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James Hardie Industries PLC (NYSE:JHX)
Q4 2019 Earnings Call
May 20, 2019, 7:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Dr. Jack Truong -- Chief Executive Officer 

Good morning, everyone. Welcome to our fiscal year 2019 earnings call. Thank you for joining us today. I'm Jack Truong, CEO of James Hardie Group and with me here today is Matt Marsh, group CFO. Both of us will share with you the results for fiscal year '19 and then we're going to share with you where we are going with our strategy and the status of our strategy.

So, firstly on the agenda, I'll briefly go over the operating review of the company in the fiscal year '19. Then Matt will come up and share with you in more detail on the financial results of the quarter and also the year. Then I'll get back up and really share with you the progress of the three-year strategy that we shared with you three months ago, where we are relative to the execution along that three-year horizon. And then we'll end with the Q&A.

Now, let's move on to our group results for fiscal year '19. I'm very pleased to announce that this is the first year that we as a group at James Hardie crossed the $2.5 billion mark. What is even more significant is that we now operate in three major regions around the world: North America, Asia-Pacific, and Europe. The discussion today will be a lot more in-depth about the results in our three regions for the whole fiscal year of '19 because this is the first year that Fermacell results are in our results for the whole fiscal year.

So, you look at our year in review. North America delivered improved PDG, although it's below expectations. So, if you look at our PDG for fiscal year '19, we're north of 1% relative to the PDG of minus 2.5% a year before. And our interior business is still a challenge and it is something that we will be discussing with you some more on what is the key strategy on what we are taking to fundamentally revert the course of the Interior Business.

Now, moving on to Asia-Pacific. Australia and the Philippines continue to lead the way in gaining market share, both in market share and category share. So, in the end, we continue to deliver growth above the market. That continued also into Q4 of fiscal year '19. Our European business has really met our expectations. This is a full year of Fermacell being a part of James Hardie Group. The team has really performed well and delivered the financial that met our expectations. Equally important is that the team has really done a nice job of integration into James Hardie. During the course of the past 12 months, together with James Hardie teams from Asia-Pacific and North America, the team in Europe has really done a nice job of really understanding what are some of the unmet opportunities in Europe for whole weekend and use those fiber cement technologies to come up with those fiber cement products specific for the European market for the European channel and users. I'm going to share a little bit more about the update on that in the strategy section.

For fiscal year '19, we continue to be challenged with the input costs. They continue to go up, particularly in the third and fourth quarter. This is always important for us as a company that we focus on lean manufacturing to mitigate the effects of rising raw material costs. Again, I'll share with you the status of where we are with that journey. Through, just like in the past, we continue to be very disciplined in our capital allocation, focused primarily on organic growth. We provide the right capacity for our continued growth with the 3590 in North America as well as growth above market in Asia-Pacific. Of course, just to make sure that we focus on our core business and get our business back on track on the growth above the market. We also decided to exit the windows business.

Let's move on to North America. You can that the housing market demand was soft in the second half of the fiscal year '19. Despite that, our exterior business grew above the market, showing improvements from the prior year. As I mentioned before, our volume was up 4.7% in the fiscal year '19 for the exterior business. That's a little bit offset by the soft performance in the Interior Business where our volume is down by 4.4% in fiscal year '19. Of course, the mix of Exterior Business is a lot bigger than Interior in our North American Business.

Our EBIT margin really came in at around 23%, which is right in the target range despite the inflationary trends across key inputs. Costs are really about the abilities that we press on price as well as managed our cost and performance in the plants. To make sure that we continue to gain momentum, the commercial transformation and Lean transformation are already under way and are beginning to gain traction in our business.

Now, let's move on the Asia-Pacific results. We continue to deliver excellent top-line results on the softening market across the region. If you look at fiscal year '19, for the region our volume grew 10% and that translated to about 11% in revenue growth for the year. And growth is really driven primarily through Australia and the Philippines throughout the whole year. That's really driven to by the fact that we have been really focusing a lot on primary demand, at the end user builders and contractors. While at the same time, we're also enhancing the James Hardie value through our channels and partners to ensure that we have the right go to market strategy to drive demand and then be able to convert into sales in a more sustainable way. Again, we have mentioned that we continue to gain market share of fiber cement against brick and also against wood and plywood within the region. Within the fiber cement category during this past fiscal year, our business in Australia as well as in the Philippines, we continue to gain share against other fiber cement producers.

Our EBIT margin was significantly impacted by input cost inflation within Asia-Pacific. We had quite a bit of inflation in raw materials as well as the fact that within the region we pay our fiber as well as a key raw material in US dollars. With the devaluation of the Australian dollars, that's added some headwinds in our business in Asia-Pacific.

Let's move on to Europe. Again, for the total year, the team really did a nice job of delivering topline growth of 7% in Euro. That translates to a pro forma EBIT growth of 6% for the year. It's really about the growth of the core business of Fermacell, that's fiber gypsum, that's across western Europe, particularly across Scandinavia and the UK, and also in Switzerland and Benelux. The team has spent a lot of time during this past year doing a lot of very good market research to understand those unmet needs and really come up with a right product portfolio that we'll continue to develop for the European market. I will share one of those products in the strategy section a little bit later.

Our EBIT margin came in with expectation for the whole year. The team delivered a 10.6% margin which is what we had discussed with you about a year ago. So, with that, I'd like to hand it over to Matt who will go into more details about our finances in Q4 and fiscal year '19. I'll come back up and discuss the strategy. Matt?

Matthew Marsh -- Chief Financial Officer

Thanks, Jack. All right. Good morning, everybody. Okay, so I'll take everybody through the financials for FY19 and the fourth quarter. Overall, a good financial performance last year, especially considering the significant inflationary environment that we were in, most of our raw materials and freight cost. As Jack already talked about, our North America business continued to see momentum on the Exterior side, growing above our adjustable market. Asia-Pacific had a really good year on both market share gains and category share across the Asia-Pacific business.

Overall, we were very pleased with the Fermacell result in year one with the pro forma results that Jack shared with you earlier and I'll take you through in a bit. The integration very much remains right on track. We're very pleased with where we are a year into that business. And then we've fully exited the windows business. I'll take everybody through where we stand on those transactions.

For the year, we are reporting an adjusted NOPAT of $300.5 million. We had capital expenditures last year of $301 million primarily consisting of the capacity projects that everyone is already aware of. I'll give everybody an update on those later in the presentation. We declared a second-half dividend of $0.26 per share. We had talked throughout the year about being in the lower end of our 50%-70% dividend payout range for as long as we're above our leverage target. We are above our leverage target, as I think many of you know, as a result of the Fermacell acquisition. So, we've finally come down a bit in the range. The range hasn't changed at all. It remains 50%-70% of adjusted NOPAT. We're just down in that range in comparison to a year ago as a result of being above the leverage target. When I get to the capital allocation framework and the financial management policy, I'll talk more about that.

Okay, so 4Q results for the group. Net sales were up 19% largely because of the Fermacell acquisition. That business has been in the result for the whole fiscal year. Of the $99 million of increased sales, almost $90 million of that is a result of Fermacell. In North America, we had both higher volume and net price. Higher volumes particularly in the Exterior business and price across the segment. And then higher volumes in the Asia-Pacific business that I'll take everybody through when we get into the business results.

Gross profits were up 10%. Gross margin rates were down almost 260 basis points. What you are seeing there, for the most part, is the inflationary cost pressure, mainly pulp and freight that we experienced in Asia-Pacific and North America. Adjusted net operating profit was down 9% largely due to the North America and Asia-Pacific segments were down 8% and 22% respectively. We'll get into those dynamics. Those were largely input costs and freight related.

For the full year, net sales were up 22%. A very similar dynamic as I talked about in the fourth quarter. So, of the $452 million increase year over year in net sales, $332 million of that was a result of Fermacell. North America, the same story in the full year as the fourth quarter. Both price and volume were up year on year. Asia-Pacific had very good volume growth year on year. Gross profits were up 14% for the full year. Margins were down 230 basis points. So, what you can see in the fourth quarter is the margin compression a little bit more than the full year. As Jack mentioned, the input costs were greater from an inflationary perspective in the second half of the year than the first half of the year and you're seeing that in the margin compression. When I talk about input costs later, we'll talk about where we see those now and what that might mean or the upcoming year. Adjusted net operating profit increased by about $9 million. It's a combination of Europe building products and our Europe business and our North America segment both increased for the year.

Okay. So, for North America, a slight improvement in PDG, as Jack indicated. We think we're above about 1% PDG on a market that we think was a 3%-4% type growth market in terms of our index. So, and exterior volume for the quarter of about 3.5% growth, for the full year almost 5% growth, 4.7%. Price was right about where we thought it would be for the year. You can see that it's up 3% for the full year. I think that's right around where we had been talking about for most of the year. That was largely a result of our strategic list prices changes that we do annually every April. I'd say tactical pricing is very much kind of on track and where we expected it to be.

Full year EBIT of $382.5 million, which was flat compared to a year ago. Really, the dynamics there are higher volume and average net sales price offset by input costs, largely and freight. Here's a chart that I think everyone knows fairly well. The red dotted line indicates our stated margin range of 20%-25%. You can throughout the year we remained right inside that range. 23% was right in the middle of our range. Largely in the middle of the range at this part of the cycle because of the inflationary environment that we were in last year and the significant headwinds that both pulp and freight as well as some of the input costs, but those were the large two drivers that resulted in us being in the middle of the range.

Okay, speaking of input costs. Pulp was really the story last year. It remained at a very elevated level. I think it peaked sometime around October or November. It is down in comparison to October or November. So, where we saw pricing in March and where we see pricing today, it's definitely down 3%-4% but still up year on year. So, it still remains at a very elevated level. We're starting to see the gap widen again in the spot market and in the contract market which is an encouraging sign. Those two markets had basically closed to the equivalent pricing, so the spot market had basically evaporated. We largely buy off of a US-based index versus a China-based index. For you that follow pulp, you know that the Chinese spot market has definitely come down quicker than the US market and the US market is declining.

Last year, pulp for the market prices were up almost 12% year on year. We buy better than the 12% so we didn't experience a 12% cost increase in the pulp, but nonetheless, pulp prices were up pretty significantly for us. Gas, cement was up for the year as well. You can see that electricity was about flat. Freight prices came down in the fourth quarter which is encouraging. They were very elevated in the first half of the year. I think when we spoke in February, I'd indicated that we were starting to see some good signs in the market that the freight market was coming back. Three months later, we're continuing to see that. So, it certainly looks like the freight market is returning to a more reliable supply/demand equation.

Asia-Pacific, very strong volume. Sales volumes were up 10% for the year and 7% in the quarter. So, a great result for the Asia-Pacific business. Both in Australia and the Philippines, the business overall had good market penetration gaining category share and market share last year. So, even though the underlying addressable market was softening throughout the year, the overall growth and market penetration remained quite strong.

You can see that their EBIT growth was adversely impacted on a US dollar basis by the strengthening US dollar. On a local currency basis, it was down 2%. The difference between the deleveraging if you will between sales growth and EBIT growth is really two dynamics. There're input costs. We buy much of our pulp in Asia-Pacific in US dollars, so you get kind of a double impact. You get the strengthening US dollar on top of the rising costs of the contract and spot rates in the marketplace. That was the primary driver. As we talked about throughout the year last year, New Zealand manufacturing continued to underperform and that showed up in the result to some extent.

When you go through the three main businesses in the Asia-Pacific, Australia had a great growth story, market penetration, and category gains in that business. We talked about EBIT already. In New Zealand, very good growth for both the quarter and the full year. In addition to the input costs, we had manufacturing that was operating at the lower end of its operating band for most of last year. That performance is starting to stabilize now. Although, throughout the year it showed up in the result. In the Philippines, good volume increase driven by market share gains. So, overall good market penetration. Higher input costs and we did have some non-recurring items in that business as well as we started up the new manufacturing line. Those results show up in the full fiscal year.

Okay. So, for the Europe segment, the overall increase was obviously driven by Fermacell. The price, you can see, year on year is on a reported basis down. I'll just remind everybody that fiber gypsum sells at a significantly lower price than fiber cement. As a result of the mix toward a business that is largely fiber gypsum on a year on year basis, the pricing metric reports down. Net sales in Euros were up 7% for the quarter and the full year on a pro forma basis. The margin rates excluding the non-recurring cost were right in line with where we expected them, 10.6% for the full year and a little over 11% for the fourth quarter. We had $3.5 million of integration costs in the fourth quarter and $18 million of integration costs for the full year.

In addition to that, we had $6.2 million of inventory fair value adjustments that were reported during the fiscal year. We included those results in the segment and then provide transparency in the EBIT excluding line. The other business was our windows business. We made that decision and announced that at the November discussion. The execution of the exit of that business has gone pretty well. Last year we had $30.9 million of EBIT loses in that segment. That included about $6 million of operating losses and $24 million related to the discontinuation of the business. We think all of those charges are fully run through the P&L at this stage. The Beechworth business was wound down and the Razor Pultrusion business, we went through a selling process and that business was successfully sold in April of our fiscal '20. So, you'll note that it's still in the result of the March 31st period. You'll see that the sale transaction got completed in April.

So, both the Razor and the Beechworth assets are largely fully off the balance sheet at this point. We were going to do some liquidation of some of the remaining assets in Beechworth, but the book values are basically zero on those.

So, here's a summary of the product line discontinuation. In addition to windows last year, we discontinued the MCT business which was one of our trim lines. You can see all of that activity on MCT. The discontinuation of certain Color Plus skews as a result of our Win with Color strategy, those charges were all in the second quarter of last year. The windows business came in kind of three separate quarters. The bulk of that we took in the second quarter of last year. We did additional writedowns in the third quarter and then as we went through the selling process on both of those businesses and the outcomes were more clear, we finished things up in the fourth quarter.

Research and development, we reported $29 million of the cost associated with research and development last year. Roughly flat to where it was a year ago and roughly in line with our 2%-3% as a percent of sales. Our general corporate costs for the year were roughly in line and flat to where they were a year ago, so $57.3 million. You see a little bit of variation quarter to quarter as we had some legal items related to New Zealand weather tightness that created some quarter to quarter variation. Year on year, I'll just remind everybody that we had a non-recurring gain a year ago included in the fiscal '18 result of $3.4 million that was associated with a building that we had in our Fontana, California manufacturing location that we sold. I'd say the normal variation and volatility that you get in stock comp gets reflected on a quarter to quarter basis. Overall, general corporate costs were right in line with where we thought they would be and roughly flat to about a year ago.

Income tax, we reported a 14.8% adjusted effective tax rate for the full year. That's pretty in line with what we had talked in the last result about and at the half-year result. The decrease in the adjusted income tax expense is driven by an adjustment that we made related to the ongoing accounting treatment for amortization of intangibles. That's very consistent. No change with the last couple of times that we've talked on that. As a reminder, our income taxes aren't currently payable or paid in Australia due to the losses associated with AICF and our contributions to it.

We reported cash flow from operations for fiscal year '19 of $288.4 million, down 2%. I'd say the decrease in other assets and liabilities and working capital is a normal quarter to quarter variation. So, nothing of a concern there. The net cash outflow due to working capital, again, was just quarter to quarter variation. No real consumption of working capital that we expect to be a feature of the result. The higher investing activity was obviously as a result of Fermacell and closing that acquisition and funding it in Europe on top of the capacity expansion related capex within the year that I will provide more on the next slide.

We spent a total of $301.1 million on capex last year. That was up about $97 million in comparison to a year ago. The projects, I think most of you are well aware of, there are three main projects in North America: the Tacoma Greenfield which we expect to have completed the start-up of that in the early part of our fiscal '20, the continued construction of our Prattville manufacturing location that we expect to complete and commission in the early part of fiscal '21 (so next fiscal year), and then the continued expansion of our Color Plus product line. We were opportunistic and bought a piece of land and some buildings in Massachusetts during the year and at some point, in the future, we'll also put some Color Plus manufacturing capability there. So, those were the three main projects that drove the spend in North America.

Asia-Pacific had two main projects. We completed the capacity expansion in the Philippines and we're in the middle of the Carol Park Brownfield expansion project. Both of those projects are very much on track.

Within our financial management framework, the overall framework hasn't changed. We obviously started the framework with wanting to make sure that our business is performing at expectations. We're an organic growth company so we're looking to grow topline results above our market index on volume and be modest price takers. Overall, having good margin rates in the business. With those in place, and we're hard to get the strategy to continue to produce results that are more in line with both our and your expectations. Our top capital allocation priorities remain the same. So, no change on that. We fund all the organic growth opportunities first. Those largely come in the form of R&D and capacity expansion, as well as funding sales and marking opex. That remains our number one priority.

The ordinary dividend remains our number two priority. That is very consistent. We are committed to the 50% to 70% payout ratio. We obviously operate within that ratio based on where we are with the balance sheet. We were opportunistic last year and bought a very good business with Fermacell. That put us about our target debt range of one to two times adjusted EBITDA for a period of time that we think at the time was roughly 8 to 10 quarters. We're about halfway through that period now. We're right on track with our balance sheet and overall capital management. So, we like where we are. We think in about a year, year and a half, we'll be back under the two times ceiling again and as a result, you can expect that we would then start to come up back in the range where over time back to where we were in that range. But we're still very much in the range, we're committed to that range. I'd say our balance sheet strategy is very much on track.

As I mentioned earlier, we closed the year with about $79 million in cash, $1.3 billion in net debt, and about $340 million of available credit facilities in our revolving credit facility. No change in the corporate debt structure. We reported 2.4 times net debt at the end of the year and that's right where we expected it to be and right on track to get below two in another 4 or 5 quarters.

As many of you know, the fourth quarter result also includes the annual update of the KPMG Actuarial study that AICF commissions KPMG to do annually. So, that was updated as of 31, March and is reflected in our result. The undiscounted, uninflated estimate decreased to $1.4 billion from $1.443 billion in the prior year. That was a combination of the net cash outflows of $142.8 million and a slight increase in the actuarial estimate for the year.

Total contributions in our fiscal '19 result were 138.4 million Australian or $103 million in the US. Since the time that we established the AICF back in 2007, the company has contributed approximately $1.2 billion into the fund. And we anticipate that we will make $100.9 million US dollar contribution this July as part of our annual funding commitment. That $100.9 million represents 35% of our free cash flows for fiscal year '19.

A little bit on the claims for the full year. Claims received into AICF were 8% below the actuarial estimate. They were approximately 1% higher compared to the prior year. So, overall, a good outcome there. Claims reporting during the full year for Mesothelioma were 4% lower than the estimate and 5% lower than the prior corresponding period. So, also a good data point in claims trend. Average claim settlements for the year were 24% below the actuarial estimate. It was largely attributable to lower average claim settlements for non-Mesothelioma claims.

In summary, for the financial section. A good financial performance given the dynamic environment that we were in on the input cost and inflationary side. Higher net sells in North America and in Asia-Pacific, both of those segments grew the top line, market penetration, and category share gains and a really good topline outcome and business outcome for the Asia-Pacific segment. A really positive first year for JH Europe. We like where we are a year into that result, and we remain committed to our capital allocation priorities and working within our financial management framework.

With that, I'll hand it over to Jack who will take everybody through a strategy update.

Dr. Jack Truong -- Chief Executive Officer 

Thanks, Matt. Okay, so let's go to the next slide. We confirm that our long-term value creation for the James Hardie group is about in North America 3590 is our north star. It's really about driving growth above markets with strong returns. 20% to 25% EBIT margin and that's our north star. Europe is really about creating the 1 billion Euro business with a good hearty like the return for the long-term. And for A-Pac it's really about making a good business continue to be better and that's about delivering growth above markets with strong returns and a 20% to 25% EBIT margin. With that being the strategy, that's really the object.

So, what we really want to talk about now is what is our key strategic priorities as a company globally that we need to focus on to ensure that we fulfill that long-term objective? So, this is a three-year strategic priority that we shared with you three months ago. I'd just like to give you an update on where we are.

In North America, it is all about accelerating Exterior growth. It's really all about making sure our marketing and sales team drive the penetration of the Total Exterior Solution that James Hardie has in the marketplace. That is about driving the Hardie panels, Hardie planks, Hardie trim, Hardie soffit. Really provide that total exterior solution that allows the homeowners to have low maintenance and the durable with flexibility in designs. I'm going to show you a little bit later in how we bring that to life through the Win with Color program to drive share growth. Second, in North America is really about how do we continue to transform ourselves to deliver a continually lower- and lower-unit costs and better quality. That is about transforming us from being a world best fiber cement produce into a world-class manufacturer through Lean transformation. I'll give you some updates on where we are with that. Third, which is an area that we will begin to have a lot more focus on, and that is to make the Interior Business a growth business again. That is going to be a key focus for us going forward.

For Europe, it's really about we acquired Fermacell was really to give us that strong footprint in Europe with strong channel access as well as closer to the markets with the builder specifiers so that we can build a more meaningful and profitable fiber cement business for the long-term. And we are going to continue to gain traction in our current fiber cement products as well as continue to develop and launch fiber cement products for the European markets. On top of that, we've got to continue to drive growth in our base business, which is the fiber gypsum business. With the James Hardie manufacturing know how, this is where we would like to apply a lot more of the capability to the European plant fiber gypsum to continue to unlock more capacity and drive more of the unit cost reductions so that we can enhance the EBIT margin for our European business as well as provide additional cash to invest in the market development.

Asia-Pacific is really about continuing to improve on our playbook that's been successful. That is about investing at the end users as well through the channel to provide the push-pull effect that has been effective for us and takes Lean transformation to the next level. To continue to learn and share the best practices with what's going on in North America.

Now, let's move on to give you an update on Lean transformation in North America. It is off to a very, very strong start. We confirm the targets that we have shared with you three months ago and that is to deliver $100 million in cost out savings over a three-year period, from fiscal year '20 to fiscal year '22. And the implementation of the Lean concept is really beginning to take a stronghold across all of our plants across North America. Our employee engagement is very high particularly in plants where we executed the "Hardie Manufacturing and Offering System". This is really the way that we run our plants, based on Leans. Wherever we roll out to our plants, which is in Waxahachie, in Peru, and Pulaski. In the past three months, our employee engagement in those plants has been very high.

The consistency of production has been really good as well as the variability in how we produce our products and throughput has really been reduced significantly. Through this whole process, we have built a central organization of Lean manufacturing experts as well as appoint key manufacturing team members within our plants that become Lean change agents. So, through that organizational capability that we begin to drive a Lean culture through our network of plants across North America. Our goal is to have by the end of the fiscal year that all of our manufacturing plant employees in North America are completely trained in Lean so that we can begin to drive a Lean culture throughout the manufacturing organization.

I'd like to share with you this chart on the bottom right of the page here. So, this is the actual costs, the unit costs per standard feet across the network of plants across North America. This is without taking out the depreciation tax and insurance and freight. So, this is really the manufacturing cost of producing our products. If you look at the highest point here, that is the unit costs of our products in December of last year. That was about the time that we really started the Lean journey in North America. You can see that since March of last year until December you can see that unit costs have been going up. A lot of that is really in the raw material cost increases, but also some of the plant performance, lack of performance leading up to December. Our team started to drive and really build the execution of Lean manufacturing through our plants. You can see that we start to have lower unit costs in a more consistent way during the past four months. If you look at our April actual unit cost, it's about in the same range as of May of last year. So, it's really good to see that not only is employee engagement high, but also produce the result that we intend to do with Lean.

Lean is a continuous process. It's a continuous improvement that is a never-ending journey. It is an area that we know we are making the right decision. We are focusing the organization in the right direction and we will continue to drive that improvement across our network of plants.

Now, let's move on to North American acceleration of Exterior growth. So, for us to get to 3590 for short, mid and long-term is all about first we have to convert vinyl homes into fiber cement. Really to make that happen is about the Win with Color. It is about our ability to deliver fiber cement in many different types of colors that would allow the developers to build homes with different aesthetics and different designs that would differentiate them comparing to other builders and developers. At the same time, provide low maintenance and durability to the homeowners. Just to give you a reference here, this is the development in Nashville, Tennessee that we were able to convert this development from vinyl into fiber cement. You can see here this is about $300,000 to $400,000 per home developments. To the left side is what we call the statement color which is really the core groups of colors that we produce every day that the market can buy from us. On the right-hand side is the part of the more 700 different colors that people can order from us. We call that the Dream Collection. You can see that by doing that together with Hardie plank, Hardie panel, Hardie trim, and Hardie soffits that we are able to provide that complete exterior look that looks very nice and allows the builder to differentiate their development from others.

On the bottom right, this is a development outside of Boston, Massachusetts and it is roughly a $700,000 to $800,000 home area that we're able to convert from vinyl to our Win with Color program with our Hardie planks, Hardie trim, and Hardie panels. So, this is really about what. This is really what we would use to continue to develop our business against vinyl to really drive that category expansion, the market expansion. And really that's the what and this is the how. The how is really about the commercial transformation that we shared with you back in February. That is traditionally in North America we have been focusing a lot more on continuing to convert new builders. We haven't really put a lot of focus on the channel and how to create more value with the channel while we create demand. So, that's what we call the push/pull effect. This is really the transformation of our commercial organization that needs to happen to make sure that we can have a repeatable, more sustainable capability to drive growth above the market. As we create demand and that need to translate into sales for us through the channel.

A key part of that is really about for us, we've got to be easier to do business with. And it's important for us to set up the organization within the channel that has a capability of really being able to show and demonstrate that our channel really makes more money by selling our products versus others. Our sales team structure has been in place. Our key sales leaders have been hired and so the team talent continues to be filled within the organization. So, the commercial organization is a little bit tougher than the Lean transformation because it's not within 100% of our control. We have to convince customers as well as we have competition that we have to deal with. Certainly, we are on the right track.

Let's move on to give you an update on our European business going forward. One of the key synergies that we saw with the Fermacell business is really about Fermacell has a fiber gypsum board. That is a high-performance board for the interior use that is really one board of fiber gypsum can replace two of gypsum board or a board of gypsum and OSB because it has multiple properties within one board. That is fire resistant, water resistant, and acoustic reduction. So, with fiber cement, it is about the exterior. Our team at the former Fermacell, James Hardie in Europe, really have access to the specifier, the architects, and designers. This is the case where our team was able to already have the penetration and contact with a specifier to build this kindergarten in Brittany, France which it is in the northwest coast of France which is where the temperature is on the extreme net to the Atlantic Ocean. It is a really good value proposition for our fiber cement. You can see that this team was able to build this new kindergarten with the James Hardie fiber cement panels and planks and the exterior. And then with the Fermacell the interior walls for the insides. That's a total solution.

I'd also like to share with you the very exciting things about our growth in Europe. The launch to that 1 billion Euro for the long-term is really about, yes, we have to continue to grow fiber gypsum. On top of that, we have to really build and develop new fiber cement products for the European market. This is a really an exciting case because it really leverages on a global capability. There is an unmet need in Europe about what we call the weather protection system. In Scandinavian and in the UK by the coast, in the construction and new construction or remodeling of homes or commercial buildings, there is a need to have a temporary sheath that really attaches to the frame. That would allow the workers to continue to work inside and before they need to put the clad in at the later date. A lot of time that can be up to 12 months. This is a need that really exists as a market opportunity for our teams in Scandinavia.

So, they either happen to have a meeting with our team in New Zealand and there was a similar type of concept for the product in New Zealand and then the team from Europe took that product and market tested in Europe. It showed it was pretty close to what the needs are, but they needed to have a few other requirements that we have to modify to meet the European market. That is, have to have fire resistance and also to survive up to 12 months in the elements and has to be easy to affix to the structure so they can use staples or nails. So, our teams passed on these product concepts to our R&D center in California and then the team worked to develop the formulation, tested it, and finally it worked with the end users in Europe. Then it was manufactured at our Pulaski plant in Virginia and finally shipped to Europe for sales and will start selling beginning this week. So, it's really a very good case of how we can leverage our capability at James Hardie around the world. Now that we have market access in Europe to be able to grow our business in Europe with fiber cement developed for the European markets. And fit for use for the European market.

So, this is really some of the key assumptions that we have for our fiscal year '20 and our market outlook for North America. We continue to affirm that there can be modest growth in US housing in the fiscal year 2020. The residential housing start, our assumption would be between $1.2 million and $1.3 million homes. EBIT margin was in the top half of 20% to 25%. The exterior volume will be at 3% to 5% PDG. Europe, a slight housing growth across our addressable market in western Europe. We'll be introducing new fiber cement product for Europe this year and we expect to see EBIT margin accretion for our European business.

Asia-Pacific, the addressable housing market in Australia decreases this year. In fact, it has already happened. A-Pac volume will be 3% to 5% growth over the market and with the continued focus on the Lean transformation into A-Pac, we also expect to see that our EBIT margin will be in the top half of our stated range of 20% to 25 %.

With that, we'll close right here, and we'll open up for Q&A.

Questions and Answers:

Peter Steyn -- Macquarie -- Analyst

Thanks, Jack. Peter Steyn from Macquarie. Just a quick home in on the commercial transformation estimates and particularly your intent to be easier to do business with. We've obviously seen a couple of movements in the channel just more recently, but could you give us a sense of how you're going in terms of traction with further important channel partners as well the internal realignment of some of your sales plans and intent and people?

Dr. Jack Truong -- Chief Executive Officer 

Peter, that's a very good question. Traditionally, James Hardie in North America we have been focusing so much onto the pulp side with is at the builders and contractors' level. We haven't really made the strong effort to really engage with our channel partners in terms of how do we make it more easy for them to receive our products, to have the right pricing with us, and how to be able to navigate within the James Hardie company in the way that we'll get the right information to them to run their business with products that are a lot more simple. That would center around the supply chain, synchronization between us, and then our channel partners to be able to deliver our product the markets in the right way. So, it is an area that is a key foundation of focus for us. Commercial transformation is really about adding that capability. We call it key account management. That is not just about the job of the salesperson. The salesperson is a quarterback or the coordinator of James Hardie to the account to where we would have the mirror image relationship between the top management and the big channel partners with us. The same side with myself and then Sean Gadd and then our new head of sales all the way down and across to different functions from sales, market, and products, and supply chain, and finance.

That is the structure that we're building right now that will allow us to serve our channel partners a lot better and in a more significant way so that allows us to penetrate the markets.

Peter Steyn -- Macquarie -- Analyst

Perhaps just a quick follow-up on that. Does that disruptive aspect of that reorganization, has that been worse or better than what you expected?

Dr. Jack Truong -- Chief Executive Officer 

I would say that the level of engagements of us with our channel partners in North America has a lot of room to improve. I think it's more than I had expected so that's why it is important for us to really put a strong focus on key account management. That is a different skill set. And it takes a different focus to make sure that we manage that part correctly while we've got to make sure that we continue to invest and deploy the right skill sets of the market development folks and the business development folks to go and create new demand for fiber cement to the conversion against vinyl and wood and so on. So, those are the two separate focus but then management has to align the demand and then the channel management together to ensure that we create the sales from the demand that we just created.

Peter Steyn -- Macquarie -- Analyst

If I may, just a quick on Lean. You've indicated that you've had throughput yield investments and that available hours are up. Yet, the cost per square foot is still stable. Presumably, that's largely a consequence of pulp prices, I assume. But can you give us a bit of a sense of what is happening at Waxahachie, Pulaski, and Peru in terms of unit costs perhaps at a more granular level? Have you actually seen a reduction there?

Dr. Jack Truong -- Chief Executive Officer 

Yes. So, in the plant particularly in Waxahachie and Pulaski, we actually have really quite a step change in improvement in our unit costs in a very substantial way. In Peru, it's improved but it's not improved at the level compared to the other two plants yet.

Andrew Scott -- Morgan Stanley -- Managing Director

It's Andrew Scott from Morgan Stanley. One for Matt, but, Jack, happy for you to chime in. Just your guidance for particularly North America the 20% to 25% range. I note that in the comments there, one of the assumptions is increasing input costs and input cost inflation. As you mentioned, freight is coming away. It looks like pulp has turned the corner now. Is that just conservatism at the start of the year or is there something you're seeing that we're not aware of that is going to suggest that we're going to see input cost inflation throughout the year?

Dr. Jack Truong -- Chief Executive Officer 

Let me go back to one part. It's really more about you can see that we launched the Win with Color program. You see that we also launched our commercial transformation which is going to take some of the investment too. Make sure that we are able to drive traction to recreate the sustainable PDG. So, that's just why, at this point, it's a saving that would afford us the capability to drive more sales growth or more PDG growth.

Go ahead, Matt.

Matthew Marsh -- Chief Financial Officer

Yeah. Input costs, before I get to your question Andrew, I think I mistakenly said that pulp was up 12% for the year. Just as a correction it was up 13% in the quarter. For the year, the pulp was up closer to 19% for the year. Sorry about that.

On your question, pulp definitely looks like it's coming up but it's still pretty elevated. So, on a year on year basis, it's still up. If you looked at April to April pricing as an example or May year to date pricing as compared to May year to date pricing a year ago, it's still up. It's off of where it was a year ago. Oh, sorry. It's off of where it was last month. It's off of where it was at the peak but it's still pretty elevated. But pulp is still trading on the index at 1300, which is still very elevated. So, that result will sort of continue. There's an assumption that we will see a trend down in pulp, but I think I said that February and I said that November too. I think I'm fairly cautious on the pulp market's ability to forecast itself.

We are seeing good trends. I'd say over the last 6 or 12 weeks but it's still pretty elevated. So, that comment is much more around does the trend follow or does it stabilize at a really high level? And that would obviously have an effect where we would be on the upper end of the range. Even taking that into account, we still feel pretty comfortable saying we'll be in the top half of our range for next year.

Andrew Scott -- Morgan Stanley -- Managing Director

Thanks, Matt. If I extend that to Australia, and I assume it's the same assumption, where are we going to get the helping margin there where we're coming from in this quarter at least bang on the bottom end of the range to the top half of the range there because that is a meaningful step up.

Matthew Marsh -- Chief Financial Officer

Yeah. On a year on year basis, New Zealand manufacturing will no doubt go from being a headwind in the result to a contributor to the result. That will be significant. Keep in mind, we did have in the second quarter of our fiscal '19 that one off item in the Philippines. You take those two items and that has a pretty significant impact just with those two items. And then we're not forecasting anything on foreign currency, obviously. And we've got the same assumption for pulp that we have in North America.

Andrew Scott -- Morgan Stanley -- Managing Director

As we see here today, obviously we've had Fermacell integration roll through, we've had the business closures. As we look into '20, are there any items you expect to take effectively below the line and in particular I assume you'll expand the strategic costs of living with strategic initiatives. Is there anything that we need to think about going forward?

Matthew Marsh -- Chief Financial Officer

Nothing really below the line. We've got some additional Fermacell integration costs to go. I think those will be in the $5 million to $7 million range for this year. It's primarily associated with completing the standup of the back office. As you remember, Fermacell was owned by a private equity company and we've had to completely stand up both the personnel and the IT infrastructure associated with the back-office functions. So, we're probably about two-thirds of the way done with that and there are some additional costs in fiscal '20 associated with that. But nothing, ultimately. We think we're through the product line review and portfolio review. So, we're not expecting additional product line discontinuation costs. I'm not expecting other items below the line in fiscal '20.

Simon Thackray -- CSLA -- Analyst

Simon Thackray from CSLA. Jack, can we just start with the interiors market? Down 10% in the quarter. That looks like it's still moving away from you. Can we talk about the drivers of that? I mean, we've probably all gone through and see the leisurely vinyl tile taking some share etcetera. How much of this problem is a Hardie problem versus a market problem?

Dr. Jack Truong -- Chief Executive Officer 

Good question, Simon. In our interior business, I would say 80% of our market access is through the retail channel. And really the fundamental in retail is really about position, placement, pricing, and promotion, and products. So, essentially, let's talk about the product. We have essentially two skews in the channel for a long time. For us to grow in this category, we have got to have critical mass. So, it's important for us to really come out with new products and then continue to refresh our category to make us a destination within the retail channel for the contractors. So, that's the first thing. That's one area of the innovation that we're going to focus on. Second is that more of the short-term and that is about placement. Our product today with the two skews that we have, we're not in full in the building material section of those two key retailers. We are in primarily in the tile section where we have less traffic. We don't have the traffic, or the heavy user contract walks through there. So, we have to fix that placement.

And then third is really about the position. It's about making sure that our products are well-positioned in the store so that the contractors, we can attract new contractors and be able to use our product in different applications. So, in some ways, it's really about I would say about 75% of that is really within us, within our control and then 25% is really about the markets. Of course, when you have a new product or new category like LVT come in, it's really incumbent for a manufacturer to say, "Okay. If that's the case, what are we going to do differently to make sure we can continue to grow?" So, those are the three key strategic actions that our teams are working on right now so that we can fundamentally improve the position for the interior business.

Simon Thackray -- CSLA -- Analyst

And you've launched a new product at least at the trade level, the Aqua or Hydra, whatever it is. I can't remember.

Dr. Jack Truong -- Chief Executive Officer 

Yes, Hydra defense.

Simon Thackray -- CSLA -- Analyst

So, is that now being rolled out?

Dr. Jack Truong -- Chief Executive Officer 

So, it is a product that we just rolled out to the Pro channel. As you know, the retail channel is the cut through the planner do that once a year. So, we have to wait until the time when they change the planner gram within retail to be able to launch that into retail. That's just the first step. The other step is really about to let me show you that we can come out with the new interior products that would resonate well with those unmet needs in the market here.

I think I mentioned at the last earnings call is that our business, 85% or our business in Europe is through the interior business today. And 35% of our business in A-Pac is an interior business. So, there's a lot of know how. A lot of the new product concept and opportunity that we can really now bring together as a global team to come up with those new products. So, I'm optimistic about that capability.

Simon Thackray -- CSLA -- Analyst

Great. That's really helpful. Thanks, Jack.

Just a quick one on the asbestos. Just a refresher. It's been a while. You're paying at 35% or operating cash flow. There was always an opportunity within the agreement for there to be step downs to 30% to 25% over time. What are the requirements to get to that? Is that feasible to get a step down in the payment? You've forked out $1.2 billion now. You've made an acquisition, so the EBITDA has presumably gone up and the free cash flow presumably goes up.

Matthew Marsh -- Chief Financial Officer

Yeah. Over time at some point, there will probably be an opportunity for that to step down. The requirement in the AFA is that when the cash outflow from the fund is less than the annual contribution and cash inflow to the fund when that occurs over a period of time, then we can start to take a step down in the contribution rate. So, it's a formulaic approach. I think it will be some time still before that occurs. Certainly, the last couple of years are more positive trends, I'd say, with respect to cash flow and last year was certainly a very good trend. But I think we're still a bit away before we see that.

Brooke Campbell-Crawford -- JP Morgan -- Analyst

Thanks. Brooke Campbell-Crawford from JP Morgan. Just on the 3% volume growth in the fourth quarter. Can you talk about how that progressed through the quarter and if it continued into April? Also, how are the order files looking? Thanks.

Dr. Jack Truong -- Chief Executive Officer 

Order file. The famous order files. As you know, as we discussed last quarter, we look at our commercial transformation is going to take some time. We said back then it would take us about 6 or 7 months into the new fiscal year to gain traction. So, at this point, I wouldn't expect our ancillary growth to be materially different from what you see in the fourth quarter until around 6 months from now.

Lee Powell -- Deutsche Bank -- Analyst

Lee Powell with Deutsche Bank. Jack, can you just talk a little bit about pricing in FY20? I know there was a comment you said in the presentation about price positioning. What pricing increases if any have you got coming through?

Dr. Jack Truong -- Chief Executive Officer 

Want to take that, Matt?

Matthew Marsh -- Chief Financial Officer

We think the price in fiscal '20 will be around 2%. So, pretty similar to fiscal '19. I think it was about 3%. We haven't changed our approach in the way that we do strategic pricing. It's the same process. We are still value price. That 2% nationally, we go through a series of product and region reviews where we are evaluating our price position versus our commercial objectives. So, there is a range if you look at our product portfolio and our region portfolio. You'd see a range around that 2%. Last year, that weighted average ended up being closer to 3%. This year the weighted average of fiscal '20 will be closer to 2%. So, we're still pretty satisfied overall with where we are on strategic pricing. No real change on the tactical side. That 2% obviously includes a combination of that strategic pricing plus what we think we're going to do in tactical this year. We're obviously trying to align both the strategic and tactical pricing to the commercial transformation that we're doing. We're pretty happy overall with where the price is, and we think it will be around 2% for fiscal '20 for North America.

Lee Powell -- Deutsche Bank -- Analyst

Thanks. Following off of Peter's question on this changing approach to PDG in North America. Can you give an idea of like salesforce turnover if anything and how that's been against your expectations as you've pushed this new approach into your salesforce?

Dr. Jack Truong -- Chief Executive Officer 

Probably the biggest part of the transformation we had was in the interior business. We usually have roughly 80 sales professional who supports the interior business. The majority of our team is actually caught on to the stores across the country. The business model has really changed with the big boxes. Really those decisions to promote and place products within them as already done in Atlanta or at Charlotte. So, what did there is that we have to have a turnover of over half of those folks so that we can reposition the business at the headquarters to really drive the account management. Then, with the headcounts that we have, we use that to hire more of the market development and business development professionals who really go in to convert new business from vinyl into fiber cement. So, that is the shift that we did to make sure that we can drive the demand and then be able to drive the channel growth at the right points.

Lee Powell -- Deutsche Bank -- Analyst

Okay. Thank you.

Sophie Spartellus -- Bank of America Merrill Lynch -- Analyst

Sophie Spartellus from Bank of America Merrill Lynch. Just following on from both of the questions on the salesforce. You talked about the key roles being filled. Last quarter we heard about these hunters and gathers. That evolved placement of people in different towns and it was quite a cultural shift. Can you just talk through how that is going and how much of that process is complete?

Dr. Jack Truong -- Chief Executive Officer 

So, just to be clear, the pulp side which is really the market demand which Hardie has always been really strong with about creating the demand for fiber cement over vinyl. That is an area we actually reinforce with more capability and more resources so that we can drive that demand. That doesn't change. Not only doesn't change but we just add more resources to it. We also add more resources to the R&R. That is an area that is also a growth opportunity for us from the demand generations perspective. Where we enhance the capability of the sales team is where we create a focus on key account management. That is where we need the sales professionals who really understand how to manage our customers in terms of how to provide the services and capability of James Hardie to our channel partners so that they can make more money selling our products. That is a skill set that we continue to add to the company.

I think I mentioned at the last earnings call that we just hired a new head of sales for North America and he is reporting to Sean Gadd who is the Chief Commercial Officer and he, Johnny Cope is his name, he is the one that now runs the total sales organization in North America with a strong focus on account management as well as in the market development. Within this organization, we built a new organization called sales operations. This is really about the analytics. This is really about the sales trends and the mixture and that we have the right training across. This is about the customer's inside sales, price management and so on and so forth. That is the new capability that we also build within the sales organization.

Sophie Spartellus -- Bank of America Merrill Lynch -- Analyst

Okay. So, just in terms of that process, it seems to be still ongoing. Can you give you use a timeframe as to when all that will be bedded down and your sales function will be complete to the market?

Dr. Jack Truong -- Chief Executive Officer 

We anticipate between 3 to 6 months.

Sophie Spartellus -- Bank of America Merrill Lynch -- Analyst

Okay. And just a quick follow up question in regard to Asia-Pac. You mentioned in your commentary that the market has peaked. You've got your guidance there decreasing in FY20. Can you maybe just talk to through how much clarity you've got in terms of your order book here in Australia and the Philippines given they are your key markets?

Dr. Jack Truong -- Chief Executive Officer 

We don't have the big visibility out into the order book as we would like. But in terms of how our teams are --, We have a team that is very focused on the primary demand in the marketplace. They really know what the demand is. We have a very strong team that manages work with our channel which is quite concentrated in Australia quite well. So, they do have a good sense of how the market is moving and more about how we continue to create more demand for our product through the channel and also through the builders and contractors. It's not a science yet, but certainly, there is a good feel for how we are performing against the markets.

As you can see in the fourth quarter, our business in Asia-Pacific continued to perform well at 7% growth and volume. They couldn't get there without the growth in Australia.

James Branch -- UBS -- Analyst

James Branch. I'm from UBS. Three months ago, when we sat here last, we talked about customer perception issues and customer retention problems that you were having. At the time, you talked about that was costing about 3 percentage points of PDG. Three months on, I'm just interested to know how customer perception has changed and where you are tracking against that against your expectations.

Dr. Jack Truong -- Chief Executive Officer 

Right. Back then I said we probably have about 25 to 3% erosion of our sales because we're not really managing our current customers. I think during the past few months our teams from the top of the company all the way down, that we have reached out to our customers form the CEO level down and met with them. I think to be able to meet as top to top and mirror image as a team together, that really helped to reinforce to our customers that we at James Hardie like to engage in a different than we had in the past. And that helped. But of course, just with any customer relationship and management, we have to demonstrate that every day, demonstrate with actions every day until our customers really believe that we have made a change to be a lot more customer-focused now. It is a journey. It's not something that you change people's mind overnight. It is an area as a company that we have to change to be able to get there.

James Branch -- UBS -- Analyst

Right. So, I guess the target for 3% to 5% points of PDG... Sorry. The target this year for 3% to 5% of PDG doesn't really assume that you get any more traction in terms of retaining those lost customers? There's no improvement? That's upside, is it? Or is there actually some improvement?

Dr. Jack Truong -- Chief Executive Officer 

I think first and foremost that at least to start that would help minimize some of the erosion. The next step is really about growing beyond that. That's a two-step process.

Matthew Marsh -- Chief Financial Officer

Anyone on the phone?

Operator

We have a question from Peter Wilson with Credit Suisse. Please, ask.

Peter Wilson -- Credit Suisse -- Analyst

Thank you. Good morning. Jack, in North America, if I could just clarify one of your answers to your questions earlier. You said it will take 6 to 7 months for some of this year's initiatives to gain traction and hence you wouldn't expect growth to be above the fourth quarter. That would seem to imply that in order to achieve your 3% to 5% PDG target that you're going to have to be right on the top end of that range for the second half, right?

Dr. Jack Truong -- Chief Executive Officer 

We would anticipate that once we get our commercial transformation set to run that we would see stronger traction, yes.

Peter Wilson -- Credit Suisse -- Analyst

And that would be the upper range, right? The top end of that range?

Dr. Jack Truong -- Chief Executive Officer 

In the second half.

Peter Wilson -- Credit Suisse -- Analyst

Okay. The last you reported you illustrated a 10-year plan and I think part of that could be really used in the wood. The numbers that you are reporting don't really seem to illustrate that. I was just wondering how confident you are on that and if there is any tangible progress you can point to there?

Matthew Marsh -- Chief Financial Officer

Can you repeat that? To just make sure I've got your question right, you're asking if the commercial transformation that we talked about in February which showed a gain over the next ten years along our 3590 strategies against both vinyl and wood look alternatives required kind of early gains by substituting LP? And your question is the reported result for LP looks pretty similar to our reported result so how that statement compares to the most recent results. That's the essence of your question?

Peter Wilson -- Credit Suisse -- Analyst

Apologies. I think the first part got cut off there. I guess my question is, LPs reported a high percent volume growth in the third quarter, sorry, in the March quarter and on the 12-month basis was well ahead of the numbers you printed as well. It just doesn't suggest that there's any progress of taking share off of engineered wood.

Dr. Jack Truong -- Chief Executive Officer 

I think if you look at the last 12 months, our growth rate between us and LP is about the same. I think about 5%. So, having said that, for us to continue to march toward our 3590, it is important for us to be able to take more share for LP. LP is a good competitor. So, it is going to be about execution and about plans and continue to adjust as necessary to make sure that we achieve our long-term objectives.

Peter Wilson -- Credit Suisse -- Analyst

Okay. At what point would you start to become worried if those relative numbers don't start improving in your direction?

Dr. Jack Truong -- Chief Executive Officer 

Peter, I think it's just too early to tell. Yeah?

Peter Wilson -- Credit Suisse -- Analyst

One last one. The Win with Color is a big part of achieving that. You have said you have an expanded range of colors. Am I wrong in saying that at the US Investor Day last year you outlined a plan to rationalize the number of colors that you were doing in order to improve your selection efficiencies?

Dr. Jack Truong -- Chief Executive Officer 

That is correct. We did rationalize quite a bit and then what we offer what we call the Statement Line is about the core products that our customer can order made to stock. That's roughly about 15 SKUs. And then the other is about over 700 different colors that our customer can order with us. That's really about the made to order. And so that kind of gives our customers the capability and the ability to design any type of development that they would like. But it's really about uses focused primarily on the 15 SKUs that we sale day in and day out to the market. And that is where the rationalization and standardization that would improve our manufacturing efficiency and translate to cost reduction.

Peter Wilson -- Credit Suisse -- Analyst

Awesome. That's perfect. Thank you.

Operator

We have another question from Daniel Kang from Citigroup. Please ask your question.

Daniel Kang -- Citigroup -- Analyst

Good morning, everyone. Just a quick one. In terms of the PDG growth rate. You mentioned that 1% off the full year. Are you able to estimate the exit rate for the fourth quarter? And while we're talking about the competitive landscape, who knows that the import level is quite strong into the March quarter. Are you seeing much impact from the increased import level?

Dr. Jack Truong -- Chief Executive Officer 

I think our fourth quarter exterior volume growth is about 3.5%, comparing to the third quarter of 1%. We don't want to look at PDG really on a quarterly basis because it's not really an exact science. So, we kind of look at it from the rolling 12 months. If you look at the rolling 12 months for fiscal year '19, it's more than 1% versus minus 2.5% a year ago. There's that momentum a little bit coming out of the fourth quarter. So, in terms of an appreciable step change, it's not going to be materialized until we execute our commercial transformation to the fullest.

And then relative to your question on the fiber cement. Go ahead, Daniel.

Matthew Marsh -- Chief Financial Officer

Sorry. No one is speaking. Jack had asked if you had a follow-up question.

Daniel Kang -- Citigroup -- Analyst

Yeah. The follow-up question was just in terms of the increased import in the March quarter. Are you seeing any impact there?

Matthew Marsh -- Chief Financial Officer

On input costs?

Dr. Jack Truong -- Chief Executive Officer 

Yeah.

Matthew Marsh -- Chief Financial Officer

Imports of FC. Yeah. We noted the same. No, we're not seeing any sort of the significant change in the marketplace. I think the headline number on the percent growth is a big number. I think it was almost 30 something percent. But keep in mind that I'd say that what they're comping that off of is actually quite low from a year ago. So, if you look at the import volume over a longer period of time, if you look at where it's been on a quarterly basis over the last three years, it's still at a relatively low volume on a volume basis. It's at a low point in comparison where some of the other quarters have gotten reported. So, no. We're not seeing anything sort of unusual in the marketplace or anything that is concerning us or anything that's got us off strategy or off target.

Daniel Kang -- Citigroup -- Analyst

Very good. Also, in terms of expectations for expected tax rate?

Matthew Marsh -- Chief Financial Officer

You can. In August. Yeah. I mean, I'm not going to guide on ETR for fiscal '20. Once we get a good sense of how the year is going to play out, we'll talk about that in August. I'm not expecting material change. Okay? So, it's not like the 14.9% number we reported this quarter is going to change materially. It will move up and down based on earnings and where those earnings occur, but that's not an artificially high or low number. We think that's a feature of the result going forward. And I'd say similarly on guidance for fiscal '20, we'll talk about that as we normally do as part of the August result.

Daniel Kang -- Citigroup -- Analyst

Got it. Thanks, man.

Matthew Marsh -- Chief Financial Officer

For capex, there's no change on prior guidance for fiscal '20. We expect that we'll spend somewhere around $200 million for fiscal '20 and we think the next two years after that, fiscal '21 and '22 will be a step down from that. Probably closer to $150 million. We've largely gotten through our Greenfield and Brownfield capacity projects we think across the globe. Obviously, there are other opportunities that we'll explore particularly in Europe at some point. We'll add capacity both for fiber gypsum and as the fiber cement business grows. None of those are sort of included in that medium-term outlook because we don't expect them to occur in that medium-term outlook. So, $200 million in capex in fiscal '20 and then '21 and '22 is a step down from that, probably around $150 million per year for each of those two years.

Daniel Kang -- Citigroup -- Analyst

Thank you.

Operator

There're no further questions at this time. I'd like to hand the call back to the speakers for any closing remarks. Please, continue.

Dr. Jack Truong -- Chief Executive Officer 

I think we both thank you all for coming. I think our fiscal year '19 was a solid result from a global business. We are going through a transformation in North America, commercial and our Lean manufacturing which we should expect to see the results throughout the year in fiscal year '20. Thank you.

Duration: 90 minutes

Call participants:

Dr. Jack Truong -- Chief Executive Officer 

Matthew Marsh -- Chief Financial Officer

Peter Steyn -- Macquarie -- Analyst

Andrew Scott -- Morgan Stanley -- Managing Director

Simon Thackray -- CSLA -- Analyst

Brooke Campbell-Crawford -- JP Morgan -- Analyst

Lee Powell -- Deutsche Bank -- Analyst

Sophie Spartellus -- Bank of America Merrill Lynch -- Analyst

James Branch -- UBS -- Analyst

Peter Wilson -- Credit Suisse -- Analyst

Daniel Kang -- Citigroup -- Analyst

More JHX analysis

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