James Hardie Industries plc (JHX) Q4 2018 Earnings Report, Transcript and Summary

Okay. Good morning. Thanks for joining the result. We are going to do it like we always do it. I will cover the business overviews and Matt will cover kind of all the financials in details behind that. We will start then on Slide 7. Yes, the result was good right across the board. I think it's a little bumpy at the start of the year, we will get into that. In North America, the only thing really worth going out is understanding how we got to where we got in volume, but our financials look pretty good at least from our perspective. In North America, price was solid right through the year, so we had that increase a year-ago April. Everything stuck tactically. The guys in the U.S have been doing better. So, not a lot of leakage in our price. Obviously, we are in a win back situation on some volume loss when we are capacity constraint, so we handle that well without using a lot of price to get there. The EBIT got better as the year went through, and that was all driven by manufacturing, so we talked about. Then you'll see a slide in a little bit, but manufacturing traction has been good, and also on the market side attraction is good. So how did we get 1% volume in the fourth quarter? I think when we talked early in the year, we acknowledged that having customers move over to other brands while we were out was a bit of a -- was creating a bit of a lag on our -- on the market side. All those customers weren't just automatically coming back once we got our capacity in place. So we were -- I think we had a below index count for the year, okay? Now we did two different things. One is exterior, one is interior. Let me get interiors off the table, so we understand that. When capacity was tight just like any company, we looked at kind of where our profitability was with our different product lines and channels with interiors. And we did exit some -- we didn't participate as broadly as we had a year before, so that was a bit of the reduction in interior volume, so we got out of the gypsum channel and we got out 4 by 8 G2 backer. In addition to that, we just lost traction for a period of time with interiors, and it's important that we are in a process of fixing that and I think that won't be an issue for us going forward this year, and all the products and all the segments we are servicing now we like in interiors, so there will be no more pulling back from any positions we have. So in the fourth quarter, interiors was down about 8%. So that was a lot of the lack of volume growth. Exteriors, I think we kind of in the previous Q&A, I talked about we thought we would work our way back to market index by year-end and we would be positive against the market index in fiscal year '19, and I think I gave the range 3 to 5. And basically both those things have played out, so in the third and fourth quarters, basically we are at market index as far as our volume growth and exteriors, and our order fall right now looks pretty good and we're pretty optimistic that we are starting the year in positive market index in a range. So that was the main story. The U.S business runs really well now. I mean, certainly there's a lot of upside, but the issues we'd had when we ran out of -- that were caused by us running out of capacity, they are pretty much all been addressed, and the organization has responded, and like I said there's still upside, but traction is there. This goes into delivered unit cost. You would remember in the past, we talked about we woke up one day and decided we were underspending on basic maintenance in our plants that would have been in parts of fiscal year '16 and early fiscal year '17. So that's -- you see the low bars in Q1’17 and Q2 '17. That, in addition to, we had startups during this period that would have helped cause that spike, and then we've had material input cost increases right through those eight quarters. So the story is we're kind of where we want to be with unit cost production and a step further delivered unit cost of production. That's not to say freight costs aren't up, but our freight efficiencies are pretty good right now. There is more upside. So some of these lines has started up in the last two or three years. They will definitely continue to become more efficient as we produce more board on them, but this is what really drove the EBIT in that last half of the year, the EBIT improvement was strictly delivered due to -- delivered unit cost. I shouldn’t say strictly, but that was a big contributor. This slide, kind of just explains -- you can see we went from the top of our range and we dropped down to the bottom of the range, it's that unit cost spiked on us, and we pulled ourself back up to the top of the range, and top of the range is pretty comfortable for us right now in this market even with a lot commodity cost increases. We still think we're going to be able to -- be up in the top of the range as we run our programs in the U.S. Not much of a story last year on price, meaning it was 5%, and I think it was pretty steady right through the year, and it was like I said reflective of an increase we took, but also pretty good tactical pricing. This year, we did take an increase, April 1. We think we will get over 2% on increase this year and maybe then approach 3%. So it would be somewhere in that range, not as big as the improvement on last year. As far as any leakage in our pricing, tactically we’ve got most of that. So there's not much upside there. So you have your regional mix, your customer mix, and your product mix, it will determine where we end up in that 2 to 3 range. And then, housing market is still pretty good. Gradually, little better every year, which was good with -- we are just going to get our market share growth above the index going in and we will be fine as far as the chart on the right. International business had a very solid year. I'll talk about just one or two exceptions, small exceptions, but the business in Australia -- I will flip through the countries. The business in Australia was just really strong, very good on both the upside and the market side, so obviously EBIT performance was also --. New Zealand is kind of one of those exceptions. Obviously, New Zealand' is good business for us with good returns, but they stubbed their toe a couple of times last year and you can kind of see it their results. There is a reset going on there right now that I don't think is going to be that difficult to get them to point in the right direction again. It’s not a big problem, it's just -- but it’s outside the normal variance that you would see in a business, so it is something that needs to be addressed. The Philippines, kind of New Zealand story last year. The Philippines has been reset and had performed very well this year, so that’s in good shape. And then the last thing, Europe like you know interiors in the U.S was a bit of a reset, and I think we got to a point with what we're doing in Europe with fiber cement, it wasn’t really leading us to where we want to go, and the profitability of some of the product lines again or the countries wasn’t where we want to be, so we did do a reset in Europe, pretty much all arrows point down, but I think we have a smaller but better foundation in Europe for our existing fiber cement products. Again, Europe and New Zealand are small potatoes compared to the overall international business. So, as a whole, international ran really well. I want to go into -- this is your first shot chance to get any information on Fermacell. So I want to make sure I kind of cover that. So I will take a little bit more time than I usually do. So we did close April 3. So the first, look, you're going to get at our numbers and Fermacell will be with the first quarter result. And again, I just want to answer the question again. What do we do on Fermacell? Why did we think it is important for our company? So everyone knows that our primary growth strategy over the last almost 15 years now has been fiber cement in North America. We've also talked about the importance of kind of other paths for growth in the future. So when 3590 is kind of close to be in reach, then we’ve got other growth initiatives that are kicking in. And those we put in the two categories, we like keep them simple, so non-fiber cement in North America and non-U.S fiber cement, okay? And that's the first thing you have to understand about Fermacell. It's a really good company. We are really glad with the quality of company we are able to buy. It's very much set up like Hardie, both on the market side and the outside. So the way they go-to-market, the way they approach their plants, the way they approach logistics it's just really an easy business for us to get our arms around and quite honestly the Fermacell managers joining us, they also have the comfort in that our business is kind of set up like theirs. So that's a good thing. The other thing is, when we decided we want to get some growth initiatives going, that will be important to us in the future. Obviously, organization that we had to kind of prepare for that. So that's why we brought Jack Truong in the organization. His job is to lead international growth and Hardie. So this is his division. He has got everything outside of North America. There's a lot of guys in the North America on the senior management team that only have North America responsibility. Those would be guys like Berkley, Kilcullen, Don and Nielsen, okay? So they’re entirely focused in North America. So there's been some concerns about opportunity cost and I guess what I would say is we got -- we anticipated that whatever we gain in Europe we couldn’t give up anything in North America to get there. So we anticipate and we structured accordingly, okay? So like I said, Fermacell is a really good business. It doesn't make our returns, okay? We will give you a look at the returns or an indication where the returns are. But those returns kind of improve and they've got organic growth left. But again, the main reason we needed something in Europe because we didn't think we could get there -- we could get to where we want to go in Europe without a kick up -- a significant kick up and regional capability and access to market. So we are trying to find a company we liked, that also provided regional capability in excess to market, and that’s what we think we've done with Fermacell. Now you need to keep in mind because this is a long-term strategy. Fermacell by itself doesn't get us there, okay? So we got a -- we got future funding that we need to really commit to for product development, market development and manufacturing. So that would all be in a 5 to 7-year plan. Okay. Now I will show you a few slides we have and see if I can walk you through them. Yes, the first thing is just the change in Europe for us which is obviously very significant. We go from 70 employees and 900 -- we've focus on a few geographies, very much on U.K., France, Germany, and Denmark to a lesser degree. From a sales more right across Western Europe, we are basically like we are in other markets either new construction or in our Fermacell, it is a nice position in commercial. They are more of an interior business. Now we do a good amount of our business in Europe is our backerboard business that doesn't clash with what they do. They kind of do sound abuse and fire. We do wet area, so they fit together fine. They do have one small business, so you can see our -- yes, you can see our business in Europe is about 10%. Our existing fiber cement business in Europe about 10% of the new business, total new business. That cement bonded particle board, that’s another 10%. So that's a smaller business that Fermacell had. It's okay -- it makes okay returns, it's not just that big. Go to the next one, so there's three. So all this is done, the integration between with Hardie and Fermacell is going really well, so everything is in market. Day one went really well. Day 31 went really well, day 45 went really well. We had no mess ups anywhere along the way. So everything is going good, but these are the brands now that we have in Europe. And like I said the cement bonded part of the board about 10%. Our current James Hardie about 10% and Fermacell about 80%.There are kind of footprint from a manufacturing standpoint. They have one plant in Spain, one in the Netherlands, four in Germany, one of them cement bonded particle board and one is a raw material plan and the head office is in Dusseldorf. On the other side, the organization which is very important to us -- so like I said, Jack is President of International, has responsibility for Europe. Jorg Brinkmann has been with Fermacell for seven years. He has been running the business. We are really impressed with him and his management team. So they bring what we need on that regional capability of that management team plus rest of the organization really does deliver what we were looking for on regional capability. We did move in two experienced managers out of Australia, which I think are very good adds to that team. One of them is more of a product strategy guy and the other is an organizational guy, so an HR -- Head of HR. So like I said, we end up with 900 employees there when you combine them. About 200 of them are field sales. And again we didn’t get into -- we didn’t buy Fermacell Just for Fermacell returns, we bought it for what enables us to do. You don’t want to get hung up on the [indiscernible] as far as the colors. But this is commitment to a major initiative in Europe. We are aiming for the $1 billion in revenue with good Hardie type returns. What did I do, I skipped over -- oh, we said that EBIT margins about 10. Now that's putting them and us together. And like I said, we just reset that Fiber Cement part. So the Fiber Cement pulled them down a bit. But they don't have Hardie type returns at this point in the fiber gypsum part of it. I think we will see those returns -- we hardly want to measure it in two returns or EBIT margin or EBITDA, you will see those kind of come up over time. But again that's not our main focus. Our main focus is organic growth. We got some room in fiber gypsum and more importantly we are kind of starting from scratch €30 million base on fiber cement. Now we think -- if you did pin me on those three bars. First, I wouldn’t have three bars, but if I was making a slide, I would have two bars and Hardie bar. The Fiber Cement bar would be bigger -- the bigger part of the bar. So maybe 60% two thirds, 55% somewhat narrow, but will be a fiber cement company in Europe. It's not -- we are not going to be a fiber gypsum company, but we will have the two divisions kind of like we do in the States where it's interiors and exteriors. We will have two divisions, but Fiber Cement will be very important to be in returns. Okay, I'll hand it over to Matt.

Hi. Good morning. Thanks, Louis. We will go through the financial results just like in a typical quarter. We will cover off on asbestos today, given the annual actual report is out and we could go. And so, overall the fourth quarter we thought was pretty strong. We had good operational management in North America in the second half the year that made up for kind of where we were coming in the last year as a result of the capacity constraint. And then the first half result wasn’t where we wanted it to be, but the second half close up pretty good in North a1merica. And Australia had a really good year overall, very strong revenue growth, gain market share and good returns. Cash flow for the year was really strong and solid. I will take everybody through that. Our capacity expansion plans continue to be on track as those are capital location strategy. So the last year and half has been a heavy focus in the business on getting capacity build out in North America and we’ve also announced projects now in Asia-p1acific. We declared second half dividend of $0.30 per share today. And you can see the adjusted NOPAT at $291 million compared -- was higher obviously than the guidance. That’s primarily driven by tax item at the time in the February result, I didn’t have good clarity on, and so I will take everybody through that. The underlying business also performed better as well. So we had strong results in the in the quarter and then we had a one-time item that you will see is going to show up the same way in the financials in FY '19. And that was as a result of an internal restructuring transaction that we did that we did, I will take everybody through. Okay. Little bit on the reported results. You can see we had net sales in the quarter of about $525.9 million. They were up 6% for the group largely on higher net sales price and volume in North America as well as just strong overall results in international primarily driven by Australia and the Philippines. We had reported EBIT loss of $95.8 million, but the adjusted EBIT number of $103 million and adjusted net operating profit of $81 million was up almost 49% in comparison to the prior year. A lot of that was strong North America business off of an easy comp from the prior year and just seeing manufacturing that business turnaround, you saw that on the delivered unit cost slide. And then international just had a kind of a top to bottom really strong year. You can see for the full-year, we reported net sales of $2,054.5 million, up 7%, very similar themes largely driven by price in North America with volume more or less for the year about flat. Louis give you a good indicator earlier on the exterior, interior dynamic particularly in the second half and how they played out for the year. And similarly the international growth story that I talked about on the fourth quarter discussion carried out for the whole year. They performed well for our four quarters. We had a reported net operating profit of $146.1 million. Keep in mind that’s got obviously the asbestos adjustments in it. When you adjust those out, the adjusted net operating profit at $291 million was primarily on the backs of adjusted EBIT up almost 12 and then the tax transaction that will take everybody through in a bit that took adjusted ETR down for the year to a lower number than we had talked about in February. So I will get into some more in a bit. You can see foreign exchange between the Australia and U.S dollar didn’t really have a material result on the financials last year. You can see over on the bottom right, on a dollar, on a percentage basis fairly immaterial for the year, so that -- well it moved around a bit. It didn't really play a factor into our financials. What has played a factor into the financials is input costs. They continue to trend all in one direction and all up. So the freight market has had several quarters now in a row where we’re getting both market price increases as well as a truck availability issue in U.S. That I think is going to continue to be a feature of the result going into the new year as where most of the raw material themes that I’m going to talk through in a minute. See pulp's continuing to be up, it's up 19%. Cement prices were up 3%, electricity up 2%, gas was down but certainly our major input costs are continuing to see inflationary pressure sort of across the board. So I think the teams are doing a good job of sourcing strategies and we are outperforming these market conditions, but nonetheless it's putting a bit of inflationary pressure on the cost structure in the business. I can see segment EBIT for the four segments is what I will take you through next for both the quarter and for the full-year. So for North America, for the fourth quarter EBIT was up 36% for the full-year, was up at 11% -- for the quarter, it was primarily on the backs of cost and cost management, lower production costs and manufacturing and overall manufacturing performance, kind of where we thought it would be back into kind of a normal band of operating performance. For the full-year, it was a combination of price as well as -- that was partially offset for the full-year by the first half performance in manufacturing as you -- you probably remember in the delivered unit cost slide, the first half delivered unit cost were elevated above our target range, above the prior-year, but that came down as the year went on, but for the full-year, production costs were up. Internationally, for the fourth quarter EBITDA was up 10% and for the full-year it was up 14%. Really the story in international, strong Australia, strong Philippines. In Australia it's a growth story. They’re doing a good job of get market penetration. They’ve got the startup in Carole Park performing well. As you probably remember, that that was a slower startup and the teams are really kind of finish that real strong and that plant is performing well now. In the Philippines, the market and competitive issue that we would have talked about a year-ago, the team has done a nice job of working through that in a way that it's a good solution for the market and a good solution for kind of the medium and long-term returns of the business. So that's -- they’ve done a good job on that. The other business segment is our non-Fiber Cement business. You see on a comparative basis, we’re continuing to put about the same amount of money into that business. We like where that businesses is at. We think, the windows business can be a good business for us, and you can see the operating performance for the year. Research and development, no material change. It's approximately a couple of percentage of sales. It's within a normal range of what we target. And general corporate cost, no real sort of extraordinary items in general corporate costs for the year. You can see that the change was primarily foreign exchange and stock comp. There's some underlying investment that we are continuing to do in the business and mainly organization and that making sure we’ve got the right organizational infrastructure in place as we continue to grow and expand the company. Okay, couple of slides on tax. The normal slide is adjusted ETR for the quarter is 20.6%. That’s obviously lower than where we were in February and I will talk about that a bit in the next slide. For the full-year, adjusted income tax expense decreased driven by U.S amortization of IP assets and intangible assets as a result of an internal restructuring that we did as part of our normal corporate tax planning that happened to get executed in pretty late in the fiscal year in March. Income taxes continue to be paid and are payable in Ireland, U.S., Canada, New Zealand, Philippines and I think as many of you know income taxes are not paid or payable in Australia largely due to the Asbestos Trust. So in the fourth quarter, we undertook an internal restructuring as I mentioned earlier. We aligned some of our intangible assets with our U.S. business that’s part of just normal corporate tax planning that we had done, that resulted in the U.S amortization of those intangible assets as allowed under of accounting and tax rules. So that had a favorable impact in the quarter on effective tax rate, which is really what drove the $10 million benefit. I mentioned that in the context of also starting in April of this year, so the fiscal '19 year U.S GAAP is changing, and as a result the way that we report our tax items will change going into the fiscal year. I will certainly give you more in the August result on that. But starting in Q1 of this fiscal year, we will wind up recognizing a deferred tax asset arising from all previous intergroup transactions. I think the main thing I want you to hear is that from an economic standpoint, so from a cash standpoint I think overall the impact on tax, I think will remain either constant or improve from kind of current state in the prior-year. And we will give everyone good visibility as we get to the August result on how kind of the new adjusted ETR, while it may be more volatile given the U.S GAAP reporting requirements from an economic standpoint and from an underlying enterprise value standpoint. We don’t think that it's going to have an adverse effect on the company. Okay, so from a cash flow, we reported $295 million of cash flow from operations more or less flat from the prior-year net income if you adjust it for non-cash items, it's about flat. We have built inventory levels back up last year after depleting them in the prior year as a result of running tight on capacity. We increased year-on-year the payment. You can see about 10%, 12% to the asbestos fund and then we had a favorable change in net operating activities, I would say that’s just from the normal course of business, so I won't read much into that. It's not like working capital moved in any particular way. So I think that could come back and just normal variation. We had higher level of investing activities in the company and we spent about $209 million on property, plant, equipment, largely through the capacity expansions. I will have more detail on that in a minute. And you see that the results from the financing activity. If we go to CapEx for the full-year, like I said, we spent about $204 million on CapEx, up from about $102 million from the prior-year. We had four major projects going on in the U.S last year -- five projects going on at four of our sites last year. So we had two sheet machines that we brought online at our plant, City Plant. Those are more or less completely through their start up phases now. We commissioned our Summerville facility that continues to start up as planned. It's been operating now for about a year and we are pretty happy with how that start up has gone overall. We were just out at the Tacoma site a couple weeks ago and they’re right in the middle of starting to commission that plant and that site now, so that Greenfield construction project is almost complete and we will start producing at the site during the summer. And then, today we also announced that we’ve a $240 million expansion of our plant network in Prattville Alabama, that will be a Greenfield site. It will end up being a two sheet machine site that has the ability to be expanded to more than two sheet machines in the future, but when we open it will have two lines in it. And that site will give us a lot of opportunity to kind of optimize the network and delivered unit cost kind of across the natural markets and the various plant locations throughout the U.S. We are continuing to expand the capacity at our Philippines facility. So you know that we did -- we announced the capacity project there previously in phases and we are continuing to make progress on that. And then, in February, we also announced $20.5 million Australian dollars Brownfield capacity expansion project in our Carole Park facility in order to keep the Australian capacity at/or ahead of the growth and demand that we are seeing in the market. No change in the capital allocation strategy or our overall financial management objectives. Our priorities continue to be in the same and the way we kind of think about capital management and the balance sheet, and the company continues to be pretty consistent. It starts with strong financial management and making sure cash flows are strong and margins are good. We try to govern the balance sheet and the financial policies of the company as lower investment grade credit. Our priorities are in the green column in the middle. Number one priority in the company is to fund organic growth initiatives either through R&D or CapEx initiatives that we’ve got capacity across the world to continue to grow. Our second area of priority is the ordinary dividend and maintaining dividend on an annual basis and the payout ratio. And then the third priority is really keeping flexibility. We recognize that we are in a market that’s cyclical, so we want to have the capacity to weather those storms and to have the capacity in our balance sheet to advantage of transactions like Fermacell, that have good long-term strategic value to the company. From a liquidity and funding standpoint, we're -- as I’ve said before, I’m not going to change the guidance range 1x to 2x leverage. That’s still the target range, I think it's right for the company. We are going to be in this period of call it eight quarters where we are going to be elevated above the range as we work through the Fermacell acquisition. We’ve got good line of sight to seeing that -- kind of seeing our overall debt levels come back down within our range. And I will take everybody through kind of liquidity in more detail. So I think financial management has been consistent. We are trying to manage the company. We very much try to manage the company as though we're an investment grade credit, and I’m pretty happy overall with where we’re on the balance sheet. You can see from a liquidity standpoint, the [indiscernible] the facilities are outlined on the left with our outstanding debt in the second bar. We’ve got about $281.6 million of cash in the balance sheet at the end of the period, about $603 million of net debt and about 80% liquidity. So very strong liquidity position. We’ve got a three-tiered debt structure along with a bridge financing for the Fermacell transaction and we will refinance that bridge financing at some point during fiscal 19. You can see those outlined on the right. And as I said, the 1.24 net debt as of March, while accurate, obviously doesn't reflect the actual purchase of Fermacell because that occurred in April. You'll see as in the August result and for the first quarter of fiscal '19. That's where you'll see the net leverage jump up over to -- that will reflect the additional Fermacell debt. Okay on asbestos. The actuary report gets updated every year and consistent with that process it was updated at 31 March balance sheet date. The undiscounted and un-inflated central estimate increased to about 100 -- $1.4 billion Australian, so that's up from the $1.386 billion in the prior-year. The increase of about $113 million on a net present value basis was really driven by three factors. So one is the underlying actuary assumptions were up about 200 -- let's call it $69 million. Then there is a decrease of $83 million due to the payment that we made to the fund and then another decrease of about $73 million as a result of the amendment that was made to the AFFA in December of 2017, which remove the gratuitous service costs in Victoria. So last year we talked about those as Sullivan versus Gordon. Those costs were removed during the year. The -- I think the number obviously that I think many will focus on is the actuarial assumptions increasing. The number of total mesothelioma claims over the last five years has been elevated. And if you remember back in 2013, the actuary determined that there would be a temporary increase in the number of claims and then they would model out kind of the normal curve beyond that. And with the elevated level of claims that we saw in fiscal '18, it was determined that there would be a permanent shift up in the number of claims over the longer period of the actuarial study. Sort of offsetting that though is the payment dollars per claim and a lot of the other underlying drivers of the actuarial study are all in trending in a positive direction. So while the total number of claims has gone up, you will see when we get to the next page, I will talk a little bit about some of the drivers of the underlying economics and cash flow that I think are a positive. For the quarter and the full-year, you can see the total claims received were about 10% and 2% below the actuarial estimates. And you can see that mesothelioma claims were about 5% higher than both the actuary and to the prior year, so 5% higher than the actuarial estimate and 5% higher than the prior year. So while meso claims reporting was 5% unfavorable. Things like average claim size is tracking better than expectations, aging of the population of the claims is playing more favorably into the overall economics. Large claims continue to be very favorable. There is one large claim paid last year, which continues a trend of a favorable trend. No settlement rates and then the cash outflow from the fund are all trending more favorably than had been previously discussed. So for fiscal '19, a few things that we are thinking about. One is we see a housing market, like Louis said, that’s overall very healthy and strong in the U.S. So we expect the market growth in the U.S in fiscal '19 to look a lot like fiscal '18, it's kind of mid single-digit modest kind of market index. You can see that we're working off of a U.S residential housing starts forecast of between a $1.2 million to$1.3 million. Total starts towards the higher end of that range, but it's certainly within that -- the normal range. We expect our EBIT margins to be at the top end of our guided range of 20%, 25%. There is a normal disclaimer on there that, that assumes that the things like our plants, exchange rates, and inflationary transfer input cost, all continue kind of at expectation. I will say that input cost do continue to change on us from quarter-to-quarter and really month-to-month, so the commodity markets are fairly dynamic at the moment and it's an area that we're watching. Our Australian business is expected to largely grow in line with the market index for Australian where we do the majority of our business and domestic repair and remodeling, single detached housing. And then, in Europe, we think that the overall macroeconomic conditions for the new fiscal year will be a lot like fiscal '18. So kind of very low market index growth in that region. So, in summary, overall good operating momentum in North America. We like where that business is at now. We feel it's really well positioned for growth in fiscal '19 and getting back to our PDG levels throughout the year. We think Australia will continue its strong performance. From the year, we had strong cash generation and disciplined capital allocation. In the year, we invested almost $204 million in CapEx. Did about $178 million in capital returns to shareholders and closed the acquisition of Fermacell and funded that on April 3. So, with that, we will open it up to questions. Louie, do you want to …?

Yes, before we had questions, [technical difficulty] I will be retiring sometime in the next -- maybe a year, 18 months. The Board and myself have succession plans in place for going through a process. It's been tracking very well actually. So, we're all encouraged that sometime later this year, we will probably announce that I will be leaving Hardie and we will announced my successor and I would just stay for just a short transition period, maybe four to six months during the handoff. The reason I want to give you an update is during the two days I’m down talking to investors. I really don’t want to take questions on that subject. So that’s the update. All right. So we will go to questions now same as always in the room, then on the phone, and then if there's any media questions we will take them right at the end.

Hello. It’s Andrew Scott, Morgan Stanley. Just a few for me. Firstly, to your credit, you haven't called out the weather, but a number of your competitors and customers have. Can you talk to us about what weather impact you might have seen in the period?

Yes. We don’t factor it and it would be in the normal variance category for us. It wasn’t terrible winter that we’d call out. It might have impacted us a little bit. But we wouldn’t worry about it.

Thanks. Secondly, just on PDG, I think you spoke to, I think you said exteriors you’re expecting 3% to 5%?

Yes.

Can you tell us what you’d expect in interiors in aggregate?

Yes, interiors is -- there's few things going on interiors both in the industry and the company, so I would probably be looking for flat to slightly up, say 1 to 3 points if we can get it.

And Matt just two housekeeping ones, Prattville, you mentioned two sheet machines. Can you tell us the volume there?

Yes, it's about $600 million in nameplate capacity.

Perfect, thanks. And then the European integration cost, I assume you will take those above the line?

The integration costs, yes. It will be above the line.

Great. Thanks, guys.

Thanks. Peter Steyn from Macquarie. Matt, could you just run us through the Fermacell numbers, and particularly the 10% EBIT margin. What you’ve taken into consideration there in light of your answer now on the integration cost, are we to think that, that’s above the line, i.e., the 10 is net of that? And then, what is the current state of the European business and its contribution and how does that influence the 10% outcome?

Yes. So the 10% is obviously a mix of fiber gypsum and fiber cement. I think we said before the -- I will start with fiber cement. So we’ve – historically, we’ve had about a €30 million business that's doesn't generate any cash, and so you can conclude pretty quickly that the EBIT margins aren't very good with that. The underlying Fermacell business is obviously above the 10%, so it's a low double-digit sort of EBIT returned business still below kind of Hardie level of returns, so we’ve got some work to do there to get the returns where we want them to be. The 10% is kind of the ongoing operations excluding any of the integration costs. We will invest fairly heavily in the business in the first couple of years as I think I’ve mentioned on either the February or the November result. We are carving out the Fermacell business from a private equity owned. It's been private equity owned for quite some time and a lot of the back office was a shared service. Organization for quite some time and that shared service organization is going to be transitioned to us via a transaction -- via a service agreement, but we will have to go through a process of standing up and carving out a back office and investing some applicable costs, and then we’re obviously incurring normal integration costs sort of on top of that, so we will give you a good visibility starting in August of what the underlying business looks like with and without those costs, so you can kind of see those and that they don’t sort of distort the underlying operation and you can see kind of where we’re investing money for the long term.

Perfect. And then just in light of, Louie, some of your comments on plant performance and that you still see further upside for unit costs or I suppose downside, therefore, a positive margin outlook. If you think about your expectations for FY '19 margins at the top end of that range, a few moving parts there, but I think there's probably a general expectation that you hold above the 25% in the context of what you've achieved in recent periods, how would you think about that?

Yes, I mean, it probably won't be too different than the way you described it. The key now in the US - we did have a bump -- bumpy road. We have to take care of which I think we’ve, but we got to build on our momentum in both the market and the plant. And then we are funding strategic initiatives for future growth, so we’ve actually moved forward and some pretty key initiatives that are shaping up, shaping up well. So we will be putting some money in those this year.

So, top of the range is fine now. And if we end up a little bit above, it's probably because things performed a little bit better than we thought they might.

Okay. And then maybe just very quickly, is there anything we need to worry about in terms of price pull forward in this last quarter that could impact the short-term performance?

No, in fact I kind of indicated our order fall right now, it looks good So we are through the price increase, all that boards are at full price and orders are pretty good right now.

Perfect. Thanks. I will leave it there.

Thanks. Simon Thackray at CLSA. I just want to follow on that PDG, that usual -- Louie, we calculate it one way, you calculate it another way, in terms of market index, but your comment Matt, you expect a similar level of growth in detached housing starts. R&R looks like its growing 6% to 7%. It's a reasonable number. You’re talking 2% to 3% price. You’re talking to 3% to 5% PDG on top of market index. So I just want to be absolutely crystal clear, are you expecting double – close to double-digit growth in volume in North America?

I think if everything lined up, we could approach 10%, but we wouldn’t have our market index or strategy. So you said 6% or 7% for our R&R and we'd be more like a 4%. And forget we use -- we disclosed that we used, right?

Got you.

So we'd say, hey, if the market index is 4% or 5% and we got 4% or 5%, you’re kind of closing in on 10%. But remember, interiors won't be at that level. So the headline number for the business in North America could be a bit lower. And I’m not -- we are early in the year, but the thing I would say and the market is, obviously we got -- we had a drag on our order flow and we’ve worked through that. We thought we would get back to market index, we did. And we thought it would be positive this quarter. Our quarterly variances are tough, but meaning you shouldn’t put too much. But we look good, but I think we can build momentum with the programs we have. So, speaking to you guys and the organization, I’d like to see us go harder in the market and I’m sure that’s what everyone is trying to do.

And just -- there is a lot being met obviously, cost inflation in the U.S. I know Peter made reference to it just before across input costs, and a lot of the competitors in the commodity space, not necessarily competitors against you, but in building materials, just seeing this cost inflation particularly on frieght and disruptions in supply chain and lumber. So the back end inflation and price rise is that the industry are talking about, obviously are far and above the tactical pricing that Hardie refers to. I just wanted to understand whether in that final quarter, that -- actually dampened the pull forward of demand, given your installers and builder customers had broader inflation and we are looking elsewhere to secure volume?

Yes, I -- before you the question, I never thought about it. We are pretty simple on our price increases. We allocate enough board to customers so that they can cover their commitment. So as soon as they’re throughout that allocated part, it's just -- it just flips it in new price. So we wouldn’t have made any big change in how we went around about price increase and like I said I don’t -- there is always some slop between quarters when you have a price increase, but I don't think it's material. I don’t think it dramatically slow down the fourth quarter or it's going to -- its not going to bump up the first quarter, it's just -- it worked pretty well.

And then, finally on the delivered unit cost, we talked about it ongoing improvement as those plants continue to ramp up. Matt you made the point, better throughput we should be getting unit delivered cost down as well. Just is that enough to obviously offset the Tacoma commissioning increase as well? How should we be thinking about that with Tacoma?

I don’t know if I get that fine with it. I think Summerville …

[Indiscernible] fund.

… I mean, lately at Hardie, it's been what you do well and what you do poorly and we did it -- we did a few good start ups poorly. Now that’s by our standards, maybe we are a little rough on ourselves, but we definitely thought we could have done Plant City better than we did it and we thought we could have done Fontana which Fontana is still not at the level we want it to be at. But having said that, we did Cleveland very well, we did Summerville well. And we’re coming up to Tacoma and I think that's going to be a pretty good startup. So I think the good news out of Tacoma is we will probably -- we should have a very good efficient startup. Like Matt said, we -- all of that recently we've kind of approached it in the right way both organizationally and how we’re going to spend our money doing first 180 days when you don't have the big denominators to offset the cost.

Got it. And then just quickly on Fermacell, the integration cost, Matt, are they above the line or below the line? Just for the purposes of …?

For fiscal '18, the integration costs were taken out. They’re largely transaction costs as well as some due diligence and leading up to day one type costs, so those are all taken out of the result on the adjusted numbers in the appendix. So its $10 million in total that was taken out. Going forward we will put them above the line and then we will give you a good visibility going forward of what’s in -- of what’s ongoing versus what's one-time.

And I know this is now beyond your tenure, Louie, but I'll ask you that whether that two-third Fiber Cement in Europe in a future state, does that imply higher R&D costs as we go forward beyond that?

Sort of I tried to cover in my -- what I tried to cover in my comments is buying Fermacell doesn’t -- it enables growth, it doesn’t deliver growth other than the acquisition growth. So its product development specific for Europe, market development specifically in Europe and then manufacturing in Europe. And your time frame is about right, its 5 to 7 years, all that stuff will happen in the next 5 to 7 years.

Is that R&D for the Europe [multiple speakers]?

Yes, R&D -- yes I don’t do platform development. I mean, it's a different market. Its masonry construction, there's some growth in frame construction, but we’ve got to participate in the masonry part of the market. So it will be speed of construction or ease of construction, not so much the same value proposition we deliver with frame construction.

But at the back end, is it caught in the corporate R&D or will it be allocated specifically to …?

You’re out of my league now.

[Indiscernible]. I can deal with that. But it goes up is the answer.

Good Morning, Louis, Matt. Its Keith Chau from Evans & Partners. So just a couple of quick questions. The first one on PDG, positive start to the year, 3% to 5% target. Strong order book, but is there anything you hear it from your sales team directly, so even one lap before the order book, which suggests that momentum can continue? Is the -- I guess, has the sentiment within the sales team in the U.S changed over the past 12 months?

Yes, I mean, we don’t have -- they’re not trying to overcome the issue of capacity shortage. That's well behind us. So, I mean, our sales organization like most sales organizations would be very optimistic. So if anything you got a discount what they think rather than -- but anyway we're good. Management right across the company feels we are in a position to get back in the positive growth against the index and that’s what we are here for and that’s what we will do, that’s why we’re building capacity. We're not building capacity for our current market share, we are building capacity for future market share.

Sure. Thank you. And then, just a second one on pricing. In FY '18 average realized prices benefiting from a favorable shift in mix. As we look into FY '19, how does the mix balance out between geographies and markets, and obviously, a shift back towards interiors, or its going to be continuing favorable?

You know, I mean, we do have a few more things running around at price. I said we have a few good initiatives going on. We will be repositioning a few product lines and we will be taking increase on other product line. So the two to three is pretty good estimate. Now the difference between two and three is probably like you say, how much happens in the south versus the north, how much happens in back versus exterior, and that’s the difference between two and three. But the calculation right now is we kind of tuned up our pricing right through the businesses and we think we’re good to go. I think -- I don’t know if Simon's question had behind it. Hey, are you going to cover your cost? Will your price increase, cost increase as well as your price increase. I think the answer to that is probably yes, but I also think you guys know that’s not how we price. We never cost plus.

Thanks.

Okay. It looks like the questions in the room are finished. Are there any questions on the phone?

[Operator Instructions] Your first question comes from Lee Power from Deutsche Bank. Please go ahead.

Thanks. Thanks, Louie. Just on exterior's growing at the market index, do you think you got any benefit from the plant in transport issues that a few of your competitors have had in North America? Do you think they just comes down the wash?

No, I think everyone is ready to supply in the USA. I don't think there is any. Yes, there's no tailwind in growth above the market index. You are got to get customers change from what they’re doing and what we’re doing and it's a normal process. And I don't see any of that.

And then you mentioned you were down at the Tacoma plant recently. It looks like just from your 3Q estimates, there's some slippage just around the timing at both Tacoma and Philippines just this quarter, is there -- I mean, can you talk to that, what drove that slippage over the last quarter?

Yes, Matt and I are looking at each other here. We are not thinking about it as slippage. Right now we are -- we got the capacity we need. They’re timed to come online. Just a real short story and plant startups, they startup way cheaper when you don't need the board, then they startup when you do need the board. So basically on a situation like we have in the Philippines and now in the U.S., we cost optimize the startups. So the length that you run is basically how much -- what you’re trying to learn during that run. When you get into -- if you’re in a shortage and you’re starting up a plant, then the lengthy run stretches out because you’re trying to make board for customers that need the board. So we much prefer to be in a situation we are in with these two startups and that did cost some problems on our earlier startups, both Fontana and Plant City, where we started up when board was very tight. So part of the reason they cost us more is because we weren't able to cost optimize the startups. So we don't think of them as behind. So we are very happy with both sites and both startups.

Definitely. And then just on Fermacell, have you -- I mean, is there any specific strategies or incentives you got in place around the existing Fermacell management to keep them kind of incentivized and on board?

Yes, we've got all the normal stuff in place. I can say, I was with Jack last week in Europe before the Board meeting met with the managers at Fermacell and saw another one of the sites I haven't seen. And I believe that Fermacell organization is extremely pleased to have an owner like Hardie that kind of understands organic growth, understands how to add capacity, understands how to deliver financial returns. So like I said, the parallels between the business is two businesses are pretty amazing. So the fit right now looks really good, but we have all that normal stuff in place and just like our Hardie employees they will have their incentive plan for fiscal year '19 already in place. So that’s all been taken care.

Excellent. Thank you.

Your next question comes from Sophie Spartalis from Merrill Lynch. Please go ahead.

Good morning, guys. Sophie Spartalis for Merrill Lynch. Just two questions from me. This year we didn’t see the usual seasonality that generally goes on throughout the year. Should we expect that in the FY '19 year? And then the second question, R&D was up 10% for the fourth quarter and the full-year, given the spend on the other businesses and the increasing number of projects, can you just talk through some of those initiatives, please?

I can talk through in general terms. As far as seasonality, you’re right. It's easy to make money in the summer in the U.S than it is in the winter. It did flip around on us this year and the reason for that was the delivered unit cost issue in the summer of last year, which I talked about. Now we had 25 third quarter and fourth quarter, I think and it's pretty hard to get at 25 third quarter, fourth quarter. But things were -- like I said, when you have positive momentum in the business a lot of times, you get to help and it falls at the bottom line and I think that’s probably what happened. Yes, I would expect this year to return more than normal where you sell the better part of your volume for six months a year, your financials are better and you get into the slower months and you take more down time in the plants. Now we didn't take any down time in the plants this year. We went into a new program, we call distributed inventory, which I think is something that we may do again next year, it seems to have worked very well. But I still would agree with you, normally first half is 2, 3 points better than the second half and I would guess that maybe the case again this year. As far as I think you said R&D was up -- there's two ways we spent R&D. The biggest way is market demand. So I said we had a couple of initiatives in the market that we are liking and we’re going to crank up some funding. Now that won't show up in R&D that will actually show up in our SG&A. But we would have spend a lot of money on those initiatives over the last several years that kind of get them to where they’re. The R&D stuff is product platform mainly and some of that product platform maybe replacement of raw materials as raw materials supply gets to be in question or too expensive. It could be new products. You guys know [indiscernible] modify. We are one of the few Fiber Cement producers that knows how to deliverable density and durability. So if our R&D is up, which I would hope it would be, it's because we're funding good projects. It's not -- we don't specifically try and tie R&D as a ratio to our revenue. We fund R&D and then expect that revenue increase in the future as the projects are successful. It's kind of a long line [ph] answer, but sorry.

Should we expect the R&D expense to be at the level posted in FY '18 then?

Yes, I think what I would do, if I was following the company, I would just have a positive trend line in R&D cost, I’m sure over time. We will continue to find more and more things to invest in our R&D that will deliver to returns in the future. So like I said we don’t have really handcuffs on the organization as tying it to a ratio. So I would expect that it will be up as a rule as we move forward, but not up dramatically toward starts impacting our financials.

Okay, great. Thank you.

Yes.

Your next question comes from Peter Wilson from Credit Suisse. Please go ahead.

Thank you. Maybe just a follow-up -- follow on from that last question. I mean, you mentioned a couple of times, these market demand initiatives and programs that you got in place, can you maybe just give us a little bit of color on, if you can, what they’re and why you might have such confidence in the success?

Well, yes, I’m not going to take them [indiscernible] I mean we will probably cover -- we usually cover stuff like that in our September tour. It's pretty hard on a phone or just a short period of time to really get into what we think and drive for the market share gains in the future. But I -- just a quick reminder, Fiber Cement's whatever, about a 20 market share, we're very committed to see it get to 35. In order for it to get to 35, we have to open up more opportunities either through market development initiatives, and in some cases some product platforms where fiber Cement can deliver more in certain ways than it does now. So, yes, the market initiatives I referred to which are getting in their expensive part of their cycle, are the stuff that Sean Gadd and his team probably would have covered last September. So it's not so much new, it's just we got them to -- we have them to a point where we're pretty excited about they’re ready to go and putting a little more money and to put more resources in programs.

Okay, fair enough. Thank you. And just on the Fermacell Europe, kind of revenue targets and breakdown that you’ve sketched out, can you just maybe -- for the growth in the existing Fiber Cement products, can you just lay out your vision a little bit? And what I mean by that is? Is it growth coming from just leveraging off Fermacell's existing distribution footprint and, if so, how and maybe what that growth in that segment would be?

Yes, we will get a benefit of their market access. But that’s a small part of the equation. And we will get that, fairly quickly, meaning the first three years, starting this year and then maybe picking up little momentum second year and possibly third. But the big part of the equation is similar to what -- roll back the clock, what Australia has done down here as far as substituting for brick construction, offering architects design options that they couldn’t get to with other materials. And the U.S., same thing, we didn’t -- we were growing new demand for category based on a value proposition, which was very important in the U.S market, especially when we entered the market. And I think it's the same challenge in Europe. It's a really good market. Population is good. Their ability to spend money, their GDP per capita is good. Everything is good there, but it's just masonry construction. So we have to do the platform development to deliver value proposition that really starts to penetrate in the masonry construction market. So if you look at the, kind of like the stuff that’s right in front of you, market access will give us a bump in sales in our current products and then you look at the frame construction which is growing. Frame construction normally in the capital markets I’ve seen now is meaning factory built components rather than everything site built, like it's normal in the U.S. And we can do well with the frame construction increasing, but that’s like a 30 or 40-year penetration of frame construction against masonry. It's not going to happen fast enough. But that will be easier than a masonry construction. A masonry construction, there's a lot of possibilities and we just got to do to work to find out degree of difficulty versus size of the prize [ph]. We got to do work to decide which way we're going. And we get some good ideas and like I said one of the individuals we moved onto that team is again it did similar work for us in Australia. So, yes, we get a bump on the market access, we will benefit from growth in frame construction. But the big hit -- the hit that ends up being a $1 billion is more finer positioning for masonry construction.

Okay, excellent. Thank you.

Thank you. [Operator Instructions] Your next question comes from George Clapham from Arnhem Investment Management. Please go ahead.

Yes. Matt, just on the CapEx which was increased sharply this year, what's the guidance for CapEx this year given Prattville and a few other expansions?

Yes, thanks for that question. I think the last couple of results we had profile for three years about $750 million over a 3-year period. And I think that's still about right. Obviously, we are now talking about an additional period, so I think for FY '19 CapEx will be in about the $350 million range. So we’ve under spent a bit -- a little bit in FY '18, you will see some of that carryover with the various capacity projects we have already announced. So $350 million in '19. We think that goes to $250 million in '20, and $150 million in '21. So, $350 million, $250 million, $150 million.

Okay. And just guidance for your net debt at the end of this period with Fermacell acquisition, what would that net debt be?

Yes, depending on the period that you're speaking, I think we will be of our 1x to 2x debt range for six to eight quarters or so. So I think we are well into the backside of fiscal '20 before we are starting to come down below the 2x level, obviously, subject to business performance and market conditions, but we think we are above range for at least fiscal '19 and into fiscal '20.

Okay. It's just absolute number there roughly?

Yes, I wouldn't guided -- I wouldn’t give you an absolute number. I just give you the range.

Okay. And just finally, CapEx for -- does Fermacell require much in the way of CapEx?

The guidance that I gave on $350 million, $250 million, $150 million, does include some CapEx for Fermacell. So there is -- there are some things that we want to do in the business in order to be able to invest in it. We also see lots of opportunity in the business. So for now I would say the $350 million for next year does have some money set aside for Fermacell as well as $250 million in the following year, and as we get to a point where we are ready to talk about kind of material capacity projects or other related investments in Fermacell, those will be in future periods, but we will certainly provide visibility to those just like we do on large capacity related projects on the Fiber Cement business today.

And just a final one, what’s the sort of impact of the skyrocketing lumber prices on your competition?

Yes, I wouldn't be in a great position to talk about the raw material input cost impact on our competition. For our business, raw materials almost across the board are all up in double digits. In fiscal '19 we probably had between frieght and raw material input costs somewhere in the vicinity of $25 million of fiscal '18 versus '17 type of inflationary pressure. I think that will -- the very different mix that was weighted towards freight last year. Both the freight market was very, very competitive and then we had a number of inefficiencies in our freight cost last year, particularly, in the first half of the year as we are coming through and out of the capacity constraint, we weren't obviously taking advantage of lowest landed cost at each of our plants and we were having to incur some expedited costs and then on top of that we weren't mode optimized like we would normally want to be. So frieght last year was probably half of the input cost inflation. I think that $25 million number in fiscal '18, could grow to as high as $30 million to $40 million fiscal '19 compared to fiscal '18 type of inflationary pressure. But the mix of that will be much more slanted towards raw material. So while the freight input -- while the freight costs are definitely up, the raw material cost on cement, pulp and utilities and some of our other raw materials are up to a pretty significant degree. So for us there is some additional cost pressure that we're going to have to make-up through performing really well on -- in the manufacturing plants and obviously some of that will get absorbed as a result of our growth.

Thanks, Matt.

Thank you. Your next question comes from Brook Campbell-Crawford from JP Morgan. Please go ahead.

Yes, good morning. There is not the question on interiors in the U.S., just picking up on your comment around volume growth to be flat to up modestly in FY '19, I think, is what you mentioned. Do you feel that the marketing product strategy you have in place is enough, or is there more you need to do, really, to get that business to where you want it to be?

Can you [indiscernible] the question.

It wasn’t for exterior specifically?

For interiors in the U.S., just picking up on the kind of flattish outlook for volumes. Interested to know, is there much that need to be done for the market or product strategy?

I’m still not getting. You want to take it?

Yes. Yes, so we don't think it's a product issue on the interiors business. When we came through the capacity constrain 18 months ago, like a lot of businesses that are under capacity constrain you kind of have to make strategic decisions about which products get prioritized and I think that helped us or caused us to kind of look at some of the product in our portfolio that we probably shouldn't have been looking at all along. And so we decided to exit on the interiors side, certain products and certain segments of the business that are good for kind of long-term returns of the company will certainly have a benefit on the long-term returns of the company. And so there is that component that certainly weighing on the overall result when you look at interiors growth last year. So if you look at kind of active products within interiors, we like kind of our product positioning overall and we don't think we have got kind of a product gap or overall product positioning issue on the interiors business that it's kind of being factored into the low levels of growth last year. So we expect to get back to kind of a growth game on interiors in fiscal '19. Obviously not to the same extent of the exteriors business, but overall we think we'll start to come out of this 4%, 5%, 6%, 7% negative comp on interiors and start to track back towards our normal growth rates on the interiors business.

Okay, thanks. And one more if I can, and hope you can hear me, but the margins of Fermacell, I’m talking about low double-digit, clearly, a lot lower than what you are used to operating at, but given the similarities of manufacturing between the two businesses, can you help me understand some of the key drivers of the margin difference? And, I guess, can you help the missed margins from where they are now?

Yes. I can take that. I guess, the first thing is Fermacell margins are good, they’re just not as good as Hardie. And I think our Hardie margins are a lot driven off market position, how we are going to market and how we create demand for our product. So I wouldn't put it all on manufacturing, I actually think we have some more performance to get in manufacturing and my first look at a couple of Fermacell factories, I think they have that same opportunity. But, again, our kind of bar for buying a business wasn't really what the short-term EBITDA margin or returns in that business would be obviously we wanted to be positive for our shareholders, but we didn’t -- if we set out only by businesses that hey, it's good at returns as ours, we couldn't buy any business and building materials. So they had good returns. There is definitely upside. There is definitely upside and organic growth. And normally when you grow new business, grow new demand for your product through market development, you do get better returns than your base business, so there's upside for the returns. But I don't want you to think that we think they should equal Fiber Cement U.S. I just -- that's the wrong way to think about it. Now what you should think about the way we want you think about is, will this -- is this a step in the direct direction for Hardie becoming large in Western Europe with good Hardie like returns and I think that’s we are pretty confident, we have made a good step in the right direction if we’re trying to deliver on that objective.

Thanks. Just one more if I can on particularly with Fermacell's, the comment from Matt around CapEx, and some of that is for Fermacell in the coming years. Is the idea to add some new lines into the existing Fermacell plant network or is it building a whole new plant for fiber gypsum?

Yes, we haven't had the business long enough to have a capacity strategy for Fermacell. One of the things, you sign up for when you set an organic growth strategy is you're going to build capacity. So you are going to need more capacity as you generate demand, more demand you need more capacity. They don't have a lot of excess capacity. So they fall on that category. As they generate more demand, they will need more capacity. Now there is three ways you can get more capacity, you can get through debottleneck in existing plants, you get through Brownfield investment in existing plants, so you can get through Greenfield investments. And normally that's the order you want to -- if you want to go in, normally your high -- highest return will be debottlenecking, second would be Brownfield and third would be Greenfield. There is some exceptions to that, I'm afraid, if you got a hole in the market frieght wise. But we just haven't had the business long enough. They have enough capacity to do what both the buyers and the seller case said we’re going to do over the next couple of years. So we don’t have a short-term problem with capacity in Fermacell and I think maybe down the path later this year or this time next year we will probably have the capacity plan for Fermacell when you talk about.

Appreciate the color.

There are no further questions from the lines at this time. I will now hand back to Mr. Gries.