Shares in James Hardie staggered 17 cents higher yesterday to $4.99, despite the company revealing its third and fourth plant closures in the US because of the continuing building slump.
Instead of the two previous closures, Hardie will only be "idling’ the plants while it waits for activity in building to recover. It might be waiting for some time though, given the continuing fall in new home starts and the issuing of new home permits.
The two plants account for around 11% of its US capacity.
The company said in a statement to the ASX yesterday that it was suspending operations at the Fontana, California plant "in response to the continued deterioration in the US housing market.
“Production at its Summerville, South Carolina plant is also being suspended. To ensure that the company has adequate supply of material to the East Coast markets once Summerville has shut down, the second line at the Pulaski, Virginia plant will be commissioned.
James Hardie’s CEO, Louis Gries, said in the statement: "The continuing decline in the US housing market has led to reduced capacity utilization of our US manufacturing plants.
"Although the business continues to run well, current and projected market demand cannot support our current plant network."
"The Fontana manufacturing plant has an annual production capacity of 175 million square feet but has been running at reduced operating levels since the market downturn.
“Production has been suspended at this plant because of the reduction in demand in the core area it services in the US southwest. The plant employs 60 people.
"The Summerville manufacturing plant has also been running at reduced operating levels. The plant will re-open when market demand returns to acceptable levels.
“During the shut-down, the appropriate future product mix for the plant will be determined, potentially incorporating some of the company’s newer differentiated products. The Summerville plant employs 67 people.
"Mr Gries said: "Today’s decision is extremely difficult because it affects 127 of our employees. However, it is no reflection on their achievements and dedication. It is a reflection of the severe housing market downturn."
The company will not be booking impairment charges against these closures as it intends to re-open both plants when market conditions permit.
After closing a fibre cement plant in October, 2007 in Blandon, Pennsylvania, it decided to close its US Hardie Pipe business on Thursday, booking a $25.4 million write-down on the value of its pipe plant in Florida.
Unlike the latest decision, the Blandon plant and the pipe will be shut permanently because the company took impairment charges against the assets.
Hardie is due to announce its second quarter and first half (both to September 30) figures Monday week on November 17 in Sydney. That will give us a better idea of how its been hurt by the slump.
Seeing how it’s based in Holland, with most of its businesses in the US, the slump in the value of the Australian dollar only has a limited impact on Hardie.
The housing slump has proven to be devastating to the company, as it has been to Boral, another local building products group with significant operations in the US.
Meanwhile investors took out their cricket bats and belted consumer products supplier and printer McPherson’s Ltd yesterday after the company revealed a renounceable rights offer to raise up to $21.5 million to strengthen the company’s balance sheet and fund general working capital. Shareholders will be offered one share for every three shares that they already own, at $1.00 per new share.
That was a substantial discount to the share price $2.23 at October 27, when the shares were suspended to allow the company to examine the impact of the slumping value of the Australian dollar on its finances and how it was going to tackle that impact.
McPherson’s said the offer price of $1.00 represented a 55% discount to the volume weighted average price of McPherson’s shares in the five trading days preceding a trading halt on the company’s shares on October 27.
So investors promptly took out their bats and followed the company’s lead and sent the shares down more than 54% to $1.03, a fall of $1.20.
They didn’t like the dilution involved or the implied desperation in announcing such a large discount.
That means the market cap has collapsed from $144 million at October 27, to just over $65 million last night: seen against the new value for the company, the $21 million being sought in the renounceable issue is equal to one third the capitalisation of the company.
The offer is partially underwritten by Bell Potter Securities Ltd, which will subscribe for up to a maximum of 50% of the shares offered.
That leaves the question of the remaining 50% up in the air because not many shareholders will take up the issue, given the discount.
Thorney Ltd, the investment arm of Dick Pratt, has nearly 20% of the company and its attitude will be watched closely. It’s hard to think the company didn’t talk to Thorney before revealing the issue.
McPherson’s said on October 29 that its September quarter results were satisfactory, with revenue and profit before tax ahead of last year, but the weakening in the value of the Australian dollar had placed considerable pressure on margins and cashflow, and first half earnings before tax were expected to be about 20% below the first half of 2008.
But the second half (the period to June 30, 2009) was expect
