James Hardie Industries Earnings 2021-03-31
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
OR
For the fiscal year ended 31 March 2021
OR
OR
Date of event requiring this shell company report
For the transition period from to
Commission file number 1-15240
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
General Counsel & Company Secretary
(Contact name)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of each class: | Trading Symbol: | Name of each exchange on which registered: | ||||||
| Common stock, represented by CHESS Units of Foreign Securities | JHX | New York Stock Exchange* | ||||||
| CHESS Units of Foreign Securities | JHX | New York Stock Exchange* | ||||||
* Listed, not for trading, but only in connection with the registered American Depositary Shares, pursuant to the requirements of the U.S. Securities and Exchange Commission | ||||||||
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report: 444,288,874 shares of common stock at 31 March 2021
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ Yes ☒ No
Note — Checking the box will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| ☒ | ||||||||
| Accelerated filer | ☐ | |||||||
| Non-accelerated filer | ☐ | |||||||
| Emerging growth company | ||||||||
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after 5 April 2012.
| Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report | |||||
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| ☒ | ||||||||
| International Financial Reporting Standards as issued by the International Accounting Standards Board | ☐ | |||||||
| Other | ☐ | |||||||
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow: ☐ Item 17 ☐ Item 18
If this is an Annual Report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
2021
ANNUAL REPORT
ON FORM 20-F
TABLE OF CONTENTS
| Page(s) | |||||
FORM 20-F CROSS REFERENCE
| Page(s) | |||||
| PART 1 | |||||
| Item 1. Identity of Directors, Senior Management and Advisers | Not applicable | ||||
| Item 2. Offer Statistics and Expected Timetable | Not applicable | ||||
| Item 3. Key Information | |||||
| A. [Reserved] | Not applicable | ||||
| B. Capitalization and Indebtedness | Not applicable | ||||
| C. Reasons for the Offer and Use of Proceeds | Not applicable | ||||
| D. Risk Factors | 153-165 | ||||
| Item 4. Information on the Company | |||||
| A. History and Development of the Company | 2-3; 13; 181 | ||||
| B. Business Overview | 4-9 | ||||
| C. Organizational Structure | 3; 10 | ||||
| D. Property, Plants and Equipment | 11-13; 105 | ||||
| Item 4A. Unresolved Staff Comments | None | ||||
| Item 5. Operating and Financial Review and Prospects | |||||
| A. Operating Results | 96-103 | ||||
| B. Liquidity and Capital Resources | 103-106 | ||||
| C. Research and Development, Patents and Licenses, etc. | 8-9 | ||||
| D. Trend Information | 106-107 | ||||
| E. Critical Accounting Estimates | 92-95 | ||||
| Item 6. Directors, Senior Management and Employees | |||||
| A. Directors and Senior Management | 14-26 | ||||
| B. Compensation | 27-65 | ||||
| C. Board Practices | 19-26; 66-89 | ||||
| D. Employees | 170 | ||||
| E. Share Ownership | 53-56; 61-65 | ||||
| Item 7. Major Shareholders and Related Party Transactions | |||||
| A. Major Shareholders | 185-186 | ||||
| B. Related Party Transactions | 80 | ||||
| C. Interests of Experts and Counsel | Not Applicable | ||||
| Item 8. Financial Information | |||||
| A. Consolidated Statements and Other Financial Information | 108-151; 173 | ||||
| B. Significant Changes | None | ||||
| Item 9. The Offer and Listing | |||||
| A. Offer and Listing Details | 170-172 | ||||
| B. Plan of Distribution | Not Applicable | ||||
| C. Markets | 170-171 | ||||
| D. Selling Shareholders | Not Applicable | ||||
| E. Dilution | Not Applicable | ||||
| F. Expenses of the Issue | Not Applicable | ||||
| PART 1 (continued) | |||||
| Item 10. Additional Information | |||||
| A. Share Capital | Not Applicable | ||||
| B. Memorandum and Articles of Association | 173 | ||||
| C. Material Contracts | 173 | ||||
| D. Exchange Controls | 173 | ||||
| E. Taxation | 173-181 | ||||
| F. Dividends and Paying Agents | Not Applicable | ||||
| G. Statement by Experts | Not Applicable | ||||
| H. Documents on Display | 181 | ||||
| I. Subsidiary Information | Not Applicable | ||||
| Item 11. Quantitative and Qualitative Disclosures About Market Risk | 182-184 | ||||
| Item 12. Description of Securities Other Than Equity Securities | |||||
| A. Debt Securities | Not Applicable | ||||
| B. Warrants and Rights | Not Applicable | ||||
| C. Other Securities | Not Applicable | ||||
| D. American Depositary Shares | 171-172 | ||||
| PART II | |||||
| Item 13. Defaults, Dividend Arrearages and Delinquencies | None | ||||
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds | None | ||||
| Item 15. Controls and Procedures | 168-169 | ||||
| Item 16A. Audit Committee Financial Expert | 84 | ||||
| Item 16B. Code of Ethics | 81-82 | ||||
| Item 16C. Principal Accountant Fees and Services | 152 | ||||
Item 16D. Exemptions from the Listing Standards for Audit Committees | None | ||||
| Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers | None | ||||
| Item 16F. Change in Registrant’s Certifying Accountant | None | ||||
| Item 16G. Corporate Governance | 66-89 | ||||
| Item 16H. Mine Safety Disclosure | 12 | ||||
| PART III | |||||
| Item 17. Financial Statements | Not Applicable | ||||
| Item 18. Financial Statements | 108-151 | ||||
| Item 19. Exhibits | 193-199 | ||||
SECTION 1
INTRODUCTION
James Hardie Industries plc is a world leader in the manufacturing of fiber cement building solutions, and a market leader in Europe for fiber gypsum products. Our current primary geographic markets include the United States of America (“US,” “USA” or the “United States”), Australia, Europe, New Zealand, the Philippines and Canada.
James Hardie Industries plc is a “public limited company,” incorporated and existing under the laws of Ireland. Except as the context otherwise may require, references in this Annual Report on Form 20-F (this “Annual Report”) to “James Hardie,” the “James Hardie Group,” the “Company,” “JHI plc,” “we,” “our” or “us” refer to James Hardie Industries plc, together with its direct and indirect wholly owned subsidiaries as of the time relevant to the applicable reference.
For certain information about the basis of preparing the financial information in this Annual Report as well as an explanation of forward-looking statements and the risks, uncertainties and assumptions to which they are subject, see “Section 2 – Reading this Report.” Further, a “Glossary of Abbreviations and Definitions” has also been included under Section 4 of this Annual Report.
The term “fiscal year” refers to our fiscal year ended 31 March of such year; the term “dollars,” “US$” or “$” refers to US dollars; the term “A$” refers to Australian dollars; and the term "EUR" or “€” refers to Euros.
Information contained in or accessible through the websites mentioned in this Annual Report does not form a part of this Annual Report unless we specifically state that it is incorporated by reference herein. All references in this Annual Report to websites are inactive textual references and are for information only.
INFORMATION ON THE COMPANY
History and Development of the Company
About James Hardie
James Hardie Industries plc is incorporated and existing under the laws of Ireland. As an Irish plc, we are governed by the Irish Companies Act 2014 and we operate under the regulatory requirements of numerous jurisdictions and organizations, including the Australian Securities Exchange ("ASX"), Australian Securities and Investments Commission ("ASIC"), the New York Stock Exchange (“NYSE”), the United States Securities and Exchange Commission (“SEC”), the Irish Takeover Panel and various other rulemaking bodies.
The address of our registered office in Ireland is Europa House, 2nd Floor, Harcourt Centre, Harcourt Street, Dublin 2, D02 WR20, Ireland. The telephone number is +353 1411 6924. Our agent in the United States is CT Corporation. Its office is located at 28 Liberty Street - 42nd Floor, New York, New York 10005. The address of our registered office in Australia is Level 20, 60 Castlereagh Street, Sydney NSW 2000 and the telephone number is +61 2 9638 9205. Our share registry is maintained by Computershare Investor Services Pty Ltd. All inquiries and correspondence regarding holdings should be directed to: Computershare Investor Services Pty Ltd, Level 5, 115 Grenfell Street, Adelaide, SA 5000; telephone: +61 3 9415 4000 or toll free within Australia: 1300 855 080. Our American Depositary Receipt ("ADR") register is maintained by Deutsche Bank. All inquiries and correspondence regarding American Depositary Shares ("ADSs") should be directed to Deutsche Bank, 60 Wall Street, New York, New York 10005, United States; telephone 1-212-250-9100.
Our History
James Hardie was established in 1888 as an import business, listing on the ASX in 1951 to become a publicly owned company in Australia. After becoming a listed company, we built a diverse portfolio of building and industrial products. In the late-1970s, we pioneered the development of asbestos-free fiber cement technology and in the early-1980’s began designing and manufacturing a wide range of fiber cement building products that made use of the benefits that came from the products’ durability, versatility and strength. Using the technical and manufacturing expertise developed in Australia, we expanded into the United States, opening our first fiber cement plant in Fontana, California in February 1990. Since then, we have expanded our product portfolio and global footprint, with fiber cement manufacturing plants across the United States, Australia and the Philippines. In April 2018, we completed the acquisition of Fermacell, a market leader in fiber gypsum and cement-bonded boards in Europe.
Our Agreement with Asbestos Injuries Compensation Fund
Prior to 1987, ABN 60 Pty Limited (formerly James Hardie Industries Limited, then the ultimate parent company of the James Hardie Group) (“ABN 60”) and two of its former subsidiaries, Amaca Pty Limited (“Amaca”) and Amaba Pty Limited (“Amaba”) (collectively, the “Former James Hardie Companies”), manufactured products in Australia that contained asbestos. The manufacture and sale of these products has resulted in liabilities for the Former James Hardie Companies in Australia.
In February 2007, our shareholders approved the Amended and Restated Final Funding Agreement (“AFFA”) entered into on 21 November 2006 to provide long-term funding to Asbestos Injuries Compensation Fund ("AICF") for the compensation of proven Australian-related personal injuries for which the Former James Hardie Companies are found liable. AICF, an independent trust, subsequently assumed ownership of the Former James Hardie Companies. We do not own AICF, however, we are
entitled to appoint three directors, including the Chairman, and the New South Wales (“NSW”) Government is entitled to appoint two directors.
Under the terms of the AFFA, James Hardie 117 Pty Ltd (the “Performing Subsidiary”) will make annual payments to AICF. The amount of these annual payments is dependent on several factors, including our free cash flow (as defined in the AFFA), actuarial estimations, actual claims paid, operating expenses of AICF, changes in the AUD/USD exchange rate and the annual cash flow cap. JHI plc owns 100% of the Performing Subsidiary and guarantees the Performing Subsidiary’s obligation. As a result, for US GAAP purposes, we consider JHI plc to be the primary beneficiary of AICF.
Although we have no legal ownership in AICF, for financial reporting purposes, our interest in AICF is considered variable and we consolidate AICF due to our pecuniary and contractual interests in AICF as a result of the funding arrangements outlined in the AFFA. For additional information on our consolidation of AICF and asbestos-related assets and liabilities, see Note 1 to our consolidated financial statements in Section 2.
Corporate Structure
The following diagram summarizes our corporate structure at 31 March 2021:
Business Overview
General Overview of Our Business
We are a world leader in the manufacture of fiber cement building materials. Based on net sales, we believe we are the largest manufacturer of fiber cement products and systems for external and internal building construction applications in the United States, Australia and the Philippines. We market our fiber cement products and systems under various brand names, such as HardiePlank®, HardiePanel®, HardieTrim® and HardieBacker®, and other brand names such as Aspyre Collection by James Hardie™, Artisan®, Reveal®, Cemplank®, Scyon® and Linea®. We are also a market leader in the European premium timber frame and dry lining business, especially in Germany, Switzerland and Denmark. We market our fiber gypsum and cement-bonded boards under the Fermacell® brand and our fire-protection boards under the AESTUVER® brand.
The Company currently has three operating segments: North America Fiber Cement, Asia Pacific Fiber Cement and Europe Building Products. See Notes 2 and 18 to our consolidated financial statements in Section 2 for a description of our operating segments and a breakdown of our net sales by operating segment and geographic market for each of our last three fiscal years.
Products
We manufacture fiber cement, fiber gypsum and cement bonded boards. Our fiber cement building materials includes a wide-range of products for both external and internal use across a broad range of applications, including external applications: siding, cladding, trim, soffit; and internal applications: walls, floors, ceilings. While there are some market specific products, our core fiber cement products, planks and flat panels are sold across all of the markets in which we operate. Our fiber gypsum and cement-bonded boards are used mainly for interior applications such as dry lining walls, walls in timber frame buildings and flooring solutions. In addition, our cement-bonded boards are used in exterior and industrial applications as well as for fire protection.
Products Used in External Applications
We developed a proprietary technology platform that enables us to produce thicker yet lighter-weight fiber cement products that are generally easier to handle than most traditional building products. Further, we believe that our fiber cement products provide certain durability and performance advantages leading to improved maintenance, while offering comparable aesthetics to competing products, such as wood, and superior aesthetics when compared to vinyl siding.
Performance and design advantages:
•Our fiber cement products exhibit resistance to the damaging effects of moisture, fire, impact and termites compared to natural and engineered wood and wood-based products;
•Competing products do not duplicate fiber cement aesthetics;
•Our fiber cement products provide the ability to imprint designs that closely resemble the patterns and profiles of traditional building materials such as wood and stucco;
•The surface properties of our products provide an effective paint-holding finish, especially when compared to natural and engineered wood products, allowing for greater periods of time between necessary maintenance and repainting; and
•Compared to masonry construction, fiber cement is lightweight, physically flexible and can be cut using readily available tools, making our products more appealing across a broad range of architectural styles, be it of timber or steel-framed construction.
We believe the benefits associated with our fiber cement products have enabled us to gain a competitive advantage over competing products.
Products Used in Internal Applications
Compared to natural and oriented strand board ("OSB") and wood-based products, we believe our product range for internal applications provide the same general advantages provided by our products for external applications. In addition, our fiber cement products for internal applications exhibit less movement in response to exposure to moisture and impact damage than many competing products, providing a more consistent and durable substrate on which to install tiles. Further, we believe our ceramic tile underlayment products exhibit better handling and installation characteristics compared to fiberglass mesh cement boards. We believe our fiber gypsum products offer superior stability, fire safety and sound insulation properties compared to OSB and gypsum plaster boards. Furthermore, we believe our fiber gypsum flooring solutions offer superior handling properties, especially in the modernization of existing buildings, compared to wet screed solutions.
Significant New Products
In North America, new products released over the last three years include Hydrodefense® HardieBacker® boards, expanded ColorPlus® Technology offering through the Dream CollectionTM and Statement CollectionTM, and higher ventilation VentedPlus® HardieSoffit® boards.
In Asia Pacific, we have extended our product portfolio in both wood look and non-wood look exteriors. Over the last three years, the range of Linea®, Linea® Oblique and Stria® cladding products has been broadened to increase design versatility in line with modern design trends.
In Europe, new fiber cement products released over the past three years include HardieFoamTM, a solution for install of HardieBacker®. In our Fermacell business, new products released over the last three years include AESTUVER® Tx board, a key milestone for our fire protection boards.
Principal Markets for Our Products
Fiber Cement
In the US and Canada, the largest application for fiber cement building products is in external siding for the residential building industry.
Competition in this market comes primarily from substitute products, such as natural wood or OSB, vinyl, stucco and brick. We believe we can continue to increase our market share from these competing products through targeted marketing programs designed to educate customers and homeowners on our brand and the performance, design and cost advantages of our products.
In the Asia Pacific region, we principally sell into the Australian, New Zealand and Philippines markets, with the residential building industry representing the principal market for fiber cement products. The largest applications of fiber cement across our three primary markets are in external applications: siding, cladding, trim, soffit; and internal applications: walls, floors, ceilings.
In Australia, competition from imports and two locally based fiber cement manufacturers continues to be strong. Additionally, we have competition from natural and engineered wood, wallboard, masonry and brick products. In New Zealand and the Philippines, competitor fiber cement imports continue as manufacturers look to supplement their primary operating environments with additional markets.
In Europe, our fiber cement building products are used in both residential and commercial building applications in external siding, soffits and internal tile underlayment for walls and floors.
Fiber Gypsum and Cement-Bonded Boards
James Hardie Europe's Fermacell brand products are sold into the residential repair and remodel, commercial and residential new construction markets. Fermacell brand of products comprise fiber gypsum and cement-bonded boards, two complementary products in the high performance board space, mainly used in timber frame construction, commercial dry lining projects and repair and remodel. Cement bonded boards are also used for several fire protection projects including tunnels.
Our key markets for Fermacell brand products in Europe include Germany, Switzerland, UK, Denmark, France, Belgium, Netherlands and Luxembourg, where we sell our products to residential and commercial new-build as well as to repair and remodel. In addition, our fire protection AESTUVER® boards are sold to projects worldwide.
Seasonality
We do not have significant seasonality, however our businesses typically follow activity levels in the building and construction industry.
Raw Materials
The principal raw materials used in the manufacture of our fiber cement products are cellulose fiber (wood-based pulp), silica (sand), Portland cement and water. The key raw materials used in the manufacture of our fiber gypsum products are gypsum, recycled paper and water. We have established supplier relationships for all of our raw materials across the various markets in which we operate, and we do not anticipate having difficulty in obtaining our required raw materials from these suppliers. The purchase price of these raw materials and other materials can fluctuate depending on the supply-demand situation at any given point in time.
We work hard to reduce the effect of both price fluctuations and supply interruptions by entering into contracts with qualified suppliers and through continuous internal improvements in both our products and manufacturing processes.
Cellulose Fiber
Reliable access to specialized and consistent quality pulp is critical to the production of fiber cement building materials. As a result of our many years of experience and expertise in the industry, we share our internal expertise with pulp producers in New Zealand, the United States, Canada and Chile to ensure they are able to provide us with a highly specialized and proprietary formula crucial to the reinforcing cement matrix of our fiber cement products. We have confidentiality agreements with our pulp producers, and we have obtained patents in the United States and in certain other countries covering certain unique aspects of our pulping formulas and processes that we believe cannot adequately be protected through confidentiality agreements. However, we cannot be assured that our intellectual property and other proprietary information will be protected in all cases. See “Section 3 – Risk Factors.”
Silica
High purity silica is sourced locally by the various production plants. In the majority of locations, we use silica sand as a silica source. In certain other locations, however, we process quartz rock and beneficiate silica sand to ensure the quality and consistency of this key raw material.
Cement
Cement is acquired in bulk from local suppliers. We continue to evaluate options on agreements with suppliers for the purchase of cement that can lock in our cement prices over longer periods of time.
Water
We primarily use local water supplies and process all wastewater to comply with environmental requirements.
Gypsum
The primary types of gypsum used in the production of our fiber gypsum products are natural and synthetic gypsum. Natural gypsum is extracted and processed in Germany and Spain. Synthetic gypsum is obtained from power plants in Germany, Poland and the Netherlands. While synthetic gypsum will be phased out due to the coal power plant phase-out in the European Union, we are well positioned for the future with natural gypsum sources. In Germany, we have secured long-term contracts for the supply of natural gypsum and we have invested in a natural gypsum mine in Spain.
Recycled Paper
Recycled paper is generally acquired from local suppliers and we currently maintain long-term contracts with our key suppliers.
Sales, Marketing and Distribution
Our brand names, customer education in comparative product advantages, differentiated product range and customer service, including technical advice and assistance, provide the basis for our marketing strategy. In fiscal year 2022, the Company will be launching It's Possible™, a global integrated marketing campaign that seeks to empower homeowners to realize their dream home. The campaign is inclusive of television commercials, programmatic digital, social media, public relations, influencer and dynamic media partnerships, and more.
We offer our customers support through a specialized sales force and customer service infrastructure in North America, Australia, New Zealand, the Philippines and Europe.
Our customer service infrastructure includes inbound customer service support coordinated nationally in each country, and is complemented by outbound telemarketing capability. Within each regional market, we provide sales and marketing support to building products dealers and lumber yards and also provide support directly to the customers of these distribution channels, principally homebuilders and building contractors.
We maintain dedicated regional sales management teams in our major sales territories who maintain relationships with national and other major accounts. Our various sales forces, which in some instances manage specific product categories, include skilled trades people who provide on-site technical advice and assistance.
In North America, we sell our exterior fiber cement products for repair and remodel and new residential construction through a combination of distributors, dealers and lumber yards. Where sales are to distributors, they then sell these products to dealers or lumber yards. Our interior fiber cement products in North America are typically sold through the large home center retailers and specialist distributors or dealers. Our products are distributed across North America primarily by road and, to a lesser extent, by rail.
In Australia and New Zealand, both new construction and repair and remodel products are sold through a combination of distributors, dealers and lumber yards. In the Philippines, a network of thousands of small to medium size retail outlets sell our fiber cement products to consumers, builders and real estate developers and DIY type stores. The physical distribution of our product in each country is primarily by road, rail or sea transport.
In Europe, both new construction and repair and remodel products are primarily sold to builder’s merchants and DIY type stores. These customers then sell the products to applicators such as dry liners, timber frame companies, smaller applicators and end consumers. Our products are distributed across Europe primarily by road and rail and, to a lesser extent, by sea transport.
Despite the fact that distributors and dealers are generally our direct customers, we also aim to increase primary demand for our products by marketing our products directly to homeowners, architects and builders. We encourage them to specify and install our products because of the quality and craftsmanship of our products.
Geographic expansion of our fiber cement business has occurred in markets where framed construction is prevalent for residential applications or where there are opportunities to change building practices from masonry to framed construction. Expansion is also possible where there are direct substitution opportunities irrespective of the methods of construction. With the exception of our current major markets, as well as Japan and certain rural areas in Asia, and Eastern Europe, most markets in the world principally utilize masonry construction for external walls in residential construction. Accordingly, further geographic expansion depends substantially on our ability to provide alternative construction solutions and for those solutions to be accepted in those markets.
Dependence on Trade Secrets and Research and Development (“R&D”)
We pioneered the successful development of cellulose reinforced fiber cement and, since the early-1980s, have progressively introduced products developed as a result of our proprietary product formulation and process technology. The introduction of differentiated products is one of the core components of our global business strategy. This product differentiation strategy is supported by our significant investment in R&D activities.
We view spending on R&D as the key to sustaining our existing product leadership position, by providing a continuous pipeline of innovative new products and technologies with sustainable performance and unique design advantages over our competitors. Further, through our investments in new process technology or by modifying existing process technology, we aim to keep reducing our capital and operating costs and to find new ways to make existing and new products. As such, we expect to continue allocating significant funding to these endeavors.
Our current patent portfolio is based mainly on fiber cement compositions, associated manufacturing processes and the resulting products. Our non-patented technical intellectual property consists primarily of our operating and manufacturing know-how and raw material and operating equipment specifications, all of which are maintained as trade secret information. We have enhanced our abilities to effectively create, manage and utilize our intellectual property and have implemented a strategy that increasingly uses patenting and trade secret protection to protect and increase our competitive advantage.
In addition, we have a variety of industrial, commercial and financial contracts relating to our proprietary manufacturing processes. While we are dependent on the competitive advantage that these items provide as a whole, we are not dependent on any one of them individually and do not consider any one of them individually to be material. We do not materially rely on intellectual property licensed from any outside third parties. However, we cannot assure that our intellectual property and other proprietary
information will be protected in all cases. In addition, if our R&D efforts fail to generate new, innovative products or processes, our overall profit margins may decrease and demand for our products may fall. See “Section 3 – Risk Factors.”
Governmental Regulation
As an Irish plc, we are governed by the Irish Companies Act 2014 and are also subject to all applicable European Union level legislation. We also operate under the regulatory requirements of numerous jurisdictions and organizations, including the ASX, ASIC, the NYSE, the SEC, the Irish Takeover Panel and various other federal, state, local and foreign rulemaking bodies. See “Section 3 – Constitution” for additional information regarding the Irish Companies Act 2014 and regulations to which we are subject.
Environmental, Health and Safety Regulation
Our operations and properties are subject to extensive federal, state, local and foreign environmental protection, health and safety laws, regulations and ordinances governing activities and operations that may have adverse environmental effects. As it relates to our operations, regulated material, including wastewater and air emissions, may be produced at some of our manufacturing plants. The wastewater produced from our manufacturing plants is internally recycled and reused before eventually being discharged to publicly owned treatment works, a process which is monitored by us, as well as by regulators. In addition, we actively monitor air emissions and other regulated materials produced by our plants so as to ensure compliance with the various environmental regulations under which we operate.
Some environmental laws provide that a current or previous owner or operator of real property may be liable for the costs of investigation, removal or remediation of certain regulated materials on, under, or in that property or other impacted properties. In addition, persons who arrange, or are deemed to have arranged, for the disposal or treatment of certain regulated materials may also be liable for the costs of investigation, removal or remediation of the regulated materials at the disposal or treatment site, regardless of whether the affected site is owned or operated by such person. Environmental laws often impose liability whether or not the owner, operator, transporter or arranger knew of, or was responsible for, the presence of such regulated materials. Also, third parties may make claims against owners or operators of properties for personal injuries, property damage and/or for clean-up associated with releases of certain regulated materials pursuant to applicable environmental laws and common law tort theories, including strict liability.
In the past, from time to time, we have received notices of alleged discharges in excess of our water and air permit limits. In each case, and in compliance with our Environmental Policy, we have addressed the concerns raised in those notices, in part, through enhanced administrative controls and/or capital expenditures intended to prevent future discharges in excess of permitted levels and, on occasion, the payment of minor associated fines.
Environmental compliance costs in the future will depend, in part, on continued oversight of operations, expansion of operations and manufacturing activities, regulatory developments and future requirements that cannot presently be predicted.
Organizational Structure
JHI plc is incorporated and domiciled in Ireland and the table below sets forth our significant subsidiaries, all of which are wholly-owned by JHI plc, either directly or indirectly, as of 30 April 2021.
| Name of Company | Jurisdiction of Establishment | Jurisdiction of Tax Residence | ||||||||||||
| Fermacell B.V. | Netherlands | Netherlands | ||||||||||||
| Fermacell Schraplau GmbH | Germany | Germany | ||||||||||||
| James Hardie 117 Pty Ltd | Australia | Australia | ||||||||||||
| James Hardie Australia Pty Ltd | Australia | Australia | ||||||||||||
| James Hardie Building Products Inc. | United States | United States | ||||||||||||
| James Hardie Europe B.V. | Netherlands | Netherlands | ||||||||||||
| James Hardie Europe GmbH | Germany | Germany | ||||||||||||
| James Hardie Europe Holdings GmbH | Germany | Germany | ||||||||||||
| James Hardie Holdings Limited | Ireland | Ireland | ||||||||||||
| James Hardie International Finance Designated Activity Company | Ireland | Ireland | ||||||||||||
| James Hardie International Group Limited | Ireland | Ireland | ||||||||||||
| James Hardie International Holdings Limited | Ireland | Ireland | ||||||||||||
| James Hardie NL1 B.V. | Netherlands | Netherlands | ||||||||||||
| James Hardie NL2 B.V. | Netherlands | Netherlands | ||||||||||||
| James Hardie NZ Holdings Limited | New Zealand | New Zealand | ||||||||||||
| James Hardie North America, Inc | United States | United States | ||||||||||||
| James Hardie Philippines Inc | Philippines | Philippines | ||||||||||||
| James Hardie Research Pty Ltd | Australia | Australia | ||||||||||||
| JH Research USA, LLC | United States | United States | ||||||||||||
| James Hardie Spain S.L.U. | Spain | Spain | ||||||||||||
| James Hardie Technology Holdings 1 Limited | Ireland | Ireland | ||||||||||||
| James Hardie Technology Holdings 2 Limited | Ireland | Ireland | ||||||||||||
| James Hardie Technology Limited | Bermuda | Ireland | ||||||||||||
| James Hardie U.S. Investments Sierra Inc. | United States | United States | ||||||||||||
| RCI Holdings Pty Ltd | Australia | Australia | ||||||||||||
Property, Plants and Equipment
We believe we have some of the largest and lowest cost fiber cement manufacturing plants across the United States, Australia and the Philippines, with our plants servicing both domestic and export markets. We also have six manufacturing plants in Europe. Our plants are ideally located to take advantage of established transportation networks, allowing us to distribute our products into key markets, while also providing easy access to key raw materials.
Manufacturing Capacity
At 31 March 2021, we had manufacturing facilities at the following locations:
| Plant Location | Owned / Leased | Nameplate Capacity (mmsf)1 | ||||||||||||
| United States fiber cement | ||||||||||||||
| Cleburne, Texas | Owned | 666 | ||||||||||||
| Peru, Illinois | Owned | 560 | ||||||||||||
| Plant City, Florida | Owned | 600 | ||||||||||||
| Pulaski, Virginia | Owned | 600 | ||||||||||||
| Reno, Nevada | Owned | 300 | ||||||||||||
| Tacoma, Washington | Owned | 500 | ||||||||||||
| Waxahachie, Texas | Owned | 360 | ||||||||||||
| Fontana, California | Owned | 250 | ||||||||||||
Prattville, Alabama 2 | Owned | 300 | ||||||||||||
| Asia Pacific fiber cement | ||||||||||||||
| Rosehill, New South Wales, Australia | Owned | 180 | ||||||||||||
| Carole Park, Queensland, Australia | Owned | 260 | ||||||||||||
Cabuyao City, Philippines | Owned | 172 | ||||||||||||
| Europe fiber gypsum | ||||||||||||||
| Münchehof, Germany | Owned | 441 | ||||||||||||
| Orejo, Spain | Owned | 275 | ||||||||||||
| Wijchen, the Netherlands | Owned | 273 | ||||||||||||
| Siglingen, Germany | Owned | 154 | ||||||||||||
| Other | ||||||||||||||
Calbe, Germany 3 | Owned | 41 | ||||||||||||
Schraplau, Germany 3 | Owned | N/A | ||||||||||||
____________
1The calculated annual nameplate capacity in the United States, Europe and Asia Pacific is based on management’s historical experience with our production process and is calculated assuming continuous operation, 24 hours per day, seven days per week, producing 5/16” medium density product at a targeted operating speed. No accepted industry standard exists for the calculation of our fiber cement, fiber gypsum and cement bonded board manufacturing facility nameplate, design and utilization capacities.
2The first sheet machine in Prattville, Alabama was commissioned in Q4 of fiscal year 2021, with nameplate capacity of 300 mmsf. The second sheet machine is expected to be commissioned in July 2021, for a total nameplate capacity in Prattville, Alabama of 600 mmsf at the end of fiscal year 2022.
3 Our Calbe, Germany plant produces cement bonded boards. Our Schraplau, Germany facility is a raw materials processing facility for our fiber gypsum plants. As a result, no annual nameplate capacity is available.
We continually evaluate the capacity required to service the housing markets in which we operate to ensure we meet demand and achieve our market penetration objectives. For a discussion of significant active and recently completed capacity expansion projects, see “Capital Expenditures” below.
Management has determined that for measuring the annual design capacity of the fiber cement and fiber gypsum network, the calculation should incorporate our expected production based upon our historical experience with certain factors such as demand, product mix of varying thickness and density, batch size, plant availability, differing production speeds and downtime expectations.
Based on the methodology noted above, for the year ended 31 March 2021 and 2020, we had an annual fiber cement flat sheet design capacity of 4,180 mmsf and 4,330 mmsf in the United States, respectively, and 720 mmsf and 730 mmsf in Asia Pacific, respectively. For the years ended 31 March 2021 and 2020, we had an annual design capacity of 720 mmsf and 790 mmsf, respectively, for our European fiber gypsum plants. It is important to note that annual design capacity does not necessarily reflect the actual capacity utilization rates of our manufacturing facilities. Actual utilization is calculated using actual production, which is affected by factors such as demand, product mix, batch size, plant availability and production speeds. For fiscal year 2021, actual capacity utilization across our fiber cement and fiber gypsum plants was an average of 83%, 79% and 84% in the United States, Europe and Asia Pacific, respectively. For fiscal year 2020, actual capacity utilization across our fiber cement and fiber gypsum plants was an average of 79%, 77% and 90% in the United States, Europe and Asia Pacific, respectively.
Mines
In North America, we lease silica quartz mine sites in Tacoma, Washington and Reno, Nevada. The lease for our quartz mine in Tacoma, Washington expires in February 2022 (with additional options to renew). The lease for our silica quartz mine site in Reno, Nevada expires in January 2024. We also own property in Victorville, California which could be mined for silica. As of 30 April 2021, we have not begun to mine this site and have no immediate plans to do so.
As a mine operator in the US, we are required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), and rules promulgated by the SEC implementing that section of the Dodd-Frank Act, to provide certain information concerning mine safety violations and other regulatory matters concerning the operation of our mines. During fiscal year 2021, we did not receive any notices, citations, orders, legal action or other communication from the US Department of Labor’s Mine Safety and Health Administration that would necessitate additional disclosure under Section 1503(a) of the Dodd-Frank Act. Similarly, we have not experienced any mining-related fatalities in our mining operations. There are currently no pending legal actions before the Federal Mine Safety and Health Review Commission related to our mining operations.
Our Fermacell business has an operating license for a mining facility in Schraplau, Germany, however no active mining is being undertaken, or allowed with respect to the former owner FELS-WERKE GmbH, and the mine is only being used for storage of material. We also have an investment in a natural gypsum mine in Spain.
Capital Expenditures
We utilize a mix of operating cash flow and debt facilities to fund our capital expenditure projects and investments. We continuously invest in safety, equipment maintenance and upgrades, and capacity to ensure continued environmental compliance and operating effectiveness of our plants. The following table sets forth our capital expenditures for the three most recent fiscal years:
| (Millions of US dollars) | ||||||||||||||||||||
| 2021 | 2020 | 2019 | ||||||||||||||||||
| North America Fiber Cement | $ | 76.8 | $ | 137.1 | $ | 246.8 | ||||||||||||||
| Asia Pacific Fiber Cement | 18.3 | 32.2 | 41.1 | |||||||||||||||||
| Europe Building Products | 13.5 | 23.5 | 26.0 | |||||||||||||||||
| Other Businesses | — | — | 1.5 | |||||||||||||||||
| R&D and Corporate | 2.1 | 1.0 | 2.1 | |||||||||||||||||
| Total Capital Expenditures | $ | 110.7 | $ | 193.8 | $ | 317.5 | ||||||||||||||
Significant active capital expenditures
At 31 March 2021, the following significant capital expenditures related to capacity projects remain in progress:
| Project Description | Approximate Investment (US millions) | Investment to date (US millions) | Project Start Date | Expected Commission Date | Expected Nameplate Capacity Increase (mmsf) 1 | |||||||||||||||||||||||||||
| Prattville Greenfield expansion | $ | 240.0 | $ | 233.8 | Q4FY18 | FY22 | 600 | |||||||||||||||||||||||||
1 The first sheet machine in Prattville, Alabama was commissioned in Q4 of fiscal year 2021, with nameplate capacity of 300 mmsf. The second sheet machine is expected to be commissioned in July 2021, for a total nameplate capacity in Prattville, Alabama of 600 mmsf at the end of fiscal year 2022. | ||||||||||||||||||||||||||||||||
Significant completed capital expenditure projects
The following is a list of significant capital expenditure projects we have invested in over the three most recent fiscal years:
| Project Description | Total Investment (US Millions) | Fiscal Year of Expenditure | ||||||||||||
| Philippines capacity expansion | 18.0 | FY16 - FY19 | ||||||||||||
| Tacoma Greenfield expansion | 147.0 | FY17 - FY20 | ||||||||||||
| Carole Park Brownfield expansion | $ | 22.0 | FY19 - FY21 | |||||||||||
Capital Divestitures
During the three most recent fiscal years, we did not make any material capital divestitures. We do not consider the exit from our Penrose, New Zealand plant a material divestiture but a strategic decision to shift to an import sales model.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
James Hardie Executive Team
Our management is overseen by our executive team, whose members cover the key areas of finance, human resources, investor relations, legal, manufacturing, marketing, operations, production, R&D and sales.
Members of our management executive team at 30 April 2021 are:
Jack Truong BS, PhD Chief Executive Officer Age 58 | |||||
 | Dr Jack G. Truong joined James Hardie as President of International Operations in April 2017. Dr Truong was announced Chief Executive Officer ("CEO") successor and appointed President and Chief Operating Officer with the responsibility of running the Company's global business in September 2018. He was officially appointed CEO in January 2019. Dr Truong’s ability to anticipate global market trends and deliver profitable revenue growth is evidenced by his extensive multinational and multisector business experience. Prior to James Hardie, Dr Truong was the President and Chief Executive Officer of leading home appliance manufacturer, Electrolux North America Inc, a $5+ billion revenue and 14,000+ employee business at the time of his leadership. | ||||
| Before joining Electrolux, Dr Truong enjoyed a successful 22-year career at 3M Company, where he held senior leadership roles throughout the United States, Europe and Asia-Pacific, including Vice President and General Manager of the Global Construction and Home Improvements Division and Global Office Supplies Division. As an engineer and inventor himself – earning his PhD in chemical engineering from the Rensselaer Polytechnic Institute in New York – Dr Truong is the recipient of 11 U.S. patents and several international patents. Dr Truong also enjoys giving time to philanthropic causes and professional industry associations, receiving multiple accolades for his humanitarian work and business accomplishments. | |||||
Jason Miele BA Chief Financial Officer Age 44 | |||||
 | Jason Miele was appointed as Chief Financial Officer (“CFO”) in February 2020. As CFO he oversees the Company’s overall financial activities, including accounting, tax, treasury, performance and competitor analysis, internal audit, financial operations, information systems, and investor and media relations. Mr Miele has over 14 years of experience with James Hardie and has served in a number of important roles during his tenure, including most recently, as Vice President – Investor and Media Relations, a position he held from February 2017. In that role, Mr Miele had responsibility for overseeing James Hardie’s investor relations strategy and communicating James Hardie’s business strategy and its financial performance to various stakeholders including shareholders, investment analysts, and the financial media. | ||||
Prior to that, Mr Miele served in a variety of roles of increasing responsibility, in finance functions such as Treasury, Controllership and Operational Finance, including reporting to the CFO as the Global Treasurer and later the Global Controller. Mr Miele has supported the James Hardie business during his tenure, working in multiple geographies including Dublin, Ireland, Amsterdam, Netherlands, Mission Viejo, California and Chicago, Illinois in the United States and most recently, Sydney, Australia. Mr Miele has a Bachelor’s Degree from the University of California at Santa Barbara, where he graduated with a degree in Business Economics with an emphasis in Accounting. | |||||
Julie Katigan BA, MA Chief Human Resources Officer Age 54 | |||||
 | Julie Katigan joined James Hardie as Chief Human Resources Officer (“CHRO”) in May 2019. As CHRO she has responsibility for the Company’s global human resource activities, including employee engagement, leadership and talent development and human resources strategy. Most recently, Ms Katigan was the Senior Vice President, Human Resources for XPO Logistics’ Americas and Asia Pacific Supply Chain business unit, responsible for approximately 25,000 employees in 400 locations across the globe. Prior to XPO Logistics, Ms Katigan held senior human resources leadership roles in both business partnering and specialty areas such as Talent Management and | ||||
| Organizational Development, with well-established companies that included Colfax Corporation, Electrolux, Mead Johnson Nutrition and Ford Motor Company. Ms Katigan has a Bachelor of Arts degree in English and a Master’s degree in Labor and Industrial Relations from Michigan State University. | |||||
Joe Blasko BSFS, JD General Counsel, Chief Compliance Officer and Company Secretary Age 54 | |||||
 | Joe Blasko joined James Hardie as General Counsel and Chief Compliance Officer in June 2011 and was appointed Company Secretary in June 2020. Mr Blasko has responsibility for the Company's legal and regulatory compliance, corporate governance, enterprise risk management and government relations. Before joining James Hardie, Mr Blasko was Assistant General Counsel, and later, the General Counsel at Liebert Corporation, an Emerson Network Power Systems company and wholly-owned subsidiary of Emerson Electric Co. In his four years with Liebert/Emerson, Mr Blasko was responsible for establishing the legal department in Columbus, Ohio, managing and overseeing all legal matters and working closely with the executive management team. In this role, Mr Blasko also had global responsibilities which required expertise across multiple jurisdictions. | ||||
From 2004 to 2006, Mr Blasko was Associate General Counsel at The Scotts Miracle-Gro Company, serving as the effective “general counsel” to numerous corporate divisions within the organization. From 1997 to 2004, Mr Blasko gained considerable regulatory and litigation expertise working at Vorys, Sater, Seymour and Pease LLP in Ohio. Mr Blasko has a Juris Doctor from Case Western Reserve University in Cleveland, Ohio, USA and a Bachelor of Science in Foreign Service from Georgetown University, USA, with a specialty in International Relations, Law and Organizations. | |||||
Sean Gadd BEng, MBA Executive Vice President – North America Commercial Age 48 | |||||
 | Sean Gadd joined James Hardie in 2004 as a Regional Engineering Manager for the Asia Pacific business, and progressed to Plant Manager for both the Carole Park and Rosehill facilities in Australia. Mr Gadd then moved to the US in 2006 to take the role of Manufacturing Manager for Trim and various manufacturing facilities across the US. In 2009, Mr Gadd ran the US trim business for James Hardie with responsibility for both Manufacturing and Sales, followed by a brief assignment leading Supply Chain. In 2012, Mr Gadd was promoted to the role of Vice President of Sales for Western USA and Canada. Over the next year, his role was expanded to include the Midwest and Northeast of the USA. | ||||
Mr Gadd was appointed Executive General Manager in September 2013 with full responsibility for the Northern Division and in October 2015, he was appointed Executive Vice President, Markets and Segments, North America with responsibility for Strategic Marketing and Development. In December 2018, Mr Gadd was appointed Executive Vice President, North America Commercial with responsibility for sales, products, segments and marketing. Mr Gadd has a Bachelor of Engineering in Manufacturing Management and an executive MBA from the Australian Graduate School of Management, Australia. | |||||
Robert Stefansic, BSc, MBA Executive Vice President – North America, End-to-End Supply Chain Age 59 | |||||
 | Bob Stefansic joined James Hardie as Executive Vice President, North America, End-to-End Supply Chain in July 2020. In his role, Mr Stefansic is responsible for driving operational efficiencies and improvements across the supply chain, with emphasis on delivering business value via the Hardie Manufacturing Operating System. His direct responsibilities include manufacturing, supply chain and all central operations support functions. Mr Stefansic held various Senior Operations leadership roles throughout his career prior to joining James Hardie. Most recently he was the Chief Operations Officer at Ingredion Incorporated, a $6 billion leading ingredients supplier to the food and beverage industry. There he was responsible for all global operations including a | ||||
network of 50 manufacturing plants and supply chains across Asia, Europe, North America and South America. Additionally, he previously held manufacturing leadership roles at Valspar, General Chemical and Allied-Signal corporations. Mr Stefansic is a graduate of the University of South Carolina, where he received an MBA and a Bachelor of Science degree in Chemical Engineering. | |||||
Johnny Cope, BA Senior Vice President – North America Sales Age 53 | |||||
 | Johnny Cope joined James Hardie in February 2019 as the Senior Vice President, North America Sales with responsibility for delivering the James Hardie value proposition, trusted brand and products, best-in-class supply chain and technical service framework to the Company's most valued customers. Mr Cope has 25 years of industry experience serving Dealers, Distributors, Builders and Contractors. For the decade prior to this role, he was responsible for the Builder/Contract business for Electrolux Major Appliances North America. For the 10 years before joining Electrolux, Mr Cope had multiple Builder/Contract roles in the Appliance division of the General Electric Company. During the last | ||||
6 years at GE, he was responsible for the Contract Appliance's South West Contract Region of the United States. Mr Cope has a Bachelor's Degree from Texas Tech University, where he graduated with a degree in Business Administration with an emphasis on Marketing. | |||||
Ryan Kilcullen BSc, MS Senior Vice President – North America Supply Chain Operations Age 40 | |||||
 | Ryan Kilcullen joined James Hardie in 2007 as a PcI/PdI Engineer. Since then, he has worked for the Company in various manufacturing and supply chain roles including Process Engineer, Production Manager, and Supply Chain Engineer. In 2012, he became Supply Chain Manager, ColorPlus® Business Unit, responsible for the end-to-end design and performance of our ColorPlus® product line supply chain. In 2013, he became responsible for North American Supply Chain operations, with responsibilities that included Procurement, Network Planning, Production Planning, Transportation, Distribution Management, Customer Service, and Inside Sales. In June 2015, he was appointed Vice President – Central Operations, responsible for the Company’s Supply Chain Operations and Centralized Manufacturing functions. | ||||
In August 2016, he was appointed Executive Vice President – North America Operations, responsible for the Company’s Supply Chain, Manufacturing, Engineering and Environmental, Health & Safety Operations. Mr Kilcullen has a Bachelor of Science in Industrial Engineering from Rensselaer Polytechnic Institute and a Master of Engineering in Logistics from Massachusetts Institute of Technology. | |||||
Jörg Brinkmann MS, PhD General Manager, Europe Age 42 | |||||
 | Dr Jörg Brinkmann joined James Hardie as General Manager, Europe in April 2018 as part of the Fermacell GmbH acquisition. In this role he is responsible for running the Company’s European activities, which are headquartered in Düsseldorf, Germany. Before joining James Hardie, Dr Brinkmann held several German as well as international leadership roles in Sales and Marketing at the Xella Group (the former owner of the Fermacell business) starting in 2005. In 2014 he was appointed CEO of the former Fermacell Company with responsibility for the entire business. Under his leadership, the company achieved significant profitable growth. | ||||
| Dr Brinkmann holds a Masters degree (“Diplom-Kaufmann”) from the University of Duisburg-Essen as well as a PhD from the University of Hohenheim, Germany. | |||||
Board of Directors
James Hardie’s non-executive directors have widespread experience, spanning general management, finance, manufacturing, marketing and accounting. Each non-executive director also brings valuable international experience that assists with James Hardie’s growth. For additional information, see "Section 1 - Corporate Governance Report" of this Annual Report.
Members of the Board of Directors (the “Board”) at 30 April 2021 are:
Michael Hammes BS, MBA Age 79 | |||||
 | Michael Hammes was elected as an independent non-executive director of James Hardie in February 2007. He was appointed Chairman of the Board in January 2008 and is a member of the Remuneration Committee and the Nominating and Governance Committee. Experience: Mr Hammes has extensive commercial experience at a senior executive level. He has held a number of executive positions in the medical products, hardware and home improvement, and automobile sectors, including CEO and Chairman of Sunrise Medical, Inc. (2000-2007), Chairman and CEO of Guide Corporation (1998-2000), Chairman and CEO of Coleman Company, Inc. (1993-1997), Vice Chairman of Black & Decker Corporation (1992-1993) and | ||||
various senior executive roles with Chrysler Corporation (1986-1990) and Ford Motor Company (1966-1986). Directorships of listed companies in the past five years: Former – Director of Navistar International Corporation (1996-2017); Director of DynaVox Mayer-Johnson (2010-2016). Other: Resident of the United States. Last elected: August 2018 Term expires: August 2021 | |||||
David D. Harrison BA, MBA, CMA Age 74 | |||||
 | David Harrison was appointed as an independent non-executive director of James Hardie in May 2008. He is Chairman of the Remuneration Committee and a member of the Audit Committee. Experience: Mr Harrison is an experienced company director with a finance background, having served in corporate finance roles, international operations and information technology for 22 years with Borg Warner/General Electric Co. His previous experience includes 10 years at Pentair, Inc., as Executive Vice President and CFO (1994-1996 and 2000-2007) and Vice President and CFO roles at Scotts, Inc. and Coltec Industries, Inc. (1996-2000). | ||||
Directorships of listed companies in the past five years: Current – Director of National Oilwell Varco (since 2003). Other: Resident of the United States. Last elected: August 2019 Term expires: August 2022 | |||||
Andrea Gisle Joosen MSc, BSc Age 57 | |||||
 | Andrea Gisle Joosen was appointed as an independent non-executive director of James Hardie in March 2015. She is a member of the Audit Committee. Experience: Ms Gisle Joosen is an experienced former executive with extensive experience in marketing, brand management and business development across a range of different consumer businesses. Her former roles include Chief Executive of Boxer TV Access AB in Sweden and Managing Director (Nordic region) of Panasonic, Chantelle AB and Twentieth Century Fox. Her early career involved several senior marketing roles with Procter & Gamble and Johnson & Johnson. | ||||
Directorships of listed companies in the past five years: Current – Director of BillerudKorsnas AB (since 2015); Director of Dixons Carphone plc (since 2014); Director of ICA Gruppen AB (since 2010). Former – Director of Mr Green AB (2015 - 2019). Other: Director of Logent AB (since 2019); Director of Qred AB (since 2019); Director of Acast AB (since 2018); Director of Neopitch AB (since 2004); resident of Sweden. Last elected: August 2018 Term expires: August 2021 | |||||
Persio V. Lisboa BS Age 55 | ||||||||||||||
 | Persio Lisboa was appointed as an independent non-executive director of James Hardie in February 2018. He is a member of the Remuneration Committee and the Nominating and Governance Committee. Experience: Mr Lisboa has extensive senior executive experience. He currently serves as President and Chief Executive Officer of Navistar, Inc. (Navistar), a leading manufacturer of commercial trucks, buses, defense vehicles and engines, a position he has held since July 2020. Prior to that position, Mr Lisboa served as the Executive Vice President and Chief Operating Officer of Navistar from March 2017 to July 2020. Prior to that, Mr Lisboa served as President, Operations of Navistar from November 2014 to March 2017. Prior to that, Mr Lisboa served as | |||||||||||||
Senior Vice President, Chief Procurement Officer of Navistar from December 2012 to November 2014, as Vice President, Purchasing and Logistics and Chief Procurement Officer of Navistar from October 2011 to November 2012, and as Vice President, Purchasing and Logistics of Navistar from August 2008 to October 2011. Prior to these positions, Mr Lisboa held various management positions within Navistar’s North American and South American operations. Mr Lisboa began his career at Maxion International Motores Brasil, followed by a move to International Engines Argentina S.A., and then to MWM-International South America. | ||||||||||||||
Directorships of listed companies in the past five years: Former - Director of Broadwind Energy, Inc. (2016-2018). Other: Resident of the United States. Last elected: August 2018 Term expires: August 2021 | ||||||||||||||
Anne Lloyd, BS, CPA Age 59 | |||||
 | Anne Lloyd was appointed as an independent non-executive director of James Hardie in November 2018. She is Chair of the Audit Committee and a member of the Remuneration Committee. Experience: Ms Lloyd, an experienced corporate and finance executive, served as Chief Financial Officer of Martin Marietta Materials, Inc. a leading supplier of aggregates and heavy building materials, for over 12 years from June 2005 until her retirement in August 2017. She joined Martin Marietta in 1998 as Vice President and Controller and was promoted to Chief Accounting Officer in 1999. She was subsequently appointed Treasurer (2006-2013) and promoted to Executive Vice President in 2009. Earlier in her career, Ms Lloyd spent 14 years with Ernst & Young | ||||
LLP (1984-1998), latterly as a senior manager and client service executive for the natural resources, mining, insurance and healthcare industries. Directorships of listed companies in the past five years: Current - Director of Insteel Industries, Inc (since April 2019); Director of Highwoods Properties, Inc. (since 2018). Former - Director of Terra Nitrogen Company, L.P. (2009-2018). Other: Resident of the United States. Last elected: August 2019 Term expires: August 2022 | |||||
Moe Nozari BA, MS, PhD and Postdoctoral Research Fellow Age 78 | |||||
 | Dr Moe Nozari was appointed as an independent non-executive director of James Hardie in November 2019. He is a member of the Nominating and Governance Committee. Experience: Dr Nozari worked at 3M for thirty eight years. Latterly, he served as an Executive Vice President of Consumer and Office Business at 3M Company, from 2002 until his retirement from 3M in July 2009. Prior to that he served as an Executive Vice President of Consumer and Office Markets at 3M Company from 1999 to 2002 and served as its Group Vice President of Consumer and Office Markets Group from 1996 to 1999. Dr Nozari joined 3M, in the Central Research Laboratories in 1971 and advanced to the position of Technical Director of the Photographic Products Division. | ||||
After a succession of managerial and business responsibilities in 1986 he was named a Division Vice President, then a Group Vice President in 1996. While at 3M his focus was on the development of new products, brands, identification, and development of people. Other: Resident of the United States. Last elected: August 2020 Term expires: August 2023 | |||||
Rada Rodriguez MSc Age 62 | |||||
 | Rada Rodriguez was appointed as an independent non-executive director of James Hardie in November 2018. She is a member of the Nominating and Governance Committee. Experience: Ms Rodriguez serves as Chief Executive Officer of Signify DACH, part of the Signify Group, a world leader in connected LED lighting systems, software and services, since May 2021. She previously served as Chief Executive Officer of Schneider Electric GmbH, part of Schneider Electric Group, a global energy management and automation company and served as Senior Vice President, Corporate Alliances until 2021. On joining the company in 1999, she held a | ||||
progression of senior roles including Head of International Research and Development for Schneider Electric Sweden, and Senior Vice President and Zone President, Central and Eastern Europe. Prior to joining Schneider Electric GmbH, she worked at Lexel Group (later acquired by Schneider) and before that she worked for 5 years at Colasit Scandinavia AB, a Swiss industrial machinery manufacturer. She started her career with K-Konsult AB, a Swedish technical consulting firm with a focus on installation technology where she worked for 5 years as a design engineer. Directorships of listed companies in the past five years: Former – Director of Eltel AB (2015-2017). Other: Director of Messe Berlin GmbH (since 2019); Director of ZVEI (since 2014); resident of Germany. Last elected: August 2019 Term expires: August 2022 | |||||
Suzanne B Rowland MS, BS Age 59 | |||||
 | Suzanne B Rowland was appointed as an independent non-executive director of James Hardie in February 2021. She is a member of the Audit Committee. Experience: Ms Rowland has a diverse set of functional experiences and brings business leadership experience across a wide range of complex global specialty materials and industrial businesses. She most recently served as Group Vice President of the Industrial Specialties business at Ashland Global Holdings Inc. from 2016 to 2019 where she aligned commercial and asset strategies and drove focused execution resulting in profitable growth. | ||||
Prior to this, Ms Rowland served in separate Vice President and General Manager roles in Tyco International between 2009 and 2015. During this time in multiple divisions of the company, she led significant improvement in customer relationships, market position, and operational execution. Before joining Tyco International, Ms Rowland worked for Rohm and Haas Company for over twenty years, where she also held multiple senior executive roles. Directorships of listed companies in the past five years: Current – Director of Sealed Air Corporation (since 2020); Director of SPX Flow, Inc. (since 2018); Director of L.B. Foster Co. (since 2008). Other: Resident of the United States. Last elected: Ms Rowland will be standing for election at the August 2021 Annual General Meeting. | |||||
Dean Seavers MBA, BBA Age 60 | |||||
 | Dean Seavers was appointed as an independent non-executive director of James Hardie in February 2021. He is a member of the Audit Committee. Experience: Mr Seavers is a seasoned senior leader of transformation and turnaround strategies and currently serves as Chairman of Pacific Gas & Electric Utility. Mr Seavers most recently served as President and Executive Director of National Grid plc’s U.S. business, in which he led a fundamental business transformation with a focus on improving financial performance, safety and employee engagement. Prior to holding this position, Mr Seavers served in senior executive positions at Red Hawk Fire & Security LLC, United Technologies Fire & | ||||
Security Corp. and GE Security and spent seven years with Tyco International, holding multiple senior operating roles. During this time, Mr Seavers advanced through learning and applying best in class operating systems and tools such as Lean and Six Sigma. Earlier in his career, Mr Seavers worked at Ford Motor Company and PepsiCo Inc., which led him to an entrepreneurial opportunity as Managing Director and co-owner of Flex-Tech Communications. Directorships of listed companies in the past five years: Current – Director of PG&E Corporation (since 2020); Chairman and Director of Pacific Gas & Electric Utility (since 2020); Director of Albemarle Corporation (since 2018). Former – Director of National Grid plc (2015-2020). Other: Resident of the United States. Last elected: Mr Seavers will be standing for election at the August 2021 Annual General Meeting. | |||||
Nigel Stein CA, BSc Age 65 | |||||
 | Nigel Stein was appointed as an independent non-executive director of James Hardie in May 2020. He is the Chairman of the Nominating and Governance Committee and is a member of the Audit Committee. Experience: Mr Stein has extensive experience in the global automotive and manufacturing sectors. He currently serves as Chairman of Inchcape plc (Inchcape), an automotive distribution, retail and financing company, a position he has held since May 2018. Mr Stein joined Inchcape as a non-executive director in October 2015. Prior to holding this position, Mr Stein served as Chief Executive Officer of GKN plc | ||||
(GKN) from January 2012 to December 2017. He joined the automotive and aerospace components supplier in 1994 and during his time with GKN held various senior positions in general management and finance including six years as Group Chief Financial Officer. Earlier in his career, Mr Stein held senior finance positions with Laird plc and Hestair plc. From 2003 until 2011, he served as an independent non-executive director on the Board of Ferguson (formerly Wolseley) plc, the leading specialist distributor of plumbing and heating products in North America and the UK. Mr Stein is a member of the Institute of Chartered Accountants of Scotland. Directorships of listed companies in the past five years: Current – Director of Inchcape plc (since 2015). Former – Director of GKN plc (2001-2017). Other: Resident of the United Kingdom. Last elected: November 2020 Term expires: August 2023 | |||||
Harold Wiens BS Age 74 | |||||
 | Harold Wiens was appointed as an independent non-executive director of James Hardie in May 2020. He is a member of the Remuneration Committee. Experience: Mr Wiens worked at 3M Company (3M) for thirty-eight years. He served as Executive Vice President, Industrial Business and Transportation Business from 1998 until his retirement from 3M in 2006. It is 3M’s largest and most diverse business serving many different end markets ranging from electronic to automotive and aerospace manufacturing. During this time, Mr Wiens restructured the business, leading a global implementation of Six Sigma that drove significant international growth. | ||||
Prior to holding this position, Mr Wiens served as Executive Vice President, Sumitomo 3M, 3M’s largest subsidiary, headquartered in Tokyo, Japan, from 1995 to 1998 and served as Data Storage Business Leader and Vice President from 1988 to 1995 and as Memory Technologies Group Manufacturing Manager from 1983 to 1988. Mr Wiens began his career with 3M in 1968 and held many positions of increasing responsibility over his first fifteen years with 3M. Directorships of listed companies in the past five years: Current – Director of Bio-Techne Corporation (since 2014). Other: Resident of the United States. Last elected: November 2020 Term expires: August 2023 | |||||
Remuneration Report
This Remuneration Report describes the executive remuneration philosophy, programs and objectives of the Remuneration Committee and the Board of Directors (the “Board”), as well as the executive remuneration plans and programs implemented by James Hardie.
We are not required to produce a remuneration report under applicable Irish, Australian or US rules or regulations. However, taking into consideration our significant Australian and US shareholder bases and our primary listing on the Australian Securities Exchange (“ASX”), we have voluntarily produced a remuneration report consistent with those provided by similarly situated companies for non-binding shareholder approval since 2005.
This Remuneration Report outlines the key remuneration plans and programs and share ownership information for our Board of Directors and certain of our senior executive officers (Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and the other three highest paid executive officers based on total compensation that was earned or accrued for fiscal year 2021) (“Senior Executive Officers”) in fiscal year 2021, and also includes an outline of the key changes for fiscal year 2022. Further details of these changes are set out in the 2021 Notice of Annual General Meeting (“AGM”).
For fiscal year 2021, our senior executive officers are:
•Dr Jack Truong, Chief Executive Officer;
•Jason Miele, Chief Financial Officer;
•Sean Gadd, Executive Vice President, North America Commercial;
•Joe Blasko, General Counsel and Chief Compliance Officer; and
•Ryan Kilcullen, Senior Vice President – North America Supply Chain Operations.
This Remuneration Report has been adopted by our Board on the recommendation of the Remuneration Committee.
EXECUTIVE SUMMARY
Fiscal Year 2021 Business Highlights1
Our operating results for fiscal year 2021 reflected strong and disciplined financial performance, highlighted by adjusted net income of US$458 million and adjusted earnings before interest and taxes (“EBIT”) of US$629 million, an increase of 30% and 29%, respectively, compared to fiscal year 2020. In addition, we achieved net sales of US$2.9 billion, an increase of 12% compared to fiscal year 2020, and US$1.03 adjusted diluted earnings per share.
The following graphs show our performance for key financial measures during fiscal year 2021, with a comparison to prior corresponding periods:
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1Please see the "Glossary of Abbreviations and Definitions" in Section 4 of this Annual Report for a reconciliation of non-GAAP financial measures used in this Remuneration Report to the most directly comparable US GAAP financial measure.
Fiscal Year 2021 Compensation Highlights
Our fiscal year 2021 compensation continued to reflect and promote our pay-for-performance philosophy and our stated goal to position Senior Executive Officer fixed base salary and benefits at the median and total target direct remuneration (comprising fixed and target variable remuneration) at the 75th percentile of our Peer Group (defined herein), if stretch short- and long-term target performance goals are met.
The following is a summary of the key aspects and events that occurred relative to the Company’s remuneration policies, programs and arrangements during the course of fiscal year 2021:
•The core plan design for the FY2021 Company Performance Plan ("CP Plan") or Individual Performance Plan ("IP Plan") did not change. The CP Plan continues to measure both Growth and Returns when assessing Company performance and shareholder value creation. However, in the unprecedented and unpredictable market conditions related to the COVID-19 pandemic, we simplified the plan metrics, and strengthened the connection between consistent revenue growth and strong returns. A complete description of the CP Plan for fiscal year 2021 is set out in the section titled “Incentive Arrangements” later in this Remuneration Report.
•No changes were made to the design of the Long-Term Incentive ("LTI") Plan for fiscal year 2021. The LTI plan remains similar to the fiscal year 2020 plan with updated financial targets. A complete description of the LTI program, including the applicable performance hurdles, is set out in the section titled “Incentive Arrangements” later in this Remuneration Report.
Fiscal Year 2021 Total Target Compensation
Remuneration packages for Senior Executive Officers reflect our remuneration philosophy and comprise a mixture of fixed base salary, benefits and variable performance-based incentives. The Remuneration Committee seeks to appropriately balance fixed and variable remuneration in order to align our total compensation structure with our pay-for-performance philosophy. The following chart summarizes total target compensation awarded to each Senior Executive Officer in fiscal year 2021:
| Summary of Fiscal Year 2021 Senior Executive Officer Target Compensation | |||||||||||||||||
| Senior Executive Officer | FY2021 Annual Base Salary (US$) | FY2021 STI Target Value (US$) | FY2021 LTI Target Value (US$) | FY2021 Total Target Compensation (US$) | |||||||||||||
| J Truong | 900,000 | 1,125,000 | 3,475,000 | 5,500,000 | |||||||||||||
| J Miele | 416,000 | 249,600 | 450,000 | 1,115,600 | |||||||||||||
| S Gadd | 577,830 | 346,698 | 800,000 | 1,724,528 | |||||||||||||
| J Blasko | 459,900 | 275,940 | 500,000 | 1,235,840 | |||||||||||||
| R Kilcullen | 380,544 | 228,326 | 400,000 | 1,008,870 | |||||||||||||
Results of 2020 Remuneration Report Vote
In November 2020, our shareholders were asked to cast a non-binding advisory vote on our remuneration report for the fiscal year ended 31 March 2020. Although we are not required under applicable Irish, Australian or US laws or regulations to provide a shareholder vote on our executive remuneration practices, the Board believes that it is important to engage shareholders on this important issue and we have voluntarily submitted our remuneration report for non-binding shareholder approval on an annual basis since 2005 and currently intend to continue to do so.
At our 2020 Annual General Meeting, our shareholders approved our remuneration report, with 97.5% of the votes cast in support of our remuneration program. The Remuneration Committee considered the results of this advisory vote, together with investor feedback and other factors and data associated with strategic priorities discussed in this Remuneration Report, in determining our executive remuneration policies, objectives and decisions and related shareholder engagement efforts for fiscal year 2021.
APPROACH TO SENIOR EXECUTIVE REMUNERATION
Remuneration Philosophy
As our main business and all of our Senior Executive Officers are located in the US, our remuneration philosophy is to provide our Senior Executive Officers with an overall package that is competitive with Peer Group companies exposed to the US housing and consumer durables market. Within this philosophy, the executive remuneration framework emphasizes operational excellence and shareholder value creation through incentives that link executive remuneration with the interests of shareholders. Our remuneration plans and programs are structured to enable us to: (i) attract and retain talented executives; (ii) reward outstanding individual and corporate performance; and (iii) align the interests of our executives to the interests of our shareholders, with the ultimate goal of improving long-term value for our shareholders. This pay-for-performance system continues to serve as the framework for executive remuneration, aligning the remuneration received with the performance achieved.
Composition of Remuneration Packages
In line with our remuneration philosophy, our goal is to position Senior Executive Officer fixed base salary and benefits at the median and total target direct remuneration (comprising fixed and target variable remuneration) at the 75th percentile of our Peer Group, if stretch short- and long-term target performance goals are met. Performance goals for target variable performance-based incentive remuneration are set with the expectation that we will deliver results in the top quartile of our Peer Group. Performance below this level will result in variable remuneration payments below target (and potentially zero for poor performance). Performance above this level will result in variable remuneration payments above target.
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Relative Weightings of Fixed and Variable Remuneration
The charts below detail the relative weightings of fixed versus variable remuneration for the CEO and other Senior Executive Officers for fiscal year 2021. Fixed remuneration includes base salary and variable remuneration is comprised of target Short-Term Incentive ("STI") awards and the following three LTI components: (i) Relative Total Shareholder Return ("TSR") Restricted Stock Units ("RSUs"); (ii) Return on Capital Employed ("ROCE") RSUs; and (iii) Scorecard LTI at target, each of which are discussed in more detail in this Remuneration Report.
Setting Remuneration Packages
Remuneration decisions are based on the executive remuneration philosophy and framework described in this Remuneration Report. The Remuneration Committee reviews and the Board approves this framework each year.
Remuneration packages for Senior Executive Officers are evaluated each year to make sure that they continue to align with our compensation philosophy, are competitive with our Peer Group and developments in the market, and continue to support our business structure and objectives. In making decisions regarding individual Senior Executive Officers, the Remuneration Committee takes into account both the results of an annual remuneration positioning review provided by the Remuneration Committee’s independent advisers and the Senior Executive Officer’s responsibilities and performance.
All aspects of the remuneration package for our CEO and CFO are determined by the Remuneration Committee and ratified by the Board. All aspects of the remuneration package for the remaining Senior Executive Officers are determined by the Remuneration Committee on the recommendation of the CEO.
Remuneration Committee Governance
The remuneration program for our Senior Executive Officers is overseen by our Remuneration Committee, the members of which are appointed by the Board. As prescribed by the Remuneration Committee Charter, the duties of the Remuneration Committee include, among other things: (i) administering and making recommendations on our incentive compensation and equity-based remuneration plans; (ii) reviewing the remuneration of directors; (iii) reviewing the remuneration framework for the Company; and (iv) making recommendations to the Board on recruitment, retention and termination policies and procedures for senior management. The current members of the
Remuneration Committee are David Harrison (Chairman), Michael Hammes, Persio Lisboa, Anne Lloyd and Harold Wiens, all of whom are independent non-executive directors. A more complete description of these and other Remuneration Committee functions is contained in the Remuneration Committee’s Charter, a copy of which is available in the Corporate Governance section of the Investor Relations page on our website (www.ir.jameshardie.com.au).
Summary of Executive Compensation Practices
The following table summarizes certain of the key governance practices employed by the Remuneration Committee relative to our executive compensation practices, including those practices which we believe are important drivers of both short- and long-term corporate performance and those practices which we believe are not aligned with the long-term interests of our shareholders:
| Compensation Practices We Employ | |||||||||||
ü | Retain independent compensation advisers reporting directly to the Remuneration Committee | û | Prohibition on hedging of stock held by executives and directors | ||||||||
ü | Pay for performance model, with approximately 84% of our CEO’s total target compensation being performance-based “at risk” compensation and an average of approximately 66% total target compensation being performance-based “at risk” compensation for our other Senior Executive Officers | û | Limited employment agreements and severance arrangements | ||||||||
ü | Circuit breaker on annual STI awards to ensure that no annual incentive awards are paid unless minimum NA growth and corporate performance levels are achieved | û | Limited change-in-control benefits | ||||||||
ü | Set share ownership requirements for all directors and Senior Executive Officers | û | No dividends paid on unvested equity awards | ||||||||
ü | Broad clawback policy on performance-based compensation | û | Limited perquisites and other benefits | ||||||||
ü | Set performance-based vesting conditions for all equity grants to Senior Executive Officers | û | No annual time-based LTI equity grants to Senior Executive Officers | ||||||||
ü | Provide the Remuneration Committee with ability to exercise “negative” discretion when determining the vesting and payout of our LTI programs | û | No excessive retirement or deferred compensation arrangements | ||||||||
Remuneration Advisers
As permitted by the Remuneration Committee Charter, the Remuneration Committee retained Aon Hewitt (in the US) and Guerdon Associates (in Australia) as its independent advisers for matters regarding remuneration for fiscal year 2021. The Remuneration Committee reviews the appointment of its advisers each year. Both Aon Hewitt and Guerdon Associates provided the Remuneration Committee with written certification during fiscal year 2021 to support their re-appointment. In those certifications, the advisers: (i) confirmed that their pay recommendations were made without undue influence from any member of our management; and (ii) provided detailed responses to the six independence factors a Remuneration Committee should consider under relevant NYSE rules, and confirmed their independence based on these factors.
The Remuneration Committee reviewed these certifications before re-appointing each adviser for fiscal year 2022.
Benchmarking Analysis
To assist the Remuneration Committee in making remuneration decisions, the Remuneration Committee evaluates the remuneration of our Senior Executive Officers against a designated set of companies (the “Peer Group”). The Peer Group, which is reviewed by the Remuneration Committee on an annual basis, consists of companies that are similar to us in terms of certain factors, including size, industry, and exposure to the US housing market. The Remuneration Committee believes that US market focused companies are a more appropriate peer group than ASX-listed companies, as they are exposed to the same macroeconomic factors in the US housing market as those we face. No changes were made to the Peer Group for fiscal year 2021. Set forth below are the names of the 20 companies comprising the Peer Group, which was used to benchmark the remuneration of our Senior Executive Officers in fiscal year 2021.
| Acuity Brands, Inc | Lennox International, Inc | Quanex Building Products Corp | ||||||||||||
| American Woodmark Corp | Louisiana-Pacific Corp | Simpson Manufacturing Co., Inc | ||||||||||||
| Apogee Enterprises, Inc | Martin Marietta Materials, Inc | Trex Co., Inc | ||||||||||||
| Armstrong World Industries, Inc | Masco Corporation | Valmont Industries, Inc | ||||||||||||
| Cornerstone Building Brands, Inc. | Mohawk Industries, Inc | Vulcan Materials Co | ||||||||||||
| Eagle Materials, Inc | Mueller Water Products, Inc | Watsco, Inc | ||||||||||||
| Fortune Brands Home & Security | Owens Corning | |||||||||||||
Performance Linkage with Remuneration Policy
During its annual review, the Remuneration Committee assessed our performance in fiscal year 2021 against:
•our historical performance;
•our Peer Group;
•the goals in our STI and LTI variable remuneration plans; and
•the key objectives and measures the Board expects to see achieved, which are set forth in what is referred to as the “Scorecard” and further discussed later in this Remuneration Report.
Based on that review, the Board and the Remuneration Committee concluded that management’s performance in fiscal year 2021, during a pandemic, had on the whole extraordinary results of net sales growth and EBIT growth: (i) significantly above target on growth measures and significantly above target on return measures, resulting in STI variable remuneration outcomes above target for fiscal year 2021; and (ii) when taken together with performance in fiscal years 2019 and 2020, at approximately the 90th percentile of our Peer Group TSR performance (as of April 2021), significantly above expectations on ROCE performance, and met or exceeded expectations on long-term strategic measures included in the Scorecard, resulting in LTI variable remuneration being on average above target for fiscal years 2019-2021.
More details about this assessment are set out below in this Remuneration Report.
DESCRIPTION OF 2021 REMUNERATION ELEMENTS
Base Salaries and Other Fixed Remuneration Benefits
Base salary provides a guaranteed level of income that recognizes the market value of the position and internal equities between roles, as well as the individual’s capability, experience and performance. Annual base salary increases are not automatic. Base salaries for Senior Executive Officers are positioned around the market median for positions of similar responsibility and are reviewed by the Remuneration Committee each year.
In addition, Senior Executive Officers may receive certain other limited fixed benefits, such as medical and life insurance benefits, car allowances, participation in executive wellness programs and an annual financial planning allowance. For fiscal year 2021, the base salary and value of other fixed benefits for each of our Senior Executive Officers is provided in the Base Pay and Other Benefits columns of the remuneration table in the section titled “Remuneration Paid to Senior Executive Officers”.
Retirement Plan
In every country in which we operate, we offer employees access to pension, superannuation or individual retirement savings plans consistent with the laws of the respective country.
In the US, we sponsor a defined contribution plan, the James Hardie Retirement and Profit Sharing Plan (the “401(k) Plan”). The 401(k) Plan is a tax-qualified retirement and savings plan covering all US employees, including our Senior Executive Officers, subject to certain eligibility requirements as defined by the Internal Revenue Service (the "IRS"). In addition, we match employee contributions dollar for dollar up to a maximum of the first 6% of an employee’s eligible compensation.
Non-Qualified Deferred Compensation Plan
As of 1 January 2021, we sponsor a non-qualified deferred compensation plan, the James Hardie Executive Deferred Compensation Plan (the "Deferred Compensation Plan"). Participation in the Deferred Compensation Plan is generally limited to individuals whose annual salary exceeds the Internal Revenue Service ("IRS") limits applicable to our qualified plans or are participants in our Long-Term Incentive Plan (the "LTIP"). The Deferred Compensation Plan allows participants to elect to defer receipt of some or all of their salary or earned cash incentive to a later date. The Deferred Compensation Plan also restores matching employee contributions up to a maximum of the first 6% of an employee's eligible compensation that would not be eligible in the 401(k) Plan due to IRS contribution limits so long as the participant defers eligible compensation to the Deferred Compensation Plan.
Incentive Arrangements
In addition to the base salary and other fixed benefits provided to our Senior Executive Officers, the Remuneration Committee reviews and approves a combination of both short-term and long-term variable incentive programs on an annual basis. For fiscal year 2021, our variable incentive plans for Senior Executive Officers were as follows:
| Duration | Plan Name | Amount | Form Incentive Paid | ||||||||
| STI (1 year) | IP Plan | 20% of STI Target | Cash | ||||||||
| CP Plan | 80% of STI Target | Cash | |||||||||
| LTI (3 years) | LTIP | 25% of LTI Target | ROCE RSUs | ||||||||
| 25% of LTI Target | TSR RSUs | ||||||||||
| 50% of LTI Target | Cash (Scorecard LTI) | ||||||||||
STI Plans
On an annual basis, the Remuneration Committee approves an STI target for all Senior Executive Officers, expressed as a percentage of base salary, which is allocated between individual goals and Company goals under the IP and CP Plans, respectively. For fiscal year 2021, the STI target percentage for Dr Truong was 125% of base salary and 60% for Messrs Miele, Gadd, Blasko and Kilcullen, with 80% allocated to the CP Plan and 20% allocated to the IP Plan for all Senior Executive Officers.
CP Plan
For fiscal year 2021, the core plan design was the same as prior years. We continued to measure both Growth and Returns when assessing Company performance and shareholder value creation. However, in the unprecedented and unpredictable market conditions related to the COVID-19 pandemic, we simplified the plan metrics, and strengthened the connection between consistent revenue growth and strong returns.
For fiscal year 2021, the metrics for all regions (North America, Asia Pacific and Europe) are a net revenue measure (Growth) and a profit measure (Returns). The metrics are each set with a threshold, target and maximum payout scale. Similar in concept to the matrices used previously and in order to incentivize exceptional company performance in an uncertain and highly volatile market, both net revenue AND profitability must be achieved together to derive a payout within the payout scale, reinforcing shareholder value creation. The maximum payout is 3.0x of target.
All Senior Executive Officers continued to be tied to the NA multiple either in part or in whole. Executives with NA responsibility are linked only to the NA multiple (Mr Gadd and Mr Kilcullen). For executives with global responsibility (Dr Truong and Messrs Miele and Blasko), their STI will be based on the metrics for North America and the net income of the Company.
IP Plan
Under the IP Plan, the Remuneration Committee approves a series of one-year individual performance goals which, along with our leadership behaviors, are used to assess the performance of our Senior Executive Officers. The IP Plan links financial rewards to the Senior Executive Officer’s achievement of specific objectives aligned with the strategic plan and contributions to shareholder value, but are not captured directly by financial measures in the CP Plan. Each Senior Executive Officer can receive
between 0% and 150% of their STI target allocated to the IP Plan with Board discretion to award up to 300% of target for members of the Executive Leadership Team (ELT).
The Remuneration Committee has reserved for itself discretion to change the STI paid. An example of when the Remuneration Committee would consider exercising this discretion includes external factors outside of management’s control, such as, a general shift in the housing market that is considered to have a sufficiently material impact on results. The Remuneration Committee will disclose the reasons for any such exercise of its discretion.
The Remuneration Committee believes that the payout scales are appropriate because they provide management with an incentive to achieve overall corporate goals, balance growth with returns, recognize the need to flexibly respond to strategic opportunities, and incorporate Remuneration Committee discretion to ensure appropriate outcomes.
STI Plan Performance for Fiscal Year 2021
Our CP Plan results and the subsequent STI payouts for fiscal year 2021 were significantly above target as a result of:
•The NA business performing significantly above target for both Net Revenue and EBIT
•The Asia Pacific business performing above target driven by both strong Net Revenue and EBIT growth in Australia, at target for objectives achieved in New Zealand and slightly below target for performance in the Philippines.
•The EU business performing significantly above target on Net Revenue and above target on EBIT and EBIT Margin.
In regards to the IP Plan, the Senior Executive Officers’ performance and the subsequent STI payouts for fiscal year 2021 were at or above target based on each Senior Executive Officer’s achievement of fiscal year 2021 one-year individual performance and core organizational values and leadership behavior goals.
For fiscal year 2021, the amount to be paid to each of our Senior Executive Officers under the STI Plans is provided in the STI Award column of the remuneration table, in the section titled “Remuneration Paid to Senior Executive Officers.”
LTI Plans
Each year, the Remuneration Committee approves an LTI target for all Senior Executive Officers. The approved target is allocated between three separate components to ensure that each Senior Executive Officer’s performance is assessed across factors considered important for sustainable long-term value creation:
•ROCE RSUs are used as they are an indicator of high capital efficiency required over time;
•Relative TSR RSUs are used as they are an indicator of our performance relative to our US Peer Group; and
•Scorecard LTI is an indicator of each Senior Executive Officer’s contribution to achieving our long-term strategic goals.
Awards issued under the LTI are issued pursuant to the terms of the LTIP. During fiscal year 2021, our Senior Executive Officers were granted the following awards under the LTIP:
| ROCE RSUs | TSR RSUs | Scorecard LTI Units | |||||||||
| J Truong | 82,131 | 127,083 | 246,394 | ||||||||
| J Miele | 10,636 | 16,457 | 31,907 | ||||||||
| S Gadd | 18,908 | 29,256 | 56,724 | ||||||||
| J Blasko | 11,817 | 18,285 | 35,452 | ||||||||
| R Kilcullen | 9,454 | 14,628 | 28,362 | ||||||||
RSUs issued under our LTI programs will be settled upon vesting in CHESS Units of Foreign Securities ("CUFS") on a 1-to-1 basis. Unless the context indicates otherwise, when we refer to our common stock, we are referring to the shares of our common stock that are represented by CUFS.
ROCE RSUs (25% of target LTI for Fiscal Years 2021-2023)
The Remuneration Committee introduced ROCE RSUs in fiscal year 2013 because the US housing market had stabilized to an extent which permitted the setting of multi-year financial metrics. The Remuneration Committee believes ROCE RSUs remain an appropriate component of the LTI Plan because they:
•tie the reward’s value to share price which provides alignment with shareholder interests;
•promote that we earn appropriate returns on capital invested;
•reward performance that is under management’s direct influence and control; and focus management on capital efficiency as the necessary precondition for the creation of additional shareholder value;
Consistent with recent prior years, the maximum payout for the ROCE RSUs is 2.0x target LTI. ROCE is determined by dividing Adjusted EBIT by Adjusted Capital Employed2. The ROCE hurdles will be indexed for changes to US and Asia Pacific addressable housing starts. The resulting Adjusted Capital Employed for each quarter of any fiscal year will be averaged to better reflect Capital Employed through a year rather than at a single point in time.
ROCE hurdles for the ROCE RSUs are based on historical results and take into account the US housing market and better optimization of our manufacturing plants. The three-year average ROCE for fiscal years 2018, 2019 and 2020 was 33.8%.
The hurdles for ROCE RSUs granted in fiscal year 2021 (for performance in fiscal years 2021 to 2023) remained the same as those granted in fiscal year 2019 and 2020 as follows:
| Fiscal Years 2021-2023 ROCE | Amount of Target to Vest | ||||||||||
| < 24.0% | 0.0x | ||||||||||
| ≥ 24.0%, but < 26.0% | 0.5x | ||||||||||
| ≥ 26.0%, but < 27.5% | 1.0x | ||||||||||
| ≥ 27.5%, but < 28.5% | 1.5x | ||||||||||
| > 28.5% | 2.0x | ||||||||||
At the conclusion of this three-year performance period, the Remuneration Committee will review management’s performance based on the quality of the returns balanced against management’s delivery of market share growth and performance against the Scorecard. Following this review, the Remuneration Committee can exercise negative discretion to reduce the number of shares received on vesting of the ROCE RSUs. This discretion can only be applied to reduce the number of shares which will vest.
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2 For purposes of ROCE RSU vesting, “Adjusted EBIT” and “Adjusted Capital Employed” will be calculated as follows:
“Adjusted EBIT” will be calculated as (i) EBIT as reported in our financial results; adjusted by (ii) excluding the earnings impact of legacy issues (such as asbestos adjustments); and (iii) adding back asset impairment charges in the relevant period, unless otherwise determined by the Remuneration Committee.
“Adjusted Capital Employed” will be calculated as Total Assets minus Current Liabilities as reported in our financial results; adjusted by: (i) excluding balance sheet items related to legacy issues (such as asbestos adjustments), dividends payable and deferred taxes; (ii) adding back asset impairment charges in the relevant period, unless otherwise determined by the Remuneration Committee; (iii) adding back leasehold assets for manufacturing facilities and other material leased assets; and (iv) deducting all greenfield construction-in-progress, and any brownfield construction-in-progress projects involving capacity expansion that are individually greater than US$20 million, until such assets reach commercial production and are transferred to the fixed asset register
ROCE RSUs Vesting in Fiscal Year 2021 (for Fiscal Years 2019-2021)
As a component of the fiscal year 2019 LTI Plan, we granted ROCE RSUs in August 2018. The ROCE RSUs comprised 25% of each Senior Executive Officer’s LTI target and were granted assuming 2.0x target. Vesting of the ROCE RSUs is dependent on the average ROCE performance for fiscal years 2019-2021 and is subject to the Remuneration Committee’s negative discretion based on its judgment regarding the quality of returns balanced against management’s delivery of market share growth. The ROCE performance hurdles for this grant were approved as follows:
| ROCE Performance Level | Amount of Target to Vest | ||||||||||
| < 24.0% | 0.0x | ||||||||||
| ≥ 24.0%, but < 26.0% | 0.5x | ||||||||||
| ≥ 26.0%, but < 27.5% | 1.0x | ||||||||||
| ≥ 27.5%, but < 28.5% | 1.5x | ||||||||||
| ≥ 28.5% | 2.0x | ||||||||||
Based on the average ROCE result for fiscal years 2019-2021 of 33.0%, 2.0x target of the ROCE RSUs granted will vest on August 17, 2021.
Relative TSR RSUs (25% of target LTI for Fiscal Years 2021-2023)
The Remuneration Committee believes that Relative TSR RSUs continue to be an appropriate component of the LTI Plan because they provide alignment with shareholders. Even if macro-economic conditions create substantial shareholder value, Senior Executive Officers will only receive payouts if the TSR of our shares exceeds a specified percentage of our Peer Group over a performance period.
Relative TSR RSUs have been a component of our LTI since fiscal year 2009. Consistent with recent prior years, the maximum payout for Relative TSR RSUs granted in fiscal year 2021 is 2.0x target LTI.
Relative TSR measures changes in our share price and the share prices of our Peer Group; and assumes all dividends and capital returns are reinvested when paid. For fiscal year 2021, our relative TSR performance will be measured against the Peer Group over a three-year performance period from grant date, with no re-testing. To eliminate the impact of short-term share price changes, the starting point and test date are measured using a 20 trading-day average closing price. Relative TSR RSUs will vest based on the following straight-line schedule:
| Performance against Peer Group | Amount of Target to Vest | ||||||||||
| < 40th Percentile | 0.0x | ||||||||||
| 40th Percentile | 0.5x | ||||||||||
| > 40th, but < 60th Percentile | Sliding Scale | ||||||||||
| 60th Percentile | 1.0x | ||||||||||
| > 60th, but < 80th Percentile | Sliding Scale | ||||||||||
| ≥ 80th Percentile | 2.0x | ||||||||||
The Remuneration Committee will continue to monitor the design of the Relative TSR RSU component of the LTI Plan for Senior Executive Officers with the aim of balancing investor preferences with the ability to motivate and retain Senior Executive Officers.
TSR RSUs Vested in Fiscal Year 2021
TSR RSUs Vested for Fiscal Years 2018-2020
As part of the fiscal year 2018 LTI Plan, in August 2017 we granted three-year Relative TSR RSUs to senior executives. Vesting of these Relative TSR RSUs was dependent on our TSR performance relative to the Peer Group in place at that time, based on the following schedule:
| Performance against Peer Group | Amount of Target to Vest | ||||||||||
| < 40th Percentile | 0.0x | ||||||||||
| 40th Percentile | 0.5x | ||||||||||
| > 40th, but < 60th Percentile | Sliding Scale | ||||||||||
| 60th Percentile | 1.0x | ||||||||||
| > 60th, but < 80th Percentile | Sliding Scale | ||||||||||
| ≥ 80th Percentile | 2.0x | ||||||||||
In August 2020, the first and only test of Relative TSR performance was completed, resulting in our TSR performance at the 80.9 percentile of the Peer Group in place at that time. As a result, 2.0x of target outstanding Relative TSR RSUs vested.
TSR RSUs Vested for Fiscal Years 2017-2019
In addition, the second test of the FY17 TSR RSUs was completed, resulting in our TSR performance at the 61.9 percentile of the Peer Group and as a result an additional .2875x of target vested. On 16 March 2021, the final test was completed resulting in TSR performance at the 76.1 percentile of the Peer Group and as a result .355x of target vested and the balance were cancelled.
Scorecard LTI (50% of target LTI for Fiscal Years 2021-2023)
Scorecard LTI has been a component of our LTI Plan since fiscal year 2010. Each year, the Remuneration Committee approves a number of key management objectives and the results it expects to see achieved in relation to these objectives. These objectives are incorporated into that year’s grant of Scorecard LTI. At the end of the three-year performance period, the Remuneration Committee assesses our Senior Executive Officers’ collective performance on each key objective and each individual Senior Executive Officer’s contribution to those achievements and the Board reviews this assessment. Senior Executive Officers may receive different ratings depending on the contribution they have made during the three-year performance period. Although most of the objectives in the Scorecard have quantitative targets, we consider some of the targets to be commercial-in-confidence. Consistent since fiscal year 2010, the maximum payout for Scorecard LTI is 3.0x target LTI.
The Remuneration Committee believes that the Scorecard LTI continues to be an appropriate component of its LTI Plan because it:
•allows the Remuneration Committee to set targets for and reward executives on a balance of longer-term financial, strategic, business, customer and organizational development goals which it believes are important contributors to long-term creation of shareholder value;
•ties the reward’s value to our share price over the medium-term; and
•allows flexibility to apply rewards across different countries, while providing Senior Executive Officers with liquidity to pay tax or other material commitments at a time that coincides with vesting of shares (via the other components of the LTI Plan), as payment is in cash.
No specific weighting is applied to any single objective and the final Scorecard assessment reflects an element of judgment by the Board. The Board may only exercise negative discretion (i.e., to reduce the amount of Scorecard LTI that will ultimately vest). It cannot enhance the maximum reward that can be received.
The amount received by Senior Executive Officers is based on both our share price performance over the three-year performance period and the Senior Executive Officer’s Scorecard rating. At the start of the three-year performance period, we calculate the number of units each Senior Executive Officer could have acquired if they received a maximum payout on the Scorecard LTI at that time (based on a 20 trading-day average closing price). Depending on the Senior Executive Officer’s performance, between 0.0x and 3.0x of the Senior Executive Officer’s Scorecard LTI awards will vest at the end of the three-year performance period. Each Senior Executive Officer will receive a cash payment based on our share price at the end of the period (based on a 20 trading-day average closing price) multiplied by the number of units they could have acquired at the start of the performance period, adjusted downward in accordance with their Scorecard rating.
Further details related to the Scorecard for fiscal year 2021, including the method of measurement, historical performance against the proposed measures and the Board of Director’s expectations, were previously set out in our Remuneration Report for fiscal year 2021. An assessment of our Scorecard performance for fiscal years 2019-2021 is set out below. We will provide an explanation of the final assessment of performance under the Scorecard for fiscal years 2021-2023 at the conclusion of fiscal year 2023.
Scorecard LTI Vesting in Fiscal Year 2021 (for Fiscal Years 2019-2021)
After fiscal year 2021, the Remuneration Committee reviewed our performance over fiscal years 2019-2021 against the Scorecard objectives set forth in fiscal year 2019, and the contribution of individual Senior Executive Officers towards the achievement of such objectives. As a result of this evaluation, the Remuneration Committee determined that Senior Executive Officers would receive a weighted average Scorecard rating between 0.75x and 3.0x of target.
| Performance Measure/Rationale | Performance Metric/Results | Board Assessment for the Three-year Period | ||||||
Grow market share in all our businesses and geographies A key strategy for the Company is to maximize its market share growth/retention of the exterior cladding market for new housing starts and for repair & remodel markets. | Goal: NA Primary Demand Growth ("PDG") above market, EBIT Margin, EBIT Growth. Result: Recognized significant growth in NA exteriors over the three-year period with FY2021 PDG of +9%.. In addition, EBIT Margin for FY21 was 28.8% with EBIT Growth of 25%. | Performance exceeded expectations | ||||||
People Continue to invest in the development and promotion of our people and reduce turnover. | Goal: Continued focus on turnover, driving the North American turnover to below 15% by the end of the three year period. Execute a successful succession plan. Successful recruitment, hiring and onboarding of business leaders and development of bench strength. Result: Succession plan successfully executed resulting in appointment of Dr Jack Truong as CEO on 31 January 2019. Significant improvements in the hiring of key talent at the executive level. Average total annual turnover decreased from 19.7% to 8.6% during the 3-year period and exceeded the turnover target. Demonstrated improvement in the critical areas of leadership behaviors and cultural change. | Performance exceeded expectations | ||||||
| Performance Measure/Rationale | Performance Metric/Results | Board Assessment for the Three-year Period | ||||||
Safety — Zero Harm The safety of our employees is an essential objective of the Company. | Goal: The safety of all employees is an essential objective of the company. Zero Harm (zero fatalities) and implement a housekeeping, facility maintenance and safety management system in our plants globally. Result: Implemented Zero Harm strategy during the three year period. Implemented the Hardie Maintenance and Operating System (HMOS) in all plants in Australia, NA during FY2020 and Europe in FY2021 with great success resulting in more engaged employees, decreased employee turnover and safer more efficient manufacturing processes. | Performance exceeded expectations | ||||||
Hardie Advantage Manufacturing Adequate capacity, and effective machine utilization, product quality, and service are critical to delivering future growth and optimizing returns through a more efficient manufacturing network. | Goal: First pass quality and service as well as sheet machine Pcl/Pdl metrics for sheet machine. Reduce unit costs by 3% indexed for mix and PPV. Result: Implemented HMOS in all plants in NA, Australia and Europe. Realized savings through Lean in North America of $51.5M since implementing in Q4 FY19. Unit cost was reduced by approximately 7% from FY19. | Performance exceeded expectations | ||||||
International: APAC and Europe Pursue organic growth in all international markets. | Goal: James Hardie Australia ("JHA") growth above market of 3.5% while maintaining category share. James Hardie New Zealand ("JHNZ") annual growth above market of 3.5% while maintaining category share. Growth of Scyon product line and introduction of new products in APAC over the three-year period. James Hardie Europe ("JHEU") was to successfully integrate, grow the Fermacell business and develop a business plan to manufacture fiber cement products that meet European market needs. Result: JHA average annual growth has not met expectation. Category share has been retained. Scyon revenue growth on average increased 7.7% share, which exceeded three-year goals. JHNZ did not perform well in FY2020 and rebounded in FY2021 with a PDG of 6.3% compared to -10.5% in FY2020. JHEU: Successful acquisition of Fermacell in FY2018 with the transition completed in FY2019. Fiber Cement sales increased since FY2018 on average 16% annually. | Performance met expectations | ||||||
CHANGES TO REMUNERATION FOR FISCAL YEAR 2021
Remuneration for Fiscal Year 2022
During May 2021, the Board, with the assistance of the Remuneration Committee and its independent remuneration advisers, undertook its annual review of our existing remuneration policies, programs and arrangements and determined to implement certain changes for fiscal year 2022.
CEO Compensation
For fiscal year 2022, the CEO’s base salary will be increased 11% to US$1,000,000, which will bring base salary closer to the market median of the peer group. In addition, Dr Truong’s LTI target will be increased to US$5,750,000 for FY2022.
Other Senior Executive Officer Compensation
Base pay, target STI and LTI increases in fiscal year 2022 for the CEO and other Senior Executive Officers are as follows:
| Base Salary | Target STI | LTI Target | ||||||||||||||||||
| Name | Fiscal Year 2021 (US$) | Fiscal Year 2022 (US$) | Fiscal Year 2021 (US$) | Fiscal Year 2022 (US$) | Fiscal Year 2021 (US$) | Fiscal Year 2022 (US$) | ||||||||||||||
| J Truong | 900,000 | 1,000,000 | 125% | 125% | 3,475,000 | 5,750,000 | ||||||||||||||
| J Miele | 416,000 | 500,000 | 60% | 60% | 450,000 | 600,000 | ||||||||||||||
| S Gadd | 577,830 | 577,830 | 60% | 60% | 800,000 | 800,000 | ||||||||||||||
| J Blasko | 459,900 | 471,398 | 60% | 60% | 500,000 | 500,000 | ||||||||||||||
| R Kilcullen | 380,544 | 380,544 | 60% | 60% | 400,000 | 300,000 | ||||||||||||||
Mr Miele is receiving a merit increase of 5% in addition to a market increase in his base salary to bring base salary closer to the median of the peer group of other CFOs. In addition, Mr Miele is receiving an increase in his LTI target since he is currently below the 25th percentile of the peer group. Mr Kilcullen's LTI target is being reduced to be closer to the market median as well; otherwise, there are no other target LTI changes for the Senior Executive Officers for fiscal year 2022. Base salary increases, if any, are made in line with our annual compensation review guidelines and were adjusted as required to maintain positioning relative to market merit increase levels.
STI Plans
For fiscal year 2022, the plan design will continue to be the same as fiscal year 2021. We will continue to measure both Growth and Returns when assessing Company performance and shareholder value creation. We will continue to use the same the plan metrics, and continue to strengthen the connection between consistent revenue growth and strong returns. As in FY2021, the metrics for all regions (North America, Asia Pacific and Europe) will be a net revenue measure (Growth) and a profit measure (Returns). The metrics are each set with a threshold, target and maximum payout scale. The metrics and scales will incentivize exceptional company performance in a unpredictable market, both net revenue AND profitability must be achieved together to derive a payout within the payout scale, reinforcing shareholder value creation. The maximum payout will be 3.0x of target.
For fiscal year 2022, Messrs Gadd and Kilcullen will continue to be tied to the NA multiple. For executives with global responsibility (Dr Truong and Messrs Miele and Blasko), their STI will be based on the metrics for North America and the net income of the Company.
There will be no material change to the operation of the IP or CP Plans for fiscal year 2022.
LTI Plan
The Remuneration Committee believes the three components of the LTI Plan continue to (i) align management objectives with shareholder interests (Relative TSR RSU component), (ii) promote the appropriate internal management behaviors related to operating efficiency and the profitability of the Company's assets (ROCE RSU component), and (iii) emphasize strategic long-term priorities (Scorecard LTI component). As such, the fiscal year 2022 LTI Plan is consistent with the plan for fiscal year 2021 with updates to ROCE target measures and the Scorecard objectives.
The 2021 Notice of AGM will contain further details on the Relative TSR RSU and ROCE RSU grants for fiscal year 2022.
For fiscal year 2022, the Remuneration Committee has set the following eight Scorecard goals for each region (for the performance period in fiscal years 2022 to 2024) to ensure alignment with our strategic priorities:
| APAC | Europe | North America | |||||||||
| Organic revenue growth | 11%+ | 6%+ | 11%+ | ||||||||
| High Value Product Mix | FY22 38%; FY23 42%; FY24 44% | FY22 39%; FY23 41%; FY24 43% | FY22 66%; FY23 67%; FY24 68% | ||||||||
| Lean - Cumulative over 3 Years (FY22 – 24) | USD $78M vs FY19 Base | USD $63M vs FY19 Base | USD $200M vs FY19 Base | ||||||||
| EBIT Margin | 25% - 30% | 11% - 16% | 25% - 30% | ||||||||
| Zero Harm | •Empower all employees to be Zero Harm Leaders •Execute on the critical ZH priorities thru ZH culture shift •DART rate: FY22 = 0.07; FY23=0.06; FY24= 0.05 | •Empower all employees to be Zero Harm leaders •Execute on the critical ZH priorities thru ZH culture shift •DART Rate: FY22=0.55; FY23=0.44; FY24=0.35 | •Empower all employees to be Zero Harm leaders •Execute on the critical ZH priorities thru ZH culture shift •DART rate: FY22=0.51; FY23=0.41; FY24=0.33 | ||||||||
| Innovation | •Commercial-in-confidence metrics for products and process efficiencies | •Commercial-in-confidence metrics for products and process efficiencies | •Commercial-in-confidence metrics for products and process efficiencies | ||||||||
| People & Culture | •Turnover: <11% •Enhance leadership capabilities in targeted areas •Talent and Performance Management •Execute region deliverables for I&D strategy to attract, develop and retain diverse talent •Diversity Target: Maintain or enhance gender diversity Sr. Leadership, grow to 20% or more all mgmt. positions and 20% or more in total workforce. | •Turnover: <7.5% •Enhance leadership capabilities in targeted areas •Talent and Performance Management •Execute region deliverables for I&D strategy to attract, develop and retain diverse talent •Diversity Target: Enhance gender diversity Sr. Leadership, grow to 20% or more all mgmt. positions and 17% or more in total workforce. | •Turnover: <11% •Enhance leadership capabilities in targeted areas •Talent and Performance Management •Execute region deliverables for I&D strategy to attract, develop and retain diverse talent •Diversity Target: 20% or more female representation in Mgmt & Sr. Leadership roles and 14% or more in total workforce; 45% or more total employee population with diverse characteristics. | ||||||||
| Environment, Social & Governance ("ESG") | FY22: •FY22 ESG Report shows improvement across areas management flagged in FY21 report •Receive zero negative shareholder votes across any resolution whereby the shareholder notes the vote was due to lack of clarity on ESG initiatives FY23: •Strengthen CDP disclosures with TCFD recommendations •Refresh materiality assessment with expanded stakeholder groups •FY23 ESG Report shows improvement across areas reported on FY24: •Improved CDP reporting with progress towards goals •Expanded Task Force for Climate Change Disclosure (TFCD) reporting •FY24 reporting shows improvement & PDCA as required based on stakeholder feedback | ||||||||||
OTHER EXECUTIVE COMPENSATION PRACTICES
Clawback Provisions
The Remuneration Committee has established an executive performance-based compensation clawback policy in connection with performance-based compensation paid or awarded to certain executives. The clawback policy provides that the Board may, in all appropriate circumstances, recover from any current or former executive regardless of fault, that portion of any performance-based compensation erroneously awarded: (i) based on financial information required to be reported under applicable US or Australian securities laws or applicable exchange listing standards that would not have been paid in the three completed fiscal years preceding the year(s) in which an accounting restatement is required to correct a material error; or (ii) during the previous three completed fiscal years as a result of any errors or omissions in objective, calculable performance measures contained in formal papers presented to and relied upon by the Board for purposes of determining compensation to be paid or awarded, where the absence of such errors or omissions would have resulted in there being a material negative impact on the amount of performance-based compensation paid or awarded.
The clawback policy applies to any person designated as a participant by the Board in the annual LTI Plan and applies to any compensation that is granted, earned or vested based wholly or in part upon the attainment of any financial or other objective, calculable performance measure under any incentive, bonus, retirement or equity compensation plan maintained by the Company, including, without limitation, the STI Plan and LTI Plan. Salaries, discretionary bonuses, time-based equity awards and bonuses or equity awards based on subjective, non-financial measures, including strategic or personal performance metrics, are excluded.
The excess compensation requiring recovery shall be the amount of performance-based compensation that an executive received, based on the erroneous data, less the amount that would have been paid to the executive based on the restated or corrected data. All recoverable amounts shall be calculated on a pre-tax basis. For equity awards still held at the time of the recovery, the recoverable amount shall be the amount vested in excess of the number that should have vested under the restated or corrected financial reporting measure. For vested equity awards which have already been sold, the recoverable amount shall be the sale proceeds the executive received with respect to the excess number of shares.
In addition, all fiscal year 2021 LTI grants made to Dr Truong and Messrs Miele, Gadd, Blasko and Kilcullen are subject to a specific clawback provision for violation of a limited non-compete provision that specifically prohibits executives from working for designated competitors or for any company that may enter the fiber cement market within two years of departure. For fiscal year 2022, all LTI grants made to Senior Executive Officers will be subject to the clawback provision.
Stock Ownership Guidelines
The Remuneration Committee believes that Senior Executive Officers should hold a meaningful level of our stock to further align their interests with those of our shareholders. We have adopted stock ownership guidelines for the CEO and other Senior Executive Officers, respectively, which require them to accumulate holdings of three times and one times their base salary, respectively, in our stock over a period of five years from the effective date of the guidelines (1 April 2009) or the date the Senior Executive Officer first becomes subject to the applicable guideline.
Until the stock ownership guidelines have been met, Senior Executive Officers are required to retain at least 75% of shares obtained under our LTI Plans (net of taxes and other costs). Once Senior Executive Officers have met or exceeded their stock ownership guidelines, they are required to retain at least 25%
of shares issued under our LTI Plans through the vesting of RSUs (net of taxes and other costs) for a period of two years (by way of a holding lock), after which time those shares can be sold (provided the Senior Executive Officer remains at or above the stock ownership guideline).
As of 31 March 2021, all Senior Executive Officers have either achieved the minimum share ownership threshold or are within the initial five year accumulation period.
Equity Award Practices
The FY2022 annual equity awards under the LTI Plan were approved by the Remuneration Committee in May with awards generally issued in August of each year. We do not time the granting of equity awards to the disclosure of material information.
For details of the application of our insider-trading policy for equity award grant participants, including our prohibition on employee hedging transactions, see the “Insider Trading” section of this Annual Report.
Loans
We did not grant loans to Senior Executive Officers during fiscal year 2021. There are no loans outstanding to Senior Executive Officers.
Employment and Severance Arrangements
During fiscal year 2021, we maintained employment or severance agreements with Dr Truong and each of Messrs Gadd and Miele. Other than as provided under the terms of their respective employment agreements, no other termination payments are payable, except as required under the terms of the applicable STI or LTI plans.
Employment Agreement with Dr Jack Truong
Below is a summary of the key terms of Dr Truong’s current employment agreement:
•The Employment Agreement is effective 31 January 2019 providing for service as CEO.
•Dr Truong is an employee-at-will and either he or the Company may terminate his employment at any time or for any reason.
•Base salary at an initial annual rate of US$800,000, subject to annual review and approval by the Remuneration Committee.
•Participation in the Company’s annual STI and LTI Plans, with a minimum STI target of 100% of his annual base salary, as established by the Company’s Board.
•Participation in the Company’s benefit, health and welfare plans and certain fringe benefits made generally available to Senior Executive Officers in accordance with his agreement and Company policies.
•In the event that Dr Truong’s employment is terminated by the Company for any reason other than for “Cause”, or if Dr Truong voluntarily terminates his employment for “Good Reason”, in addition to those benefits that would be considered standard for any employee at termination (i.e., unpaid base salary, accrued vacation, unreimbursed business expenses and the payment of any earned but unpaid annual incentive award) Dr Truong will be entitled to receive the following benefits:
◦An aggregate amount equal to the sum of: (i) two times Dr Truong’s base salary plus (ii) two times Dr Truong’s target annual incentive, payable in substantially equal periodic installments over the two year period following the date of termination;
◦An amount, if any, with respect to the annual incentive award opportunity for the fiscal year in which termination of employment occurs, as determined under the terms and conditions of annual incentive program(s) then in-effect;
◦All outstanding equity awards will be subject to the terms and conditions of the applicable equity incentive plan and any corresponding award agreement(s); provided, however, that (i) if the date of termination occurs prior to 21 August 2022, any service-based vesting criteria on the long-term incentive awards granted to Dr Truong on 21 August 2017 that were designated as retention awards will be deemed satisfied in full (but any performance criteria then still applicable to those awards will remain in effect);
◦Monthly payments for a period of up to 24 months following the date of termination equal to the premium Dr Truong would be required to pay for continuing coverage under the Company’s health benefit plans; and
◦Reasonable professional outplacement services for a period of up to 24 months following the date of termination.
Offer of Employment with Jason Miele
Below is a summary of the key terms provided in Mr Miele's Offer of Employment, which was entered into in conjunction with his promotion to Senior Vice President, Chief Financial Officer effective 25 February 2020:
•Mr Miele is an employee-at-will and either he or the Company may terminate his employment at any time or any reason.
•Base salary at an initial annual rate of US$400,000, subject to annual review and approval by the Remuneration Committee.
•Participation in the Company’s annual STI and LTI Plans, with a STI target of 60% of his annual base salary.
•Participation in the Company’s benefit, health and welfare plans and certain fringe benefits made generally available to Senior Executive Officers in accordance with his agreement and Company policies.
•In the event that Mr Miele is terminated by the Company without "Cause" or terminated by Mr Miele for "Good Reason", in addition to those benefits that would be considered standard for any employee at termination (i.e., unpaid base salary, accrued vacation, unreimbursed business expenses and the payment of any earned but unpaid annual incentive award) Mr Miele will be entitled to receive the following benefits:
◦Salary continuation for the one year period following the date of termination, provided the aggregate amount of such continuation payments shall be equal to the sum of (i) one times the base salary plus (ii) one times the annual incentive award opportunity, as then in-effect;
◦All outstanding equity awards under the Company's equity incentive plans will be subject to the terms and conditions of the applicable plan and any corresponding award agreement(s);
◦Monthly payments for a period of 12 months following the date of termination equal to the premium Mr Miele would be required to pay for continuing coverage under the Company’s health benefit plans; and
◦Reasonable professional outplacement services for a period of up to 12 months following the date of termination.
Severance Agreement with Sean Gadd
During fiscal year 2019, we entered into a severance agreement with Mr Gadd in order to provide him with certain severance benefits under various termination scenarios. In the event of termination by the Company without cause or by the executive for good reason or death and disability, these benefits would be in addition to what would be considered standard for any employee at termination (i.e., lump sum unpaid base salary, accrued vacation, unreimbursed business expenses and the payment of any earned but unpaid annual incentive award) and would include: (i) salary continuation for one and one-half years provided the aggregate amount of such payments is equal to the sum of (a) one and one-half times the executive’s base salary, plus (b) one times the executive’s annual incentive opportunity, as then in effect; (ii) monthly payments for a period of 18 months following termination equal to the premium the executive would be required to pay for COBRA continuation coverage under the Company’s health benefit plans based on the level of coverage the executive has immediately prior to termination. Executive is not required to purchase COBRA continuation coverage or use these payments towards any payment of applicable premiums for COBRA continuation coverage; and (iii) reasonable outplacement services through a provider of the Company’s choice. Services terminate when the executive finds other employment and may not continue for more than 12 months following termination.
REMUNERATION PAID TO SENIOR EXECUTIVE OFFICERS
Total Remuneration for Senior Executive Officers
Details of the remuneration for Senior Executive Officers in fiscal years 2021, 2020 and 2019 are set out below:
| (US dollars) | Primary | Post- employment | Equity Awards | Other | TOTAL | ||||||||||||||||||||||||||||||||||||||||||
| Name | Base Pay1 | STI Award | |||||||||||||||||||||||||||||||||||||||||||||