Thank you for standing by, and welcome to the Q3 FY '14 Results Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Friday, February 28, 2014. I would now like to hand the conference over to your first speaker today, Mr. Louis Gries, CEO of James Hardie. Please go ahead, Mr. Gries.

All right, thank you. Hi, everybody. I appreciate you joining the call. Myself, Louis Gries, and Matt Marsh are in Dublin today, and we don't have control of the computer. So that's done in Sydney. So we'll be calling on our slide numbers as we go through the presentation. You see Slide 2 and 3. Those are disclaimer slides. 4 just shows the agenda that we normally use. I'll run through the operating review. Matt will run through the financial review. And then we'll go -- we'll take questions. Depending on what the subject is, either Matt or myself will take the question. So if we start on Slide 6, you can see it's a pretty easy result to talk about. Basically, the markets we're participating in are tracking well, and all the businesses are running well. So basically, things came in pretty much as we were expecting they would. If you look at the center row there, which is the numbers we focus on, $43.7 million operating profit, which is up 17% over the same quarter last year. And for the year, we're up almost $43 million. U.S. stories higher volume and higher price. And in Australia, volume flat, pricing up a bit, and the EBIT, up as well. If we go to Slide #7, that just covers the U.S. and Europe in a little bit more detail. Like I said, price and volume both good. That's a few points on cost. The first point, obviously, is fixed cost are being spread over a larger volume. So there were results in some reduction in total unit cost. That's offset partially by higher input cost. With the market continuing to recover, commodities are -- pricing is improving. So pulp's up, cement's up and energy's up a bit. In addition to…

Fiscal '16.

Yes, so we missed that. It's the first half of calendar '15. Sorry I just got that typo. Asia Pac capacity is on track. So most of you know, we had a capacity up in our Carole Park plant. And that's tracking well, both from an investment standpoint and a timing standpoint. The next slide, I'll hand it over to Matt Marsh to cover the financials.

Thanks, Louis. On Slide 19, it's probably apparent from our release and Louis' comments, we've had an increase in volume and revenue in the quarter in most of our major business units. We had a favorable asbestos adjustment in the quarter as well related to the depreciation of the Aussie dollar versus the U.S. dollar. If we go to Slide 20, you can see the reported profit of $92.2 million with sales up 10% for the quarter. Gross profits were $121.5 million for the quarter, up 26%. So seeing the impact of price and the volume efficiencies come through with good leverage. You see SG&A expenses decreased primarily due to a decrease in the legacy New Zealand product liability settlements. And then they're partially offset by some higher corporate costs. And then finally, there was a noncash asbestos adjustment that you'll see noted there. And that was really an impact as a result of the depreciation in the Australian dollar exchange rate against the U.S. dollar compared to the prior corresponding period. If we go to Slide 21, the normalized earnings that we look at are on this page, where we have net operating profit excluding the various items of $43.7 million in comparison to $26.7 million from Q3 of 2013, representing a 64% increase. The legacy, as I mentioned, on the prior page, the legacy New Zealand product liability moved from a $7.5 million expense in the prior corresponding quarter to a $4 million -- $4.2 million benefit in the current quarter. Again, you'll note the asbestos adjustment's driven by the effect of foreign exchange and total net operating profit for the period of 64%. On Slide 22, for the 9 months, we reported operating profits of $286.3 million versus the 9-month period ending in 2013 of $115 million.…

Okay. Eileen, let's open it to questions, okay?

And your first question comes from the line of Emily Behncke from Deutsche Bank.

I'm just wondering if you guys could give us a bit of a sense. There's been a lot of discussion over here about the bad weather in the U.S., and whether or not that has impacted significantly your Q4 volumes to-date. I'm also wondering if you're able to give us a bit -- like quantify the price increase that you were talking about? And that's all for me.

Okay. Yes, we obviously -- we have had pretty severe weather in most of the U.S. Our order file's not as strong as we had forecasted it would be right now. So we're running less than 5% below our order or forecast. And we kind of expect, since we have an April 1 price increase, that, that will be kind of offset by dealers stacking up on board for the spring season at the March price rather than buying board in April or May, again, a certain allowance based on their historical purchases to kind of manage the price increase with commitments they have. So I guess my comment on how that all nets out is we do see better housing markets, a better demand. We do see some kind of temporary weakness due to weather, but we also expect a bit of a bump due to our price increases. So we think it's all going to kind of average out pretty close to what we have forecasted originally. The price increase in April is exterior products. And it's very different product line in regions. So like I said, it's more tuning up pricing than it is taking a general across-the-board increase. It'll probably come in more than 2% and less than 3%. So somewhere in that low 2%, maybe mid-2% range is probably the best guess for the full year of fiscal year '15.

Okay, great. And you guys are happy with the market share growth in the quarter and looking forward?

We are. Quarterly comps are -- have a lot of variance because you got your variance from the previous quarter and this quarter. But we are tracking pretty much where we want to track in the market, both from market share growth and just our participation in each segment. So we think our market models are running pretty well right now.

Your next question comes from the line of Jason Steed from JPMorgan. Jason Harley Steed - JP Morgan Chase & Co, Research Division: Lou, Matt, I would like to pick up on the pricing question, just to start, in particular, I guess, with reference to what you've seen in this period, another solid improvement, I guess, at a top level in terms of price. Could you give us a sense sort of in terms of disaggregating that around mix? I think in the second quarter, you did reference a pretty solid increase in HLD, not much in Cemplank and not a great deal in Prime. Could you just sort of help us a little bit better to understand this increase?

Yes, you know what? I don't really have the details. The guys worked out in the markets. But like I said, it was kind of a tuneup, so I don't think was -- it's certainly not across-the-board. It would be -- and on the product lines, there's no one product line that took a big increase. It was more, like I say, a tuneup, take a little bit here, take a little bit there. And it's either where we're at in that market or where our product lines are against each other in that market. So with some markets, we have Cemplank, Hardie and Color all targeted in a market. So you have to make sure that delta between those product lines is right in that. And that's been mainly what we've been kind of working on. Now our increase this year, as we've covered before, has been mainly around getting our tactical pricing straightened out. And so you're seeing that kind of increase a little bit every quarter as it gets cleaner and cleaner. So that's why the 5 this quarter, of course, it's -- again, it's a quarter so the variance is higher. But we are getting cleaner pricing still quarter-to-quarter. And I assume that impact kind of goes away in the next 2 quarters, I would say. We'll probably be as clean as we're ever going to be with our tactical pricing. But as far as details on the overall price increase, I apologize. I really don't have them. It was probably a very long document because like I said, it was very market and product-specific, product line-specific end markets. So mainly what I focused on is what was driving it and what does it average out to. So it averages out, like I said, in that low 2%, depending on what the mixes look like next year and what was driving it, yes, okay. Jason Harley Steed - JP Morgan Chase & Co, Research Division: Okay, and I appreciate that. And would it be fair to say, just to get on your comment regarding price increases being exterior for next year. You're not looking a Backer increase for the coming fiscal year?

Yes, we didn't announce a Backer increase. We'll review Backer pricing. We're pretty satisfied with our pricing now. Our product is sold in a pretty large premium over fiberglass net board . So we wouldn't want to risk share for price at this point. So I think if we do take any pricing on Backer, it's likely to be similar to what I just described, that exterior where maybe one region we have the price not exactly where we wanted, and we'll take a little bit here, a little bit there. But I wouldn't expect any significant price increase on Backer at this time. Jason Harley Steed - JP Morgan Chase & Co, Research Division: Okay, I got you. And just a final one on SG&A. Obviously, a few ins and outs around in that product liability, but fairly steady. Can you give us some sense of when you might look to sort of kick up the investment, I guess, in sales particular with reference to what you flagged back in September around looking at a door-knocking strategy to start to really push your penetration further out of your core areas. And as you start to push into Non-Metro, when should we start to think about that in terms of a big addition to your sales force as it were?

Yes, the -- we do have our SG&A increases built into next year's plan. I don't think they will outgrow the volume. In other words, we expect our revenue increase to be greater than our SG&A increase. So on a percentage basis, you won't see an increase. On an absolutely dollar basis, you will. But I guess one of the things we worked pretty hard on this year in the SG&A area is taking a real serious look at kind of what was helping us drive the business and what was just there and needed a good review. And a lot of the waste has been kind of addressed. So you're seeing -- we're adding things to the business, but you're not seeing big increases because we have pulled other cost out of the business that we didn't feel were helping us drive a result. But we do have a, oh, by the way, you asked specifically about what we call our Ambassador Program. We have rolled that out. We ran at 2 markets last year. I think we're running at 5 markets this year. So that's one of the programs that we're definitely funding new to a greater extent. And then in the south, we have several programs that Ryan is funding that would be new to the southern division. We had a good year, probably in demand growth in the southern division. So we're working harder on that again next year. We think the -- we might have been kind of underestimating the opportunity there. So we're doing a little bit more primary demand growth work in the South. And Ryan's funding some programs to kind of help drive that.

The next question comes from the line of Simon Thackray from Citigroup.

Lou, Matt, just, I guess, going back to that mix question that Jason asked before. Rather than looking forward, just a sense in the quarter, Lou, and really for the rolling 9 months in terms of how that mix shift in products and higher value products between Cemplank, between Prime boards, between ColorPlus is playing out? Can you just give us a sense of that in terms of the outcome in the quarter and for the 9 months?

Yes, I actually don't have the quarter breakout. But I'd tell you...

Just directionally in terms of how the mix is moving?

That's good. All right, that makes it easier. It's been very steady. So we've gotten our arms around the Cemplank versus Hardie growth. So that's flattened out. And we've also gotten some momentum on the color side, remembering that we pulled back color from some segments in the market, where the value -- I mean, in the southern markets where the value wasn't being recognized. So we've done that. And now, we're kind of -- we've kind of reset on what segments we want to go after. And we're seeing growth there. So I'd say pretty much everything's growing in the bands we want them to grow. So we did have to reset a few things. I think we've done a good job on that, and now things are pretty steady. So I have a feeling that year-end, we'll give you that product mix number. And it will be very consistent with what we talked about at the half year.

Okay, that's excellent. And just a couple of housekeeping ones. Sorry, Matt, on Slide 23, it's only a very small point. I might be missing it. But even with the buyback, you had the EPS growth going up less than the net profit growth, 30-odd percent versus 39%? Did I say 23? Slide 23?

Yes.

Is there any reason for the difference or, I mean, it's just a rounding issue or something?

Yes. No, I don't think there's much to be read into that.

Okay, I know you can come back to me. And just another little housekeeping issue, the higher corporate costs on Slide 44, the other cost, the 8.2% versus the 5%? What was the driver for that? I might have missed that, I'm sorry.

It's comp -- it's headcount and compensation-related.

Yes, I got the stock comp. That's the line above, the 8.2% there?

Yes. No, I actually don't have that noted. So ...

Okay, that's all right. We'll come back to that. All the other questions have been answered.

All right, Simon, we'll come back to you on those 2.

Your next question comes from the line of Andrew Johnston from CLSA.

Gentlemen, just on cost inflation, can you just tell us where that's running for the quarter and for the 9 months? So I'm just trying to compare your price increases with the underlying cost inflation, just trying to get a real price increase there?

Okay. Everything's up pretty -- across-the-board, but when you add it all together, through 9 months in the U.S, it's somewhere around $10 million. It probably ends up pretty linear through the fourth quarter. So you're looking at maybe $12 million or $15 million for the year.

Okay. And with the change in the pricing, and I haven't got through the numbers yet, but it looks like that EBIT's going up a bit more than just what the -- just what that price increase might be. And so I'm just trying to understand what has been the growth rate in your ancillary products? Because then they're taking out of your average pricing, right? So just trying to understand whether the growth in those products or both in volumes and price, is it any different to the overall market?

Okay, you're talking about the non-fiber cement products we pulled out of our pricing equation?

Yes, that's right.

Okay. Yes, I wouldn't know that. But it's not affecting our number. It's not affecting our price comp because we restated everything without those products in it.

Okay, but in terms of earnings, it's a rounding error, really.

It is a rounding error, no doubt.

Okay. And Matt, your comment about capital management, and I'm just trying to -- I sort of get the feeling that you're looking to take a more aggressive approach on capital management and that's probably a change to where the business was 6 months ago, just interested in your view on that. And then your comment specifically, you said you're going to move more swiftly but it will still take some time in terms of implementing getting the gearing -- and I assume that comment was around getting the gearing into a position where you want it to be.

Yes. So on both questions, Andrew, we will move quickly. But given that we're in currently a net cash position, moving from that net cash position to that range of debt that we discussed just won't -- we just won't be able to do that quickly. We -- and so that in and of itself will just take some time.

Okay. And just as part -- I suppose, a part of that, the $0.28 special dividend that you've announced this quarter, is that over and above the capital management that you announced earlier and that what you didn't buy back, you'd give out as a special dividend. So is that $0.28 over and above that sort of target for this year? Or is that all part of it?

Yes. So everyone's aware that we announced a share buyback program in May of last year of up to 5% of this year's capital and -- for the first 9 months, we've obviously purchased a relatively small amount. Recently, we have gotten more active in the market with share buyback. We still look, though, as -- we look at a mixture of the special and the buyback within that buyback that we announced. And I guess you should expect that depending on how we perform market factor, that it's very likely that we'll continue to use both of those kind of interchangeably.

Okay, so the $0.28 announced today is outside that? Outside that...

I think that's fair way to think about it.

Hey, Andrew, I just wanted to add something. Really our capital management, we're just slow to get out of the gate. We knew we needed to give more money back and we kind of had some plans, and we're just slow to get out of the gate to the degree we needed to. So now Matt's done a lot of work and I think we're more prepared to kind of get to that level that we had kind of foreshadowed before. The other thing that's going on, and we'll update you guys at full year, is if the business keeps running as well as it is and the market recovery keeps going the way it is, which we expect both to happen, we're probably going to spend more capital money in the next 3 years than we originally gave guidance on. We haven't totally sorted that out. So we will change our guidance at the end of the year here. Well, I shouldn't say we'd change it, but we'd expect to increase our capital expenditure over the next 3 years if our forecast kind of stay in the way they are right now. So that obviously plays a part in net debt as well. So hopefully, we'll have you a little bit more clarity here around on that.

Your next question comes from the line of Sean Dodunn [ph] from JCP Investment Properties [ph].

Just a question regarding your gross margin. Your revenue is -- other revenue is up 12%, and your cost percentage[ph]is up 9%, so your gross margin is up from 32 to 34. I'm just wondering when you're thinking in terms of that improvement in gross margin, what's the mix between kind of I guess operating leverage in terms of the kind of scale. And what is actually driven by efficiency of your plant versus and what it actually costs, and negative impact is actually cost increase. So is it mostly due to having more efficient plant? Or is it due to mostly from the leverage on the price?

Yes, this is Louis, I'm not actually looking at the numbers. But I'd say we have things going in the right direction. We have more market demand. We have market share growth. We have higher utilizations in our plant and we have somewhat higher pricing. So there's not any one of those things that's driving it. It's just kind of a natural event, I think, when you get into market like this.

So how far can this gross margins go if you get to kind of fully transition right at your plant if 34% can go to 35, 36?

I'm sure the range -- yes, 34 is not the cap. I'm not sure I could tell you. I'm not looking at any of our forecast. I'm not sure what I can tell -- I can tell you the exact range it might stay in, but there'd be a range around that 34, I'd say.

Right. Okay. Because I did notice that your top price was up 14% in the freight. I suppose freight was up. So it appears some of the underlying cost is up a lot. So it looks like it mostly has been driven better transition of your plant.

One of the stories about our business this year is we were able to focus on certain things and improve our capability, and actually freight is one of those areas. So even though freight, the cost of freight was up generally in the U.S. this year, we didn't incur that in our business. So that's a good example of where we would get some improvement there.

Okay, just 1 last question for me please. When I look at in terms of your SG&A, I mean you already mentioned SG&A [indiscernible]. I was wondering whether in order to achieve your long-term target, is it going to be incrementally more difficult, I guess more costly, to penetrate markets where you have low share in terms of the ability to actually gain incremental market share? Is it going to be more costly or not?

I don't know. I guess everyone takes a low-hanging fruit first. And if you look at our business, that was new construction and that was substituting for wood that doesn't perform well in the market as a siding product. Then we moved on to vinyl new construction, then we moved on to vinyl repair remodel. We moved in a non-metro. So there's some -- there's definitely some kind of correlation there. We're getting in the tougher stuff and getting the last 5% or 6% harder than maybe the middle 5% or 6%. But the way our business runs, you're not going to see it. We got to balance our investment in growth with our returns that we try and generate in the business. So we're more focused on growth and we have good returns in the business, obviously we'll spend more. So with Hardie's returns, pretty much everything we do works. That not only goes for every business we're in, meaning every country, every segment we're in, every product line we're in, it all makes returns. Some make higher returns than others, but we don't see our margins dropping as we go forward because it's getting harder to kind of penetrate. And we don't see that happening anytime in the near future. When I say near future, I'm probably talking 5 to 7 years, I don't see that happening.

Yes, okay. And just -- can you clarify the CapEx for the next 2, 3 years? I think you mentioned additional CapEx next year. Is it going to be in the range of 150 for the next couple of years? or a couple 3 years per annum?

Our current guidance is 150. And we're looking at our -- we're the doing a lot of work in capacity now so we announced the stuff that's been approved. But we have work going on in Tacoma expansion. We have work going on in the mid-south greenfield. We have work going on for more capacity in the North. So we have a lot of work going on that isn't announced. And depending on how quickly we want to take these projects on based on market demand, 150 a year doesn't get us outside of what we already have planned. So I think we're going to pull some stuff forward and when we pull some stuff forward, you're going to see that 150 guidance go up. Now I don't have a good number for you. So we're not really changing our guidance at this point because we don't have hard plans that say we're going to spend x more, but I do think where we're at with our capacity planning, we're likely to have that completed by the end of the year, and we'll be updating that capital expenditure guidance. And it's almost all U.S., by the way. It's not so much the other region.

But it's -- so to clarify, it's 150 for next 2, 3 years or just 150 for next year?

I think we had 150 for 3 years out there. So...

Your next question comes from the line of Liam Farlow from Macquarie Securities.

Just wanted to, I guess, ask some questions around the Asia Pacific result. The volumes are flat in Asia Pacific. What are you seeing across the Australian market and your current outlook and, I guess, market share trends? And just a follow-on from that, pricing was up 6%, but in March [ph] it was only up 3.5. What do you see, I guess, inflationary impact within the region as well?

Yes, again, you guys know even though I'm an American, I hate quarterly results because there's just too much variance in quarterly results. But having said that, I guess our guys have shown me that the market -- although the market in Australia is good, we really have no complaints, the shift in the market more towards Western Australia, more toward attached isn't playing to our strength, okay? So our position in Western Australia would be lower than the other states. And our position in attached would be lower than detached. So I wouldn't say -- I think our Scyon product line is running well. The growth there is good. But I wouldn't say we're gobbling up market share in the Australian business. But we're not losing market share. Right now, our guys would be claiming some gains and I'd be discounting that in my mind. I just came back from Australia, marketing planned visits about 3 weeks ago so I had a lot of time to talk to the guys about this. I think we're doing the right things in Australia. But I would like to see higher growth than we're currently getting just basically because we just built some new capacity and I'd like to take advantage of that to the greatest degree possible. So as far as the pricing, EBIT margin, again, I think the quarterly comp is wrong. The way you should look at that is more of the 9-month, 4%, which I think is a lot more realistic. And again, some of that is product and some of that is market. And as far as their EBIT efficiency, I think they're doing well. Based on what we want to do with the business, I think they're doing well. Their plants have opportunities. The Australian plants are in kind of a middle of a reset project that tries to drag more efficiencies through those plants, lower unit cost basically. And I think one of the plants is well underway and the other plant is getting started on that process. So again, I wouldn't look at the decimal points too closely down there. I think the business is running like it's been running. It's been on a good path for several years. we're maintaining that momentum. Scyon's proven out to be a very profitable product line and that's where our focus is.

Okay, and just a follow on from, I guess, that reset processes. What are some of the targets you're trying to achieve with that?

Sorry, I didn't get the question.

Just following on from the planned reset process in Australia, trying to get some improved efficiencies. What sort of, I guess margins, or returns you're targeting from that process?

Oh, yes, I'd rather let that just play out, to be honest with you. We get very good returns on that business. It's really a very healthy business. But obviously, we expect to get more money out of the plant -- under the plants but I wouldn't want to put a forecast out there for how it might change return in the business.

Your next question comes from the line of Andrew Peros from Crédit Suisse. Andrew Peros - Crédit Suisse AG, Research Division: Louis, just an extension of the question of cost perhaps, I ask you a different way. Of that $10 million increase that you mentioned a little earlier, did that include increases for pulp and gas? And then have you take that 1 step further, wondering how much higher do your pulp and gas prices need to go before we start to worry about hitting the 20% to 25% margin range?

Okay, just -- I rolled it all up so it has pulp, cement, silica, gas and power. Okay, so that's a $10 million through 3 quarters in the U.S. business, expected to be 12 to 15 by the time we're done. A lot of you guys have heard me say this before, I just don't worry about the price of pulp. I don't want to pay the money to hedge it to smooth earnings. So I'm happy to ride with it. So if pulp, for some reason, became way more valuable to -- in the market, I guess we'd see it in our EBIT margin but I wouldn't worry about it. I think pulp's been pretty expensive through the last couple of years. I would expect at some point for it to settle down. I think it's somewhat currency-driven and somewhat, I don't know, supply and demand, obviously. But we just don't worry about it. We're not going to be sitting here a year from now and say, "hey, we didn't make" -- at least I don't believe we will, "We didn't make our margin because of the price of pulp." That's not going to happen.

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

Just a follow on from Sean's question earlier. Just looking at the production cost benefit on that gross margin in the U.S. and at the risk of talking to quarterly numbers here, last quarter, you flagged that, that was 160 basis point headwind to gross margin whereas now you're saying, for this quarter, it's 110 basis point tailwind. That just seems like a big turnaround to me. Is that -- is there just one thing in there that's really explaining that? Or is that just better utilization at the plants? Because I don't think utilization would fully explain given volume growth has slowed in the third quarter relative to second quarter.

Well, yes, but you know -- yes, I'm not sure I can answer your question but we're building inventory right now. So we have Fontana coming on as new capacity. But the plants ran very strong in the third quarter building the inventory. So I'm not sure I can answer your question. I haven't looked at the numbers that way. Sean can remind Matt and I and we'll be able to kind of answer your question. I just can't answer it off the top. It isn't something that I've looked into.

Okay. I suppose just on the gross margin that you talk to at 34%, do you think that would be conservative given that third quarter is typically a low gross margin quarter and then you got those Fontana idle costs coming off into the -- as we move into the fourth quarter and into fiscal '15?

Yes, I mean, as I've mentioned many times before, you guys are way more exact with your models than I am. So I agree with you, third quarter margins are normally thinner. That's why I said there's a band around that 34. I don't know if the band would be 8 points around the 34 or 4 points around the 34. So it's just not something that I focus on in the business. So we just use different equations to look at the business.

Sure. can you give us a sense of what, I suppose, the impact on gross margins, the idle costs of the Fontana coming off in the fourth quarter.

We're in a constant period of starting up, building and starting up capacity and we still have Somerville idle. So what they would tell you is, even though I did comment on it, don't think about it because it's not enough to move the needle. It's a one-off. It's not huge number. It's enough to where you look at it internally and say, "Okay, that make sense." It's not something to say, "Uh-oh, we have a problem." So -- and we'll have -- I mean, the cost of ramping up Fontana will be way more than that idle facility cost. But we just ramped up Waxahachie. So like I said, I think over the next 3 or 4 years, all those costs are just part of doing business because we're always going to be bringing on new capacity as long as the market keeps expanding or stays at a good level and we keep growing market share.

The next question comes from the line of Michael Ward from the Commonwealth Bank.

Whereas the market, you obviously talked pretty favorably about a market, we see the U.S. homebuilders delivering pretty big profits, pretty big gross margins. Can you just talk through why -- when you talk about the price increase for April, you talk about a tuneup. Why don't have the confidence to actually put a more material market price increase through?

Well, we certainly could. We're not commodity pricers so.

I'm not necessarily arguing that you are, I'm just saying that I thought...

No, no, I just got to explain it for everyone on the call. Most people in our industry will price off capacity utilization. So when things start ramping up and new capacity hasn't ramped up to at the same rate, then prices go up pretty dramatically. And when it goes the other way, when supply is ahead of demand, price comes off pretty dramatically. We're just not like that. We're value pricers. If we wanted to put our price up, we could. But we're way more focused on market share gains than pricing improvement. So right now in this type of market, we're going to err on the side of having the right price to max -- optimize our share gains rather than having the -- optimizing our price and slowing down the growth. So the value in the business model is really driven by the scale we can be. If we hit 35 90, rather than by a lot of the questions we are getting today, which is 34 margin versus 36 gross margin or 38 gross margin. Although that -- those are good for quarterly results, if you kill any of your kind of long-term demand for your product, we just think it's not a good trade-off. So the reason we tune up the prices, we're very focused on market share gains and didn't want to introduce a large market price at this point. We just don't think it's good for the business.

Is that a strategy that you're likely to carry out for a number of years? Or is that something that you could, say, changing next year? What would be the catalyst to make you change that?

Yes. We're -- again, it depends on the segment and it depends on the geography. But when we're at -- say we're that 16, I don't know where you guys estimate, we're at 17 share for fiber cement now and we want to get to 35, it's too early to worry about what's the true value of fiber cement we're value pricers. We sell fiber cement at a lot higher price than other participants in the market. And we're very satisfied with that. So we think one of the things fiber cement does and offer to U.S. market is some consistency around pricing, which they'll don't get with commodity products.

Okay, can you also talk a little bit about the Backer business? You commented that, I think, the volume growth rates were lower than, say, the 14% volume growth we've seen for the first 9 months of the year. Can you give us a sense of what the Backer volume growth rates have actually been for the 9 months of the year and why it was actually down in the third quarter?

They would be low-single-digits, Backer growth rate. And the reason is because just like I said about exteriors, our 35-90 we basically have an upside that's twice the share we are now, where in Backer in the lot of our target segments, we're actually very high share players, above 50. So there' s not that doubling up possibility. In some geographies, we're already very close to terminal share in our segments. So what we're doing right now is we're growing with the market in Backer, not necessarily growing market share.

Okay, and then R&R market, you don't talk as favorably about that. I mean I've have always understood it's sort of an 18 months to 2-year lag. Are you a bit disappointed that you haven't really seen a bit more emphasis in the R&R market?

No, again, the R&R market does lag new construction and it also doesn't have the same kind of variability. So new construction went from the 2 million starts down to 500. And during that same period of time, R&R opportunity might have dropped, I don't know, 15% or 18%. So we are in a better R&R market now and we do see it starting to pick up and pick up momentum. So it's better this year than last year and we think the improvement next year will be greater again. Having said that, the best story we have about R&R is our ability to participate in that market and grow market share. So we grew it through the downturn and we're growing it right now. So I didn't talk much about R&R. It is in the same kind of 15% ramp up that we're getting in new construction opportunity but it is a better market than it was last year and we're very well-positioned against vinyl in R&R with our programs.

Okay, sorry, and just 1 last question. A bit more housekeeping than anything. I just noticed that the -- on the Fontana upgrade, you're now saying it's 250 million square feet, whereas I think just 3 months ago you are saying it was 300. Why the change?

Yes. That was a mistake by us. We interchanged Plant City and Fontana. So I think we showed Plant City as 250 and Fontana as 300, and it should have been reversed. We just got that today. I haven't talked to Sean and Matt hasn't talked to Sean about do we need to go out and correct that or is it something that needs to be done or not. But we just got it today, so we just apologize for that.

Your next question comes from Matthew McNee from Goldman Sachs.

Just a question for Matt, just on the capital management. Matt, as you're aware, you guys are pretty constrained because of this basis agreement on what capital management you can do on sort of rolling 3 years and dividends you can pay on a rolling 2. Now I can see how you can use a lot of your bullets to get yourself to that target gearing of sort of 500 million in the short term. But the question for me is, does that -- under the constraints that you had, can you hold your gearing within that target range? Like in 3 years’ time, if you model forward, would you still be in that target range or would your gearing be below just by some of the constraints you have?

Yes. That's a good question, Matt. No. We think that given the constraints that we have, under the AFFA that the gearing range that we provided today, we can operate in over a period longer than just the 3 years.

Okay, so with the 15%, et cetera, the payout ratio is 75. If you max those out, you can keep the gearing at that level? Because, I mean, the way I look at it, in 3 or 4 years you'd be, I mean, obviously, it's depending on CapEx and a lot of other things, but your gearing would be dropping down to the bottom of that.

Yes, I think, as you said, it's dependent on a lot of factors including earnings, CapEx, distribution back to shareholders. And again, given the constraints that we have within the AFFA, we think that the gearing range thing we talked about today is sustainable over a longer period than just the 3 years.

Okay, so you don't think there's any need to go back and try and review the agreement or try and get some sort of amendments to it or anything like that? Is that even a possibility? Okay.

Next question comes from the line of David Leitch from UBS.

You got a very colorful and helpful answer to in Emily's great question at the start about the man but I'm still just a bit unclear myself as to whether, I guess, what the homebuilders are actually saying or what you're seeing, as to whether it's just a cold weather kind of thing or whether homebuilding really is recovering at the rate that we hope it's going to. I just wondered if you could just provide a bit more color around that demand outlook as you see it over, I guess, the next quarter or 2 or 3.

Yes. David, I guess, first and foremost, you know I am not an expert on homebuilding demand. But what I would say is I think I definitely feel like the market's going to better again next year, okay. Now like you said, there's going to some spot, and I think we're in one right now where the order file's running behind our forecast and it's not really about demand for housing as it is an external factor like weather, which we're not worried about. Keep in mind also that I like a market that grows slowly if it grows for a longer period of time. So if I were -- if I run a commodity business, I'd want to see housing up 30% next year. That way I can jam my price up when capacity got short, okay? We covered that on an earlier comment. We don't jam our price up when capacity gets short and we don't actually like to see capacity get short. So going into this thing, our guys were planning on growth rate -- a growth band of 15 to 25, 25 superhot market, 15 good market where we're growing some market share, and we thought we'd kind of end up somewhere maybe around the 15 and a little bit higher, and that's kind of how it's playing out. So in a kind of a weird way, it's doing exactly what you want because, as I said before, our value's in market share, and if the market gets on fire, market shares is going to be harder. So we like it where it's at. So if they grew -- if housing starts grew 10% next year, I'd be fine. If it grew 15, I'd be fine. I wouldn't want to see growth to 25 and I wouldn't want to see not growing it up -- see it not grow at all. So I think we're in a very safe market for Hardie. I know the way other building materials companies run their business. They might be a little bit concerned because extra demand means extra price for them. But it doesn't mean that for us.

Okay. But, I mean, you just think the -- that what you're seeing this moment is definitely weather-related and not some more durable pause.

Most forecasters dropped their forecast in January. But they dropped them, I think -- I'm going by memory now because I haven't looked at them since. They dropped them at 15% level. So it was kind of funny because I don't go to many industry events but I happen to be at an industry event when that was going on. And the commodity guys were redoing their plans and I'm like, "yes, that's good, that's fine. No problem." But again, that just shows the difference in the business model. So the value of Hardie doesn't change if the market is up 15 or 20 next year.

[Operator Instructions] Your next question comes from the line of George Clapham from R&M Armhem.

Just a question going back to Woody's [ph] question with R&R, I might've missed it, but what's the sort to mix now if you look at R&R? I presume Backer is largely an R&R business. And in terms of your volumes a new -- with new construction?

Yes, it's a good question, George. I haven't asked for an update on that. But we came in to the recovery at 70-30, 70 R&R and 30, that was our estimate, 30 new construction. And new construction is growing much quicker than R&R. So you're somewhere around that, 60-40 right now. But that's probably another area Sean needs to remind us that at full year we'll give our estimate there. But we're still going more in R&R than we are in new construction, but more of our growth is right now, obviously, new construction rather than R&R.

Just one other question. This relates more to your sort of customer base. You said obviously the larger builders seem to have taken share. Are you getting any sort of traction or are you seeing any recovery in the sort of custom builders? And is that a better business for you in terms of sort of margin channel? And also in the R&R market, in terms of the big boxes, et cetera, is there any sort of trend in your customer mix?

Not really. I mean, we have a really good position with big builders. So the fact that they're back with their land building at a higher rate than the overall market helps our Cemplank business because they'll either buy Cemplank or Color as a rule, mainly Cemplank. As far as the custom builder segment, I think that segment's fine. And we get that business -- we get our share of that business through the independent lumber yards. But we don't track it as closely as we do some of the other segments. As you know, George, we talked before. One of our initiatives has to be to put a top-of-the-market product line together like the Australian business has done with Scyon. And we have our first project there, Artisan. But we need a product line rather than a product, and that is one of the initiatives we're funding in the business to a greater extent right now than we were a year ago. But it'll take a while to pull that product line together and launch it in the market. George, again, we talked many times about the business. The weird thing about Hardie is it all returns well. So the boxes, custom homes, production homes, R&R, it all returns well. So we don't think of trade-offs. We have our target shares in each segment and as long as we're tracking for those shares, towards those shares, we don't worry that one's returning a higher rate than the other right now. Because they're all at such a good rate. It's not like you're going to make any trade-off decisions. Of course, that's a good reminder of why we never want to run out of capacity because then would have -- be forced into trade-offs. And with everything so -- returning so well, you just don't want to get to that position.

Sorry, I've just got one other, this relates to some of the newer initiatives, the sort of windows and that, can you touch on that? Has there been any developments there?

Yes, I mean we -- I guess it's in their report. We disclosed we spent $4.8 million buying a fabrication plant, a fiberglass window fabrication plant. Again, what I've talked about before is we like potentially the idea of a fiberglass window fitting into our market segment, in our re-side market segment. But we're not players in that industry, so we got a lot to learn before we can really feel like we might have some kind of a business and window. So at this point, I'm basically funding a startup to target some pilot markets. If we can prove a capability, meaning the value proposition for fiberglass windows in between vinyl and wood-clad windows, our ability to produce, run an efficient supply chain and generate demand in 3 or 4 pilot markets, then we'll consider turning it into business loyal, invest litho a bigger weigh in. But that decision is probably at least 3 years and probably 4 years off, so no one should worry about fiberglass windows at this point.

You have a follow-on question from the line of Simon Thackray from Citibank.

Lou, it's all been a very positive picture in the markets. Both in the quarter and I guess looking ahead, normally you have 1 or 2 little areas that you say are not performing as well as you would like them too. Not to take anything away from the quarter, which has been fantastic, where are the additional opportunities where you'd like to see a bit of an improvement? Or where have markets maybe not behaved the way you would've liked them to? Because there's always some area you normally talk to.

Yes, thanks Simon. It's almost 12:30 in the morning over here, so I thought easy result, not many questions, but you guys have proved me wrong. We're still not -- we're getting traction in Midwest and Northeast, but not the traction we want. So in the Midwest, LPs been a bit of a problem. In Northeast, just resetting the program in the Northeast is taking longer than we thought it would. But I think -- you know, Sean Gadd. Sean Gadd took over that geography about a year ago. I think he's doing all the right things, so I think we'll get that traction. But if there's anything that's tracking behind, what we wanted to do a year ago would be our Midwest Northeast market share program.

Can you give a sort of -- a bit of specific or a bit of color around the percentages or -- versus target?

No, we're growing. You guys can see vinyl shrinking in those regions. So we're growing. We're just -- I guess I've used the expression before, just our organizational capability, instead of being able to juggle 3 or 4 balls, we're still only able to juggle 1 or 2, which means you get R&R going but you're not doing what you should in new instruction or you're not doing what you should in multifamily. And our channel reset there is taking a little bit longer than it did in the rest of the country, and it's just kind of normal drag. So percentages, we're behind, no, but I think more in months, okay? I think next year, we'll be where we thought we should be in the Midwest and Northeast this year. So I would say we're running behind. And that's not criticizing anyone working on the program now because I think the guys that are working in that geography led by Sean are doing a really good job. It's just there was more to fix than -- and it's taken a little longer to fix than I would have guessed.

There are no further questions at this time. Mr. Gries, please continue.

All right. No, that's fine. I appreciate everyone joining the call and all your good questions. And we'll be in Sydney in May, and see you then. Thanks very much.

That does conclude our conference for today. Thank you for your participation, ladies and gentlemen. You may all disconnect.