James Hardie Industries PLC (JHX) 2014 Q4 法說會逐字稿

Okay, good morning everybody.

We'll get started.

We're going to follow the same format we always do.

I'll just give a quick overview on the business and Matt will cover all the details in the financials, come back to questions, investors in the room first, investors on the phone second and then media at the end.

Let's see if I know how to use this thing.

Okay, like I said I'll just go real quickly through the business.

I think you probably all saw that the result was probably pretty much as most people expected.

It was certainly pretty much what we were expecting.

Fourth quarter was just a little bit soft.

You've seen in a lot of announcements the weather, I don't think it affected us that much but it -- our volume came in just a hair short of our forecast.

As far as our financials, they were pretty much where we wanted to see them.

We set out at the beginning of the year to really do two things, really start growing the market share we wanted to, now that we're in a much better market, and also deliver on our target EBIT margin.

You can see that translated into a good improvement in net operating profit as well.

Pretty much across the board it was a good result, obviously volume up.

We grew faster than our market index.

Net sales price was up -- we didn't do -- we did a market increase on back of last year if you remember, but on the exterior products we made a few adjustments market by market with the Cemplank brand.

But mostly the improvement in price was just cleaning up the tactical pricing problem we had in the previous year and half or so where we had kind of prices leaking between segments.

We don't have much leverage, operating leverage but we did obviously spread fixed costs as our capacity got more fully utilised.

Higher input cost played a bigger role in the fourth quarter than it did for the full year.

I just wrote down some notes on that.

Pulp was up quite a bit but the US business really saw pulp, cement and energy all up significantly and up more in the fourth quarter relative to the previous fourth quarter than they were prior quarters.

For some reason I've lost my numbers so when we get to Q&A I'll go through that for you.

So again, fourth quarter pretty much exactly where we thought we'd come in.

We did think we'd inch over the 20% but we came in at 19.8% on the EBIT margin.

Good price and good volume.

Like I said, higher input costs relative to previous quarters, and everything kind of as we expected.

Our full year result again, I covered that.

We're very happy with the full year result.

We're back on track where we want to be, both on the market share side and on the EBIT margin or financial return side.

You can see our quarterly result in the EBIT margin was more consistent quarter-to-quarter than it's been in previous years and I think we'd see that again this year, that's what we're thinking we're to see again this year.

We'll see probably almost the same pattern second quarter.

Unless there's something out there we don't understand about market demand, the second quarter will probably be our best quarter EBIT margin.

But first quarter will be good and then I think we'll do well in the winter again next year like we did this year, and that's just because of the market growing, winters are easier to handle than when the market's declining.

You can see -- I know you've all seen the sound bites or heard the sound bites coming out of the US about flatter housing and weather and you can kind of see the black line flattening out there.

We don't think the market's going to be up as much next year as originally forecasted but we do think it's going to be up.

So I think it was originally forecast that your single family starts around [15%]; my guess, and it would just be a guess, is we're probably looking at more [8% to 10%].

So we plan around that.

If we get [15%] we're in good shape but we've also kind of hedged our bet a little bit in case we don't get as strong a market as was originally predicted.

And as I said, one of the big accomplishments last year was just correcting a problem we had previously.

So we had that dip down in 2012 and then a bigger dip in 2013 and now we're back on our normal slope of the line or almost back in the normal slope of the line.

Asia Pac also had a good year.

They had pretty much everything go right.

The market's pretty good down here; it doesn't play one-to-one in our hand because R&R is weaker than new construction and attached is stronger than detached.

So our two big segments here are R&R and detached housing, and when you look at growth rates I the different segments it doesn't -- we didn't get as good of a market index as you would think from the headline numbers but it's fine, there's nothing wrong with the market.

We've done well with volume.

Production costs, especially at the Sydney facility, are starting to show some good efficiencies there, so that helped out.

They faced higher input costs but they were mainly in pulp down here so they didn't face the cement increases and the energy increases that the US did but they did have a higher pulp cost.

Then of course when you translate it into US dollars the results get downgraded a bit because of the change in exchange rate.

So for the quarter, volume up, price up, EBIT in Australian dollars up 28% so a very good result, and similar for the full year, volume up, price up and then the EBIT again 21%, AUD90 million -- just short of AUD90 million and just short of $83 million.

So our outlook is pretty favourable I'd say because we don't rely on big increases in the US market in order to drive our numbers.

So I know some of the basic building materials still aren't at breakeven on (inaudible) type of housing starts.

We're very comfortable where the market's at.

We like that it's increasing year-to-year and we like that it's not spiking, so we don't have to worry about running out of capacity before we bring our new capacity on.

So everything looks good in the US.

Our game next year is going to be the same this year as it was last year.

We'll be very focused on balancing the market share growth with the hitting the target EBIT returns.

Obviously we're doing other things, putting in a lot of capacity, but again we're pretty good at that so I don't expect any bumps in the road there.

Asia Pac, well New Zealand's market looks really good.

Philippines market I think looks good again and the Australian market, which is the biggest per head division, is a bit unclear right now but it's still going to be a good market.

Even if it tapers off a little bit we don't see a problem on the market side.

Just to go over our capacity expansions, if you recall on the US, we started up a line in Waxahachie last year, very early last year, then we started up Fontana late last year.

We started the first one in January, the first line in January, and the second one just right at the end of the fiscal year.

So you're basically going to see most of the start-up cost for Fontana come into this year.

And we now have use of that capacity so we've balance out that shortage we've had on the West Coast, so less (inaudible) imported into the West Coast from Illinois this year now that we have Fontana online.

Plant City and Cleburne are our two big brownfield additions.

They're relatively efficient capital-wise because they sit in slots that we used have lines.

So Cleburne used to have a XLD -- what we called XLD trim line there, which we then moved that production up to Peru, Illinois.

So a lot of infrastructure for a line was sitting there so we put a big sheet machine where the old trim line used to be and got the benefit of a lot of that infrastructure around the line.

So that's 200 million feet at $37 million.

And then Plant City is a little bit different, but you'll remember we had a (inaudible) plant down at Plant City.

We closed that several years ago.

We're using that building and some of the infrastructure for that Plant City -- new line in Plant City.

It's a bigger line than we're putting in Cleburne and it has a finishing investment that goes along with the sheet machine investment.

So that's why it's a higher number but still very efficient from a revenue per investment dollar.

They're actually timed right now to come in at exactly the same time, which is about April of next year, say March start-ups.

We're actually going to -- we're in the process of staggering those so we'll probably bring Plant City on early, maybe January and depending on how overall demand looks we'll either bring Cleburne up as planned or let it slip a month or two just to stagger the two start-ups.

And the expansion up in Carole Park is going as planned and everything is good there.

Right now we look like the timing to bring that on, which again I think is around a March start-up, fits pretty well with our forecast on using that capacity so that looks pretty good.

Okay, I'll hand over to Matt for the financials.

Good morning.

So as Louis has already indicated, earnings were impacted this year by higher volumes and higher price, higher EBIT.

Higher EBIT margin in all of our major businesses compared to last year and you'll not unfavourable movements in the asbestos adjustments which we'll go through in more detail.

Net operating cash flows were up to $323 million for the full year compared to $109 million a year ago.

Capital expenditure has increased from $54 million to $115 million, largely in line with the capacity expansions and investment in R&D that we've discussed.

We have an ordinary dividend declared of $0.40 for the full year compared with $0.18 a year ago and a special dividend combine of $0.48 compared with $0.24 a year ago.

For the fourth quarter net sales increased 15%, favourably impacted by volume and price.

Gross profit margins were up about 210 basis points which were a combination of volume and price and partially offset by input costs, which Louis mentioned earlier, and some of the idle facility costs as we've ramped up some of the capacity in the US.

SG&A expenses were up for the quarter, primarily due to some higher compensation which is a combination of stock compensation in line with the share price as well as some investments that we've been making in the organisation as we get ready to scale up.

And then there was a slight increase in the New Zealand product liability in the quarter but for the year you'll see that that's down.

Asbestos adjustments were unfavourable and we'll talk about that more later, largely due to the underlying actuarial valuation assumptions, partially offset by foreign exchange.

For the year -- sorry, for the quarter -- just walking down from our reported to our adjusted results, the major driver there is asbestos adjustments, $308 million of adjustments related to the underlying actuarial valuation, partially offset by $23 million of exchange rate differences and you can see $45.3 million in the quarter of net operating profit excluding all the unusual items that we typically exclude, up 48% quarter-over-quarter.

For the full year, net sales were up 13%, similar to the quarter.

Favourable volume, favourable price for the year, which helped drive Group sales up 13%.

Gross profit margins up similarly, about 220 basis points with a similar dynamic as I said earlier, favourable price, higher input and idle facility costs partially offset by economies of scale that we get as the volume ramps up.

R&D you'll note is down a bit; that's consistent with what we've talked about in prior results.

It's just really timing of when old projects conclude and when new projects start up.

It's not as though we're investing less in R&D, it's just we invest as the projects are ready to ramp up and the teams are ready to tackle them.

Then -- and again, unfavourable asbestos adjustments, which I'll talk more about on the next page.

So walking from the reported results for the year of $99.5 million to the $197.2 million, the headline net operating profit is really driven by the operating performance on the prior page, a combination of volume and sales as well as gross profit margins.

The asbestos adjustments were unfavourable, again because of the underlying actuarial valuation assumption changes which I'll step through.

New Zealand product liability for the full year decreased -- there was a substantial reduction in the value of new claims that we received as well as just fewer claims and that's resulted in a net benefit for the year.

Then excluding asbestos asset impairment, the ASIC expenses and the New Zealand product liability, net profit of $197.2 million, up 40% versus fiscal year 2013 of about $141 million.

Some segment highlights.

The US and Europe had EBIT margins, as Lou said, about 19.8% so just shy of the 20%, up substantially, 380 basis points versus fourth quarter of 2013.

In APAC they had about a 230 basis point increase up to just shy of 21%.

And you'll note on general corporate costs, if you exclude ASIC expenses, were higher compared to prior corresponding period, again primarily due to salary and compensation expenses, a combination of stock comp accounting as well as, like I said, the investments in the organisation that we're doing in advance of the growth.

For the full year the US had EBIT margins of 21% so within our target range of 20% to 25%, up year-over-year about 390 basis points.

Asia Pacific was up 230 basis points or finished out around 22.6% and again general corporate costs higher, a combination of the prior year included a number of non-recurring items, ASIC expenses of $2.6 million had an FX gain of $5.5 million and a recovery of non-recurring legal costs of $2.7 million.

And then the more recurring items in compensation that I've already discussed.

Foreign exchange, this is the chart you're familiar with.

You can see the Aussie dollar versus the US dollar and the impacts that it has on the major items in our financial statements.

It has an unfavourable impact from the translation of the Asia Pacific earnings, so in local currencies the Asia Pacific business is performing better than on a reported basis because of that translation, has a favourable impact on the corporate costs that are incurred here in Australia, and has a favourable impact on the translation of asbestos.

You'll see that more when we break that out in a couple of slides.

Income tax for the quarter, income tax expense excluding asbestos-related and other tax adjustments increased due to higher taxable earnings.

The effective tax rate, excluding asbestos asset impairment, New Zealand product liability and tax adjustment increase to the prior corresponding quarter and the asbestos-related and other tax adjustments increased due to the increase in the asbestos valuation-related adjustments.

I think the full year is a more complete look if you will on tax.

In effect, the tax rate is about the same, 21.6% in FY 2014 versus 21.3% in 2013 largely in line year-over-year.

The tax rate remained consistent largely due to an increase in taxable earnings relatively to the recurring tax adjustments.

Cash flow.

Net operating cash flow increased from $109 million to $322.8 million, primarily due to two or three things.

Number 1, the prior year had a non-recurring tax payment of about $81 million which arose from the favourable conclusion of RCI, which is a disputed tax assessment from fiscal year 1999.

The contributions to AICF were down year-over-year and then earnings were up year-over-year.

You will see an increase in CapEx which we've already noted, from $61 million to $115.4 million, and I'll go through that in a slide or two.

Returns to shareholders were up as well, from $221.2 million from $188.5 million and an ending net cash of $167 million, which is good considering some of the capital allocation items that we're trying to balance.

CapEx as I noted in the last slide is $115.4 million.

You can see the segment results, or the segment breakdown here, up about 90%.

In the first quarter, as Lou already talked about, we completed the land purchase on Carole Park and that project is on track to commission early next calendar year.

Fontana, we've already talked about, is now commissioned and ramping up.

CapEx for the capacity expansions in Plant City and Cleburne are underway and those projects are on track.

In total, capital expenditures in the US and Europe segment, these exclude the $4.8 million related to the acquisition of the windows business we did in the third quarter.

We're continuing to focus on capital management.

The framework is very consistent with what I've shown in February and that we've talked about the last several months.

Our strategy is to do really three things, reinvest in R&D and make sure that we've got capacity expansion projects in place in anticipation of our growth strategy, and while we're doing that providing a consistent level of dividend payments with an ordinary dividend payout ratio of 50% to 70%, which is the ratio we've been operating under since last November, and continuing to execute on share buybacks and special dividends.

That strategy is all within a framework of capital efficiency and a rigorous financial policy, so maintaining sufficient liquidity and minimising our cost of capital as well as generating strong cash flows in order to grow funds for CapEx as well as maintain the flexibility for strategic decisions.

A summary of the capital management and dividends initiative that we've announced.

So we've announced today the special dividend of $0.20 per security in the second half, ordinary of $0.32.

Those are declared in US currency; it will be paid on the August 8 with a record date of June 12.

We had previously announced, and including for fiscal year 2014 a dividend payout ratio again in the 50% to 70%, so it was an increase year-over-year.

For the full year ordinary dividends declared are $0.40 compared to $0.18 a year ago and special dividends declared of $0.48 compared to $0.24 a year ago.

We did also announce today a new share buyback program to acquire up to 5% of our issued capital.

For the share buyback program we announced a year ago in May of 2013 we repurchased a total of 2.6 million, just a little over 2.6 million shares of our stock, an aggregate cost of AUD34 million, $31 million, and an average market price of AUD13 and just $11.94.

We continue to have adequate facilities.

We have total facilities as of the March 31 of $355 million, with net cash at $167.5 million for $522.5 million of liquidity.

We also -- you'll note in the filing we added $150 million of facilities after March 31 to replace and augment facilities that expired during the fiscal year to bring our total facilities now up to $505 million as of today.

On New Zealand product liability, the total provision for this matter net of recoveries was $12.7 million for March 2014 versus $15.2 million for March 2013.

We recognised an expense in the quarter of about $1 million and during the full year we had an increased rate of resolution on claims and fewer open claims at the end of the year.

So a substantial reduction in the value in new claims received and total claims overall.

On asbestos, the updated actuarial report was completed as of March 31.

The undiscounted and uninflated central estimate increased to AUD1.5 billion from AUD1.3 billion.

The total contributions of $184 million were made to AICF in fiscal year 2013 from our fiscal year 2012 cash flows.

No contributions were made last year in accordance with the terms of the AIFA.

Since the AIFA was established in February of 2007 we have contributed $599.2 million to the fund and we anticipate we'll make a further contribution of approximately $113 million to AICF on July 1, and this represents the 35% of our free cash flows for the financial year 2014 as defined by the AIFA.

In terms of some additional details on the actuarial report the change in the estimate of the net present value is now AUD1.8 billion.

It's an increase from the AUD1.694 billion as of March 31.

The AUD176 million increase is really AUD294 million that's up arising from the actuarial evaluation assumptions and AUD117 million reduction from the roll forward and the discount rates.

Claims reporting for mesothelioma were 20% higher in fiscal year 2014 than the previous year and 23% higher than the actuarial expectation.

Other disease types in the report you'll note were largely in line with expectations.

Claim average awards are largely tracking considerably better than the expectation and large meso claims increased in frequency relative to prior year.

I think it was 11 reported for this report versus 7 -- sorry, 5 to 6, which is more typical per annum.

This chart shows the trend in the reported result at each valuation completed by KPMG.

The range has narrowed over the passage of time so you can see that with the orange bars coming together.

In 2014 however that range widened again.

You'll note that the claims were ahead year-over-year as well as ahead of the expectation and so you can see in fiscal year 2014 that with that uncertainty the future claim numbers increased.

As the orange and blue lines come together that really reflects the impact of lower interest rates and less time value discounted.

For the fund net claims the fund had gross cash flow -- outflow 7% above expectation in a gross level and that included about AUD7.7 million of payments made in March of this year that were due in April.

Actuarial net claim costs were slightly lower.

You can see the AUD12.9 million are slightly lower than anticipated due to insurance proceeds and lower nil claims and volume of meso claims resulting in an increase in payments in relation to claims reported.

So in summary, net operating profit excluding asbestos, asset impairment and New Zealand product liability and tax was $45.3 million and $197.2 million for the quarter in the year.

The full year reflects higher sales volumes and average sales price in local currency in both segments; US and Europe as well as Asia Pacific.

Higher EBIT margins within our target range.

US and Europe excluding asset impairment up to 21% in Asia Pacific up to 22.6%.

The projects we have in Fontana is largely complete and we have ongoing investments that we talked about in Cleburne and Plant City.

The second half ordinary dividends we declared a $0.32 in the fiscal year special dividend of $0.20 were announced today.

The new share buyback program in line with what we previously talked about capital management objectives our total credit facilities are up to $505 million to fund capital expenditures in FY 2015 additional shareholder returns.

Yes thanks Matt.

We might go to questions again -- endless investors in room.

One question each if you could limit to one question first time around and if we go around a second time we'll do that.

Okay thanks Lewis.

Emily Behncke from Deutsche Bank.

I just had a question around the cost side in the US business.

I guess just trying to understand given the number of plant that you do have coming on line over the next sort of 12 to 18 months, how we should think about the ramp up costs for new capacity and, I guess, how that might have compared with the increased costs associated with the freight, the pulp and the cements in the fourth quarter?

Yes no problem.

I will give those numbers.

For the quarter pulp cost was up $3 million in the US.

Cement plus other additives was actually flat and then energy was up $2 million, so $5 million for the quarter.

For the full year those same numbers are $7 million, $4 million and $4 million, so $15 million for year.

We do see kind of a bit of a ramp up going on with the basic commodities as the economy continues to expand even at a slow rate.

So we're anticipating that will continue into at least first part of the year.

Freight was only up a couple of percent in the quarter, and I think less than 2% for the full year, but we have been getting freight rates starting to spike short periods of time so I think it's an indicator freight is going to be up stronger at least the first part of this year than it has been over the last year.

As far as the ramp ups, I think the only guidance I would give you there is we're going to be ramping up capacity pretty regularly now and so we don't want to call it out as exceptional and it's all figured in to our target EBIT margins so the fact that we're bringing so much capacity on doesn't really change what we think we're going to deliver on the EBIT margin side so that's kind of that guidance there which is no guidance.

Andrew Johnston CLSA.

Matthew, a question around working capital.

We saw payables jump around a bit and receivables fall.

Could you just talk about in the underlying business what's happening on working capital?

Yes I mean working capital continues to be pretty efficient.

We tried to build some inventory in the winter in advance of the build.

You know there's really nothing operational going on in terms of receivables or payables that would move a page but there's nothing operational that's going on in receivables or payables that's unusual.

Something must be polluting those that payables number because that's gone up from $103 million to $142 million that final (inaudible)?

I'm going to guess but it could be constructed related.

Hi Lou, Simon Thackray from Citi.

Just looking at the rising costs and looking at your capacity you made the comment before with Fontana ramping up, need to ship product -- the competitors within the fibre cement category look stranded in terms of their capacity.

So it seems to me that Louisiana-Pacific is trying to eat your lunch if you like in taking share out of vinyl.

Can you just talk to the competitive dynamic of LP in terms of taking what probably duly you feel belongs to you which is that that vinyl piece--

Yes the--

In a weak competitive environment within fibre cement?

Yes, we'll go through that again.

So just so everyone's aware -- I'm sure you are -- there has been a change in ownership of the second largest fibre cement producer in the US which isn't very large relative to Hardie but they probably had maybe 8% of capacity.

They were sold for certainty -- sold their business to a Mexican company that owned the maxi plant and assembling plant, (inaudible) that ship it into US.

So there has been a little change in the fibre cement direct competition.

I think as Simon indicates there no known capacity adds by competitive fibre cement even though the market is expanding.

So the competitive tension within the category is probably a little bit less than it was a year or two ago.

LP has kind of filled that gap.

So we've talked about I think the last couple of quarters and I know a lot of the analysts in Australia followed pretty closely.

Basically during the downtown they took a good enough position in some markets.

When you talk going into the downturn as builders were trying to take costs out of their home they'd go through a value engineering process and we didn't feel that going back to vinyl was going to be an acceptable decision for most builders that were using fibre cement.

But you did get some builders drop down to OSB siding which is produced by LP.

It kind of caught us by surprise four years ago.

They got on a percentage basis a pretty big jump and last year I think they grew somewhat slower than our volume in exteriors, so I think they were just below 15% which includes their panel products, their left siding and their trim.

Against their market index, which is a different market index than us, that does indicate a market share gain by them and we grew more like 18%.

So much closer than we would see appropriate.

Of course, our market index is more R&R than it is straight new construction and so it's a little bit different index.

Having said that, we -- and what Simon indicated is we've done a good job over the years creating demand for fibre cement as really triggering a decline in vinyl demand.

For a lot of years we got pretty much all that, and now we're getting all of it initially but what LP strategy is not really to do any work against vinyl, LP strategy is to then go to our builders and try and find the most price conscious builders and sell them the fact that they can deliver a similar look to Hardie -- maybe not similar performance but similar look at a lower cost per house.

So we see the growth rate of LP and the growth rate of Hardie exterior improving from our perspective but the reality is we don't have the luxury of just positioning ourselves against vinyl anymore -- we have to position ourselves against vinyl as well as wood which is kind of where we started.

So we didn't even start our vinyl market development until maybe early 2000.

Prior to that it was all wood substitution products like LP mix which are hardboard siding and OSB siding.

[Raoul Pedethalay] of CBA.

Just around the cold US winter I think you mentioned it had a very small impact in your March quarter.

Would you expect there to be any kind of impact in the June quarter earnings?

Yes, I don't know if we could even come up with a weather impact for our business and I wouldn't expect any in the first quarter.

Now our orders file is softer than we would have anticipated so Matt talked about winter build which we normally did.

We hit our winter build numbers and we're not hitting our first couple of months' demand.

It's not way off but it's softer than we forecast it.

So I think you've been hearing a lot about two things.

A lot of companies have been talking about weather but you also have been hearing about soft housing for various reasons.

I think we're seeing the soft housing to some extent in our order file but we and I think most in the market don't anticipate anything but an upmarket but I think it's going to be up less than it was originally forecasted to be.

Andrew Peros, Credit Suisse.

Lou, I'm wondering if you could comment about the regional performance of the business.

I know Ryan Sullivan is in the room perhaps he can give us a feel for how the south is performing maybe in Texas and then also what you're seeing in R&R markets.

Yes our south has performed better than the north and it's a little bit to do with LP.

LP has targeted some northern markets so we've had to put a lot of effort into fixing up our position and re-communicating our position against OSB products.

But overall everything is growing so all the product lines are growing and all of the regions are growing.

The south growing a little better than the north obviously exterior grows better than interiors.

So was there a second part to your question I missed?

There wasn't.

Maybe can you just qualify PDG?

Our PDG yes we don't publish that number anymore and by the way we are going back next year to external index Hanley Wood has had an index out for about three or four years now I think it is and we've kind of tracked it against what we've been using and it seems like it's good enough to use.

It's better than ours because it's external.

But our PDG as we estimated based on our index last year came in around [8%].

We think our R&R index was a bit low last year so we use information from the retail segment meaning retail building materials from depot (inaudible) and if you used Hanley Wood it would have been more like a [5%] so somewhere between [5% and 8%].

Liam Farlow from Macquarie.

Just a question on your CapEx forecast.

You've forecasted $200 million per annum for the next three years.

Right.

Does that include stay-in-business and what are your expectations around stay-in-business as you invest in new plants ramping up-- (multiple speakers)

Yes really most of that $600 million is driven by new capacity.

It does include all our stay-in-business CapEx which is small relative to the new capacity.

I think you can see through the downturn we're spending less than $50 million -- around $50 million and some of those were even in the downturn, some of that was product capitals -- new product capitals -- so the majority is capacity.

We give you $200 million a year for three years and that's kind of what we're planning and we'll keep you up-to-date if that's going to be brought forward or slow down a bit depending on what the market looks like.

I think of the completion of that three year build out your stay-in-business will step up given the new install capacity that you'll have as well?

No it will be continuous.

As long as the market expands we'll probably spend at that rate.

Thank you.

Any other questions in the room?

I think we're going to go to the phones for investors.

Now we're going to go to investors first on the phone.

Your first question comes from the line of Jason Steed from J.P. Morgan.

Please go ahead.

Hi good morning Lou.

Good morning Matt.

Just a question on the asbestos side just trying to reconcile the indications given at the half year and the indications given now in the full year.

Matt perhaps you could comment and just tidy it up insofar as we're concerned.

The indications in today's release being that KPMG doesn't expect claims to reduce until after -- well if they don't expect them to reduce until after 2018, 2019 the central estimate goes up by 22%.

In the half year the indication was that if they peaked in 2015, 2016 they'd be up by 45%.

Perhaps you could just tie those two together -- I'm sure there's an answer to it but it just -- it looks to be a difference -- there's been an increase now and there's a further potential increase.

So just to tie that up and when we might get an indication as to when this stabilises?

Yes so what the actuary did -- what the report did this time is it took the base meso claims for 2014 and 2015 up from 300 and 370.

In 2015 and 2016 and 2016 and 2017 they maintained that 370 million and then they interpolated from 2017 to [26, 27] back to where the line was in the prior report.

So what you see in the impact is kind of a short term and a medium term adjustment in the actuarial projection for the rise that we experienced in FY 2014 in meso claims.

But you'll also know in the report there's a lot of uncertainty around how to understand and analyse last year's if you will one year increase in claims and the impact that they may or may not have on long term.

So there's quite actually a bit of uncertainty.

The report does not move the peak year.

So it still maintains the peak year.

I don't know that we'll have a lot of clarity on that until we see claims experienced through FY 2015 and potentially not until we see the actuarial report next March.

Okay, okay so it seems at this stage really in our minds we should be assuming that this is the grounds on which to base our liabilities but there is of course that risk that they push out the point at which this peaks?

Yes I think in terms of liability I think if you're asking how to think about it going forward -- our contribution to AICF certainly remains at 35% of our operating cash flow and that's probably the best way to look at it on a go forward basis.

Yes, yes alright thanks Matt.

Your next question comes from the line of Matthew McNee from Goldman Sachs.

Please go ahead.

Thanks.

Louis I just wanted to get a little bit more detail if possible around the $200 million of CapEx over the next three years.

Obviously you've talked about some of those expansions of brownfield expansions but have you got a greenfields plant factored into that number as well?

Can you give us a bit of an idea if you look at the first eight or nine plants you guys built or seven or eight plants you built that capital cost per plant or per square foot of capacity probably came down with each excessive plant?

Recently it looks like it's going back the other way a little bit.

So can you give us an idea of on a greenfields plant what the capacity cost would be per square foot of or just an indication?

We can -- I can give you the numbers but the difference between the past and what we're doing now is our product mix.

So early days when we were making mainly medium density 5/16 inch HardiPlank and HardiPanel we didn't have very much investment at all after the autoclave.

Most of our products now have post autoclave process -- a value add process and so you're seeing the investment pre-autoclave but also post autoclave as well.

So that's one of the big triggers for the higher investment.

The other is we are going to spend a lot of money in Tacoma.

We're building a Tacoma a sister plant.

Haven't put it to the Board yet, so it's not approved, but we're still working out the details.

But that will probably be $200 million plus and that will have room for 500 million feet of capacity.

I think the first initial capacity will be more like [250 million].

Then if you go to mid-south, so it's more -- it's more costly to build in the north.

So if you go to mid-south, we'll have a greenfield there at some point.

That will probably come in below the $200 million mark.

But we are, with the business we have now, we are definitely in that greenfield $150 million plus.

Well, we built Pulaski for, I think, it was $110 million and that was two machines.

So definitely have escalated, but again, a lot of that -- some of that's just normal inflation and construction cost.

Some of that's a fact that our plants have more in it for the price we produce.

Some of it's the fact that our plants have more in it because they're now much larger plants which require water treatment, air treatment investments that weren't required in the initial smart plants.

So Louis, the Tacoma sister plant or the potential one is in that $200 million for the next three years?

You've sort of included--

It would be both those greenfields are kind of in the thinking there.

We also had the Summerville restart, which will be low capital.

So probably more like the Fontana, whatever it was, [$30] million-plus we spent there.

And really whether we do the $600 million or do more than the $600 million probably has a lot to do with do we do the greenfield first or Summerville site first.

So sorry, just again, just to clarify, and I know these numbers are rough, but if you had a greenfield plant, let's say, 250 million square feet, what do you reckon the cost of that would be?

Well, we wouldn't build a greenfield for 250 million, so that's the problem.

The original investment will have 250 million, but they'll all be built for 500 million, plus--

Okay.

So let's say you did it in two stages, obviously the first half might cost you more than the second half.

But if you looked at a 500 million total plant, what would be the cost in the two stages?

With all the finishing and all the environmental, I think you're somewhere between $150 million and $250 million.

Okay.

No worries.

Thank you.

Yes.

Your next question comes from the line of David Leitch from UBS.

Please go ahead.

Good morning, Mike.

I was just trying to think about the net cash flow for the year ahead and specifically the tax paid component of that.

Like, last year, tax paid was $12 million, but of course, that's affected by a whole bunch of things.

I was just wondering how I should think about that number this year.

This year meaning FY 2015?

Yes.

Meaning FY 2015.

Yes.

Well, I mean, we're not providing any forward looking statements for FY 2015 as of yet.

So we will, when we get to the June result in August.

So maybe -- we've talked about an underlying tax rate on the earnings of, I don't know, 25% or something like that.

Should I think about tax paid in the same way or is there likely to be permanent differences that will make the tax paid less than the tax expense?

Yes.

I mean, again, I think it's too early to talk about FY 2015 and what we expect to have for taxes paid versus an ETR.

I can say that I think the ETR will largely be in line with the ETR this year with the major driver of any differences most likely being the geographic mix of earnings.

Yes.

So this year the tax paid was a lot less than the ETR.

Is there any reason not to expect that to continue?

Yes.

I mean, again, we're -- at this stage, I think it's just too early to comment on FY 2015 projected tax payments.

Thanks.

Okay.

Your next question comes from the line of James Rutledge from Morgan Stanley.

Please go ahead.

Thank you.

Just regarding the April 1 price increase of 2.3%, I'm just wondering if you can comment on how well that's stuck in the market and if you did see any volume buying ahead of that price increase from distributors?

Thank you.

Yes.

We allow 10% by head on an average of a three month volume.

So I think it's 10%.

That's just to cover their contracts for the following quarter.

Now, the increase went in April 1. The buy-ahead does not have to be delivered.

It has to be ordered.

So most that volume will fall where it should have fallen.

In other words, there's no slop over to speak of between 2014 and 2015.

So that's where we're at.

As far as this stock, again, we don't price like other building materials companies where we announce one number and kind of negotiate down from there.

So we would have gotten our announced price increase.

Right.

Thank you.

Your remaining question in queue comes from the line of George Clapham from Arnhem.

Please go ahead.

Hi, Lou.

Just a question regarding the mix of business in terms of the US R&R and where you see that -- how that panned out this year.

So roughly -- and you expected, I suppose growth rate in R&R.

Yes.

I think the index, the Hanley Wood index I referred to earlier is projecting or was projecting around -- when we read the study in January, they were projecting about 7% growth in R&R.

I would guess that's a little bit strong, but I think it would be somewhere around there, 5% to 7%, 7% being the top.

5% probably would be the most probable and maybe 3% would be the worst case.

Our market share growth in R&R is still tracking well, so we like our position in that segment and we're starting to accelerate our market share development in new construction.

It took a little bit of time to get that in place, especially back in the north after the downturn, but -- so market opportunities getting bigger and new construction at a quicker rate than it is in R&R, so theoretically our mix is going more toward new construction.

But only, you know, in small percentages.

And roughly what would the mix be?

Yes.

I can't remember where we were.

We were about, what, I'm looking for Sean to give something.

It was, like, 60% 40% and if it moved a couple of points, it might go 42% 58%, something like that.

Yes.

Okay.

Thanks very much.

There are no further questions from the phone at this time.

All right.

Thank you.

So that's it.

I believe no more questions in the room from analysts, investors.

Sorry.

We do have a couple.

Yes.

Go ahead, Simon.

No.

Just a brief one, if it's all right, Lou.

The average selling price Q4--

Yes.

--was actually down versus Q3.

Now I'm presuming that's somewhat weather related.

Some mixed -- could you just talk to that [frequency]?

I didn't do that calculation.

Sean gave me a heads up that the question was out there in the straight mix so the way you want to look at it is the price in all of our product lines in all of our segments is up.

So it would be just a mix adjusted.

There's more backboard--

Could be more backboarding.

Yes.

Okay.

Thanks.

Hi, Emily Behncke here just again.

A question around firstly on corporate cost for Matt.

There was a big movement in 2013 to 2014.

How should we be looking at corporate costs going forward?

Yes.

So there are some unusual in 2013.

Just let me get to my notes on that.

Yes.

So from 2013 to 2014, there was an non-recurring favourable FX and then there was comp expenses.

So when you take out the FX plus the ASIC expenses, the way I would suggest looking at it going forward is general corporate costs will be up a bit as we add some organizational capability to just size the organisation for growth.

I'd say a combination of C&B will be up with inflation, if you will, and then there will be some incremental on top of that with the headcount adds come in.

Just one final question for Lewis.

You mentioned that you're expecting margins in FY 2015 to be above FY 2014.

Given the price increases and volumes and what you know today, I mean, is it fair to expect that in one of the quarters you will hit a margin above your range?

You know, I haven't looked at it in that detail, because it doesn't matter much to us.

But what I have looked at is the pattern.

I think the pattern is going to be similar.

First quarter will be okay.

Second quarter will be better and then third quarter it will settle down and fourth it'll be a little bit of a bounce back.

So that's apparent and to be expected.

Like I said, you can do that because of the increase in demand just makes it a little bit easier in the winter months.

As far as your comment on corporate cost, we are trying to do more market development in the businesses and we're trying to do more business development in the corporate area.

So you might see a tick up, but obviously in September, when we see if we are kind of committing a few things that we haven't fully committed to yet, we'll cover that off then.

Okay.

I think that's all the -- I'm sorry.

Yes.

Just one quick one.

Yes.

Just on capital management, I think last year you -- the strategy was to have a number in place, do the buyback, whatever you didn't get in the buyback would come back as a special.

Can I assume the same in place this year?

If so, what's the sort of number that you have there?

Well, what we did this year in FY 2014 was pretty consistent with that.

So as you probably noted, we were more active on the share buyback since December.

One way to look at it would be if you take the shares that we repurchased over the last year, plus the special that we announced today, that's largely in line with -- and a special dividend from a year ago or so.

We announced obviously the new program from May 2014 onward in terms of share buyback.

We'll continue to evaluate repurchasing shares versus special dividends and we'll evaluate that as we go.

But the total number for 2015 is going to be similar to 2014, removing the anniversary dividend.

Yes.

The anniversary dividend is not likely to repeat.

There probably won't be a 126 year anniversary.

But we'll just continue to evaluate on the share buyback side throughout the year.

I guess a good summary point would be everything is kind of going as planned and I would say capital management is going as planned as well, so yes, we're not really talking about anything different in any areas that I'm aware of right now.

Right.

Okay.

I think media questions, I think, Ean Higgins, I think you have a question.

Yes.

I'm Ean Higgins from The Australian.

On page 28, there's a figure that for the asbestos adjustments.

This is under income tax expense going from AUD117 million to AUD195 million.

I'm just interested, what does that figure actually mean?

How is it derived?

Was does it come from, in effect, Louis, that figure?

It's a combination of the actuarial adjustment that's required and foreign exchange.

It's the net of those two numbers.

Because you what you have to pay in -- it's some -- you pay it to whom, in effect?

What is the--

It's not -- it doesn't really -- it's an accounting statement.

So it's not an actual cash flow.

The cash outflow is purely the -- you know, the cash that we would provide of $113 million that we expect to pay on July 1. This is the accounting effect of the actuarial study and us translating that actuarial study into an accounting liability--

I see.

--then the effect on the P&L operations as a result of that accounting.

Can I also ask you've managed to make some very substantial payments to the compensation fund in very difficult conditions, which is good.

But how is it looking all up against the increasing actuarial projections?

Do you -- what's your feeling about whether or not the amount you'll be able to pay into the fund going forward will be able to roughly meet the claims, the net claims, of the fund?

Yes.

I think there's two parts of that question and I can answer one part.

So we'll make a payment in July of $113 million.

That'll be in compliance with our obligation under the AIFA to contribute up to 35% of our operating cash flow.

There second part of the question is will that be enough to pay for the liabilities?

That's really a question that's better asked of ACSF.

Thank you.

All right.

That looks like it does it.

I appreciate everyone's interest in the Company.

Thank you.