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January 17, 2018

Taxpayers to cover James Hardie asbestos shortfall

Taxpayers to cover James Hardie asbestos shortfall

Business

Date

Tim Binsted

The NSW government will extend funding to asbestos victims in case of a shortfall in funds from James Hardie

The NSW government will extend funding to asbestos victims in case of a shortfall in funds from James Hardie Photo: Bloomberg

The New South Wales government will extend further credit to the Asbestos Injuries Compensation Fund to prevent victims being paid in instalments in the event payments from James Hardie Industries are insufficient to cover claims.

On Friday the NSW government said it has agreed to amend the terms of its loan facility with the AICF. The changes extend the term of the loan and allow the fund to draw down the full $320 million of the facility rather than $214 million previously stipulated.

The AICF warned last year that a spike in mesothelioma claims, the most expensive asbestos victims claims category, could force it to enter an “approved payment scheme” as of July 1.

The scheme, which would have allowed compensation to be paid to some victims in instalments rather than upfront due to a lack of funds, sparked outrage among victims groups.

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Taxpayers to cover James Hardie asbestos shortfall

James Hardie asbestos compensation fund's bid to pay victims in instalments faces ACTU legal action

James Hardie asbestos compensation fund’s bid to pay victims in instalments faces ACTU legal action

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Unions will launch legal action against a bid by James Hardie’s asbestos compensation fund to start paying victims in instalments rather than lump sums.

The ACTU executive has voted for legal action blocking the body’s Supreme Court application to pay out sufferers in instalments because of a projected multimillion-dollar funding shortfall.

In September, the Asbestos Injuries Compensation Fund, bankrolled by James Hardie Industries, announced it was heading for a cash shortfall of $184 million by 2017 after underestimating the number of people dying because of toxic asbestos.

ACTU secretary Dave Oliver said the average sufferer of the fatal asbestos-related cancer mesothelioma died 155 days after being diagnosed.

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James Hardie asbestos compensation fund's bid to pay victims in instalments faces ACTU legal action

'Morally bankrupt': Asbestos victims slam James Hardie

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Under the scheme, scheduled to come into effect from July 1 next year, some proven claims will be paid to victims in instalments rather than as a lump sum, and some other liabilities will be deferred.

Asbestos Diseases Foundation of Australia president Barry Robson was outraged by the proposal which follows Hardie’s decision to pay hundreds of millions of dollars in dividends.

“Victims don’t die by instalments,” he said. “They need lump sum payments to pay medical bills and for carers, and to look after themselves and their families.”

The average mesothelioma victim dies within 155 days of diagnosis.

Mr Robson said it was immoral to cut payments when victims were already out of the workforce.

The AICF said it had approached the NSW Supreme Court regarding the proposed scheme. Approval from the Supreme Court and the NSW Attorney-General is required under the James Hardie Former Subsidiaries Act (2005).

James Hardie has paid $US556 million to its investors over the past two years and the building materials company is spending $US200 million ($221 million) a year over the next three years expanding plant capacity in its core US market.

“It shows you how morally bankrupt the Hardie’s board are when it comes to victims,” Mr Robson said.

“Why can’t they put some money into the fund? It was their product that did it. They manufactured those products knowing that it was dangerous”.

Independent senator Nick Xenophon said it was outrageous to “drip feed” victims and their families.

“It just adds insult to injury. Being paid on the drip is outrageous and adds uncertainty for victims who are dying from exposure to James Hardie’s products,” he said.

Mr Xenophon said he wrote to Prime Minister Tony Abbott and NSW Premier Mike Baird last week, urging them to investigate the funding gap.

“The response [to pay victims in instalments] is so outrageous that it deserves an extraordinary response,” Mr Xenophon said.

“The first step should be for the NSW and federal government to eyeball James Hardie executives and a legislative solution has to be on the table.”

James Hardie paid $120 million into the fund on July 1, which is all the fund had to pay claims as of July 3 after repaying $51.6 million in interest and principal from a previous drawdown on the loan facility.

The company has paid $721.4 million into the AICF since its inception in February 2007.

In the latest annual report, KPMG, the fund’s actuary, raised its base case estimate of claims liabilities by 12.6 per cent to $1.9 billion.

KPMG updates its forecasts based on the number, types and size of claims.

The AICF has paid almost $800 million and settled almost 4000 claims since its formation.

James Hardie said on Monday that any potential funding shortfall was “regrettable” and that it intended to stick to the present arrangement as specified in the 2006 amended final funding agreement.

The company said it was “available for discussions” with the AICF and government “specifically in relation to APS [approved payment scheme]”.

Discussions could take place as soon as this week. Mr Robson said he was trying to put together meetings with the office of Premier Mike Baird.

James Hardie has said it wants to increase its balance sheet gearing to about $US500 million. That figure implies the company wants to return about $US700 million in capital.

CIMB analyst Andrew Scott said that while the circumstances might may demand an APS-style solution, the prospect of delayed payments to claimants was unacceptable.

“We expect further negative publicity as a minimum and increased political pressure as highly likely,” he said. “Beyond that a final resolution is difficult to predict, but may make it more difficult for James Hardie to return excess funds to shareholders.”

Under the terms of the 2010 standby loan facility with the NSW government, the available drawdown is capped at the amount of the potential proceeds of insurance recoveries that may be available to the AICF.

KPMG estimates the present value of available drawings at $214 million. The fund expects to pay $500 million worth of claims over the next three years.

Based on current modelling, the fund said it would be able to pay claims as they fell due if ;the loan facility was increased to $320 million.

“They shouldn’t go to the public purse,” Mr Robson said.

“The loan arrangement is a backstop if the worst comes to worst, like if the US housing market hits rock bottom.

“The message [to James Hardie] is: put some money into the fund,” he said.

James Hardie saysthat the 35 per cent of operating cash flow it pays under the present arrangement is the maximum it can pay to grow and remain competitive.

Mr Robson and Mr Xenophon have said they want James Hardie to remain financially strong to ensure it can keep paying claims.











Continued:

'Morally bankrupt': Asbestos victims slam James Hardie

James Hardie Q1 profit slides 80 pct, warns of slower US recovery

* FX changes on asbestos compensation claims hit profit

* US housing market improving slower than expected

* Company’s FY 2015 outlook below analyst forecasts (Adds profit detail, shares, housing market outlook)

SYDNEY, Aug 15 (Reuters) – Australia’s James Hardie Industries PLC , the world’s biggest fibre cement products maker, said on Friday its first-quarter earnings tumbled and warned full-year profit will fall short of analyst expectations as the U.S. housing market recovers more slowly than it previously anticipated.

The firm, which generates two-thirds of its revenue in the United States and Europe, saw its Sydney-listed shares slump after it said net profit for the first quarter of its fiscal year skidded 80 percent. The earnings drop was mainly because of unfavourable changes in exchange rates as the company pays compensation for claims of health damage from historic use of asbestos in products.

Net profit for the three months to June 30 fell to $28.9 million compared to $142.2 million a year ago. Not including asbestos adjustments, gross profit grew 11 percent to $140 million, while revenue rose 12 percent to $416.8 million.

But the company, which supplies products like cladding for the outside walls of houses, presented a more muted outlook on the recovery in the U.S. housing construction market than it gave when it reported results for the previous fiscal year three months ago.

In Sydney James Hardie shares fell as much as 7.5 percent to touch four-month lows. By 0011 GMT the stock had recovered slightly, trading 6.8 percent lower at A$13.08.

In a statement to the Australian Securities Exchange, the company said while the U.S. market was improving, with housing starts in the first quarter up 4 percent from a year earlier, the improvement was at “a more moderate level than originally assumed for the year”.

“Recent flattening in housing activity has created some uncertainty about the pace of the recovery in the short-term,” the statement said. “Although U.S. housing activity has been improving for some time, market conditions remain somewhat uncertain and some input costs remain volatile.”

James Hardie noted analysts have forecast it will post operating profit excluding asbestos compensation costs of between $226 million and $261 million for the full financial year. But the company said it expects the result to be in the range of $205 million to $235 million, compared with $197.2 million for the previous year.

(1 US dollar = 1.0733 Australian dollar) (Reporting By Byron Kaye and Jane Wardell; Editing by Chris Reese and Kenneth Maxwell)

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James Hardie Q1 profit slides 80 pct, warns of slower US recovery

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].”

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James Hardie profit surges, but asbestos claims still rising

Asbestos claims rising but James Hardie doubles profit

Costly to settle: Asbestos-related claims are rising for James Hardie, particularly in relation to mesothelioma.

Costly to settle: Asbestos-related claims are rising for James Hardie, particularly in relation to mesothelioma. Photo: Sylvia Liber

James Hardie says it is seeing an increase in the number of asbestos claims relating to mesothelioma, the deadly cancer caused by prolonged exposure to the substance.

The construction firm, which revealed it had doubled its first-half profit on Thursday, said the number of asbestos claims relating to the cancer had risen above the company’s expectations.

In half-yearly statements released to the stock exchange on Thursday, Hardie said the average cost of asbestos claims for the six months to September was higher than the previous year due to an increase in mesothelioma claims, which were more costly to settle.

“We have seen some concerning trends in mesothelioma claims, which we have highlighted previously,” chief financial officer Russell Chenu said.

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“We’ve now got a better handle on the ‘what’ and the ‘how’, but what we still don’t understand is the ‘why’.

“There’s still a lot of work going on in that space, but there is a definite trend in an increase in mesothelioma claims that the fund is experiencing.”

James Hardie’s payments for asbestos claims are tied to its cashflow. It pays up to 35 per cent of its annual net operating cash flow to an asbestos fund.

The company said the number of mesothelioma claims could be higher than its predictions due to the way it calculates a peak year of claims.

It forecast mesothelioma claims to peak in 2010-11, but said that, had it forecast a peak to occur later – for example, in 2015-16 – the estimates could change significantly.

“Mesothelioma is the most expensive of the asbestos disease types in terms of compensation,” Mr Chenu said.

“The fund is seeing an increase in the inflow of claims, and almost all of the increase in claims appears to be mesothelioma disease, rather than the other types of disease.

“That’s increasing the amount of payments relative to both last year and relative to an actuarial assessment that was done at March 2013.”

Mr Chenu said he could not say more on the topic because it was a matter for the fund and “as far as I’m aware, we don’t fully understand the cause of the increase in claims as of yet”.

James Hardie shares soared 14 per cent on Thursday morning after the company revealed it had doubled its operating profit in the first half of the financial year.

The company, which reports in US dollars, said its operating profit for the six months to September 30 was $US108.3 million ($116.4 million), up from $US56.3 million a year earlier.

The profit figure excludes asbestos, regulatory and liability adjustments, it said. Without stripping these out, its profit was higher at $US194.1 million.

Chief executive Louis Gries said the second quarter had benefited from an increase in sales in its US business, which reflected an improvement in the housing market relative to last year.

“Last year, we invested significantly in organisational capability in expectation of market growth in the US,” he said.

“This year we are benefiting from that investment, as evidenced by improved earnings before interest and tax margins.”

The company’s results benefited from the recent fall in the Australian dollar, which reduced its liability for asbestos claims in US dollar terms.

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Asbestos claims rising but James Hardie doubles profit

Renovators playing Russian roulette with asbestos

Renovators playing Russian roulette with asbestos
Renovators playing Russian roulette with asbestos

Experts have warned that home renovators are not undertaking proper precautions with asbestos and are not only putting themselves at risk, but their families as well.

While it is no longer manufactured in Australia, asbestos remains a sleeping giant in a third of the nation’s homes.

There are fears a new generation of ‘do-it-yourself’ renovators has no idea what they are disturbing.

“A lot of young people are doing this and they need to know what they are dealing with,” asbestos removalist Wendy Tredinnick said.

Terry Miller from the Asbestos Victims Association was diagnosed with asbestosis almost a decade ago after working at James Hardie’s factory in Adelaide’s northern suburbs for 20 years.

His wife died 15 years ago from an asbestos-related lung disease.

She had never worked with the material, but was regularly washing fibres out of her husband’s clothes.

“You don’t need much exposure,” Mr Miller said.

“It’s not just the person doing the job, it could be one of their kids crawling on the floor, could be the wife breathing it in.”

A survey of 1500 home renovators in New South Wales found only 12 per cent regularly wore respiratory devices – a trend experts say reflects the country.

“Hardly a week goes by here that we don’t get a phone call from someone saying ‘we just started doing this and pulled a sheet off the bathroom wall and there’s asbestos stickers on the back’,” Ms Tredinnick said.

Asbestos can be found under floor coverings, particularly on the back of lino, behind walls and even as insulation in ceilings.

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Renovators playing Russian roulette with asbestos

Hardie slugged with more asbestos claims

James Hardie's asbestos liability stands at $1.7 billion.

James Hardie’s asbestos liability stands at $1.7 billion. Photo: Carla Gottgens

James Hardie will be forced to pay more than $100 million extra for asbestos victims after being hit by more claims than expected in the past 12 months.

The company had believed the ”peak year” for asbestos claims was 2010-11, but a jump in claims since March last year means it will have to pay an extra $117 million into a special victims’ fund.

The readjustment is also partly due to a projected increase in the future number of claims for a number of disease types.

It means the company’s asbestos liability now stands at an estimated $1.7 billion, up from $1.58 billion a year ago.

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The news comes as Telstra said this week that more of its cabling pits, which are being used to roll out the national broadband network program, contain traces of the deadly asbestos fibre.

According to James Hardies’ 2013 financial report, there were 542 new claims filed against the company since March last year, compared with 456 claims filed in the previous 12 months.

The spike in the number and cost of claims has caught the company off guard.

”During fiscal year 2013, mesothelioma claims reporting activity has been above actuarial expectations for the first time since fiscal year 2009,” the company’s annual report says.

“One of the critical assumptions used to derive the [claims] estimate is the estimated peak year of mesothelioma disease claims, which was targeted for 2010-11.”

New claims from mesothelioma victims had been falling, from 494 in financial year 2011 to 456 in the following year.

The average claim settlement has also jumped in the past 12 months.

In fiscal year 2013, the average claim settlement of $231,000 was $12,000 more than the previous year.

The increase in the average claim settlement was due largely to the rise in mesothelioma claims, which are “more costly to settle and represented a larger proportion of total claims than in fiscal year 2012”.

Asbestos claims paid of $121.3 million for fiscal year 2013 were consistent with the actuarial expectation of $122.2 million.

James Hardie moved its base to the Netherlands from Australia in 2001. Directors of the company were later found by a NSW Supreme Court to have made misleading statements about the adequacy of the compensation fund it set up in Australia for asbestosis sufferers.

Meanwhile, James Hardie chief executive Louis Gries said he was confident the recent improvements seen in the US housing markets were sustainable. But he expressed caution over the building materials market in Australia and parts of Asia which he described as ”challenging” with operating conditions likely to remain subdued.

James Hardie recently posted a full-year net profit of $US140.8 million, down from $144.3 million.

The group benefited from higher sales volumes in all major markets, but with lower average selling prices in the key US and European markets.

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Hardie slugged with more asbestos claims