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Louis Gries - CEO
Okay, good morning, everybody.
Same drill as always.
I'll overview the businesses pretty quick.
I'll go through the slides fairly quick give you an opportunity to drill down with your questions later and Russell will run through the financials.
As you I think probably already saw, this isn't one of our best quarters.
Not a terrible quarter, but not what we'd planned.
So the net operating margin for profit, excluding the normal stuff, is down, and we'll go through the various reasons.
There's no one reason for that but there are various reasons that kind of led to that result.
We'll start with the US business.
Volume just up 6%, which is a little short of what we were planning.
We were thinking it would be up more like 9%.
When you look at the full year, I think it's -- oh, half year, sorry -- I think it's 11%.
We'll get to that slide next.
We do think the second quarter didn't have any problems on the volume side; it was just kind of a quarterly variance thing, because the order file right now is okay.
First quarter was a little bit more than we thought, right at what we thought we good get, and the second quarter was soft.
Price -- coming into the year, we gave you that guidance flat plus or minus 2%, and we've been under minus 2% for both quarters, which is a little bit worse than we thought it would be.
It's not a huge reduction in price, but it is a stubborn reduction in average price.
Now, we gave the same guidance for the rest of the year, flat plus or minus 2%, and we think we'll be looking more like the flat than right on the bottom of the range we gave you.
It's a little bit early to call that, but it looks a little bit better.
The EBIT, as I said, down 7%, basically due to the things we talked about.
The volume wasn't quite where we thought we'd have it.
The price is a little bit below what we thought we'd have in the quarter, and then our costs -- on the cost side of business, they were kind of where we thought we'd be in the quarter, so that basically delivered an 18.5% unit margin.
We were thinking more 2 points or 3 points higher than that, so we did come in short of what we thought we would.
When you look at the half year, I guess it's kind of the same story, just not as much quarterly variance.
The sales volume is okay.
We're indexing to the market plus around 4.5%, 5%, so in old terms where we start to (inaudible) PDG that's kind of the range the first half ran in.
Now, the second quarter was kind of a negative and the first quarter a positive to get to that 4.5%, and when I say a negative in the second quarter, it was less than 1% negative.
As we've talked about that calculation, you never want to look at it quarter to quarter.
It's just too much variance.
But through the first half of the year, about 4.5% or 5% right now.
Average price -- like I said, both quarters came in about the same, down 2% on last year.
EBIT for the half year is flat even though we have the extra volume to work with, and that's again due to price being off a bit and the cost up, which are more planned up than a problem being up, and 19.2%, so right away -- I'm sure we'll get every quarter, but at 19.2% at the half year, we don't expect to stretch up to the 20% for the full year.
If we delivered that 3 points more in the second quarter we would have had a shot at it, but we don't really have a shot at it.
It's not in our forecast anymore.
It's not going to be off a whole bunch, but it's not going to stretch up to 20% for the full year.
The net price, as I said -- well, you can see we hit our high price, high market price, in the fiscal year '11, and we're off a bit from that.
It's not really a price decline.
There is some reduction in selling price in some segments, mainly multi-family and some of the Cemplank business, and then there's also a bit of an increase on the mix of those products, and that's off-setting the mix improvement we have on some of our higher-price products.
The price actually started coming off about this time last year, so that's why I think for the rest of the year we comp better than we did the first half of the year.
It's not that our price is going to be necessarily higher, but our comp will be lower that we'll be going against.
Then I guess this is a pretty telling show.
I counted it up here.
I can count to 10, and 7 out of the last 10 quarters were actually below our target, which I think, for us and for people that invested in Hardie, that's a bit of a surprise.
Now, the first half of that is more about just how low the market got when it was really kind of dead, so I think the first 4 or 5 quarters of that was probably very good performance.
I think what we've seen since, in the last 4 or 5 quarters, we did really well moving from a boom market into a down market.
We took a lot of costs out of the business, held our returns together.
Our organisation is actually struggling a little bit more than I would have expected going back to market recovery, so trying to get back to growth, so obviously we took costs out, so we have to put costs back in, but the ramp-up on that cost add isn't as efficient as I thought it would be.
It's probably a bit naïve on my perspective, but at the end of the day it's still the right thing to do, to take the costs out, because we had a long period of time where we didn't have the costs in the business.
The other thing is our business, our product mix especially, is quite different now than it was going into the downturn, so some of the costs we took out going into the downturn are actually costs we're not adding back in now, so we're adding back in a different kind of cost, both from a carry capacity standpoint or what we call MG&A, and also from an SG&A standpoint.
So like I said, I don't think -- I think we'll -- I'm not saying we couldn't hit a 20% in one of the two quarters remaining, but we've got 7 out of 10 below.
Maybe we end up with 9 out of 12 below.
At that point, you've got to say well, that's what you guys live, right?
9 out of 12 below the target.
I don't think that's the case.
I just think as we've indicated in the past, we would hate to pass up any growth opportunity window just to deliver inside that target range, because it's a small difference, based on what we are delivering.
But if things progress as they appear to be on the market side, and we as an organisation get our arms around the building the organisation back up, I would say we'd be aiming for that target again next year and then expect, once we get into target, expect to live in the target for a long period of time, or above the target, like we did in previous years.
Of course, that all remains to be seen.
The housing market itself -- you guys would know all the facts.
Most of us there in the industry believe it's recovering, and we're optimistic that it'll continue, so certainly we're planning that the market will get better again next year.
It's not going to shoot straight up.
We don't expect it to spike.
If it did, we'd have to scramble for capacity, but that's not what we're expecting at all, so we're pretty well set up for a bullish upside to what the forecasts are for next year.
Asia-Pac.
Like the US, only telling a different story.
Asia-Pacific did not run as well as we would have expected it to last quarter, and really for the first half I'd have to say the same thing.
It's not that it ran poorly.
It's having the opposite problem.
It's just struggled a little bit more than we thought it was going to as the volume came off.
Now, a big part of that EBIT drop is a $5.7 million provision we took in the New Zealand business, but even moving that to the side, we were expecting the business to do a little bit better than it did in the second quarter.
Again, fundamentally, it's a great business.
There's nothing wrong with it.
We're just in a short-term funk.
We don't think it's a long-term trend at all, and we think we have a good organisation and good strategy, and we'll move forward in a more positive way.
Even if this market in Australia doesn't get much better, we think our results will start getting better.
Half year, again, it still has that $5.7 million in there, but the half year results, minus the $5.7 million, comes out to something like -- I can't remember exactly, but it's off 14% or 15% on the EBIT line, which like I said, it's not like we were expecting to grow EBIT or anything, but we think we could have done 4 points or 5 points better than that.
On the summary, again, I kind of gave it all to you.
Of course, we have some more bullet points here.
Again, the housing market -- it's gone from being a major concern to one that everyone's kind of feeling like they can operate in the current market, and certainly we're one of those companies that feels that way, and we do feel it will continue to get better.
We don't have any hard evidence, but there's no real evidence that it's likely to get derailed either.
Kind of what I said -- more of our board is going into multi-family and Cemplank kind of construction, more toward the bottom of the market, so that's had some impact on price.
Input costs have been good.
Pulp's down, freight -- freight is down slightly, but we're managing freight better, so we're actually doing pretty well there.
Actually, this is one of my disappointments is with the lower input costs, we're not taking advantage of them on the EBIT line as much as I thought we would.
We do have higher fixed costs.
We're doing a lot of capacity work, both in the US and Australia, and that's shown up in our fixed costs, we call them MG&A, and then of course we've got the higher SG&A costs trying to get ready for some more market share growth.
In the Asia-Pac, again, we're kind of figuring a flat to slightly better market in Australia next year.
If it were better than that, we'd be ready for it, and if it was worse than that we'd have to react, but we're seeing flat to slightly better as what we're planning around.
The rest of that -- I covered the $5.7 million.
The rest of that was kind of in the slides.
The outlook I don't think is anything new.
We're certainly not changing strategy.
In the US it's getting ready for market share growth, more market share growth, getting our capacity in line, and then in the Australian business especially we do need to make a capacity decision, which we haven't sorted out yet, because we're trying to green field some capacity here and it's just coming in very expensive, so we haven't got it to a number that works yet, so we're still working on that.
New Zealand is running better, but the market's not great.
It's not getting worse, so we're running better in a very flat to slightly better market.
Okay, I guess the priorities are the same.
We want to grow the business organically, like we always try to do.
We think we're into a window of opportunity in the market where that's going to be easier than in the past, so we're willing to invest more money in it.
We've got to make sure we get our capacity reset, because our product mix coming out of the downturn is different to into the downturn, so we're re-engineering the front-end plant for that before we start it up.
We're looking at Summerville in the same way, plus we have four other capacity projects in the US and then one project down here.
So that's it.
I'll hand it over to Russell, we'll let him go through the financials and then let you guys drill down with your questions.
Russell Chenu - CFO
Good morning, everybody, and thank you, Louis.
Louis has, I think, dealt with most of these issues, but I might just provide a little more colour on a couple of them.
Clearly the results in the second quarter were impacted by improved sales volume in the US business.
The market environment there is obviously better than it was a year ago, but for us, price has been constrained and so we're not seeing the volume flow through to the bottom line to the extent that we'd like it to.
We're increasing our spend in particular areas in the business, particularly around sales and marketing, but it is broader than that as we rebuild our capability.
We had, in Q1, a non-recurring foreign exchange gain of $5.5 million, which obviously was a benefit in Q1 and in the year to date, and in Q2 we've had a recovery of $2.7 million of legal costs relating to the RCI tax litigation that was concluded late last financial year.
We're calling those out just because we don't see them as non-recurring items, but we're not adjusting for them in the same way we do with ASIC expenses or asbestos adjustments, and I'll perhaps just add that the $2.7 million we recovered in relation to the RCI litigation is a fraction of the cost that we incurred for the years 2006 to 2012.
In addition, we had a charge in Q2 for an increase in a provision for product liability claims in New Zealand.
Louis alluded to that.
I'll just provide you with a little more detail.
New Zealand changed its building regulations in about 1998 -- 1997/98 -- and the claims that we're dealing with on product liability actually go back to the period 1997 to 2004.
So they're quite old.
We have been incurring expense in relation to those claims from 2004 onwards and we haven't identified them previously because they've just been treated as business as usual.
What has changed for us is that the insurance that we have is being eroded and now with the number of claims that have been coming through we can see that we're going to be bearing a big chunk of the costs that we have not been bearing previously.
This is not a Hardie issue that's specific just to Hardie as an organisation.
It's a very widespread issue in New Zealand.
Governments -- both local government and the national government -- are involved.
I can't give you an estimate of the total losses but if you Google New Zealand weather tightness, which is what it's called in New Zealand, you'll see that there's a strong of data and it's getting a lot of public policy action.
There are multiple defendants, we're just one of a number and in fact we're probably a very minor defendant in the overall scheme of things.
It actually relates to moisture ingress into buildings.
It arises from bad design, bad certification and a multitude of other factors, but I would highlight that we're just one of many, many defendants in the action.
Most of them are settling, they're not all going to litigation, but the expenses involved in both settling and in legal costs is fairly significant across the country in relation to these matters.
The $5.7 million provision that we disclosed today is our current best estimate of the remaining costs to incur, but there is a risk that that isn't sufficient and we may have to adjust in the future.
Moving on, we're contributed $184 million to the asbestos fund this year arising from 35% of the cash flow that James Hardie generated in the 2012 financial year.
We've also paid a very significant dividend during the second quarter which related to the second half ordinary dividend from FY12; $166 million which brought the total distribution in FY12 from FY12 earnings to $183 million for the year.
We've also declared today a first half ordinary dividend of $0.05 per share which is up from $0.04 last year, so a 25% increase.
I would highlight that for Australian investors our dividend is unfranked because we're a foreign company.
So foreign companies who pay dividends to Australians are not entitled to franking credits.
Moving on to slide 18, you can see here that in the period under review, the Australian dollar was slightly weaker than it was in the September quarter of last year.
The impact of that is an asbestos adjustment which is adverse for us on revaluation of the asbestos liability and also some impact on the translation of Australian earnings or Asia Pacific earnings more specifically, but largely Australian.
The Q2 results -- you can see here that on a consolidated basis net sales were $334.4 million which was up 1% on last year.
Gross profit is down slightly, just 1%.
SG&A experiences were up, as Louis alluded to -- up $8 million.
That includes the $5.7 million in relation to New Zealand product liability and also the $2.7 million legal costs recovery relating to the RCI litigation.
So there is expense that is unusual, a bit of income that's unusual and then we've got the funding of the SG&A activity in the US business as we improve capability.
R&D was up 30% to $9.5 million and asbestos adjustments you can see there a very large swing of $109 million which accounts for most of the swing in the total net operating profit as reported.
Adjusting for the normal things that you do, so adding back the asbestos adjustments being the most important one, you can see that the profit that we're reporting as $34.8 million for the quarter which is down 16% on the prior corresponding period.
For the half year the net operating profit as reported was $83.5 million down 35%, that's after the big swing in asbestos and net sales for the half year were up 4% to $674 million where the gross profit was steady.
SG&A up and R&D up as well as you can see from the slide.
On a recurring basis, after adding back the asbestos adjustments, you can see that the profit for the half year were $78.6 million which is down 2% on the $80 million from the prior year.
Looking at segment sales, US sales revenue up 4% for the second quarter on a 6% volume increase and Asia-Pac was down 6% in sales revenue on a 4% volume decrease.
Most of the adjustment there was due to a change in volume and value, but there was also a slight impact, about 1%, due to currency being the weaker Australian dollar.
Consolidated net sales for the quarter up just 1% to $334 million.
For the first half, US and Europe fibre cement up 9% in sales revenue and 11% increase in volume.
So you can see from the earlier slide that Louis showed that unit price was down about 2% and that's reflecting in this number and Asia-Pac fibre cement was down 6% in sales revenue on a 3% decrease in volume.
Looking at segment, the EBIT down 7% in US and Europe, down 39% in Asia-Pac, substantially affected by that $5.7 million product liability charge in New Zealand.
Research and development expense up quite a bit to give us a total EBIT excluding asbestos and ASIC expenses down 21% for Q2, $46 million.
For the half, a similar sort of pattern, although US and Europe has had a stronger half than the second quarter so it's down 1% at the EBIT level.
Asia Pacific was down 29% again impacted by the $5.7 million charge.
Research and development up and the EBIT at $103.6 million was down 10%.
The general corporate costs there reported in that are the FX gain from Q1 and also recovery of the $2.7 million of RCI cost giving rise to that benefit -- lower outcome there.
Income tax expense -- income tax expense for the quarter is $10.3 million.
It's down on last year which was $14.2 million.
The effective tax rate was 23% which is down on 25.9% last year, but still within the sort of guidance that I think we've previously indicated which was 25% ETR plus or minus 2%.
That 23% just reflects a true up for the full year.
I think I've indicated to people before, under US GAAP companies are required to actually forecast their full year tax expense and derive a rate and then you apply that rate.
So the 23.3% that you see for the half year is actually our current expectation of the full year tax and expressed in a rate and then we apply that to the half year, so again within the sort of guidance that we previously indicated.
Looking now at cash flow -- a quarter and also a half year that's had quite a bit of activity in it.
We started off this half year with a beginning net cash of $265 million which you can see on the second bottom line there.
During this quarter in particular we've paid $166 million in dividends.
We've also had a large tax outflow.
You can see there a tax outflow of $84.9 million.
About $80 million of that was payments of Australian tax which arose from the settlement or closure of the RCI case.
Over the years from when that amended tax assessment was issued in 2006 we've been paying interest and we got a deduction for the interest.
Clearly at conclusion we received a large refund and the refund contained a large interest income component and that income is taxable in one year.
The result of that is that we've used up all of our asbestos contribution deductions as at the end of March this year and so we were left with a fairly large tax payable liability as well.
So $80 million of that $84.9 million is Australian tax.
Now I think those are the two major cash outflow items that impacted the half and they did occur in this quarter.
We have had a higher capital expend.
You can see there it was $18 million last year in the first half, $25.5 million this year and we'd be expecting that capital spend to continue to increase in the future quarters.
Turning now to capital management -- as indicated earlier, we've announced this morning that we're increasing the dividend for the first half from $0.04 to $0.05 per share.
That will take approximately $22 million out of cash in January 2013, with a record date of December 2012.
There was no share buyback activity during the half year, but we have announced some near term plans this morning.
The first one is that, subject to share price levels, it's our intention to become active in the share buyback and we may spend up to about $150 million subject to attractive share prices prior to May of 2013.
We've also announced that we've revised the dividend payout ratio with effect from 2014.
Our current dividend payout ratio of 20% to 30% which has applied for the past 18 months or so and we're increasing that to 20% to 30% (sic - see Management Presentation "30% to 50%") of profits, excluding asbestos adjustments, with effect from 2014.
Now if we're not successful in share buyback or to the extent that we're not successful in applying funds to share buyback in the period to May 2013 when we will announce our full year results, we intend to pay a large dividend to shareholders, approximately $150 million if there's been no share buyback activity.
So we've had large distributions from FY12 earnings.
We anticipate having large distributions from FY13 earnings, including the impact of the RCI proceeds that we received in February, March of 2012 and this is part of a plan to get our capital structure to be far more efficient than it is.
It's not something we're doing immediately obviously, but we intend to get our capital structure way more efficient than it has been for the last couple of years or last few years, but it might take us a little time to get there.
Which I guess takes us to the debt position.
You can see here that with unutilised facilities of $280 million and that cash at the end of September of $77.3 million, we've got liquidity available of $357 million.
We will be undertaking a refinancing during the next couple of months and we hope to conclude that by the end of this financial year which is March 2013 and we are well within our debt governance largely as a result of not having any borrowings at the moment.
A quick snapshot of the asbestos fund position.
Hardie contributed AUD177.5 million to the fund this year and so it's sitting on a cash position of AUD171.9 million and that's after repaying about AUD30 million that the fund borrowed from the New South Wales government facility in February and then repaid in early April.
So the fund has a very strong liquidity position, in fact the strongest it's been for three years or so and that's I think something that's very important to obviously claimants as well as to the fund directors.
Looking at key ratios, not a lot to dwell on here.
Clearly the EPS and the EBIT to sales margin is down -- or are both down; not significantly but they're not as good as the positions we've had in the first half of '12 but our financial strength is apparent from our debt service ratios that you can see there.
So in summary, a solid result but not quite as we'd hoped.
The second quarter was $34.8 million.
The first half is $78.6 million excluding asbestos adjustments, ASIC expenses and tax adjustments.
Higher sales volume in US and Europe assisted, but the price was constrained and we've had volume weakness in the Asia-Pac businesses.
We've had higher SG&A expenses, both through funding of initiatives in the business as well as the $5.7 million New Zealand charge and assisted by the recovery from the ATO in relation to legal costs.
Turning now to FY2013 guidance -- in August when we released the first quarter results we provided guidance of $140 million to $160 million.
We've narrowed that range this morning to $140 million to $150 million.
Clearly that's reflecting the $5.7 million that we've taken in the second quarter, so the erosion isn't quite as -- comes across in that narrowing of the range, but we do think that $160 million is out of attainment for this year.
There's a couple of things that we would comment on that.
One is clearly we're anticipating that the US housing recovery will continue.
Things may not go on as anticipated, but to the extent that there's any erosion of that recovery, then it's clearly not going to help attainment of that result.
We've also not allowed for any additional provision in relation to New Zealand product liability.
We can't see any reason at the moment why that might arise, but it is dependent on there not being any significant shift in that.
Also on the US dollar Aussie dollar exchange rate which is currently about $1.04.
So that concludes my part of the presentation and I'll just hand this back to Louis for Q&A.
Thank you.
Louis Gries - CEO
Thanks Russell.
We'll go to investors and analysts first and then we'll finish up with media.
Unidentified Audience Member
Louis can you just clarify a bit more around pricing so to the extent -- you know, there's not many small builders around anymore.
You're selling to the big builders.
Is that having an impact in pricing --
Louis Gries - CEO
Yes the big builders are going to increase a little bit coming out of the downturn, but not enough to really notice in our results.
So it's more the price that Cemplank's being sold at relative to before we lost the category share a couple of years ago.
The fact that there's more Cemplank so during the downturn the builders basically have got more price conscious so those guys that were on the fence between R&D and Cemplank, some of them went to Cemplank and then multi-families are a bigger piece and multi-families at a lower price in some keys markets.
So it's more of a -- those things are added and big builders.
So big builders I think they're going to go up about four points from where they went into the downturn.
Where they come out I'm -- the market share, the total housing market, but that's not enough to really change our numbers.
Unidentified Audience Member
The extra R&D expense is that something we should see -- we should expect --
Louis Gries - CEO
Yes, you know, it's part of that -- what we're spending to kind of get ready for growth and R&D projects usually run three or four years.
So yes you might see some quarters where we don't spend it.
It's project driven but I think for the most part you should see our R&D spending up a bit.
Unidentified Audience Member
And Louis finally on US housing, second quarter 6% growth, first quarter 17%, you know, it's never going to be a straight line, but is there anything you're seeing that should indicate anything other than an annual about 15% growth?
What are you feeling about those -- the pace of the growth?
Louis Gries - CEO
Look I don't think we'll get 15%.
I mean I think new constructions went up low 20% and more of that multi-family than single family and then I think R&R is up about 2%.
So when you put them together it probably doesn't come to 15%, it probably comes more to 8% or 9%.
Now you can see through other companies and you've just got to figure out which companies are highly tied to new construction and which companies are more tied to R&R and slid.
See we're 4.5%; we're up 11% so, you know, we're seeing the market up 7% as far as our opportunity.
That includes Canada as well.
Unidentified Audience Member
Sure, yes, I was meaning -- the 15% I was meaning for new construction.
So if we --
Louis Gries - CEO
Oh yes, yes, new construction, you know, I don't know.
We've got what three 20% in a row, so I think most of the market feels like they're going to hold that pace.
Unidentified Audience Member
But it's, as you point out, mostly multi-family rather than single?
Louis Gries - CEO
More multi-family than single family for sure and that's more the case in Canada than the US.
It's pretty interesting; the multi-family in Canada is increasing much greater.
Our penetration in Canada is fairly low so Canada's not driving our numbers either, although we are getting a pretty good business in Canada.
It's still fairly low penetration.
Unidentified Audience Member
Okay, thanks.
Michael Ward - Analyst
Hello, it's Michael Ward from CBA.
I think you made the point in the presentation that you expected pricing to be flat for the full year --
Louis Gries - CEO
No I don't know if we get to flat but I think it'll start flattening out.
Michael Ward - Analyst
Oh sorry I thought you said flat for the full year, alright.
Louis Gries - CEO
Yes, no I don't think we'll get to flat.
We're 2% down, we'd have to be 2% up and we won't get 2% up for the rest of the year.
Instead of seeing 2% down every quarter, I think you'll start seeing flat and then eventually it'll come above flat.
So if you look at the full year -- and I didn't guess, I didn't calculate it -- but I'd say, you know, maybe you're down 1.5% for the year by the end of the year rather than down a full 2%.
That'd be my wild guess.
Michael Ward - Analyst
Okay, thank you.
Then you also made a comment around the APFC business I think in the medium term getting better irrelevant of or independent of what the market actually does.
What's going drive those improvements?
Louis Gries - CEO
Is that Asia-Pac?
Michael Ward - Analyst
Yes.
Louis Gries - CEO
Okay.
Yes.
We have a very good business model especially in Australia and New Zealand I think is kind of getting themselves reset.
The Philippines ran hard for a while; they've lost a little of their traction so I think they'll get that back in a quarter or two.
But yes I just believe that, you know, the houses that get built around here -- more of them are going to have more fibre cement.
I think most of the incremental we get rather than Buckeridge or CSR because it's more around a (inaudible) product line than it is around traditional products like Hardieflex and (inaudible) Board and that.
Michael Ward - Analyst
Okay.
Then just finally Russell you made the comment around the RCI costs that you got back were only a fraction of the money you've actually spent.
Are you sort of signaling that you expect to get more back or is that it?
Russell Chenu - CFO
That's it Mike.
There won't be any further recovery.
All done.
Michael Ward - Analyst
Right, okay, thank you.
Unidentified Audience Member
Just two quick questions -- One you mentioned the order file was looking reasonably positive.
I wonder if you could expand a bit about that?
Louis Gries - CEO
Alright, yes.
I just said it's more like -- you know, it's actually a little bit above our forecast now.
So again, if I look at the three quarters together, it kind of makes sense if I look at the second quarter.
I think what happened in recovery is our lag changed.
So I think dealers are actually bringing board in quicker when they see the starts then they were in the downturn.
So I think they brought board in quick in the first quarter, then they let things settle down in the second quarter and now we're probably back normal.
Now having said that, I mean we're only five or six weeks into it.
Unidentified Audience Member
The second question was just around the manufacturing overhead.
I understand what the SG&A part that you've talked a lot about, well the S part, but it's the manufacturing overhead change I'd be interested to hear more about.
Louis Gries - CEO
Yes that's a good question.
It gives me an opportunity because I made a kind of overall comment we took costs out we're putting it back in.
Well the way we took costs down and a lot of you would know, we're building not quite one plant a year at Hardie but we're building a lot of plants and handle a lot of capacity and we had a construction organisation to do that.
When we hit the downturn obviously we weren't going to build plants and most of those people went into the business and displaced other people that were in the business, whether they be project engineers or (inaudible).
Now we're in the process of pulling those construction people back out.
They're working on construction projects that were hiring in the plants.
So there'd be an organisation of about 15 or 20 people that are fairly highly compensated people that basically build things for us in the US and we didn't use those people in the downturn in that function.
So now we're back to using that, so that's probably the biggest area right now in MG&A.
Simon Thackray - Analyst
Louis, Simon Thackray from Nomura.
Just want to step back a bit and talk about the mix of volume between new housing and the R&R market first of all and then to help me understand how the capacity comes online, what should we be looking for in terms of the capacity utilisation and -- well just start with those two questions?
Louis Gries - CEO
Okay.
So on new construction -- the way we look at them next -- and you can calculate -- our guys calculated it and the number I saw was it feel like 40% of our business now comes from new construction up from 35%.
Okay, so it's been a small change.
Now the way that change happens is the new construction market just gets bigger and our share stays the same so we get more of our board out of that segment.
The reality is our job is to grow market share in both segments.
You can add multi-family in there as well and have all three segments.
But in the downturn we're very focused on repairing the model.
We were trying to hold our own in new construction and grow in R&R which we were successful in that and now we're trying to grow in both segments again.
So we're now -- the resources we're putting back in are about growing in new construction
So I think the percent new construction will go up because I think our -- you know, I'm not talking about next quarter, I'm talking more about next year -- I think it'll go up because I think we'll start growing market share quicker and new construction and of course new construction's going to grow faster than R&R.
So when do we get back to 50/50 I'm not sure, but certainly sometime in the next three years I would think we're back to 50/50 type for each segment and I do think our market share will be higher in both segments in three years' time as well.
Simon Thackray - Analyst
And is there a rate of growth at which you do worry about the capacity not being there?
Louis Gries - CEO
Oh how's it growing?
Yes, it's pretty idle.
So at the current market growth we have a lot of coverage.
Now if it really did spike, we'd have to scramble and kind of get around optimising capacity around certain products.
We don't anticipate we'll be in that position.
The sequence of the capacity to come online - we're starting the machine -- we actually had a second machine at Waxahachie.
That's been down through the downturn, it's starting up about a year ago.
Maybe not that long ago, maybe it was eight months ago.
We started running all three machines in Plant City.
So we didn't increase our gross hours in the facility, but we started moving from machine to machine.
So that way, those three machines are ready to go 24/7 pretty quick if we need them.
We don't think we're going to, but now we know there's no time lag.
If we need them we have them.
I think Fontana will start in about 15 months, right before the -- in 15 months.
And after this coming selling season, but for the following one.
We haven't finished that capital plan, but I think we're far enough to know we're going to convert one into a four foot wide machine, so five foot wide machine.
And what that will do is that will allow -- because California has high raw material costs, high energy costs, and people costs are a little bit higher, not as high as they used to be.
So we had to get some advantage for that plant in order for it to compete with our more modern facilities.
So basically it's going to have a very tight shipping radius.
Because our back up business around Fontana is very well developed, but it doesn't have a five foot line, so the Backer was coming from other plants.
So we're putting that five foot line in there so it'll make planks, panels and Backer, all for a fairly tight radius.
So I think that'll start in about 15 months.
Summerville is a similar plant.
It's been down for a while, and I think it's more valuable as a HardieBacker plant than a siding plant.
But we haven't proven that it can make HardieBacker, so we're going to start Summerville up probably on a six day a month basis or something like that sometime in the spring.
And we'll run our Backer trials.
And the reason we don't know if it can make Backer is because this is an old Cemplank plant, and they're very wide.
I think the width of the line is like six inches, where normal lines are five inches.
So the Backer has to be flatter than a plank product, because you don't cut it into slits.
You sell a five foot wide product.
So if we can turn that into a Backer line, I think that really simplifies our capacity planning between Plant City and Pulaski.
So we're going to do a lot of work on that next year and it'll cost us some money to do the work, but it's a big pay off if we can turn it into a Backer plant.
So those are the kind of -- and then we're going to add trim capacity in Peru which is a smaller project.
Simon Thackray - Analyst
So in terms of actual CapEx then?
Louis Gries - CEO
Yes, we're going to start getting some $100 million plus numbers on CapEx.
We might even hit $150 million or something.
But right now we just don't have all that planned but we are going to hit.
We need R&S on the East Coast, we need more trim.
Like I said, we have Waxahachie, we're spending some money to start up Fontana -- kind of re-engineer it.
If we go to Backer in Summerville, similar situation there.
We're also looking at another sheet machine in Texas, in one of the existing facilities probably because our trim product in Texas has continued to grow well, so that's using up a lot of our capacity in the Cleburne plant.
So we're looking at dropping another sheet machine for planks in the Cleburne plant.
So we do have a lot of capacity to produce.
We're working on right now.
Simon Thackray - Analyst
Okay, and just finally.
You made a comment earlier that the organisation probably hadn't responded to the upturn quite as you'd expected.
Louis Gries - CEO
Yes.
Simon Thackray - Analyst
Can you just elaborate?
Louis Gries - CEO
Probably my fault, more than theirs.
You know, maybe my expectation was just a little bit under--
Simon Thackray - Analyst
Too high.
That's unusual but --
Louis Gries - CEO
It's not that we're -- and the business running well.
By the way, one of the things I didn't cover is that manufacturing had a very good quarter.
This year, manufacturing's just having a really good year.
So a lot of work we did in the downturn is now transferring very well to higher utilisation, and that's why you don't see us panicking for new capacity, because most of our lines are actually producing more per day -- to a reasonable degree, I'm talking about 10% or 15% -- than they did before the downturn.
So it's not that we're not running well, so I don't want anyone to think we forgot how to run a fibre cement business.
It's just the challenge of the market recovery, which I guess naively I think, well that's all upside, that's easy stuff.
Extra volume, you just decide where to source it from, and where to put the money.
But the reality is, like I said, we brought the organisation down and this example that David brought up about construction people is a good example because now we've got 15 or 20 people come out of our plants working on construction.
And you've got to put 15 or 20 people in your plant.
So that's usually recruitment, external recruitment.
And then most people their first six or 12 months isn't their most productive time with the company.
So it's just a lot of that stuff.
I do need to be honest.
The pricing situation had already kind of threw a lot of us for a loop.
It definitely went further than we thought it was going to go.
So we've been trying to sort that through, because we don't want to just share the price increase through the market to cover up our problem.
Our problem is we didn't execute as well as we should have, what we done in the tactical pricing around category share.
So we just don't want to put a price increase and then market to mass that.
We'd rather fix the thing correctly and look at price increases in the market separate to what I consider a tactical pricing problem.
Simon Thackray - Analyst
Thank you.
Jason Steed - Analyst
Hello it's Jason Steed at JP Morgan.
Going back to the question on the order file, just interested in whether you see any mix shift in the latter two quarters of the year, and if not, when you expect it?
Louis Gries - CEO
I think our product mix shifts have been consistent.
A few of them flatter, so colour's growing, trim's growing, Backer's becoming a little bit less of the business, because sidings growing with the new starts.
The Cemplank grew more than the business, so that became a bigger part of our mix, and therefore Hardiprime grew less than the business.
So for the most part, those are like three, four year trends.
Not a lot going on, as you go to more into construction less R&R.
R&R is more colour, has more Hardie, has more trim.
So as you go to more on your construction, that kind of dampens that trend.
But nothing unusual happening.
Jason Steed - Analyst
Just on colour, you mentioned a couple of months ago in the US that colour probably hadn't been executed as well as you'd like for it to have been.
Have you implemented -- has that changed --
Unidentified Company Representative
Yes, we -- I can't remember in September had we already switched the structure to a colour business manager, Ryan Sullivan?
Jason Steed - Analyst
I think so, yes.
Louis Gries - CEO
Yes, yes.
So yes, so we have.
So basically, for those of you not there in September, what I tried to communicate is we're still a prime business with kind of colour off to the side.
And since colour is kind of one of our real core strategies, we needed to become a colour business as well as a prime business.
So we have structured that way, so Ryan Sullivan, one of our long term senior guys at Hardie, he's taken on colour.
He's brought enough resources and exclusively on colour, product management, and cross management capacity, and that stuff, to where they work in a colour organisation now.
But they still source their production from the network of plants, but they have a lot more say on what goes on every day with the colour business.
So do I think we've taken the early steps to move forward the way we want?
Yes, I do.
But I do think Ryan's work will mean that we'll do things a little differently in the future than we've done in the past.
If you remember, the Northeast is very high colour.
Midwest high colour but not as high as the Northeast, so we have to figure out why that is.
Why does a market like Boston hit a terminal colour share of 85% or 90%, and a market like Minneapolis hit one at 50%?
So we've seen some of those Midwest markets start to flatten out at 40% to 60% range.
We don't quite understand that.
So Ryan's working on that, and then the other thing, in the South and the West we think there's value creation in colour.
But our new construction customers aren't seeming to recognise it.
So if we don't get a premium for colour, if they're not willing to pay a premium for colour in the South and the West, then they shouldn't buy colour.
Because there is value there, so us just giving them the value and not taking anything for our shareholders doesn't make sense for us.
So, we do have some of -- we do work in the South and the West on colour.
Some of that has to do with supply chains, some of it just has to do with the fact that painting is fairly cheap in the South and the West so the economics we can offer to people in the North just don't transfer well there.
So we probably have to be a little bit more restricted on the segments we go after, and then R&R's a much better segment for colour than new construction.
That would be a statement about the South and the West.
Jason Steed - Analyst
Thanks, and now a question for Russell on capital management.
Is there any reason that you've chosen to do, or looking to do it, via the buyback rather than just going for a high dividend now?
Is there an advantage from a tax perspective, a structural perspective, that you can hold it through potentially a buy back, and if not then roll it into a dividend?
Russell Chenu - CFO
No, for the company Jason, we're going to view that the outcome is pretty much the same.
So we've very deliberately chosen a preference in large dividends and some share buyback activity.
But if the share buyback isn't attractive to us as a company, then we're quite happy to distribute it by way of dividend.
So it's just something that we're timing on an annual basis and we'll take advantage of share buyback if we can.
If we can't, then we'll use the same funds to just allocate it to dividends.
Jason Steed - Analyst
And the $150 million as we're looking towards a capital structure -- kind of what you said in the past in terms of what gearing might comfortable -- call it 30%.
The $150 million still leaves you virtually ungeared, or not particularly geared.
Is there a reason that you didn't do more?
Russell Chenu - CFO
No sort of overwhelming reason, other than the fact that this is something that we want to do over time.
So we're only looking one year forward for each of the share buyback or the dividend distribution.
I guess at the moment we feel little constrained.
I mean Louis just alluded to the capital expenditure plans, and until I think we've got a better handle on exactly how much and when, we're probably being a little conservative in terms of the outlook.
Very deliberately.
Jason Steed - Analyst
Thanks.
Louis Gries - CEO
Any other questions from the room?
Any questions on the telephone?
Operator
Thank you, your next question is from Emily Behncke from Deutsche Bank.
Go ahead.
Emily Behncke - Analyst
Good morning.
I just have a couple of questions.
Firstly wondering if you could comment on market share.
I think in the past you've indicated this year and next maybe around a percentage point of share you're expecting to gain, and just wondering if you're on track to deliver that.
And secondly, just wondering if you can give a little bit more colour on the repair and remodel market performance at the moment.
Louis Gries - CEO
Okay, on market share.
So I indicated first half for about 4.5% to 5% at PDG.
So that's just a straight calculation -- say a 14% market share.
Whether you hit the point or not, I think you come up a little short if we finish the year that way.
When we came into the year we were aiming for a 6% PDG.
It's still in play.
I don't know if we'll get there, but it's still in play.
So if we get the 6%, and I think it translates better with maybe a percentage pickup.
As far as R&R, R&R in our program in the North is really good.
The guys understand it now, we're running in a lot of markets, not just a handful of markets.
So we're doing well there.
So our market share gains, Northern regions against Vinyl is very good.
In the South our R&R gains are really against ourselves to a large extent.
So we have a lot of fibre cement standard markets where people use our planks for R&R as a standard.
Whether they buy it through the pro channel, more re-side contractors, or they buy it through the Home Depots and the Lowe's.
But what they don't normally do is they don't buy all the product they need for the house, or could use on the house, and that would be your corner boards, your window trim, your soffit and fascia.
So that's a bigger opportunity in R&R in the South and the West.
And colour.
If we can get the colour, 100% of colour, that helps kind of attach those things all on the job.
But overall, I'd say -- that's kind of on the market side.
The number one thing we accomplished in the downturn was we got our programs in R&R kind of designed and well understood in our organisation.
So we run pretty well.
New construction market share?
We're just getting started, so we'll be on the flat part of that curve for a while, so any PDG growth you're seeing this year you're probably seeing come out of R&R rather than construction.
Emily Behncke - Analyst
Okay, and just interested in your comments around the margin getting back to the 20% to 25% range in FY14.
Is that a result of increased capacity utilisation, or reduced -- new investment in say sales force?
How should we -- what's the main driver of that?
Louis Gries - CEO
Well I think part of it is just the volume catching up to the spend, so like we're kind of clear in communicating.
We're putting things in the business before we have the volume to pay for it, so hopefully if we get some kind of volume growth next year, that kind of indexes to the market -- plus, then you're just catching your volume up to the spend.
I do think our pricing funk we've been in -- in an increasing market, there'll be opportunities to not only take care of the tactical part, but to look at some market increases.
I'm not saying we're going to take one in the short term, but in an increasing market sales tend to go up and I don't think ours will be an exception necessarily.
Manufacturing, actually that might be a little bit of a drag on the 25% range, because we'll have a lot of start-ups going on.
So start-ups, you know you expand, so they're not -- plant isn't near as efficient.
The first 180 days is an ongoing plant, but I don't think it's a major factor.
We've always absorbed those start-ups pretty well in the past, and I think we will.
But that doesn't work for us, that kind of works against us.
Emily Behncke - Analyst
And maybe just finally Russell, in terms of the capital management that was announced, I think Jason talked about a question maybe you could have done a little bit more.
Does that mean that maybe we can look at a particularly high dividend in FY14 again if the balance sheet allows?
Russell Chenu - CFO
Well we've announced the dividend payout ratio of 30% to 50%.
I think that's the guidance that we'd give for FY14 and beyond, Emily.
Emily Behncke - Analyst
So a buy back is unlikely to continue in FY14 as well?
Russell Chenu - CFO
No, I wouldn't say a buy back is out of the question.
I mean, one thing that we flagged when we announced the change in May of 2012, which is still on foot, is that we anticipate that in the right sort of market conditions we could be quite active in share buy backs, and that's not exclusive from dividends.
Emily Behncke - Analyst
And what are the right market conditions in your view?
Russell Chenu - CFO
It's an actual return.
We need to see a market condition where we think our share price is attractive enough for us to get a financial return from it, and that's all measured by earnings per share increment, return on equity, impact on WACC.
Emily Behncke - Analyst
Okay thanks.
Louis Gries - CEO
So I'll add to Russell's comment, I think we have to bring this guidance.
Basically, I think most of you are more aggressive on the balance sheet than we are.
So we're a fairly conservative company on the balance sheet.
But we acknowledge we shouldn't be sitting with zero debt.
But we're uncomfortable just trying to fix that -- we're uncomfortable and also somewhat restricted just trying to fix that overnight.
So we are going to move to lever balance sheet, but it's probably going to take four or five years.
But every year you should see us moving further down the track.
And of course, on our share price, we're like you guys.
We don't want to be buying when it's high and sell -- we don't sell -- but we don't want to be buying when it's high.
So, if we see opportunities to buy and it makes a lot of sense, we'll be in the buyback market.
That isn't that we don't think our -- we think our share price is ever overvalued, it just means sometimes it's just more undervalued than other times.
So it's today's a good day.
Operator
Thank you.
Your next question comes from Andrew Peros from Credit Suisse.
Go ahead thank you.
It looks like we've lost him.
Your next question comes from Peter Ryan from Peter Ryan from ABC.
Go ahead thank you.
Peter Ryan - Media
Good morning.
Look, I just wanted to ask a question about the asbestos compensation fund.
I just wanted to find out how high does that sit up on the agenda at board meetings?
And how important does the management of that remain in the rebuilding of James Hardie's reputation?
Louis Gries - CEO
Okay, I think our track record on the fund's pretty clear.
I think the regional fund doesn't have enough money in it.
Kind of everyone kind of came to that conclusion by 2004 or something.
So Russell, one of the first things he did when he took his current role is took the lead on negotiating a fund that we felt contributed the money that was going to be needed for claimants over a long period of time.
So it's what I would say is a pay as you go fund.
And so Hardie's 100% in compliance with that.
The state government -- of course we worked on it with the state government, the unions, the claimants groups, and yes the state government and ourselves.
So everybody's behind the fund.
The fund's been working really well.
I think the balance right now is $171 million.
Obviously that was helped out by the win on the RCI tax case.
But even last year when the funds were -- the claimants' requirements were higher than what was in the fund -- the state provided the backup facility for the fund.
So now it is managed outside of Hardie.
It's consolidated in our results, but it's managed outside of Hardie.
It has its own board.
So our board meetings -- I don't want anyone to think we're kind of working on fund issues in our board meetings.
Our company, our board kind of helps us run the company.
And the fund board actually runs the fund.
So we think it's been working very well.
The fund I believe is going well.
They're very happy with the relationship with both the state and with Hardie.
So I think that's one of the real positives that's developed over the last five or six years for Hardie.
We're the last -- since 2001, we've contributed $900 million to the claimants' funds.
$300 million the first fund, and $600 million since we established the second fund.
Louis Gries - CEO
Any other questions on the phone.
Operator
A question from Andrew Peros.
Go ahead thank you.
Andrew Peros - Analyst
Good morning everyone, sorry about that guys.
I'm just trying to get a feel for PDG, and sorry to harp on this, but I think you mentioned was negative 1% for the quarter and you're going for about 4.5% to 5% for the first half -- I guess trying to reconcile that with what some of your competitors are reporting, which is relatively strong PDG over that period.
Can you perhaps provide some more detailed comments around that to get a better understanding of how you guys might finish the balance of the year?
Louis Gries - CEO
Yes, I'm not sure what you mean by competitors.
If you're talking about other building materials companies, or competitors in the siding business.
But just go through the mechanics of PDG.
One, it's just the calculations -- not a good calculation on a quarterly basis.
It's just too short a period of time.
I think it's pretty good year to year, and it's good for kind of four month -- I mean four quarter -- rolling average.
PDG is about our exterior business, it's not about our Backer business.
Okay, so 25% or 24% of what we sold last quarter was HardieBacker.
So that's outside of PDG calculation.
As far as what our competitors have done in siding.
Yes, you have all the different types.
You have brick, stone, stucco, fibre cement, wood and vinyl.
Okay, the main ones we track are wood, vinyl and fibre cement obviously.
Fibre cement PDG for the three quarters, now I'm going to really confuse the calendar year, is very similar to what it would be for the engineered wood part of the wood segment.
Now as far as cedar siding, which is a natural wood, and plywood siding, we don't have a good way to measure in that.
Okay, now neither of those categories appear to be growing, so it's not a big deal.
But us and engineered wood siding, or chipboard siding basically -- seem to be growing at about the same rate.
Maybe they're a little bit ahead on a little smaller base, or maybe it's about the same rate.
Vinyl siding is giving up the share, and you can see that.
I think a lot of you would have access to what they call Vinyl Siding Institute numbers.
Well you can see vinyl sliding is still giving up share, and that's probably even accelerated a little bit.
So if you're talking about other building materials companies as our competitors -- like gypsum companies and roofing companies and things like that -- that's where you've got to figure out how much of those companies' business is volume increases driven by new construction and how much is driven by R&R.
Kind of how does that compare to our mix.
Operator
Thank you, a question from Emily Behncke from Deutsche Bank.
Go ahead thank you.
Emily Behncke - Analyst
Thanks -- just a follow up on my margin question earlier.
You indicated that with improved volumes you would expect some margin improvement, obviously manufacturing a little stronger.
But is it fair to assume that as the market recovers that we should continue to expect margins to improve and at the terminal year you'll be above 20% to 25% margin range?
Louis Gries - CEO
Yes, well so far with the volume improving you haven't seen that.
So I'd worry if I were you.
But in reality you should.
I just think we're too early in the recovery.
Basically any business as they more fully utilise their kind of fixed costs in the business -- whether it be sales people, marketing spend, plant investment, whatever it is -- should get better returns obviously.
EBIT -- even your returns.
Yes, and then terminal share, I think the only thing there -- the tricky thing that I hate to introduce here because it's a bit of a concept you've got to think about, so it's more of a September tour concept.
But the question is, I mean right now -- historically, we've sold most of our board in the South or the West and it's been prime board.
Okay, and in the future most of our growth will be outside of the South and the West prime board markets.
So that Southwest prime board is very high returning board.
So the bottom of the market and the top of the market are unlikely to return at the same rate as the middle of the market.
I think the -- kind of what kind of doesn't make that an issue for us, is because I do think our kind of market position and our efficiency in our business gets better every year so that just generally lifts up all margins.
So even though the top and the bottom, which is going to be a lot of the new business, won't be at the same margin as the middle of the market it'll still be at a market that all -- I mean, at a margin that all adds up to kind of the right level.
So it's no guarantee that it's higher at terminal and it's no guarantee that it's higher in six or seven years.
But if we're successful running our strategy and we continue to grow fibre cement category and we continue to maintain the lion's share of that for ourselves, what is pretty guaranteed is you're going to have a lot more dollars.
Now, how the percentages work out, that's less known than how many dollars are probably going to be there.
Emily Behncke - Analyst
Right, thank you.
Louis Gries - CEO
Yes.
Operator
Thank you.
Your next question comes from Philip Bare from Morgan Stanley.
Go ahead, thank you.
Philip Bare - Analyst
Thanks for that.
Just a quick question on capacity expansion in Australia.
Can you give us any more detail on when you expect you will have resolved that issue just in terms of timing and location?
Louis Gries - CEO
Well, I think the good news is we're not under pressure to make a decision quick.
But the bad news is it's just way too expensive.
So there's a significant amount of work we need to do to get the number to work.
When I say that it's not -- obviously we don't have a balance sheet problem, it's just the dollar invested per dollar of revenue is off.
So it's not off by US standards, it's off by what we consider Hardie fibre cement business model standards.
So we don't expect it to be the same as the US, okay?
We can build capacity much cheaper in the US than we can in Australia, we know that.
Part of that has to do with just the difference in geography, the difference in the economies.
Exchange rate in Australia's probably not -- the really strong exchange rate is playing a part.
There's also a learning curve because it hasn't been done down here a lot of the bids have these insurance premiums in them to make sure they know what they're getting into, if things go a little bit wrong for them they still make money on the job.
So in the US where we had the same contractor build, let's see, like seven plants in a row, they were able to really zero in on what it cost to build our tech plants and they didn't have any fluff in their bids.
I think there's a fair amount of fluff in the Australian bids at this point.
So it just doesn't work, it's just too many dollars per output of revenue.
We've got to get it down quite a bit.
It's not like we've got to get it down 5%.
We've got to get it down quite a bit.
So we're working on that.
When it's going to happen, I'm not sure.
But it'll happen before we need it to happen, meaning we won't run out of capacity in Australia trying to figure out the perfect investment for capacity down here.
Philip Bare - Analyst
Thanks for that.
Operator
Thank you.
We have no further questions in the queue at this stage.
Louis Gries - CEO
Okay, I think that takes care of all the questions from investors.
I'm not sure if we have any media questions.
Yes.
Unidentified Audience Member
I have a couple of questions.
One thing you haven't really mentioned in the United States is the political uncertainty, so the US (inaudible - microphone inaccessible) in the first half of next year we've got the fiscal cliff, the debt ceiling issues, possible credit rating downgrades, perhaps.
To what extent do you think that might derail whatever recovery you're expecting in the housing sector or do you think to some extent that's already in place and there's a certain amount of unity there?
Louis Gries - CEO
First thing I need to tell you is I'm not an expert on economics, even US economics so, yes, I'm aware of all the situations.
I think where we're at in the US, most of us feel that even if we have some bumps -- not shocks, but some bumps, higher tax rates, stuff like that, the housing -- we've starved the market for housing long enough where it'll still grow.
It may not grow at the optimum rate if we didn't hit those bumps but it'll still grow.
Now, having said that, if it doesn't then we're back to, like every other company, dealing with the reality and reacting to a lower demand.
But myself and most people in our industry just don't see that happening.
We think there will be at least some increase in housing next year over this year, even if we have some political bumps in the road.
Unidentified Audience Member
I've got one question about Australia.
I just wanted to -- if you could, to zero in on the specifics of a comment you made.
You said even if the market in Australia doesn't get much better we think our results will get much better.
Louis Gries - CEO
I think we performed below average of where we usually perform and I don't think that's going to carry on too long.
So, again, we're a quarterly reporting company so you see three minute -- three month slices of our company.
I think we just had less than what we'd expect type performance as we went into a softer market in Australia.
I've got a lot of faith in the organisation down here.
I just think they'll start running the business better given the market conditions, even if it doesn't increase.
Unidentified Audience Member
Okay, just one final question.
Louis Gries - CEO
Yes.
Unidentified Audience Member
Have you had a chance to watch the ABC series Devil's Dust?
Louis Gries - CEO
I have not.
I just got here Wednesday morning.
Unidentified Audience Member
Are you intending to watch it?
Louis Gries - CEO
I'm going home so I don't know if I'll watch it or not.
Our company's history on asbestos is well documented so I'm aware of the company's history on asbestos.
It was before my time but I'm completely aware of the history of Hardie asbestos.
I'm also aware of the contributions we made before the fund with the first one and then the current fund which I think the current fund, as I commented earlier, is just a very appropriate fund for the type of liability we have as a company.
Unidentified Audience Member
Do you think Hardie has left the issue of asbestos, as a problem, behind for good?
Louis Gries - CEO
Well, I think all the investors in the room know that every year we generate cash flow, some of it goes to the fund.
So I don't think Hardie and asbestos ever get separated.
It's a very long tail liability.
But I think what we've done is put a fund in place that's -- it manages the situation for investors and for claimants so it's kind of a balanced approach.
The pay as you go is -- seems to work much better than the chapter 11s in the US, which is the standard way of dealing with the asbestos liability in the US.
Okay.
Thanks, everyone, for coming and see you next time.