James Hardie Industries - Q1 2019

Transcript

Operator (participant)

Thank you for standing by, and welcome to the James Hardie Q1 FY 2019 Results Briefing. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I'd now like to hand the conference over to Mr. Louis Gries, CEO. Please go ahead.

Louis Gries (CEO)

Thank you. Hi, everybody, this is Louis Gries. Matt and I are in Dublin, this evening, so we'll be calling out slide numbers as we flip through them. So we're starting from the cover sheet to slide two and three, which are the forward-looking statement notes. Slide four, which talks about the change in segment reporting, and five is the non-GAAP, and then we're on to the agenda.

So yeah, we'll take the same approach as always. I'll have a pretty brief summary of the operating results. Matt will have a little more detail as he goes through the financial review, and then we'll come back for questions. Slide seven is another cover sheet. Slide eight is the first one with information on it.

Most of you remember, we had a weak Q1 last year, so we're competing against a weak quarter, but having said that, all our finances were up strongly. The only red arrow on the page just reflects the integration of Fermacell into our company, so that pulled the margin down a bit.

Go to slide nine, please. Nine's the first slide on the U.S. business. Net sales up 10%, volume 5%, price 5%, EBIT 34%. The price is a bit stronger than you'll see for the full year, or at least that's how it looks to us. It was more about last quarter than this quarter.

We're getting the price we're expecting to get with the price increase that went into effect in April. But from a comp perspective, it'll settle down a little bit through the year. So the 5% is a little stronger than we expect to go through the year at.

Sales volume up 5%. We kind of got there, 6.5% in exteriors and 1% up in interiors. We'd like to be a couple points better than that, even in this quarter, but it kind of fits the guidance we gave you. We thought we'd need to build traction through the year to hit a target 3%-5% in exteriors for growth above the market index.

You know, we definitely think we need to build traction, and obviously working on that. Interiors, one to three, we came in at one. There's some things to figure out on interiors. We'll probably address that more deeply for sure than we will on this results call, in our September tour, because we have been doing a lot of work in the interior segment, and we'll bring everyone up to date on it.

So again, the EBIT was good. Price obviously drove a lot of it, offset by higher input costs, especially pulp and freight, which we expect that to continue, and actually even increase from where it is. So, but generally, a quarter that we were expecting out of U.S. business.

But again, we also expect that we need to build momentum as we go through the year to hit our targets. Slide 10, you can see we're sitting on the top part of our range there, which is our expectation. We'll be on the top part of the range for years where we're thinking. Obviously, there's a few things that aren't as clear externally as we'd like them to be, the input costs being probably the bigger one.

We're pretty satisfied with where the market's at, but it does seem like most companies have come up a little bit short on their volume comps. So I'm wondering if it's as good as we forecasted coming into the year, but obviously, we'll find that out as we go through the quarters.

Slide number 11 shows the price increase, the realized price slide, reflecting the increase. You'll remember two years ago, we kind of started to get back to our normal approach on pricing and tune up our tactical pricing a bit. We had a few, a little bit more leakage in the system than we should have had.

Since then, you know, price is good, but the market's gone up as well. So our price relative to close alternatives in the market really haven't changed to any material degree. Top-line growth slide, we always give you, you know, the housing against the volume, against the revenue, and I guess there's not much of a story there.

We're looking to increase the volume growth against the market index, which isn't 100% new construction, as you know. But that's really a primary focus of the organization and continues to be and probably will be for the next several years. Slide number 12, Asia Pac. Asia Pac was good across the board. You see sales up, volumes up about the same. Price flat, reflecting more country mix, wasn't flat in all countries.

Obviously, it's just a mix of, and with the Philippines growth being pretty good, offset by so there's a lower price board offset by the two other countries that have a higher price board. But good story in all three countries on the market side, you'll see in a minute.

But, just on the EBIT side, we got a plant problem in New Zealand we're working through. That's shown on slide thirteen. Again, Australia up, volume sales and EBIT, up pretty strongly. New Zealand, up on volume and sales, but down on EBIT, due to plant performance. It's a relatively small plant, in New Zealand, but, you know, fiber cement is a business when your plants don't perform, you can see it on the bottom line, and that's what we're seeing in New Zealand right now.

Then, Philippines, very good result. In addition to that, they've done a nice job on their startup, so, they're on track with the startup of the new machine down there. So again, pretty solid, result from the supply.

Europe, which is the one you're not used to looking at, volume was good. We're very satisfied with the Fermacell business. You know, the integration's going well. The management organization has really responded to being part of Hardie and have aligned. We've aligned quite quickly on how we think about things, and, you know, we're feeling really good about the approach that organization has taken.

You know, their comps were good. I think it was 8% up when you take out FX. The EBIT, you can see the note down there, that doesn't reflect the business performance as much as the integration cost and the inventory adjustment due to the acquisition.

The other thing we like about Fermacell is, now that we own the business and been in it a bit, the similarities with fiber cement are every bit as great as we thought they were, and it's really a good, good fit business for us. We feel very confident since we're off to a good start. I'm thinking that being a platform for fiber cement growth in Europe is definitely, definitely gonna play out for us. All right, I'll hand it over to Matt.

Matthew Marsh (CFO and Executive VP of Corporate)

Thanks, Louis. Good morning to everybody joining us in Australia. We'll start on slide 16 with an overview of the group results. So in the first quarter, we had net sales of $651 million, up 28%. You'll be reminded that we closed Fermacell early in the quarter, and this result obviously includes the impact of our first full quarter of having Fermacell as part of the company.

If you were to exclude, you know, Fermacell and kind of get to the comparable business, we, you know, we'd have revenues up 11%. We had higher average selling price and volumes in North America and higher volumes, as we've already talked about in Asia Pacific. Gross profit was up 31%.

You can see adjusted net operating profit increased 29%, up to $79.9 million. I just want to... You'll notice as you go through the filings, that our adjusted net operating profit is including above the line, both the integration transaction and one purchase price adjustment. So all those costs are being reflected above the line.

In the management analysis of results, we've provided a walk that will hopefully help everyone go from the reported EBIT number to the EBIT number in Europe, excluding those costs. If we go to slide 17, you can see, you know, foreign exchange, the Aussie dollar is continuing to weaken, so the translation impact, while still small, is at least larger than it's been the last couple quarters.

On a percentage basis, fairly immaterial. On a dollar basis, about $7 million of favorable impact on net sales and slightly unfavorable to the bottom line. Slide 18, you know, we're continuing to see input cost inflationary pressure really across most major areas of you know, of our purchasing.

So you can see the freight market prices are up almost 30%, pulp's up 20%, you know, cement's up slightly, gas is up almost 10%. The inflation and the rate of increase is greater than even kind of when we talked back in May at the year-end result. On slide 19, you can see the segment results. You know, North America EBIT was up 34%.

Almost all of that increase, 34%, was price and volume. We had a little bit of favorability on delivered unit costs compared to a year ago, and as I noted on the last page, those margins are gonna continue to be compressed by the inflationary pressure that we're seeing in freight and in pulp, especially.

For Asia Pacific, they had an EBIT increase of 7%, you know, on 15% net sales growth. Both Australia and the Philippines had really good quarters, you know, top to bottom, and we've already talked about the New Zealand plant underperforming, which was compressing the segment EBIT a bit, as well as they're also experiencing higher pulp and freight costs.

The pulp is obviously purchased, translated into U.S. dollars, so that's why you're seeing that kind of the one-for-one impact there. On slide 20, the European building segment, in the reported $4.6 million loss, we had almost $16 million of kind of non-recurring costs. 8.7 of that is transaction integration costs, and in the first quarter, it's primarily in transaction costs, a little bit of integration costs.

You can see that we think for the remainder of the year, we're expecting to spend about another $15 million on the integration cost side. When you ex- and then the other item that hit in the quarter was a non-cash item. As you're closing on purchase price accounting, we had to do an adjustment on fair value of the inventory that we acquired, and then that accounting transaction has to go through expense based on inventory turns.

So we expect that all that impact is realized in the first quarter. We're not expecting that to continue through the rest of the year. Obviously, being a non-cash item, it's not something that we would have anticipated or talked about in May when we were talking about ongoing one-time costs for the transaction. So when you exclude those two items, the underlying business is kind of running in the you know 1.9%-12% range, so a little bit higher than the 10% that we had talked about.

Previously, we, we think there'll be normal variation quarter-to-quarter. This happens to be a bit higher. We still think the guidance that we provided in May for the business is, is right about on, but certainly a good first quarter. The other business, you know, we're continuing to invest in, in, in those products and manufacturing organizational capabilities.

You can see the losses are, are, you know, within reasonable normal variation, slightly lower than they were a year ago. On slide 21, research and development, no real material change there. We're, you know, still pretty consistently right around 2% of net sales, net ebbs and flows based on the number of projects at any given time.

General Corporate Costs, there's two items to kind of note that are impacting the underlying kind of ongoing costs. One is a reminder, one, that we had a $3.4 million gain in the prior year, same quarter, as a result of a building near our Fontana facility in California that we sold. We did have a New Zealand weather tightness claim in the quarter.

It's been some time since we've had one, and so we've reflected that cost here, a $1.6 million impact in General Corporate Costs. Those two items obviously cause some comparability, you know, from year-to-year, and when you normalize those out, the underlying General Corporate Costs are relatively flat.

On page 22, we talked a little bit about this in the May result. I just want to remind everyone that, effective this quarter, so our April 1 starting quarter, and the one that we're talking about tonight, the way ETR under U.S. GAAP changed.

So we recorded a net deferred tax asset of almost $1.2 billion that arose from all the previous intergroup transfers that we've done, including that internal restructure that we talked about in the fourth quarter of last fiscal year, that was related to intangible assets and moving those into our U.S. business. The accounting rule that changed, effective April 1, requires that the amortization of those intangible assets reduce the deferred tax asset instead of reducing income tax expense.

The economic impact of that, we think, is either constant or neutral, if you will, to slightly improving from our prior position. If we go to slide 23, you'll see that we're estimating our adjusted effective tax rate for the year at 17.1%.

The adjusted income tax expense decrease was primarily driven by the change in U.S. statutory corporate tax rates following the change in U.S. tax rates in December as a result of the U.S. Tax Cuts and Jobs Act, as well as the adjustments that were related to the ongoing amortization of intangible treatment as a result of the fourth quarter transaction. On slide 24, you can see increase.

We've increased our net operating cash flows 36%, up to $113.3 million, primarily because of the net income and the underlying business's performance in the first quarter. We had some favorable movements in inventory, as a result of the volumes being higher, and somewhat of seasonality.

Then, you know, there, you'll note that the other net operating activities is a use of cash, but I'd say that's just from the normal course of business. Higher investing activities, obviously, we funded the Fermacell acquisition in the quarter. We're continuing to increase our capital allocation on capacity expansion-related capital expenditures. So that was up almost 54%.

If we go to slide 25, you can see the profile of the $73.6 million in CapEx for the quarter. In North America, we completed the startup at our Summerville facility. We've completed the commissioning and are into the startup phase now of our Tacoma facility, and we've broken ground and commenced the construction of the new greenfield capacity in Prattville that we're expecting to open in the first half of the next fiscal year.

For Asia Pacific, we've got two projects, one in the Philippines, where we're continuing to start up the additional capacity there, and that's going well so far. We're in the middle of a brownfield expansion project at the Carroll Park facility that we expect to commission in the early part of fiscal 2021.

On slide 26, no change in the financial management. You know, the company continues to start with strong margins and operating cash flows and governance and transparencies, and most of our decision-making framework is oriented around a investment-grade financial management approach.

No change in the capital allocation, so our top priority continues to be and remains funding organic growth, both for R&D and capacity expansion to support organic growth, maintaining the ordinary dividend and then flexibility for other things. We are maintaining the one to two times leverage range of adjusted EBITDA.

I know for the quarter, we're at the high end of that range. We'll talk about that in a moment. On page 27, you know, I think the balance sheet's in a strong position, continues to be in a strong position. We have almost $183 million of cash, just over $1 billion, almost $1.1 billion of net debt. We still have the $500 million revolving credit facility.

You can see the debt structure, no real change there, other than I note we've got the bridge financing loan in place for Fermacell, and we expect that to be replaced with a long-term funding strategy during this fiscal year.

But the 1.9 net debt, you know, is at the higher end of the range. That'll float a little bit higher. We tend to peak in terms of our net debt to Adjusted EBITDA in the second quarter with the payment to the fund. So that'll float a little bit higher. We'll continue to be above the range for probably another four to six quarters, and then we'd expect to come back down inside the range.

On page 28, talk a little bit about guidance. You know, for the year, you can see the analyst forecasts and the range there, 313 and 358. We're expecting Adjusted Net Operating Profit to be somewhere between $300 million and $340 million for the year.

You know, and you can see the assumptions there. We've got U.S. housing conditions similar to the way they were over the last year. So kind of moderate, modest growth in the $1.2-$1.3 million start range on the new construction side.

Input prices, you know, we remaining consistent, the average U.S. and Aussie exchange rates, no significant fluctuations with those. While we say kind of moderate inflationary trends, you know, meaning moderate in comparison to kind of the most recent trends. So with that, operator, that ends the presentation. We can open it up for questions.

Operator (participant)

Thank you. If you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. If you wish to cancel your request-

Louis Gries (CEO)

Before we take the first question, can I just make one additional comment, and then we'll take the first question?

Operator (participant)

No problem.

Louis Gries (CEO)

All right, that's great. Just like last quarter, I don't think results call is a good time to take questions on, you know, my retirement and who's gonna replace me as CEO of Hardie. So I will give you an update. Basically, three months later, everything is tracking as planned. We've gone through a few more gates.

When I say we, I'm kind of speaking for the board, and I think Mike Hammes will have a bit of an update with his AGM comments tomorrow. But anyway, last three months have gone as planned. We do believe in the near term we will be naming a successor. We're not quite there yet, but we're getting close.

Then, when we name the successor, there'll be a transition period. So, we'll name the successor. He'll become President and COO. He'll have responsibility for all operations, and then, the transition period will run roughly six months, where I'll remain in the CEO role. Upon my departure, obviously, we plan to transition to a CEO.

So that's the summary. I mean, it's right on track. I think it's very consistent with what we've talked about over the last probably three or four quarters. Everyone knows I'm retiring, and everyone knows we're working on succession, so everything's going as planned. Okay, first question is good. Good to go.

Operator (participant)

Thank you, sir. We will now take the first question from Brooke Campbell-Crawford from JP Morgan. Please go ahead.

Brook Campbell-Crawford (Equity Research)

Thanks. Hi, Louis and Matt. I had a question just reflecting on Louis, your comments around increased traction required to hit PDG target for this year, and just interested to understand if you identified what might be causing the slight drag relative to what I believe was a 3%-5% PDG target for FY 2019.

Louis Gries (CEO)

Yeah, it would be a bunch of small adjustments rather than any one you know kind of gap. So it's I think about a year ago, we were worried that the win-back business from when we were out of capacity wasn't coming back as quickly as we anticipated it would and that was kind of a singular focus for us at the time.

Now we're running all our programs you know against final close alternatives, all regions and like any business, you know we got some regions ahead of where we thought they'd be and a few regions lagging. Same thing with you know so, you know just generally variance in the market. But it would be a bunch of small things at this point to just keep building momentum, and no one thing that we have to go knock over in order to get there.

Brook Campbell-Crawford (Equity Research)

Thanks. Just one more for me for Matt on input costs. At the FY 2018 results, you noted that input costs headroom could be $30-$40 million in FY 2019. Just keen to understand if that's still a reasonable estimate?

Matthew Marsh (CFO and Executive VP of Corporate)

Yeah, we think it's probably north of that now by another $10 million. You know, I think that the range could be $40-$50 million. The pulp definitely hasn't come off, and the freight market remains, you know, really tight in terms of both truck availability and just market pricing. So, it's probably an incremental $10 million from when we talked last time.

Brook Campbell-Crawford (Equity Research)

Great, thanks.

Operator (participant)

Thank you. Your next question comes from Peter Steyn from Macquarie Group. Please go ahead.

Peter Steyn (Division Director and Managing Director)

Good evening, gents. Perhaps just taking off from that particular question, in relation to price, Lou, you mentioned obviously mix played a role in the 5%, but have you thought then incrementally differently about your prior thoughts about 2.5%-3% price growth for FY 2019 in the context of what you're seeing from a cost point of view, or are you trying to get a little bit more there?

Louis Gries (CEO)

No, we're not trying to get a little bit more, but we probably will get a little bit more than our initial variance, and like you said, it depends on regional mix and product mix, but we're probably in the three to four range for the full year, so the five's definitely higher than we think we end up the full year. As far as calling it closer to three or closer to four now, I think that depends on kind of what I said about market traction.

You know, if our color product is the area we get the most traction, then that brings price up pretty quick, or vice versa, if you know basic big builder, you know, HardiePlank is the area we get the acceleration, then you know, that brings it down. So I think three to four is now a safe range, and I can't really say it would be biased toward the three or the four yet, but it's definitely settling down from the five, because that was more about last year's comps than where we're at this year.

Peter Steyn (Division Director and Managing Director)

Okay. Then, perhaps, just a broader market question, Lou, your comment about still having to see how some of the headlines sort of flow through for you through the course of the year, what are you hearing? What are you seeing? What are you thinking about the next sort of six months from a volume point of view, given what one's seen in the indicators recently?

Louis Gries (CEO)

Yeah, I mean, I definitely don't think we know. It doesn't quite feel like the market index is five for us, and when we read other results, especially the ones in our space, you know, so vinyl, LP, the other fiber cement guys, I don't see anyone getting out front necessarily.

Then you look at the gypsums and the OCs and that, I didn't see any big quarters. So I'm just thinking maybe it's not, you know, five, maybe it's like a four market comp. But I'm telling you, I don't know, and we're not managing to that. We're fine with either one.

There's gonna be more houses built this year than last year, and that's really all we care about in our market development model is that the market's increasing, that builders wanna sell more homes. Therefore, they'll go to a you know a value-add product like ours over an OSB, a hardboard or a vinyl.

Peter Steyn (Division Director and Managing Director)

To be clear, you're not concerned about a significant reduction in the cyclical growth of the market at all overall?

Louis Gries (CEO)

No. Yeah, I'm glad you asked the question, 'cause I don't have that at all in my head. Now, that doesn't mean I know it. It shouldn't be in my head, but I don't have it at all in my head, and I haven't run into anyone in our industry that kind of is bearish on where housing's at. It's just more of a you know, 'cause we turned our kind of growth index, which we initially called PDG, and now I prefer to call it growth above the market index. We've turned that into kind of exact arithmetic.

When you know, when the market's just a little bit different, you gotta ask yourself, "Well, is that growth above the market index, or is that a difference in the index?" I'm saying this year it's too early to tell, but I don't think the market is running stronger than we thought it would, and maybe it's running exactly like we thought it would, meaning the forecasters, and maybe it's a little bit softer. But I'd be pretty sure it's not stronger.

Peter Steyn (Division Director and Managing Director)

Thanks, Lou. Cheers.

Operator (participant)

Thank you. Your next question comes from Simon Thackray from CLSA. Please go ahead.

Simon Thackray (Senior Analyst)

Thanks. Good evening, gents. I'm gonna follow up on that question, Lou, 'cause it's just been so many years that we had PDG and now growth above the market index. So just a really simple question, 'cause I'm not sure I understand what you're saying. Did you or did you not grow above your index in the quarter?

Louis Gries (CEO)

Yeah, just a, about -- we're at 6.5%. We think our index was between 4%-5%. So we think, if you want to measure a single quarter, which we always guard against, you're probably looking more like a 2% than the 3%-5% range we've talked about. But if you go back to our initial discussions, I think, in November and February, we said we're gonna have to build back to our PDG growth model rather than flip a switch to get there, and that's basically the focus of the organization.

Simon Thackray (Senior Analyst)

Yeah, and that was the exit rate that you spoke about last time at Q4 as well, for the end of the year, building towards an exit rate.

Louis Gries (CEO)

Yep.

Simon Thackray (Senior Analyst)

You're still confident in that exit rate?

Louis Gries (CEO)

So just to sum it up, I'm going to talk about volume a lot because that's what we're working on. But coming out of this quarter, we're not feeling like we have a problem, but we know we still have the challenge of increasing market traction to get where we want to go.

Simon Thackray (Senior Analyst)

Okay, that makes sense. Matt, can I ask a favor? Can you build us a bridge, please, back from this, the guidance that you provided, the 300-340 NPAT, given your guidance now for an effective tax rate of 17.1% for the year?

I don't know where interest is going to end up for the year. Maybe you can help us with that. But the implication against, I guess, where the consensus EBIT would be, looks like a 10%-11% downgrade to full year EBIT based on that lower tax rate. Have I missed something, or is that exactly what you intended to signal?

Matthew Marsh (CFO and Executive VP of Corporate)

Yeah, we don't normally kind of compare on the EBIT basis. Obviously, we normally do on adjusted NOPAT. I'd say on. You mentioned interest, just keep in mind that interest costs for the first quarter will be lower than they will be for most of the year as we refinance the bridge loan into kind of longer-term debt. So, there'll be kind of a marginal cost increase on that, as well as total net debt will increase. So, it's not first quarter rate times four to kind of get to your full year rate.

Simon Thackray (Senior Analyst)

No, I didn't get that.

Matthew Marsh (CFO and Executive VP of Corporate)

Um, we're-

Simon Thackray (Senior Analyst)

Are you prepared to give a number? Prepared to give a number just for interest, I mean, a range, what you think it'll be for the year?

Matthew Marsh (CFO and Executive VP of Corporate)

No.

Simon Thackray (Senior Analyst)

Okay.

Matthew Marsh (CFO and Executive VP of Corporate)

I'm not willing to, you know, I'm not sort of prepared to do that.

Simon Thackray (Senior Analyst)

That's fine.

Matthew Marsh (CFO and Executive VP of Corporate)

I think we can maybe have Jason, you know, work with you offline if you're trying to reconcile back on, you know, on kind of consensus EBIT. From the $300-$340, just keep in mind, we're gonna have, you know, about $30 million of kind of one-time cost included in that guidance range, of which $7 million is inventory adjustment we took in the quarter and $8 million, you know, a little under $9 million or $8 million bucks of integration and transaction costs in the quarter and another $15 million to go. So those are included, obviously, in that $30-$40 million range.

Simon Thackray (Senior Analyst)

Got it. In terms of-

Matthew Marsh (CFO and Executive VP of Corporate)

In that $300-$349 range.

Simon Thackray (Senior Analyst)

$349 range. Yeah, yeah, understood. So largely, what we're talking about is the impact of Fermacell acquisition in terms of expectation, where the underlying businesses are going, Asia Pac or International and U.S. all seem to be in line, and that's still tracking in line with expectations, notwithstanding, Lou, your comments that, you know, there's more work that definitely needs to be done to get to that exit rate on PDG. Is that the way I should be interpreting this guidance and this result?

Louis Gries (CEO)

Yeah. I think Asia Pac, we're, you know, feeling like we're in better shape than we thought we might be in the first quarter, and second quarter start looks pretty strong. In Fermacell, I think, you know, it's a sigh of relief because we're not a company that does a lot of acquisitions, and it looks like we've done this one well without hitting any speed bumps.

Now, what I do want to say on Fermacell, you know, this was owned by a private equity group, and they were a pretty good group. The plants were in pretty good shape, but we're gonna look at maintenance a little bit longer term than they probably did.

We're actually bringing one of their facilities down for eight weeks to fix up a press that they've been living with for a while. We have several of the other facilities coming down for some extra maintenance. I think we already took the one down in Spain for a week. We'll spend a little money in Fermacell in this first year to make sure you know the reliability on the manufacturing side is there. So you got that piece.

Now the U.S., I said Asia Pac's, you know, a little bit ahead of where we want to be. I wish, I wish I was a couple points ahead on volume right now. So, I'm not saying, I'm not saying I love where we're at in the U.S., but it's kind of fits with where I, you know, what I described for, you know, both the external market and our internal guys that, hey, we're gonna have to build this traction.

We're gonna have to, you know, really, really tune up our programs, right across the board in order to get back. You know, the 3-5 is, you know, a range for this year, but obviously it ratchets up next year.

Simon Thackray (Senior Analyst)

Sure.

Louis Gries (CEO)

So whatever we do this year, if we end up in the 3-5 range, then next year, you know, we got to get into the maybe 5-7 range, something, you know, more like a six average, maybe even a seven average.

So you got to do all this stuff right. We ran out of capacity. It's old news, but it's still, you know, kind of resetting the growth side of our business in the U.S. You know, it's a process, and so far so good. But I'm not, we're not ahead in the U.S. You know, I'm not saying we're behind. We're not ahead. We're ahead in Asia Pac. The guys in Australia, the guys in Philippines, they've done a really good job with those businesses.

On the market side in New Zealand, we've done a good job. You know, like any business, it's a mixed bag, but we're pretty good where we're at, based on where we thought, you know, where we communicated to the market, we thought we'd be at. We're kind of okay.

Simon Thackray (Senior Analyst)

Great. Thanks so much, gents.

Louis Gries (CEO)

Yeah.

Operator (participant)

Thank you. Your next question comes from Peter Wilson, from Credit Suisse. Please go ahead.

Peter Wilson (Former Director in the Credit Suisse Research team, covering Australian Utilities and Building Materials)

Thank you. Maybe just one more on Fermacell. The roughly EUR 30 million in transaction integration costs, am I right to compare that to the EUR 20 million you point- you called out at the fourth quarter results, or was it always going to be 20 integration + transaction costs?

Matthew Marsh (CFO and Executive VP of Corporate)

No, it's the same, with the exception of, obviously, we didn't anticipate the fair market value adjustment on inventory, you know, at the time that we said EUR 20 million. So you take the EUR 20 million of integration and transaction, add the fair market value adjustment, which again, is a non-cash adjustment, and, you know, that's how you get to kind of that $30 million range that we're now providing.

Peter Wilson (Former Director in the Credit Suisse Research team, covering Australian Utilities and Building Materials)

Okay, perfect. Thanks. Lou, back to North America. I mean, I don't want to labor the point too much, but the lack of share gain, can you just give us a bit more granularity on, you know, on kind of which regions, you know, you did gain share, which you didn't? In those regions that you didn't, you know, who, you know, who's taking the share from you, or not taking the share from you, but, you know, who's taking those sales from you that you thought you might not get?

Louis Gries (CEO)

Yeah. Well, like I said, when you look at our space, you can't find anyone doing better than we think they would be in a market like this, okay? So, you know, if you take the first half of the calendar year, where we're at, where Vinyl's at, where LP's at, which are the three big players, and then throw Allura in, the smaller player.

You know, it doesn't look like it's clear, you know, someone's winning on a regional mix, or someone's winning on a segment mix, or someone's winning just a market share gain. If it's there, you know, we can't find it. So, and as far as regions that are ahead or behind, it just moves around too much.

We don't have a problem region. You know, we had a bit of a problem last year in the South Central because that's where capacity was most constrained on our HLD product. That's been taken care of. So we don't have like, you know. The regional variances can move around.

The ones that are up the most now will probably, you know, taper off some, and the ones that are lagging a bit will kind of progress back toward the mean. But there are opportunities to run our programs better, and when I say our programs, remember, there's, first one is, your conversion process, and then how quickly your conversion process turns into volume. That differs based on what it is you're converting off of.

So, you gotta make sure you're running those programs right. Then you got your R&R, which is very separate in new construction. Then, you got your trim. We built more trim capacity in the south to sell more trim.

So trim is different than the siding conversions. Then, of course, at times, we run into markets leaking on us and right now, like I say, it's not obvious that any markets are leaking on us, but it's something that we need to make sure, you know, whatever channel arrangements we have in place, they work the way they're supposed to work.

For the most part, Neilson, who runs sales force now, that's his emphasis, making sure him and Gadd work to tune up the game plans, tune up the execution, and that's it. I mean, there's no, like I said, there's no one thing to talk about. It's just, let's make sure we're, you know, hitting on all cylinders in as many markets, as many segments as we possibly can.

Peter Wilson (Former Director in the Credit Suisse Research team, covering Australian Utilities and Building Materials)

Yeah, okay. I mean, you're coming on, like LP, I know it's just one competitor, but would you not concede that they seem to be gaining some share, you know, over and above what you're printing?

Louis Gries (CEO)

I mean, you know, you can read the results a lot of different ways, so what bothers me with the product they have, they're kind of playing even Steven. They're not gaining share because you looked at their first half versus our first half, we're a little bit ahead, but it's close enough to where I say we're not gaining share either against them.

I think the clear answer is, you know, Vinyl's giving up share, but it doesn't seem to be at the rate that you would think, but they are giving up share, and then it's kind of being split in the hard siding category. Now, Allura was down, so they're not picking it up.

You know, we're not picking it up as fast as we want, and LP doesn't seem to be picking it up as fast as us. Now, everyone's got a different market index because of their bias toward new construction, where our bias is, you know, to participate in all segments. So we're actually bigger in R&R because the R&R segment's bigger, not because our share is way higher in R&R.

So our shares are kind of, you know, good in all segments. Where they're more biased toward, you know, obviously they have a natural advantage, so in sheds, so they've got a very good share there. Then their next big share is new construction. So their market index is a little bit different than ours, but it doesn't matter.

We have the value proposition against LP and the market's playing even Steven on us and LP, and it's just, like I said, we gotta tune up our game plans because we don't think that's right. We think we create more customer value, and it's not being reflected in our growth rate right now, so we gotta do a better job.

Peter Wilson (Former Director in the Credit Suisse Research team, covering Australian Utilities and Building Materials)

Okay, fair enough, and just, just one last one. I think last time we spoke, you anticipated that, you know, you'd actually sell the better part of your volume in the first six months of this year, but on this call, you seem to be suggesting that, you know, your volumes will build throughout the year. Maybe just some comments on that and-

Louis Gries (CEO)

Yeah, I wanna correct that perception. I wanna correct that perception because the seasonal demand will mean that market activity is lower in the winter than it is in the summer. But growth above the market index is tied to you know, seasonal demand.

So if the market comes off, say, 6% in the winter months, in order to get a growth above the market index of 5%, you don't need as big of a headline volume growth number. So I do believe it's a fact that our growth above the market index has to be higher in the second half than it will be in the first half. But that doesn't mean our volume has to be higher in the second half than it is in the first half.

Peter Wilson (Former Director in the Credit Suisse Research team, covering Australian Utilities and Building Materials)

Okay, understand, and can I ask?

Louis Gries (CEO)

Yeah, just-

Peter Wilson (Former Director in the Credit Suisse Research team, covering Australian Utilities and Building Materials)

Is there anything in your order book now that gives you confidence going forward?

Louis Gries (CEO)

Yeah, I'll be honest. I mean, it's kind of like when you, when you're playing this game this close, you know, a couple percent above the index, you know, the margin for error is not very big. In May, when we did results, I actually liked the order book. It came off, starting late May, kind of through June, and July was an okay shipping month.

Right now, I'd say, just like I said earlier, I'd like a stronger order book, 'cause I'd like to make sure we're gonna, you know, step up another couple points before year-end on the growth above the market index.

So right now, I'd say our order book's not where I want it, but keep in mind, our order book is like three-week look at it. It's not like we know what we're gonna ship in November, but based on what we have booked in August. We know what we'll ship, you know, three, four weeks out based on what we've booked so far.

But right now, I don't like it. I think it's a little softer than we should be comfortable with. Now, going back to your earlier question, do I think someone else is getting it? I don't really think that's the case. I just think we're not gaining momentum at the rate that we want to gain momentum.

Peter Wilson (Former Director in the Credit Suisse Research team, covering Australian Utilities and Building Materials)

Great. Appreciate that. Thanks.

Operator (participant)

Thank you. Your next question comes from Keith Chau from Evans and Partners. Please go ahead.

Thanks very much. Thanks, Lou. Just a question on volume growth, and, you know, it's an important point given the expectations that have been set out over the last probably six to nine months for a stronger volume growth to return. You know, to your point, Lou, your order book look-out is three weeks. We're about halfway through the second quarter of this financial year.

So if we look out into the end of the second quarter, it sounds like we're setting ourselves up for another kind of mid-single digit volume growth quarter. So in that context, I'm just wondering, you know, should we be looking at the bottom end of that 3%-5% PDG range?

I guess, you know, to your point around looking at a four-quarter rolling average, the growth has been pretty tepid. So rather than talking about PDG and market growth, what do you think the total volume growth for FY 2019 could be?

Louis Gries (CEO)

Yeah, I mean, I'm no better at, you know, let me stay with growth above the market index. So we're forecasting based on building momentum. So do I think we should be in the bottom of the range? I'd say I don't know how I would know that, 'cause it's kind of hard to measure how much momentum you're building and what the orders are gonna look like in December, January, February.

So, you know, the range is 3-5, and if we fall in the range, I think we tick the box, and then we have a 5-7 range next year. So I think the biggest thing is, for our organization, let's do the work, but let's not fool ourselves.

This isn't about, you know, delivering four next year and then not building on that the following year. So, you know, so should you think the bottom of the range? I'd say it's your choice. Right now, I'm thinking the range is fine if it leads to the 5-7 range next year. So where we fall in the range is fine, just so it leads to further acceleration next year.

Now, go back to the, you know, you wanna take the shortcut, which I don't blame you. I take a lot of shortcuts myself and say, "Well, what should your total volume comp be for a year?" I'm gonna say, "Well, I don't know what the market index is." We came in thinking it's five, and it may be exactly five.

If it's exactly five, and like you say, you hit the bottom of the range, then you're, you know, eight, you hit the middle of the range, you're nine. But if you come in four, you know, with a market index, then everything comes down to point.

I wanna repeat, I don't like where we're at just 'cause the margin for error is small, and, and, Hardie gotta be, get back to where the market share gains are big enough to where little fluctuations here and there, here and there, don't we don't sweat it. We don't sweat it internally, we don't sweat it externally, and clearly, we're not at that point. That's why we're getting so many questions on the volume.

Yeah. Thank you, Lou. Just a second question on volumes, but focusing more on the interior product,

Yeah, interior is a little different, little different story. So, you know, on the exteriors, clear path, clear programs. With interiors, you know, we have a one to three. We came into one. We didn't talk about building through the year.

So basically, we're at the bottom of our indicative range. We're gonna talk about interiors in September, because there's a few things happening externally, not competitively, but externally in the industry, that requires Hardie to, you know, make some adjustments on how they wanna grow their interiors business.

So, again, a results call isn't a great place to go into new stuff, so we'll go into that at, you know, at the September investor tour. But having said all that, the one to three, again, you know, it's not a range. It's too early to move off the one to three. But there is some headwind in interior volumes, and it's external, it's not competitive.

Okay. Thanks, Lou. Then just a final one, and it's yet another volume question. But I think in the past, when PDG or volume growth has been soft, I think the company's been able to turn that around in a reasonably quick manner. I think this time around, it's just probably taking a bit longer than the market or we would have at least expected. So is there anything that's fundamentally changed within the business?

I know you talk about, you know, it's little, you know, tune-ups here and there, and a lack of, you know, transparency as to whether other market competitors have, you know, strengthened over the years. So is there anything else you can point to, which kind of means that it's been a bit harder this year, sorry, this time around than it has in the past?

It's a good question, and, you know, basically, you're saying: Well, why don't you just tell me what we talk about in your internal meetings, and we're not gonna do that. I can tell you, you know, the business is bigger, so obviously, the percentage is a lot more volume, and being able to chase that much volume, you know, we're juggling more balls, more segments, more markets, more customers.

Organizationally, maybe we're just catching up to that. I'm not sure. But there's nothing external. I think, you know, the other point you should make, you know, is, hey, I thought LP would be less of a split in the pie with you by now, and I agree with you, I thought they'd be less of a split in the pie with us.

If I had to say two things, I'd say the scale of the business is bigger, and organizationally, you know, maybe we got a little bit too used to thinking about how much volume we have to add rather than, you know, the percentage of what you have to add.

So our bars have to get a bit higher, and I think they have gotten a bit higher, and both Gadd and Neilson, you know, are working with their organizations on that. Then the other thing is, I think we've let LP exist as a company that's growing their volumes in a good market, when their value proposition is just not as strong as ours, and their price discounts, you know, don't really drive the business.

So we just need to do a better job on making sure kind of everyone understands the equation, and we enable the conversions and, you know, it is blocking and tackling. I couldn't agree with you more. It's taking longer than we thought it would.

The capacity shortage definitely added you know made it more challenging to get back on the front foot. But that's now been I think five quarters. There's just absolutely no reason we can't accelerate. That's the focus at Hardie: We need to accelerate. You guys are right. This quarter says, hey, you're just you're just creeping up a little bit here. When's it really gonna happen?

I think it's a good question, but I again can't tell you specifically when it's gonna happen, but I can tell you that's the focus of the organization. In the meantime, we're delivering pretty good results, so it's not like we have a problem, but we do have to accelerate addressing the opportunity of further market share gains.

Okay, thanks very much, Lou. Appreciate it.

Operator (participant)

Thank you. Your next question comes from Lee Power, from Deutsche Bank. Please go ahead.

Robert Lee (Managing Director)

Thanks, Lou and Matt. Lou, just touching on interiors, I know you're exiting some product lines. Is that - can you confirm that's all done, now?

Matthew Marsh (CFO and Executive VP of Corporate)

Yeah, that's done. Our price repositioning at Q2 is done. So the resetting of the interior business is done.

Robert Lee (Managing Director)

Okay. Then just touching on Fermacell, so I think you said that you'd gone into some of the plants and you'd planned some maintenance on, I think it was one of them. Can you - I mean, have you gone through all the plants now? Are you happy, having had the business the time you've had it, that you know, there's nothing there that you're gonna come across, where you're gonna need more maintenance or out of cycle maintenance?

Louis Gries (CEO)

I haven't been through all the plants, but as an organization, we're very happy with what we bought. What I was trying to communicate earlier, I don't know what a normal PE owner has their time horizon, maybe seven years?

We're a 30-year time horizon, so there's certain things we're gonna do with a facility that are different than what a PE owner is gonna do with his facility, and we're in the process of doing that. It's not gonna be a huge cash outflow, but there were a few things that they were operating around that, as part of Hardie, it didn't make sense to operate around.

So we'll take a plant down for eight weeks. We'll spend some money in there. We'll incur higher freight costs while we do that. So I was just trying to give the heads-up. I thought they delivered for the first quarter in Hardie. I thought they delivered a really good result. So far in the second quarter, the momentum in that business looks very good. But they're gonna deal with this manufacturing outage of one of their big sites for eight weeks.

So their EBIT's not gonna look as good. It's gonna be good for the year, but it's gonna be bumpy in the first quarter, first quarter better than the second, and probably third quarter better than the second. So but it's all as planned. I couldn't be happier with the Fermacell acquisition. I think it's the right acquisition to get serious about fiber cement growth in Europe.

It's a good incremental market share growth, growth company on its own. It has a very nice brand, very good sales organization, very good position in some key markets and the management has really aligned quickly with, you know, Hardie, how Hardie wants to think about growing a business.

So I couldn't be happier with Fermacell. Those of you that know Hardie for a long time know I'm not an acquisition guy. I didn't have much to do with the acquisition going right and the integration going right, but I do really feel our organization did a good job delivering on that because we're not a company that, you know, has that as a core capability, but our organization did step up and do that really well.

Robert Lee (Managing Director)

Excellent. Thank you.

Louis Gries (CEO)

Yeah.

Operator (participant)

Thank you. Your next question comes from Andrew Scott from Morgan Stanley. Please go ahead.

Andrew Scott (Financial Professional)

Thank you. Hi, Lou. Just on the Tacoma startup, Lou, I wonder if you could just speak on that. It sounds as if it's gone well, and just the level, if any, of margin impact that fell either into this quarter or that you think will fall into this quarter, the second quarter as we're starting up?

Louis Gries (CEO)

Yeah, we don't want to over-guide you on Fermacell. It's a brand-new business. It's relatively small. Oh, Tacoma Two, Tacoma Two. Sorry, I misunderstood you. Tacoma Two is going as planned, and I don't know, have we given any guidance on this? Of course, no. But you know, I would say the way it's going, you shouldn't see it in our results.

Andrew Scott (Financial Professional)

Great. Thank you. Then, input costs, obviously-

Louis Gries (CEO)

That doesn't mean it's not gonna cost us. It doesn't mean it's not gonna cost us anything. Of course, it costs a bit, but we're on track, so it's not a big enough startup cost to, you're gonna look at the EBIT margin and say, "Oh, they just started up a plant." I don't think that'll be the case. It's going pretty well.

Andrew Scott (Financial Professional)

Got it. Thank you. Input costs, obviously, there's some you can't do a whole lot about, like pulp, but can you talk about things like transport and maybe how you're reacting with the business there and how that plays into some of your scheduling, particularly going into the winter, where you had run some plants a lot harder and maybe shipped product a lot further. Does that get harder in this transport cost environment?

Louis Gries (CEO)

You, you guys are wearing me out. I had about eight questions in a row. I'm gonna flick this one to Matt, all right?

Matthew Marsh (CFO and Executive VP of Corporate)

Yeah, on freight costs, most of the pressure is market pressure. So we're seeing it, you know, across modes, we're seeing it across markets. There's 1/3 of it, you know, which we're obviously trying to manage through by pulling regional levers and optimizing, you know, sourcing decisions across the network.

But the main pressure is just on getting trucks, and as a result of a lack of trucks, we end up with higher pricing in order to switch our trucks in and be able to, you know, hit freight windows. So the freight costs, you know, for the year are definitely continuing to increase and higher than kind of where we thought they were gonna be, and most of it is kind of cross-market.

We're not really seeing, you know, a particular area of the country that's, you know, stronger or weaker relative to others. So, the levers that we end up having to pull is trying to optimize around lowest landed costs and distance within, you know, within a plant to a market, trying to mode optimize when we can.

Those are some of the things that obviously we're trying to do. The other thing that I think has helped a little bit this year is, you know, we had that distributed inventory program last year, you know, where we were able to take board and put it in closer to the market.

That, that's, you know, had a benefit both during the winter of the way we were able to produce and schedule the plants, but also, we got it there on a more optimized and at a lower market rate at the time than, you know, had we would've produced that board this year. So that, that's kind of a handful of the levers that we're trying to do to try to, you know, fend off, if you will, the inflationary environment we're seeing in the market.

Andrew Scott (Financial Professional)

Thanks, Matt.

Operator (participant)

Your next question is a follow-up question from Simon Thackray from CLSA. Please go ahead.

Simon Thackray (Senior Analyst)

Thanks. Thanks. Matt, just following on from that, that freight question. I know you guys have valued price, but just in terms of competitive activity, the freight costs have been rising so quickly, and I know you spoke about that at the fourth quarter as well.

Has there been any out-of-cycle price rise put through by any of the competitors so far for freight, and in the remote possibility that you ever did it, would you ever consider that being a possibility for Hardie, if the freight is rising across the whole industry?

Matthew Marsh (CFO and Executive VP of Corporate)

You probably have a better handle, Simon, on what the competitors are doing from a pricing standpoint with respect to freight or market than we would. You know, we look at our prices relative to the competitive alternatives in the market. I think you know, because you've been with us a long time, that we value price.

So our pricing decision, you know, is done really outside of any context on what input costs are doing. What we're trying to do is gain market share. We're trying to balance that with getting value for our product in the market.

So when we do the annual strategic price increases, always against the backdrop of where we are at versus the alternative in the market and our objectives to gain market share in that market. You know, we're not considering. You know, there's no discussions that we're having that would reconsider that, given kind of the inflationary environment.

The benefit and the strategic value of gaining market share far outweighs kind of the momentary point that we seem to be in a cycle where we got inflation costs kind of all going one way, which is kind of creating a discussion. We're trying to stay focused on the longer term, which is right price in the right market for the right customer, that allows us to continue to drive towards 35/90.

Simon Thackray (Senior Analyst)

Yeah, I expected and anticipated that would be your answer, which is consistent, you know, with the last 15 years. I guess it's the flip side of that then is if we are seeing price rises around because of inflation, is that giving the value pricing for Hardie better traction? So I guess, Lou, coming back to your point, would you be anticipating better growth above the index because you're more competitive now than you've been against some of your competing products?

Louis Gries (CEO)

You know, that does apply to close alternatives. It doesn't apply to vinyl, because vinyl's really purchased almost exclusively on the delta in install costs rather than purchase price. But, you know, I would say anyone in fiber cement prices off us, so, they wouldn't be trying to get in a, getting a premium for high freight if we're not. So I'd be pretty sure that the fiber cement guys haven't moved. As far as LP, probably the biggest one in the group, you know, I don't know what they would do, but I don't think...

You know, the problem with freight surcharges is, you know, if you, if you put one in, you gotta, you gotta take it back, and it's just a distraction for, for everyone in the channel. I know it happens with lumber, OSB, engineered wood, all that stuff, and, and they learn to live with it.

But as you indicated, over a long period of time, one of the things we've kind of delivered to the market is consistent pricing with annual reviews. So we deviated by mistake a few times, but for the most part, it's, you know, an annual review, and, and then you're kind of locked for the year. So you can bid jobs without worrying about what the price of siding is going to be in September, you know, whether it's pulp or freight or something else.

Simon Thackray (Senior Analyst)

Sure.

Louis Gries (CEO)

So yeah, we definitely stay with that. It's, you know, I'm sure on the margin, it's a little bit better if the other guys try and get their higher freight costs, and when the freight costs go the other way, and we don't take anything off, I'm sure it hurts us a little bit, but I don't think you'd see it in any real metric as far as growth goes.

Simon Thackray (Senior Analyst)

Okay. Then just finally, Matt, I guess coming back to, you know, that question about the incremental costs of the acquisition this year. Just, I think the question was asked, but just confirming, you'd had previously guided fairly clearly about EUR 20 million of integration costs this year.

As far as I'm looking at it, the only incremental cost that I can see so far is a $7.5 million inventory adjustment. Is that the only incremental cost that we've got over and above? Then you've got additional downtime that Lou talked about, you know, taking a few of these factories down. Is that it? Is that the, are they the only incremental costs beyond that EUR 20 million integration that you previously guided?

Matthew Marsh (CFO and Executive VP of Corporate)

Yeah, just to be clear, Simon, we wouldn't think of the incremental cost to bring a factory down as kind of integration or acquisition costs. It's just a choice that we make, and as a result, you know, the way the business, the underlying business happens to run.

But off the EUR 20 million, you know, the only real difference between that and the range I gave everyone today, or the math I gave everyone today, is that non-cash item that we announced today on the $7.3 million inventory fair value. So, you know, that's just part of purchase price accounting, and again, it's kind of non-cash. On a cash basis, there's really not much difference in what we talked about last time. On an expense basis, because of the way accounting works, you end up with a cost this year closer to $30 million.

Simon Thackray (Senior Analyst)

Got it. So it's not broadly different to what we should have already known anyway.

Matthew Marsh (CFO and Executive VP of Corporate)

Yeah, that's right. You wouldn't. I wouldn't have expected, you know, anyone to have had the 7.3. I didn't have the 7.3. You can't really anticipate that until you go through purchase price accounting. You know, so I wouldn't expect anyone to have that, but the $20 million, or EUR 20 million is still about right, and you add to that $7 million, it gets you kind of into that range that we talked about today.

Simon Thackray (Senior Analyst)

Yeah, perfect. Okay, Matt, thanks so much. Thanks, Lou.

Louis Gries (CEO)

Yep.

Operator (participant)

Thank you. Your next question comes from David Schwartz, from Goldman Sachs. Please go ahead. Mr. Schwartz, your line is now open. You may be in a muted mode. We will move on. Your next question comes from David Pace, from Greencape Capital. Please go ahead.

David Pace (Co-Founder and Former Director)

Oh, hi, guys. I was just wondering whether you could provide an update on the evaluation and planning of the business case for the Alabama mega plant?

Matthew Marsh (CFO and Executive VP of Corporate)

Yeah. So, I think we announced, you know, we announced, I think in May, that we were building the plant. We're gonna start with a two-line plant, that's in a really good location in Alabama. It's got a strong labor force around it, and it'll have, you know, a lot of inherent cost advantages that'll allow us to optimize our sourcing decisions kind of across the network, that'll have an overall benefit.

The other thing we like about that plant is, we're building it on a piece of land that'll allow us to expand the plant over time, assuming kind of our long-term demand forecast hold, at a relatively economical brownfield cost.

That plant we broke ground on, you know, this quarter, and we've got about four or five quarters ahead of us in order to complete the construction and get that plant commissioned and started up.

David Pace (Co-Founder and Former Director)

Does it ultimately help you with the freight impact as well, Matt?

Matthew Marsh (CFO and Executive VP of Corporate)

Yeah. It will allow us to get a freight advantage, you know, across the network. We'll see it probably in four or five different plants. It'll allow us to narrow the shipping radius of certain plants in the network. You know, the other component of that plant is we're building it at least with an idea that we may build a rail siding, you know, into the Northeast as a way to optimize freight for delivering product into that region.

David Pace (Co-Founder and Former Director)

Yeah.

Operator (participant)

Thank you. Your next question is a follow-up question from Keith Chau, from Evans and Partners. Please go ahead.

Thanks very much. Matt, just a quick question on the input costs. I know you present a slide talking about the market increases to input costs. I'm just wondering if you can give us a sense of whether James Hardie's freight and pulp costs are tracking to market or whether they're slightly below, please?

Matthew Marsh (CFO and Executive VP of Corporate)

Yeah. We're continuing to be slightly below. You know, the reason I think we're having to talk about input costs so much is, when you've got, you know, market prices on freight that are up almost 30%, and pulp, you know, up 20%, and the forecast for pulp not coming down, you know, those are obviously significant inputs for us or significant cost drivers for us, and they're up quite a bit.

So we are performing better than that. Our, you know, pricing is not up to that extent, but it's up significant enough that, you know, it's become a feature in the discussion, the last couple of quarters and is likely to continue to be a feature, we think, for the fiscal year.

Okay, great. Thanks, Matt.

Operator (participant)

Thank you. That concludes our question and answer session. I'll now hand back for some brief closing remarks.

Louis Gries (CEO)

Yeah, we don't have any wrap-up comments other than we appreciate everyone joining the call, and hopefully we'll see a lot of you in September. Thank you. Bye.