James Hardie Industries SE — FY2012 Form 20-F
Reporting period: Fiscal year ended 31 March 2012; this is an annual report, not a standalone Q4 filing. Amounts are in US dollars unless stated otherwise. Financial statements are audited under US GAAP; Ernst & Young issued unqualified opinions on the financial statements and internal controls.
Business context
James Hardie manufactures fibre-cement building products, primarily for residential construction and repair and remodeling. Its largest market is the United States; principal segments are USA and Europe Fibre Cement and Asia Pacific Fibre Cement.
Financial and operating performance
| Metric | FY2012 | FY2011 |
|---|---|---|
| Net sales | $1,237.5 million | $1,167.0 million |
| Gross profit / margin | $407.0 million / 32.9% | $391.9 million / 33.6% |
| Operating income | $155.5 million | $104.7 million |
| Adjusted operating income, excluding asbestos, impairment and ASIC items (non-GAAP) | $189.5 million | $184.0 million |
| Net income (loss) | $604.3 million | $(347.0) million |
| Adjusted net income, excluding asbestos, impairment, ASIC and tax adjustments (non-GAAP) | $140.4 million | $116.7 million |
| Cash provided by operating activities | $387.2 million | $147.2 million |
| Capital expenditures | $35.8 million | $50.3 million |
| Net current assets | $472.5 million | $135.6 million |
- Sales rose 6%. USA and Europe sales grew 6%, with volume up 7% and average price down 1%. Asia Pacific sales rose 6% in US-dollar terms, primarily reflecting currency; regional volume declined 4%.
- Operating income rose 49%, but included fewer unfavourable asbestos adjustments than FY2011 and a $14.3 million impairment charge. Gross margin contracted 0.7 percentage points. Adjusted operating income increased 3%; adjusted net income increased 20%.
- Reported net income includes a $485.2 million tax benefit after RCI prevailed in its dispute over the Australian Taxation Office’s 1999 assessment. FY2011 included a $345.2 million charge related to that dispute. The reported profit swing is therefore not a reliable indicator of recurring earnings growth.
- Operating cash flow included a $396.3 million ATO refund. Excluding that refund and AICF contributions, management said operating cash flow declined 14%, to $181.1 million from $210.9 million.
- Cash and cash equivalents were $265.4 million at year-end; the company reported a $265.4 million net cash position excluding AICF’s loan drawdown. It had $280 million of undrawn credit facilities, with a weighted-average remaining facility term of 0.9 years. The consolidated balance sheet also included $30.9 million of AICF debt, repaid on 3 April 2012. The company was in covenant compliance.
- The asbestos liability was $1.663 billion gross; the net AFFA liability was $1.402 billion before related deferred taxes and $939.3 million net of tax. These amounts are actuarial estimates, not a fixed payment schedule.
Outlook, risks and unusual items
- Management planned for only slight market improvement over the prior year. US housing remained historically weak, constrained by tight credit, unemployment and excess housing inventory; Australia and New Zealand were also subdued.
- Management expected FY2013 capital expenditures of $70–$100 million for upgrades, expansion, environmental compliance and new technologies. It cited operating cash and credit facilities as funding sources, while warning that facility renewal risk could require reduced investment or distributions.
- Management announced a full-year dividend of US$0.42 per security: US$0.04 was paid during FY2012 and US$0.38 was announced after year-end for payment in July 2012. A new buyback program of up to 5% of issued capital was announced in May 2012.
- The company contributed $51.5 million to AICF during FY2012, made an early $138.7 million contribution on 2 April 2012, and expected a further $45.4 million contribution in July 2012. Funding obligations depend on AFFA terms, cash flow and actuarial estimates.
- Asbestos exposure remains a major uncertainty: the actuarial estimate depends on claims, settlement costs, insurance recoveries and exchange rates. The filing’s sensitivity analysis indicates a discounted, inflated central estimate could range from A$1.1 billion to A$2.4 billion; actual outcomes could fall outside that range.
- ASIC proceedings remained unresolved for former directors and officers after a May 2012 High Court ruling remitted issues to the Court of Appeal. The company could not estimate its potential additional costs and had recorded no provision for them at 31 March 2012.
- Other key risks include dependence on housing markets and a small number of large customers, price competition, pulp and freight costs, currency exposure, product warranty and liability claims, environmental and silica-related risks, and the ability to renew credit facilities. The two largest customers each accounted for more than 10% of net sales.
Important facts for investors to verify
- Separate recurring operating performance from the $485.2 million tax benefit and other asbestos, impairment and ASIC items; review the company’s non-GAAP reconciliations.
- Confirm the timing, liquidity and restrictions on cash, including the AICF contribution made after year-end, and distinguish corporate debt from debt consolidated through AICF.
- Review facility maturities, renewal progress and the effect of planned capital spending and shareholder distributions on liquidity.
- Track annual actuarial updates, asbestos claims and recoveries, AFFA contributions, and sensitivities to Australian-dollar movements.
- Monitor the remaining ASIC proceedings and any resulting indemnity costs, and assess ongoing customer concentration and housing-market conditions.