James Hardie Industries Plc. · NYSE:JHX
James Hardie Industries — Hardie James Industries — FY2006 Earnings Presentation
62 slides from James Hardie Industries's earnings presentation, May 22, 2006
Slide 1: FY06 4th Quarter and Full Year Results
FY06 4th Quarter and Full Year Results 15 May 2006 In this Management Presentation, James Hardie may present the financial measures, sales volume terms, financial ratios, and Non-US GAAP financial measures included in the Definitions section of this document starting on page 56. The company presents
Slide 2: Agenda
Overview and Operating Review - Louis Gries, CEO Financial Review and Final Funding Agreement Update - Russell Chenu, CFO Questions and Answers Agenda
Slide 3: Overview Results
Overview Results Results substantially affected by booking asbestos provision of US$715.6m Excluding asbestos provision 4th quarter operating profit up 40% to US$64.7m Full year operating profit up 63% to US$208.9m Excluding SCI and other related expenses, impairment charge and write- back of tax pr
Slide 4: Overview Operating Results
Overview Operating Results 4th Quarter: Strong top-line growth driven by outstanding performance of USA Fibre Cement EBIT flat - higher costs, weaker Asia Pacific performance and very strong Q4 FY05 comparable Continued strong cash flow generation Full Year: Outstanding results at top-line and botto
Slide 5: Overview 4th Quarter and Full Year
Overview 4th Quarter and Full Year FY06 Q4 FY06 % FY06 % Net Sales up 23 up 23 Gross Profit up 15 up 29 EBIT excluding asbestos expense, SCI and other related expenses and impairment charge up 1 up 39 Operating Profit from Continuing Operations excluding asbestos expense, SCI and other related expen
Slide 6: Highlights 4th Quarter
Highlights 4th Quarter - strong top-line growth Net sales up 23% to US$389.8 million Gross profit up 15% to US$139.5 million USA Fibre Cement sales up 32% to US$325.6 million
Slide 7: Highlights Full Year
Highlights Full Year - very strong results Net sales up 23% to US$1,488.5 million Gross profit up 29% to US$550.8 million USA Fibre Cement sales up 30% to US$1,218.4 million USA Fibre Cement EBIT up 42% to US$342.6 million Significant capacity expansion
Slide 8: Exceeding Targets
Exceeding Targets FY'06 Actual Long Term Target Revenue Growth 23% >15% pa EBIT1/Sales 21% >15% pa Return on Assets2 17% >15% pa 1 Excludes asbestos provision, SCI and other related expenses and impairment charge 2 Net income (excluding asbestos provision, SCI and other related expenses, and write-b
Slide 9: Operating Review
Operating Review Louis Gries, CEO
Slide 10: USA Fibre Cement
USA Fibre Cement PHOTO
Slide 11: USA Fibre Cement 4th Quarter Result
4th Quarter Result - very strong sales growth Net Sales up 32% to US$325.6 million Sales Volume up 22% to 575.1 mmsf Average Price up 8% to US$566 per msf EBIT up 7% to US$82.7 million EBIT Margin down 5.8 pts to 25.4% USA Fibre Cement
Slide 12: USA Fibre Cement 4th Quarter Trading Conditions
USA Fibre Cement 4th Quarter Trading Conditions New housing construction and repair and remodelling activity remained buoyant Interest rates still low, but increasing Unseasonably good weather
Slide 13: USA Fibre Cement Key Points
USA Fibre Cement Key Points Continuing sales growth in both emerging and established markets Sales of both interior and exterior products growing strongly Continued market penetration against alternative materials Sales growth in higher-priced differentiated products ColorPlusTM strategy continuing
Slide 14: USA Fibre Cement Higher Costs in Q4
USA Fibre Cement Higher Costs in Q4 Cost of sales up 14% (materials, product mix, energy and one-off adjustments - partly offset by manufacturing efficiency gains) SG&A up 74% (one-off adjustments and growth initiatives) Freight up 13% (impact of higher oil prices)
Slide 15: USA Fibre Cement Outlook
USA Fibre Cement Outlook New housing construction activity to slow to more sustainable levels Modest interest rate increases affecting affordability Indicators of future activity, including permits; house sales; backlog of houses for sale and builder confidence, suggest a 'cooling' is underway Reven
Slide 16: USA Fibre Cement Top-Line Growth
USA Fibre Cement Top-Line Growth 0 200 400 600 800 1000 1200 1400 1600 1800 2000 2200 2400 2600 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 FY06 Volume (mmsf) / Starts (000's Units) $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 $1,100 $1,200 Revenue (USDM) JH Volume JH Revenue Housing S
Slide 17: USA Fibre Cement Average Selling Price
USA Fibre Cement Average Selling Price 360 380 400 420 440 460 480 500 520 540 560 580 FY00 FY01 FY02 FY03 FY04 FY05 FY06 $ / mmsf
Slide 18: USA Fibre Cement EBIT and EBIT Margin
USA Fibre Cement *Excludes restructuring and other operating expenses of US$12.6 million in Q3 FY02 Note: dotted lines indicate EBIT margin long-term target range of 20% - 25% EBIT and EBIT Margin* 0 10 20 30 40 50 60 70 80 90 100 FY01 FY02 FY03 FY04 FY05 Q4 FY06 EBIT US$M 0 5 10 15 20 25 30 35 EBIT
Slide 19: USA Fibre Cement Strategy - Unchanged
USA Fibre Cement Strategy - Unchanged Aggressively grow primary demand for our product in our targeted markets Increase our share of exterior cladding and backerboard markets while maintaining our existing category share Leverage our superior technology to offer differentiated, segment-specific prod
Slide 20: Asia Pacific Fibre Cement
Asia Pacific Fibre Cement PHOTO
Slide 21: Asia Pacific Fibre Cement 4th Quarter Result
Asia Pacific Fibre Cement 4th Quarter Result Net Sales down 2% to US$57.2 million Sales Volume up 1% to 90.3 mmsf EBIT down 24% to US$9.3 million EBIT Margin down 2.6 pts to 17.2%
Slide 22: Strategy - Unchanged
Strategy - Unchanged Grow primary demand for our product Vigorously protect and grow category share in existing market segments Leverage our superior technology to offer differentiated products with greater value than those of competitors Offer lowest delivered cost for manufactured product Asia Pac
Slide 23: Australia and New Zealand - Key Points
Asia Pacific Fibre Cement Australia and New Zealand - Key Points New housing and renovation activity continued to weaken in both Australia and New Zealand Sales volumes and market share increased Regaining momentum in commercial sector lost through last year's bans and boycotts Net sales up slightly
Slide 24: Australia and New Zealand - Outlook
Asia Pacific Fibre Cement Australia and New Zealand - Outlook New housing construction and renovation activity in Australia and New Zealand expected to soften further Growth in primary demand for our products More market share gains Cost savings and manufacturing efficiencies
Slide 25: Philippines - Key Points
Asia Pacific Fibre Cement Philippines - Key Points Domestic demand affected by weaker economic conditions and slowdown in building construction activity Net sales down 15% for quarter and 9% full year EBIT positive for both quarter and full year Outlook Uncertainty in domestic economic conditions to
Slide 26: Other USA Hardie Pipe - Key Points
Other USA Hardie Pipe - Key Points Both residential and non-residential construction activity remained buoyant in Florida Q4 sales strongest in FY06, but below Q4 FY05 Market share gains Manufacturing performance improvements Reduced EBIT loss for quarter and full year
Slide 27: Other Europe Fibre Cement and Artisan Roofing
Other Europe Fibre Cement Sales building steadily Continuing to expand distribution channels Artisan(tm) Roofing Ceased market development initiatives Review of market testing results concluded greater shareholder value created by focusing investment elsewhere Pilot plant closed - asset impairment c
Slide 28: Research and Development
Research and Development Driver of sustainable competitive advantage and growth R&D responsible for: HLD(r) trim; XLD(r) trim; Hardibacker 500(r); wet area flooring; EZ Grid(r); Linea(r); ColorPlus(r); laminate film and scale improvements (increase from 100mmsf to 300mmsf machines) Current core proj
Slide 29: Overall Outlook
Overall Outlook Housing construction and repair and remodelling activity in North America to slow, but remain healthy Further market penetration against alternative materials Increased share of US exterior cladding and backerboard markets No material improvement to market conditions in Asia Pacific
Slide 30: Financial Review and Final Funding Agreement Update
Financial Review and Final Funding Agreement Update Russell Chenu, CFO
Slide 31: Overview
Overview Income statement and balance sheet substantially affected by booking US$715.6m asbestos provision Balance sheet remains very strong excluding asbestos provision Net cash US$12.4m v net debt of US$45.8m at 31 March 2005 Cash and unused term facilities of US$489.1m Continued to generate subst
Slide 32: Asbestos Provision
Asbestos Provision "Blackhole expenditure" legislation came into force on 6 April 2006 Determined definitions of 'probable and estimable' (SFAS No. 5) were satisfied Net provision (adjusted for tax) of US$715.6m recorded with corresponding entry to asbestos expense in income statement Tax decisions
Slide 33: Asbestos Provision Likely ongoing accounting
Asbestos Provision Likely ongoing accounting Annual payments to SPF charged against provision Provision adjusted annually to align with 31 March annual actuarial assessment (projected cash flows, undiscounted and uninflated) Asbestos provision in income statement to reflect movement in actuarial est
Slide 34: Asbestos Compensation Funding Proposal Update
Asbestos Compensation Funding Proposal Update Continuing to focus on satisfying conditions precedent in Final Funding Agreement 'Blackhole' legislation came into force on 6 April Further submissions on tax deductibility of payments to SPF lodged with ATO - discussions continuing Further corresponden
Slide 35: Updated Actuarial Estimate
Updated Actuarial Estimate KPMG Actuaries P/L expected estimate at 31 March 2006 (based on 30 June 2005 estimate) A$1,666.7m Change in discount rate (55.5) 1,611.2 Reduced by: Reduction in assumed average cost per claim (38.3) Emerging claims experience (17.5) Insurance recoveries (28.6) Other (16.0
Slide 36: Updated Actuarial Estimate Comparison
Updated Actuarial Estimate Comparison Comparison A$ billions 30 Jun 04 31 Mar 05 30 Jun 05 31 Mar 06 Central Estimate - Discounted 1.536 1.685 1.5681 1.5171 Central Estimate - Undiscounted 3.586 3.604 3.1311 3.0791 Range - Undiscounted 2.0 - 5.7 2.0 - 5.9 1.5 - 5.51 1.7 - 5.31 Note: all amounts abov
Slide 37: Results - Q4
Results - Q4 US$ Millions Q4 '06 Q4 '05 % Change Net Sales 389.8 316.4 23 Gross profit 139.5 121.3 15 SG&A expense (63.4) (42.4) 50 R & D (7.0) (5.2) 35 SCI & other related expenses (2.7) (3.7) (27) Impairment of roofing plant (13.4) - - Asbestos provision (715.6) - - Other operating loss - (5.4) -
Slide 38: Results - Full Year
Results - Full Year US$ Millions FY '06 FY '05 % Change Net Sales 1,488.5 1210.4 23 Gross profit 550.8 426.4 29 SG&A expense (209.8) (174.5) 20 R & D (28.7) (21.6) 33 SCI & other related expenses (17.4) (28.1) (38) Impairment of roofing plant (13.4) - - Asbestos provision (715.6) - - Other operating
Slide 39: Segment Net Sales - Q4
Segment Net Sales - Q4 US$ Millions Q4 '06 Q4 '05 % Change USA Fibre Cement 325.6 247.2 32 Asia Pacific Fibre Cement 57.2 58.2 (2) Other 7.0 11.0 (36) Total 389.8 316.4 23
Slide 40: Segment Net Sales - Full Year
Segment Net Sales - Full Year US$ Millions FY '06 FY '05 % Change USA Fibre Cement 1,218.4 939.2 30 Asia Pacific Fibre Cement 241.8 236.1 2 Other 28.3 35.1 (19) Total 1,488.5 1,210.4 23
Slide 41: Segment EBIT - Q4
Segment EBIT - Q4 US$ Millions Q4 '06 Q4 '05 % Change USA Fibre Cement 82.7 77.1 7 Asia Pacific Fibre Cement 9.3 12.3 (24) R & D (3.9) (6.1) (36) Other (3.8) (1.7) - General Corporate (17.9) (17.0) 5 Impairment of roofing plant (13.4) - - Asbestos provision (715.6) - - EBIT (662.6) 64.6 - Add back:
Slide 42: Segment EBIT - Full Year
Segment EBIT - Full Year R&D includes "core" R&D expenses and administrative expenses, but excludes product development expenses US$ Millions FY '06 FY '05 % Change USA Fibre Cement 342.6 241.5 42 Asia Pacific Fibre Cement 41.7 46.8 (11) R & D (15.7) (17.5) (10) Other (13.1) (11.8) 11 General corpor
Slide 43: Corporate Costs - Q4 and Full Year
Corporate Costs - Q4 and Full Year US$ Millions Q4'06 Q4'05 FY '06 FY '05 SCI and other related expenses 2.7 3.7 17.4 28.1 Stock compensation expense 2.2 1.4 6.4 2.9 Earnings related bonus 5.0 - 9.5 0.9 Australian pension plan 1.3 5.3 1.8 5.3 Other costs 6.7 6.7 26.2 25.6 Total 17.9 17.0 61.4 62.8
Slide 44: Corporate costs Earnings Related Bonus
Corporate costs Earnings Related Bonus Supports objective of creating long-term value and rewards, consistent with value creation Based on year-on-year increase in economic profit Targeted annual increases in EP set by board remuneration committee with assistance of external advisers - target increa
Slide 45: Net Interest Expense
Net Interest Expense US$ Millions Q4'06 Q4'05 Net interest income (expense) 0.7 (0.6) FY '06 FY '05 Net interest expense (0.2) (5.1)
Slide 46: Income Tax Q4
Income Tax US$ Million Q4'06 Q4'05 % Change Operating (loss) profit before tax (662.6) 64.2 - Asbestos provision 715.6 - - Operating profit before tax excluding asbestos provision 53.0 64.2 (16) Tax benefit (expense) 11.0 (17.9) - Write-back of tax provisions* (20.7) - - Tax charge excluding write-b
Slide 47: Income Tax Full Year
Income Tax US$ Million FY'06 FY'05 % Change Operating (loss) profit before tax (435.1) 189.8 - Asbestos provision 715.6 - - Operating profit before tax excluding asbestos provision 280.5 189.8 48 Tax charge (71.6) (61.9) - Write-back of tax provisions* (20.7) - - Tax charge excluding write-back (92.
Slide 48: Income Tax Amended Assessment
Income Tax Amended Assessment RCI P/L (wholly-owned subsidiary) received amended assessment of A$412m from ATO for Y/E 31 March 1999 Amended assessment reduced to A$378m due to remission of interest charges Date payable deferred by ATO to 30 June 2006 Amended assessment strongly disputed by company,
Slide 49: EBITDA - Q4
EBITDA - Q4 US$ Millions Q4'06 Q4'05 % Change EBIT (excluding asbestos provision) USA Fibre Cement Asia Pacific Fibre Cement Other R&D General Corporate 82.7 9.3 (17.2) (3.9) (17.9) 77.1 12.3 (1.7) (6.1) (17.1) 7 (24) - - (36) 5 Depreciation and Amortisation USA Fibre Cement Asia Pacific Fibre Cemen
Slide 50: EBITDA - Full Year
EBITDA - Full Year R&D includes "core" R&D expenses and administrative expenses, but excludes product development expenses Other segments, Depreciation and Amortisation includes Other, R&D and General Corporate US$ Millions FY'06 FY'05 % Change EBIT (excluding asbestos provision) USA Fibre Cement As
Slide 51: Capital Expenditure - Full Year
Capital Expenditure - Full Year Capital Expenditure Capital Expenditure Depreciation Depreciation US$ Million FY06 FY05 FY06 FY05 USA Fibre Cement 155.5 144.8 32.4 23.1 Asia Pacific Fibre Cement 6.2 3.8 10.0 10.0 Other segments 1.1 4.4 2.9 3.1 Total 162.8 153.0 45.3 36.2 Other segments includes Othe
Slide 52: Key Ratios
Key Ratios FY06 FY05 FY04 EPS (Diluted) 1 44.9c 27.7c 27.2c Dividend paid per share 10.0c 3.0c 5.0c Return on Shareholders' Funds1 29.6% 22.4% 27.6% Return on Capital Employed1 32.1% 23.6% 23.4% EBIT/ Sales (EBIT margin) 20.9% 16.2% 17.5% Gearing Ratio (1.6)% 6.8% 17.0% Net Interest Expense Cover1 -
Slide 53: Summary
Summary Strong operating performance The company's financial position remains strong Tax treatment of payments to the SPF remains a key issue for "affordability" SCI and other related expenses continue to be a significant cost burden
Slide 54: Questions & Answers
Questions & Answers
Slide 55: Disclaimer
Disclaimer This Management's Analysis of results contains forward-looking statements. James Hardie may from time to time make forward-looking statements in its periodic reports filed with or furnished to the United States Securities and Exchange Commission on Forms 20-F and 6-K, in the annual report
Slide 56: Endnotes - Definitions
Endnotes DEFINITIONS Financial Measures - US GAAP equivalents EBIT and EBIT margin - EBIT is equivalent to the US GAAP measure of operating income. EBIT margin is defined as EBIT as a percentage of net sales. James Hardie believes EBIT and EBIT margin to be relevant and useful information as these a
Slide 57: Sales Volumes and Financial Ratios
SALES VOLUMES mmsf - million square feet, where a square foot is defined as a standard square foot of 5/16" thickness. msf - thousand square feet, where a square foot is defined as a standard square foot of 5/16" thickness. FINANCIAL RATIOS Gearing Ratio - Net debt/cash divided by net debt/cash plus
Slide 58: Non-US GAAP Financial Measures - EBIT excluding asbestos provision
NON-US GAAP FINANCIAL MEASURES EBIT and EBIT margin excluding asbestos provision - EBIT and EBIT margin excluding asbestos provision 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 f
Slide 59: EBIT excluding asbestos provision, impairment charge and SCI
EBIT excluding asbestos provision, impairment charge and SCI and other related expenses - EBIT excluding asbestos provision, impairment charge and SCI and other related expenses is not a measure of financial performance under US GAAP and should not be considered to be more meaningful than EBIT. Jame
Slide 60: Operating profit from continuing operations excluding asbestos provision
Operating profit from continuing operations excluding asbestos provision - Operating profit from continuing operations excluding asbestos provision is not a measure of financial performance under US GAAP and should not be considered to be more meaningful than operating profit from continuing operati
Slide 61: Diluted earnings per share excluding asbestos provision and other items
Diluted earnings per share from continuing operations excluding asbestos provision, impairment charge, SCI and other related expenses and write-back of tax provisions - Diluted earnings per share from continuing operations excluding asbestos provision, impairment charge, SCI and other related expens
Slide 62: EBITDA definition
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 our profitability or liquidity. Not all companies calculate EBITDA in th
Hardie James Industries — FY2006 Earnings Presentation on 6ix