Okay. Good morning, everybody. We'll go through this the same way we always have. Matt and I will take care of it. Everyone knows that Jack and I are in a transition period. Jack's working with the team on initial assessment of North American business and early stages of the three year strategic plan. But as far as the results go in the Q&A, Matt and I will take of those. But if you catch up with Jack later, he's right up to speed on everything that's going on in the company, so you'll get his perspective. All right, so Slide number 8, I guess. You see a lot of green arrows but our problem is our top line's better than our bottom line. We'll go through the reasons for that. And of course, the EBIT margin ends up being red because of that, meaning decline in EBIT margin both in the U.S. and in the company overall. The other unusual -- the most unusual thing in this result is we have done a strategic view of non-Fiber Cement U.S. and decided to both -- close both the Windows business and a product line which we call MCT internally but that's a resin-type technology we invested in 5, 6 years ago as a potential trim for the Northeast. And we were going to prove out the technology. We made shapes that we sell along with our current trim lines. The shapes are fine but it's not a big enough market to stay in the technology. And the technology itself, like the things we compete against, urethane, fiberglass, all those technologies just have a higher cost point than -- including our technology than we think is -- you can really sustain margins long term. So we're getting out of both of…

All right. Good morning, everybody. I'll go through the financials and then we'll open it up for some questions. In Q2, we had net sales that were up 23%. We reported $644.6 million of U.S. sales. It's up about almost $119 million, primarily driven by the acquisition of Fermacell. Of the $118.8 million, almost $77.8 million of that is Fermacell. Louis has already made comments on the underlying businesses and I'll do the same when we get to the segment results. Prices are up in the North America Fiber Cement segment as well as volume. Asia has both higher volumes and just good overall performance on the top line in both the Philippines and Australia. You see gross profits are up 11% on a dollar basis. Margins are down about 350 basis points. You'll see as we get into the input cost section that market rates on all the commodities and freight are up pretty significantly and don't seem to be cooling off. And that's, for the most part, what's driving the compression. We reported adjusted net operating profit in the quarter of almost $81 million. It's up about 7%. You can see for the half year, we reported about just shy of $1.3 billion of net sales, up 25%. Again, $164 million of that increase from the prior year was a result of the acquisition. Very similar, I'd say, top line dynamics at the half and the quarter, so I won't make specific comments here on those. Similarly, on gross profit, up 20% on a dollar basis, margins down about 140 basis points. The margin compression, for the most part, is input cost related. And then adjusted net operating profit, we're reporting 161 -- $160.8 million, up about 17%. Primarily North America Fiber Cement EBIT, excluding the MCT and…

Simon Thackray from CLSA. Can we just unpack that last comment now a little bit about system versus PDG and you weren't sure how much -- what was happening ultimately in the first half and what's going to happen in the second half? Did you come up with a number for PDG confidently in this first half that you think you achieved? I mean, you create the index, so we can't track the index but you do.

Yes. We know what our 4-quarter running index is and we're slightly above that, I think about 2% if I heard the number right. So our range for the year we originally forecast was 3% to 5%. 3% is probably still in play but we might come up a little bit short of that. But right now, I think the external market demand is actually harder to forecast than internally what's going on. So that's why we say we've actually -- the business, just kind of for a couple of quarters, just simplified it and focused on volume. Certainly, in our forecasting, we're focusing on volume. And we'll do a back calculation for PDG once we got the official starts and the R&R index from Hanley Wood.

So just again, I'd like just to understand that, it's harder to forecast the external market.

It's definitely -- the external market, and I'm sure you've seen other results, is not tracking as it was for, say, 4 to 6 quarters. In other words, the market was very steady for a long period of time, and now there's -- now it's not. It's not coming off, meaning we don't expect starts to reduce necessarily. But the activity in the market is below what it used to be.

Okay. So does that get reflected in your order book? Because you always talk about your order book...

Yes, yes, it definitely does, yes. So our order file is softer than what we want right now. That's getting to be a common comment by me but yes, it is. And we think -- because you're going to look at it regionally obviously. We think some of it is external and some of it's -- we haven't done a few of the things we wanted to get done and books of business we thought we'd book by now.

And you never call out weather but we obviously saw a pretty wet September, with Texas and the Carolinas who've had hurricanes. Most of the peers who have exposure in those areas have called that out. Did it have an impact?

No. Yes, that's when I said, there are several factors that are kind of affecting external demand in the industry right now, whether it's us or someone else. And of course, that would be one of them. And I can hardly say weather, you force me to. But -- and then just the builders, builder demand seems to be a bit softer as well. So we think there's a bit of a slowing down, meaning that everyone's not in such a hurry to kind of move things forward. I think there's a lot of companies just doing a little bit of a wait-and-see, which is basically what we're saying is, hey, if the recent dampening of orders below our expectations is weather related, obviously, that's going to wear off and will bounce back. And if it's related to something else, whether it be housing demand due to interest rates or anything else, a lot of people said there was a lot of wondering about what's going to happen with the midterms. Well, we don't have to wonder anymore. So we just see what the impact of that is.

Got it.

And so again, we're not trying to flag a big issue either internally or externally. We were about 2.5% or 3% short than where we planned to be this quarter. So we delivered 8% instead of 11%. And right now, as we sit here in November, 5 weeks in, we're a hair below what we were forecasting for the third -- similar amount below what we were forecasting for the third quarter. So we're just not bullish on our volume right now, yes.

Yes. And just on that comment previously about the interiors, it was down 6%. You're still saying it finishes the year down 1%. How does that...

Flat, flat to 2. I mean, that 6% is -- if you take the 6 months, it's down 2% and we think that's more typical. And we entered the year with some of that product line exit still impacting numbers to a small degree. It's -- we're not losing share, so we have visibility to share. So it's a market opportunity situation. But the quarter was just bad -- good comp, bad comp-type you had factor to factor in there, yes. So I wouldn't worry about the 6%. I'd be thinking about the 2% and I'd be thinking about a market opportunity that's likely in slow decline. And Hardie is not losing share in our channels. But Hardie is working to increase share incrementally or marginally in our channels to kind of offset some of that slow decline. And right now, I'd say we're staying flat share-wise, which puts us a little bit down because of the opportunity.

Opportunity, okay. And Matt, just in terms of the tax rate, I know you normally say you can only assume for the full year what you're saying there for the half. So that 15.8%, call it 16%, that's what we assume for the full year?

Yes, that's right. That tax rate just adjusts as our -- as we get better visibility.

Appreciate that. So if I sort of back out for that and maybe $50 million of interest costs and then kind of get back to an EBIT number, it's looking like the second half will be down on the first half. That's the implication, therefore, for the guidance at the midpoint of that guidance.

Yes, I think that math is probably about right.

Yes. Okay. And driven presumably out of this input -- $20 million of input costs that you've increased, the sort of the range of the input cost, that's a big driver. And then second part is this uncertainty around the second half outlook for the market. Is that the way to interpret it?

I think it's a pretty good way to look at it.

Keith Chau from Evans & Partners. Lou, just going back to your comment around the expectations for exteriors growth in the third quarter. So in the second quarter, just to recap, so the expectation was -- or sorry, the internal forecast was 11% and 8% was delivered. For the third quarter, you're a similar level below compared to the second quarter. What is your forecast -- internal forecast for the third quarter, please?

Yes, we're not going to give you our internal forecast but it wasn't 11%. The -- now we expected the back half volume comp to be lower, because they're tougher comps from last year winter than they were summer. So that's why -- the reason we had 11% for this quarter was more we had a weak comp same quarter last year.

Okay. But I guess, the long and short of it, the 3% to 5% PDG at the bottom end looks slightly more achievable?

Yes, I think -- like I said, I think the 3% is in play. I mean, I don't want to -- again, I'm not flagging anything major but I am flagging that our organization's ability to get out in front of it has been less than I would expect it to have been. So now like I say, it's kind of hard to triangulate, because you see vinyl is down over the last 3 quarters, LP is up just marginally like we are and a little bit less than us. So it's kind of hard to triangulate. That's why -- but we know which business we're aiming at and we're not knocking it off at the rate we think we can knock it off. So there's an internal component. Now is there more traction now than there were 6 quarters ago? Yes, there's more than 6 quarters ago. But like in September, when we saw a lot of you in September, we say, "Hey, this company and everything we do is around 6% PDG." And the reality is we're not there again. So we still have a lot of work to do to get back into that regular 5%-, 6%-, 7%-PDG type 4-year trailing results. We're at 2% now and who knows, maybe we -- by the end of the year, we end up 2% again or maybe 3% but it's still not 6%. So we still have work to do.

Sure. And just circling back to interiors. I think last quarter, we were talking about a 1% to 3% up result from interiors for the full year. Now we're talking flat to down.

Yes, Jason reminded me of that.

As we look kind of beyond this year, is there a point where you think the market for interiors will actually flatten off and stop deteriorating? Or is that a longer-term issue that...

I'm going to be honest with you. Again, keep in mind, we're the big player on the floor and the floor is what we're talking about. So it's hurting us more than our competitors, because the companies that make their living on the wall aren't seeing the same thing. Do I think it's going to continue? I do think it's going to continue. I think it'll be a slow decline for a lot of years and then who knows, tastes change again and maybe it swings back the other way, I'm not sure. But I said, Jack and the team just started to work on their strategic planning. Certainly, they're looking at product opportunities in interiors to offset the decline in the flooring opportunity.

And when do you think those benefits could start to materialize? I mean, it's not going to be the next few quarters.

No, I mean, they're kind of 6 weeks into a 3-month project. But I would say, we do have product development going on, so it's not like way down the road but I wouldn't put it in next year's results.

Okay. And just one for Matt. I think you mentioned on the guidance, input costs are about a $20 million higher drag than expected previously. I mean, given the, I guess, the lag between your market index cost and actually what Hardies sees in its numbers, how come there's been such a large change within such a short amount of time? I mean, kind of for a $20 million delta within 3 months when there's been clear visibility in the past or input costs on a lag basis? Is there anything else in there that's resulted in that high number for the full year?

No, not really. I mean, it's mainly input costs. I mean, when we were doing our guidance discussion in early August, we've got visibility and call it, late July. I think back in late July, we thought that we had seen the peak for the year and that they were going to come back down in the second half. So you've got, at that stage of the game, kind of 9 months in the fiscal year, you probably got 6 to 8 months if you exclude kind of any of the cost of goods manufactured that stays in the balance sheet via inventory. So we got a solid 6 months of raw material costs still to go. At that point, we're assuming it starts to reverse and it just didn't start to reverse on the raw material side. On the freight side, we are starting to see some efficiency, but still pretty elevated levels. That's a good 3 to 5 months later than what we would have expected back in August, when we were talking. So I think the costs have just remained elevated. We've had as good of a visibility into it as I think we can have. The price of pulp -- the NBSK price for pulp has just stayed high and it hasn't come down. So we were starting to assume a normal cycle of it's going to start to come down, and it just hasn't. So I've stopped assuming it's going to come down until I actually see it come down.

So is the embedded assumption that pulp prices stay high or continue to rise?

Continue at the current trends.

To go up?

They've been flat. I mean, just depends on what your reference point is. So they've been flat, I'd say, more recently over the last, I think, 30 to 60 days, they've started to flatten out. But if you were to look at over a 6-month period, they're up. I don't remember the exact assumption I've got in the second half of the year but I've got at least flat to where it currently is.

Sophie Spartalis from Merrill Lynch. Just going back to the cost profile. Is there anything that you can do going forward or have done in terms of initiatives to get on top of some of these external factors, whether it'd be hedging in terms of your gas costs or trying to do a different sort of balance on the freight?

Yes. I mean, I'm not a big fan of hedging. I think all you're trying to do is outguess the market. And if you're really good at that, you're probably not working in a manufacturing company, you're probably working somewhere else. I'd rather have the business and the organization focused on trying to get operations efficiencies. And there's a big focus that we talked a little bit about in September that, I think, will become a core part of the strategy around getting operational efficiencies and driving lean into the manufacturing processes. That's not a short-term fix. We, for better or for worse, make a product that uses commodities and we just happen to be at the part of the cycle where all the commodities are going against us. 2, 3 years ago, they were all -- it was all tailwind. And we also didn't spend a whole lot of time then thinking about how to kind of maximize or optimize on the tailwind. What we're primarily trying to do is convert raw materials into a great product for the market and then gain market share by substituting out vinyl and wood-like products. So we're not spending almost any time in the short term or almost at all trying to figure out what we could do other than the normal sourcing and procurement strategies. So if pulp is up 20-something percent, we're not up 20%. So we're looking at a combination of the types of materials, sourcing arrangements, where we're buying it from. And so we're not trending up 20%. The market is up 20%. We're going to trend below that. Same thing on cement. I think the cement market in the U.S., pricing is up 6% to 8% again this year on top of it was up 6% to 8% last year. Our impact on that is not 6% to 8%. We've got sourcing strategies in place that try to reduce that and minimize that and we measure the teams on their sourcing effectiveness. But we're not spending almost any time trying to figure out how to financially use derivatives or hedging or other financial engineering as a way to prop up short-term results.

Okay. And then that dovetails into the next question. In terms of your ability to keep pushing through price increases against the backdrop of an uncertain market, where do you see your ability to offset those cost pressures in the current market?

Yes. I mean, I'll just remind everyone that we value price. We generally sort of think about 3 types of pricing models in building materials. You can price based on costs, you can price based on capacity and you can do what we try to do, which is we look at the value of our product in the marketplace relative to the alternative product in the market. And then it becomes a decision about recovering any value that we see versus that competing product in the market. And balancing that with our primary objective in life, which is to gain market share. So when we make a pricing decision on an annualized basis, we're not doing it in the context of kind of what's happening on the input cost or the manufacturing performance. That being said, in a 10-year period, you'll probably see us take a pretty modest price, 2%, 3%, 9 out of those 10 years, 8 out of those 10 years. We're going to kind of be modest price takers in most years, where we want to recover some of that value. That 3% -- the way that 3% -- it's talked about as a national average. The way it actually gets executed and strategically gets set is a matrix of by product, by region, where we're making specific product and regional pricing decisions on an annual basis based on what our market share objectives are and what the alternatives are in the marketplace. So we took about a 3% price increase this year. What you're seeing in the reported numbers was a little bit of mix on top of that, a little bit of tactical pricing on top of that. So we'll probably take another 3% in most of the future years. That's a pretty reasonable assumption. We haven't determined what we're going to take for next year yet but we certainly won't do it per se in the context of what input costs are doing, because the main objective with pricing is to balance pricing with gaining market share.

Peter Wilson, Credit Suisse. If you focus on margins, just the discontinuation expenses, so you've taken the one-off. I assume the trade-off is an improvement in ongoing profitability. Is there going to be anything meaningful there that might help offset some of those input costs?

It's more about the future cash flows in those -- in 2 of the 3 situations with MCT and Windows. It's more about the ongoing investment in comparison to the ongoing future costs -- or sorry, the ongoing future cash inflows. And obviously, based on the decision, it's easy to conclude that we thought the future cash flows weren't as attractive. And so you probably -- with both MCT and with Windows, you can see the Windows losses, because we report it as a segment, it's basically the only thing in that segment. So it's pretty reasonable to expect once we get out of the Windows business and we've exited it that those losses that have occurred -- that certainly comes back into the group result, you get rid of those losses and you're not having that drag on the business. MCT is pretty marginal in the grand scheme of kind of North America. That's more about getting the business focused on a set of development technologies and R&D efforts and commercialization of a product that -- it's just about trade-offs and where we're going to deploy resources. And we didn't feel like, based on the returns and the growth that we were seeing in the MCT business, that we were effectively deploying resources. But I'd say it'd be pretty hard to see kind of the MCT benefit, if you will, directly in the North America result. It'll be there, it'll just sort of get overwhelmed by the size of that segment. So you won't kind of necessarily see it. On affordable color, that's very different. I think that's more about repositioning a product line where we see future growth. And the win with color strategy is about driving color penetration in parts of the U.S. market that we think have the largest market growth opportunities as we drive towards 35/90. So as we drive towards 35/90, we need affordable color as a way to bring value into certain regions. And we think that by segmenting premium and core colors, it allows us to deliver value to different customers based on what problems they're trying to solve.

Okay. And also, in the first half, the reason for the margin decline was that the volumes haven't come through, so cost have run ahead of volumes. As we move into the second half, should the volume growth not come through, the volume growth slow down, how does that play out in your margins and your ability to offset some of these costs coming through?

Yes. I think we probably won't give you all the pieces in the second half that, I think, some of the questions are kind of driving towards. What we're trying to do for the year is tell you that we think we're going to be in the top half of the range, so you can kind of see where we are at the half. And I think you can sort -- you can start to back into what a second half margin profile looks like if we're going to stay in the top half of that guidance range 20%, 25%. Keep in mind, the 20%, 25% for us is about balancing internally as well as externally, a message around we want returns along with growth. And we're trying to always, in both the short and the long term, balance those 2 things. We could optimize margins in any quarter or year and drive towards a bigger result but we're trying to balance the long-term objective of driving market penetration in all of our regions. We -- I'd say on volume, I think Louis has given a pretty good profile already of first half versus second half. Our comps in the first half were a bit more in our favor. So the comp numbers I think that you see in the reported result for the first half are going to be better than they are in the second half. That's pretty consistent with what we would have said back in May and in August with respect to coming into this year, we saw the first half as being an easier comp than the second half will be.

Okay. And Fermacell transaction integration cost, I'm a little bit confused with what you've booked in the second quarter. So I think first half total costs are $21 million but you booked $15 million in the first quarter and then another $12 million in the second quarter. Has there been some kind of restatement? To me the math just doesn't quite add up.

Yes. I mean, in total, for the year, we expect about $30 million in total, okay. It's got 3 major types of costs in there. Number one is a non-cash cost. It was the inventory fair value as a result of purchase price accounting, about $7 million. That was done in the first quarter, it was reflected in the August result. You can see it in the first half result. The second is ongoing integration costs, real true integration costs, onetime costs to largely drive integration as well as set up a back office and some of the similar, I'd say, integration-related expenses. And then the third is the transaction costs, which were all incurred as of the April closing date. So that's, I'd say, a very customary-type of transaction-related costs. So 2 of those 3 are sort of done. Purchase price accounting is for the most part, we think, is done. We've got up to a year to kind of make an adjustment, we're not anticipating having to do that. And transaction costs are paid upon the close. And so what you're down to is really integration cost. We think we've got about $10 million of integration costs that are remaining in the third and the fourth quarter. So kind of what you see in that table in the MA or in the result on the slide that I went through in the first half. If you were to add about $10 million, that's kind of where you'll get to for the full year and that'll take you up to -- I think it's $27 million, $28 million, $30 million, something like that, of total year cost related to Fermacell. Does that answer your question?

Gives me enough to go on. Lou, maybe one on North America competitive environment. So LP has been working on a smooth product for a long time. They're now targeting first quarter to go to market with that. And it's part of their -- I guess that they see it as an enabler for them to go after the R&R market, which is Hardie's bread and butter. I was just wondering if you can give us a comment on whether you think that's a material change to competitive environment and give some feel for what percentage of sales in the R&R segment is a smooth product or similar.

So you're asking me if smooth product, if they're successful, is a game-changer for LP? As far as...

Yes, they comment along the lines of they see it as an inhibitor of their growth.

The short story on why you don't make OSB out of smooth and with smooth surface is because it swells. And smooth shows it more than textured. So I'm not exactly sure how they're pursuing smooth. If they feel they have a way to make sure their product doesn't swell as much when it gets wet or if -- I'm not sure how the product ends up trying to perform in a smooth profile. We don't have it factored in as a big change for us competitively. Smooth product in the U.S. has grown over the years and it's really been enabled by fiber cement, because hardboard OSB, which was in the market before fiber cement came along, they went away from smooth because of the swelling issues. So you see it at the joints. And back in the early '90s, you face nailed siding. So you saw it at the nail heads and you saw it at the joints. Now most siding is not faced nailed. We introduced blind nailing to the market in the '90s and they've been able to follow with blind nailing applications as well. So they don't have the swelling-around-the-nails problem but they will still -- or they still do have swelling-at-the-joints problem. Now what is it? It's less than 20% but it's grown from 2% or 3% when we entered the market to whatever it is now, 17% or 18%. Certain regions like it a lot more, so like the Northeast has a strong preference for smooth. But just generally, most markets have gone toward more of a preference for smooth. So -- and we're talking about flooring and interiors in a market moving away from us. They would be experiencing the same thing with the market moving towards smooth. So I think they have a compelling reason to try and launch a smooth product. So -- but as far as us, I mean, I think most of the people that buy siding know kind of the difference. And if they're going to position a good enough smooth to the price-conscious buyer, they'll have some target customers. But anyway, we don't see it as a big change for us competitively. There's just -- the biggest opportunity for us against wood products remains selling maintenance. And selling maintenance really requires a full-wrap exterior from Hardie. So we've done that regionally in certain areas and not in others. So I think the basic position in our products versus LP doesn't change if they have smooth or just texture. They are more limited if they don't have smooth but basic product position. If you value map the products, it's the same, it wouldn't change.

Matt, Andrew Scott, Morgan Stanley. Just -- can you just remind me on your -- you had some reasonably lengthy downtime for the Fermacell business with one of the facilities. Can you just remind us on the timing on that and to the extent that made a noticeable difference in the financials?

It went really well. The guys handled that extremely well. We had set aside as much as 12 weeks to do the job. They did it in 8 and they brought it in just slightly under budget. So everything with the Fermacell business is going at plan or slightly better than plan.

If we look at the numbers, there's a noticeable difference across the numbers there for the Fermacell business overall.

We came in higher than we forecasted for Fermacell, because we had forecasted the 12-week down, which has the increased cost of being down the 12 weeks but also has higher freight rates, because you're covering for that plant with higher freight. So being down only 8 weeks did help us on the EBIT for the quarter.

And lastly, Lou, you experimented a bit through the winter with a bit of distributed inventory and flexing your plant patterns. What's the view on that? Is that -- was that a success? Is it something you're going to do again this year?

Yes, they'll keep our low-cost lines running higher utilizations, basically 4 shifts through the winter. We talked about volume a great degree, so we don't need as much board as we projected we need in the winter. So we'll have some of our higher-cost plants come down to either 3 shifts or 2 shifts. I did -- questions on the phone?

Lee Power from Deutsche Bank.

Maybe just for clarity, the 3% PDG, is that a full year target? Or is that an end-of-year run rate that you're looking towards?

Yes. Full year target, the run rate. What I -- originally, we set a 3% to 5% full year, fiscal year target. Everyone knows the math on PDG is not like small-numbers math. So you don't want to do less than 4 quarters and you really want to do it nationally rather than a specific region. When your numbers get small, the variance gets too big and kind of gets lost. So when I said 3% is still in play but we might come up a bit short, I was talking April 1, look back 4 quarters.

Okay, got it. And then on volumes, just on the margin basically, you said volume is going to be the largest driver of recovering that. Or do you think a bigger component is going to be the other levers you can pull? I know Matt has talked to lean and a couple other things.

I think lean is a good -- I mean, we've been talking about -- even though we're by far the highest throughput producer of fiber cement, there's a lot of manufacturing upside. And we've been talking about it for a couple of years and it's starting to become right in front of us now. So that's a lean initiative that Jack ran in Asia Pac, we got very good results, Rosehill, Carole Park, Philippines. New Zealand has been slow to get on the program but they're now moving in that direction. And so the mystery's over for the U.S. We don't have to design our game plan, it's a lean game plan. We've already implemented it in Asia Pac. We've got the capabilities in Asia Pac to help the U.S. guys get started. But that's -- it's still like 2- or 3-years benefits. I mean, I guess, the whole term, continuous improvement, as you get the benefits last a long time. But it's not low-hanging fruit, so you don't get it right out of the chute. You don't go backwards right out of chute but we have to build to get your performance to start showing up in financial results. But -- yes, and then it gives me an opportunity to circle back. There were some good optimization questions. We don't hedge because people who provide hedges make money and we have plenty of cash flow. So we never really thought we should give them our money to just smooth out our earnings. So that's the reason we don't hedge. We believe that commodities go up and down and we're more than happy to ride up and down with them rather than pay a third party to provide the hedge. If a pulp mill -- we did explore this a…

Okay. And then maybe just for Matt, I think you guided to $350 million being CapEx for the full year. How has that changed? And then my line just broke up a little bit on the Tacoma startup comment. Are the startup costs still in line with expectations?

Yes. There's no change on the full year guidance on CapEx. The $350 million that we've talked about previously is still a good number. It's really 2 big projects -- sorry, the 3 big projects, which is finishing up Tacoma 2, getting going on Prattville and the brownfield in Carole Park. And that still remains, then obviously, then we've got kind of ongoing maintenance CapEx. So we're still, I think, tracking towards that $350 million number for the year. And the Tacoma startup costs are right on -- right where we thought they'd be.

Your next question comes from Peter Steyn from Macquarie Group.

Lou, you mentioned a number of times the internal factor for weight on your sales execution. Could you maybe just give a bit of a sense of the detail there? So what are the things that you would see you could improve on?

Yes. I mean, we are talking about -- even though in volume, it comes out to be a lot of trucks, it's a small percentage. And you just really can't dissect it. But I mean, basically, you run market development against vinyl and we run an R&R program that basically builds an annuity for you. And then you either defend or grow against close alternatives. So I would say generally, we're kind of starting to get up to where we want to be in each of the 3 areas but we're just not quite there yet. So I've seen the organization perform better in the past. And I expect it to perform better in the future. And part of that is game plan design and part of that is game plan execution. I think there's just marginal improvements in a lot of different areas that is the difference between the PDG we're currently delivering and the PDG we're aiming for. Now like I said, Jack and his team have been doing some pretty good assessment work in my view. And I do think there'll be some reallocation of resources. I think we've gotten a little bit behind on moving the investment where the opportunity is rather than keeping the investment where the volume is too long. So there's going to be some game plan design changes which I think will help but we also need some game plan execution improvements as well. Again, I want to stress, it's not like we haven't gotten them but the slope of the line is a little bit less than I would've anticipated.

Perfect. And then maybe just a quick question around costs and the impending application of further tariffs. Is there anything to worry about there via either direct or indirect impact?

Sorry, Peter, you broke up just a little bit. The impending what type of cost?

The tariff-related issues going into calendar '19, Matt, if we get the 25% imposed. Is there any product categories that worry you?

Probably the one that comes to mind is steel costs, as we're looking to build out plants. It's definitely going to have an impact, an adverse impact, on the steel component of building new factories. Outside of that, I don't think it's as big of a driver as kind of the market fluctuations that we're seeing.

I mean, there's nothing that worries you in the indirect sense?

Lots of things worry me indirectly. Nothing else that sort of comes to mind though, Peter.

Okay, we won't go down that rabbit hole.

That's -- it does me an opportunity to comment. So the market for what we're trying to do is good. So I don't want you to -- anyone to think that builders are repositioning how they're setting up their business models. They still want to build more houses, sell more houses, sell at a higher price. It's just a little bit, like I said, I refer to as kind of a dead period in the market. So the question is, does that kind of self-correct? Or is that a signal that maybe the market won't be as good next year? But we're not anticipating we won't have a good market to sell in, in fiscal year '19. So whether it's stuff that goes on at the government level or interest rates or whatever it is, we're anticipating a pretty flat to slightly better housing market next year and we should do well in that market.

Your next question comes from Daniel Kang from Citigroup.

Just a question on Europe, if I may. Excluding integration costs, EBIT margins underlying looks to have fallen versus the first quarter. Was that primarily due to higher raw material and freight costs? And where do you expect EBIT margins to be in the second half?

I mean, I would see it more as a quarterly variance.

Yes. I was going to say, there's not a big difference between what we said in the first quarter and the second quarter. If you go back to what we talked about in August, we would've said that -- and we think it was 11-something percent that we posted in the first quarter. We would've said that, that was on the high side and that we thought that, that was just normal quarterly variance. And now we're at I think 9.7% or something like that this quarter. When we gave initial guidance on kind of what we thought the Fermacell business looked like once it was part of Hardie, we were talking about kind of 10-plus percent margin rates. And I'd say that's kind of right where we're at. We're pretty happy with it. We think the second half is going to look a lot like the first half. You're going to get any quarter-to-quarter a little bit of variance. The 9.7%, you got to sort of keep in mind that we had a plant down for a little bit. So that's going to drag it down a bit but it's not like I would tell you that the 11.8% is any more likely in the second half than the 9.7% from the second quarter. We think Fermacell is about a 10-plus-percent type of margin business and we're working hard to try to drive margins up from there.

Great. Matt, just while you've got the floor, are you able to quantify the impact of weather disruptions in the quarter, also the impact of the stronger dollar? And just while we're there, I know it may be a little bit early, but are you able to provide some guidance as to the tax rate in FY '20?

I'll start with the easy one. No on FY '20. I mean, it's just -- you can see we're in a pretty different tax landscape than we've ever been. I think we've got our arms around it, but we're still trying to digest the corporate tax reform from last year. Obviously, there's a fair bit of variation within -- with what we think is happening within the year and all that's kind of got an effect on effective tax rate. I will say that the number that we're reporting for this year, we think, is a good number and should be a decent proxy for kind of a future year. But I'm definitely not in a spot to talk about FY '20 from a tax standpoint. I'm sorry, what were the other...

The other one was weather. So we didn't use the word weather, we used external. So we -- like I said, we're maybe like 2 or 3 points behind where we thought we'd be on volume growth for the year. We don't think all that's external but we don't think it's all internal either. So I think the market is definitely softer than we anticipated it would be at this point in the year. So whether that's 2/3 external and 1/3 internal, it's just too fine of a calculation at this point. So we're not going to speculate. But I would say it's -- everyone seems to be a little slower than they thought they'd be at this point and that's our dealers, our distributors, our builders, our competitors. Everyone seems to be a little bit slower than they thought they'd be.

Got it. And there's one that you missed in terms of the impact of the stronger dollar, Matt.

Yes. We tried to outline that. It was in one of my slides. So at the half, on Pages 25 and 26, it looks like on an adjusted net operating profit basis for the half, it looks like it had about a 1% adverse effect.

There are no further questions from the phones at this time.