On Wednesday investors didn’t like the fact that James Hardie was spending more than $A700 million expanding in Europe and Germany in particular so they sold down the shares – which closed down 1.5% after being down twice that in early trading.
Commentary from the management that this deal would be the last for some years seemed to assuage some investors, so when James Hardie produced a 14% slide in first half profit for the six months to September yesterday, up went the shares more than 7% and stayed there.
The shares ended at $20.39, up 7.6% as investors seemingly ignored the weak earnings for the six months to September 30 of $US123.8 million ($A173.3 million), down from.$US144.1 million a year ago.
But the figures showed the company had improved margins. First-half underlying profit was down 4% at $US135.6 million, but second quarter underlying profit was down by just 1% at $US73.9 million, indicting that the company was getting on top of the higher costs that had cut margins in the early months of the year.
“While we continue to make progress quarter to quarter, our manufacturing inefficiencies and production costs led to a decrease in EBITmargin of 0.9 percentage points for the quarter and 3.1 percentage points for the half year compared to the prior corresponding periods,” James Hardie boss Louis Gries said in a statement, confirming the improvement in the three months to September.
Net sales up 6% at $US1b for the half and interim dividend was lifted 11% or 1 cents to 10 US cents.
On Wednesday it announced the purchase of German-based Fermacell, Europe’s biggest maker of fibre gypsum boards, used for walls and ceilings, for $US549 million (around $A738 million).
Gries said James Hardie has struggled to grow its fibre cement products business in Europe for the last 10 years because it lacked the scale needed to have market force, and was just selling US-made products in niche markets.
"We think what Fermacell does is give us that regional capability and regional influence that will be important to launch a much higher-growth fibre cement strategy in Europe," Mr Gries said .
“In the short term, our focus will be on bringing Fermacell into the corporation and making sure we don’t go backward with their business.” He said Fermacell has good growth opportunities, not as big as those that James Hardie has in the US market, but similar to those in the Australian market.
“And then sometime, in the next 12 months or so, we’ll start thinking about resetting our fibre cement strategy….we’ll really get serious about what the fibre cement strategy for Europe looks like."
That was taken as a hint that the company could be announcing a major expansion plan in about 18 months time in Europe.
