February 23, 2019

James Hardie profit surges, but asbestos claims still rising

Building materials firm James Hardie has more than doubled its profit and announced a special dividend.

The company’s statutory net profit rose to $US99.5 million for the year to March 31, up from $45.5 million in its previous financial year.

James Hardie says its underlying full-year profit was $US197.2 million when its significant asbestos compensation exposures, ASIC expenses, New Zealand product liability, asset write-downs and tax adjustments are excluded, up from $US140.8 million last year.

The firm’s chief executive Louis Gries says James Hardie’s US and European businesses contributed much to the profit surge.

“Net sales increased 22 per cent in the quarter and 19 per cent for the full year, reflecting stronger volumes, a higher average net sales price and the continued strengthening of the US housing construction market,” he noted in the report.

The company says US single family housing starts were 615,400 for the year to March 31, up 9 per cent on the prior year according to the US Census Bureau.

In the Australian market, the number of detached home approvals – which generate the most demand for the firm’s key fibre cement building products – was up 16 per cent to 104,394, but James Hardie says that has been partially offset by a fall in renovations.

Mr Gries says the construction turnaround is prompting significant investment to increase its manufacturing capacity.

“During financial year ’14, we confirmed our commitment to build the infrastructure to grow our business with the reopening of our Fontana, California location, the commencement of capacity expansion projects at our Cleburne, Texas and Plant City, Florida locations and the construction of a new manufacturing line at our Carole Park, Queensland location,” he said.

“To further capitalise on the projected growth in the US housing market, and our anticipated market share growth across all of our businesses, the company intends to increase its levels of capital expenditure to an average of approximately US$200 million per year over the next three years.”

In addition to the capital investment, James Hardie has announced a full-year special dividend of 20 US cents per share, in addition to its ordinary dividend of 32 US cents per share.

James Hardie securities were up 3.7 per cent to $14.19 by 12:20pm (AEST) on the Australian market as a result.

Asbestos exposures

James Hardie has reported $US195.8 million in adjustments for asbestos liabilities in its annual accounts, up from $US117.1 million last year.

The company says accounting firm KPMG’s current estimate of total asbestos liabilities for Australia, net of insurance claims, has risen to $1.547 billion this financial year from $1.345 billion last.

The main reason for the rise, according to the report, is a continued increase in claims by asbestos victims suffering mesothelioma, a rare form of cancer generally affecting the lungs and typically caused by asbestos exposure.

James Hardie says actuaries had previously assumed a peak in mesothelioma claims to have occurred in 2010-11, however the past two years of claims have been above expectations.

In the year to March 31, a total of 608 asbestos-related claims were received, a 12 per cent rise from 542 claims the previous year, and well above expectations of 540 claims.

James Hardie says 604 claims were settled in its 2014 financial year, with an average settlement of $253,000, resulting in a total payout of $140.4 million for the year.

Mesothelioma claims jumped almost 20 per cent in the year to March 31 2014, to 370, up from 309 the year before, 259 in 2011-12 and 268 in 2010-11.

KPMG had previously expected only 300 mesothelioma claims in its forecasts.

Mesothelioma claims are far more expensive for the company, with the average settlement sitting at $308,000, compared to around $100,000 for asbestosis or lung cancer.

There were also seven “large” mesothelioma claims over $1 million, worth a total of $11.6 million.

The company warns that, if claims do not start reducing until after 2018-19 the estimated claims total of more than $1.5 billion could rise a further 22 per cent on top of this financial year’s increase.

KPMG says it is too early to tell whether the higher number of claims will be sustained based on one year’s worth of increased claims.

However, James Hardie’s chief financial officer Matt Marsh says the impact on the company’s bottom line will be capped, and it is fulfilling all its requirements to the asbestos compensation fund.

“We’ll make a payment in July of $US113 million and that will be in compliance with our obligation under the [agreement] to contribute up to 35 per cent of our operating cash flow,” he told analysts on an investor briefing.

“The second part of that question is will that be enough to pay for the liabilities, and that’s a question that’s better asked of the AICF [Asbestos Injuries Compensation Fund].”


James Hardie profit surges, but asbestos claims still rising