James Hardie Industries plc (JHX) Q3 2013 Earnings Report, Transcript and Summary

Thank you for standing by, and welcome to the James Hardie Third Quarter 2013 Results Briefing. [Operator Instructions] I must advise you that this conference is being recorded today, the 27th of February, 2013. I would now like to hand the conference over to your first speaker today, Louis Gries, Chief Executive of James Hardie Industries. Please go ahead, Mr. Gries.

All right, thank you. Hi, everybody. We're going to do -- Russell and are in Chicago this afternoon, so I've been told that everyone has the presentation, so we'll try and make sure we refer to what slide we're on and we'll take the same approach as we normally do. I'll kind of do a quick business overview. Russell will go through the financials and we'll come back for questions, so you can drill down on specific areas. So on the cover page, Q3 fiscal year '13 management presentation; the second page, the disclaimer; the third page, telling you what I just said; the fourth page, introducing me, I guess; and the fifth page is the first page of the presentation. So as you can see, a very flat result, very similar to the full 9-month result, so we'll go through that in some detail, as I flip through the rest of the slides. But the $28.8 million obviously is the relevant number compared to the $28 million last year and $113 million and $109 million, so about a 3% improvement, but for all practical purposes, flat. Slide #6, so U.S. and Europe Fibre Cement. Okay, so the flat result obviously is only surprising because of the good volume growth. So we did have a stronger quarter on volume in the third quarter than we had in the first half. The EBIT, down a bit. Price started to flatten out, which we've been kind of indicating that although we are down 2% in the previous comps, the first quarter and the second, we saw that the price should start flattening out and start increasing in future quarters. That's without a price increase, and it is driven a lot by mix. So price is part of the story, a big part of the story actually. The other part of the story is the spending, which we've talked about. Mostly cost-- costs we're intentionally put into the business, and then there's another component to the cost, which is more of a unit cost, where, despite having some favorable raw material input costs relative to last year, we are bringing up capacity in several places. And the new capacity comes up a bit less efficiency, basically it goes through a curve that usually takes 6 to 8 months. And so we're seeing that at a couple of facilities. We just started, not that it's affecting the third quarter result, we just started our bare waxing [ph] #1 line, which had been mothballed. So we'll be dealing with that for the next 4 or 5 months as well. Additionally, in this quarter, we had kind of -- well, we had a write-off, so it won't go to one-off, because we had an issue, West Coast manufacturing, where they just didn't handle an inventory situation, as well as they should have and resulted in a write-off of about $2.5 million, so not a good performance in our part there, and that does also kind of had some impact on the flatness of the EBIT. But still, we're using most of our incremental dollars. We're getting off the extra volume with either loss in price, especially the first half or increased cost, which is gone right through the year. And now that we're starting up more capacity, we do have some inefficiencies in unit costs. So Slide 7, which shows you the 9-month result in the U.S. Same story, volume up 13%; average price, down for the 9 months, just over 1% and the EBIT also down just about 1%. We lost 2.2 points on the EBIT margin. Obviously, a higher revenue than last year without the additional EBIT dollars to go along with it, so it reduces the EBIT margin by 2.2 points. Go to Slide 8, and we've been talking about getting the business ready for market share growth. I think the first thing to keep in mind or to remind you of is our business did well going into the downturn for a couple of reasons. One, we kind of anticipated it and planned for the lower levels of forecast at housing starts rather than the average or the high numbers. Figuring that, we could add back easier than we could take off. So it was one thing we did well. Secondly, we did get gains in manufacturing at that time, which were important. And the third thing is, we did take cost out pretty much across the board, because it's -- our belief was we had a lot of money in the business for top line growth. Top line growth wasn't going to happen for several years, so pull those resources out and put them in when we get back to market recovery. So I'm not saying exactly like it's a hugely detailed plan, but conceptually, we're doing what we planned on doing. And I do think we get the added benefit at not only having those costs in during the downturn, but we also have the added benefit, so the resources are going in where we need them now rather than where they were before the downturn because our product mix and our market mix has changed quite a bit. So the resources we're putting in now, as you can see from the slide, the biggest bump in resources were from a percentage basis, not from a total headcount, obviously. But it's in that supply-chain area to support all the work we've done with job packs for ColorPlus. But you can see manufacturing is up 7%; marketing -- this is mainly field sales, up 9%; supply chain, 29%; and R&D, also up. Now the R&D spending is on the core fibre cement projects, but the change there, is we're now starting to spend on non-fibre cement. So we have opened the lab in the Chicago area where the R&D is. We're ready to fibre cement, but it's not kind of Fibre Cement platform type work. Most of that spending right now is around coatings for Fibre Cement, but we also have some technologies we're working on that are complementary to Fibre Cement. We kind of give you an indication, I guess, it's on a later slide that we've been putting resources in the business pretty aggressively, not crazy aggressive, but pretty aggressively. And the top line or the volume line has grown, but the volume line or at least the revenue line has grown at a slower rate than the cost we're putting in the business. We see that kind of changing as we go forward. Not sure exactly what quarter it'll change, but we're at the point now where a lot of what we have in for kind of Phase 1 market development, a lot of what we need is in or will be in very shortly. And if we continue to grow the top line, better than the market index, which we are. And then if the market index continues to improve, so you got a pretty strong top line growth, together with slowing down of the cost adds in the business, we see the kind of relationship more like you're going to want it, which is revenue growing faster than cost and profits growing faster than revenues. So anyway, we also indicated here this is kind of the first step of the capacity. I said we started up, Waxahachie 1. There wasn't a big capital spend on Waxahachie 1, and 4 or 5 of cement plant, I guess $34 million for Fontana is not big either, but it is a reengineered plant now. This was the first plant in the U.S., it's one of our smaller scale plants and California is more of a HardieBacker market than a siding market. Basically it's a stucco market, so we do sell siding in California, but it's not a dominant share in the market. So we've configured Fontana now with a 5-foot sheet machine in place of where we had a 4-foot sheet machine. So we can now take -- make the full mix of flat sheets. So the shipping radius on that plant will shrink, which will make it a lot more competitive. We also put in automated HardieBacker equipment, so we reduced the lines on manual labor than it had when it shut down. We also have density modification in the plant now, so it can make the G2 product as well. So it's not meant to be a slide that we continue to provide, it's just meant to be a slide that fills in some of the blanks about what we've been talking about as cost to grow market share. By the way, the capital for Fontana, $34 million, but we have a lot of expenses in the business right now as far as work on other capacity plans and also obviously show up in our results. Slide #9, the quarterly EBIT, and obviously this is the concerning chart to most of you that follow Hardie. We did talk about putting those costs in, and we knew it was going to dampen the EBIT return. The price has been more stubborn than we thought it would be. Basically, the pricing problem is 2 things, sampling pricing or just your basic product in the market for certain segments is lower than that it has been. So it's declined in price over the last 2 years. And then there's a greater mix of cement plank specially based on the mix of homes that are being built now more toward multifamily and more toward basic home and some in the big markets. So anyway, the EBIT margin lower than we anticipated. Certainly, this quarter, we didn't hit our number, we didn't hit our internal number. Part of it was that $2.5 million, and that was really -- it was that, plus the cost in the plants. It was just a little bit high with some of the ramp-ups, but the main thing was $2.5 million. So we did pull off our guidance a little bit, I think, I don't know how many millions of dollars, but it was driven partly because we didn't deliver the number that we thought we would in the third quarter and partly because right now, just for some reason, our order file doesn't look as strong as we think it should in order to hit our volume forecast in the fourth quarter. Now I want to stress, we don't see any trouble in the market. We see the market is strong, builder confidence is there, builders are planning to build the houses. Houses are selling, there's appreciation in most markets. So we don't see it as any statement about the housing recovery. And we don't also see it as a statement about our market share or category share in the business. We're right now just thinking we're not going to get an early start this season and maybe, that's because the kind of numbers have been ramping up month to month and seasonal declines weren't quite as great as they maybe have been in the last couple of winters, meaning that our best percentage volume increase so far is the third quarter. So anyway, we just can't call it right now. We don't know if it will come back next week and shore itself up the order file or it will kind of lag in the season starts a little bit later than normal. So that's the kind of reason for the guidance As far as the EBIT margin, it's about 10 quarters. We've been below that target or basically below it. And then we had several years, even in the downturn where we were in the target. And then of course, before the downturn of the target. So the reason we provide that target range is we want to show you how we're going to balance returns and market share. Now although it may not seem like it this year, the market share growth is the harder, tougher challenge than the financial returns. So we did want to make sure that when we got back into a good market that we are ahead of the curve, as far as putting the resources in the go-to-market. Now like I said, I think we have a lot or most of that Phase 1 money in the business, and now I think it's time to kind of go for that balance we normally strive for and that's getting the target range and also hit your target growth. So we will hit our target growth this year against the index, but we won't hit our financial target range. So -- but I don't think we're going to start living down there, keep living down there, I should say, but we won't start living down there and a good market we'll see that come up and we've kind of given an indication that we blew that. Slide 10, nothing new there. Obviously, we're on a steady, a pretty good price slope for a lot of years. Some of that was due to market increases. Although we're not a regular taker of price, we have had market increases during this period that the graph shows and pretty much part of it is due to product mix improvement. Now what's going against us in the last year, I guess, it started over 12 months ago now. The product mix started going against us. So some of the higher-value products slowed in growth. And like I said earlier, some of the lower value segments and, therefore, our products start accelerating growth. And our pricing on our Cemplank product came down as we got into the category share issue a couple years ago. So we don't have any across-the-board market price increases planned for this year. But again, we do expect to see this line flatten out and start to move up slightly through the year because we're anticipating the mix will move in a more typical direction, maybe not as sharply as it has in certain periods in the past, but we don't expect it to go south like it has over the last 5 [ph] quarters or so. Slide 11, go to Asia-Pac. Now the Asia-Pac story is pretty consistent. It's a good story, but Asia-Pac numbers, because of the scale of the businesses, are largely driven by Australia. Australia's had the toughest challenge from a market perspective, and I think we did okay meeting that challenge. We've grown our -- again, against the market index, we've grown and we've also grown our high-end sky online. So those are both good stories. There is more competition or more competition for kind of fixed volumes or fixed demand in the market now, so we've lost some pricing, especially on core products, which has had some impact on our results. And then our manufacturing, I think, was a little bit slow to react to the realities of market demand. So they had to pull capacity off too quickly in the second quarter. And then in the third quarter, it's been better, so you can see our EBIT margin in third quarter is down 1.8 points, where, for the full year, it's down a little bit more than that, and it reflects the fact they're getting more imbalanced with demand now. Now in the other 2 businesses, they're smaller, so they don't move the needle much, but New Zealand is a very good story. It's been running well, picking up volumes. Pricing looks okay, cost look okay. So New Zealand is good. And Philippines is kind of okay. It's not -- they're not knocking out of the park, but they are running pretty well in a market that's pretty good. So the 2 smaller businesses are kind of delivering as expected, and I would say, considering the market demand in Australia, we've done okay, but we could have done a bit better in Australia through these first 3 quarters. Having said that, it looks like the third quarter is a trend line. Hopefully, it started the trend line up, because I think the manufacturing can and will continue to prove in Australia. So the 9 months results, which I already kind of alluded to, of course, is on U.S. dollars. But in the local currencies, the businesses are roughly as I described it. Slide 13, I guess, I've covered all these points in my comments so far. And I think it's best just let Russell run through his, and then we'll come back to questions and you guys can drill down on the specific issues either in the U.S. or Asia-Pac that you want to understand better. Now on the outlook, we are confident. You know that the housing market is on the right track. It's not to say we're sure nothing bad's going to happen, but it sure doesn't feel like it, I mean it's a gradual build. Pretty good pickups last year and expect pretty good pickups again this year as far as just housing starts. And we also anticipate that as housing starts continue and house appreciation ramps up a little quicker, we'll get a little better demand on the R&R as well. The second point, I guess, I already covered. The third point I already covered as well, so we've been growing cost quicker than revenue and we anticipate that those lines across in the next several quarters, and we'll get back to getting extra EBITDA to extra revenue. And then the capital, we talked about the $34 million, but that's obviously just one of several capacity additions we're working on so we can talk about those when we get to the Q&A. In Australia, we're still cautious in Australia, so we're going to just take that approach. We're going to plan that it is not going to get much better. And if it does, we'll react, but it's a little bit hard for our guys to read right now. New Zealand is pretty favorable market conditions we feel, and the Philippines are fine, so no issues there. As far as the group outlook, what we call it, I guess we used to have this as our strategy slide. Probably the best thing we've done, and I know we're not in our financial target bin, but the best thing we've done right through the boom to the downturn to the recovery is we're staying on strategy. So we think there's a good opportunity for organic market share growth and we're willing to invest in that. The investment is a little bit out of phase with the demand right now, but we think that's going to change. ColorPlus and Trim still 2 focuses for us and obviously, the job pack, which enables the ColorPlus and selling the full house rather than product by product. Those were main key initiatives in the U.S. And as you know, we searched down the bottom of the group strategy, it's organic growth, it's a differentiated position and it's a high category share in the markets we participate. So nothing's changed there. So at this point, I'll hand it over to Russell.

Thanks, Louis, and good morning to everybody in Australia and hello elsewhere. So looking at the highlights for the both third quarter and for the 9 months year-to-date in terms of earnings, clearly, as Louis has highlighted, there was a bit of a tailwind in terms of sales volume growth, particularly in the U.S., reflecting the improved market environment with volume up 17% for the quarter. Price has been constrained by target penetration into price-sensitive market segments, and that's reflecting all of product mix and geographic mix, as well as an emphasis on the segments at the lower ends of the markets and less mix in the -- or less -- lower proportion of sales into the higher-end products, just because the opportunity is slanted way. We've talked about the funding of the initiatives costing that quite a lot of money and impairing current quarter and current year EBIT margin that, as Louis has indicated, that's likely to swing the other way in future quarters. We have an unfortunate increase in accounting provision for New Zealand, product liability. We first took a charge on that at the March quarter of last year in terms of a provision for future claims that have not yet been identified, as a result of the insurance cover looking as that wasn't going to be adequate. And we took another charge in Q2, which we thought at the time was going to be sufficient to cover the liability. Thus as Q3 unfolded, we saw an increased incidence of claims and also an increased cost per claim expected cost per claim partly as a result of other defendant's showing a propensity for insolvency. So as a result of that, we had to increase the provision in Q3 by $7.5 million. So that's a charge of $13.2 million in the year-to-date. And we have decided, at this point, to actually put that into the excluded items, so it's in the reported U.S. GAAP, but it's taken out of the non-U.S. GAAP in the same way we treat asset impairments, asset key expenses, asbestos adjustments, tax adjustments et cetera. Unfortunately, that's adding to the list of excluded items, but we think that in the interest of showing the performance of the underlying business, it's a more logical way to actually account for this particular item. We also had some asset impairment charges in the quarter, USD 5.8 million. These charges arose in relation to the refurbishment of sheet machine 1 at Waxahachie Plant in Texas and the planned refurbishment of the Fontana plant, which has been announced today. And these assets are effectively redundant and obsolete assets identified as part of the refurbishment plans for these plants. So those are assets that just can't be used or won't be used in the revision of the facilities and they have book value of $5.8 million, so we've written those off. So those have been the key factors impacting the results for both the quarter and the 9 months. As previously indicated, we've contributed USD 184 million, which is equivalent to AUD 177 million. So the fund earlier this year, and as a result of 2 dividends of second half FY '12 dividend of $166 million and the first half dividend of USD 22 million. We've paid out now $188 million in this financial year, although the $22 million is not reflected in the Q3 results. It was paid in January. But nevertheless, $188 million paid to shareholders this year compared with only $17 million in the prior year FY '12 to this point in time. On Slide 18, you can see here the sort of pattern of the impact of the Australian dollar on James Hardie's results. In this recent period, the effects of both the 3 months and the 9 months, the impact of foreign exchange rates and foreign exchange movements has not been significant in FY '13 relative to FY '12. So I don't plan to dwell a lot on that going forward in the way that I sometimes do, because we just haven't seen the level of volatility that has been the case in past quarters. In fact, I'd say, it's the most muted we've had for the last 4 or 5 years. On Slide 19, this is the U.S. GAAP basis of the reported results. You can see here that the full year -- sorry, the full quarter result was $31.5 million compared with a loss of $4.8 million last year at the EBIT level at Q3. The reason for that big swing is largely due to asbestos. The individual components have swung around a bit, but most of that change was due to a movement in asbestos. Turning to Slide 20, which I think is a more informative one in terms of the underlying business. For the third quarter, on a non-GAAP basis, we had a result of $28.8 million excluding asbestos, asset impairments, ASIC expenses, New Zealand product liability and tax adjustments, and that was up 3% on the prior year's corresponding quarter, which was $28 million. For the 9 months, on Slide 21, you can see that net sales were up, gross profit was up, SG&A up, research and development up, so it's very similar to the third quarter. EBIT, however, was down by 15%, and the net operating profit on a U.S. GAAP basis was $115 million, which was down 7%. So you can see on that slide the way that costs that we talked about in terms of SG&A manufacturing admin as well as research and development has impacted the results. I think it's readily apparent from this slide. And on Slide 22, looking at it on a non-GAAP basis, you can see that the underlying performance of the earnings with those excluded items gives a profit of $113 million for the 9 months relative to $109 million in the prior year for the 9 months is up 3%. So just a very flat result, unfortunately, given the increase in volumes and the increase in revenues that we've been seeing particularly in the U.S. business. On Slide 24, looking at net sales -- sorry, Slide 23 rather, looking at segment net sales for Q3, U.S. and Europe Fibre Cement was up -- the revenue was up 16% by $32 million on volume that was up 17%. And Asia-Pac Fibre Cement revenues in U.S. dollars were up 6% to $96 million on volume that was up 6%. So there's a bit of a playoff taking place there relating to geographic mix and foreign exchange rate movements, as well as product mix. But clearly, the U.S. dollar sales are in line with the revenue or with the volume increases. The total sales revenue is up 13% to $320 million, so quite a large increase in sales revenue for the quarter. And on Slide 24, the improvement -- the strength of the improvement in the third quarter is perhaps more apparent because the 9-month sales increases are less than in the 3 months as a percentage basis. Total revenue is up 7% for the 9-month period, but up 13% for the 3 months. So momentum is with us in terms of sales. Turning to Slide 25, looking at the segment EBIT. On a non-GAAP basis, you can see that very flat EBIT performance in both the U.S. and Europe Fibre Cement segment and the Asia-Pac Fibre Cement segment. Research and development expense is up; corporate cost, relatively flat, and all of that contribute to a slight decline in EBIT excluding those items. And we get a big asbestos adjustment as indicated in the prior period, which gives us a very significant lift in EBIT, but only because of foreign exchange movements on asbestos for the quarter. On Slide 26, a similar analysis for the 9 months also shows that it's a fairly flat EBIT result. Asia-Pac, Fibre Cement perhaps being the exception there, down 13%; research and development expense, up as well; and general corporate costs, showing a reduction, but it's not a reduction in the underlying rate of expense because most of that gain of about $6 million or $7 million was the result of that foreign exchange item in the first quarter and some cost recovered from the ATO relating to the ICI asset. So without those 2 items, corporate costs actually were slightly up but not significantly. So total reported EBIT there on a net basis is down 15%, largely on the back of New Zealand product liability expenses and asset impairments for the 9-month period. Asbestos, not being material in that 9-month period. Turning to income tax expense on Slide 27, and I won't dwell on the third quarter because as I think I've explained before, the way U.S. GAAP works in relation to tax expense is that you estimate your tax expense and your ETR for the full year and then you reverse-engineer the current quarter to match that. So this is just an outcome of that process and produced an effective tax rate of 19.4% for the quarter versus 23.6% for the prior corresponding quarter. More importantly, I think, is the Slide 28, where the effective tax rate is 22.5%, which clearly is the sort of rate that we're anticipating for the full year. And that's a little below guidance that we've given before. I think we've indicated previously to people that the rate was likely to be 25%, plus or minus 2%. And the reason it's fallen out of range is that the U.S. business, which has the highest statutory tax rate, is below expectations. And as a result of that, the geographic mix of earnings is actually triggering a lower effective tax rate for the group for the full year than we've anticipated. So we've fallen out of range, and I think that we probably just need to widen that range in terms of guidance. So where we were saying 25% plus or minus 2%, it probably should be 25% plus or minus 3% in the near term to take account of expected volatility in our U.S. earnings as we go through the early parts of the -- or we expect the next phases of the recovery. Probably not direct as the trial years [ph] in the early phases, given that we've now been in recovery in volumes for about 5 or 6 quarters. Turning to Slide 29, looking at cash flow. This is a reasonably encouraging news here in the quarter -- or sorry, this is on a year-to-date basis, this statement. And you can see that net operating cash flow, which is about halfway down the page, for the 9-month period was $83.3 million versus $109 million in the prior corresponding 6 months. The good news is that in the quarter, we actually had a $90 million net operating cash flow, that $83.3 million was $7 million negative at the end of Q2. And the significant cash flow that we had in the quarter just completed was a normal seasonal downturn, particularly in the U.S. business. We liquidate stock a little. We collect receivables, so they reduced on the lower value of sales. But there was also some planned and some unplanned working capital reductions, so we had a bigger drop in inventory in the U.S. business than anticipated because of the volume gains. And we also had some planned reductions in the Asia-Pac business, particularly in Australia, where we've been running unfortunately too much inventory. So the net impact of that was a very strong quarter in terms of cash flow. Turning to the capital expenditure. You can see that that's up on the prior year, $42 million for the 9 months compared with $25 million for the prior corresponding 9 months. And the amount of CapEx in Q3 was in fact $16 million, which is the largest quarter we've had for some years. And we'll be expecting that, that will continue to trend upwards. I'm not saying that every quarter is going to be higher than the previous quarter, but the likely trend is, in line with what Louis explained, that the CapEx will increase. The ending net cash was a significant increase, as a result of that strong cash flow generation. At the end of Q2, we had net cash of $77 million. At the end of Q3, we had $160 million. So we are very, very liquid with 0 debt and very long on cash. And that's a convenient place to step off to capital management on Slide 30. As I indicated earlier, we've paid significant dividends this year-to-date. We've had no share buyback activity during that 9 months to the end of December. In fact, we haven't bought any shares since October of 2011. And at the -- included in that Slide 30 is a reiteration of what we announced in Q2, which is that subject to share price, we'd like to be buying back shares to distribute approximately $150 million to shareholders. If we can't or if we don't do a share buyback, then we will seek to distribute that to shareholders by way of dividends after the conclusion of the FY '13 year. And we have also indicated, as we did in November, that we're in the process of revising our dividend payout ratio to -- from 20% to 30% to 30% to 50%. On Slide 31, just -- this is now a great moment, I guess, given that we are very long on cash. But this slide just notes that we have the $160 million in cash also that we are currently in the market for a refinancing of our debt. The facilities we have, have become very short term in their remaining life. So we're looking to put new facilities in place with a longer life, hopefully save some costs, and that will position us to fund the capital expenditure and also the improved returns to shareholders that we've flagged. On Slide 32, just a brief note there on AICFs, the asbestos fund's cash position. At the end of the Q3, it had AUD 151 million. The claims paid have been quite significant this year, and there's been a reduction in the claims carried forward at the end of each quarter. So the claims paid have totaled $98 million, partly also a result of the fact that there's a high proportion of mesophilia claims in the total claims paid, and that's the most expensive compensation by disease type. So that's increased the level of payouts. But the fund has been very successful in insurance and cross-claim recoveries in the 9 months to date, AUD 34 million recovered from those sources. So it's left the fund with a fairly healthy balance of $150 million or so. On Slide 33, just a quick look at some of the key ratios. EPS, slightly up on a diluted basis on the prior 9 months period. That's annualized. And on EBIT to sales, it's obviously down and down fairly materially from 16.4% to 14.5% for the reasons that we've alluded to in the discussion. And the debt service ratios, they're showing an incredibly healthy position, negative gearing meaning that we're very long on cash and very low interest expense and interest paid. So in summary, let's go to Slide 34. We've had very slight increases on the prior year underlying earnings, for both the third quarter and the 9 months not reflective of the improvement that we've -- we're seeing in sales volumes, particularly in the U.S. business, where price and some costs in the business have been drags on earnings. But that is not expected to continue for very much longer. And on Slide 35, we have revised our guidance. We were previously indicating $140 million to $150 million for the full year FY '13 earnings. Recurring earnings, that is on a non-U.S. GAAP basis, we've revised that to $136 million to $141 million. So we've narrowed the range but dropped the range also to reflect the expectations that we have, particularly in relation to U.S. earnings in the balance of this year. So that's final note from me, but I'll hand back to Louis for questions. Thank you.

Thanks, Russell. So we'll go to questions from investors and analysts. So operator, can you do that for us?

[Operator Instructions] Our first question comes from Emily Behncke from Deutsche Bank.

Just a couple of questions. Looking at the 17% volume growth you achieved in the U.S., just wondering if you could give us a sense as to where the share growth has been? Is it more on the new side or more on the R&R side? Secondly, you talked a little bit about expecting better pricing outcomes. I'm wondering if there's anything other than mix in that -- in the better pricing outcomes that you talked about? And just finally, on the cost side, obviously SG&A is up. Is that something that we should expect to stay at those levels? And should we expect any further additions to the staff in the next 12 months or is that largely done?

Okay. On the volume growth, we had pretty good traction on the R&R through the downturn. And I would guess that most of our new share would still be reflecting that traction. So that's -- it's largely against vinyl. As far as new construction, we're just getting kind of resourced and back to newer construction. And in the North, where there's a lot of market share opportunity against vinyl, we don't see the same kind of confidence in the builders that we're targeting that we see in the South. So that's why I think we're picking up more business in the South, and a lot of the big builders in the South and in the West would be more inclined to use Cemplank than one of our higher value brands. So I'd say at this point, we're probably still picking up more from R&R, but we're getting ourselves receptive more fully go after new construction in all the key markets, but that's going to lag some. Pricing outcomes other than mix, well, multifamily -- a lot in the multifamily goes on bid pricing, so we would expect as market demand goes up, those bids will firm up as well, so you would get some improvement there. And then, I think Cemplank in some markets will be not in a position that they'll have to match low ball numbers from direct competition as much as they have over the last 18 months. So -- but I don't think that's anything more than kind of price just drifting up. Like I say, it's not a marketing increase, so to speak. SG&A increases, you'll see some more increases, but not the rate we increased this year. So like I said, the trend lines on revenue increase and the trend lines on SG&A increases, they should kind of cross, so our percent SG&A starts going down rather than up. And -- but I do see some more increases, but not -- just not at the same rate.

Great. So with just -- sorry, back on the pricing side of things, I had heard, I don't know whether this is right, that you moved to more of a market-based price, with discounts being applied with a little bit more discounts of big clients, like the big homebuilders being applied with a little bit more rigor. So I mean, is there some benefit potentially from that?

Well, you mentioned big builders specifically, so we have a very good market share with the big builders -- or category share, sorry. And we've always had like literally every manufacturer of any scale in the U.S. would have builder deals. Now what happened is, you'll recall, I think it's coming up on 3 years ago when we had a market increase, we kind of lost track of some of the category share and we lost it. So in order to recapture that category share and stand kind of on that 35 90 program, we have to go back in. So any time you go back in, you're obviously going to get a lower number than you lost it. So that's part of the problem. I think that part of your problem is not yet behind us, but it's more behind us than in front of us. So the price is lower than it needs to be theoretically in an increasing demand market. So I do think it'll kind of drift up. And then like I say, there's just more Cemplank. So you guys see the numbers and the big builders. They're coming out of the downturn faster than your independent builders or your semi-customs.

All right. And just finally, Home Depot had a very strong results overnight, with comps of 7%. Are you seeing similar demand growth in your repair and remodel business?

We saw a bump on Home Depot comps in our aisle basically. We follow the lumber aisle for siding and the flooring aisle for tile. And they did have a bump, but it wasn't anywhere near 7%. So yes, it certainly had a very good result. And I saw Lowe's came out as well, and they were better than expected. So I do believe R&R will pick up. As far as the major resides, I expect that to pick up as well. So I do expect that market to get better. It just won't get better at the same rate, it's less volatile than new construction, so it didn't go down as far or as fast, and it won't go up as fast or far. But I do expect it'll get better as house values get better. So that equation were pretty big decision for homeowners, so they're going to feel like they're got some investment value attached to it. As far as our business, is to finish, as far as our business with Home Depot and Lowes, it's been pretty solid. So we've been tracking fine in their stores. So we're getting that repair part of it, and it hadn't been an issue at all.

The next question comes from Keith Chau with JPMorgan. Keith Chau - JP Morgan Chase & Co, Research Division: Russell, with just a few quick questions from my end, especially Louis, with respect to the order book, I think in the second quarter results reflected on it, being quite strong and now it's kind of come off a bit. So just wondering if you could provide a little bit more color in that respect and what you expect going into FY '14? And maybe just a couple of quick ones for Russell, firstly, CapEx for the full year. Are you able to provide a bit of guidance on that? And lastly, either Russell or Louis, market and category share, where does that company sit at the moment?

Okay. Yes, the order file, I kind of think it's just kind of normal variance to be honest with you, because I think the market activity is fairly good. There's absolutely nothing that leads me to believe it's not. So at least, you remind me I was right in the third quarter, because we were pretty solid in November when we finished up the quarter up 17%, which was a little stronger than we anticipated going into the quarter. Now I would say we're a little bit behind what we anticipated going into the quarter. But normally, it's just a matter of when -- and you got to remember, we had an early season last year, and I don't think we're having an early season this year. So I don't consider it a problem, but I think our forecast for the fourth quarter volume-wise was higher than right now. It looks like we're going to come in. Now, game's not over yet. There's actually still enough time between now and April 1 to where, if things picked up, we could hit our forecast. But it just doesn't -- I'm just not that confident. As far as -- yes, I'll take the market share, category share, because it kind of relates. As far as thinking, well, maybe vinyl's not growing, I mean not declining or maybe competitive fibre cement is taking more of our business or maybe LPs had a spike in demand. I don't see any of that. So I don't believe any of that is what the -- is affecting our order file. I just think there is just a little dropoff in activity in the market for our product right now. And just like in the fourth quarter, when we were 3 percentage points or so higher than we thought we'd be, we called that strong. I don't want to create the impression that we don't have any orders and we have working machines running. We're just off a bit. We're not off like we don't know what to do when we're off so much. It's not that kind of situation. So market share, I mean, yes, you can't look at category share quarter-to-quarter. You cannot look at market share quarter-to-quarter, because it just doesn't -- it isn't able to move that fast. It's -- market share it is more of a trend line. It's very hard to estimate because you can't get any real data points, so you work with kind of the normal surveys. And then you got your regional mixes, because first and foremost, regional preference for exteriors is going to drive the decision. So it's not like you can turn California into a plank market. It's impossible. So if California comes back stronger, not that they are, but if they did come back, California, Arizona came back stronger than the rest of the country, theoretically, then stucco market share goes up and everyone else comes down. But having said that, for several years now, we've been seeing we're kind of in that mid-teens, 13, 14, 15 and -- for fibre cement as a whole, and I think that's pretty accurate. I think we've picked up in R&R. And probably right now, because of just how houses are being built, new construction's probably been flat, I mean, which was good news during the downturn that we could keep it flat in new construction. But -- and then category share, like I said, other than that little dip we had 3 years ago, we tracked category share fairly closely and we're very comfortable with where we're at on category share.

Sorry, we didn't take your capital question.

Okay. Keith, on capital, it's hard to get a handle on exactly where this might finish up. But my guess would be that we'll probably be about $60 million for the full year because it just depends on the timing of payments to suppliers and we're in the middle of some fairly hefty planning in relation to future plant developments. Keith Chau - JP Morgan Chase & Co, Research Division: Okay, Russell. And that Fontana CapEx, is it likely to happen in first half of FY '14?

Well, it will get spread out over a full 12-month period in all likelihood. So it will be pretty evenly spread through to the period.

The next question comes from Andrew Johnston from CLSA.

Couple of questions. First off, if we can go back to where your volumes or volume are tracking on. I'm interested in identifying whether you're seeing homebuilders looking to build much cheaper houses and also, look at the geographic differences in relation to that. I refer back to Boral's comments in their result that they were seeing builders looking to use products cheaper than bricks. And so their volume growth was much lower than what single-family growth was. And if you can comment on that in relation to what you're seeing and perhaps are your -- is Cemplank perhaps picking up some of the brick markets in the South?

Okay. So I'm going to talk about it more conceptually than maybe Boral did pointing to their numbers, because I don't think you can -- I don't think you should worry about it in our numbers. There's a lot of things we can do that would overwhelm any kind of a trend we have toward different type of homes. But basically, I think the reality is when the building industry was very hot, everyone could afford whatever they wanted. The builders kind of -- like I said before, their bottleneck was they could sell homes easily. There was a lot of demand. So the bottleneck was how fast can I build a home or how many homes can I build based on the land that I have available. So a lot of their optimizing and profitability went into bigger and better, and then pricing that up at a higher average margin than the overall house. So when we went into a downturn, then obviously it flipped the other way all of a sudden, their cost of construction as prices start diving, their cost -- because affordability went down, the cost of construction was higher than the prices they were selling at. So then they had to go through that whole process of getting cost out, so that when they did sell a home, they ended up with more cash than if they didn't sell a home. And that, I've described it before, there's kind of 3 processes. The first thing they do is they go to the vendor and try and get price concessions. The second thing they do is they -- what they call value engineer, which means they defeature and they pull any cost out of the home that the homeowner's not aware of, meaning it's not easy to see if you have 5/8 inch chips over 0.5 inch chips, somewhere you have 24-inch spacing and studs versus 12 -- versus 16, or you have 2x6s versus 2x4s. So it's kind of value engineering. And then the third thing is the defeature, where you're offering granite countertops as a standard and then you dropped it down to an option. And the prices have fallen so far. When the consumer pushes back, you say, "Hey, when I was getting $512,000 for the house," it could be a standard. But now I'm down at $350,000, so I have to offer it as an option. And I would say in the downturn, most builders, not all builders, but most builders went through that process like 3 times. So it's vendor concession, value engineer, defeature vendor concession, and part of the defeature is you get smaller and part of the defeature is you use lower-cost materials. So do I think that has happened? Yes. And do I think that it will reverse itself? To some degree. It won't go back to where it was when everything was crazy and anyone can afford anything. But I also think that as people get more comfortable that maybe their home is at least part investment, and putting features in the house could end up with a better quality of living or however they see it, they like their house more, but also could they end up with a more marketable house when they want to sell it. I think we'll correct back to there. But I -- it just doesn't happen overnight. They definitely defeatured the house, and I think they'll reverse that trend. But it might take -- it'll be more of a steady change over 2 or 3 years rather than -- I don't think anyone's out there declaring, "Hey, downturn's over. We can go back to doing what we'd like to do." I mean, everyone's kind of -- has that profitability equation in the front mind. As far as bricks and Cemplank, I don't know. Our Texas market's doing pretty well right now. I haven't gotten much feedback from the guys. That's because of a -- brick lost a market share. So I think their on the wall cost is not quite double ours. So brick is fairly cheap in the Texas market. And in other markets where it's not kind of the standard product, it's much more expensive. I would say that if we are selling more Cemplank, so probably the same psychology is going to us selling more Cemplank, if they think staying with Hardie, staying with Color can help them sell a house, they probably will. But if they think the buyer's not sensitive to it and your production builder, they probably rather be on Cemplank at a lower number.

Okay. I mean, given your comments about Cemplank, prices come off over the last couple of years and you're selling more of it, perhaps -- is it perhaps not surprising that your average price has held up as well as it has?

I wouldn't go that far. We're still not at the terminal share at Cemplank that we forecast that it would end up at it at over -- I think it was about 5 years ago first time we published our product mix shift kind of graphs or bar charts. But it did -- it was on a steady path, and then it spiked and it's starting to settle down. So that's somewhat due to what we did, meaning we lost our category share. And when I say we lose category share, I don't think what anyone would think, well, we went from 90 to 50. We -- in some market segments, we did get below where we think we need to be. So some of it was created by that mistake and then some of it was just created by the market realities. I mean, holding a brand in the market at the same positioning for a 20-year period is fairly challenging. So there's a natural erosion of brand value. And then as that happens, brands like Cemplank that have an opportunity to grow their piece of the market. Now I don't want to mislead anyone. We're not far off the percentages we talked about in September. So this isn't like a quick switch by everyone in the market from Hardie to Cemplank. The reality for us is, and obviously we invested with our R&D, we got to keep building more value into the Hardie brand and that's the best way to slow or stop the cannibalization at the Hardie brand by Cemplank or any other basic commodity fibre cement.

Okay. And Louis, just with the renewed focus on financial targets and your comment there about things continue as they are, you expect to get about 20%. What does that actually mean in terms of how you provide KPIs and provide guidance and direction for your business managers? And is there any change in focus in terms of whether you'll pull back from pursuing some markets as hard as what you have been, just to ensure that you actually do hit those financial targets?

Yes. So like I said, the thing I like about Hardie is we've been able to stay on strategy in any kind of market. And so, I definitely don't want to panic and say, "Well, I'm not going to deliver that kind of result again." I got to get that number, and it doesn't matter how I get it. It matters a ton how I get it. I just feel we can get there the right way. Probably, I feel like that's a little aggressive, getting ready for the market share growth. And so, it's a little bit more of a correction than I would like to make. But it's not moving off what we're doing. So that's the first thing I want to make sure I point out. And as far as pulling out of some markets or de-emphasizing some markets, the thing we think about every day and we need to continue to think is, like I say, it's a lot tougher challenges at 35 90 . So is it expensive to go into Non-Metro markets relative to Metro markets? Yes, they're no doubt it's expensive. But you just can't be 35 90 if you don't sell in the smaller markets. So most product categories use kind of distribution to sell in those markets. They just don't do market development. They sell the market standards. They don't have the returns in our product to go actually do the hard work to change the standard from whatever it is, a chipboard siding or a vinyl siding to Hardie. They just can't do it, so we've got to do it. Now having said that, there's been some market initiatives that haven't worked. So we've tried to go with color in the new construction southern markets and basically switched from Hardie prime field paint to color, and we haven't been very successful with that. So we're upside down on that initiative, and I don't see it ever coming right side up. So we'll pull back from that. But now, the good thing about that initiative is we felt we needed that scale of color in the market in order to get everything else going. And we have gotten R&R color in a lot of those markets. So -- but now the scale in R&R is big enough to where if we de-emphasize new construction color, say, in Houston and San Antonio. We don't have to the de-emphasize color R&R at the same time. And we're -- we made good returns on color R&R. So we would be going through the business, doing a lot of that evaluation work now. In fact, it's pretty much all done and then similar on the manufacturing and capacity side. So we're becoming more and more like Australia. We're -- those of you who have been in our plants know that we have a continuous process before the autoclave and then more material processing after the autoclave. So -- but we're becoming more like Australia. We're spending more and more of our money post autoclave. So I think there's an opportunity manufacturing-wise to get -- kind of lift our gain post autoclave. We're -- especially relative to our industry. We're brilliant before the autoclave, and I think we're average after the autoclave. So I think there's an opportunity on the cost side to get returns out of manufacturing post autoclave. And then also, with the capacity, because our product mix has changed so much, I think there's a real opportunity to get another 3 or 4 points of return out of our investments versus what we kind of went with when we were scaling up the business. So what you'll see is most of our future investments will be like Fontana. We'll take a plant, and we'll design it specifically to return in a certain way. In Fontana, it's going to be small radius. Summerville we're trying to switch it to HardieBacker plant, because it's in a just perfect place. It's in an okay place for siding, and it's in a perfect place for HardieBacker. So we look at reengineering that plant for HardieBacker and then letting Pulaski and Plant City kind of take care of the siding plant. So it makes Ipswich [ph] 10 and Pulaski Ipswich [ph] 5 . So right now in the business, that's where mostly the intention is, is getting better at making those -- making the economic decisions that get you to last 2 or 3 points rather than big strategic decisions like, let's go with color, let's go with XLD Trim, this and that. We've laid that strategy. It's a long-term strategy. We know how it works. So now, it's how do we optimize around those -- around the bigger strategy.

Okay, that's great. And perhaps one last question for Russell. Can you just clarify the change in guidance? Am I right in looking at the new guidance, actually include some one-offs in that guidance as well? I think it was about $7.7 million of additional one-offs that's embedded in that guidance.

Are you referring to the foreign exchange gain and -- which we reported in Q1 on the cost recovery from Q2?

Oh, so they're already -- they're not needed this quarter then.

No, they're not needed this quarter. They were there in Q2 when we gave the guidance of $140 million to $150 million.

The next question is from Simon Thackray with Nomura Group.

Just going back a second, we talked about a couple of lines obviously coming along. You got Fontana -- CapEx in Fontana. Can you just remind us in terms of where the line opportunities are from here in terms of which lines gets switched on or where we're going to see the scheduling, if you like, of existing lines returning and new lines coming on, just so we get a feel for the ongoing level of investment during this period of recovery in bringing capacity back on?

Yes. Again, so actually Waxahachie 1, like I said, we were just starting that just a couple weeks ago. Fontana 1 and 2 will come on probably in January. Summerville, we're doing some preliminary work there. The plant was designed to make siding. It's a good-sized machine to make HardieBacker, but we haven't proven that the machine can make HardieBacker. So we're spending some money to kind of run trials this year to prove that out. Because it is -- it's a higher-value asset, if we make HardieBacker there in the siding. We have XLD -- or NT3, sorry, Trim north, which is basically incremental capacity at the existing site. And then the next thing we have is -- that's pretty much laid out, and we haven't got the permits and everything. But it's a third sheet machine in Texas, where we took the Trim line out of that plant during the downturn.

Cleveland.

Oh sorry, Cleveland, yes. So that plant has raw material and finishing capacity and good demand. So it's kind of a perfect place to put a sheet machine in, because you get the other stuff for free. And then after all that -- that's the 2- to 3-year look. And then beyond that, next to evaluate is a third line in Peru, a third line in Pulaski, a second line in Tacoma and a fourth line in Plant City. So the theme you're getting here is we're going to do a lot of investment on our sites before -- at least, at this point, it looks like we're going to do a lot of investment on our site for additional capacity before we move off to another greenfield. So we don't see -- there's some opportunity mid-South and Northeast. There's opportunities for freight advantages. But at this point, it's looking like the incremental cost advantage of putting the line in the existing site, especially when you can use either raw material or finishing capacity that already exists outweighs the kind of shipping radius benefit we might get from a greenfield. And then of course, we got the Australian capacity, which we do need more capacity in Australia. We worked on a greenfield. We do have a greenfield option. It's too expensive. So we're working on brownfield alternatives right now, and we haven't quite gotten there. But I would believe that we're going to have a good brownfield solution in Australia for the extra capacity we need the sports guy on.

Okay. Just with those incremental costs and obviously the ramp-up in supply-chain costs, in particular, during the quarter, you make the point that revenues and ultimately profitability should now start to rise faster than costs and you'd be targeting margins in excess of 20%. Can I just get some clarification on the time frame? Just looking at the trajectory as we're moving through the fourth quarter, in terms of what your current look is at the cycle, whether that margin expectation starts in Q1 of '14 or Q2? Or is it a year-end target? Just to give us a bit of a sense on what you're sort of planning allows for?

Yes. I mean, it's a great question. And I'll be the first to tell you, it's not going to be as exact as I'd like it to be. But we won't hit 20% this quarter. I can tell you that. I know you like certainties, so there's some certainty for you. But yes, I believe we're in the game for next year. But it's hard to hit 20% for the year. And when we say over 20%, we're talking annual. It's hard to hit 20% for the year with the winter seasonal downturn we have in the U.S. without getting out of the chute pretty good in that first and second quarters. So if you don't have a good position at half year, you can't pull it out in the second half. So I mean, it's a forecast. But I think we can hit 20%. And that means I think we need some 20-pluses in the first 2 quarters. And if we get them, then I like our chances. And if we don't, then it's going to be delayed a little bit. But the big thing is, and I know this is a little tough for everyone to kind of figure out, the big thing I want to communicate is we made a choice to kind of ramp up spending to get ready for growth. And we're just a little bit wrong in some of our pricing and cost forecast. But it's not a problem balancing the financials with the growth. We just came up short on what our forecasts were -- I mean, our cost adds were about what we expected. But obviously, those are very easy to control. So -- and the volume, by the way, is about what we expected, which is not as easy to control. So we just missed it on the price. I said flat, plus or minus 2, and I was thinking flat. And we're definitely going to be down. And then some of the cost issues of bringing up the capacity and stuff like that, I mean, we just got -- we're just a little aggressive with our forecast. I have been kind of surprised, Simon. You're living in a down market, you hate it. You're doing well, but you're just waiting for that good market. And I thought the organization would just put the switch and be ready to go. And quite honestly, it's -- there's more getting ready for operating well in a better market than I would have anticipated. And it's probably a mistake. We're one of the few companies that took the extras out, so you got to build it back in. So it shouldn't be that big of a surprise what hindsight is not a guess. But -- so anyway, we'll be shooting for it next year. If we don't hit it, you'll know we miss it because we couldn't do it, not because we weren't trying to do.

That point taken, Lou. And while we're talking about margins, and I guess long-term strategy targets, 35 90, the cost of defending and achieving those targets, when you're the clear market leader, is obviously greater. And you can't really fractionalize your cost across to your competitors, like what are the benefit you give to the category. Just thinking longer term on -- can you give us some color on what you're seeing with the competitors and their activity? And then importantly, I mean, is there any opportunity, quite frankly, for something like toll manufacturing for competitors, if they can't do the job in the category?

Yes. Those are all things that, I would say, we would consider just like anyone else would think about. I would have to tell you, there's not many manufacturers that want to depend on someone else for their supplies. So I wouldn't think any of our existing -- I wouldn't think any of our existing competitors would think toll manufacturing from Hardie is a sustainable business for them. And the other thing is I can't see where we would make more on toll manufacturing than we would on Cemplank. So I don't want to mislead anyone there either. We make not only financial returns on Cemplank, we make economic returns on Cemplank. So it's not like we're just defending a position by having some kind of a loss figure out there. That's not what we're doing. It just the middle of our -- I think I said end of September, the middle of our product line returns better than both the top and the bottom, and the reality is we got to build more in the middle. Because we need to invest more on the top, so we need to build more in the middle, so we can use that return to get out in the middle to invest in the top. And defending the bottom, and the other thing I need to tell you is our competitors, they're just running a business just like everyone else. They didn't do anything wrong. We made the mistake. They didn't make the mistake. They just benefited from our mistake.

Okay, got it. And just on the homebuilders, I know there's been a couple of questions on it. I just want to clarify something. The pricing for the major homebuilders, and you talked about defeaturing the product and obviously trying to take advantage of the lower prices. But just in terms of your arrangement with those margins, are there sort of price escalators in the contractual arrangements you have with those guys in terms of price? I mean, we shouldn't be expecting that prices are flat forever with these major homebuilders during this upturn, should we?

So I would agree with that. The agreements would vary, but a normal agreement will have price protection for a period of time. So if the market price goes up, they might get a lag of x number of days or to a certain date. So basically, what they're trying to do, and they do it with all their categories, not just us, they're trying to make sure when they got a house, they're selling for $200,000 that they have price protection up through the completion of that project. So they know that their costs aren't go up because of vendor increases while they're building that house. So some of them run through again the calendar year. That's pretty typical, and then others have like a 3- or 4-month lag time. So they're structured differently. But yes, there's no reason to believe that, that segment would always be at the price it's at. But I think there is good reason to believe that large homebuilders with volume and professional purchasing organizations and the price sensitivity of their business model, they're always going to be below the market, whether it's -- -- whether they're buying siding, plumbing, insulation, roofing, it doesn't matter. They're always going to be below the market.

Okay, that's clear. And then one really quick one for Russell. The buyback, again, Russell said -- can you just talk us through? I know you're saying we get 150 next year in dividends, if nothing ends in the buyback. But the rationale for them not being active?

Well, the rationale, Simon, is pretty straightforward. Because this is all about returning funds to shareholders, and we have options. We either to do a share buyback or we do dividends. So it could be a mix. But we're not driven to a share buyback because of any sort of capital structure reason, and we'd be driven to a share buyback because it's a very attractive option relative to returning funds to shareholders by way of a dividend. And we don't get distracted by franking credits because we can't frank our dividends to Australian shareholders, and a capital return currently isn't a significant prospect for Hardie, given our Irish structure. So it's pretty straightforward. We're just looking to the better way of returning funds to shareholders. And if we perceive that, that's a share buyback, it'll be driven there by value. If it's not there, we will return funds to shareholders via dividend.

The next question comes from Guy Bunce with Citigroup.

2 issues that I want to ask. First of all, in relation to U.S. sale mix and the impact on price. Can you just clarify even with a rough estimate, what percentage of sales would be going into the multi-family and starter home market?

The multi-family is an easier one to answer, because I can point you in the direction. Our multi-family market share would be similar or a little better than single-family. So I can't remember what multi-family is up to now, 24% or something. Well, you got to realize this multi-family usage is -- I'm giving you a rough -- you guys can go get the right numbers. I'm just giving you a rough stuff. About 1/2 the usage per multi-family unit versus single-family unit of the type of multi-family we sell. So you can see, as the single-family shifts to multi-family, say it's gone from being 15 multi-family -- I mean, yes, 15 multi-family, to say 25 as an example. So -- I mean basically, our opportunity on those starts get cut in half. But our likelihood of getting the business doesn't change very much, okay? Now the likelihood of that being a Cemplank brand versus a Hardie brand, depends on where you're at. So if it's in a color market, obviously, it's going to be a Hardie brand. But if it's in the South, they would more likely be a Cemplank brand. In the West, it's kind of like 50-50. Some of the builders of multi-family prefer the Hardie product mix and some go for Cemplank. As far as starter homes, I don't have a good estimate. Our good penetration of starter homes is in Texas, and we're a little bit overweight Texas right now, meaning the Texas market is doing better than markets in general. So that's how we'd be kind of up on the starter homes. Because it's more of a geographic thing rather than across the board. Because in the North, we don't get starter homes. So vinyl gets starter homes in the North and the mid-Atlantic. We get starter homes in Texas, Georgia. We get starter homes in the big fiber cement standard markets, which would be Portland, Houston, Georgia. That would be where we get most of our starter homes. So again, where I don't want to mislead anyone is we're not complaining about the market. The market's fine, okay? The mixes will move around. Now I did make comment, I think it was to Emily, the big builders that are coming out of the downturn quicker than other builders. And the big builders are like 19 out of 20 would prefer Cemplank on their normal homes, unless they're building color. And then obviously, they'll be on Hardie. But -- so that's where we get a lot of -- we lose some of our Hardie percentage as big builders take a bigger share of the market. Now there's a lot of forecast for how big, big builders get. But certainly, at least at the start of the recovery, they've come out and shoot quicker than normal building community or the ones they compete with. I'm not giving you much guidance. I can't remember. In September, we kind of gave everyone an indication of how much Cemplank will sell relative to Hardie brand. And I would say it's less than most of you think it is. But because it's increasing, it shows up in our numbers. But like I said earlier, I don't want anyone to think that Hardie is becoming Cemplank. At certain segments, Cemplank is kind of -- has the high share position. But across the board, it's still a much smaller part of our business.

The -- you made a comment along the lines of, you get 1/2 the usage in multi-family. Is that referring to the revenue per square meter versus single-family? Is that what you're referring to?

No, that's how much volume goes in the house. So a single-family house, rough estimate is 2,500 square feet is the opportunity. In a multi-family, it's more like 1,400 square feet. So it's actually a loss of opportunity. It goes back to that early question about when Laurel was talking about defeaturing buildings. Well, the #1 way to defeature a building is make it smaller. The easiest way to make a home smaller is put it up against something else. So they're sharing walls -- they're sharing interior walls, so they don't need as many exterior walls basically.

Yes. So these trends, obviously, we think as we come out of the downturn and the recovery accelerates that the mix will change back to more traditional single-family. But are you actually seeing that evidence in your business today?

No, it's too -- it's way too early. And by the way, I think there's 2 factors. You can go over -- you can go through previous downturns and kind of see that. So come out of the downturn, everyone's concerned about affordability. They go towards more multi-family and then it kind of wears off as the recovery goes on. But I think the other thing we're dealing with in the U.S., and you see a lot with the housing stock, it never really did get absorbed even though the market's getting better. And that's they were building too far out of city center. So Riverside, California; Elgin, Illinois markets like that were being developed single-family. And I think it's unlikely that those ever become boom markets again. So if you're going to go closer to city centers, you're probably going to have less time to do it, so you're probably going to be more inclined to multi-family. Seeing that you're going to have a higher percentage of multi-family. So now, I don't think it's changed the business-type trend. I think it's like a 20- or 30-year trend. What we're seeing now is more of the impact of the downturn. But if it's at the top of the market, we were 15% multi-family. And any good forecaster is a lot smarter than me on this. I would say the top of the market, next time, you might have 18% multi-family. If that market down after that, next recovery you might have 21%. Okay, and I think that's more about radius to the city or the commute than it is around -- than it is about the affordability fundamentally changing in the U.S. And then you're just going to be closer, and being closer means you have less land. Having less land means you're going to have 0 lot lines, which we have a lot of or you're going to put a few things together, a few walls together to make better use of the land.

Yes, great. And secondly, just getting back to this issue around the margin that Simon was talking about, can you give us some sort of assessment as to the underlying assumptions behind that? In other words, what do you think would be required to see those U.S. margins back above 20% in the first and second quarter? What sort of revenue growth, for example, would we need to see?

I think our revenue growth is fine. I think our volume growth is fine. I think our price has to start being slightly up or slightly down. I think our unit cost -- delivered unit cost has to be heading down. And then I think our organization process increases have to start tapering off. So you don't have a silver bullet. It's not like a commodity business where you've been running a loss and your costs are going to stay the same, and you're going to raise your price forecast between now and September. So we're not in that kind of business. So you got to kind of do it on all sides. So if those 4 things I said would actually happened this year, we probably would've made it this year. We kind of had enough volume, given the gain this year. Be we decided to spend some of it on the market share funding. But -- so we don't need a miracle. We just need pretty good management around the optimization process, not only around the growth side. So partly, you're going to have to manage better next year than they did this year, and that starts with me. So...

But it's not like you're suggesting that price needs to increase materially locally significantly, staying at 5% to 10% in order to achieve that sort of margin expansion. It's a culmination of those factors.

No, I mean you can do that overnight and get back in your range. But I do feel that's a trade-off. I don't think the market's looking for an increase from Hardie right now. We're looking for conversions in the market. So I don't want -- yes, so I don't want people worrying about what the price of Hardie is when they're trying to decide whether they're going to come off vinyl or come off chipboard. I want them kind of feeling that Hardie has a stable pricing policy, unlike the commodity price, which we do. We've always valued price. We didn't go down in the downturn. We'd be one of the few, if not the only company, that didn't go down in the downturn. And we just can't -- because we're not in a range we want to be in. We just can't deal with the price increase. I mean we could, but it won't be the right way to do it.

Your next question comes from Liam Farlow with Macquarie.

Just a couple of questions for me, most have been answered. But firstly, you've spoken previously last year around transport cost in the U.S. Are you seeing that input costs moderate into this year? And secondly, could you just give us a bit more of a detailed rundown on what you see in Australia at the moment?

Okay. Input costs have been falling, and there's no trend starting. It looks like it's going the other way. So I think we'll take more full advantage of it next year than we did this year. But right now, things look okay. That goes for freight as well. As far as Australia -- as far as the market -- is the question about the market?

Yes, that's right.

Yes, so you've asked the wrong guy. I'll see if my Australian friend here has a comment.

Well, clearly, you and I have visibility in the Australian market. But we didn't spend a lot of time in it. The anecdotes that I picked up from talking to guys is it's a pretty challenging time, a lot of uncertainty, lack of consumer confidence. But that there may be some recovery on the horizon, given the reduced interest rates. But it's a pretty competitive market at the moment, relative to more buoyant times, particularly in the non-Scyon brands for us.

So I think you know Mark Fisher. So he takes care of non-U.S., and the guidance discussions we would have would be, we don't know what's going to happen with the markets so let's plan like it's going to be a poor market, run our business that way. And then if it gets better, we'll react. So we're kind of very simple-minded at Hardie. We don't think anyone knows what the Australian market's going to do. So let's just assume that it's going to kind of go as it is. I don't think anyone is talking about it falling out of a cliff. So let's assume that's going to kind of stay tough. We'll get our numbers in a tough market. We'll grow that Scyon share in a tough market. We'll hold our core product share in a tough market, even if it's more price competitive. And then if it's that better, we'll just ramp up. So yes, we don't have good insight. And even the guys in the business, we discourage them -- we discourage if they're guessing what the markets are going to be and placing their bets accordingly. We'd rather have a very conservative approach, whether we think we know the market will be at least, and then we're kind of set up for that.

[Operator Instructions] Gentlemen, we're showing no further questions.

All right. Thanks for everyone's questions, and I hope we kind of gave you the insight you're looking for. And look forward seeing you guys in May. Thank you. See you.

That does conclude our conference for today. Thank you for participating. You may now disconnect your lines.