Asbestos Claim Surge Puts James Hardie into Loss

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Thursday, May 22nd, 2014
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An unexpected surge in asbestos claims has hit the bottom line of building materials supplier James Hardie even as improving construction markets and fibre cement sales have driven a substantial comeback in underlying profitability.

In a statement released on Thursday, the company said it had incurred a net operating loss according to US accounting standards of $186.8 million in the fourth quarter, albeit with full year profit more than doubling from $US45.5 million to $US99.5 million.

The quarterly loss stems from a surge in claims against the Asbestos Injuries Compensation Fund, a company funded trust set up in 2006 under an agreement between James Hardie and the New South Wales government to manage and pay claims for injuries relating for asbestos related diseases emanating from the company’s previous activities including mining asbestos and supplying building products, insulation, pipes and brake linings containing the deadly material.

In the twelve months to March, the trust received 370 claims for mesothelioma (average claim size $308,005), a form of cancer developed from cells within the protective lining that covers many internal organs of the body and is most commonly caused by exposure to asbestos – well above the expected number of 300 and almost 20 percent above the number from last year.

James Hardy - asbestos

All up, 608 claims for asbestos related diseases were lodged (well above an expected number of 540) compared with 542 in the previous year, forcing the firm to incur a charge of $322 million worth of accounting adjustments for its estimates of current and future asbestos related liabilities.

Excluding this, however, underlying profit (net operating profit excluding interest, tax, asset impairments and asbestos related liability adjustments) lifted from $US37.0 million in the three months to March 2013 to $US57.4 million in the quarter just ended, whilst full year underlying profit rose from $US181 million to $US252.8 million.

James Hardy - profit

Both sales volumes and prices of fibre cement products increased amid strong housing activity in the United States and higher volumes of dwelling construction starts in Australia and New Zealand, albeit with the market for renovations having flat-lined in Australia.

Current investment activities, meanwhile, include additional sheeting machines at two plants in the US as well as the upgrading of previously leased land and buildings the company recently purchased at Carole Park in Queensland.

Going forward, the company does not provide material guidance but says it expects the US operating market to improve and points to strong housing approval data in Australia and New Zealand as indications of likely continued strength in these markets notwithstanding the flat conditions in the Australian remodelling market.

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