James Hardie Industries Plc. · NYSE:JHX
James Hardie Industries — Hardie James Industries — Q3 FY2008 Earnings Presentation
60 slides from James Hardie Industries's earnings presentation, Mar 5, 2008
Slide 1: James Hardie FY08 3rd Quarter and Nine Month Results
James Hardie FY08 3rd Quarter and Nine Month Results 28 February 2008 In this Management Presentation, James Hardie may present financial measures, sales volume terms, financial ratios, and Non-US GAAP financial measures included in the Definitions section of this document starting on page 54. The c
Slide 2: Agenda
Overview and Operating Review - Louis Gries, CEO Financial Review - Russell Chenu, CFO Questions and Answers Agenda
Slide 3: Overview
US$ Million Q3 FY08 Q3 FY07 % Change 9 Mths FY08 9 Mths FY07 % Change Net operating profit (loss) 17.1 (8.0) - 75.3 48.6 55 Net operating profit excluding asbestos and Blandon impairment 34.1 36.8 (7) 149.2 167.8 (11) Diluted earnings per share excluding asbestos and Blandon impairment (US cents) 7.
Slide 4: 3rd Quarter Overview
3rd Quarter USA Fibre Cement - continued to outperform the overall market but EBIT decreased due to impact of weaker housing demand on volumes and higher costs Asia Pacific Fibre Cement - EBIT up significantly, primarily due to favourable currency movements and improved operating performance in Aust
Slide 5: Nine Months Overview
Nine Months USA Fibre Cement - market penetration, price growth and cost management helped deliver a strong nine months EBIT result in a significantly weaker housing market Asia Pacific Fibre Cement - sales and EBIT up despite weak Australian and New Zealand housing and renovation markets Strong ope
Slide 6: Change in responsibilities of senior leadership team
Change in responsibilities following the departure of Robert Russell and Jamie Chilcoff New responsibilities of the senior leadership team: Mark Fisher (Chicago) Grant Gustafson (Orange County) Nigel Rigby (Chicago) Joel Rood (Dallas) Brian Holte (Orange County) Peter Baker (Sydney) Steve Ashe (Sydn
Slide 7: Operating Review
Operating Review Louis Gries, CEO
Slide 8: Southern Living Idea House with Artisan Lap
USA Fibre Cement Architect John Tee and builder John O Freeman Jr selected Artisan(r) Lap for the Southern Living Idea House at Reynolds Plantation, Greensboro, Georgia
Slide 9: USA Fibre Cement 3rd Quarter Result
3rd Quarter Result Net Sales down 9% to US$258.2 million Sales Volume down 10% to 437.6 mmsf Average Price up US$2 to US$590 per msf EBIT down 16% to US$64.6 million EBIT Margin down 2.0 pts to 25.0% USA Fibre Cement
Slide 10: USA Fibre Cement Nine Months Result
Nine Months Result Net Sales down 6% to US$912.3 million Sales Volume down 8% to 1,522.7 mmsf Average Price up 2% to US$599 per msf EBIT down 5% to US$263.3 million EBIT Margin up 0.3 pt to 28.9% USA Fibre Cement
Slide 11: 3rd Quarter Market Conditions
3rd Quarter Market Conditions Further weakness in new housing construction activity Starts down 23% and 24% for December and September quarters, respectively Market demand affected by weaker economic conditions and tighter lending standards in the mortgage market Inventory levels of new and existing
Slide 12: Key Points
Key Points Sales down due to significant decline in US housing construction activity Market penetration helped all divisions outperform the broader market Within exterior products, sales were up for the ColorPlus(r) collection of products and HardieShingleTM siding Higher costs (pulp in particular u
Slide 13: Outlook
Outlook Near term outlook is for further weakness in housing construction activity Softer repair and remodelling activity expected in short to medium-term Continuing to invest in growth initiatives Further market penetration against alternative materials Cost pressures, particularly from higher inpu
Slide 14: Top Line Growth
Rolling 12 month average of seasonally adjusted estimate of housing starts by US Census Bureau USA Fibre Cement Top Line Growth 0 400 800 1,200 1,600 2,000 2,400 2,800 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 YTD FY08 JH Volume (mmsf), Starts (000s Units) $0 $200 $400 $600 $800 $1,000 $
Slide 15: Primary Growth Performance
USA Fibre Cement Primary Growth Performance NC/R&R Growth Rolling 4Qtr - JHBP Growth (sdft) Rolling 4Qtr - NC/R&R Growth
Slide 16: Average Net Selling Price
USA Fibre Cement Average Net Selling Price US$ per MSF 380 420 460 500 540 580 620 FY02 FY03 FY04 FY05 FY06 FY07 YTD FY08
Slide 17: Strategy
Strategy Aggressively grow demand for our products in targeted market segments Grow our overall market position while defending our share in existing market segments Offer products with superior value to that of our competitors Introduce differentiated products to reduce direct price competition USA
Slide 18: EBIT and EBIT Margin
*Excludes restructuring and other operating expenses of US$12.6 million in Q3 FY02 USA Fibre Cement EBIT EBIT/Sales EBIT and EBIT Margin* 0 20 40 60 80 100 120 140 FY02 FY03 FY04 FY05 FY06 FY07 FY08 EBIT US$M 0 5 10 15 20 25 30 35 EBIT MARGIN % Q3 FY08
Slide 19: USA Housing Starts History
USA Housing Starts History Source: US Census Bureau - (Annual) New Privately Owned Housing Units Started Single Family Multi-Family 0 500 1,000 1,500 2,000 2,500 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 Strength of f
Slide 20: USA Housing Market Environment
From peak New construction down 55% - from annualised starts of 2.2m in late 2005/early 2006 to 1.0m early 2008 Repair and remodelling spend down 6%1 We have anticipated and prepared for weaker conditions since 2006 Production capacity scaled back Employee numbers reduced 23% Proceeded with new prod
Slide 21: USA Housing Market Environment: Current situation
Current situation Flexible manufacturing model - plant loadings driven by lowest landed cash cost at each market Continuing to monitor receivables and inventory No deterioration in receivables KPIs Inventory - normal seasonal build in Q3, will facilitate improved service position Continuing to focus
Slide 22: Asia Pacific Fibre Cement
Asia Pacific Fibre Cement Landcom's sales office at Garden Gates estate, Mt Annan, NSW, was designed by BHI Architects and built by Admark using Scyon(tm) Linea(tm) weatherboards, Scyon(tm) Matrix(tm) cladding, Scyon(tm) Axon(tm) cladding and Scyon(tm) Trim
Slide 23: Asia Pacific Fibre Cement 3rd Quarter Result
3rd Quarter Result Net Sales up 20% to US$77.5 million Sales Volume flat 100.1 mmsf to 100.4 mmsf Average Price up 4% to A$866 per msf EBIT up 68% to US$14.8 million EBIT Margin up 5.4 pts to 19.1% Asia Pacific Fibre Cement
Slide 24: Asia Pacific Fibre Cement Nine Months Result
Nine Months Result Net Sales up 20% to US$224.8 million Sales Volume up 4% to 302.9 mmsf Average Price up 2% to A$866 per msf EBIT* up 29% to US$39.6 million EBIT* Margin up 1.3 pts to 17.6% Asia Pacific Fibre Cement * EBIT includes US$2.7m additional lease cost related to prior periods
Slide 25: Asia Pacific Fibre Cement Strategy
Strategy Grow primary demand for our products Leverage our superior technology to offer differentiated products and systems with superior value to those of competitors Promote a smarter way to build composite construction houses using our products Vigorously defend our position in existing market se
Slide 26: Asia Pacific Fibre Cement Key Points
Key Points Residential construction activity was flat in Australia and weaker in New Zealand US$ financial results assisted by appreciation of Asia Pacific currencies Q3 net sales up 4% in A$ due to 4% increase in the average Australian dollar net sales price Q3 sales volumes in Australia and New Ze
Slide 27: Asia Pacific Fibre Cement Outlook
Outlook Residential construction activity is expected to be flat in Australia, down in New Zealand and slightly stronger in the Philippines in the short-term Further primary demand growth for fibre cement in Australia and New Zealand Non-differentiated products in Australia are expected to remain su
Slide 28: USA Hardie Pipe, Europe Fibre Cement and Other
USA Hardie Pipe Q3 net sales lower due to weaker residential and non-residential construction activity in Florida EBIT loss for the quarter Europe Fibre Cement Sales continuing to grow steadily EBIT breakeven for the quarter Other
Slide 29: Overall Outlook for Operations
USA Fibre Cement Further weakness in US housing activity expected in near term Expect to continue outperforming the broader market Asia Pacific Fibre Cement Market conditions to remain challenging in Australia and New Zealand, but further growth in primary demand for fibre cement expected Overall Ou
Slide 30: Financial Review
Financial Review Russell Chenu, CFO
Slide 31: Financial Overview
Solid Q3 and nine months operating performance given weaker market conditions Asbestos adjustments in Q3: US$1.2m - favourable currency movement on A$ asbestos liability Impairment charge in Q3 (Blandon, Pennsylvania plant) - US$32.4m Announced suspension of plant operations on 31 October 2007 Net a
Slide 32: Share Buy-Back
Share Buy-Back Announced share buy-back of up to 10% of issued capital (up to approximately 46.8 million shares) on 15 August 2007 Purchased 7.2% of issued capital between 18 September 2007 and 31 December 2007 at average price of A$6.68 / US$5.86 33.5 million shares purchased as at 31 December 2007
Slide 33: Results - Q3
US$ Millions Q3'08 Q3'07 % Change Net sales 341.4 355.1 (4) Gross profit 117.1 126.3 (7) SG&A expenses (54.3) (53.4) (2) Research & development expenses (6.4) (6.2) (3) Impairment of Blandon facility (32.4) - - SCI and other related expenses - (2.6) - Asbestos adjustments 1.2 (44.8) - EBIT 25.2 19.3
Slide 34: Results - Q3 excluding asbestos and impairment
US$ Millions Q3'08 Q3'07 % Change Net operating profit (loss) 17.1 (8.0) - Asbestos: Asbestos adjustments (1.2) 44.8 - AICF SG&A expenses 1.0 - - AICF interest income (2.8) - - Impairment of Blandon facility (net of tax) 20.0 - - Net operating profit excluding asbestos and impairment 34.1 36.8 (7) R
Slide 35: Results - Nine Months
US$ Millions 9 Mths'08 9 Mths'07 % Change Net sales 1,155.9 1,182.0 (2) Gross profit 422.8 439.2 (4) SG&A expenses (167.9) (162.3) (3) Research & development expenses (19.8) (20.3) 2 Impairment of Blandon facility (32.4) - - SCI and other related expenses - (8.2) - Asbestos adjustments (57.8) (119.2
Slide 36: Results - Nine Months excluding asbestos and impairment
US$ Millions 9 Mths'08 9 Mths'07 % Change Net operating profit 75.3 48.6 55 Asbestos: Asbestos adjustments 57.8 119.2 (52) Tax expense related to asbestos adjustments 0.4 - - AICF SG&A expenses 2.7 - - AICF interest income (7.0) - - Impairment of Blandon facility (net of tax) 20.0 - - Net operating
Slide 37: Segment Net Sales - Q3
US$ Millions Q3'08 Q3'07 % Change USA Fibre Cement 258.2 284.5 (9) Asia Pacific Fibre Cement 77.5 64.4 20 Other 5.7 6.2 (8) Total 341.4 355.1 (4) Segment Net Sales - Q3
Slide 38: Segment Net Sales - Nine Months
US$ Millions 9 Mths'08 9 Mths'07 % Change USA Fibre Cement 912.3 972.4 (6) Asia Pacific Fibre Cement 224.8 187.4 20 Other 18.8 22.2 (15) Total 1,155.9 1,182.0 (2) Segment Net Sales - Nine Months
Slide 39: Segment EBIT - Q3
US$ Millions Q3'08 Q3'07 % Change USA Fibre Cement 64.6 76.7 (16) Asia Pacific Fibre Cement 14.8 8.8 68 Other (1.3) (2.4) 46 R & D1 (4.2) (4.9) 14 Total Segment EBIT excluding impairment 73.9 78.2 (5) General Corporate (16.5) (14.1) (17) Total EBIT excluding asbestos and impairment 57.4 64.1 (10) As
Slide 40: Segment EBIT - Nine Months
US$ Millions 9 Mths'08 9 Mths'07 % Change USA Fibre Cement 263.3 277.8 (5) Asia Pacific Fibre Cement 39.6 30.6 29 Other (4.5) (6.6) 32 R & D1 (13.1) (13.6) 4 Total Segment EBIT excluding impairment 285.3 288.2 (1) General Corporate (47.5) (39.8) (19) Total EBIT excluding asbestos and impairment 237.
Slide 41: Corporate Costs - Nine Months
US$ Millions 9 Mths'08 9 Mths'07 % Change Stock compensation expenses 5.0 4.1 (22) SCI and other related expenses - 8.2 - Non-US warranty provision 4.0 - - ASIC proceedings 4.6 - - Australian pension plan 2.0 2.3 13 Other costs 31.9 25.2 (27) Total 47.5 39.8 (27) Corporate Costs - Nine Months
Slide 42: Net Interest Income (Expense)
Net Interest Income (Expense) US$ Millions Q3'08 Q3'07 9 Mths'08 9 Mths'07 Gross interest expense (2.9) (1.8) (7.3) (7.4) Make-whole payment - - - (6.0) Capitalised interest - 0.3 0.6 6.1 Interest income 0.9 0.2 3.0 5.0 Net interest income (expense) excluding AICF net interest income (2.0) (1.3) (3.
Slide 43: Income Tax Expense - Q3
US$ Millions Q3'08 Q3'07 Operating profit before income taxes 26.0 18.0 Asbestos: Asbestos adjustments (1.2) 44.8 AICF SG&A expenses 1.0 - AICF interest income (2.8) - Operating profit before income taxes excluding asbestos 23.0 62.8 Income tax expense 8.9 26.0 Effective tax rate excluding asbestos
Slide 44: Income Tax Expense - Nine Months
US$ Millions 9 Mths'08 9 Mths'07 Operating profit before income taxes 148.2 126.9 Asbestos: Asbestos adjustments 57.8 119.2 AICF SG&A expenses 2.7 - AICF interest income (7.0) - Operating profit before income taxes excluding asbestos 201.7 246.1 Income tax expense 72.9 79.2 Asbestos: Tax expense rel
Slide 45: EBITDA - Q3
US$ Millions Q3'08 Q3'07 % Change EBIT USA Fibre Cement 64.6 76.7 (16) Asia Pacific Fibre Cement 14.8 8.8 68 Other (1.3) (2.4) 46 R & D (4.2) (4.9) 14 General Corporate (16.5) (14.1) 17 Depreciation and Amortisation USA Fibre Cement 12.5 9.7 29 Asia Pacific Fibre Cement 1.8 2.4 (25) Other 0.1 0.7 (8
Slide 46: EBITDA - Nine Months
US$ Millions 9 Mths'08 9 Mths'07 % Change EBIT USA Fibre Cement 263.3 277.8 (5) Asia Pacific Fibre Cement 39.6 30.6 29 Other (4.5) (6.6) 32 R & D (13.1) (13.6) 4 General Corporate (47.5) (39.8) (19) Depreciation and Amortisation USA Fibre Cement 32.6 27.6 18 Asia Pacific Fibre Cement 6.4 7.5 (8) Oth
Slide 47: Cash Flow - Nine Months
Cash Flow - Nine Months US$ Millions 9 Mths'08 9 Mths'07 % Change EBIT 144.9 129.2 12 Non-Cash items - Asbestos adjustments 57.8 119.2 (52) - Impairment of Blandon facility 32.4 - - - Other non-cash items 57.8 42.2 (37) Net working capital movements 55.4 (13.6) - Cash generated by trading activities
Slide 48: Capital Expenditure - Nine Months
US$ Millions 9 Mths'08 9 Mths'07 % Change USA Fibre Cement 24.3 67.6 64 Asia Pacific Fibre Cement 4.1 8.8 53 Other 0.3 3.0 90 Total 28.7 79.4 64 Capital Expenditure - Nine Months
Slide 49: Key Ratios
9 Mths' FY08 FY07 FY06 EPS (Diluted)1 32.2c 47.6c 44.9c Dividend Paid per share 27.0c 9.0c 10.0c Return on Shareholders' Funds1 21.5% 24.0% 29.1% Return on Capital Employed2 27.2% 26.6% 28.9% EBIT/ Sales (EBIT margin)2 20.6% 20.7% 18.9% Gearing Ratio1 22.4% 12.8% (1.6)% Net Interest Expense Cover3 6
Slide 50: Summary
Solid overall operating performance for the nine months considering business environment Strong cash generation Blandon impairment charge US$32.4m - non-cash New debt facilities established, extends average debt maturity The company's financial position remains strong Share buy-back continuing Resul
Slide 51: Questions & Answers
Questions & Answers 52
Slide 52: Disclaimer
Disclaimer This Management Presentation contains forward-looking statements. We may from time to time make forward-looking statements in our periodic reports filed with or furnished to the United States Securities and Exchange Commission on Forms 20-F and 6-K, in our annual reports to shareholders,
Slide 53: Endnotes: Definitions
Endnotes This Management Presentation forms part of a package of information about the company's results. It should be read in conjunction with the other parts of this package, including Management's Analysis of Results, a Media Release and a Financial Report. Definitions Financial Measures - US GAA
Slide 54: Endnotes: Financial Ratios
Endnotes Financial Ratios Gearing Ratio - Net debt (cash) divided by net debt (cash) plus shareholders' equity. Net interest expense cover - EBIT divided by net interest expense. Net interest paid cover - EBIT divided by cash paid during the period for interest, net of amounts capitalised. Net debt
Slide 55: Non-US GAAP Financial Measures: EBIT
Non-US GAAP Financial Measures EBIT and EBIT margin excluding asbestos - EBIT and EBIT margin excluding asbestos are not measures of financial performance under US GAAP and should not be considered to be more meaningful than EBIT and EBIT margin. James Hardie has included these financial measures to
Slide 56: Non-US GAAP Financial Measures: Net operating profit
Non-US GAAP Financial Measures (continued) Net operating profit excluding asbestos - Net operating profit excluding asbestos is not a measure of financial performance under US GAAP and should not be considered to be more meaningful than net income. The company has included this financial measure to
Slide 57: Non-US GAAP Financial Measures: Diluted EPS
Non-US GAAP Financial Measures (continued) Diluted earnings per share excluding asbestos and impairment - Diluted earnings per share excluding asbestos and impairment is not a measure of financial performance under US GAAP and should not be considered to be more meaningful than diluted earnings per
Slide 58: Non-US GAAP Financial Measures: Effective tax rate
Non-US GAAP Financial Measures (continued) Effective tax rate excluding asbestos and tax provision write-back - Effective tax rate excluding asbestos and tax provision write-back not a measure of financial performance under US GAAP and should not be considered to be more meaningful than effective ta
Slide 59: Non-US GAAP Financial Measures: EBITDA
Non-US GAAP Financial Measures (continued) EBITDA - is not a measure of financial performance under US GAAP and should not be considered an alternative to, or more meaningful than, income from operations, net income or cash flows as defined by US GAAP or as a measure of profitability or liquidity. N
Slide 60: James Hardie FY08 3rd Quarter and Nine Month Results
James Hardie FY08 3rd Quarter and Nine Month Results 28 February 2008 In this Management Presentation, James Hardie may present financial measures, sales volume terms, financial ratios, and Non-US GAAP financial measures included in the Definitions section of this document starting on page 54. The c
Hardie James Industries — Q3 FY2008 Earnings Presentation on 6ix