James Hardie Industries Plc. · NYSE:JHX
James Hardie Industries — Q3 FY2003 Earnings Presentation
50 slides from James Hardie Industries's earnings presentation, Feb 13, 2003
Slide 1: 3rd Quarter and Year To Date Results
Os ae pale = (a) James Hardie 3rd Quarter and Year To Date Results 13 February 2003
Slide 2: Agenda
James Hardie QS Agenda > Overview — Peter Macdonald, CEO > Financial Review — Phillip Morley, CFO > Operating Review — Peter Macdonald, CEO > Questions and Answers
Slide 3: 3rd Quarter and YTD FY'03 Strong Performance
James Hardie ex 3rd Quarter and YTD FY’03 Sales Revenue* Gross Profit* EBIT*' Operating Profit* Net Operating Profit? *Continuing businesses only. All results are versus pcp ‘Before restructuring and other operating expenses 2tncludes profit on sale of Gypsum up up up up up 3,03 36% 51% 111% 3,975%
Slide 4: Strong Growth Momentum
QS Strong Growth Momentum 3rd Quarter > USA Fibre Cement EBIT up 73%* > Australia EBIT up 39% > New Zealand EBIT up 43% > Philippines — small loss *Before restructuring and other operating expenses
Slide 5: Financial Review
4) James Hardie Financial Review Phillip Morley, CFO
Slide 6: Income Statement - Q3
i KISS Ree Moy Income Statement - Q3 Ss ae US$ Million Q3'03. Q3°02 % Change Net Sales 197.4 144.8 36 Gross Profit 74.5 49.2 51 SG&A (44.86) (35.0) 2f EBIT before restructuring and other operating 29.9 44.2 411 expenses Restructuring and other operating expenses 1.0 (17.1) (106) EBIT 30.9 (2.9) - Ne
Slide 7: Income Statement - YTD
QES Income Statement - YTD US$ Million YTD’03 YTD’02 % Change Net Sales 605.2 448.9 35 Gross Profit 222.0 150.8 47 SG&A (119.8) (96.4) 24 sperating ex ronges and other 102.2 54.4 88 Restructuring and other operating expenses 1.0 (28.2) (104) EBIT 103.2 26.2 294 Net Interest Expense (17.8) (12.7) 40
Slide 8: Segment Sales - Q3
QES Segment Sales - Q3 US$ Million Q3’°03 Q3 02 % Change USA Fibre Cement 146.3 102.2 43 Asia Pacific Fibre Cement 49.2 47.4 20 Other Fibre Cement 1.9 1.5 al Total 197.4 144.8 36 Continuing businesses only
Slide 9: Segment Sales - YTD
QES Segment Sales - YTD US$ Million YTD '03 YTD’02 % Change USA Fibre Cement 453.5 327.5 38 Asia Pacific Fibre Cement 145.9 117.9 24 Other Fibre Cement 5.8 3.5 66 Total 605.2 448.9 35 Continuing businesses only
Slide 10: EBIT - Q3
QUES EBIT - Q3 US$ Million Q3’03 Q3'02 % Change USA Fibre Cement* 37.8 21.8 73 Asia Pacific Fibre Cement 8.0 5.8 38 Other Fibre Cement (3.1) (1.6) 94 R&D (3.5) (2.7) 30 Total Segment EBIT* 39.2 23.3 68 Corporate Costs (8.3) (13.6) (39) Total EBIT* 30.9 9.7 219 *Before restructuring and other operati
Slide 11: EBIT - YTD
QUES EBIT - YTD US$ Million YTD 03 YITD’02 % Change USA Fibre Cement* 117.3 14,2 58 Asia Pacific Fibre Cement 25.2 15.8 60 Other Fibre Cement (8.2) (6.5) 26 R&D (8.9) (7.3) 22 Total Segment EBIT* 125.4 76.2 65 Corporate Costs (22.2) (37.4) (41) Total EBIT* 103.2 38.8 166 Continuing businesses only “
Slide 12: Corporate Costs - Q3
6 SAY Se \oy) > Corporate Costs - Q3 ——— NO US$ Million Q3 ‘03 Q3 02 Restructure Costs 7 28 (Corporate Restructure) ‘ Ongoing Costs — Variable 11 6.7 (Pulp Hedge (settled in Q3'03), Employee Share Plan) . . Corporate Costs’ 7.2 4.1 Total 8.3 13.6 ‘Includes EPIP Bonuses accrual of US$1.7 million in F
Slide 13: Corporate Costs - YTD
US$ Million Restructure Costs (Corporate Restructure) Ongoing Costs — Variable Corporate Costs - YTD (Pulp Hedge (settled in Q3'03), Employee Share Plan) Corporate Costs" Total ‘includes EPIP Bonuses accrual of US$4.4 million in FYO3 YTD '03 YTD "02 - 7.5 2.8 18.8 19.4 11.1 22.2 37.4 13
Slide 14: Net Interest Expense
i KISS Se YOY Net Interest Expense —— ae US$ Million Q3'03 Q3 02 % Change Ongoing Net Interest Expense 2.9 3.3 (24) Make-Whole Payment! 9.9 - - Net Interest Expense 12.4 3.3 276 YTD ’03 YTD ’02 % Change Ongoing Net Interest Expense 7.9 12.7 (38) Make-Whole Payment 9.9 - - Net Interest Expense 17.8 1
Slide 15: Income Tax (Expense)/Benefit
y| James Hardie USS Million Income Tax (Expense)\Benefit Income Tax (Expense)\Benefit income Tax Expense Q3 '03 Q3 '02 % Change (3.0) 5.8 (152) YTD '03 YTD ’02 % Change (23.5) 0.9 15
Slide 16: EBITDA - Q3
i [ james Hardie KS) SS EBITDA - Q3 ~ — an US$ Million Q3 ’03 Q3 ’02 % Change USA Fibre Cement* 42.3 25.2 68 Asia Pacific Fibre Cement 10.0 7.9 al Other Fibre Cement (2.9) (1.8) 81 R&D (3.5) (2.7) 30 Total Segments* 45.9 28.8 59 Corporate (8.3) (13.4) (38) Total* 37.6 15.4 144 EBITDA = EBIT before d
Slide 17: EBITDA - YTD
EBITDA - YTD Sn N US$ Million YTD’03 YTD’02 % Change USA Fibre Cement* 131.1 84.6 55 Asia Pacific Fibre Cement 31.3 22.6 38 Other Fibre Cement (8.0) (6.5) 23 R&D (8.9) cm) 22 Total Segments* 145.5 93.4 56 Corporate (22.1) (37.1) (40) Total* 123.4 56.3 119 EBITDA = EBIT before depreciation and amorti
Slide 18: Capital Expenditure - Q3
Capital Expenditure SE Aw) > Capital Expenditure - Q3 \ a Depreciation US$ Million Q3 03 Q3 02 Q3 03 Q3 02 USA Fibre Cement 34.1 4.4 4.5 3.5 Asia Pacific Fibre Cement 2.0 14 2.1 2.1 Other Fibre Cement 0.9 0.5 0.1 0.1 Total Segments 37.0 6.0 6.7 5.7 Cantinuing businesses only 18
Slide 19: Capital Expenditure - YTD
CAs d | James Hardie y — i) NEWS > Capital Expenditure - YTD Na Capital Expenditure Depreciation US$ Million YTD ’03 YTD '02 YTD ’03 YTD 02 USA Fibre Cement 53.3 36.5 13.7 10.4 Asia Pacific Fibre Cement 6.4 49 6.4 6.8 Other Fibre Cement 1.9 3.2 0.4 0.3 Total Segments 61.3 44.6 20.2 17.5 Cantinuing b
Slide 20: Key Ratios
EPS (Basic) * Return on Shareholders’ Funds Return on Capital Employed * EBIT/Sales * EBIT/Assets * Net debt Gearing Net debt & Equity Net Interest Cover * *Continuing businesses only EBIT/Assets: EBIT for YTD’G3 annualised Key Ratios YTD 03 FY ’02 FY ’01 FY ’00 13.6¢ 6.1¢ 7.2 6.0¢ 36.3% 9.0% 14.5%
Slide 21: Economic Profit
US$ Million NOPAT Average Capital WACC Rate Capital Charge Economic Profit YTD'03 83.2 624.5 9.8% 45.9 37.3 *Restated using updated WACC Rate for FY’03; USGAAP; excluding Gypsum Economic Profit FY’02* 53.5 583.7 9.8% 57.2 (3.7) 21
Slide 22: Operating Review
Os ae ces - (4) James Hardie Operating Review Peter Macdonald, CEO
Slide 23: Management Team Changes
James Hardie Management Team Changes Managing key growth drivers globally Louis Gries ~ Executive Vice President Operations - Flat sheet operations in Americas and Asia Pacific - Sales, marketing and finance - Business development in Europe Don Merkley — Executive Vice President Research and Develop
Slide 24: USA Fibre Cement
James Hardie USA Fibre Cement a
Slide 25: USA Fibre Cement: Another Very Strong Quarter
James Hardie ex USA Fibre Cement Another Very Strong Quarter Net Sales up Sales Volume up Average Price’ up EBIT* up EBIT Margin* up *Before restructuring and other operating expenses ‘Up 6% to US$478 per msf excluding reversal of rebate accrual 43% to US$146.3 million 31% to 298.2 mmsf 9% to US$491
Slide 26: USA Fibre Cement: 3rd Quarter Trading Conditions
wf) James Hardie \ SX SE Aw) > USA Fibre Cement XY a 3rd Quarter Trading Conditions > Continued strength in housing construction despite weaker consumer confidence > Demand strong in all major markets > Normal seasonal industry slowdown 26
Slide 27: USA Fibre Cement Key Points
QES USA Fibre Cement Key Points > Continued strong growth in primary demand for fibre cement > Significantly outstripped growth in housing construction > Further market share gains in north and south > Strong growth in exterior and interior markets > Strong growth in differentiated, higher priced pr
Slide 28: Revenue Growth Outstripping Volume Growth
QES USA Fibre Cement Revenue Growth Outstripping Volume Growth 1200 $500 1000 $400 z = & 800 a 2g @ = 2 w $300 wl = 2 > 600 wi 3 j > © $200 400 Volume Revenue 200 $100 8 T T $0 28
Slide 29: Average Quarterly Selling Price
James Hardie USA Fibre Cement Average Quarterly Selling Price USS$/MSF 480 ~ 470 + 460 + 450 5 440 5 430 + 420 5 410 5 400 + 390 + 380 T T T T T T T T T T Fys9 FYoo FY01 FY02 FY03 * Excludes impact of reversal of sales rebate accrual 2g
Slide 30: EBIT and EBIT Margin
James Hardie USA Fibre Cement EBIT and EBIT Margin * a EBIT EBIT/Sales 40 5 ee - EBIT USSM EBIT MARGIN % o - FY99 FY00 FY01 Fy02 FY03 “excluding restructuring and other operating expenses 30
Slide 31: USA Fibre Cement Strategy
James Hardie SE Aw) > USA Fibre Cement ee Strategy > Aggressively grow market for fibre cement > Grow our overall market position while defending our share in existing market segments > Offer products with superior value to that of competitors, introducing differentiated products to reduce direct pr
Slide 32: USA Fibre Cement Outlook
Se \Qy) > USA Fibre Cement > Continued growth in primary demand > Housing activity to remain healthy - New starts, permits and builder confidence all up > Further market share gains in the north, south and across product range > Strong growth in differentiated, higher-priced products > EBIT performa
Slide 33: Asia Pacific Fibre Cement
James Hardie Asia Pacific Fibre Cement
Slide 34: 3rd Quarter Result
3rd Quarter Result Net Sales up Sales Volume up EBIT up EBIT Margin up Asia Pacific Fibre Cement 20% to US$49.2 million 17% to 93.4 mmsf 38% to US$8.0 million 2.2 pts to 16.3% 34
Slide 35: Asia Pacific Fibre Cement Strategy
James Hardie QES Asia Pacific Fibre Cement Strategy > Grow primary demand for fibre cement > Focus on supply chain efficiencies across the region > Ongoing manufacturing improvements to further lower cost of production > I[ntroduce new differentiated products to increase share in existing markets >
Slide 36: Australia - Key Points
QES Asia Pacific Fibre Cement Australia - Key Points > Healthy level of building activity but signs of softening > Robust house renovation activity helped lift volumes 13% > Gross profit up 30%, EBIT up 39% > EBIT margin up 3.0 pts to 19.2% > Wider product range helped secure new customers > Two new
Slide 37: Australia - Outlook
James Hardie SSE Sy > Asia Pacific Fibre Cement Australia - Outlook > Softer housing sector > Renovations and commercial segments expected to remain buoyant > Market share gains > Further improvements to EBIT performance > New products > Higher prices 37
Slide 38: New Zealand - Key Points
QES Asia Pacific Fibre Cement New Zealand - Key Points > Volume up 17%, revenue up 9% in local currency > Stronger residential building activity and increased penetration in key markets > Linea® weatherboard cladding and trim products continued to grow strongly > Softer non-residential building acti
Slide 39: New Zealand - Outlook
wf) James Hardie SSA > Asia Pacific Fibre Cement New Zealand - Outlook > Continued growth in residential building activity > increased sales of differentiated, higher price products > Weaker non-residential market > Stronger EBIT performance 39
Slide 40: Philippines - Key Points
QES Asia Pacific Fibre Cement Philippines - Key Points > Stronger domestic demand lifted volumes 31% > domestic volumes up 60% > Demand for HardiFlex® lite continued to grow strongly > Export sales down due to supply issues and weaker demand > Further market share taken from plywood > Profitability
Slide 41: Philippines - Outlook
wf) James Hardie SE Aw) > Asia Pacific Fibre Cement XY a Philippines - Outlook > Continued strong growth in domestic demand > Further market penetration against plywood > Improved manufacturing performance > Increased export sales > Improved profitability 4i
Slide 42: Chile Fibre Cement - Key Points
James Hardie QES Other Fibre Cement Chile Fibre Cement — Key Points > Continued penetration of local market > Revenue and volumes up despite softer economic conditions > Intense competition continued to affect prices > Competitor exits 42
Slide 43: Chile Fibre Cement - Outlook
QES Other Fibre Cement Chile Fibre Cement — Outlook > Further market penetration and share growth > Continued pricing pressure fromm competitors > Higher average price from growth in sales of new products 43
Slide 44: FRC Pipes - Key Points
James Hardie QES Other Fibre Cement FRC Pipes — Key Points > Continued to penetrate south-east market > Volumes more than doubled, revenue almost doubled > Sales of larger diameter pipes (30” — 36”) up significantly > Further improvements to manufacturing performance > increased output > Lower unit
Slide 45: FRC Pipes - Outlook
James Hardie SSO > Other Fibre Cement FRC Pipes — Outlook > Further market penetration as awareness increases > Improvements to manufacturing performance > Lower unit cosis > Prices to remain weak due to competitive pressures 45
Slide 46: Research & Development
James Hardie SCALIESAY Ses > Research & Development \ > Key driver of growth > Core projects - engineered raw materials - product formulations - engineering and process technologies - lightweight and durable products for all climates > Sustainable competitive advantage continuing to be built 46
Slide 47: Outlook
SSE > Outlook > Trading conditions expected to remain healthy in near term for most markets. Some softening expected in Australia. > Strong growth momentum in first nine months continuing into 4 quarter > USA — further penetration across the country and stronger EBIT performance > Asia Pacific —- re
Slide 48: Questions and Answers
ces - (ey) James Hardie Questions and Answers 48
Slide 49: Disclaimer
Disclaimer Notes 7. Unless otherwise stated, results are for continuing operations only and cornparisons are of the 3rd quarter of the current fiscal year versus the 3rd quarter of the prior fiscal year. 2. This Management Presentation forms part of a package of information about the company’s resul
Slide 50: 3rd Quarter and Year To Date Results
Os ae pale = (a) James Hardie 3rd Quarter and Year To Date Results 13 February 2003
James Hardie Industries — Q3 FY2003 Earnings Presentation on 6ix