February 20, 2019

'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.


'Morally bankrupt': Asbestos victims slam James Hardie

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