MARKET AND CAPACITY UPDATE. Matthew Marsh September 2016

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Transcription:

MARKET AND CAPACITY UPDATE Matthew Marsh September 2016

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 ECONOMY AND HOUSING SECTOR STABILIZING GDP Growth Residential Fixed Investment as a % of GDP 8% 6% 4% 2% 0% -2% -4% 7% 6% 5% 4% 3% 2% 1% 0% Source: Bureau of Economic Analysis Source: JCHS tabulations of BEA, National Income and Product Accounts Overall economy remains stable and housing is in slow but steady recovery PAGE 2

Feb 2014 Apr 2014 Jun 2014 Aug 2014 Oct 2014 Dec 2014 Feb 2015 Apr 2015 Jun 2015 Aug 2015 Oct 2015 Dec 2015 Feb 2016 Apr 2016 Jun 2016 Aug 2016 1/01/2014 1/03/2014 1/05/2014 1/07/2014 1/09/2014 1/11/2014 1/01/2015 1/03/2015 1/05/2015 1/07/2015 1/09/2015 1/11/2015 1/01/2016 1/03/2016 1/05/2016 1/07/2016 Oil and Coal Prices ($ USD) THOUGH SOME VOLATILITY REMAINS Energy Commodity Pricing ($USD) S&P 500 120 100 80 60 40 20 0 Crude Oil Natural Gas 6 5 4 3 2 1 0 Natural Gas Prices ($ USD) 2,300 2,200 2,100 2,000 1,900 1,800 1,700 1,600 Source: World Bank Source: Yahoo Finance Commodity prices and equity markets have displayed volatility PAGE 3

Jan-08 Aug-08 Mar-09 Oct-09 May-10 Dec-10 Jul-11 Feb-12 Sep-12 Apr-13 Nov-13 Jun-14 Jan-15 Aug-15 Mar-16 HOUSING CONFIDENCE REMAINS STRONG 102 101 100 99 98 97 96 95 94 Overall Consumer Confidence Real Estate Confidence Index Current Conditions as of June 2016 (50= Moderate Conditions) 2008 2009 2010 2011 2012 2013 2014 2015 2016 Single-family Townhome Condominium Source: OECD August 2016, Confidence Index Source: Report on the June 2016 Survey, National Association of Realtors Consumer and real estate confidence remain strong PAGE 4

1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2011 2013 THE ELIGIBLE HOMEBUYER EXISTS % of U.S. Population by Age, 2015 Percentage of 18-34 Year-Olds Living with Their Parents 15% 10% 5% 0% 13.7% 13.4% 12.6% 8.6% 7.1% 6.8% 5.9% 6.3% 20-24 25-34 35-44 45-54 55-59 60-64 65-74 75+ 32% 31% 30% 29% 28% 27% 26% 25% 24% Source: U.S. Census Bureau Source: U.S. Census Bureau Millennial pent-up demand continues ~20% of U.S. population between 20-34. ~30% living at home is historic high. PAGE 5

% of Households Student Loan Debt thousands USD HOMEBUYER CHALLENGES Households with Little or No Wealth Student Loan Debt 50% 40% 30% 20% 10% 0% 1992 1995 1998 2001 2004 2007 2010 2013 $0 or Negative $25,000 - $0 Source: JCHS Tabulation of US Federal Reserve Board of Governors, Survey of Consumer Finances Source: JCHS Tabulation of Federal Reserve Board Borrower FICO Score at Origination Challenges to home ownership remain: student loan debt lack of household wealth stricter financing standards Sources: CoreLogic Servicing and Urban Institute, May 2016. Note: Purchase-only loans. PAGE 6

1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 HOUSING RECOVERY SLOW BUT STEADY Housing Starts 1,500 2017 Forecasted Housing Starts 2,500 Housing Starts 2,000 1,500 1,000 500 0 YoY Growth YoY Growth 80% 60% 40% 20% 0% -20% -40% -60% 1,400 1,300 1,200 1,100 1,000 900 800 Dodge Fannie Mae Freddie Mac MBA Source: U.S. Census Bureau Source: Dodge, Fannie Mae, Freddie Mac and MBA Starts continue to trend below historic average of 1.5M per year. Starts forecasted to be 1.2M in 2016 and 1.3M in 2017. PAGE 7

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 NEW CONSTRUCTION DYNAMICS Housing Starts 000s Homes Average Annual Growth Rent vs. Own (Millions of Households) 200 150 100 50 Starts - 1 unit 2.0 1.5 1.0 0.5 0 Starts 5+ units 0.0-0.5 2001-2003 2004-2006 2007-2009 2010-2012 2013-2015 Renters Owners Source: U.S. Census Bureau Source: JCHS tabulations of US Census Housing Vacancy Surveys Multi-Family has outpaced Single-Family during the previous 5+ years, consistent with the shift towards rentals vs. home ownership. 2016 outlook indicates single-family to surpass multi-family growth. PAGE 8

REPAIR AND REMODEL DYNAMICS Age of Housing Stock Hanley Wood R&R Siding Project Growth 16.0% 14.7% 19.6% 7.7% 13.6% 12.1% 16.2% <10 years 11-20 years 21-30 years 31-40 years 41-50 years 51-60 years >61 years 15% 10% 5% 0% -5% -10% Average Age = 41 Years Source: U.S. Census Bureau Source: Hanley Wood The repair and remodel market continues to be a stable segment of growth PAGE 9

MARKET SHARE LANDSCAPE North America Siding Market Share Source: Internal estimates based on NAHB product usage data adjusted for regional market intelligence National Association of Homebuilders (NAHB) serves as our main source for market share measurement as it provides the following: Siding used in residential dwelling applications Square feet as unit of measurement Geographic detail allowing alignment to organizational structure Segmentation between single-family, multi-family and repair & remodel PAGE 10

WOOD-LOOK SHARE OUTLOOK Present Future Focus remains on gaining share in the wood-look market PAGE 11

WOOD-LOOK SHARE US Vinyl Market Share Estimate Fiber Cement Category Market Share FY16 JH Allura Nichiha FY17 Estimate Source: Internal estimates based on NAHB product usage data adjusted for regional market intelligence While vinyl continues to be the volume-leader in siding, market share continues to steadily decline. With the wood-look market maintaining 65-70% market share, vinyl s decline is the result of gains by fiber cement and wood. Competitive fiber cement plants ran at an estimated ~40% of capacity in 2015. Though competitors have available capacity, James Hardie remains the category leader. PAGE 12

CAPACITY

CAPACITY ANNUAL DESIGN Plant Location Owned/Leased Design Capacity (mmsf) Cleburne, Texas Owned 466 Incremental Capacity 200 Peru, Illinois Owned 560 Plant City, Florida Owned 300 Incremental Capacity 400 Pulaski, Virginia Owned 600 Reno, Nevada Owned 300 Tacoma, Washington Owned 200 Waxahachie, Texas Leased 360 Fontana, California Owned 250 Summerville, SC Owned 190 Total U.S. Network ~3,800 PAGE 14

CAPACITY GROSS HOURS Active Capacity % Utilization Cleburne, Texas Peru, Illinois Plant City, Florida Pulaski, Virginia 91% Reno, Nevada Tacoma, Washington Waxahachie, Texas Fontana, California Idle Capacity Cleburne, Texas New Plant City, Florida New Summerville, SC Idle 91% utilization based on total active available hours as of 1Q17 PAGE 15

CAPACITY CORE CONCEPTS CORE CONCEPTS OF MANUFACTURING CAPACITY Enable 35/90 by ensuring market supply ahead of demand Commission new capacity to optimize network costs Invest in capacity that maximizes value creation Use triggers to serve as leading indicators for capacity expansion PAGE 16

Demand SHORT-TERM CAPACITY MANAGEMENT Utilization Trigger Concept Capacity Category Begin Commissioning Decision Point ~85% Running New Line Decision Point ~90% Active Capacity Idled & New Not Commissioned Active Time Complexity of capacity add will influence actual trigger point timing PAGE 17

CURRENT CAPACITY PROJECTS Plant City Sheet Machine #4 Anticipated Commission Design Capacity in mmsf Plant City #4 2Q FY17 300 Cleburne #3 3Q FY17 200 Plant City #3 4Q FY17 100 Summerville 1Q FY18 190 Additional active capacity of ~790 mmsf * *Capacity on this slide is already included in the Annual Design Performance ramp up on target Excellent material yield result to date Minimal impact to existing plant operations Cleburne Sheet Machine #3 Project started in FY14; put on hold in FY16 Construction in progress; on track to commission in 3Q FY17 Plant City Sheet Machine #3 Capacity idled in 2Q FY15 Line will serve as flex capacity based on demand Summerville Capacity idled in FY10 Construction to begin 3Q FY17 18 PAGE 18

GREENFIELD CAPACITY CONCEPTS Greenfield construction anticipated in 2-3 years Potential locations -Pacific Northwest -Midsouth -Northeast -West Decision drivers -Demand -Proximity to raw materials -Total cost to operate PAGE 19

GREENFIELD CAPACITY CONCEPTS Design new capacity that optimizes returns of the entire network Line location and size determination Product & process capability selection Value engineering and line optimization Current cost estimates for next greenfield site range between $70MM-$120MM Cost to build increasing faster than margin growth, dampening returns Assessing opportunities to reduce construction costs through value engineering PAGE 20

SUMMARY US housing market continues down path of recovery, though at a slower than historical rate. James Hardie remains focused on market position, including share growth in the wood-look category. Capacity core concepts remain guiding principles of investment decision-making. PAGE 21