James Hardie Industries plc (JHX) Q4 2014 Earnings Report, Transcript and Summary

Okay. Good morning everybody. We'll get started. We're going to follow the same format we always do. I'll just give a quick overview on the business and Matt will cover all the details and financials, come back to questions. Investors in the room first, investors on the phone second, and then media at the end. Let's see if I know how to use this thing. Okay, like I said, I'll just go real quickly through the business. I think you probably all saw that the result was probably pretty much as most people expected. It was certainly pretty much what we were expecting. Fourth quarter was just a little bit soft. You've seen in a lot of announcements, the weather, I don't think it affected us that much, but our volume came in just a hair short of our forecast. As far as our financials, they were pretty much where we wanted to see them. You know, we set out at the beginning of the year really two things, really start growing the market share we wanted to, now that we're in a much better market, and also deliver on our target EBIT margin. You can see that translated into a good improvement in net operating profit as well. Pretty much across the board it was a good result. Obviously volume up. We grew faster than our market index. Net sales price was up. We didn't do -- we did a market increase on Backer last year if you remember, but on the exterior products made a few adjustments market by market with the Cenpoint [ph] brand, but most of the improvement in price was just cleaning up the tactical pricing problem we had in the previous year and a half or so where we had kind of prices leaking between segments. We don't have much leverage -- operating leverage, but we did obviously spread fixed costs as our capacity got more fully utilized. Higher input costs paying a bigger role in the fourth quarter than it did for the full year, just wrote down some notes on that. Pulp was up quite a bit, but the U.S. business, we didn't -- really saw pulp, cement and energy all up significantly, and up more in the fourth quarter relative to the previous fourth quarter than they were prior quarters. For some reason I've lost my numbers. So when we get to Q&A, I'll go through that for you. So again the fourth quarter pretty much exactly where we thought we'd come. And we did think we'd kind of inch over to 20, but we came in at 19.8 on the EBIT margin. Good pricing, good volume. Like I said, higher input costs relative to previous quarters. And yeah, everything kind of as we expected. Our full-year result, again, I covered that. We're very happy with the full-year result. We're kind of back on track, where we want to be both on the market share side and on the EBIT margin or financial return side. You can see our quarterly result in the EBIT margin was more consistent quarter to quarter than it's been in previous years, and I think we'd see that again this year. That's what we were thinking we're going to see again this year. We'll see probably almost the same pattern with the second quarter, unless there's something out there we don't understand about market demand. The second quarter will probably be our best quarter of EBIT margin, but first quarter will be good, and then I think we'll do well in the winter again next year like we did this year. And that's just because of the market growing. Winters are easier to handle than when the market's declining. You could see, I know you've all kind of seen the sound bites or heard the sound bites coming out of the U.S. about flatter housing on weather, and you can kind of see the black line flattening out there. Now we don't think the market's going to be up as much next year as originally forecasted, but we do think it's going to be up. So I think it was originally forecasted for single-family starts around 15. My guess, and it will just be a guess, is we're probably looking at more 8 to 10. So we've planned around that. If we get 15, we're in good shape, but we've also kind of hedged our bet a little bit in case we don't get a stronger market as was originally predicted. And as I said, one of the big accomplishments last year was just kind of correcting a problem we had previously. So we had that dip-down in 2012 and then a bigger dip in 2013, and now we're kind of back on our normal slope of the line or almost back in the normal slope of the line. Asia Pac also had a good year. They had pretty much everything go right. The market is pretty good down here. It doesn't play one-to-one in our hand because R&R is weaker than new construction and attached is stronger than detached. So our two big segments here are R&R and detached housing. And when you look at it at the growth rates in the different segments, it doesn't -- we didn't get as good of a market index as you would think from the headline numbers. But it's fine, there's nothing wrong with the market. We've done well with volume. Production costs, especially at the Sydney facility, are starting to show some good efficiencies there. So that helped out. They faced higher input costs, but they were mainly in pulp down here, so they didn't chase the cement increases and the energy increases that the U.S. did, but they did have higher pulp costs. And then of course when you translate them into U.S. dollars, the results get downgraded a bit because of the change in the exchange rate. So for the quarter, volume up, price up, EBIT in Australian dollars up 28%. So, very good result. And similar for the full year, volume up, price up, and then EBIT again 21%, 90 million in Australian dollars -- just short of 90 million in Australian dollars and just short of 83 million in U.S. dollars. So our outlook, you know, our outlook is pretty favorable I'd say, because we don't rely on big increases in the U.S. market in order to drive our numbers. So I know some of the basic building materials still aren't at breakeven at this type of housing starts. We're very comfortable where the market's at. We like that's increasing year to year. And we like that it's not spiking. So we don't have to worry about running out of capacity before we bring our new capacity on. So everything looks good in the U.S. You know, our game next year is going to be same as -- or this year as it was last year. We'll be very focused on balancing the market share growth with the hitting the target EBIT returns. Obviously we're doing other things, putting on capacity. But again we're pretty good at that, so I don't expect any bumps in the road there. Asia Pac, well, I mean -- market looks really good. Philippines market I think looks good again. And the Australian market, which is the biggest for that division, is a bit unclear right now, but it's still going to be a good market. Even if it tapers off a little bit, we don't see a problem on the market side. Just to go over our capacity expansions. If you recall, in the U.S. we set up a line [ph] and we actually had to last year, very early last year. Then we started up Fontana late last year. We started the first one in January, first line [ph] in January, and the second one just right at the end of the fiscal year. So you're basically going to see most startup costs for Fontana coming to this year. And we now have boosted that capacity, so we balanced out that shortage we've had on the West Coast. So less board will be imported into the West Coast from Illinois this year now that we have Fontana on line. Plant City and Cleburne are two big brownfield additions. They're relatively efficient capital-wise because they're sitting in slots that we used to have lines. So Cleburne used to have Excel D [ph], what we called Excel D tram line [ph] there which we then -- we've got production up to [indiscernible] so a lot of the infrastructure for our line [ph] was sitting there, so we put a big sheet machine where the old tram line used to be and got the benefit of a lot of that infrastructure around the line. So that's 200 million feet at $37 million. And then Plant City is a little bit different, but you remember we have [indiscernible] plant on Plant City. We closed that several years ago. We're using that building in some of the infrastructure for that Plant City -- new line in Plant City. It's a bigger line than we're putting in Cleburne and it has finishing investment that goes along with the sheet machine investment, so that's why it's a higher number, but still very efficient from our revenue per investment dollar. They're actually timed right now to come in at exactly the same time, which is about April next year, say, March startups. We're actually going to -- we're in the process of staggering those, so we'll probably bring Plant City on early, maybe January. And depending on how overall demand looks, we'll either bring Cleburne up as planned or let it slip a month or two just to stagger these two startups. And the expansion, up in Carole Park is going as planned, and everything is good there. Right now we like the timing of bringing that on, which again I think is around a March startup. It fits pretty well with our forecast on meeting that capacity. So that looks pretty good. Okay, I'll hand it over to Matt for the financials.

Good morning. So Louis has already indicated earnings were impacted this year by higher volumes and higher price. Higher EBIT, higher EBIT margin in all of our major businesses compared to last year, and you'll note unfavorable movements in the asbestos adjustments, which we'll go through in more detail. Net operating cash flows were up to 323 for the full year compared to 109 the year ago. Capital expenditures increased from 54 to 115, largely in line with the capacity expansions and investment in R&D that we've discussed. We have an ordinary dividend declared of $0.40 for the full year, compared with $0.18 a year ago, and a special dividend combined of $0.48 compared with $0.24 a year ago. For the fourth quarter, so net sales increased 15%, favorably impacted by volume and price. Gross profit margins were up about 210 basis points, which were a combination of volume and price and partially offset by input costs which Louis mentioned earlier, and some of the idle facility costs as we've ramped up some of the capacity in the U.S. SG&A expenses were up for the quarter, primarily due to some higher compensation, which is a combination of stock compensation, in line with the share price, as well as some investments that we've been making in the organization as we've -- as we get ready to scale up. And then there was a slight increase in the New Zealand product liability in the quarter. But for the year you'll see that that's down. Asbestos adjustments were unfavorable, and we'll talk about that more later, largely due to the underlying actuarial valuation assumptions, partially offset by foreign exchange. For the year -- sorry -- for the quarter, just walking down from our reported to our adjusted results, the major driver there is asbestos adjustments, $308 million of adjustments related to the underlying actuarial valuation, partially offset by $23 million of exchange rate differences. And you can see $45.3 million in the quarter of net operating profits excluding all the unusual items that we typically exclude, up 48% quarter over quarter. For the full year, net sales were up 13%, similar to the quarter, favorable volume, favorable price for the year, which helped drive group sales up 13%. Gross profit margins up similarly about 220 basis points, with a similar dynamic, as I said earlier, of favorable price, higher input [indiscernible] facility costs, partially offset by economies of scale that we get as the volume ramps up. R&D, you'll notice, is down a bit. That's consistent with what we've talked about in prior results, which is really timing of when old projects conclude and when new projects start up. It's not as though we're investing less in R&D, it's just we invest as the projects are ready to ramp up and the teams are ready to tackle them. And then -- and again, unfavorable asbestos adjustments, which I'll talk more about on the next page. So, walking from the reported results for the year of 99-1/2 million to the 197.2, the headline net operating profit is really driven by the operating performance in the prior page, combination of volume and sales as well as gross profit margins. The asbestos adjustments were unfavorable, again because of the underlying actuarial valuation assumption changes which I'll step through. New Zealand product liability for the full year did decrease. There was a substantial reduction in the value of new claims that we received, as well as just fewer claims. And that's resulted in a net benefit for the year. And then excluding asbestos asset impairment, the ASIC expenses and the New Zealand product liability, net profit of 197.2, up 40% versus fiscal year 2013 of about 141. Some segment highlights, the U.S. and Europe had EBIT margins, as Louis said, about 19.8, so just shy of the 20%, up substantially, 380 basis points, versus fourth quarter of 2013. In APAC, they had about a 230 basis-point increase, up to just shy of 21. And you'll note, on general corporate costs, if you exclude ASIC expenses, were higher compared to prior corresponding period, again primarily due to salary and compensation expenses, combination of stock comp accounting as well as, like I said, the investments in the organization that we're doing in advance of the growth. For the full year, the U.S. had EBIT margin of 21%, so within our target range of 20% to 25%, up year over year about 390 basis points. Asia Pacific was up 230 basis points, finished out around 22.6. Again general corporate costs higher, a combination of the prior year, including a number of non-recurring items, ASIC expenses of 2.6 million had an FX gain of 5-1/2, and a recovery of non-recurring legal cost of 2.7, and then the more recurring items in compensation that I've already discussed. Foreign exchange, a chart you're familiar with. You can see the Aussie dollar versus the U.S. dollar and the impact that it has on the major items on our financial statements, has unfavorable impact from the translation of the Asia Pacific earnings, so, in local currencies the Asia Pacific business is performing better than on a reported basis because of that translation, has a favorable impact on the corporate costs that are incurred here in Australia, and has a favorable impact on the translation of asbestos. You'll see that more when we break that out in a couple of slides. Income tax for the quarter, income tax expense excluding asbestos [indiscernible] and other tax adjustments increased due to higher taxable earnings. The effective tax rate, excluding asbestos, asset impairment, New Zealand product liability and tax adjustment increased to the prior corresponding quarter, and the asbestos related and other tax adjustments increased due to the increase in the asbestos, of valuation related to adjustments. I think the full year is a more complete look, if you will, on tax. In effect, the tax rate is about the same, 21.6 in FY14 versus 21.3 in 2013, largely in line year over year. The tax rate remained consistent, largely due to the increase in taxable earnings relative to the recurring tax adjustments. Cash flow, net operating cash flow increased from 109 to 322.8, primarily due to two or three things. Number one, the prior had a non-recurring tax payment of about 81 million, which arose from the favorable conclusion of RCI, which is a disputed tax assessment from fiscal year 1999. The contributions to AICF were down year over year, and then earnings were up year over year. You'll see an increase in CapEx which we've already noted, from 61 to 115.4, and I'll go through that in a slide or two. Returns to shareholders were up as well from 221.2, from 188.5, and an ending net cash of 167 million, which is good considering some of the capital allocation items that we're trying to balance. CapEx, as I noted on the last slide, is 115.4. You can see the segment results -- the segment breakdown here up about 90%. In the first quarter, as we've already talked about, we completed the land purchase in Carole Park, and that project is on track to commission early next calendar year. Fontana, we've already talked about, is now commissioned and ramping up. CapEx for the capacity expansions in Plant City and Cleburne are underway and those projects are on track. And total capital expenditures in the U.S. and Europe segment, these exclude the $4.8 million related to the acquisition of the windows business we did on the third quarter. We're continuing to focus on capital management. The framework's very consistent with what we've shown in February and that we've talked about the last several months. Our strategy is to really three things, reinvest in R&D and make sure we've got capacity expansion projects in place in anticipation of our growth strategy. And while we're doing that, providing a consistent level of dividend payments with an ordinary dividend payout ratio of 50% to 70%, which is the ratio we've been operating under since last November, and continuing to execute on share buybacks and special dividends. That strategy is all within a framework of capital efficiency and a rigorous financial policy, so, maintaining sufficient liquidity and minimizing our cost of capital, as well as generating strong cash flows in order to grow funds for CapEx as well as maintain the flexibility for strategic decisions. A summary of the capital management and dividends initiatives that we've announced, so we've announced today the special dividend of $0.20 per security and a second half ordinary of $0.32. Those are declared in U.S. currency, it'll be paid on the 8th of August, with a record date of 12 June. We had previously announced, and including for fiscal year 2014, a dividend payout ratio again in the 50% to 70%. So it was increased year over year. For the full year, ordinary dividends declared at $0.40 compared to $0.18 a year ago and special dividends declared of $0.48 compared to $0.24 a year ago. We did also announce today a new share buyback program for -- to acquire up to 5% of our issued capital. The share buyback program, we announced a year ago, in Mary of 2013, we repurchased a total of 2.6 million, just a little over 2.6 million shares of our stock, an aggregate cost of AUD34 million, USD31 million, and an average market price of AUD13 and just USD11.94. We continue to have adequate facilities. We have total facilities as of the 31st of March of 355 million, with net cash of 167.5 million, for $522.5 million of liquidity. We also, you'll note in the filing, we added $150 million of facilities after March 31 to replace and augment facilities that expired during the fiscal year, to bring our total facilities now up to 505 as of today. Our New Zealand product liability, the total provision for this matter net of recoveries was $12.7 million for March 2014, versus $15.2 million for March 2013. We recognized an expense in the quarter of about $1 million. And during the full year we had an increased rate of resolution on claims and fewer open claims at the end of the year. So, a substantial reduction in the value in new claims received and total claims overall. On asbestos, the updated actuarial report was completed as of 31 March. The undiscounted and uninflated central estimate increased to AUD1.5 billion, from AUD1.3 billion. The total contributions of 184 million were made to AICF in fiscal year 2013 from our fiscal year 2012 cash flows. No contributions were made last year, in accordance with the terms of AFFA. Since the AFFA was established in February of 2007 we've contributed 599.2 million to the fund. And we anticipate we'll make a further contribution of approximately USD113 million to AICF on 1 July, and this represents the 35% of our free cash flows for the financial year 2014 as defined by AFFA. In terms of some additional details on the actuarial report, the change in the estimate, the net present value is now AUD1.8 billion. It's an increase from a AUD1.694 billion as of 31 March. The $176 million increase is really 294 million. That's up arising from actuarial valuation assumptions and $117 million reduction from the roll forward and the discount rates. Claims reporting for mesothelioma were 20% higher in fiscal year 2014 than the previous year and 23% higher than the actuarial expectation. Other disease types in the report, you'll note, were largely in line with expectations. Claim average awards are largely tracking considerably better than the expectation, and large meso claims increased in frequency relative to prior year. It was 11 reported for this report versus 7 -- sorry -- versus 5 to 6, which is more typical per annum. This chart shows the trend in the reported result at each valuation completed by KPMG. The range has narrowed over the passage of time, so you can see that, with the orange bars coming together. In 2014, however, that range widened again. You'll note that the claims were ahead year over year as well as ahead of the expectation. And so you can see in fiscal year 2014 that, with that uncertainty, the future claim numbers increased. As the orange and blue lines come together, that really reflects the interest of -- sorry -- the impact of lower interest rates, and less time value discounting. For the fund net claims, the fund had gross cash flow outflow 7% above expectation at gross level. And that included $7.7 million Australian of payments made in March of this year that were due in April. Actuarial net claim costs were slightly lower. You can see the 112.9 are slightly lower than anticipated due to insurance proceeds, and lower no claims in volume of meso claims resulting in an increase in payments in relation to claims reported. So in summary, net operating profit excluding asbestos, asset impairment, New Zealand product liability and tax was 45.3 million and 197.2 million for the quarter and the year. The full year reflects higher sales volumes and average sales price in local currency in both segments, U.S. and Europe, as well as Asia Pacific. Higher EBIT margins within our target range. U.S. and Europe excluding asset impairment up to 21 and Asia Pacific up to 22.6. The projects we have in Fontana is largely complete, and we have ongoing investments that we talked about in Cleburne and Plant City. The second half ordinary dividends, we declared a $0.32 and the fiscal year special dividend of $0.20 were announced today. The new share buyback program, and in line with what we've previously talked about, capital management objectives, our total credit facilities are up to 505 million to fund capital expenditures in FY 2015 additional shareholder returns.

[Indiscernible] we'll get questions. Again, analysts, investors in the room, one question each. If you could limit to one question first time around, and if we go around a second time, we'll do that. Emily Behncke – Deutsche Bank: Thanks. Emily Behncke from Deutsche Bank. I just had a question around the cost side in the U.S. business. I guess just trying to understand given the number of plants that you do have coming online over the next sort of 12 to 18 months, how we should think about the ramp-up costs for new capacity, and I guess how that might have compared with the increased costs associated with [indiscernible] the pulp and the cement in the fourth quarter.

Yes, no problem. Just we'll give those problems for the quarter, pulp cost was up 3 mil in the U.S., cement plus other additives was actually flat, and then energy was up 2 mil, so 5 million for the quarter. For the full year, those same numbers are 7, 4 and 4, so 15 for the year. We do see kind of a bit of a ramp-up going with the basic commodities as the economy continues to expand even at a slow rate. So we're anticipating that will continue into at least first part of the year. Freight, freight was only up a couple of percent in the quarter, and I think less than 2% for the full year. But we have been getting freight rates starting to spike short periods of time, so I think it's an indicator freight is going to be up stronger at least the first part of this year than it has been over the last year. As far as the ramp-ups, I think the only guidance I gave you there is we're going to be ramping up capacity pretty regularly now, and so we don't want to call it out as exceptional. And it's all figured in to our target EBIT margin, so the fact that we're bringing so much capacity on doesn't really change what we think we're going to deliver on the EBIT margin side. So that's kind of that guidance there, which is no guidance. Andrew Johnston – CLSA: Andrew Johnston, CLSA. Matthew, a question around working capital. We saw [payables] jump around a bit and receivables fall. Could you just talk about in the underlying business what's happening on working capital?

I mean working capital continues to be pretty efficient. We tried to build some inventory in the winter in advance of the build. There's really no -- nothing operational going on in terms of receivables or payables that would -- but there's nothing operational that's going on in receivables or payables that's kind of unusual. Andrew Johnston – CLSA: [Indiscernible] must be polluting that payables number because that's gone up from 103 to 142 [indiscernible].

I'm going to guess, but it could construction related. Simon Thackray – Citigroup: Hi, Louis. Simon Thackray from Citi. Just looking at the rising costs and looking at your capacity, and you might have commented before with Fontana ramping up, the need to ship product. The competitors within the fiber cement category looks stranded in terms of the capacity. So it seems to me that Louisiana Pacific is [indiscernible] if you like in taking share out of vinyl. Can you just talk to the competitive dynamic of LP in terms of taking what, you know, probably duly you feel belongs to you, which is that vinyl piece?

Yes. We -- Simon Thackray – Citigroup: -- competitive environment within fiber cement?

Yes, we'll go through that again. So just so everyone's aware, I'm sure you are, there has been a change in ownership of the second largest fiber cement producer in the U.S. which isn't very large relative to Hardie, but they probably had maybe 8% [ph] of capacity. They were sold, certainty, sold their business to a Mexican company that own the Maxi plant and Sempleng [ph] plant -- or Pliocene plant that ship into the U.S. So there has been a little change in the fiber cement direct competition. I think as Simon indicated, there's no known capacity adds by competitive fiber cement, even though the market's expanding. So the competitive tension within the category is probably a little bit less than it was a year or two ago. LP has kind of filled that gap, so we've talked about I think the last couple of quarters, and I know a lot of the analysts in Australia follow it pretty closely. Basically during the downturn, they took a good-enough position in some markets. We had talked, going into the downturn, as builders were trying to cost out their home, they'd go through a value engineering process, and we didn't feel that going back to vinyl was going to be an acceptable decision for most builders that were using fiber cement, but you did get some builders drop down to OSB siding which is produced by LP. And kind of caught us by surprise four years ago. They got, on a percentage basis, a pretty big jump, and last year I think they grew somewhat slower than our volume and exteriors, so I think they were just below 15, which includes their panel products, their left siding and their trim. And against their market index, which is a different market index than us, that does indicate a market share gain by them. And we grew more like 18. So, much closer than we'd see -- than we would see appropriate. Of course our market index is more R&R than it is straight new construction, and so it's a little bit different index. Having said that, we -- and what Simon indicated is we've done a good job over the years creating demand for fiber cement as, you know, really triggering decline in vinyl demand. And for a lot of years we got pretty much all of that. And now we're getting all of it initially, but what LP strategy has not [indiscernible] to do any work against vinyl, LP strategy is to then go to our builders and try and find the most price-conscious builders and tell them the fact that again deliver similar look to Hardie, maybe not similar performance, but similar look, at a lower cost per house. So we see that -- we see our -- the growth rate of LP and the growth rate of Hardie exterior improving from our perspective, but the reality is we don't have the luxury of just positioning ourselves against vinyl anymore. We have to position ourselves against vinyl as well as wood, which is kind of where we started. So we didn't even start our vinyl market development till maybe early 2000. Prior to that it was all wood substitution products like LP makes, which are hardboard siding and OSB siding.

Raoul Bonifelo [ph], CBA [ph]. Just around the cold U.S. winter, I think you mentioned it had a very small impact in your March quarter. Would you expect there to be any kind of impact in the June quarter earnings?

Yes. I don't know if we could even come up with a weather impact for our business, and I wouldn't expect any in the first quarter. Now our order file is softer than we would have anticipated, so Matt talked about winter build which we normally did. We hit our winter build numbers and we're not hitting our first couple of months demand. It's not way off but it's softer than we forecasted. So I think you've been hearing a lot about two things. A lot of companies have been talking about weather, but you also had been hearing about soft housing for various reasons. I think we're seeing the soft housing to some extent in our order file. But we, and I think most in the market don't anticipate anything but an up market, but I think it's going to be up less than it was originally forecasted to be. Andrew Peros – Credit Suisse: Good morning everyone. Andrew Peros, Credit Suisse. Lou, I'm wondering if you could comment about the regional performance of the business. I know Ryan Solomon's in the room, perhaps he can give us a view for how the south is performing, maybe in Texas? And then also what you're seeing in R&R markets.

Yes, our south has performed better than the north, and that's a little bit to do with LP. LP has targeted some northern markets, so we've had to put a lot of effort into kind of fixing up our position and recommunicating our position against OSB products. But overall everything is growing. So all the product lines are growing and all of the -- all the regions are growing. The south growing a little better than the north. Obviously exterior grows better than interiors. So, was there a second part of your question I missed? Andrew Peros – Credit Suisse: [Indiscernible] can you just quantify PDG?

PDG. Yes, we don't publish that number anymore. And by the way, we are going back next year to external index, Henley Woods has had an index out for about three or four years now I think it is, and we've kind of tracked it against what we've been using. And it seems like it's good enough to use. It's better than ours because it's external. So -- but our PDG, as we estimated based on our index last year, it came in at around eight. We think our R&R index was a bit low last year. So we use information from the retail segment, meaning retail building materials [indiscernible]. And if you used Henley Woods, it would have been more like a five. So it's somewhere between five and eight. Liam Farlow – Macquarie: Liam Farlow from Macquarie. Just a question on your CapEx forecast. You forecasted $200 million for the next three years.

Right. Liam Farlow – Macquarie: Does that include stained [ph] business? And what are your expectations around stained [ph] business as you invest in new plans, ramping up --

Yes. Really most of that $600 million is driven by new capacity. It does include our all stain [ph] business CapEx, which is small relative to the new capacity. I think you can see through the downturn we were spending less than 50 million, around 50 million, and some of those were even in the downturn, some of that was product capital, new product capital. So the majority is capacity. So -- and we give you 200 a year for three years and that's kind of what we're planning. And we'll keep you up to date if that's going to be brought forward or slowed down a bit, depending on what the market looks like. Liam Farlow – Macquarie: -- think of the completion of that through your build-out, your stain business will step up given the new install capacity that you'll have as well?

No, it'll be continuous. As long as the market expands, we'll probably spend at that rate. Yes. Liam Farlow – Macquarie: Thank you.

Any other questions in the room? We're going to go to the phones for investors now. We're going to go to investors first on the phone.

Your first question comes from the line of Jason Steed from JPMorgan. Please go ahead. Jason Steed – JPMorgan: Hi, good morning, Lou; morning, Matt. Just a question on the asbestos side. Just trying to reconcile the indications given that the half-year -- some indications given now in the full year. Matt, perhaps you could comment and just sort of tidy it up insofar as we're concerned. The indications in today's release being that KPMG doesn't expect claims to reduce [indiscernible] if they don't expect them to reduce until after 18, 19, the [indiscernible] goes up by 22%. In the half-year the indication was, if they peaked in 2015, 2016, they'd be up by 45%. Perhaps you could just tie those two together. I'm sure there's an answer to it, but it just -- it looks to be [indiscernible] increased now and a further potential increase, so just to tie that up, and when we might get an indication as to when this stabilizes.

Yes. So what the actuary did, we'd reported this time, is it took the base meso claims for 2014 and 2015 up from 370. In 2015 and 2016 and 2017 they maintained that 370. And then they interpolated from 2017 to 26, 27 back to where the line was in the prior report. So what you see in the impact is kind of a short-term and a medium-term adjustment in the actuarial projection for the rise that we experienced in FY14 in meso claims. But you also know in the report there is a lot of uncertainty around how to understand and analyze last year's, if you will, one year increase in claims and the impact of that may or may not have on long term. So there's quite actually a bit of an uncertainty. The report does not move the peak year, so still maintains the peak year. And I think what -- I don't know that we'll have a lot of clarity on that until we see claims experienced throughout FY15 and potentially not until we see the actuarial report next March. Jason Steed – JPMorgan: Okay. That seems, I mean at this stage, really in our minds, we should be sort of assuming that this is the grounds on which to base asset and liabilities, but there is of course that risk that push out the -- the point at which this peaks.

Yeah. I mean I think -- in terms of liability, if you're asking how to think about it going forward, I mean our contribution to AICF certainly remains, you know, 35% of our operating cash flow, and that's probably the best way to look at it on a go-forward basis. Jason Steed – JPMorgan: Yeah, all right. Thanks, Matt.

Your next question comes from the line of Matthew McNee from Goldman Sachs. Please go ahead. Matthew McNee – Goldman Sachs: Louis, I just wanted to get a little bit more [indiscernible] if possible around the 200 million of CapEx over the next three years. Obviously you've talked about some of those expansions, brownfield expansions, but have you got a greenfield plant factored into that number as well? And can you give us a bit of an idea of, you know, if you look at the first sort of eight or nine plants you guys build or seven or eight plants you build at capital cost per plant or per square foot of capacity, probably came down with each successive [ph] plan, recently it looks like it's going back the other way a little bit. So can you give us an idea of, on a greenfield plant, what the capacity cost would be [indiscernible] just an indication?

We can't -- I can't give you the numbers. But the difference between the past and what we're doing now is our product mix. So early days when we were making, namely, medium-density, 5/16 inch [ph] Hardie plant [indiscernible] we didn't have very much investment at all after the Autoclave. Most of our products now have post-Autoclave process, value-add process, and so you're seeing the investment pre-Autoclave but also post-Autoclave as well. So that's one of the big triggers for the higher investment. The other is we are going to spend a lot of money in Tacoma. We're building a Tacoma sister plant. Haven't put it to the Board yet, so it's not approved, but we're still working out the details. But they'll probably be 2 million plus. And that'll have room for, you know, 500 million feet of capacity. I think the first -- initial capacity will be more like 250 million. And then if you go to mid-south, so it's just -- so it's more costly to build in the north. If you go to mid-south, we'll have a greenfield there at some point, and that'll probably come in below the 200 mark. But we are, with the business we have now, we are definitely in that greenfield, 150-plus, whereas we used to -- well, we built Polasky [ph] for I think it was 110, and that was two machines. So, definitely have escalated. But again a lot of that -- some of that is just normal inflation and construction cost, some of that [indiscernible] our plants have more in it for the products we produce, and some of it's the fact that our plants have more in it because they're now much larger plants, which require water treatment, air treatment investments that weren't required in the initial smart plants. Matthew McNee – Goldman Sachs: So, Louis, the Tacoma just depends -- the potential one is in that 200 for the next three years? You'd sort of included --

It would be -- both those greenfields are kind of in the thinking there. We also have the Summerville restart which will be low capital, so, probably more like the Fontana, whatever it was, 3-plus million we spent there. And really whether we do the 600 or do more than 600 probably has a lot to do with, do we do the greenfield first or some other site first? Matthew McNee – Goldman Sachs: Sorry. Just again, just to clarify, and I know these numbers are rough, but if you had a greenfield plant, say, 250 million square feet, what do you reckon the cost of that would be?

Well, we wouldn't build a greenfield for 250, so that's the problem. The original investment will have 250, but they'll be built for 500 million. Matthew McNee – Goldman Sachs: Okay. So -- you did it in two stages, obviously the first half won't cost you more than the second half. But if you look at the 500 million total plant, what would be the cost in the two stages?

With all the finishing and all the environmental, I think it's somewhere between 150 and 250. Matthew McNee – Goldman Sachs: Okay [indiscernible]. Thank you.

Yes.

Your next question comes from the line of David Leech from UBS. Please go ahead. David Leech – UBS: Good morning. Matt, I was just trying to think about the net cash flow for the year ahead and specifically the tax paid component of that. Like last year tax paid was 12 million, but of course that's affected by a whole bunch of things. I'm just wondering how I should think about that number this year.

This year meaning FY15? David Leech – UBS: Yes, meaning FY15.

Yes. Well, I mean we're not providing any forward-looking statements for FY15 as of yet, so, you know, we will when we get to the June result in August. David Leech – UBS: Maybe -- we've talked about an underlying tax rate on the earnings of say, I don't know, 25%, something like that. Should I think about tax paid in the same way or is there likely to be permanent differences that will make the tax paid less than the tax expense?

Yes. I mean again we're -- I think it's too early to talk about 2015 and what we expect for taxes paid versus an ETR. I can say that I think the ETR will largely be in line with the ETR this year, with the major driver of differences most likely being the geographic mix of earnings. David Leech – UBS: Yes. So this year the tax paid was a lot less than the ETR. Is there any reason not to expect that to continue?

Yes. I mean again we're -- at this stage I think it's just too early to comment on FY15 projected tax benefits. David Leech – UBS: Thanks. Okay.

Your next question comes from the line of James Rutledge from Morgan Stanley. Please go ahead. James Rutledge – Morgan Stanley: Thank you. Just regarding the 1st of April price increase of 2.3%. I'm just wondering if you can comment on how well that stuck in the market and if you did see any volume buying ahead of that price increase from distributors. Thank you.

Yes. We allow 10% buy-ahead on an average of a three-month volume, so I think it's 10%. And that's just to cover their contracts for the following quarter. Now the increase went in April 1. The buy-ahead does not have to be delivered, it has to be ordered. So most of that volume where fall where it should have fallen. In other words, there's no slap-over to speak of between 2014 and 2015. So that's kind of where we're at. And as far as stock, again we don't price like other building materials companies where we announce one number and kind of negotiate down from there. So we would have gotten our announced price increase. James Rutledge – Morgan Stanley: Right. Thank you.

Your remaining question in queue comes from the line of George Clapham from Arnhem. Please go ahead. George Clapham – Arnhem: Hi, Lou. Just a question regarding the mix of business in terms of the U.S. R&R and where you see that -- how that panned out this year, roughly, and your expected, I suppose growth rate in R&R?

Yeah. I think the index, the Henley Wood index I referred to earlier, is projecting -- was projecting, when we read the study in January, they were projecting about 7% growth in R&R. I would guess that's a little bit strong, but I think it'd be somewhere around there, 5% to 7%. Seven being the top, five probably would be the most probable, and maybe three would be the worst case. Our market share growth in R&R is still tracking well. So we like our position in that segment. And we're starting to accelerate our market share development in new construction. It took a little bit of time to get that in place, especially back in the north after the downturn, but. So, market opportunity is getting bigger and new construction at a quicker rate than it is in R&R, so you are right, mix is going more toward new construction, but only in small percentages. George Clapham – Arnhem: And roughly what would the mix be?

Yeah. I can't remember where we were. We're about -- what -- I'm looking for Shaun [ph] to give me something. It was like 60/40, and if it moved a couple of points, it might go 42/58, something like that. George Clapham – Arnhem: Okay. Thanks very much.

There are no further questions from the phone at this time.

All right, thank you. So that's it. I believe no more questions in the room for -- from analysts, investors? Do we have a couple? Yeah, go ahead, Simon. Simon Thackray – Citigroup: No, just a brief one if it's all right, Lou. The average selling price Q4 was actually down versus Q3. Now I'm presuming that's somewhat weather related, some mix. Could you just talk to that?

I didn't that calculation. Shaun [ph] gave me a heads-up that the question was out there. It'd be straight mix. So the way you want to look at it is the price in all of our product lines and all of our segments is up. So it'd be just a mix adjusted.

It's more [indiscernible].

Could be more bag of origin [ph]. Emily Behncke – Deutsche Bank: Hi. Emily Behncke again. A question around, firstly, on corporate costs for Matt. There was a big movement in -- from 2013 to 2014. How should we be looking at corporate costs going forward?

Yes. So there were some unusuals on 2013. Let me get through my notes on that. Yes. So from 2013 to 2014, there was a non-recurring favorable effect and then there was comp expenses. So when you take out the FX plus the ASIC expenses, the way I would suggest looking at it going forward is, you know, general corporate costs will be up a bit as we add some organizational capability to just size the organization for growth, I'd say a combination of [indiscernible] up with inflation, if you will, and then there'll be some incremental on top of that, with -- as the headcount adds come in. Emily Behncke – Deutsche Bank: Just one final question for Louis. You mentioned that you're expecting margins in FY15 to be above FY14 given the price increases and volumes and what you know today. I mean, is it fair to expect that in one of the quarters you'll hit a margin above your range?

You know, I haven't looked at in that detail because it doesn't matter much to us. But what I have looked at is the pattern. I think the pattern is going to be similar. First quarter will be okay, second quarter will be better, and then third quarter will settle down, and fourth will be a little bit of a bounce-back. So that's the pattern I'd be expecting. And like I said, you can do that because of the increasing demand, it just makes it a little bit easier in the winter months. As far as your comment on corporate costs, we are trying to do more market development in the businesses and we're trying to do more business development in the corporate area. So you might see a tick-up, but obviously in September when we see, if we are kind of committed, there are a few things that we haven't fully committed to yet, we'll cover that off. Okay, I think that's all the -- sorry.

Just one quick one, just on capital management. I think last year you -- the strategy was to have a number in place, do the buyback, whatever you did in getting the buyback would come back as a special. Can I assume the same in place this year? And if so, what's the sort of number that you have there?

Well, what we did this year, in FY14, was pretty consistent with that. So as you probably noted, we're more active on the share buyback since December. One way to look at it would be if you take the shares that we repurchased over the last year plus the special that we announced today, that's largely in line with kind of the special dividend from a year ago or so. We announced obviously the new program for -- from May 14 onward in terms of share buyback, and we'll continue to evaluate kind of share -- repurchasing shares versus special dividends, and we'll evaluate that as we go.

[Indiscernible] number for 2015 is going to be similar to 2014, removing the anniversary dividend?

Yeah, the anniversary dividend is not likely to repeat, so probably it will be a 126-year anniversary. But we'll just continue to evaluate special, for sure, on the share buyback side throughout the year.

I guess a good summary point would be everything is kind of going as planned and I would say capital management is going as planned as well. So, yeah, we haven't -- we're not really talking about anything different in any areas that I'm aware of right now. Okay. And I think media questions. I think Ian Higgins [ph], you had a question?

On page 28, there was a figure that, for the asbestos adjustments, this is under income tax expense, going from 117 million to 195 million. I'm just interested, what does that figure actually mean? How does it derive? What does it come from in effect, those -- that figure?

It's a combination of the actuarial adjustment that's required and foreign exchange. That's the net of those two numbers.

What you have to pay -- to whom in effect? What is the --

It's not -- it's an accounting statement, so it's not an actual cash flow. The cash outflow is purely the cash that we would provide of USD113 million that we expect to pay on July 1st. This is the accounting effect of the actuarial liability -- the actuarial study and us translating that actuarial study into an accounting liability, and then the effect on the P&L operations as a result of that accounting.

Can I also ask, you've managed to make some very substantial payments to the compensation from the very difficult conditions, which is good, but how is it looking all up against the increasing actuarial projections? What's your feeling about whether or not the amount you'll be able to pay into the fund going forward will be able to roughly meet the claims -- the net claims of the fund?

Yes. I think there's two parts to that question and I can answer one part. So we'll make a payment in July of USD113 million, and that'll be in compliance with our obligation under the AFFA, contribute up to 35% of our operating cash flow. The second part of the question is, will that be enough to pay for the liabilities? And that's really a question that's better asked of ASDF.

Thank you.