James Hardie Industries N.V.

Level 7, 65 York Street
Sydney 2000
Australia
Telephone: ( + 61) 2-9638-9200
Fax: ( + 61)2-9638-0833
Web site: http://www.jameshardie.com

Public Company
Incorporated:
Employees: 2,920
Sales: $803.7 million (2003)
Stock Exchanges: Australian
Ticker Symbol: JHX
NAIC: 327310 Cement Manufacturing; 332913 Plumbing Fixture Fitting and Trim Manufacturing

Australia-based, Netherlands-registered James Hardie Industries N.V. is one of the world’s leading manufacturers of fiber-based cement products and technologies for the construction industry. The company is especially strong in the United States, where it is market leader and where it generates more than 85 percent of its total revenues. The company operates six production plants in the United States and continues to expand its production capacity in the booming U.S. housing market of the early 2000s. The company also operates plants in Australia, New Zealand, the Philippines, and Chile. Formerly a diversified conglomerate, James Hardie has slimmed down at the turn of the century, and, ultimately, after shedding its gypsum board and windows subsidiaries, has focused itself as a specialist fibro-cement company. In 2000, the company transferred its registration to Amsterdam, in the Netherlands, in order to take advantage of more lenient tax treaties between that country and the United States (under the Australian-U.S. tax treaty, nearly 75 percent of all shareholder profits were taken up by taxes). The company, which retains its listing on the Australian Stock Exchange, has been interested in seeking a full listing on the New York Stock Exchange as well.

Fibro-Cement Pioneer at the Turn of the Century

In 1888, when he was 36 years old, James Hardie traveled from Scotland to Australia, where he set up a trading company in Melbourne. Hardie’s background in his family’s tannery in Scotland led him initially to concentrate on importing animal oils and products for the tanning of animal hides. Hardie soon began to branch out, however, acquiring the import agencies for a variety of other products.

Hardie was joined by Andrew Reid, with whom he had become acquainted while working as a shipping agent in Scotland. Reid immigrated to Australia in 1892 and by 1895, at the age of 28, had become a full partner in Hardie’s business.

The following year marked the invention of a new material that was to play an important role in the company’s development—and indeed become its specialty more than one hundred years later. A composite of asbestos and cement that enabled the production of thin cement sheets, this material proved itself useful for a variety of purposes. The first imports of fiber cement into Australia began in 1903, and James Hardie quickly became a leading importer of “fibrolite,” as the French variant of the material was called. Fibrolite’s flexibility and ability to withstand high pressure made it a popular material for the production of pipes.

James Hardie retired in 1911, selling his half of the company to Andrew Reid, who nonetheless retained the company’s original name. Until the outbreak of World War I, James Hardie contented itself with its rising sales of imported fiber cement products. Imports became impossible during the war, however. Instead, the company imported the machinery to produce fiber cement itself. James Hardie’s first fiber cement production started up in 1917.

Originally, James Hardie produced its own fibrolite. By 1920, however, the company began to develop its own fiber cement formulas and production processes. In 1923, the company debuted its Sutton process, named after the company employee that developed it, and by 1926 had perfected the process. The company was now able to produce pipes measuring up to 3.6 meters in length. The process also provided a low-cost alternative to the traditional pipe-production process.

Following the successful development of the Sutton process, James Hardie split off its import agency operations into a separate company in order to concentrate on building its fiber cement business. By the end of the 1930s, the company had succeeded in establishing itself as a technology leader. The company had also expanded throughout much of Australia, setting up production plants in Sydney, Victoria, Western Australia, Newstead, and Riverdale.

North American Entry in the 1980s

James Hardie continued to invest in technology development, adding new, more modern equipment in 1937. The company also became involved in asbestos mining, forming Asbestos Mines Pty Ltd. in conjunction with CSR company Wunderlich in 1944. Aiding the company’s further expansion was a public listing on the Australian Stock Exchange, made in 1951. James Hardie had in the meantime been developing a new production process, the autoclave, or steam-curing, process, which was launched in 1959.

James Hardie had already begun to diversify, adapting its expertise in working with asbestos to a variety of areas, including automobile products and railroad brake components. In 1962, the company set up a joint-venture with Turner & Newell, the leading manufacturer of asbestos products in the United Kingdom. James Hardie had also expanded into other international markets, especially in the Pacific Southeast, including shares in fiber cement production plants in Malaysia and elsewhere.

In the late 1970s, James Hardie, under the leadership of Andrew Reid’s grandson John Reid, began a diversification drive. Through the 1980s, the company repositioned itself as a full-scale building products group, particularly as the long-time health concerns over asbestos exposure had at last resulted in bans on its use around the world. Yet the company expanded into other areas as well, particularly with the A$52 million purchase of the Australian publishing and paper operations of Reed International.

Following the acquisition, the company restructured into three primary business units: Building Products, Paper Merchanting and Converting, and Technology and Services. Over the next decade, the company worked to replace the asbestos component of its products, especially its flagship fiber cement products. By the middle of the 1980s, the company had succeeded in developing a new, cellulose-based fiber cement. At the same time, the company succeeded in introducing new insulation materials based on magnesia, allowing it to exit the asbestos market entirely.

Backed by its new product, the company stepped up its export efforts, particularly with an eye to the U.S. market. The company set up a U.S. subsidiary in 1988 and began marketing its fiber cement siding and other products to the building industry in the United States. Originally the company supplied its U.S. sales with product imported from Australia; in 1989, however, James Hardie set up its first fiber cement production facility in the United States.

Yet the company found it hard going in its attempt to persuade builders to switch to its product from the traditional vinyl and treated hardwood materials. The U.S. subsidiary quickly began losing money, In 1991, a review of the company’s operations by management consultants encouraged the company to shut down the U.S. plant and exit the North American market. Instead, James Hardie decided to stick it out. That decision was to play an important part in redefining the company as it approached its centenary celebration.

Fiber Cement Specialist in the 21st Century

The revitalization of the U.S. building market, after several years of economic recession, coupled with increasing industry interest in the strength and versatility of fiber cement, enabled James Hardie’s U.S. subsidiary to turn its first profit by 1994. Fiber cement quickly became the company’s fastest-growing segment, and the U.S. market was easily its fastest-growing and most profitable market. By 1998, the United States accounted for more than 45 percent of the company’s sales and 61 percent of its profits. Just two years later, the United States represented 60 percent of its annual revenues and 90 percent of its profits.

John Reid was forced to step down from the company’s lead in 1995, in part because of a costly loan guarantee made through James Hardie in the late 1980s. Reid’s place was filled by Keith Barton, who promptly launched the company on a streamlining drive that refocused the company on its building products segment and placed an emphasis on growth in the United States.

As part of that effort, the company made a push to enter U.S. gypsum wallboard market—representing 50 percent of the worldwide market—building and buying plants in Nevada, Georgia, Louisiana, and Texas. The company’s gypsum operation also included its own gypsum mine. In 1997, James Hardie expanded again, paying A$121 million to Australian Boral Ltd. for its Briar Gypsum plasterboard operation in Arkansas. The purchase gave James Hardie a production capacity of nearly 2,000 million square feet, making it the fourth-largest producer in the United States.

Company Perspectives:

Our aim is to create value for customers and shareholders. We will do this by aggressively growing our fibre cement businesses in markets where we can establish a differentiated competitive position using the skills of our people and our unique technology.

In 1999, James Hardie, which faced compensation fines for its former asbestos operations, split the company into two components, creating a new company, James Hardie Industries N.V. to take over its gypsum and fiber cement business. At the same time, the company shifted its corporate legislation to the Netherlands. Initially, James Hardie had considered moving its corporate headquarters to California and listing on the New York Stock Exchange, but the unfavorable climate for “old-fashioned” sectors, such as the building market, led it to Amsterdam instead.

The new legislation enabled the company and its shareholders to escape the double tax that resulted from the then-current Australian and U.S. tax treaty, which in effect captured nearly 75 percent of share benefits as tax. The move to Amsterdam also promised to save the company some A$30 million per year in taxes. In the meantime, the company maintained its core Australian shareholders group and its listing on the Australian Stock Exchange.

James Hardie continued to expand its fiber cement operation in the new decade. In 2000, the company boosted its number of U.S. fiber cement plants to six with the opening of a new facility in Texas. The company also began enlarging its existing plant in order to meet soaring demand. By then, the company’s fiber cement products had become a new industry standard. At the same time, with mortgage rates dropping to their lowest levels in decade, the United States was experiencing a huge construction boom.

Fiber Cement was also imposing itself elsewhere in the world, and at the end of 2000 James Hardie targeted entry into the promising South American market, buying a factory in Chile for A$12.8 million. By then, the company had also expanded its production capacity in Asia, notably through a plant in the Philippines.

As fiber cement sales continued rising, wallboard sales were sinking as prices dropped in the market. The division began losing money, and in 2001 new CEO Peter MacDonald, former head of the James Hardie’s U.S. division, moved to exit the gypsum business. In July of that year, the company sold off its Nevada gypsum mine to developer WL Holmes for A$98 million. By 2002, the company had succeeded in finding a buyer for the rest of its gypsum operations, which was acquired by BPB Plc for $345 million. At the same time, the company moved to exit another remaining building products unit, that of manufacturing windows, which was spun off in a management buyout led by Crescent Partners at the end of 2001.

By May 2003, the end of its fiscal year, James Hardie’s streamlining effort appeared to be paying off as the company posted profits of $170 million on sales of more than $800 million. The company was also the out and out leader of the fiber cement market in the United States, which by then had risen to more than 85 percent of the group’s annual sales. At that time, James Hardie did not rule out an eventual transfer of its headquarters and stock listing to the United States. For the near future, however, the company prepared to continue its international expansion, now targeting the European market. One hundred years after its “discovery” of fiber cement, James Hardie seemed to have come full circle as a focused fiber cement products specialist.

Principal Subsidiaries

James Hardie Building Products Inc (United States); James Hardie Building Products Ltd.; James Hardie Export; James Hardie Industries USA; James Hardie Irrigation Inc. (United States); James Hardie New Zealand Ltd.

Principal Competitors

Georgia-Pacific Corporation; CertainTeed Corporation; Maxi-Tile Inc.; Cemplank Inc.

Key Dates:

1888:

James Hardie emigrates from Scotland and establishes a trading company for imports of animal oils and tanning agents.

1882:

Hardie is joined by fellow Scot Andrew Reid, who becomes a partner in the company three years later.

1903:

The company begins importing fiber cement products.

1911:

James Hardie retires and Andrew Reid takes over the business.

1917:

Production of fiber cement begins after imports are blocked during World War I.

1951:

James Hardie goes public on the Australian Stock Exchange.

1959:

The company-developed autoclave production process debuts.

1978:

As part of a diversification drive, the company acquires the Australian publishing and paper operations of Reed International.

1988:

A U.S. subsidiary is set up in order to introduce fiber cement to American building market.

1997:

After exiting most of its non-building products operations, the company acquires Briar Gypsum as part of expansion into the U.S. wallboard and gypsum mining market.

1999:

The company shifts corporate registration to Amsterdam in order to reduce its taxes.

2001:

James Hardie begins to sell-off of its gypsum business and refocuses as a fiber cement specialist.

2003:

The company posts net profits of $170 million.

Further Reading

“Australia’s James Hardie to Move Head Office to Netherlands,” AsiaPulse News, October 12, 2001.

“Australia’s James Hardie to Sell Windows Business,” AsiaPulse News, November 7, 2001.

Baynes, Jim, “Hardie Sells off US Gypsum Mine,” Courier-Mail, July 3, 2001, p. 25.

Carroll, B. “A Very Good Business”: One Hundred Years of James Hardie Industries Limited, 1888–1988, Sydney: James Hardie Industries.

“Hardie Soars in US,” Daily Telegraph, October 23, 20002, p. 50.

History of James Hardie & Co Pty Ltd. 1888–1966, Sydney: James Hardie & Co Pty Ltd, 84 pp.

“James Hardie Retires $60 million in Debt,” Home Channel News, January 6, 2003, p. 1.

Roberts, Jeremy, “Hardie Rides Housing Boom to $264m,” Australian, May 16, 2003, p. 22.

—M.L. Cohen