James Hardie Annual Report 2005 Important note regarding About James Hardie Contents terminology used in this James Hardie Industries NV Performance Annual Report (James Hardie, or JHI NV) is a leading 02 Highlights In this Annual Report, we present international building materials group 06 Corporate Review financial measures that we believe that produces a wide range of fibre 08 Operating Review are customarily used by our Australian cement building products used in the 10 Financial Review investors. In each case where we exterior and interior of buildings, from 12 Special Commission of Inquiry present one of these measures, the exterior cladding and internal lining, and Asbestos Compensation equivalent US GAAP financial measure to fencing, bracing and decorative 18 Summary of Operations is defined in the Definitions section finishes. 20 USA Fibre Cement of this Annual Report on page 58. 24 Asia Pacific Fibre Cement Our operations span the United Specifically, these measures include 26 Other Fibre Cement States, Australia, New Zealand, the “EBIT”, “EBIT Margin”, “Operating Philippines and Chile. We are also Products profit from continuing operations establishing a presence in Europe. 28 Manufacturing Scale before income taxes”, “Operating We employ over 3,000 people who 30 Research and Development profit from continuing operations”, generate revenue of more than 32 Differentiated Products and “Net operating profit including US$1.2 billion a year. 34 Growth Opportunities discontinued operations”. The Definitions section also includes other In every country in which we operate, People terms that we use for measuring our our goal is to capitalise on our 36 Board of Directors sales volumes (“million square feet extensive research and development 38 Group Management Team (mmsf)” and “thousand square feet programs, our unique manufacturing 40 Working at James Hardie (msf)”); financial ratios (“Net Debt technology and our differentiated Policy Payback”, “Net Debt” and “Gearing products to create wealth for our 42 Environment and Community Ratio”); and the definitions for Non- shareholders, value for our customers US GAAP financial measures (“EBIT and rewarding careers for our Financials and EBIT Margin before SCI and other employees. 45 Contents related expenses”, “Operating profit 46 Management’s Discussion and Analysis from continuing operations excluding 59 Directors’ Report SCI and other related expenses”, 63 Remuneration Report and “Adjusted EBITDA”). All results 79 Corporate Governance Principles presented herein are from continuing 94 Report of Independent Registered operations, unless otherwise stated. Public Accounting Firm 95 Consolidated Balance Sheets 96 Consolidated Statements of Income 98 Consolidated Statements of Cash Flows 100 Consolidated Statements of Changes in Shareholders’ Equity 102 Notes to Consolidated Financial Statements 134 Selected Quarterly Financial Data 135 Group Statistics 136 Share/CUFS Information Title 23% increase in total net sales from US$981.9 million to US$1,210.4 million Contents James Hardie remains committed to growing its leadership position Performance 02 Highlights in fibre cement. 06 Corporate Review 08 Operating Review This year’s Annual Report describes our efforts to achieve this goal, 10 Financial Review leveraging off our superior product and process technology, 12 Special Commission of Inquiry and Asbestos Compensation differentiated fibre cement products, and dedicated employees. 18 Summary of Operations 20 USA Fibre Cement We believe we are the best in the world at making fibre cement. 24 Asia Pacific Fibre Cement Compared to our competitors, we can build production capacity 26 Other Fibre Cement more quickly and at lower cost, and we can achieve higher Products 28 Manufacturing Scale throughputs at higher levels of quality, and at lower cost. We can 30 Research and Development maintain this advantage through operating discipline, and continued 32 Differentiated Products investment in process technology and product development. 34 Growth Opportunities People We expect to continue to grow the company organically through 36 Board of Directors further market penetration and product innovation. 38 Group Management Team 40 Working at James Hardie Recognising the vital role our employees play in our success, we Policy continue to focus on creating a safer workplace and a more rewarding 42 Environment and Community work environment, and on developing our most talented people to Financials 45 Contents enable them to contribute to our future. 46 Management’s Discussion and Analysis 59 Directors’ Report Our goal is to make a productive contribution to the communities 63 Remuneration Report in which we operate, in a way that reflects the highest possible 79 Corporate Governance Principles 94 Report of Independent Registered standards of corporate governance. Public Accounting Firm 95 Consolidated Balance Sheets 96 Consolidated Statements of Income 98 Consolidated Statements of Cash Flows 100 Consolidated Statements of Changes in Shareholders’ Equity 102 Notes to Consolidated Financial Statements 134 Selected Quarterly Financial Data 135 Group Statistics 136 Share/CUFS Information 14% increase in EBIT, from US$172.2 million to US$196.2 million James Hardie Annual Report 2005 1 ����� ����� ����� ����� ������ ����� ����� ���� ���� ����� ���� ���� ���� ����� ����� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��������� ���������������� ���� ������������������������ ������������������������ ������������������������ ���� ���� ���� ���� ���� ���� ��� ���� ��� ��� ���� ��� ��� ��� ���� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ����������� ������������� �������������������������� ��� ��� ������� Highlights Continued Net Sales and EBIT growth 2 James Hardie Annual Report 2005 PERFORMANCE (Millions of US dollars) 2005 2004 % Change Net Sales USA Fibre Cement $ 939.2 $ 738.6 27 Asia Pacific Fibre Cement 236.1 219.8 7 Other Fibre Cement 35.1 23.5 49 Total Net Sales $ 1,210.4 $ 981.9 23 Net Sales $ 1,210.4 $ 981.9 23 Cost of goods sold (784.0) (623.0) 26 Gross profit 426.4 358.9 19 Selling, general and administrative expenses (174.5) (162.0) 8 Research and development expenses (21.6) (22.6) (4) Special Commission of Inquiry and other related expenses (28.1) – – Other operating expenses (6.0) (2.1) – EBIT 196.2 172.2 14 Net interest expense (5.1) (10.0) (49) Other (expense) income (1.3) 3.5 – Operating profit from continuing operations before income taxes 189.8 165.7 15 Income tax expense (61.9) (40.4) 53 Operating Profit From Continuing Operations $ 127.9 $ 125.3 2 Net Operating Profit Including Discontinued Operations $ 126.9 $ 129.6 (2) Effective tax rate from continuing operations 32.6% 24.4% Volume (mmsf) USA Fibre Cement 1,855.1 1,519.9 22 Asia Pacific Fibre Cement* 376.9 362.1 4 Average net sales price per unit (per msf) USA Fibre Cement US$ 506 US$ 486 4 Asia Pacific Fibre Cement* A$ 846 A$ 862 (2) *See Endnotes on page 58 – Total net sales increased 23%, from US$981.9 million to US$1,210.4 million. – Gross profit increased 19% from US$358.9 million to US$426.4 million due to improvements in all our major businesses. – Gross profit margin decreased 1.4 percentage points to 35.2%. – EBIT increased 14% from US$172.2 million to US$196.2 million. – The EBIT margin decreased 1.3 percentage points to 16.2%. – Operating profit from continuing operations increased from US$125.3 million to US$127.9 million. Operating profit from continuing operations includes SCI and other related expenses of US$28.1 million and a related tax benefit of US$5.8 million. Operating profit from continuing operations excluding SCI and other related expenses increased 20% to US$150.2 million. – Net operating profit including discontinued operations was down slightly from US$129.6 million to US$126.9 million. – As a percentage of sales, Selling, general and administrative expenses were 2.1 percentage points lower, at 14.4%. – Diluted earnings per share from continuing operations increased from US 27.2 cents to US 27.7 cents for the full year. James Hardie Annual Report 2005 3 ���� ���� ����� ���� ����� ��� ���� ����� ��� ��� ��� ���� ���� ��� ��� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��������������� �������������������������� ������������������������ ������������������������ ���������� ���������� ���� ���� ���� ���� ���� ���� ����� ����� ���� ���� ���� ��� ��� ���� ��� ���� ���� ��� �������� ��� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ���������������������������� �������������������� ������������������������������ �������������������������� ��� ������������������������ ���������� ��� Highlights 27% increase in net sales for USA Fibre Cement from US$738.6 million to US$939.2 million 4 James Hardie Annual Report 2005 PERFORMANCE USA Fibre Cement – Net sales in Australia and New – Net sales increased 27% from Zealand increased 8% from US$738.6 million to US$939.2 US$195.5 million to U$210.1 million. million due to higher average net sales price and favourable foreign – Sales volume increased 22% currency movements. from 1,519.9 million square feet to 1,855.1 million square feet. – Net sales increased 1% in Australian dollars. – Gross profit increased 19% and gross profit margin decreased – In the Philippines, net 2.6 percentage points. sales increased 25% from US$20.8 million to US$26.0 – EBIT increased 24% from million, due to a 20% increase in US$195.6 million to US$241.5 sales volume and a 5% increase million. in the average net sales price. – EBIT margin decreased 0.8 of In local currency,