EXHIBIT 99.4
[JAMES HARDIE LOGO]
MANAGEMENT'S DISCUSSION AND ANALYSIS
14 November 2002
JAMES HARDIE INDUSTRIES N.V.
RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2002
USGAAP - US$ MILLIONS SIX MONTHS ENDED 30 SEPTEMBER
-----------------------------
FY 2003 FY 2002 % CHANGE
------- ------- --------
NET SALES
USA Fibre Cement $307.2 $225.3 36
Asia Pacific Fibre Cement 96.7 76.8 26
Other Fibre Cement 3.9 2.0 95
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TOTAL NET SALES 407.8 304.1 34
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Net sales $407.8 $304.1 34
Cost of goods sold (260.3) (202.5) 29
Gross profit 147.5 101.6 45
SG&A (includes R&D) (75.2) (61.4) 22
EBIT (Operating profit) before restructuring and other
operating expenses 72.3 40.2 80
Restructuring and other operating expenses -- (11.1) (100)
EBIT (Operating profit) 72.3 29.1 148
Net interest expense (5.4) (9.4) (43)
Other income/(expense), net 0.1 (0.7) (114)
Operating profit (Income) from continuing operations
before income taxes 67.0 19.0 253
Income tax expense (20.5) (4.9) 318
------ ------ ----
OPERATING PROFIT (INCOME) FROM CONTINUING
OPERATIONS $ 46.5 $ 14.1 230
====== ====== ====
NET OPERATING PROFIT (NET INCOME) INCLUDING
DISCONTINUED OPERATIONS $100.5 $ 9.5 --
====== ====== ====
Tax rate 30.6% 25.8%
Volume (mmsf)
USA Fibre Cement 677.5 496.5 36
Asia Pacific Fibre Cement 182.9 158.2 16
Average sales price per unit (per msf)
USA Fibre Cement US$ 453 US$ 454 --
Asia Pacific Fibre Cement A$ 852 A$ 852 --
Unless otherwise stated, results are for continuing operations only and
comparisons are of the first six months of the current fiscal year versus the
first six months of the prior fiscal year.
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Media/Analysts enquiries, please call:
Greg Baxter, Senior Vice President Corporate Affairs: Telephone - 61 2 8274 5377
Mobile - 0419 461 368
Email - greg.baxter@jameshardie.com.au
Steve Ashe, Vice President Investor Relations: Telephone - 61 2 8274 5246
Mobile - 0408 164 011
Email - steve.ashe@jameshardie.com.au
Facsimile - 61 2 8274 5218
www.jameshardie.com
TOTAL NET SALES
Total net sales increased 34% compared to the same period of the previous year,
from US$304.1 million to US$407.8 million.
Net sales from USA Fibre Cement increased 36% from US$225.3 million to US$307.2
million due to continued growth in sales volumes.
Net sales from Asia Pacific Fibre Cement increased 26% from US$76.8 million to
US$96.7 million due to higher sales volumes.
Net sales from Other Fibre Cement increased 95% from US$2.0 million to US$3.9
million as the Chilean flat sheet business and the US-based FRC Pipes business
continued to ramp up, following their start-up early in the 2001 calendar year.
USA FIBRE CEMENT
Sales revenue increased 36% from US$225.3 million to US$307.2 million.
Sales volume increased 36% from 496.5 million square feet to 677.5 million
square feet, due to strong growth in primary demand for fibre cement, increased
housing construction activity and sales from the Cemplank operations acquired in
December 2001.
Buoyed by low mortgage rates, housing market activity remained healthy during
the period despite a softening in consumer confidence.
There was strong volume growth across all major markets. Market share increased
in the siding, backer and trim segments and in both the southern and northern
regions of the country.
In the northern region, further market share was taken from the dominant siding
material, vinyl. Market penetration strategies in the north, including the "Why
Settle for Vinyl?" marketing campaign, helped to build awareness of our
product's attributes among the region's builders, distributors and homeowners,
and led to increased demand.
Strategies for further growth in the southern region, including an increased
focus on repair and remodel markets and increased selling activity in rural
areas, helped the business take additional market share from other siding
materials in the region, particularly engineered wood.
In the interior cement board market, sales of Hardibacker 500(TM), our 1/2 inch
backerboard that is manufactured using proprietary G2 technology, continued to
grow strongly compared to the same period of the previous year. Sales also
increased markedly for Harditrim(TM), vented soffits and Heritage(R) panels and
the ColorPlus(TM) Collection of pre-finished siding.
The average selling price decreased by US$1 compared to the same period of the
previous year from US$454 per thousand square feet to US$453 per thousand square
feet due to sales from our Cemplank operations that have historically been at
lower selling prices.
JAMES HARDIE HALF YEAR FY03 MD&A 2
During the period, we commenced construction of the 160 million square feet
panel line at Waxahachie, Texas, and the pilot roofing products plant at
Fontana, California. At the Peru plant in Illinois, we began to manufacture
products on a newly commissioned second production line in September.
On 22 October 2002, we announced that our Blandon, Pennsylvania plant will
undergo a US$15.3 million upgrade that will increase annual production capacity
from 120 million square feet to 200 million square feet to meet rapidly growing
demand in the north-east region.
ASIA PACIFIC FIBRE CEMENT
Sales revenue for this segment increased 26% from US$76.8 million to US$96.7
million. Sales volume increased 16% from 158.2 million square feet to 182.9
million square feet.
AUSTRALIA FIBRE CEMENT
Sales revenue increased 26% from US$48.8 million to US$61.5 million. In local
currency, the increase was 18%.
The growth in sales revenue was due to a 19% increase in sales volume, from
107.1 million square feet to 127.6 million square feet. This was partially
offset by a 1% decrease in the average selling price due to aggressive pricing
in the FRC Pipes business.
Demand for new residential housing remained at high levels during the period
buoyed by a relatively strong economy, low interest rates and the continuation
of the Government's First Home Buyer's Scheme.
The robust trading conditions led to higher sales for most products in most
markets.
New housing approvals started to slow during the second half of the period, but
this did not impact demand, as there is a 3-6 month lag between the start of
house construction and the sale of our products.
During the period, we relocated our corrugate production line, which
manufactures HardiFence(TM), from Perth to Brisbane.
NEW ZEALAND FIBRE CEMENT
Sales revenue increased 41% from US$18.7 million to US$26.3 million due to an
increase in sales volume and a slight increase in the average selling price. In
local currency, sales revenue increased 25%.
Sales volume increased 22% from 18.1 million square feet to 22.1 million square
feet due to stronger demand arising from increased residential building
activity, which is being fuelled by low and stable interest rates, high
inflation in house selling prices and a stronger economy. Residential
construction for the first half of the fiscal year increased 24% compared to the
same period last year.
The new Linea(R) weatherboard cladding range of products launched in March 2002
continued to penetrate its targeted markets, taking market share from
alternative products
JAMES HARDIE HALF YEAR FY03 MD&A 3
such as brick. Linea(R) is a thicker, lightweight weatherboard that uses our
proprietary low-density technology and offers a number of performance advantages
over timber weatherboards, notably superior durability.
Despite the non-residential building market being weaker this period compared to
the same period last year, sales of panel products such as Hardipanel(TM) Titan
and Hardipanel(TM) Compressed sheet were up strongly during the period compared
to the same period last year.
PHILIPPINES FIBRE CEMENT
Sales revenue decreased by 4% from US$9.3 million to US$8.9 million. In local
currency, sales revenue decreased 5%. This was due to a decrease in the average
net selling price.
Sales volume increased 1% compared to the same period of the previous year, from
33.0 million square feet to 33.4 million square feet due to increased demand in
the domestic building board market, mostly offset by weaker export sales.
We continued to penetrate the domestic building boards market during the period,
taking further share from the main competing material, plywood. Strong demand
for HardiFlex(R) lite, a thinner, lighter sheet designed for ceiling
applications, and Hardiflex(R) 4.5mm, used in ceiling and internal wall
applications, continued during the period.
During the period we launched our first plank product, Hardiplank(TM) Select
Cedarmill, which is being marketed to architects and developers. The launch of
plank is expected to increase sales to large residential projects.
The average net selling price decreased 6% compared to the same period of the
previous year due to a decrease in sales of higher-priced exports.
OTHER FIBRE CEMENT
CHILE FIBRE CEMENT
Our Chilean operation, which began commercial production in March 2001,
continued to penetrate the market at its targeted rate.
Despite deterioration in market conditions during the period, sales revenue and
volumes were significantly better than the same period of last year. A larger
than normal decline in construction activity in the second half of the period
associated with winter weather conditions and the impact of regional economic
instability were responsible for the weaker market conditions.
The business also moved to the next stage of its market penetration strategy
with the launch of new interior and exterior products. These include
Hardibacker, for interior applications, and textured panels and planks, for
exterior cladding, both of which are targeted at larger scale builders working
mainly in the social housing segment.
Strong sales growth continued for EconoBoard(TM), which is targeted to builders
of small-scale homes and additions and the "Do-It-Yourself" market distributed
through retail stores, and Duraboard(TM), also targeted to the social housing
segment.
JAMES HARDIE HALF YEAR FY03 MD&A 4
Highly competitive market conditions and aggressive pricing strategies continued
during the period. Despite this, sales of higher-priced, differentiated products
helped increase the average selling price compared to the same period last year.
USA FRC PIPES
Our FRC Pipes business continued to penetrate the south-east market of the
United States and improve its operational efficiencies. Sales revenue and
volumes more than doubled compared to the same period last year.
Sales volumes have continued to grow since the business began operating early in
calendar year 2001, as awareness among construction contractors has increased
and as the product range has been progressively expanded.
The current product range of 12" to 36" diameter drainage pipes allows us to
compete for an increased number of construction projects in the south-east
market. Sales of our larger diameter pipes (30" to 36") continued to grow
strongly, in particular, during the second half of the period.
We estimate that our share of the large diameter drainage pipes in the
south-east has lifted to 10%.
Competition has reacted to our market entry with aggressive pricing. As a
result, our average net selling price decreased 19% compared to the same period
of the previous year.
This is being offset by unit production costs which have started to decline as
significant improvements in manufacturing efficiencies are being achieved.
The US civil construction market remains buoyant. In Florida, activity is
increasing due to the start of projects funded by TEA-21 and the Florida State
Mobility Act, both of which involve significant increases in government spending
on highway construction.
GROSS PROFIT
Gross profit increased 45% from US$101.6 million to US$147.5 million due to
strong improvements in USA Fibre Cement and Asia Pacific Fibre Cement. The gross
profit margin increased 2.8 percentage points to 36.2%.
USA Fibre Cement gross profit increased 44% due to higher sales volumes and
lower unit cost of sales. The gross profit margin increased 2.0 percentage
points.
Asia Pacific Fibre Cement gross profit increased 43% following strong
improvements from all businesses. Increased volumes, lower raw material costs
and improved manufacturing efficiencies were major factors in the improved
results. The gross profit margin increased 4.4 percentage points.
JAMES HARDIE HALF YEAR FY03 MD&A 5
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES
SG&A expenses increased 22% compared to the same period last year from US$61.4
million to US$75.2 million. This increase was mainly due to the funding of
growth initiatives in the USA and Europe, and an increase in bonus accruals in
line with the significant improvement in operating profit. However, SG&A
expenses were 1.8 percentage points lower as a percentage of sales at 18.4%.
RESEARCH AND DEVELOPMENT (R&D) EXPENSES
Research and development includes costs associated with `core' research projects
that are aimed at benefiting all fibre cement business units. These costs are
recorded as `corporate costs' in the Research and Development segment rather
than being attributed to individual business units. These costs were flat at
US$4.1 million compared to the same period in the prior year.
Other research and development costs associated with commercialisation projects
in business units are included in the business unit segment results. In total,
these costs increased 20% to US$3.6 million, reflecting a greater number of
projects in the development and commercialisation phase.
RESTRUCTURING AND OTHER OPERATING EXPENSES
There were no charges for restructuring and other operating expenses in the
current period. In the same period of the previous year, there was a charge of
US$11.1 million. This included a US$6.4 million charge for the decrease in the
fair value of the company's pulp hedge contract, required to be marked to market
each quarter due to the implementation of a new US accounting standard on 1
April 2001, and US$4.7 million relating to the corporate reorganisation.
EBIT (OPERATING PROFIT)
EBIT before restructuring and other operating expenses increased 80% from
US$40.2 million to US$72.3 million. The EBIT margin before restructuring and
other operating expenses increased 4.6 percentage points compared to the same
period last year, to 17.8%.
There were no charges for restructuring and other operating expenses in the
period. As a result, EBIT increased 148% from US$29.1 million to US$72.3
million. The EBIT margin increased 8.3 percentage points.
USA Fibre Cement EBIT increased 52% from US$52.4 million to US$79.5 million due
to strong sales volume growth driven by increased primary demand for fibre
cement, lower unit cost of sales from improved manufacturing efficiencies and
lower raw material prices, partly offset by higher SG&A costs. The EBIT margin
increased 2.6 percentage points to 25.9%.
Australia Fibre Cement EBIT increased 57% from US$8.8 million to US$13.8
million. In local currency, the increase was 47%. The stronger EBIT performance
was due to higher sales volume and lower unit cost of sales, partly offset by
higher SG&A costs. The EBIT margin increased 4.4 percentage points to 22.4%.
JAMES HARDIE HALF YEAR FY03 MD&A 6
New Zealand Fibre Cement EBIT increased 44% from US$2.5 million to US$3.6
million. In local currency, the increase was 31%. The increase was primarily due
to higher sales revenue and lower raw material prices, partly offset by higher
SG&A costs. The EBIT margin increased 0.3 of a percentage point to 13.7%.
Our Philippines business recorded a small operating loss for the half year. The
loss was primarily due to a decrease in manufacturing performance at the
Philippines plant in the second quarter. The business was cash flow positive for
the period.
Both USA FRC Pipes and Chile Fibre Cement incurred operating losses during the
period as these businesses continued to ramp up.
General corporate costs decreased by US$9.6 million from US$24.3 million to
US$14.7 million. This decrease was primarily due to a US$4.7 million charge
related to our corporate restructuring and a US$6.4 million charge for a
decrease in the fair value of the pulp hedge contract incurred in the six months
ended 30 September 2001, and not repeated in the current period. Standard
corporate costs increased primarily due to an increase in bonus accruals, in
line with the significant improvement in operating profit.
NET INTEREST EXPENSE
Net interest expense decreased 43% from US$9.4 million to US$5.4 million. This
was primarily due to a decrease in net borrowings following the receipt of
proceeds from the sale of our Gypsum business in April 2002.
INCOME TAX EXPENSE
Income tax expense increased by US$15.6 million from US$4.9 million to US$20.5
million, in line with the increase in profits.
OPERATING PROFIT (INCOME) FROM CONTINUING OPERATIONS
Income from continuing operations increased by US$32.4 million from US$14.1
million in the six months ended 30 September 2001 to US$46.5 million in the
current period.
DISCONTINUED OPERATIONS
In fiscal year 2002, we successfully completed the transformation of our company
into a purely fibre cement business when we sold our Windows business and signed
a definitive agreement to sell our US-based Gypsum operations. We completed the
sale of our Gypsum operations on 25 April 2002. We recorded a net profit from
discontinued operations of US$54.0 million in the current period, primarily due
to the sale of our Gypsum operations.
JAMES HARDIE HALF YEAR FY03 MD&A 7
LIQUIDITY AND CAPITAL RESOURCES
We have historically met our working capital needs and capital expenditure
requirements through a combination of cash flow from operations, proceeds from
the divestiture of businesses, credit facilities, proceeds from the sale of
property, plant and equipment and proceeds from the redemption of investments.
Seasonal fluctuations in working capital generally have not had a significant
impact on our short-term or long-term liquidity. We believe that we can meet our
present working capital requirements for at least the next 12 months based on
our current capital resources.
We had cash and cash equivalents of US$321.8 million as of 30 September 2002.
This amount will decrease after the following have been paid: the shareholder
approved capital return of the Euro equivalent of 20 cents per share, rounded
upwards to the nearest whole Euro cent; the dividend declared of US 5.0 cents
per share; taxes on the gain on sale of our Gypsum operations, which is being
paid over four instalments; and an estimated prepayment of US$60.0 million of
notes and any make-whole payments of approximately $5.0 million to $6.0 million
(US$3.1 million to US $3.7 million after tax). At 30 September 2002, we also had
credit facilities totalling US$458.4 million of which US$231.1 million was
outstanding.
EFFECTIVE INTEREST PRINCIPAL
RATE AT TOTAL FACILITY AT OUTSTANDING AT
DESCRIPTION 30 SEP 2002 30 SEP 2002 30 SEP 2002
----------- ----------- -----------
(In millions of US$)
US$ notes, fixed interest, repayable
annually in varying tranches from 2004
through 2013 7.09% $ 225.0 $ 225.0
A$ revolving loan, can be drawn down in
either US$ or A$, variable interest based
on US$ LIBOR or A$ bank bill rate plus
margin, can be repaid and redrawn until
maturity, where US$87.2 has a maturity of
November 2005, with the extension of the
balance still in process N/A 108.9 --
US$ stand-by loan, can be drawn down in
either US$ or A$, variable interest based
on US$ LIBOR or A$ bank bill rate plus
margin, until maturity, where US$102.5
has a maturity of October 2003, with the
extension of the balance still in process N/A 117.5 --
US$ line of credit, can be drawn down in
Chilean Pesos, variable interest based on
Chilean Tasa Activa Bancaria rate plus
margin, maturity December 2003 5.52% 7.0 6.1
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TOTAL $ 458.4 $ 231.1
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JAMES HARDIE HALF YEAR FY03 MD&A 8
As a result of the completion of the sale of our Gypsum business on 25 April
2002, we were not technically in compliance as of that date with certain
pre-approval covenants of our US$ non-collateralised note agreements. We are
currently in discussions with the note holders with respect to either the waiver
or the renegotiation of such covenants.
CASH FLOW
Net operating cash inflows increased by US$56.3 million to US$72.6 million for
the six months ended 30 September 2002 compared to the same period in the prior
year. The increase in cash flow was primarily due to the increase in operating
profit in this period, excluding the gain on disposal of our Gypsum business.
Net investing activities produced a cash inflow of US$310.6 million for the six
months ended 30 September 2002 compared to a cash outflow of US$33.3 million for
the same period in the prior year. The six-month period ended 30 September 2002
reflects proceeds received from the sale of our Gypsum business and lower
capital expenditures compared to the same period in the prior year.
Net financing produced a cash outflow of US$93.4 million for the six months
ended 30 September 2002 compared to a cash inflow of US$28.7 million for the
same period in the prior year. The cash outflow in the current period was mainly
due to repayment of borrowings from proceeds received from the sale of our
Gypsum business in April 2002. In the same period last year, proceeds from the
issuance of shares more than offset the net repayment of borrowings and payment
of a dividend.
End.
JAMES HARDIE HALF YEAR FY03 MD&A 9
NOTE
This Management's Discussion and Analysis document forms part of a package of
information about the company's results. It should be read in conjunction with
the other parts of this package, including a Media Release, a Management
Presentation and a Finance Report.
DISCLAIMER
This report contains forward-looking statements. Words such as "believe,"
"anticipate," "plan," "expect," "intend," "target," "estimate," "project,"
"predict," "forecast," "guideline," "should," "aim" and similar expressions are
intended to identify forward-looking statements but are not the exclusive means
of identifying such statements. Forward-looking statements involve inherent
risks and uncertainties. We caution you that a number of important factors could
cause actual results to differ materially from the plans, objectives,
expectations, estimates and intentions expressed in such forward-looking
statements. These factors, which are further discussed in our reports submitted
to the Securities and Exchange Commission on Forms 20-F and 6-K and in our other
filings, include but are not limited to: competition and product pricing in the
markets in which we operate; general economic and market conditions; compliance
with, and possible changes in, environmental and health and safety laws;
dependence on cyclical construction markets; the supply and cost of raw
materials; our reliance on a small number of product distributors; the
consequences of product failures or defects; exposure to environmental or other
legal proceedings; and risks of conducting business internationally. We caution
you that the foregoing list of factors is not exclusive and that other risks and
uncertainties may cause actual results to differ materially from those contained
in forward-looking statements. Forward-looking statements speak only as of the
date they are made.
JAMES HARDIE HALF YEAR FY03 MD&A 10