Building products supplier James Hardie Industries plc is to close its Penrose operation in Auckland and supply fibre cement products to New Zealand from its 2 Australian plants.
The company announced the closure at the end of a strategic business update on Tuesday.
Lawyers for New Zealand customers in a $200 million-plus class action against James Hardie over faulty products said yesterday the closure was unlikely to stall the court action, but would cause further stress.
The company didn’t say how many New Zealand jobs would be lost in the restructure, but the class action lawyers expected it to be about 120.
Adina Thorn Lawyers represents over 1000 leaky homeowners in a trial set to start in a year – on 3 May 2021 – and scheduled to run for 20 weeks.
James Hardie chief executive Dr Jack Truong said in the business update: “James Hardie employees have been incredibly dedicated & resilient during this very challenging time [the Covid-19 pandemic]. I want to express my gratitude to our team members & their families for their tireless commitment to the safety of themselves & one another. I am confident we will emerge from this crisis a stronger company.”
The NZ closure
On the New Zealand closure, Dr Truong said: “The company will begin by entering into consultations with affected employees & their union. Ultimately, the company intends to cease all manufacturing of products in New Zealand under this model and shift manufacturing from Penrose, New Zealand, to its 2 plants in Australia, Rosehill & Carole Park.
“The company would also expand the outsourcing of freight & logistics management in New Zealand to a third-party logistics provider.
“The sales, marketing, customer service & technical support teams would continue to be based locally in New Zealand to ensure that the company is able to partner with customers and provide them with the service & support to which they are accustomed.”
Along with closing a manufacturing plant in South Carolina and delaying commissioning of a manufacturing plant in Alabama for 2 years, Dr Truong said the “move to a regional model” for New Zealand was part of a strategy to improve & secure global operations consistent with the company’s strategy to scale & modernise them.
Company ends year strongly
Despite the concerns, the company’s quarterly review showed it had ended the year to March strongly. The company will present its full-year review in Sydney on Tuesday 19 May.
In a long-term overview, Dr Truong said: “2 years ago, we established a strategic & scalable management system to drive sustainable & profitable growth. Now, the management system also proved to be critical to our ability to navigate through the global Covid-19 crisis. By operating in a safe, sustainable & thoughtful manner, we continue to protect our employees, deliver value to our customers, minimise disruption to our plants and preserve liquidity in anticipation of a potentially prolonged period of market volatility.”
Results guidance issued on Tuesday indicates James Hardie’s adjusted net operating profit after tax for the March year will be at the lower end of previous guidance – but still at least 16% up on the 2019 result.
Previous guidance was for a profit range of $US350-370 million, now reduced to a range of $US350-355 million, compared to an actual result of $US301 million in 2019.
In Tuesday’s guidance, Dr Truong said the company had:
- double-digit volume growth in North America in the fourth quarter
- strong revenue growth in Europe
- Asia-Pacific results in line with expectations, driven by strong Australian business performance
- higher than anticipated integration & operational costs in Europe
- planned costs related to government-mandated closures of manufacturing plants in Spain, New Zealand & the Philippines.
“Since the Covid-19 crisis emerged, we have maintained a relentless focus on providing our teams with a safe & efficient workplace and a comprehensive management system with clearly defined & connected processes. This resulted in a strong finish to our fiscal year 2020 performance,” Dr Truong said.
Looking ahead, Dr Truong said James Hardie had instituted these measures to manage cash & maintain liquidity:
- It’s suspended dividends until further notice
- Capital expenditure for the 2021 financial year will be cut from a 3-year average of about $US240 million to a range of $US80-95 million
- The company’s annual contributions to the Asbestos Injuries Compensation Fund in New South Wales will be made in quarterly instalments instead of in one lump sum in July, and
- It will implement strategic cost-control measures globally, including a hiring freeze & a significant reduction of non-essential & controllable expenses.
James Hardie chief financial officer Jason Miele said the company had improved its liquidity position from $US464 million at 31 December to $US510 million at 31 March and to $US578 million at 30 April.
Its leverage ratio improved from 2.1x at 31 December to about 1.9x at 31 March.
He commented: “We remain well positioned, with sufficient liquidity to manage through a prolonged downturn, should that happen. Our strong sales performance in the fourth quarter along with our quick & decisive capital management & working capital actions helped increase our liquidity position to $US578 million as of 30 April. Our relentless focus on these actions will help ensure strong liquidity & financial flexibility as we navigate through this crisis.”
Mr Miele said non-cash impairment expenses from the Penrose & US closures, plus some non-core assets, were expected to total about $US90 million in the fourth quarter.
Adina Thorn, the Auckland lawyer leading the class action over allegedly defective cladding, said the announcement of the Penrose closure was concerning, but “not overly surprising” given the history of James Hardie with asbestos in Australia, extensive litigation in that country and a history of major corporate restructuring.
“We have seen this kind of behaviour before. Now we are seeing a massive downsize of the
New Zealand business in the face of significant litigation. Fortunately, our claim is against
4 other James Hardie companies – 3 in Australia & the parent company in Ireland. The plaintiffs allege each of the 4 is liable.”
16 April 2019: James Hardie parent company fails to move Supreme Court on cladding case jurisdiction
14 December 2018: Court rules James Hardie parent company can’t wash its hands of cladding defects
Attribution: James Hardie briefing & release, Adina Thorn release.