Louis Gries - Chief Executive Officer Matthew Marsh - Chief Financial Officer.

Emily Smith - Deutsche Bank John Hind - Bank of America Merrill Lynch Matthew McNee - Goldman Sachs Peter Steyn - Macquarie Group Simon Thackray - Citigroup Inc. James Rutledge - Morgan Stanley & Co. Andrew Johnston - CLSA Andrew Peros - Credit Suisse Keith Chau - J.P. Morgan & Co. Andrew Scott - Royal Bank of Canada.

Thank you for standing by. And welcome to the James Hardie Q1 FY2017 Results Briefing. All participants are in a listen-only mode. There will be presentation followed by question-and-answer. [Operator Instructions]. I would now like to hand the conference over to your first speaker today Mr. Louis Gries, CEO. Please go ahead..

Thank you. Hi, this is Louis Gries. I am in Dublin and Sydney with Matt Marsh. We’ll walk through the results very much likely we normally do quarter-to-quarter. The slides are being managed in Sydney. So I’ll be throwing out the page numbers start with Page 6 which shows you the agenda.

Again, same as we normally do I’ll cover the very high level overview a little bit on the operations Matt will go through the financials. I’ll finish up with Q&A. Investors analyst first and then if we have any media questions at the end. I’ll go to Slide 8, which is basically the first slide overview.

You probably have seen, we had a pretty straightforward quarter. In the first page, you get a green arrows pointing up everywhere but EBIT margin that was driven by a thinner EBIT margin in the U.S. business. But as a general comment, things were in - like to see it run in the U.S. and the businesses outside the U.S.

Before I go to next slide, which is the U.S. business, I'll just give you my quick summary upfront. So the volume comp was better. Basically, 16 well products that's more like 18 on exteriors, but those of you that follow the company probably remember we had a soft comp we're going against last year because the timing of price increase.

So we kind of normalized and see more like a 13 and a 15. 15 on exterior. Prices where it's been EBIT line a little short given the volume increase and that's really do to about four things. One of them was our planned SG&A increase, which we talked to you about.

Second one was we've accelerated some of our capacity start-ups, so you're starting to see that cost come in. The third one is the manufacturing networks. Just running a little bit shorter where we normally like to see it. So lost a little bit the bottom line there.

And then, we are running some logistics inefficiencies due to supply chain being - our supply being the entire our plan. So anyway, if we go to Slide 9, you can kind of see the results of that with the sales in the U.S. up 15%, volume, 16%, price like I said 1% off pretty much where we've been and EBITDA 4%, a good absolute number.

But obviously, little bit lower than you expected with that kind of volume increase. You see all the bullet points we have. On the Slide there, a pretty straightforward kind of that what my summary I just gave you. Slide 10, that's the EBIT margin slide.

Obviously, you can be reminded, I guess, this is seven quarters now where we're comfortably on top of our range. This one for our first quarter, a little bit closer to the top than you'd expect, I'm sure.

We still see the 25% top of the range performance going through the year, so we had no real concerns about the year is going to unless something changes externally I think the good shape internally. I'll go to Slide 11. And I said, price kind have been to where it's been. And what I mean by that, if you look at fiscal year 2015, 2016, 2017.

We basically have a $4 spread. You probably remember we didn't take price at the end of the fiscal year 2016. We reviewed it and do not take any interior, exterior. I mean, there were few place adjustments. I'm talking more across the Board.

So you see in that flatness, we did take price a year before, and it only went up $3, and that's some program cost that's show up in price rather than in SG&A. We will review price again this springs as we always do. Not sure what decision we'll take. We're comfortable where we're at with pricing.

As you know, our focus is more on the market share growth. Slide on the right or the graph on the right, I guess, shows you coming out of the downturn, the gradual increase in housing starts, which we talked about being pretty favorable for us as far as the way we like to run our business.

Obviously, we had more starts, we would have more business, we’d have stronger financials. But at the end of the day, if the market gets too hot, our market share growth becomes tougher. So we're comfortable where we're at in the market. Our PDG, we're a little bit more encouraged by our PDG now than we were a year ago, so that's good.

And like I said, pricing, we're okay where we're at although we've been flat for the last couple of years. Go to Slide 12, that's the International. Again, good story internationally. I guess you know we - red arrow there is on volume. But you remember that was driven by the Pipes business sale. So, right across. Well, Australia's running well.

New Zealand's running well. Philippines, you'll see in the next slide, Slide 13, has a few competitive issues that we haven't faced in the past. So our guys need to work through that, which I'm confident they will. But the big country numbers, which are shown here in U.S.

dollars, you guys - I know we have easy access to exchange rates, but you can see Australia up 11%. I guess, in local dollars, more like 16% and EBIT is up more substantially, up 38%. And that's because last year, we had a lot of start-up cost for Carole Park. And this year, obviously, doesn't. Similar story in New Zealand.

Sales are up 12%, so prices just off just a hair. Well, I shouldn't say hair, a couple of percent. But that's more mix. And the EBIT's down for the same reason. But again, the absolute numbers good. It's just how it's comping against last year. Philippines, like I said, we're more competitive than we had been over there as far as facing competition.

We're able to, in local dollars, improved EBIT by 8%. So we've got a little help from manufacturing there because the price was off just a little bit. And Europe, numbers look big for Europe. But remember, Europe was a poor year for us last year. We had a poor in Europe last year, so we're just comping against a bad year.

And the business is kind of rebounded nicely, but I won't get too bullish on the big percentage of improvement especially. At this point, I'll hand it over to Matt Marsh..

Thanks, Louis. Slide 15. I'll take everybody through the financial results. So for the first quarter, we reported sales of $477.7 million. They're up 12% compared to a year ago. Volumes were up, as Louis already talked about, and all operating segments, price was also higher in international segment.

You'll see when we get to the next slide, sales were adversely impacted by about one percentage point of growth as a result of the strong U.S. dollar. For the most part, gross profits, as on a rate basis were about flat. They increased kind of proportional to sales, up about 12%. SG&A expenses were up 17%.

That's really against a low comp in the North America business from a year ago. That will start to normalize in the second, third and fourth quarter as we are ramping up sales and marketing and PDG initiatives throughout last year. We didn’t really get that work going until the back half of the year.

So the first quarter a year ago is just a lower SG&A number. And then, adjusted net operating profit was up 5%. That's on adjusted EBIT, up 9% compared to a year ago. We had an increase in other expenses about $3 million and adjusted income tax went up proportionally with adjusted EBIT.

If we go to Slide 16, you can see the impact of the dollar and Australian dollar exchange rate. Had about a 1 point adverse impact on net sales and gross profit as well adjusted EBIT and net operating profit. So on Slide 17, in North America input costs. Pulp remained relatively flat compared to a year ago, both in the market.

We think we continue to have an effective sourcing strategy across all the inputs, including pulps. So we're purchasing better than the market. The market is about flat. Cement continues to be up. That's pretty consistent with what I think what we've said in the last several quarters. We are seeing about 5% compared to a year ago.

Gas prices are down and freight prices are down marketwise. As Louis said, there's some inefficiencies due to our own internal supply constraints. And then our electricity prices are down about 4%. So overall, input prices are trending flat to down. On Slide 18.

You probably noted, we've - before I go into the slide, we did change our reporting segment this quarter. We thought providing better visibility into just the North America segment, and what we've done historically is had Europe in the North America segment.

We thought there will be great clarity for investors and analysts on just reporting North America. So that's what we've done, and we included Europe in the international segment as well as broken out our non-fiber cement initiatives into one separate segment and then kept research and development as its own segment.

So on Slide 18 is that North America segment. EBIT was up 4%. When compared to a year ago, volume was good for the quarter, as Louis talked about earlier, 16% on a reported basis. That was partially offset by - price was down a little bit, but the real impact on EBIT, as I have indicated earlier was the higher SG&A costs.

Those dollars were invested directly into sales and marketing and commercial initiatives pointed out at PDG and market penetration. Programs helped drive growth. And then production costs were up slightly a bit from manufacturing, but the real driver on EBIT for North America was the increased level of SG&A.

On the international segment, EBIT was up 20%. Volumes were good in most of the businesses. You saw the price discussion overall we're getting good price in the key businesses and international. We definitely benefited in the quarter with not having the Carole Park start-up cost this year the way we did last year.

And we are continuing to vest internationally in growth and organizational capability. On Slide 19, the other business segment represents our non-fiber cement businesses.

Those EBIT losses, as we've indicated would narrow this year, as we continue to make progress in the Windows business and being able to operate that business the way that we want to be able to operated. So the higher gross profits in the quarter within the Windows business drove of the overall segment results.

Research and development continues to be on strategy. We continue to invest about 23% of our net sales, the normal fluctuations. There's nothing unique to kind of report on R&D. And general corporate costs were about flat for the quarter for both the general corporate cost as well as the stock compensation costs. Slide 20 is the income tax expense.

We are estimating an adjusted effective tax rate for the year of about 27.1%. The adjusted income tax expense and adjusted ETR for the quarter increased due to where the earnings are increasing geographically.

We continue to pay income taxes and have income tax payables in Ireland, the U.S., Canada, New Zealand and the Philippines, and we currently are not paying income taxes or payables. In Europe, excluding Ireland, or Australia and Australia, again, as a reminder, just due to the tax losses.

And the tax losses are primarily as a result of the reductions that we received related to the AICF contribution. Slide 21, cash flow. Cash flow from operations is strong for the quarter. It is the combination of the underlying net income adjusted for non-cash items was up about 13%.

And then, we had a favorable change in receivables and accounts payable. You might remember from last quarter, we showed working capital as being receivables and payables working against us and inventory levels coming down.

And the explanation at that point was just timing of how the March 31 period ended and what you're seeing here is that timing come back kind of the other way. So nothing unusual to read into underlying performance of receivables or payables it just happen to be the way the timing works.

Capital expenditures were down slightly compared to about a year ago but relatively flat. You can see there, we had a proceeds of about $3.7 million a year ago, related to the sale of some property and facilities at our old Blandon facilities. That's what that $3.7 million is obviously that didn't repeat. Overall, good cash performance for the quarter.

On Slide 22, the first quarter CapEx spend was about $17.8 million. That was down slightly within kind of a normal variation level. From a capacity standpoint, we've commissioned the new line in Plant City during the quarter that we're in the process now of starting that up and getting sell of a board off of that sheet machine.

We're in the process of completing the Cleburne facility with a goal of completing that and then starting up that later in the year. And then, as we talked about in May, we've began construction on a new line in the Philippines facility. And that's expected to cost about $11.7 million. If we go to Page 23.

No change overall in the way that we're thinking about the balance sheet. Our financials continue to be good. We always start the equation that we want strong financials in the company.

So for us, that's strong margins in operating cash flows and continuing to think of the balance sheet on our overall financial management policies from as an investment-grade credit. We did get two upgrades recently. In the quarter, Moody's upgraded us to Ba1 on the credit rating.

And that was just followed by S&P upgrade in February, to BB and Fitch reaffirms the BBB minus. No change in capital allocation for the priorities remain the same. Our top priority is to fund the Fiber Cement business, both from and R&D and OpEx and SG&A standpoint to ensure the plants are running well.

And that we've got a sales and marketing programs and the organization in place in order to build to grow organically. Maintaining the ordinary dividends, no change there and continuing to execute the ordinary within the defined payout ratio. And then, everything else comes thereafter.

A combination of wanting to have availability of capital for strategic opportunities in non-Fiber Cement whether market cycles and then additional capital returns on top of that to extent that, that refund exist. From a liquidity standpoint, no change there.

We continue to have a conservative policy of being leverage between one time to two times adjusted EBITDA. We still have the $500 million revolving bank facility. The $325 million senior unsecured note and we did an additional reoffering of about $75 million of notes in July to take advantage of good pricing and a good market opportunity.

That financing is I'll talk about on the next page. Created some flexibility for us down the road. Our weighted average maturity is about 4.4 years. On bank facilities, 5.3 years in total. And liquidity is in good shape.

On Page 24, you can see the debt profile on the left, $500 million of revolving facility, $325 million of an eight-year senior unsecured note. We did the reoffering of those same notes. We're happy with the execution on that reoffering. Cash remains in a good place, $95 million at the end of the period.

Net debt and liquidity are within the financial management target that we set. And you can see the leverage ratio - we continue to execute within that one to two times well within that one to two times leverage ratio. For the fiscal year, on Page 25. The analyst forecast was $264 million to $302 million right before the call.

We're guiding to a $260 million to a $290 million for fiscal year 2017. Obviously, that's predicated on several things. Housing conditions in the U.S. to continue to improve to a kind of a steady rate, and we're continuing to forecast U.S. housing starts on the new construction side of 1.2 million to 1.3 million.

And the adjusted net operating profit range is subject obviously to foreign exchange levels continuing at or near the current levels. And overall market conditions remaining about the same. So with that, we'll open up to questions..

Thank you. [Operator Instructions] Your first question comes from Emily Smith with Deutsche Bank. Please go ahead..

Good morning, Louis and Matt. Just a few questions from me. Firstly, around pricing. Obviously, prices were a little bit lower in the quarter.

Just wondering if you can give us some color around what we should expect going forward from a pricing perspective? Secondly, just wondering if from an SG&A perspective, you can give us a bit more color around the sort of headcount that perhaps has been added, and if you would expect that growth to continue? And then just finally, wondering around the increase in production costs.

If that's something that you were expecting. And in fact, if that was something that will likely continue for the remainder of the fiscal year? Thank you..

Okay. Thanks, Emily. I think I can comment on your three questions. Pricing, we haven't done anything on pricing. And like I said, we'll review it in the spring. So I think you're seeing the type of pricing that we’re going to have through this fiscal year. It could be a little softer as we go through the year.

But then, the mix would it be regional or products or if there's a few more programs that start building more scale. But and then, will look at the first year. And if we were to go for price increases, start seeing it in next year's numbers, but not this year's numbers.

On the headcount, we did had a lot of headcount, mainly in the sales and marketing areas. Some other areas as well, but the focus was sales and marketing, either in the field or in the office. And it won't continue at the same rate. We started that ramp-up last year.

So the comps, you see the big percent increase this quarter, but that's mainly because we haven't started adding very much early last year, but we did through the rest of the year. So we'll add some more. But this is probably the biggest percent increase you'll see. My guess would be right through next several years. We did had a lot of SG&A.

And then finally, production cost. The accelerated start-ups kind of reflect the fact that we had our calculation a little bit off and how fast we could stretch up to higher demand levels. So we definitely got a little bit nervous that we're right to ensure that our service position, our most products has dropped.

Still an unacceptable range and one product drop below unacceptable range. So we're doing what we can to play catch up there. So you'll have some trade inefficiencies because we're going to optimize around throughputs, machine throughputs, rather than freight. So you'll see some inefficiencies there.

And like I said, the plants didn't run as good as we thought they would. It's probably in the normal variance range, but it's also possibly being contributed just because we have more activities going on with start-up in PC ramp-up in Fontana getting ready to start up [indiscernible].

And then, we have some people work in our Summerville facility as well. So we just spread a little bit thinner than when we're planning to be spread at this point in the year..

Great. Thank you. And I guess, the 18% volume growth you mentioned on exteriors is a very solid number and in price that the market share. You guys are winning, I guess from a market share perspective.

How are you seeing primarily demand at the moment? Are you pleased with that volume number?.

Well, I mean, certainly, we look at the four quarter rolling, and we really didn't like where we were last year this time. And we're definitely in better shape. But I wouldn't get too attached at the 2018. I don’t want to mislead you. Our volume looks good so far this quarter.

So we're feeling pretty good about it, but it's a longer game in one, two or three quarters. But we're definitely kind of ticking up on a PDG, but we're not where we want to be..

Great. Thanks very much..

Thank you. Your next question comes from John Hind with Merrill Lynch. Please go ahead..

Good morning, Louis and Matt. Perhaps, we can quickly just continue on from the PDG question. Are you able to give us a little bit more color on the R&R market? That seems to be, I guess, where the holy grail of getting more of those volumes.

How are you sitting there? Are you doing anything differently this quarter versus this time last year? And then, I've got one other question to be touch on that..

Yes. On the R&R, most of you that are familiar with our program, R&R it's mainly against vinyl. And it's a good program. We run it pretty well. I’ve commented in the past the variability mark-to-market on how well it's run is more than we like.

We've got some market to just hit out of the park year after year, and then you have some markets that kind of don't quite get the threshold that we want. But I would say, overall, we're doing well with our R&R program. Here in our market, I think, it's also pretty good.

Probably, the number we're looking at is just above the 4%, which is probably what within the year we're expecting. Most of our emphasis on PDG is new construction. So as we build PDG, and I hope we continue to in coming quarters. It will be largely and hold our momentum in R&R and build more momentum in new construction..

Thank you.

So with the splitter being, your typical 60-40, R&R to new this time around, this quarter?.

Yes. I mean it's a growth rate in those segments that kind of change the percentage and I don't think the growth rate over the last year or two has been enough to really market to much of the 60-40. So I'd say that still a good rough estimate. Maybe, a little bit more or maybe 59-41 or something like that, but I wouldn't worry about that..

Okay. And just quickly on Plant City.

Obviously, commissioned - can you give us some sort of estimation where you think you'd be sitting with volumes from that plant over the next say, 12 to 24 months? When do you expect it to be in line with the rest of your plant?.

Yes. I mean, it's a big sheet machine, and we we're ramping it up on plank products now, and we're going to move to trim products as soon as we get to certain level on efficiency and aligned. So we're going to have the kind of a double ramp. First ramp, planks is an easier product, so you start to line on planks.

And then once you feel you've got the thing pretty settled down, we'll put your money to be in the second ramp just a trim going. It's kind of what we call product efficiency ramp rather than the process efficiency ramp. So my guess would be the new line in Plant City, maybe by the end of this year would be two thirds of throughput rate.

But we do focus a lot on sheet machines. But yet, there's other things that have to happen as well, and we're a little bit bottlenecked down finishing. The sheet machines actually come up at a quicker rate than our finishing. So we'll have to work through that.

And then, we also think we need to restart from one of the lines we shut down in anticipation and the big line coming up. So we think our calculation there wasn't - it was too tight. So will be ramping up, I think, it's PC3 we have done. And so we're working on that.

So what you guys are going to be looking at our manufacturing as you're going to be looking at a fair amount of ramp-up cost over the next six months now. I think with the business as big as it is and with the extra volume, we should be able to handle that.

It won't dampen even as a rule because you're getting the extra volume to offset whatever inefficiencies you have on those new lines. So we're not that concerned about it or just kind of disappointed in that we had a schedule for bringing these new lines on, and we just realized that we're planning to close.

So we haven't accelerated two or three of them at the same time, which I do think stretches our guys a little thin..

Okay. Thanks very much Louis..

Your next question comes from Matthew McNee with Goldman Sachs. Please go ahead..

Thanks guys. Just a couple of ones, just a follow-up. But Louis, just on price, you said you haven't done anything on price. But you mentioned in the result so change the pricing and technical pricing.

So is that mainly bigger rebates? The bigger homebuilder is getting lower prices on? I'll note that LP's prices has been done a couple of percent in the last couple of quarters. And also the vinyl guys have pushing their prices down on the back of lower input costs.

So is that impacting you guys? And also, if you continue to see if these other cuts, is that going to make a price increase next year highly unlikely?.

I wouldn't be able to tell you what we'll do what price next year, but I don't think it falls into the highly unlikely category. So where we're at in the business generally in price, I guess, specifically, is we're really focused on growth.

Okay, because we're well under this recovery, and we hope we have a lot of years, maybe in five or six years of increasing housing starts, because they haven't spiked on us. So that's good news from our perspective. And we just feel like we got to go for the market share gains now and not let other things get in the way.

And that's why a little bit disappointed that we missed on the capacity needs short-term because now we're kind of go and hand them out. It's we'll get out of this winter, but it's harder to grow the business. It's hard to kind of sign up new business if your service position feel on your base business.

So having said that, I saw LP was down a little bit. There was also always a little hard for me to read because I don't know what they do with the OSB that they produce out of those plants. But Vinyl, I know that this business. Vinyl doesn't affect us at all because we are such a premium the vinyl to the end user.

Whatever move they make don't really change that we're a big premium. So it's a very small difference for someone deciding to spend the extra money for Fiber Cement. Theoretically, LP is a closer alternative to Hardie. So our pricing with downward look more or like it does with competitive Fiber Cement.

But the situation we have would pricing right now is not being impacted by LP. And I wouldn't anticipate that that's going to become a problem for us because there is a very different value proposition for a builder that's going to use our product versus chipboard.

Now they are going to go to chipboard to say a little bit of money, but certain percentage of the market will be after that savings and make the trade-off. But we don't think our target customers falling in that category..

But the price decline is not just mix.

There's actual price declines in some of the products?.

Yes. Sorry we had a sound bite in your question that I forgot to pick up. You said rebates. So we do have higher rebates on program, some program stuff like 100% Hardie. Some of our programs that are bundled even in the nine colored markets, bundled at the trim that deciding they can get a rebate and kind of go on with a 100% Hardie exterior.

So our percent discounts in new construction has increased, and that's part of what's causing that 1% decline..

And it's fair to say that then, you get the lower prices if it's higher volumes.

So the two go hand in hand?.

Yes. Well, yes, that's true. So even if you say you're a site-in user, you don't think you can forward our trim. We sharpen it with a pencil and come up with a kind of whole house cost for you that's on MSF basis is a little lower for us but higher revenue for the house.

So you're right, we'd end up with more revenue but a little bit lower price per MSF..

And sorry, just two very quick ones. Just SG&A, we only see at the group level. So can Matt maybe give us a bit of an idea with extra $2 million, extra $5 million in the quarter for the U.S.

business? Or what sort of magnitude are you talking about?.

Yes, it's about $10 million, Matt, for the quarter. And this is definitely the toughest comp. So if 100% increase, you'd expect that to have as you go into the second half of the year. And by the time you get to the fourth quarter, we would have been well into both the headcount additions that we're doing last year and the program expenses.

So get to kind of a much more normalized rate. Another way to kind of think about it is as a percent of sales versus last - versus a year ago, there's about a 1.1% increase at a percent of sales. And what you'd expect kind of it to normalized towards is closer to where we were in the fourth quarter.

So if you take the first quarter that we just reported and compared to the most recent quarter as a percent of sales, that's more of a representative run rate, and you're just seeing a particularly tough comp this time because we weren't adding, in the business, at this stage, the way we should have been.

I think we need to get going on some of those additions in some of those programs until we're here in the fall..

And sorry to bring this one up, Louis. And just on Ryan's recent departure. Any comment on how that changes your plans.

I don't need to know the exact reason why he left, but just your plan on what it means? How long it might take to find someone else?.

Yes. No, that's fine, Matt. So unfortunately, I think my retirements been talked about mainly as a date. And people were focused, and I also talked about my commitment to the Board to stay until 65. So I think everyone took that as a hard date. And it shouldn't be a hard date. It should be readiness.

So Ryan's exit from the business has changed our readiness for succession. I would say, yes, if everything worked out well, we probably would've been ready when I turned 65. We may still get there, but we may not, and my commitment to the Board is readiness rather than a date..

Okay. Thank you..

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

Good morning, gents, rather should I say good evening and thanks very much for your time.

Can I just get a quick sense just from the capacity expansion cost? Could you give us a view of what it cost in the quarter and how do you see that progressing over the next four quarter?.

Yes. Within the quarter, it was probably a couple of million dollars within the quarter on that Plant City line. Now we'll continue to incur some costs on Plant City as we continue to ramp that up. Obviously, the early days of a start-up.

You'll get some inefficiencies within the board that you're getting off of the line and some additional labor and a combination of those two result in the start-up costs. Once we finish the construction in Cleburne, you'd expect that in the back half of the year, probably something similar in the order of magnitude on the Cleburne plant.

So probably in total for the year, by the time you start up those two lines and get Fontana running the way that we want to get Fontana running, we could be in the $5 million to $10 million range of start-up costs for the year between all three of the sites..

Okay. And then just one thing I wanted to pick up on, Louis, in his opening remarks just spoke about the plant is not quite running at the capacity intended and then on the other hand, some splash shortages leading to logistic inefficiency.

Just kind of strike me that perhaps some regional aspect to what you're facing there? Could you give us a bit of a sense whether there's regional dislocations that are specifically impacting your capacity and demand linkage?.

Yes, you're right. That’s always regional, but we cover up the regional shortages with freight, so that's some of those inefficiencies we talked about. But we're shorter in the south than we are in the north. And our bigger problem is right now, we're short on XLD Trim. So that new line in Plant City, intended to make XLD Trim.

But like I covered, until you have a certain reliability in a new line, you don't want to put a difficult product on there. You just kind of magnify the issues. So we're currently having to be patience to get to a certain level on start-up before we move to trim to that line.

And so that's really - that's a product that's in very much short of supply, the rest of it is just a little bit of our service position. And I think our customers are able to work through that pretty well. But the XLDs, a problem we got to work through and we'll get through it by about December 1.

But quite honestly, we would have preferred not to have the problem at all because it's a great product line for us..

And if I may, just a last quick one.

How you're thinking about your buyback now that it’s formally in place?.

Yes. That's a good question, Peter. So I think I've said in the past, buying in the first quarter is proves always to be a lot more difficult than I frankly care forward to be, mainly because governance and blackout windows with the way we space out our fourth quarter results are from remuneration report.

Our notice of meeting, our Annual General Meeting, we did a bond within the quarter to kind of add an additional blackout complexity. And then, obviously this quarter the releasing of the new fiscal year. So it does make it difficult in the first quarter to buy activity.

In May, what I said was we still have a good win to a buyback program of $100 million and that was give we want a quantum that we could actually go execute on - the goal is to execute on that within the first six months of the year. So obviously, we haven't done that yet.

I fully intend to go execute on that and I’ll keep my comments at that, I’d say those two guidepost remain the same with respect to the buyback..

Perfect. Thanks Matt. I’ll leave it there..

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

Thanks very much. Good evening, gentlemen. Just a couple of follow-up questions if I can. I just got to the international division. Lou or Matt, the volume for international was down 2%. And I know the impact from pipes is included in there. But ex-pipes, Australia was up 9%; New Zealand was up 14%; Europe was up 5%; and Philippines was down 5%.

Just a clarification, what was the contribution the volume of the pipes was making for volume to be down 2% overall?.

Yes. I mean, for the year about the equivalent of 30 million standard fee of total volumes. So call that within the quarter, $7 million to $10 million, depending on the quarter. And obviously, that goes to the zero within this quarter..

Got you. And just on New Zealand, Lou. I'm slightly - and maybe little bit surprised. The volumes up over 14% the sales are up 8%, the EBIT is down 12% and your comment on a lower average sale price and product mix. That's been probably one of the better performing housing markets in the world.

What's actually happening there that you're getting adverse mix and adverse price?.

Yes. I think it's just quarterly variance. So the sales are down 12% in local dollars, so the price is just off a little bit. And it’s up 12%. Sales are up 12% so the price is down just a hair. And it's just quarterly variance. I think if it doesn't correct by the half year, we'll correct as we move through the year.

So we don't have any problems in New Zealand business, we're doing well..

We'll move on from that. In terms of the input costs I note the stability, if you look on Page 17, the quarterly U.S. input cost. Probably without exception in the current quarter all of those have tipped up. Gas is up 25%. So you've got - it seems to me along with an improving macroeconomic backdrop, we're seeing some rising costs in the U.S.

No doubt everybody will back out extra SG&A, and they'll back out ramp-up cost and all the other things [indiscernible].

With the actual input costs rising against the market recovery, what are you assuming in your margin guidance that you'll hit that top end of that 25% range? Could these costs a for the acceleration in these costs, derailed that target for the year, given everything else is happening?.

Yes, I think probably we just out to go an incredible run to do that. And so we don't see that..

So no issues around cement, gas, electricity, freight, diesel?.

Our contracts on cement. We know what we're going to pay, so we don't have to worry about that. And gas and power, yes - we're confident that, yes, that's not going to derail as you say..

Okay. Excellent..

Thank you. Your next question comes from James Rutledge with Morgan Stanley. Please go head..

Thanks good morning.

Just firstly, Lou or Matt, can your remind is where your utilization currently stands? And I guess, how we should be thinking about extra capacity coming online over the next couple of years, or is it just specific lines that needs to come on given specific shortages?.

James, I don't know if you're going to be in September 2. But clearly, we don't like our equation. The result that the equation that we had. So we are doing work in that area. But in the meantime, we've kind of taken a safe approach and dusted off all the capacity that we have ready and we're going to get it started up.

So I can give you much better answer and one of the guys will give much better answer on the September 2. And if you're not going to be there, obviously, it becomes public, but yes, we kind of get too tight. So our mathematicians have to go back to work.

And figure out with the market variance, with the PDG variance, with the manufacturing variance, the ramp-up variance, we just got it too types. So we need more insurance in the system..

Okay.

So we shouldn’t be thinking about 72% or 75% utilization or whatever it was last quarter on that calculation?.

No, I think we were wrong. I don't think we have that weighted well for the machines and a product mix. But like I said, the guys are working it on it now. And yes, it is pretty embarrassing. We just became aware of this a couple of months ago. How these things build the guys thought we were okay and it gets tighter and tighter and tighter.

And before you know it, you're not okay and you got behind. But again, I want to point out again, just so everyone understands, this is in HLD problem, and we have the line. We're obviously shouldn't started up earlier. We didn't we should have.

And then the rest of our product is kind of tighter than what we've want, but it's not what I would consider a shortage at this point. But there is a shortage in our HLD product..

Okay. Thanks. I guess, secondly, I'm just hearing that the competitive Fiber Cement products are being extremely aggressive on price in the last few months.

So are you seeing any competition consensus there or anything that worries you from competitive Fiber Cement?.

Yes. We're not really aware of any change in the approach by direct competitors..

Okay. Thanks. I guess, just finally, given LP's volume growth and their comments around potential for further capacity lines even Greenfield lines, I guess, over the next few years.

How are you thinking about them as a competitor in the context that, I guess, over the last 12 months or 24 months, you've said that when you really need to see LP disappear almost from the markets, so you guys to achieve your 35% margin target?.

Yes. I think I'd have to check. But I think my comments has been, yes, if LP grow, they're growing at our expense because we're the ones converting Vinyl to Fiber Cement. And if they're behind us converting Fiber Cement to Chipboard, then that's from for us. So that go away because a relative of the advantage on panels is real.

So the shed market is a good market for them. They do our manufactured housing for the same reason the panel products is good. And their trim product is well established in a lot of markets, and it's like what they're trying to do with their siding is it's not as durable as you'd want to see for a long-term exterior product.

But they're trying to grab a good enough position with a savings for the end user, whether it will be a builder or a contractor. The comp they just delivered was not unexpected by us. So we kind of knew because of where they were at with the capacity that they needed to come out with a comp like that.

So like we always say, on those, we're not going to a look at it quarter-to-quarter, and we're going to look at full year rolling. And we don't - we don't want to do the market development to see the vinyl share decline and then see them get a portion of it.

So if they start taking market share, in a real way that's not necessarily a showstopper for the 35, 90, but it's not our intention to see that happen. We will make the market understand the trade-off they are making. And you're going to have your most price conscious end users, still go for their product at times.

But I don't think that's going to be the normal situation..

Okay. It’s clear. Thanks..

Thank you. Your next question comes from Andrew Johnston with CLSA. Please go ahead..

Good evening, guys. Just a couple of follow-up questions. First, on the increase marketing expenditure. I mean, the last couple of years, you've spent a fair bit of time talking to us about where you're targeting be metro, non-metro, R&R.

So those additional SG&A or marketing expenses that you're putting in, where that is that targeting?.

Yes, that's, well, I commented earlier, right? We think, in this business cycle, in a good recovery market, most of our share gains will come from in the new construction segment. So a lot of it is pointed toward new construction or any channel that's forcing the construction. But I don't want to mislead you.

We also, as I said earlier, our R&R program, it's a bit variable mark-to-market, so we've also showed up manning in that area. And then finally, I commented that we have some in the office as well, and it's not insignificant what we've done in the office. It goes both in the strategic marketing and tactical marketing in the office.

So I would say, Andrew, I know you have been following the company for a while. Everything we've talked about, I would say, everyone in those programs are still active and still getting more resources..

Okay. And finally, on PDG, your comment was that not quite where you wanted at the moment. I mean, looking through the 18% number, I don’t know it’s often an easier comp in that, but it's not quite where you run it. I'm guessing that when it's above 8%, you're happy.

Would that be a fair guidance at the moment so to see at running around the mid-single-digit numbers?.

Yes. So we were about 8% for eight quarters in a row, I'd be happy. So, you have played a double eight there..

Okay. All right, guys. Thanks very much..

Thank you. Your next question comes from Andrew Peros with Credit Suisse. Please go ahead..

Thank you. Just a quick follow-up from that last question.

Louis, what are you expecting in terms of volume growth for this financial year?.

Yes. We don't forecast our volume, but you guys know the market is as well as we do as far as housing starts. You can calculate our PDG over the last four quarters, and we expect maybe add on to that a little bit. And by the way, we haven't talk to interiors. Our interiors business is running well. So we get some volume off of that.

But it's fair to say our volume's going to be higher this year and then we - what we plan going in. But still kind of in the range, but it's going to be better than we planned going in..

Okay. And I just wanted to also confirm that those operational SKUs that you had in the fourth quarter last year have completely wash through, and that was no spillover into this quarter. I guess, what I’m specifically referring to is you have that issue in Europe. I know you briefly touched on Carole Park.

But just want to confirm that there was no additional ramp-up cost in this quarter, and those manufacturing issues in the U.S. have completely washed through. So any thoughts around that will be great..

Yes. I mean, Europe has rebounded. But it was running poorly and it’s rebounded. So you can see that in comp. And Carole Park, yes, the start-ups pretty much behind them, so you can see that in their comp. I think, the reality is we're trying to grow in Australia with the new capacity. We're obviously trying to grow in the U.S.

We've got the Philippines capacity. We are investing in. I think the normal for the next two, three years is start-up costs will always be in our result. And we probably knew this start talking about less. And just see this part of the cost of growing, bringing on new lines.

But because it comes, Carole Park start-up cost more than it should have and more than we plan. So we did talk about that. But the Plant City start-up at this point going pretty much as planned on the cost side. And if we deliver that with Cleburne in Summerville be a little bit more difficult, but this has been down for several years.

I think that's just going to be the normal right through this business cycle because if we grow our market share and the market continues to recover even in a slower rate, there's going to be lines coming out every year..

Maybe Andrew, just one add-on comment. So I think you're also referencing from the fourth quarter we have the operational issue in one of our U.S. plants that we talked about, and that was all contained in the fourth quarter and there was no carryover effect into this quarter..

Also, just finally, the Windows business.

Is the expectation still that vis-à-vis the final year of losses there and I guess, effectively was it pace going into FY 2018?.

Yes, I actually thought our - my comments in the past next year there will be some small losses. And then, we should be - it depends on what we do. I mean we continue to learn about the opportunity of Windows and we continue to learn about our capabilities which are improving obviously.

So you can see the - I think you can probably see the numbers come down. It's a very manageable number.

What's more important to us is what's the potential for Windows and what are the trigger points for going a lot harder at Window? So as far as the base kind of the business model run rate right now, we'll get more efficient both in the market and operations so the losses have come down.

But on the expense side, product line design, new segments, new markets. If we double down and want to do a lot more of Windows, you're going to see those costs hit the EBIT line. But now, we're in the place where you can see them, so you'll know when it happens..

And just on housekeeping, Matt.

Any guidance around effective rate for the full-year? And any CapEx guidance perhaps this year or next year?.

Yes. So the effective tax rate, the adjusted effective tax rate for the year is the 27.1%. That's the best estimate that we've got at the end of this period. We think we'll have largely maintenance CapEx this year. It's kind of in line with last year.

I think the one item that we weren't talking about, in the last couple of times we've talked is Summerville. So as we start to think about getting that site ramped up, that will be maintenance CapEx.

It will be a little bit of capacity cost at the Brownfield sites, so that will be pretty inexpensive of the capacity, and we’d expected that project runs a lot lower than both the Plant City and the Cleburne start-ups, sorry, the new lines. But we haven't got to a stage yet we're ready to kind of announce what that project will cost.

I'd say by the time we get to November, we'll certainly be talking about that..

Okay. Thanks very much..

Thank you. Your next question comes from Keith Chau with JPMorgan. Please go ahead..

Good evening, Lou and Matt. Probably just laboring the point, but just a couple of questions on pricing in SG&A. Matt, just on SG&A. You mentioned that you expect that to continue to rise, normalized this year.

So I just wanted to look at from a dollar perspective, the first three quarters of last year was tracking around the $62 million range, ramped up in the fourth quarter to $69 million and now heading $72 million.

So when you say normalized, are you suggesting that that number remains at around the $70 million mark and the next few quarters? Or is there an opportunity for that to increase further?.

Yes. The number in total. It's going to be pretty consistent with that fourth quarter number. The $72 million that I'm just looking, is got some general corporate cost in it.

So the reason I point at on that is to keep in mind that the general corporate costs, obviously, going to fluctuate up and down in the stock comp sort of expenses, which is operational in nature just more of an accounting valuation based on the share price. So but as a role, I think your got the right framework, Keith.

The fourth quarter and the first quarter look a lot alike. They're pretty similar quarter-to-quarter. This particular quarter, if you were to compare it to 1Q a year ago, there's that step-up in costs. And you're seeing that in the result.

But you expected that to started decrease in terms of the comp in 2Q, 3Q and 4Q and get into that kind of a more normalized rate of what you've seen in the last couple of quarters..

Sure. Okay. And just Lou, quickly one on pricing again. Just wanted to ask the question a bit more simply. But just the proportion of the total customer base.

Are a high proportion of customers receiving discounts and rebates? And are these discounting levels high than last year?.

Yes. There's certain discount level of programs that the higher than the last year. And I would say this same group of customers are probably receiving the rebates. But that group of customers is doing a high percentage of the business..

Okay. Thanks very much Lou..

Thank you. Your next question comes from Andrew Scott with Royal Bank of Canada. Please go ahead..

Thank you. Louis, just a question or obviously working our way through the segment in EBIT. If we look at North America first FY 2016 North American division versus USEFC, the margin for 2016 year was something like I think about 1.8% higher. Given that as a context, I am sort of interested that we're still talking to 20% to 25% margin target.

Should that really be sneaking its way up to a couple of points higher?.

I would say that would be maybe your target. But our target still the same because our targets through the business cycle. And you remember in the bottom of the cycle, we were working hard to stay close to the 20. And then, in the top of the cycle like you say, it's not as hard. It's not that hard to stay at the top or slightly above.

So it's - and this goes back to the previous question of SG&A, which Matt answered. But what I really want to remind you is we got a lot of things we think we can do to grow the business and deliver increased shareholder value in the long term. But we got to have the capability to do it well.

And if we have the capability to do it well and we have the money to do it, we're going to do with. So we're going to trade of that EBIT margin for some extra growth opportunity. Now what we've been in, in the last a little bit is our capability to do it well was less than what we want.

So we're a little slow to kind of spend the money if we can do it well. But with new resources coming into the business, and those resources kind of ramping up on both the industry and a company, I think we're going to want to spend at higher rate, maybe not the rest of this year.

But certainly, year is going forward whether it be fiscal year 2018, 2019, 2020, something like that. So yes, it wouldn't surprise me if 27% became a new normal going through recovery. But it wouldn't be our intention for that to happen..

Okay, great. And just any context to spending - some of those spending a little bit ahead. I'll note in the outlook comments you talk about margin in the top end of the 20% to 25% range. I think historically, you might have said that the top end or above.

Am I being too pedantic there or do you expect it will be within that 20% to 25% range this year?.

Yes, it's a good question. I think what we want to figure out before we tie in that language is really what happens with these start-ups. That start-ups running at - thinking about Carole Park last year, where with the start-up that we said we thought we left some money on the table by not having that start-up go quite as planned.

That was the start-up, I think the numbers that we quoted in the last couple of results is $7 million, $8 million and total for that start-up. And that was the start-up that didn't go towards according to plan.

Plant City, on the other hand, we like how that start-ups going so far, but we're still on a relatively early period with that machine, and we still got the Cleburne line to start up. And then depending on what Sommerville shapes out to be.

So you got those variables that we'd like to get a little bit further into the year before we incorporate that into kind of both a tighter guidance range as well as kind of giving you some comments that help you steer towards the top end of that range versus being above that range..

Got it. Thank you, guys..

Hey, I'm going to go back to the first part of your question because I didn’t answer this, clearly as I should have. We won’t manage to the 27 number. If a 27 number drops out, we are obviously going to post it. But we're not managing up to a 27 number.

We're managing towards the top of the range and trying to balance our growth when we have the capability to spend the money well..

Understood. Thanks Louis..

Thank you. There are no further questions at this time. I'll now hand back to Mr. Gries for any closing remarks..

All right. Thank you very much. I appreciate everyone joining the call. Thank you..

That does conclude our conference for today. Thank you for participating. You may now disconnect..