James Hardie warns on profit

James Hardie warns on profit
Published: 22 November 2004

Building materials company James Hardie Industries NV today warned that its  annual profit would fall below market expectations due to increased costs  and the possible boycott of its products in Australia. James Hardie today posted a nine per cent decline in first half net profit  to US$61.1m, due to costs associated with the NSW government-commissioned inquiry into the compensation of asbestos victims.

The group is in negotiations with union and asbestos victims groups representatives to find a solution to a $1 billion-plus shortfall in compensation for victims of the company’s asbestos products. James Hardie said it had deferred paying an interim dividend until it was in  a position to better assess the potential financial impact of the likely outcome of those negotiations.

The group said the strong top line growth evident in the first half was continuing into the third quarter and its full year operating performance was expected to benefit from an improved manufacturing performance and  reduced costs in the second half. However, it said costs associated with the Special Commission of Inquiry  (SCI) into asbestos compensation and other associated developments were   still being incurred and were likely to be material.

Analysts had forecast an operating profit from continuing operations of US$151m to US$160m for the year ending March 31, 2005, excluding costs associated with the SCI. James Hardie said it now expected its annual operating profit to fall within  the US$135m to US$145m range. That was due to higher spending in its North America business to ramp up growth initiatives, increased manufacturing and other costs in the second
quarter and plant start up expenses in the second half. "However, the company’s cash generation continued to be very strong and was  up a significant 50 per cent for the half year."

Mr Gries said the outlook for housing construction in North America remained  positive for the remainder of the year despite the prospect of modest interest rate increases. "Further strong sales growth is expected as we continue to take market share  in our emerging and established markets and in our exterior and interior  product categories in North America," he said. The company said new housing and the renovation segments in Australia were  expected to further soften with the expectation of higher interest rates  over the medium term.