run this Company out of the US for the long term.

  • That's the reality.

  • No more questions?

  • Andrew Peros - Analyst

  • Andrew Peros, Credit Suisse again.

  • Perhaps you could just give us some comments around the acquisition you made a few months ago about the fibreglass composite?

  • Louis Gries - CEO

  • Yes, I will.

  • It was around fibreglass.

  • So, I can't remember if we covered this three years ago or so in our September tour, but we're looking at things outside of fibre cement.

  • We're not looking at businesses outside of fibre cement, we're looking at growth opportunities outside of fibre cement.

  • So, basically, what we did with the acquisition in April was buy some assets to basically start up something outside of fibre cement.

  • We didn't really buy a business.

  • It was a business, but it was more the technology and the capability that we were interested in.

  • That was pretty small.

  • It didn't seem to me like it was something you would announce but my experts told me you do.

  • It seemed pretty small to me.

  • But we made two smaller ones prior to that -- really small ones.

  • And we're also starting a technology centre outside of Chicago for non-fibre cement technologies.

  • So we've now got three pieces that sit under that umbrella.

  • Obviously, there's a lot to go as far as fibre cement growth in the future.

  • In the US, we think its 13% to 35% market share -- that's a ton and that's all organic growth.

  • Obviously, we see a lot of product growth there -- meaning the colour, the trim, the job packs obviously -- so there's a lot to do in the US on fibre cement.

  • Then outside the US, here in Australia, we're needing capacity because our Scyon initiative has been so successful.

  • So even though we're down in the market here, as far as market opportunity, we're getting ready to put capacity in Australia as well.

  • I think -- by the way, the growth rate in Europe has ticked up a bit as we've committed to some product development, market development there.

  • I think we'll probably take a look at some Asian geography as well for expansion.

  • So there's plenty to do in fibre cement.

  • But the way I look at it is, say the fibre cement growth curve in the US is seven to 10 years.

  • We have a pretty good organisation that thinks and executes well around organic growth and market development growth.

  • So, what are we going to do with that organisation when that starts flattening out whether it be seven, eight, nine, ten years down?

  • So our exploration with these new technologies is basically to find the next fibre cement.

  • It's that simple.

  • And we don't expect it to mean anything for an investor for at least the next five years.

  • So you should look at it, keep asking me if I'm wasting my time, if there's an opportunity cost there that we're not doing as well in fibre cement because we're worried about this small stuff.

  • But at the end of the day you shouldn't expect any value creation from the non-fibre cement stuff for at least five years.

  • So, it's much more of an investment in technology than it is an investment in a business.

  • Andrew Johnston - Analyst

  • Andrew Johnston, CLSA.

  • Louis, can you give us a little bit more detail about how the other regions are going?

  • So Europe and Asia.

  • And a bit about Asia, can you go into a bit more detail about where that opportunity fits in terms of the product that you're delivering?

  • Secondly, I'm not sure whether you're prepared to give us a bit more detail about where the extra staff are being put in on the US, which parts of the markets?

  • Louis Gries - CEO

  • A lot of the extra staff -- if I had my way, two-thirds of it will be in the field -- now there will be some around the Job Pack initiative, so there will be some in offices.

  • But I want more field resources, basically.

  • So, we say SG&A -- it's the S, not the G and the A. And it's going across the Board.

  • It's going in the West, going in the South, going in the North, going in non-metros, going in multi-family, going in R&R.

  • So it's going across the Board.

  • Now, obviously, we have it all prioritised.

  • We can only bring in and on board X number of people well.

  • So that's kind of what -- in the last three years it's been finances that have constrained it and now it's how well can you do it is what's constraining it now.

  • I forgot your first part, sorry.

  • Andrew Johnston - Analyst

  • Just a bit more detail about the products, or the new markets that you're taking fibre cement in to and what's the deal with --?

  • Louis Gries - CEO

  • Oh yes, okay.

  • So Europe's a masonry market.

  • We're a frame market products company, so we're looking at flooring.

  • Which you know, we do flooring pretty well here.

  • We're looking at insulated exterior cladding in Europe.

  • So both have product development and market development -- big pieces that go along with it -- but so far I like how the guys are thinking about it and what the early jobs look like.

  • I think we're optimistic that we can start developing a product line for Europe rather than putting US or Australian products in Europe.

  • As far as Asia, it's very early.

  • I haven't made my first trip with the guys.

  • I'm kind of anti-Asia because everything commoditises so fast in Asia.

  • That's why we pulled out of looking at Korea and a few other countries.

  • Now the guys have come back and said, hey, you're living in the past.

  • What we have now is these special products on tap -- these Scyon products -- and that's where the opportunity is in Asia, not products that can be easily commoditised by producers in Malaysia or elsewhere.

  • So we're very, very early.

  • I think a year from September is the time to ask us what we think about Asia.

  • Because I think it will take us that long to sort through the different countries and work through potential entry strategies.

  • So the reason I mentioned it wasn't to mislead you, the reason I mentioned it was because if you look at Hardie 10 or 12 years out, that's when you've got think about how am I going to balance the different opportunities?

  • So how does non-fibre cement technology compete with non-US fibre cement green-fields?

  • SO we don't have much guidance for you there.

  • I just wanted to let you know they're both things that will compete for investment dollars in the future.

  • Andrew Johnston - Analyst

  • Thanks.

  • Louis Gries - CEO

  • Any questions on the phone?

  • Operator

  • Yes actually, we do have a few that have come through the phone.

  • Our first question comes from Matthew McNee with Goldman Sachs.

  • Please go ahead.

  • Matthew McNee - Analyst

  • Louis, just looking at that margin -- I think going back to February you indicated that the EBIT margin would come in the full year as close to about 20, and I think you gave yourself a pretty good range at the time.

  • But it seems it has come in a little bit lower than what you were thinking back in Feb.

  • Now, obviously the SG&A spent has accounted for some of that but also if you just look at your gross margin, your gross margin was down about 2% or 3% in the last quarter.

  • And I know you made a comment about some pricing at the low end.

  • So, can you just clarify that?

  • Did you have to get a little bit more competitive on price at the low end to win back market share and is that what we're seeing there?

  • Or is there a negative mix effect just on lower margin products being a bigger portion of your sales?

  • What's sort of driving that?

  • Louis Gries - CEO

  • Yeah, both those things contributing.

  • As far as me being off a bit on the year end margin in the US I think you're right.

  • Of course if we would have come in at 19.3%, I would have told you that is close but I think we came in at what, 18.9% and even I have trouble spinning that for you.

  • So I thought we were going to do better.

  • Now there wasn't anything fundamental in the business that happened.

  • There were a few year end round ups that kind of didn't go our way and when you're trying to cut it that close those things can kind of knock you out of the range you were looking for.

  • But let's go back to the question about category share and the win backs there.

  • Naturally those are the lowest price segments with the most price conscious buyers, so basically to win things back, first and foremost in their mind is going to be well, what's the price advantage?

  • So the fact that it's a low price segment as you add it into your mix, it pulls down your average price, but then obviously when we went back into those segments they became more price competitive -- or when we started taking a bigger part of those segments it became more price competitive.

  • So not only were they lower priced segments that pulled the average down but the price in those segments got pulled down a bit as well.

  • Matthew McNee - Analyst

  • I might also just --

  • Louis Gries - CEO

  • Yes, go on.

  • Matthew McNee - Analyst

  • -- sorry Louis, just one other question, just on the Australian business.

  • You obviously don't show the EBIT for the individual segments within Asia Pacific, but can you give us a little bit more colour on what Australia did in A dollars in terms of was it down, up, flat compared to PCP?

  • So one of your peers obviously just reported last week and they seemed to have a reasonably good result out of their lightweight systems and were saying that they were pretty much flat.

  • So would you guys have seen something similar or would you have been down?

  • Louis Gries - CEO

  • I'd rather talk about Australia what I see over the year rather than any short quarter.

  • And over the year we're anticipating that we will be down a bit in Australia on a much softer market.

  • So we think we're going to do well relative to the market, but we do think the market will be down enough to where it's going to pull us down a bit.

  • It won't be anything like you see in the fourth quarter results.

  • Like I said that fourth quarter result wasn't necessarily in Australia and it wasn't necessarily all operating results there but believe me, the Australian -- if the market is as soft as most people think in Australia it's going to be a big challenge for the guys in Australia.

  • So they will have to go through the same learning curve the US business went through and they have been growing - the Australian business has been growing for several years in a row and now they've got to say it's not so much about optimizing our top line it's how do I optimise my bottom line, hold my position and grow where I can.

  • And that's a learning curve for the organisation down here and you guys know Mark Fisher kind of is over the region down here but the guys in the region basically run the business.

  • So we'll get some of that knowledge from the US to transfer but they're going to have to learn how to do it with their customers and their geography, with their products, with their plants and if they do it really well I think it will be a very impressive result.

  • If we don't do it as well then obviously we'll be down a bit more but overall again a quick summary of Asia Pac, great, great Australian business.

  • A much improved, good returning Philippines business and kind of a New Zealand business that gives us good returns, but from a business standpoint they don't run as well as we'd like them to run.

  • So we're in kind of it seems a two or three year fix up in New Zealand but it's not huge dollars.

  • The opportunity isn't a huge dollar difference, we just like to see that business run better than they run, both on the manufacturing and the market side.

  • Matthew McNee - Analyst

  • Sorry, just one more for yourself or maybe Russell, just Russell talked about gearing back to more normal levels or what you typically have for an industrial company.

  • Can you just clarify where that -- just to give us a bit of an opportunity to try and figure out how much capital return or special dividends we might see coming forward?

  • You've obviously indicated you're going to have to spend a bit more on capital but just give us an idea of what sort of broad metrics you think is a normal gearing level?

  • Louis Gries - CEO

  • Yes, I mean there is -- right, for Hardie there is no normal gearing level but obviously we don't want to give you a headline number you guys all pencil in either.

  • So our problems in the last five, six years has been the uncertainty in the business because we had the '99 uncertainty -- ATO '99 uncertainty, we had domicile uncertainty and then we had the US market uncertainty.

  • So kind of all that stuff is behind us and we've come out of it with a very strong balance sheet.

  • So we can afford to lever up pretty significantly.

  • Now I don't think Russell, or I, or our Board are the type that want to just jump from one extreme to the other.

  • So we're going to work our way there, but we are going to be levered up in the future if everything goes as planned.

  • But that requires us to put that in place and kind of figure out how to do the returns so they work out well for the investor base and all the rest.

  • So, like I said the $166 million was kind of step one and then short to medium term what does that mean?

  • Twelve to 24 months, you will have a step two in there.

  • I think that will be a significant amount and then you will have some regular stuff, higher dividend pay outs, regular buy backs.

  • So we'll kind of, hopefully every year in May we're sitting here talking about how our leverage went up rather than went down, which has happened the last two or three years I think.

  • Matthew McNee - Analyst

  • But they are normally things you'll consider at the full year result, those sort of - you know, whether you pay special dividends or capital returns?

  • Louis Gries - CEO

  • No, they're part of the game plan.

  • The reality is we had a game plan for winning the ATO '99 but I mean we weren't going to kind of have that all flushed out and exact and we weren't sure we were going to win.

  • So I think Russell and his people's job now is to put that game plan together and get all the details worked out and then get the Board across it and if they agree with it then we will start implementing but we wouldn't wait until next May.

  • I guess what I was indicating I don't like to talk about the balance sheet much so once a year we talk about it and hopefully it will a little more levered every year.

  • That is what I think should happen.

  • If we're right about how this business is going to run we're going to have excess cash.

  • We're going to have excess cash, we're not going to do a major acquisition so we're going to give it back to shareholders.

  • That's how it's been worked.

  • Matthew McNee - Analyst

  • Sorry, Louis one final one from me before I go.

  • I've been asked by our options guys to ask these questions because apparently it makes a difference to options trading but is any part of that a special dividend or is it all ordinary because apparently it makes a difference to those guys.

  • Louis Gries - CEO

  • It's all regular.

  • Is that correct?

  • Yeah, it's all regular.

  • Matthew McNee - Analyst

  • Okay.

  • No worries.

  • Thanks.

  • Operator

  • Thank you.

  • The next question comes from Michael Ward with CBA.

  • Please go ahead.

  • Michael Ward - Analyst

  • Louis, we understand the weather through the first quarter was somewhat milder.

  • Can you maybe make a comment as to how much or how little you might have benefited from that through the period?

  • Louis Gries - CEO

  • Yeah, I give you my actual comment, I think it's insignificant because the momentum in our order file after we got that super warm winter has kind of been consistent with -it's been building.

  • I think I told you last June I think was our first positive monthly comp.

  • last year and every month since then has been positive and they're getting more positive as we go forward.

  • We didn't get like super positive when we were having our warm weather and then it dropped off because it got an early start, it's been continuing.

  • Our order file right now, like I said, is good.

  • It's above our forecast but it's below the external housing forecast.

  • It's in between the two.

  • So I don't think weather played much of a part in the US business result one way or the other.

  • Michael Ward - Analyst

  • Okay, great.

  • Thank you.

  • Just a little bit more on the pricing.

  • I think you made a comment in response to Simon's question that pricing would be weaker through the start of the year and strengthen into the end of the year.

  • Can you just give us a bit of detail as to where your head's at and why you're actually thinking that will be the case?

  • Louis Gries - CEO

  • Yeah, well I mean because you guys look at pricing, comps and absolutes, the comps are definitely going to be weaker because we had good pricing first quarter last year and then the absolutely may be a little weaker, I'm not so certain about that one.

  • Michael Ward - Analyst

  • What would be driving that weakness in the absolute pricing?

  • Louis Gries - CEO

  • Again it's that switch in our participation in that bottom third of the market increasing over the last year.

  • Michael Ward - Analyst

  • Right.

  • Okay.

  • Louis Gries - CEO

  • I tell you the one thing these questions are really going to motivate me to do is go to half-year reporting.

  • Michael Ward - Analyst

  • Well that's good for everyone.

  • Louis Gries - CEO

  • All right.

  • Any other questions on the phone?

  • Operator

  • We are showing no questions over the phone.

  • Louis Gries - CEO

  • All right.

  • Thank you very much.

  • Alright.

  • I appreciate it everybody, thank you.