Table of Contents




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
☐  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended 31 March 2018
OR
☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
For the transition period from       to
Commission file number 1-15240
JAMES HARDIE INDUSTRIES plc
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
Ireland
(Jurisdiction of incorporation or organization)
Europa House, Second Floor
Harcourt Centre
Harcourt Street, Dublin 2, Ireland
(Address of principal executive offices)
Natasha Mercer
Corporate Secretary
(Contact name)
353 1411 6924 (Telephone)                 353 1479 1128 (Facsimile)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 

Table of Contents


Title of each class:
 
Name of each exchange on which registered:
Common stock, represented by CHESS Units of Foreign Securities
 
New York Stock Exchange*
CHESS Units of Foreign Securities
 
New York Stock Exchange*
American Depositary Shares, each representing one unit of CHESS Units of Foreign Securities
 
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:
441,524,118 shares of common stock at 31 March 2018
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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):

Large accelerated filer
 
☒
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 which basis of accounting the registrant has used to prepare the financial statements included in this filing:

Table of Contents


US GAAP
 
☒
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


logo.jpg


2018
ANNUAL REPORT
ON FORM 20-F


 
Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
i
 
 

TABLE OF CONTENTS
 
Page(s)
 
 



Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
ii
 
 

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. Selected Financial Data
1-3
B. Capitalization and Indebtedness
Not applicable
C. Reasons for the Offer and Use of Proceeds
Not applicable
D. Risk Factors
159-175
Item 4. Information on the Company
 
A. History and Development of the Company
4-5; 16-17
B. Business Overview
6-13
C. Organizational Structure
5;13
D. Property, Plants and Equipment
14-17; 109
Item 4A. Unresolved Staff Comments
None
Item 5. Operating and Financial Review and Prospects
 
A. Operating Results
92-106
B. Liquidity and Capital Resources
106-110
C. Research and Development, Patents and Licenses, etc.
11-12
D. Trend Information
110-111
E. Off-Balance Sheet Arrangements
111
F. Tabular Disclosure of Contractual Obligations
111-112
G. Safe Harbor
86-87
Item 6. Directors, Senior Management and Employees
 
A. Directors and Senior Management
18-28
B. Compensation
29-67
C. Board Practices
23-28; 68-85
D. Employees
180
E. Share Ownership
59-60; 63-67
Item 7. Major Shareholders and Related Party Transactions
 
A. Major Shareholders
203-205
B. Related Party Transactions
77
C. Interests of Experts and Counsel
Not Applicable
Item 8. Financial Information
 
A. Consolidated Statements and Other Financial Information
113-157; 188-189
B. Significant Changes
None
Item 9. The Offer and Listing
 
A. Offer and Listing Details
180-183
B. Plan of Distribution
Not Applicable
C. Markets
181-182
D. Selling Shareholders
Not Applicable
 
 


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
iii
 
 

PART 1 (continued)
 
E. Dilution
Not Applicable
F. Expenses of the Issue
Not Applicable
Item 10. Additional Information
 
A. Share Capital
Not Applicable
B. Memorandum and Articles of Association
184-191
C. Material Contracts
191
D. Exchange Controls
191-192
E. Taxation
192-198
F. Dividends and Paying Agents
Not Applicable
G. Statement by Experts
Not Applicable
H. Documents on Display
199
I. Subsidiary Information
Not Applicable
Item 11. Quantitative and Qualitative Disclosures About Market Risk
200-202
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
182-183
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
178-179
Item 16A. Audit Committee Financial Expert
80
Item 16B. Code of Ethics
78-79
Item 16C. Principal Accountant Fees and Services
158
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
68-85
Item 16H. Mine Safety Disclosures
15-16
PART III
 
Item 17. Financial Statements
Not Applicable
Item 18. Financial Statements
113-157
Item 19. Exhibits
210-214



Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
1
 
 

SECTION 1
INTRODUCTION
James Hardie Industries plc is a world leader in the manufacture of fiber cement siding and backerboard. Our products are used in a number of markets, including new residential construction (single and multi-family housing), manufactured housing, repair and remodeling and a variety of commercial and industrial applications. We manufacture numerous types of fiber cement products with a variety of patterned profiles and surface finishes for a range of applications, including external siding and trim and soffit lining, internal linings, facades and floor and tile underlay. Our current primary geographic markets include the United States of America (“US,” “USA” or the “United States”), Canada, Australia, New Zealand, the Philippines and Europe.
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, see “Section 2 – Reading this Report.” In addition, this Annual Report contains statements that constitute “forward-looking statements.” For 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; and the term “A$” refers to Australian dollars.
 
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.
SELECTED FINANCIAL DATA
We have included in this Annual Report the audited consolidated financial statements of the Company, consisting of our consolidated balance sheets as of 31 March 2018 and 2017, and our consolidated statements of operations and comprehensive income, cash flows and changes in shareholders’ deficit for each of the years ended 31 March 2018, 2017 and 2016, together with the related notes thereto. The consolidated financial statements included in this Annual Report have been prepared in accordance with accounting principles generally accepted in the US (“US GAAP”).
The selected consolidated financial information, summarized below for the five most recent fiscal years has been derived in part from the Company’s consolidated financial statements. You should read the selected consolidated financial information in conjunction with the Company’s consolidated financial statements and related notes contained in “Section 2 – Consolidated Financial Statements” and with the information provided in “Section 2 – Management’s Discussion and Analysis.” Historic financial data is not necessarily indicative of our future results and you should not unduly rely on it.
 


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
2
 
 

 
 
(Millions of US dollars)
Consolidated Statement of Operations Data
 
2018
 
2017
 
2016
 
2015
 
2014
Net sales
 
$
2,054.5

 
$
1,921.6

 
$
1,728.2

 
$
1,656.9

 
$
1,493.8

Income from operations1
 
146.1

 
276.5

 
244.4

 
291.3

 
99.5

Net income1
 
$
146.1

 
$
276.5

 
$
244.4

 
$
291.3

 
$
99.5

 
 
 
 
 
 
 
 
 
 
 
 
 
(Millions of US dollars)
Consolidated Balance Sheet Data
 
2018
 
2017
 
2016
 
2015
 
2014
Total assets
 
$
2,351.0

 
$
2,012.7

 
$
2,029.4

 
$
2,036.4

 
$
2,104.0

Net assets
 
(221.5
)
 
(212.2
)
 
(225.2
)
 
(202.6
)
 
(199.0
)
Common stock
 
$
229.5

 
$
229.1

 
$
231.4

 
$
231.2

 
$
230.6

 
 
 
 
 
 
 
 
 
 
 
 
 
(Millions)
Shares
 
2018
 
2017
 
2016
 
2015
 
2014
Basic weighted average number of common shares
 
441.2

 
442.7

 
445.3

 
445.0

 
442.6

Diluted weighted average number of common shares
 
442.3

 
443.9

 
447.2

 
446.4

 
444.6

 
 
 
 
 
 
 
 
 
 
 
 
 
(US dollar)
Earnings Per Share
 
2018
 
2017
 
2016
 
2015
 
2014
Income from operations per common share – basic
 
$
0.33

 
$
0.62

 
$
0.55

 
$
0.65

 
$
0.22

Net income per common share – basic
 
0.33

 
0.62

 
0.55

 
0.65

 
0.22

Income from operations per common share – diluted
 
0.33

 
0.62

 
0.55

 
0.65

 
0.22

Net income per common share – diluted
 
0.33

 
0.62

 
0.55

 
0.65

 
0.22

Dividends declared per share
 
0.38

 
0.39

 
0.58

 
0.60

 
0.73

Dividends paid per share
 
$
0.38

 
$
0.39

 
$
0.58

 
$
0.88

 
$
0.45

 
Other Financial Data
 
2018
 
2017
 
2016
 
2015
 
2014
Cash Flow (Millions of US dollars)
 
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
 
$
295.0

 
$
292.1

 
$
260.4

 
$
179.5

 
$
322.8

Net cash used in investing activities
 
(200.6
)
 
(109.0
)
 
(66.6
)
 
(277.9
)
 
(118.8
)
Net cash provided by (used in) financing activities
 
$
112.5

 
$
(212.7
)
 
$
(154.4
)
 
$
(4.6
)
 
$
(186.3
)
Volume (million square feet)
 
 
 
 
 
 
 
 
 
 
North America Fiber Cement
 
2,238.8

 
2,215.4

 
1,969.2

 
1,821.5

 
1,672.7

International Fiber Cement 2
 
528.7

 
487.2

 
480.9

 
484.4

 
441.4

International Fiber Cement excluding the Australian Pipes business
 
528.7

 
487.2

 
471.1

 
442.8

 
404.1

Net Sales (Millions of US dollars)
 
 
 
 
 
 
 
 
 
 
North America Fiber Cement
 
$
1,578.1

 
$
1,493.4

 
$
1,335.0

 
$
1,224.7

 
$
1,083.6

International Fiber Cement 2
 
461.7

 
411.8

 
379.4

 
418.4

 
399.2

International Fiber Cement excluding the Australian Pipes business
 
461.7

 
411.8

 
374.3

 
392.3

 
373.1

Other Businesses
 
$
14.7

 
$
16.4

 
$
13.8

 
$
13.8

 
$
11.0



Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
3
 
 


 
 
2018
 
2017
 
2016
 
2015
 
2014
Average sales price per unit (per thousand square feet)
 
 
 
 
 
 
 
 
 
 
North America Fiber Cement
 
$
698

 
$
665

 
$
669

 
$
666

 
$
641

International Fiber Cement 2
 
774

 
775

 
729

 
811

 
846

International Fiber Cement excluding the Australian Pipes business
 
$
774

 
$
775

 
$
734

 
$
829

 
$
859

____________
1
Income from operations and net income include the following: asbestos adjustments, Asbestos Injuries Compensation Fund (“AICF”) selling, general and administrative (“SG&A”) expenses, AICF interest income (expense), loss on early debt extinguishment, Fermacell acquisition costs, non-recurring stamp duty, New Zealand weathertightness claims and related tax adjustments.
 
 
 
(Millions of US dollars)
Other Financial Data
 
2018
 
2017
 
2016
 
2015
 
2014
Asbestos adjustments (expense) benefit
 
$
(156.4
)
 
$
40.4

 
$
5.5

 
$
33.4

 
$
(195.8
)
AICF SG&A expenses
 
(1.9
)
 
(1.5
)
 
(1.7
)
 
(2.5
)
 
(2.1
)
AICF interest income (expense)
 
1.9

 
(1.1
)
 
(0.3
)
 
1.4

 
2.9

Loss on early debt extinguishment
 
(26.1
)
 
—

 
—

 
—

 
—

Fermacell acquisition costs
 
(10.0
)
 
—

 
—

 
—

 
—

Non-recurring stamp duty
 
—

 
—

 
—

 
(4.2
)
 
—

New Zealand weathertightness claims
 
—

 
—

 
(0.5
)
 
4.3

 
(1.8
)
Tax adjustments
 
$
47.3

 
$
(9.9
)
 
$
(1.5
)
 
$
37.5

 
$
99.1


For additional information on asbestos adjustments, AICF SG&A expenses, AICF interest income (expense), loss on early debt extinguishment, Fermacell acquisition costs (related to professional, legal and other fees incurred in conjunction with the acquisition of Fermacell and its subsidiaries) and New Zealand weathertightness, see “Section 2 – Management’s Discussion and Analysis” and Notes 9, 11, 13 and 19 to our consolidated financial statements in Section 2.

2
International Fiber Cement segment includes all fiber cement products manufactured in Australia, New Zealand and the Philippines and sold in Australia, New Zealand, Asia, the Middle East and various Pacific Islands. This segment also includes product manufactured in the United States that is sold in Europe.



Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
4
 
 

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"), 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, Second Floor, Harcourt Centre, Harcourt Street, Dublin 2, Ireland. The telephone number there is +353 1411 6924. Our agent in the United States is CT Corporation. Its office is located at 111 Eight Avenue – 13th Floor, New York, New York 10011. The address of our registered office in Australia is Level 3, 22 Pitt Street, Sydney NSW 2000 and the telephone number there is +61 2 8845 3360. 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. Today, James Hardie is a leading global manufacturer of a wide range of fiber cement building products in each of the United States, Australia, Europe, New Zealand and the Philippines.

Fermacell Acquisition

On 3 April 2018, we announced the completion of our acquisition of 100% of the outstanding stock of German-based XI (DL) Holdings GmbH and its subsidiaries (including, but not limited to, Fermacell GmbH) (collectively, "Fermacell") from Xella International S.A. in an all-cash transaction based on an enterprise value of €473.0 million.

Headquartered in Duisburg, Germany, Fermacell operates six manufacturing plants across Germany, the Netherlands and Spain, with a sales force in 12 countries and revenues generated primarily from countries in Western Europe. Fermacell is a provider of innovative building solutions, producing and distributing high-quality gypsum fiber boards and cement-bonded boards, which are two complementary products in the high performance board space. Fermacell focuses on selling full system solutions into four main segments: (1) timber frame construction; (2) dry lining applications; (3) DIY; and (4) structural fire protection. Fermacell’s products are sold into the residential repair and remodel, commercial and residential new construction markets.



Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
5
 
 

See Note 19 to our consolidated financial statements in Section 2 for additional information about our Fermacell acquisition.
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 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, subject to the operation of an annual cash flow cap, 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 2 to our consolidated financial statements.
Corporate Structure
The following diagram summarizes our corporate structure at 31 March 2018:
orgchart.jpg
At 31 March 2018, James Hardie International Group Limited ("JHIGL") also holds subsidiaries which were created for the subsequent acquisition of Fermacell and its subsidiaries. For further information see “Fermacell Acquisition” discussed above.


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
6
 
 

Business Overview
General Overview of Our Business
We are a world leader in the manufacture of fiber cement siding and backerboard. Based on net sales, we believe we are the largest manufacturer of fiber cement products and systems for internal and external building construction applications in the United States, Australia, New Zealand, and the Philippines. We market our fiber cement products and systems under various Hardie brand names, such as HardiePlank®, HardiePanel®, HardieTrim® and HardieBacker® boards, and other brand names such as Aspyre Collection from James Hardie™, Artisan®, Reveal®, Cemplank®, Scyon®, Ritek® and HardieLinea®.
The breakdown of our net sales by operating segment for each of our last three fiscal years is as follows:
 
 
 
(Millions of US dollars)
  
 
2018
 
2017
 
2016
North America Fiber Cement
 
$
1,578.1

 
$
1,493.4

 
$
1,335.0

International Fiber Cement
 
461.7

 
411.8

 
379.4

Other Businesses
 
14.7

 
16.4

 
13.8

Total Net Sales
 
$
2,054.5

 
$
1,921.6

 
$
1,728.2


Beginning with the first quarter fiscal year 2019 results, the Company intends to include a European Building Products segment in its report of quarterly results. This new segment will include the on-going James Hardie European Fiber Cement business and the newly acquired Fermacell business. The current International Fiber Cement segment will be renamed Asia Pacific Fiber Cement segment and will include our Australia, New Zealand and Philippines businesses.
Products
We manufacture a wide-range of fiber cement building materials for both internal and external use across a broad range of applications, including: external siding, internal walls, floors, ceilings, soffits, trim, fencing, decking and facades. While there are some market specific products, our core products, planks, which are used for external siding, flat panels, which are used for internal and external wall linings, and floor underlayments, are sold across all of the markets in which we operate.
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 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 and the characteristics necessary for effectively accepting paint applications;
•
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;


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
7
 
 

•
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.
Non-Fiber Cement Products
In addition to our portfolio of fiber cement product offerings and the recently acquired Fermacell business, we continue to invest in business development opportunities aligned with our long term strategy, including our fiberglass windows business in North America.
Significant New Products
In the United States, new products released over the last three years include the James Hardie® Insulated Lap Siding and Trim, HardieTrim® 2x board, HardieTrim® NT3® Roughsawn board, HardieTrim® Mouldings, custom colors using our ColorPlus® Technology, and an improved touch-up accessory to support ColorPlus® products. In addition, we also launched the Aspyre Collection from James Hardie™, which brings together the modernity of our Reveal® Panel System (now available with color matching Reveal Surround Trim and Exposed Fasteners in 24 colors) with the traditional profiles of our Artisan® siding products (in addition to V-Groove and lap siding, the range has been expanded to include Bevel Channel, Square channel, Shiplap and Beaded lap). 
In Australia and New Zealand, extensions to the existing Stria® cladding products have been launched to provide Stria® Standard 325mm, Stria® Wide 405mm, Splayed 255mm cladding profiles. Similarly, Axon® cladding has now been extended to provide Axon® Smooth 133mm, Axon® Smooth 400mm, and Axon® Grained 133mm cladding. In addition, the new HardieBrace® online calculator tool, which is available in Australia and New Zealand, offers a way to simplify selection of bracing products. The ease of installation of core product Villaboard® lining has been enhanced with the launch of the VillaboardTM knife.
In Australia, HardieEdge® trim for covering slab edges provides an easy to install solution to unfinished, rough concrete slab edges that would otherwise detract from the appearance of a wall clad with James Hardie products. The HardieDeckTM system continues to provide a major new product offering since its launch in 2015. Modcem® modular flooring has provided an entry into commercial flooring applications. Similarly, Systemboard® cladding provides a niche multi-story construction product application. Acquisition of Building Solutions Pty Ltd, has resulted in the formation of the James Hardie Systems business unit and provided the Australian business with a new product category, the Ritek® permanent formwork walling system, a quality durable wall solution, which expands our product and systems offering into the growing medium to high density construction segment. Additions to the range of building science offerings include HardieWrap®


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
8
 
 

weather barrier, HardieFire® Insulation, HardieBreak® Thermal Strip, as well as the HardieSmart® Boundary, Aged Care, Intertenancy and ZeroLot® Wall Systems. The launch of new wall systems are also supported by the Compliant System® trade mark. The performance of the ZeroLot® wall system is supported by the new Coreshield® protective sealer technology. An improved ZeroLot® wall system, incorporating a thinner 60mm HardieFire® insulation layer and also providing a cavity for running services, while maintaining necessary fire rating performance, has also been launched.
In New Zealand, over the same timeframe, Secura® Interior Flooring, Secura® Exterior Flooring, AxentTM Fascia, HomeRAB® 4.5mm Pre Cladding, Stria® Cladding, Axon® 400 and 133 Grained Cladding, and Linea® Oblique® Cladding have been launched.
In the Philippines, new products released over the past three years include the extension of the established Hardieflex® board range with the inclusion of Hardieflex® Wet Area Walls lining. An improved version of their wall jointing compound has been launched under the HardieFlex® Putty trade mark. A Vented Eaves extension to the Hardieflex® Eaves product is also now available.
The European business continues to provide HardieFloor® Structural Flooring, HardieFloor dB® Structural Acoustic Flooring, and HardieQStrip® Acoustic Battens into the market as part of our Smart Flooring Solutions™ offer.
Principal Markets for Our Products
United States and Canada
In the US and Canada, the largest application for fiber cement building products is in external siding for the residential building industry. The external siding market includes various cladding types, including fiber cement, vinyl, natural wood, OSB, hardboard, brick, stucco and stone. Based on industry estimates, vinyl has the largest share of the US and Canadian siding markets. External siding typically occupies a significant square footage component of the outside of every building. Selection of siding material is based on installed cost, durability, aesthetic appeal, strength, weather resistance, maintenance requirements and cost, insulating properties and other features. Different regions of the US and Canada show a preference amongst siding materials according to economic conditions, weather, materials availability and local preference.
Demand for siding in the US and Canada fluctuates based on the level of new residential housing starts and the repair and remodeling activity of existing homes. The level of activity is generally a function of interest rates and the availability of financing to homeowners to purchase a new home or make improvements to their existing homes, inflation, household income and wage growth, unemployment levels, demographic trends, gross domestic product growth and consumer confidence. The sale of fiber cement products in North America accounts for the largest portion of our net sales, accounting for 77%, 78% and 77% of our total net sales in fiscal years 2018, 2017 and 2016, respectively.
In the US and Canada, competition in the external siding market comes primarily from substitute products, such as natural 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 on our brand and the performance, design and cost advantages of our products.


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
9
 
 

International
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 siding, internal walls, ceilings, floors, soffits, fences and facades. We believe the level of activity in this industry is generally a function of interest rates, inflation, household income and wage growth, unemployment levels, demographic trends, gross domestic product growth and consumer confidence. Demand for fiber cement building products is also affected by the level of new housing starts and renovation activity.

In Australia, competition from imports and two locally based fiber cement manufacturers, has intensified over the past decade. Additionally, we continue to see competition from natural and engineered wood, wallboard, masonry and brick products.
In New Zealand, we continue to see competition intensifying as fiber cement imports have become more cost competitive and overseas manufacturers look to supplement their primary operating environments with additional markets.
In the Philippines, we have seen fiber cement gain broader acceptance across a range of product applications in the last decade, leading to additional fiber cement products entering the market. We see fiber cement having long-term growth potential not only in the Philippines, but across Asia and the Middle East, as the benefits of its light-weight and durability become more widely recognized.
In Europe, fiber cement building products are used in both residential and commercial building applications in external siding, internal walls, floors, soffits and roofing. We compete in most segments, except roofing, and promote the use of fiber cement products against traditional masonry and wood-based products.
In April 2018, we completed our previously announced acquisition of Fermacell, a market leader in fiber gypsum and cement bonded boards in Europe. Like James Hardie’s fiber cement products, we believe Fermacell’s fiber gypsum boards deliver superior performance relative to competitive products, such as gypsum plaster and OSB boards. Fermacell, which is headquartered in Duisburg, Germany, operates 6 plants located in Germany, the Netherlands and Spain and has a sales force of more than 300 employees throughout Europe and the Middle East. Fermacell markets its products and systems under various brand names, such as Fermacell® gypsum fiber boards, Fermacell Powerpanel® and Fermacell AESTUVER® fire protection products.
Since we commenced selling our products in Europe in fiscal year 2004, we have continued to work to grow demand for our products by building awareness among distributors, builders and contractors. Management believes that with the acquisition of Fermacell, the growth outlook in Europe for both fiber cement and fiber gypsum is favorable.
Seasonality
Our businesses are seasonal and typically follow activity levels in the building and construction industry. In the United States, the calendar quarters ending in December and March generally reflect reduced levels of building activity depending on weather conditions. In Australia and New Zealand, the calendar quarter ending in March is usually the quarter most affected by a slowdown due to summer holidays. In the Philippines, construction activity diminishes during the wet season from June through September and during the last half of December due to the slowdown in business activity over the holiday period. Also, general industry patterns can be affected by weather, economic conditions, industrial disputes and other factors. See “Section 3 – Risk Factors.”


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
10
 
 

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. 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, consistent quality, low cost 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 use local water supplies and process all wastewater to comply with environmental requirements.

Sales, Marketing and Distribution 
The principal markets for our fiber cement products are the United States, Australia, New Zealand, the Philippines, Canada, and parts of Europe, including the United Kingdom and France. In addition, in the past fiscal year, we have sold fiber cement products in many other markets, including Denmark, Germany, Hong Kong, the Middle East, various Pacific Islands and South Korea. Our brand name, customer education in comparative product advantages, differentiated product range and customer service, including technical advice and assistance, provide the basis for our marketing strategy.
We offer our customers support through a specialized fiber cement sales force and customer service infrastructure in the United States, 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


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
11
 
 

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, with our national sales managers and national account managers, together with regional sales managers and sales representatives, maintaining 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 the United States, we sell fiber cement products for new residential construction predominantly to distributors, which then sell these products to dealers or lumber yards. This two-step distribution process is supplemented with direct sales to dealers and lumber yards as a means of accelerating product penetration and sales. Repair and remodel products in the United States are typically sold through the large home center retailers and specialist distributors. Our products are distributed across the United States and Canada primarily by road and, to a lesser extent, by rail.
In Australia and New Zealand, both new construction and repair and remodel products are generally sold directly to distributor/hardware stores and lumber yards rather than through the two-step distribution process. 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, although in recent years, do-it-yourself type stores have started to enter the Philippines market. The physical distribution of our product in each country is primarily by road, rail or sea transport. Products manufactured in Australia, New Zealand and the Philippines are also exported to a number of markets in Asia, various Pacific Islands, and the Middle East 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. This “pull through” strategy, in turn, assists us in expanding sales for our distribution network as distributors benefit from the increasing demand for 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. Our entry into the Philippines is an example of the ability to substitute fiber cement for an alternative product (in this case plywood). With the exception of our current major markets, as well as Japan and certain rural areas in Asia, Scandinavia, 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 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


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
12
 
 

new ways to make existing and new products. As such, we expect to continue allocating significant funding to these endeavors. For fiscal years 2018, 2017 and 2016, our expenses for R&D were US$33.3 million, US$30.3 million and US$29.5 million, respectively.
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, our manufacturing plants produce regulated materials, including waste water and air emissions. The waste water 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


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
13
 
 

expenditures intended to prevent future discharges in excess of permitted levels and, on occasion, the payment of associated minor 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 31 March 2018.
 
Name of Company
  
Jurisdiction of
Establishment
  
Jurisdiction of
Tax Residence
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 Finance Holdings 1 Ltd
  
Bermuda
  
Ireland
James Hardie Germany GmbH
 
Germany
 
Germany
James Hardie Holdings Ltd
  
Ireland
  
Ireland
James Hardie International Finance Designated Activity Company
  
Ireland
  
Ireland
James Hardie International Group Ltd
  
Ireland
  
Ireland
James Hardie International Holdings Ltd
  
Ireland
  
Ireland
James Hardie New Zealand
  
New Zealand
  
New Zealand
James Hardie NL1 B.V.
 
Netherlands
 
Netherlands
James Hardie NL2 B.V.
 
Netherlands
 
Netherlands
James Hardie NZ Holdings
  
New Zealand
  
New Zealand
James Hardie NZ Holdings Ltd
  
Bermuda
  
New Zealand
James Hardie North America Inc.
  
United States
  
United States
James Hardie NV
  
Netherlands
  
Netherlands
James Hardie Philippines Inc.
  
Philippines
  
Philippines
James Hardie Research (Holdings) Pty Ltd
  
Australia
  
Australia
James Hardie Research Pty Ltd
  
Australia
  
Australia
James Hardie Research USA LLC
  
United States
  
United States
James Hardie Technology Holdings 1
 
Ireland
 
Ireland
James Hardie Technology Holdings 2
 
Ireland
 
Ireland
James Hardie Technology Ltd
  
Bermuda
  
Ireland
James Hardie U.S. Investments Sierra Inc.
  
United States
  
United States
RCI Holdings Pty Ltd
  
Australia
  
Australia

On 3 April 2018, we announced the completion of our acquisition of Fermacell and its subsidiaries. See “History and Development of the Company” in this Section of the Annual Report and Note 19 to our consolidated financial statements in Section 2.


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
14
 
 

Property, Plants and Equipment
We believe we have some of the largest and lowest cost fiber cement manufacturing plants across the United States, Australia, New Zealand and the Philippines, with our plants servicing both domestic and export markets. 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 2018, we had manufacturing facilities at the following locations:
 
Plant Location
 
Owned /
Leased
 
Nameplate Capacity
(mmsf)1
United States2 
 
 
 
 
Cleburne, Texas
 
Owned
 
666

Peru, Illinois
 
Owned
 
560

Plant City, Florida
 
Owned 
 
600

Pulaski, Virginia
 
Owned
 
600

Reno, Nevada
 
Owned
 
300

Tacoma, Washington
 
Owned 
3 
200

Waxahachie, Texas
 
Owned 
 
360

Fontana, California
 
Owned
 
250

Summerville, South Carolina
 
Owned 
4 
190

Australia
 
 
 
 
Rosehill, New South Wales
 
Owned 
 
180

Carole Park, Queensland
 
Owned
5 
160

New Zealand
 
 
 
 
Auckland
 
Leased 
6 
75

Philippines
 
 
 
 
Cabuyao City
 
Owned 
7 
145

____________
1
The calculated annual nameplate capacity 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 manufacturing facility nameplate, design and utilization capacities.
2
In the fourth quarter of fiscal year 2018, we announced a Greenfield capacity project in Prattville, Alabama with an expected commissioning date in the first half of fiscal year 2020. This project will add an additional 600 mmsf to our manufacturing capacity. This incremental capacity is not included in the table above.
3
In the third quarter of fiscal year 2017, we announced a Greenfield capacity project at our Tacoma, Washington facility with an expected commissioning date in the first half of fiscal year 2019. This incremental capacity is not included in the table above.
4
We suspended production at our Summerville, South Carolina location in November 2008. The plant was re-commissioned in the first quarter of fiscal year 2018.
5
In the fourth quarter of fiscal year 2018, we announced an A$28.5 million (US$22.8 million) Brownfield expansion project at our Carole Park, Queensland facility with an expected commissioning date in the first quarter of fiscal year 2021. This incremental capacity is not included in the table above.
6
We exercised our option to renew the Auckland leases for a further term of 10 years prior to the leases’ expiry on 22 March 2016. The Auckland leases now expire on 22 March 2026, at which time we have an option to renew them for a further term of 10 years expiring in March 2036. There is no option to purchase at the expiration of the leases.
7
The land on which our Philippines fiber cement plant is located is owned by Ajempa Holding Inc. (“Ajempa”), a related party. Ajempa is 40% owned by our operating entity, James Hardie Philippines Inc., and 60% owned by the James Hardie Philippines Retirement Fund. James Hardie Philippines Inc. owns 100% of the fixed assets on the land owned by Ajempa.
We are adding additional capacity in the Philippines with an estimated total cost of US$18.0 million and an expected completion date in the first quarter of fiscal year 2019. This incremental capacity is not included in the table above.


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
15
 
 

We continually evaluate the capacity required to service the US housing market, and as a result, to ensure we meet demand and achieve our market penetration objectives, we have completed and continue to start-up and commission several lines across our manufacturing network. For a discussion of significant active and recently completed capacity expansion projects, see “Capital Expenditures.”
Beginning in the fourth quarter of fiscal year 2016, management determined that for measuring the annual flat sheet design capacity of the fiber cement network, the calculation should incorporate our historical experience with certain factors such as demand, product mix of varying thickness and density, batch size, plant availability and differing production speeds multiplied by 24 hours per day, seven days per week. Additionally, commencing in the second quarter of fiscal year 2017, management adjusted the definition of plant availability pertaining to idled, non-commissioned, and start-up lines when determining annual flat sheet design capacity and capacity utilization. In the second quarter of fiscal year 2018, management adjusted the definition of production speeds and uptime expectations when determining annual flat sheet design capacity for the United States.
Based on the methodology noted above, for the year ended 31 March 2018, we had an annual flat sheet design capacity of 3,744 mmsf and 600 mmsf in the United States and Asia Pacific, respectively. It is important to note that annual design capacity does not necessarily reflect the actual capacity utilization rates of our manufacturing facilities, with actual utilization affected by factors such as demand, product mix, batch size, plant availability and production speeds. For fiscal year 2018, actual capacity utilization across our plants was an average of 90% and 92% in the United States and Asia Pacific, respectively.
Based on the methodology noted above, for the year ended 31 March 2017, we had an annual flat sheet design capacity of 3,284 mmsf and 619 mmsf in the United States and Asia Pacific, respectively. It is important to note that annual design capacity does not necessarily reflect the actual capacity utilization rates of our manufacturing facilities, with actual utilization affected by factors such as demand, product mix, batch size, plant availability and production speeds. For fiscal year 2017, actual capacity utilization across our plants was an average of 94% and 92% in the United States and Asia Pacific, respectively.
Finally, as a result of our completion of the Fermacell acquisition in April 2018, we expanded our manufacturing and production footprint with the addition of six Fermacell plants located in Calbe, Germany, Munchehof, Germany, Schraplau, Germany, Siglingen, Germany, Niftrik, The Netherlands and Orejo, Spain.
Mines
We lease silica quartz mine sites in Tacoma, Washington and Reno, Nevada. The lease for our quartz mine in Tacoma, Washington was renewed per the lease for another four year renewal term through February 2022 (with additional options to renew at that time). The lease for our silica quartz mine site in Reno, Nevada expires in January 2019. We also own property in Victorville, California which could be mined for silica. As of 30 April 2018, however, we have not begun to mine this site and have no immediate plans to do so. We continue to lease a parcel of land in Victorville, California adjacent to and for access to our owned property, as well as providing an equipment area for mining operations.
The recently acquired 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.
As a mine operator, 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 2018, we did not receive any notices, citations, orders, legal action or other communication from the US Department of Labor’s Mine Safety and Health


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
16
 
 

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.
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)
  
 
2018
 
2017
 
2016
North America Fiber Cement
 
$
182.5

 
$
76.1

 
$
40.3

International Fiber Cement
 
18.4

 
24.4

 
28.7

Other Businesses
 
2.0

 
0.7

 
2.3

R&D and Corporate
 
0.8

 
0.7

 
1.9

Total Capital Expenditures
 
$
203.7

 
$
101.9

 
$
73.2

Significant active capital expenditures
At 31 March 2018, 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
Increase1
Tacoma Greenfield expansion
 
$
150.0

 
$
100.8

 
Q4 FY17
 
FY19
 
8%
Carole Park Brownfield expansion
 
22.8

 
0.1

 
Q4FY18
 
FY21
 
16%
Philippines capacity expansion
 
$
18.0

 
$
15.2

 
Q4 FY16
 
FY19
 
9%
____________
1
The expected capacity increase 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. It does not take into account factors such as product mix with varying thickness and density, batch size, plant availability and production speeds. Expected increase in capacity related to Tacoma Greenfield expansion represents expected increase in North America nameplate capacity as of 31 March 2018. Expected increases in Carole Park Brownfield expansion and Philippines capacity expansion represent expected increase in Asia Pacific's nameplate capacity as of 31 March 2018.

During fiscal year 2018, we also continued the planning of our Prattville, Alabama facility, which is expected to be commissioned in the first half of fiscal year 2020. Additionally, on 22 May 2018, we announced that this greenfield expansion project will add an additional 600 mmsf to our manufacturing capacity at an estimated total cost of US$240.0 million.


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
17
 
 

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
Carole Park land and building purchase and capacity expansion
 
$
85.3

 
FY14 - FY16
Plant City SM4 - 3rd operating sheet machine
 
71.2

 
FY14 - FY17
Cleburne - 3rd sheet machine
 
40.8

 
FY14 - FY17
Waxahachie lease buyout
 
16.5

 
FY17
Summerville recommissioning
 
$
15.7

 
FY17 - FY18
Capital Divestitures
During the three most recent fiscal years, we did not make any material capital divestitures. On 30 June 2015, we finalized the sale of our Australian Pipes business. Additionally, on 1 June 2015 we finalized the sale of our Blandon, Pennsylvania location. We do not consider the disposition of the pipes business or the sale of Blandon, Pennsylvania location to constitute material divestitures or strategic shifts in the nature of our operations.  


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
18
 
 

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
James Hardie Executive Team
Our management is overseen by our executive team, whose members cover the key areas of fiber cement R&D, production, manufacturing, human resources, marketing, investor relations, finance and legal.
Members of our executive team at 30 April 2018 (in alphabetical order) are:
Joe Blasko BSFS, JD
General Counsel and Chief Compliance Officer
Age 51
g274409g75u41.jpg
Joe Blasko joined James Hardie as General Counsel and Chief Compliance Officer in June 2011.
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, Markets and Segments
Age 45
g274409g58o21.jpg
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. In October 2015, he was appointed Executive Vice President, Markets and Segments, North America with responsibility for Strategic Marketing and Development.
Mr Gadd has a Bachelor of Engineering in Manufacturing Management and an executive MBA from the Australian Graduate School of Management, Australia.


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
19
 
 

Louis Gries BSc, MBA
Chief Executive Officer
Age 64
g274409g37t24.jpg
Louis Gries joined James Hardie as Manager of the Fontana fiber cement plant in California in February 1991 and was appointed President of James Hardie Building Products, Inc. in December 1993. Mr Gries became Executive Vice President – Operations in January 2003, responsible for operations, sales and marketing in our businesses in the Americas, Asia Pacific and Europe.
He was appointed Interim Chief Executive Officer (“CEO”) in October 2004 and became CEO in February 2005. In addition to being the Company’s CEO, Mr Gries is responsible for managing the Company’s fiber cement operations in North America.
Before he joined James Hardie, Mr Gries worked for 13 years for USG Corp, including a variety of roles in research, plant quality and production, and product and plant management.
Mr Gries has a Bachelor of Science in Mathematics from the University of Illinois, USA and an MBA from California State University, Long Beach, USA.

Ryan Kilcullen BSc, MS
Executive Vice President – Operations
Age 37
g274409g70m11.jpg
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 – 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.



Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
20
 
 

Matthew Marsh BA, MBA
Chief Financial Officer and Executive Vice President – Corporate
Age 43
g274409g04m13.jpg
Matthew Marsh joined James Hardie as Chief Financial Officer (“CFO”) in June 2013. As CFO he oversees the Company’s overall financial activities, including accounting, tax, treasury, performance and competitor analysis, internal audit and financial operations.
Effective 16 October 2015, Mr Marsh’s role was expanded to include the role of Executive Vice President – Corporate. In this role, Mr Marsh continues his oversight of the Company’s overall financial management in addition to the oversight of James Hardie’s information systems, legal and compliance, and investor and media relations functions.
After a 16-year career at General Electric Company (“GE”), Mr Marsh brings a strong background in financial management. Before joining James Hardie, Mr Marsh most recently served as CFO of GE Healthcare’s IT business. Prior to being named CFO of GE Healthcare IT, Mr Marsh oversaw the finance operations for GE Healthcare’s US Healthcare Systems and US Diagnostic Imaging businesses.
Prior to those appointments, Mr Marsh traveled globally with the GE Internal Audit Staff gaining extensive experience in several industries including appliances, information services, distribution and supply, aviation, plastics, financial services, capital markets and healthcare, across more than twenty countries. Mr Marsh has graduated from GE’s Financial Management Program (FMP).
Mr Marsh has a Bachelor of Arts in Economics and Public Affairs from Syracuse University, USA and an MBA from University of Chicago’s Booth School of Business, USA.
Dave Merkley BSc (Construction)
Executive Vice President, Manufacturing and Engineering
Age 55
merkley.jpg
Dave Merkley first joined James Hardie in 1994 as Plant Manager of the Fontana, California facility in the United States. Mr Merkley has held a number of roles with the Company including US R&D Manager and US Manufacturing Manager, before being promoted to the position of Executive Vice President, Operations and Manufacturing with global responsibility in 2002.
In 2006, Mr Merkley left James Hardie and worked as a consultant in the building products industry, gaining experience in composite building material and wood polymer composites decking and fencing. Mr Merkley rejoined James Hardie in October 2016 and was promoted to the role of Executive Vice President, Manufacturing and Engineering in November 2017.

Prior to joining James Hardie in 1994, Mr Merkley held various engineering positions in the civil construction industry, including heavy highway and infrastructure construction.
Collectively Mr Merkley has over 30 years relevant industry experience and holds a Bachelor of Science in Construction from Arizona State University.




Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
21
 
 

Jason Miele, BA
Vice President, Investor and Media Relations
Age 41
g274409g75r45.jpg
Jason Miele was appointed to the position of Vice President – Investor and Media Relations in February 2017. Mr Miele has responsibility for overseeing the Company’s investor relations strategy and successful interface with external audiences, communicating the Company’s business strategy and its financial performance to various stakeholders including shareholders, investment analysts, and the financial media.
Mr Miele has 20 years of relevant professional experience, including 11 years of experience with James Hardie, where he has served in various finance and operational support roles, most recently as James Hardie’s Group Controller, a position he has held since 2013.
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.
Zean Nielsen
Executive Vice President, Sales
Age 40
nielsen.jpg
Zean Nielsen joined James Hardie as Executive Vice President, Sales in August 2017. Mr Nielsen brings 20 years of Sales, Marketing and overall P&L experience to James Hardie from his time with Bang and Olufsen and Tesla Motors. As EVP of Sales, Mr Nielsen is responsible for overseeing all aspects of our North American sales organization.
Most recently, Mr Nielsen held senior leadership roles at Tesla Motors, serving as the Vice President of EMEA as well as Global Vice President of Sales Operations over a three and a half year period. Mr Nielsen started his career at Bang and Olufsen in 1997. During his 17-year tenure, he held positions in International Distribution Development, Retail, Marketing and Sales in North America and Asia Pacific before being promoted to the role of President of North and South America.

Mr Nielsen is Danish and has a business degree from the Herning Graduate School of Business in Denmark.



Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
22
 
 

Jack Truong, BS, PhD
President, International Operations
Age 55
troung.jpg
Dr Jack Truong joined James Hardie as President, International Operations in April 2017. Prior to James Hardie, he was the President and Chief Executive Officer, Electrolux North America and Executive Vice President, AB Electrolux Group. Dr Truong also spent 22 years at 3M Company where he held senior leadership roles in Europe, Asia Pacific, and the United States, including President of their Construction & Home Improvements division and Office Supplies division. He began his career at IBM and Polaroid Corporation.
Dr Truong has been active in serving on boards of leading professional associations. He has received numerous national honors and awards for outstanding business accomplishments as well as his humanitarian work with non-profit organizations.


Dr Truong holds BS and PhD degrees in Chemical Engineering from the Rensselaer Polytechnic Institute in New York. Dr Truong is the recipient of 11 US patents and several international patents.


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
23
 
 

Board of Directors
James Hardie’s directors have widespread experience, spanning general management, finance, law, marketing and accounting. Each director also brings valuable international experience that assists with James Hardie’s growth.
Members of the Board of Directors (the “Board”) at 30 April 2018 are:
Michael Hammes BS, MBA
Age 76
g274409g09m43.jpg
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 Audit Committee, 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 2016
Term expires: August 2018


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
24
 
 

Brian Anderson BS, MBA, CPA
Age 67
g274409g43g86.jpg
Brian Anderson was appointed as an independent non-executive director of James Hardie in December 2006. He is Chairman of the Audit Committee and a member of the Remuneration Committee.
Experience: Mr Anderson has extensive financial and business experience at both executive and board levels. He has held a variety of senior positions, with thirteen years at Baxter International, Inc., including Corporate Vice President of Finance, Senior Vice President and CFO (1997-2004) and, more recently, Executive Vice President and CFO of OfficeMax, Inc. (2004-2005). Earlier in his career, Mr Anderson was an Audit Partner of Deloitte & Touche LLP (1986-1991).
Directorships of listed companies in the past five years: Current – Director of Stericycle Inc. (since 2017); Director of PulteGroup (since 2005); Director of W.W. Grainger, Inc. (since 1999). Former – Chairman (2010-2016) and Director (2005-2016) of A.M. Castle & Co.; Lead Director of W.W. Grainger, Inc. (2011-2014).
Other: Member of the Governing Board of the Center for Audit Quality (since 2016); resident of the United States.
Last elected: August 2017
Term expires: August 2020
 


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
25
 
 

Russell Chenu BCom, MBA
Age 68
g274409g70w56.jpg
Russell Chenu was appointed as a non-executive director of James Hardie in August 2014. He is a member of the Remuneration Committee and the Nominating and Governance Committee.
Experience: Mr Chenu joined James Hardie as Interim CFO in October 2004 and was appointed CFO in February 2005. He was elected to the Company’s Managing Board at the 2005 Annual General Meeting, re-elected in 2008 and continued as a member of the Managing Board until it was dissolved in June 2010. As CFO, he was responsible for accounting, treasury, taxation, corporate finance, information technology and systems, and procurement. Mr Chenu retired as CFO in November 2013.
Mr Chenu is an experienced corporate and finance professional who held senior finance and management positions with a number of Australian publicly-listed companies. In a number of these senior roles, he was engaged in significant strategic business planning and business change, including several turnarounds, new market expansions and management leadership initiatives.
Mr Chenu has a Bachelor of Commerce from the University of Melbourne and an MBA from Macquarie Graduate School of Management, Australia.
Directorships of listed companies in the past five years: Current – Director of Reliance Worldwide Corporation Limited (since 2016); Director of CIMIC Group Limited (since 2014); Director of Metro Performance Glass Limited (since 2014).
Other: Resident of Australia.
Last elected: August 2017
Term expires: August 2020

David D. Harrison BA, MBA, CMA
Age 70
g274409g56x49.jpg
David Harrison was appointed as an independent non-executive director of James Hardie in May 2008. He is 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 2016
Term expires: August 2019



Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
26
 
 

Andrea Gisle Joosen MSc, BSc
Age 54
g274409g13c99.jpg
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 Mr Green AB (since 2015); Director of BillerudKorsnas AB (since 2015); Director of Dixons Carphone plc (since 2014); Director of ICA Gruppen AB (since 2010). Former – Director of Dixons Retail plc (2013-2014).
Other: Director of Phoodster AB (since July 2017); Director of Neopitch AB (since 2004); resident of Sweden.
Last elected: August 2015
Term expires: August 2018
Persio V Lisboa BS
Age 52
 
 
 
lisboafull.jpg
Persio Lisboa was appointed as an independent non-executive director of James Hardie in February 2018. He is a member of the Nominating and Governance Committee.
Experience: Mr Lisboa has extensive senior executive experience. He currently serves as Executive Vice President & Chief Operating Officer at Navistar, Inc. (Navistar), a leading manufacturer of commercial trucks, buses, defense vehicles and engines, since March 2017. Prior to holding this position, 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: Current - Director of Broadwind Energy, Inc. (since 2016).
Other: Resident of the United States.
Last elected: Mr Lisboa will be standing for election at the August 2018 Annual General Meeting.



Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
27
 
 

Alison Littley BA, FCIPS
Age 55
g274409g13r91.jpg
Alison Littley was appointed as an independent non-executive director of James Hardie in February 2012. She is a member of the Audit Committee and the Remuneration Committee.
Experience: Ms Littley has substantial experience in multinational manufacturing and supply chain operations, and she brings a strong international leadership background building effective management teams and third party relationships. She has held a variety of positions, most recently as Chief Executive of Buying Solutions, a UK Government Agency responsible for procurement of goods and services on behalf of UK government and public sector bodies (2006-2011). She has previously held senior management roles in Diageo plc (1999-2006) and Mars, Inc. (1981-1999).
Directorships of listed companies in the past five years: None.
Other: Director of Market Harborough Building Society (since January 2018); Director of Eakin Healthcare Limited (since 2015); Director of Weightmans LLP (since 2013); resident of the United Kingdom.
Last elected: August 2015
Term expires: August 2018

Steven E Simms BA
Age 62
simmsfull.jpg
Steven E Simms was appointed as an independent non-executive director of James Hardie in May 2017. He is Chairman of the Remuneration Committee.
Experience: Mr Simms has extensive senior executive experience at leading global corporations. He has held a variety of senior positions, with 11 years at Danaher, including as Executive Vice President (1999-2007).  Prior to joining Danaher, he held executive positions at Black & Decker Corporation, including as President – European Operations (1990-1993) and President – Worldwide Accessories (1993-1996). More recently, he was President and Chief Executive Officer and director of Colfax Corporation (2011-2015) and also served as Chairman of Apex Tool Group (2010-2012).
Directorships of listed companies in the past five years: Former – Director of Colfax Corporation (2011-2015).
Other: Director of Perdue Farms (since 2015); resident of the United States.
Last elected: August 2017
Term expires: August 2020


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
28
 
 

Rudolf van der Meer M.Ch.Eng
Age 73
g274409g27i01.jpg
Rudy van der Meer was appointed as an independent non-executive director of James Hardie in February 2007. He is Chairman of the Nominating and Governance Committee.
Experience: Mr van der Meer is an experienced former executive, with considerable knowledge of international business and the building and construction sector. During his 32-year association with Akzo Nobel N.V., he held a number of senior positions including CEO of Coatings (2000-2005), CEO of Chemicals (1993-2000), and member of the five person Executive Board (1993-2005).
Directorships of listed companies in the past five years: Current – Director of LyondellBasell Industries N.V. (since 2010). Former – Chairman of the Supervisory Board of Royal Imtech N.V. (2005-2013).
Other: Former Chairman of the Supervisory Board of VGZ Health Insurance (2011-2017); resident of the Netherlands.
Last elected: August 2017
Term expires: August 2020



Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
29
 
 

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 (CEO, CFO and the other three highest paid executive officers based on total compensation that was earned or accrued for fiscal year 2018) (“Senior Executive Officers”) in fiscal year 2018, and also includes an outline of the key changes for fiscal year 2019. Further details of these changes are set out in the 2018 Notice of Annual General Meeting (“AGM”).
We first provide a summary of our business performance and the key remuneration considerations and decisions made in fiscal year 2018. We then describe in detail our remuneration philosophy, the individual elements of our remuneration program and the linkage between our remuneration programs and our pay-for-performance philosophy. For fiscal year 2018, our Senior Executive Officers are:
•Louis Gries, CEO;
•Matthew Marsh, CFO and Executive Vice President - Corporate;
•Sean Gadd, Executive Vice President - Markets and Segments;
•Jack Truong, President - International Operations; and
•Zean Nielsen, Executive Vice President - Sales.
This Remuneration Report has been adopted by our Board on the recommendation of the Remuneration Committee.
EXECUTIVE SUMMARY
Fiscal Year 2018 Business Highlights1 

We delivered solid financial performance in fiscal year 2018, highlighted by adjusted net operating profit of US$291.3 million and adjusted earnings before interest and taxes (“EBIT”) of US$397.5 million, an increase of 17% and 12%, respectively, compared to the prior corresponding period. In addition, we achieved net sales of US$2.05 billion, an increase of 7% compared to the prior corresponding period, and US$0.66 adjusted diluted earnings per share.





____________
1
Please 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.


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
30
 
 

The following graphs show our performance for key financial measures during fiscal year 2018, with a comparison to prior corresponding periods:

remreportbusinesshighlights.jpg
Fiscal Year 2018 Compensation Highlights

Our fiscal year 2018 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. During May 2017, 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 the following for fiscal year 2018 pay programs:
•
There were no changes to Mr Gries’ fixed or variable compensation. Mr Gries’ base salary, target short-term incentive (“STI”), and target long-term incentive (“LTI”) remained the same in fiscal year 2018 as they were for fiscal year 2017.
•
A base salary increase for Mr Marsh was made to continue to align his compensation package with our CEO succession plan and our need to retain key senior executives through the eventual CEO transition process.
•
Base salary and LTI target increases for Mr Gadd were made to properly align his overall compensation package with the increase in role scope and accountability that occurred for Mr Gadd during fiscal year 2017.     
•
No changes were made to the operation or components of the company performance plan (“CP Plan”) or individual performance plan (“IP Plan”) for our annual STI program for fiscal year 2018 other than to establish new targets which align with our strategic initiatives as we do every year. A complete description of the performance hurdles applicable for fiscal year 2018 for the CP Plan is set out in the section titled “Incentive Arrangements” later in this Remuneration Report.



Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
31
 
 

•
After careful consideration of strategic priorities, as well as investor feedback and LTI Plan design alternatives, the Remuneration Committee made the following changes to the design of the LTI Plan for fiscal year 2018:
(i)
shifted the allocation of LTI target amongst the three components of the LTI plan as follows, to strike a better balance of strategic and operational performance with financial and share price performance metrics:
LTI Component
FY2017
FY2018
ROCE RSUs
40%
25%
Relative TSR RSUs
30%
25%
Scorecard LTI
30%
50%
(ii)
increased the Return on Capital Employed ("ROCE") Restricted Stock Unit ("RSU") performance hurdles; and
(iii)
eliminated the re-testing feature from the Relative Total Shareholder Return ("TSR") RSU awards.
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.
During fiscal year 2018, we also continued to make significant investment in our people and organizational capability, including expanding our already strong Global Management Team ("GMT"). In April 2017, Jack Truong joined us as President of our International Operations, bringing with him over 30 years of business experience from his previous senior leadership roles at Electrolux and 3M Company. Further, in August 2017, Zean Nielsen joined us as our Executive Vice President of Sales, bringing with him over 20 years of experience in sales and marketing from his time with Bang and Olufsen and Tesla Motors.
Finally, the Remuneration Committee carefully considered the CEO transition process in fiscal year 2018 and the need to retain our experienced management team through our eventual CEO transition process. As a result of this consideration, the Remuneration Committee determined to issue special one-time retention grants, which contain both performance and service vesting components, to Messrs Marsh, Gadd, Truong and Nielsen. The terms applicable to these special grants are discussed in detail below and such grants are not expected to recur in the future.
Fiscal Year 2018 Total Target Compensation
Remuneration packages for Senior Executive Officers reflect our remuneration philosophy and comprise a mixture of fixed base salary and 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 2018:



Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
32
 
 

Summary of Fiscal Year 2018 Senior Executive Officer Target Compensation
Senior Executive Officer
FY2018 Annual Base Salary (US$)
 
FY2018 STI Target Value (US$)
 
FY2018 LTI Target Value (US$)
 
FY2018 Total Target Compensation (US$)
L Gries
950,000

 
1,187,500

 
4,000,000

 
6,137,500

M Marsh
600,000

 
420,000

 
1,200,000

 
2,220,000

S Gadd
500,000

 
300,000

 
800,000

 
1,600,000

J Truong
600,000

 
420,000

 
1,000,000

 
2,020,000

Z Nielsen
500,000

 
300,000

 
1,000,000

 
1,800,000


Results of 2017 Remuneration Report Vote
In August 2017, our shareholders were asked to cast a non-binding advisory vote on our remuneration report for the fiscal year ended 31 March 2017. 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 2017 Annual General Meeting, our shareholders approved our remuneration report, with just over 83.2% 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 2018.
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 (defined herein) exposed to the US housing market. Within this philosophy, the executive remuneration framework emphasizes operational excellence and shareholder value creation through incentives which 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.


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
33
 
 

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 years 2018 and 2017. Fixed remuneration includes base salary and other fixed benefits. Variable remuneration is comprised of STI awards and the following three LTI components: (i) Relative TSR RSUs; (ii) ROCE RSUs; and (iii) Scorecard LTI, each of which are discussed in more detail in this Remuneration Report. STI awards include amounts earned under the CP and IP plans for each fiscal year, paid in June of the following fiscal year, and LTI components are shown at total maximum grant value.

remreportceographa02.jpg
remreportotherseniorexecoffi.jpg


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
34
 
 

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 our recruitment, retention and termination policies and procedures for senior management. The current members of the Remuneration Committee are Steven Simms (Chairman), Brian Anderson, Russell Chenu, Michael Hammes and Alison Littley, 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).


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
35
 
 

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
Compensation Practices We Avoid
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 85% of our CEO’s total target compensation being performance-based “at risk” compensation and an average of approximately 71% 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 US growth and corporate performance levels are achieved

û
Limited change-in-control benefits
ü
Set robust 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 2018. 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 2018 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 2019.
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. For fiscal year 2018, the Peer Group remained unchanged from fiscal year 2017 with the exception of the removal of Headwaters, Inc, which was acquired by Boral Limited. The Remuneration


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
36
 
 

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. The names of the 23 companies comprising the Peer Group are set forth below.
Acuity Brands, Inc
Martin Marietta Materials, Inc
Simpson Manufacturing Co., Inc
American Woodmark Corp
Masco Corporation
Trex Co., Inc
Apogee Enterprises, Inc
Mohawk Industries, Inc
USG Corp
Armstrong World Industries, Inc
Mueller Water Products, Inc
Valmont Industries, Inc
Eagle Materials, Inc
NCI Building Systems, Inc
Valspar Corporation
Fortune Brands Home & Security
Owens Corning
Vulcan Materials Co
Lennox International, Inc
Quanex Building Products Corp
Watsco, Inc
Louisiana-Pacific Corp
Sherwin Williams Co
 

The Peer Group was used to benchmark the remuneration of our Senior Executive Officers in fiscal year 2018.
Performance Linkage with Remuneration Policy
During its annual review, the Remuneration Committee assessed our performance in fiscal year 2018 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 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 2018 was: (i) on the whole, below target on growth measures and slightly above target on earnings, resulting in STI variable remuneration outcomes being below target for fiscal year 2018; and (ii) when taken together with performance in fiscal years 2016 and 2017, at the 71st percentile of our Peer Group on TSR performance, above expectations on ROCE performance, and on average, at expectations on long-term strategic measures included in the Scorecard, resulting in LTI variable remuneration being above target for fiscal years 2016-2018.
More details about this assessment, including the percentage of the maximum variable remuneration awarded to or forfeited by Senior Executive Officers is set out on pages 39 through 48 of this Remuneration Report.
DESCRIPTION OF 2018 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 2018, the base salary and value of other fixed benefits for each of our


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
37
 
 

Senior Executive Officers are 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. Participating employees were able to elect to reduce their current annual compensation by up to US$18,000 in calendar year 2017 and have the amount of such reduction contributed to the 401(k) Plan, with a maximum eligible compensation limit of US$270,000. In addition, we match employee contributions dollar for dollar up to a maximum of the first 6% of an employee’s eligible compensation.
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 2018, 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)
Long Term Incentive Plan 2006 (“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 2018, the STI target percentage for Mr Gries was 125% of base salary, 70% of base salary for Messrs Marsh and Truong, and 60% of base salary for Messrs Gadd and Nielsen, with 80% allocated to the CP Plan and 20% allocated to the IP Plan for all Senior Executive Officers.
Since fiscal year 2014, the Remuneration Committee has applied a ‘circuit breaker’ to the STI plans, which for Senior Executive Officers will prevent payment of any STI under the CP and IP Plans unless our performance exceeds a level approved by the Remuneration Committee each year. For fiscal year 2018, the ‘circuit breaker’ was set at 60% of our fiscal year 2018 plan Adjusted EBIT (indexed to housing starts) less any impairment costs the Remuneration Committee determines should be disregarded.
CP Plan
The CP Plan is based on a series of payout matrices for the US and Asia Pacific businesses, which provide a range of possible payouts depending on our performance against hurdles which assess volume growth


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
38
 
 

relative to, and above, market (“Growth Measure”), earnings (“Return Measure”), and for the US business, performance of the interiors business and performance against certain “wood-look” competitors. Each Senior Executive Officer can receive between 0% and 300% of their STI target allocated to the CP Plan based on the results of the payout multiple the Senior Executive Officer is tied to. All Senior Executive Officers are tied to either the US multiple (Messrs Gadd and Nielsen) or a composite multiple derived from the metrics for the US and Asia Pacific businesses combined (80% US and 20% Asia Pacific for Messrs Gries and Marsh; 30% US and 70% Asia Pacific for Mr Truong).
Payout Matrices
We use both performance measures (Growth Measure and Return Measure) in the payout matrices for our US and Asia Pacific businesses in order to ensure that as management increases its top line market growth focus, it does not do so at the expense of short- to medium-term earnings. Management is encouraged to balance market growth and earnings returns since achievement of a higher reward requires management to generate both strong earnings and growth relative to and above market. Higher returns on one measure at the expense of the other measure may result in a lower reward or no reward at all.
To ensure that the payout matrices represent genuinely challenging targets aligned with our executive remuneration philosophy, the Growth Measure is indexed to take into account changes in new housing starts in both the US and Asia Pacific and the US repair and remodel market, while the Return Measure is indexed to take into account changes in pulp prices. The targets for the Return Measure exclude costs related to legacy issues. The Remuneration Committee has reserved for itself discretion to change the STI paid. Examples of instances when the Remuneration Committee would consider exercising this discretion include external factors outside of management’s control, and for the US CP Plan only, if the general shift toward smaller homes at each segment of the US market is considered sufficiently material. The Remuneration Committee will disclose the reasons for any such exercise of its discretion.
The Remuneration Committee believes that the payout matrices are appropriate because they provide management with an incentive to achieve overall corporate goals, balance growth with returns in our primary markets, recognize the need to flexibly respond to strategic opportunities, incorporate indexing relative to market growth to account for factors beyond management’s control, and incorporate Remuneration Committee discretion to ensure appropriate outcomes. Payouts under the US matrix may range from 0% to 200% of target, while payouts under the Asia Pacific matrix may range from 0 to 300% of target.
We do not disclose the volume Growth Measure and earnings Return Measure targets for our US or Asia Pacific businesses since these are commercial-in-confidence. However, achieving a target payment for the Return Measure under either the US or Asia Pacific payout matrix for fiscal year 2018 would have required performance equal to the average of performance for the previous three years and the fiscal year 2018 plan. Achieving a target payout for the Growth Measure requires growth substantially above market growth.

Additional US Performance Metrics

In order to align and focus management’s performance on initiatives that are key to the success of the US business, the US payout multiple for fiscal year 2018 is determined by performance against the matrix multiple (Growth and Return Measures for 70% of STI opportunity), the interiors product business multiple (for 10% of STI opportunity), and the “Wood-look” multiple (for 20% of STI opportunity). The overarching formula for the US payout multiple is:
 
remmultipleusea02.jpg



Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
39
 
 

Each payout factor (Matrix Factor, Interiors Factor, and “Wood-look” Factor) is capped as follows to properly balance management’s focus across volume growth, returns and key initiatives:
•
Matrix Factor = capped at 2.0x
•
Matrix Factor plus Interiors Factor = capped at 2.3x
•
“Wood-look” Factor = capped at 1.25x

The Interiors Multiple is measured as a function of the revenue growth of our interiors business in fiscal year 2018. The “Wood-look” Multiple is measured as our growth against key “wood-look” competition.

We do not disclose the interiors volume growth or “wood-look” targets since these are commercial-in-confidence. However, achieving a target payment for fiscal year 2018 requires interior volume performance above fiscal year 2017 interiors volume and substantial growth against key “wood-look” competition.

IP Plan

Under the IP Plan, the Remuneration Committee approves a series of one-year individual performance goals which, along with goals on our core organizational values, 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 that have benefited us and contributed 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 based on achievement of individual performance and core organizational values goals.
STI Plan Performance for Fiscal Year 2018

Our CP Plan results and the subsequent STI payouts for fiscal year 2018 were, on the whole, below target as a result of:
•
the US business performing above target on the Return Measure in the first half of the fiscal year;
•
the US business performing below target on the Growth Measure primarily due to the impact of capacity constraints on demand;
•
the US business performing below target on the Interiors Factor and “Wood-look” Factor;
•
Asia Pacific performing above target on the Growth Measure; and
•
Asia Pacific performing above target on the Return Measure due to higher returns in Australia, partially offset by below target returns in New Zealand and the Philippines.

In regards to the IP Plan, the Senior Executive Officers’ performance and the subsequent STI payouts for fiscal year 2018 were at or above target based on each Senior Executive Officer’s achievement of fiscal year 2018 one-year individual performance and core organizational values goals.

For fiscal year 2018, 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”. In regards to Mr Nielsen, he received an at-target level bonus, as provided in his terms of employment.



Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
40
 
 

The percentage of the maximum STI Variable Remuneration awarded to or forfeited by each Senior Executive Officer for (individual and company) performance in fiscal year 2018 compared to fiscal year 2017 was:

 
 
STI Award1
 
 
Awarded %

Forfeited %

L Gries
 
 
 
Fiscal Year 2018
28

72

 
Fiscal Year 2017
33

67

M Marsh
 
 
 
Fiscal Year 2018
28

72

 
Fiscal Year 2017
35

65

S Gadd
 
 
 
Fiscal Year 2018
16

84

 
Fiscal Year 2017
34

66

J Truong
 
 
 
Fiscal Year 2018
63

37

 
Fiscal Year 2017
—

—

Z Nielsen
 
 
 
Fiscal Year 20182
37

63

 
Fiscal Year 2017
—

—


____________
1
Awarded = % of STI Award maximum actually paid. Forfeited = % of STI Award maximum foregone. STI Award amounts are paid in cash under the CP and IP Plans.
2    Amount shown for Mr Nielsen is a target-level STI bonus for fiscal year 2018 as provided for in his terms of employment.

In addition to his annual bonus under the STI Plan, Mr Gadd also received a one-time cash allotment of US$150,000 to recognize additional oversight responsibilities undertaken during fiscal year 2018 in the areas of sales and research and development.

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 companies; and
•
Scorecard LTI is an indicator of each Senior Executive Officer’s contribution to achieving our long-term strategic goals.


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
41
 
 

Awards issued under the LTI Plans are issued pursuant to the terms of the LTIP. During fiscal year 2018, our Senior Executive Officers were granted the following awards under the LTIP:

 
ROCE RSUs

TSR RSUs

Scorecard LTI Units

L Gries
136,441

246,902

409,323

M Marsh
40,932

74,071

122,797

S Gadd
27,288

49,380

81,865

J Truong
34,110

61,726

102,331

Z Nielsen
34,110

61,726

102,331


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)
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 fiscal years 2013 through 2017, the maximum payout for the ROCE RSUs is 200% of 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 certain point in time.
ROCE hurdles for the ROCE RSUs are based on historical results and take into account the recovering US housing market and better optimization of our manufacturing plants. The three-year average ROCE for fiscal years 2015, 2016 and 2017 was 29.9%.


____________
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.


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
42
 
 

The hurdles for ROCE RSUs granted in fiscal year 2018 (for performance in fiscal years 2018 to 2020) were changed from those granted in fiscal year 2017 as follows:
Fiscal Years 2017-2019 ROCE
Fiscal Years 2018-2020 ROCE
% of ROCE RSUs Granted to Vest

< 24.0%
< 25.0%
0
%
≥ 24.0%, but < 26.0%
≥ 25.0%, but < 27.0%
25
%
≥ 26.0%, but < 28.5%
≥ 27.0%, but < 29.5%
50
%
≥ 28.5%, but < 29.5%
≥ 29.5%, but < 30.5%
75
%
≥ 29.5%
≥ 30.5%
100
%
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.
ROCE RSUs Vesting in Fiscal Year 2018 (For Fiscal Years 2015-2017)
As a component of the fiscal year 2015 LTI Plan, we granted ROCE RSUs in September 2014. The ROCE RSUs comprised 40% of each Senior Executive Officer’s LTI target and were granted assuming maximum performance (200% of target). Vesting of the ROCE RSUs is dependent on the average ROCE performance for fiscal years 2015-2017 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
% of ROCE RSUs Granted to Vest

< 22.0%
0
%
≥ 22.0%, but < 24.5%
25
%
≥ 24.5%, but < 27.0%
50
%
≥ 27.0%, but < 28.5%
75
%
≥ 28.5%
100
%
Based solely on the average ROCE result for fiscal years 2015-2017 of 29.9%, 100% of the ROCE RSUs granted (or 200% of target) would have vested. However, based on the Remuneration Committee’s assessment of the quality of returns balanced against management’s delivery of market share growth, the Remuneration Committee determined that it would apply negative discretion in the amount of 40%. As such, 60% (or 120% of target) of the outstanding fiscal year 2015 ROCE RSUs vested on 18 September 2017. Unvested ROCE RSUs from this grant were forfeited.









Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
43
 
 

ROCE RSUs Vesting for Fiscal Years 2016-2018
As a component of the fiscal year 2016 LTI Plan, we granted ROCE RSUs in September 2015. The ROCE RSUs comprised 40% of each Senior Executive Officer’s LTI target and were granted assuming maximum performance (200% of target). Vesting of the ROCE RSUs is dependent on the average ROCE performance for fiscal years 2016-2018 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
% of ROCE RSUs Granted to Vest

< 23.0%
0
%
≥ 23.0%, but < 25.0%
25
%
≥ 25.0%, but < 27.5%
50
%
≥ 27.5%, but < 28.5%
75
%
≥ 28.5%
100
%
Based solely on the average ROCE result for fiscal years 2016-2018 of 31.0%, 100% of the ROCE RSUs granted (or 200% of target) would have vested. However, based on the Remuneration Committee’s assessment of the quality of returns balanced against management’s delivery of market share growth, the Remuneration Committee determined that it would apply negative discretion in the amount of 30%. As such, 70% (or 140% of target) of the outstanding fiscal year 2016 ROCE RSUs will vest on 16 September 2018. Unvested ROCE RSUs from this grant will be forfeited.
Relative TSR RSUs (25% of target LTI)
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.
We have used Relative TSR RSUs in our LTI Plan since fiscal year 2009. Consistent with fiscal years 2013 through 2017, the maximum payout for Relative TSR RSUs granted in fiscal year 2018 is 200% of target LTI.


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
44
 
 

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 2018, our relative TSR performance will be measured against the Peer Group over a three year 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
% of Relative TSR RSUs Granted to Vest

< 40th Percentile
0
%
40th Percentile
25
%
> 40th, but < 60th Percentile
Sliding Scale

60th Percentile
50
%
> 60th, but < 80th Percentile
Sliding Scale

≥ 80th Percentile
100
%
No re-testing of fiscal year 2018 relative TSR RSUs is permitted.
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 Vesting in Fiscal Year 2018
As part of the fiscal year 2015 LTI Plan, in September 2014 we granted four and a half 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
% of Relative TSR RSUs Granted to Vest

< 40th Percentile
0
%
40th Percentile
25
%
> 40th, but < 60th Percentile
Sliding Scale

60th Percentile
50
%
> 60th, but < 80th Percentile
Sliding Scale

≥ 80th Percentile
100
%
In September 2017, the first test of relative TSR performance was completed, resulting in our TSR performance at the 50th percentile of the peer group in place at the time. As a result, 37.5% of the outstanding Relative TSR RSUs (or 75% of target) vested.


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
45
 
 

Scorecard LTI (50% of target LTI)
Scorecard LTI have 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 measures 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 (with scores between 0 and 100) 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 from fiscal year 2010, the maximum payout for Scorecard LTI is 300% of 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 years from the grant date and the Senior Executive Officer’s Scorecard rating. At the start of the three-year performance period, we calculate the number of shares 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 rating (between 0 and 100), between 0% and 100% 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 shares 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 2018, 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 2017. An assessment of our Scorecard performance for fiscal years 2016-2018 is set out below. We will provide an explanation of the final assessment of performance under the Scorecard for fiscal years 2018-2020 at the conclusion of fiscal year 2020.


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
46
 
 

Scorecard LTI for Fiscal Years 2016-2018
After fiscal year 2018, the Remuneration Committee reviewed our performance over fiscal years 2016-2018 against the Scorecard objectives set forth in fiscal year 2016, 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 of 34% (with a range of 33% to 36%) out of a possible 100%.
Performance Measure/Rationale
Performance Metric/Results
Board Assessment for the Three-year Period
Grow exterior cladding market share and maintain category share in the US business
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: Primary Demand Growth ("PDG") above market. Outperformance against ‘wood-look’ competition.
    
Result: PDG performance below the Board requirement. Growth above key competition, but a decrease in exterior cladding market share.
Performance below expectations
Build US organizational and leadership capability in support of the 35/90 growth target
The amount of growth that 35/90 entails requires lower turnover levels and an increase in management depth and organizational capability.
Goal: Continued focus on turnover, succession planning, engagement initiatives and programs to build organizational capability demonstrated by greater bench strength of high performing managers.

Result: Slight increase in total turnover over the three year period, however improvement in the critical areas of leadership development and advancing organizational capability.
Performance met expectations
Manufacturing effectiveness and sourcing efficiency
The Company operates a national US network of manufacturing facilities.
Goal: Commercial-in-confidence metrics for product and process efficiency and material yield used to confirm manufacturing performance and progress as well as service levels are effectively supporting our product leadership strategy.

Result: Met PcI/PdI targets, though did not meet First Pass Quality targets during the three year period while focusing on starting-up and commissioning 4 new lines and 600 new manufacturing employees, resulting in a significantly expanded manufacturing network both in scale and capability.

Service surpassed the target in fiscal year 2016, but missed the last two years of the period primarily due to supply/capacity constraints during fiscal year 2017 and the first half of fiscal year 2018.

Performance met expectations
Safety
The safety of our employees is an essential objective of the Company.
Goal: 2.0 or below incident rate (“IR”) and 20.0 or below severity rate (“SR”).

Result: IR SR
FY2018 1.1 20.9
FY2017 1.4 20.5
FY2016 1.8 42.4

One fatality in FY18.
Performance below expectations
 
 
 


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
47
 
 

 
 
 
Performance Measure/Rationale
Performance Metric/Results
Board Assessment for the Three-year Period
Maintain market position on core products in Australian and New Zealand markets and grow Scyon to greater proportion of Australian business
Value creating opportunity.
Goal: Grow category share on core Australian and New Zealand products, grow PDG in Australia and New Zealand, and achieve growth of Scyon as a percentage of the Australian business.

Result: Asia Pacific business has maintained and grown market position in Australia and New Zealand markets over the period driven by a new management focus on new products and segments, and a continued and substantial investment in management capability and marketing programs. Scyon grew as a percentage of the Australian business over the three-year period.
Performance exceeded expectations
Global start-up of capacity additions
Expansion to support expected growth over the next 20 years.
Goal: Completion of building construction, equipment installation and start up at identified sites.
 
Result: The Company expanded global nameplate capacity by ~20% during the three year period. The Company added four brownfield sheet machines in North America and a new sheet machine and new finishing lines in Carole Park over the three year period. The Company’s returns will significantly benefit from identification of brownfield capacity versus adding more expensive greenfield capacity.
Performance exceeded expectations
Strategic positioning
Developing sustainable growth beyond the Company’s traditional markets may create shareholder value through increased profits and diversification for lower risk.
Goal: This measure is subjective and achievement can take many different forms, including developing new technologies, expanding into new product categories, or expanding geographically.

Result: Plans in place to move forward with additional product offerings which show great potential in terms of market acceptance and profitability. Additionally, the acquisition of Fermacell has repositioned our European business for greater growth and expansion.
Performance exceeded expectations
Customer experience
Necessary to support the Company’s 35/90 strategy.
Goal: Demonstrated improvement in the customer experience based on measures set in fiscal years 2015 and 2016.

Result: Customer experience initiatives met expectations. The Customer Experience team was disbanded and the initiatives distributed within operations. Operations has had success in continuing to execute on the customer experience strategy despite challenges associated with demand dampening.
Performance met expectations
 
 
 


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
48
 
 

 
 
 
Performance Measure/Rationale
Performance Metric/Results
Board Assessment for the Three-year Period
Defend market share position against key wood-look competitors
Necessary to support the Company’s 35/90 strategy.
Goal: Outgrow key wood-look competitors in specific markets in the aggregate measured on a calendar year basis.

Result: By the end of the three-year period, the Company’s performance was negatively impacted by our supply constraint.
Performance below expectations
Trim market strategy implementation
Developing sustainable growth beyond the Company’s traditional products.
Goal: Commercial-in-confidence targets will be reviewed to confirm progress is supporting the Company’s trim market strategy.

Result: Performance for the three-year period is above the prior three-year period and continues to grow in key markets.
Performance met expectations
Fiscal Year 2018 Retention Grants subject to extra service criteria
In addition to the above-mentioned annual LTI grants, the Remuneration Committee also determined to issue a non-recurring retention award grant (the “Retention Grant Awards”) to each of Messrs Marsh, Truong, Gadd and Nielsen in fiscal year 2018. In determining to grant these special Retention Grant Awards, the Remuneration Committee carefully considered its desire to maintain a stable management team for the foreseeable future and enhance its co-dependency and cooperation as the Company prepares for its eventual CEO transition process. The number of Retention Grant Awards issued to each of Messrs Marsh, Truong, Gadd and Nielsen were identical to the award amounts and award types granted to such Senior Executive Officers under the LTI Plan for fiscal year 2018 and such Retention Grant Awards contain the same performance-vesting criteria; however, with additional service-vesting criteria. Specifically, at the end of the applicable three-year performance period, James Hardie will determine the amount and type of Retention Grant Awards available for vesting based on the established performance criteria and any Retention Grant Awards which are unavailable for vesting based on the performance criteria will be forfeited. Thereafter, one-third of such Retention Grant Awards will vest and be converted into shares of common stock or cash, as the case may be, and the remaining Retention Grant Awards will vest ratably on each of the fourth and fifth anniversaries of the grant date, subject to the applicable Senior Executive Officer’s continued employment with James Hardie.
Fiscal Year 2018 Retention Grants
 
ROCE RSUs

TSR RSUs

Scorecard LTI Units

M Marsh
40,932

74,071

122,797

S Gadd
27,288

49,380

81,865

J Truong
34,110

61,726

102,331

Z Nielsen
34,110

61,726

102,331



Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
49
 
 

CHANGES TO REMUNERATION FOR FISCAL YEAR 2019
Remuneration for Fiscal Year 2019
During May 2018, 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 2019.
CEO Compensation
For fiscal year 2019, there will be no changes to the CEO’s base salary, target STI or target LTI.
Other Senior Executive Officer Compensation
Base pay and target STI increases in fiscal year 2019 for other Senior Executive Officers are as follows:
 
Base Salary
Target STI
Name
Fiscal Year 2018 (US$)
Fiscal Year 2019 (US$)
Fiscal Year 2018 (US$)
Fiscal Year 2019 (US$)
M Marsh
600,000

630,000

70
%
75
%
S Gadd
500,000

525,000

60
%
No change

J Truong
600,000

630,000

70
%
75
%
Z Nielsen
500,000

525,000

60
%
No change

There are no changes to target LTI for the Senior Executive Officers for fiscal year 2019. Base salary increases for Messrs Marsh, Gadd, Truong and Nielsen were made in line with our annual compensation review guidelines and were adjusted as required to maintain positioning relative to market merit increase levels. The target STI increases for Messrs Marsh and Truong were made to continue to align compensation packages with our CEO succession plan and our need to retain key senior executives through the eventual CEO transition process.
STI Plans

Given the acquisition of Fermacell on 3 April 2018, the CP plan for fiscal year 2019 will include payout matrices for our European businesses based on revenue and returns, similar in nature to the US and Asia Pacific plans. Payouts under the European matrix may range from 0 to 300%.

The Remuneration Committee has also implemented a circuit breaker for the US business which will prevent any fiscal year 2019 CP bonus from being paid to participants tied to the US multiple if performance on the Growth Measure does not meet the minimum threshold set by the Remuneration Committee. In the event of a zero payout for the US multiple, the US multiple used in the calculation of any composite multiple will also be zero.

For fiscal year 2019, all Senior Executive Officers will continue to be tied to either the US multiple (Messrs Gadd and Nielsen) or a composite multiple derived from the metrics for the US, Asia Pacific and European businesses combined (75% US, 15% Asia Pacific and 10% European for Messrs Gries and Marsh; 30% US, 40% Asia Pacific and 30% European for Mr Truong).


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
50
 
 

There will be no other changes to the operation of the IP or CP Plans for fiscal year 2019 with the exception of establishing new commercial-in-confidence targets aligned with our strategic initiatives as we do every year.
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 JHI plc’s assets (ROCE RSU component), and (iii) emphasize strategic long-term priorities (Scorecard LTI component). As such, the fiscal year 2019 LTI Plan is consistent with the plan for fiscal year 2018, with minor updates to ROCE RSU hurdles and Scorecard objectives.
The 2018 Notice of AGM contains further details on the Relative TSR RSU and ROCE RSU grants for fiscal year 2019. Changes to ROCE performance hurdles and Scorecard objectives for fiscal year 2019 are set forth below.
Changes to LTI Variable Compensation for Fiscal Year 2019
ROCE RSUs
To incorporate the impact of the Fermacell acquisition into the three-year plan, the Remuneration Committee adjusted the hurdles for fiscal year 2019 ROCE RSUs (for performance in fiscal years 2019 to 2021) from the hurdles for fiscal year 2018 ROCE RSUs as follows:
Fiscal Years 2019-2021 ROCE
Fiscal Years 2018-2020 ROCE
% of ROCE RSUs Granted to Vest

< 24.0%
< 25.0%
0
%
≥ 24.0%, but < 26.0%
≥ 25.0%, but < 27.0%
25
%
≥ 26.0%, but < 27.5%
≥ 27.0%, but < 29.5%
50
%
≥ 27.5%, but < 28.5%
≥ 29.5%, but < 30.5%
75
%
≥ 28.5%
≥ 30.5%
100
%
The Remuneration Committee believes the adjusted hurdles continue to require management to deliver improved and sustainable operational efficiencies after adjustment for the Fermacell acquisition.



Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
51
 
 

Scorecard LTI
The Remuneration Committee has set the following seven fiscal year 2019 Scorecard goals (for performance in fiscal years 2019 to 2021) to ensure alignment with our strategic priorities:
Performance Goal/Rationale
Performance Metric
Board Expectation
Deliver 3 Key Global Initiatives: Scaling the Company for Sustainable Future Growth.

Changing the Company culture to include the engagement of a broader management group to drive how work is done.
Safety
A Global Standard in place for safety. One Company Approach is evident.

JH Operating System
A sustainable and integrated approach to strategic planning process, people management process, and operating the Company.

Project Engage
Develop, retain and hire next generation JH talent and build high-performing GMT.
Safety
See “Zero Harm” goal below.

JH Operating System
A Company-wide process linking a business plan with talent management and a rigorous and disciplined operating calendar resulting in predictable execution.

A Company-wide process to assess employee performance, and linked to talent management processes and strategies.

Project Engage
See “People” goal below.
Accelerate North America Fiber Cement Organic Growth Rates: Growing market share in all our businesses and geographies.

A key strategy for the Company is to maximize market share of the exterior cladding market for new housing starts and for repair & remodel markets in North America, while striving for 90% category share.
Our PDG performance for exterior cladding compared to the underlying market (in standard feet) and outperformance of key competition, and volume growth of our interiors business.
PDG growth above market and outperformance against key competition for exterior cladding and positive volume growth for our interiors business.
People: Continue to invest in the development and promotion of our people.

The ability for the Company to realize its growth potential and deliver results in line with shareholder expectations requires higher engagement, lower turnover, an increase in management depth, and greater organizational capability.
A range of factors including the rate of salaried turnover, execution of programs to build organizational capability and bench strength for key roles, and succession planning.
Continued focus on turnover and engagement initiatives, success in external recruitment, onboarding of key positions and programs to build organizational capability, and development of/successful execution on a management team succession plan.
Zero Harm
The safety of our employees is an essential objective of the Company.
Days Away Restricted Duty (DART): the number of recordable incidents per 100 fulltime employees that resulted in lost or restricted days or job transfer due to work related injuries or illnesses.

Fleet Incident Rate (Fleet IR): incidents per miles driven.

Employee engagement on safety.
DART: 0.20 in FY2021.

Fleet IR: 5.47 in FY2021.

Employee engagement: 85% in FY2021.
 
 
 


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
52
 
 

 
 
 
Performance Goal/Rationale
Performance Metric
Board Expectation
Hardie Advantage Manufacturing: An unrivalled commitment to research and development; maintaining our manufacturing cost advantage; delivering industry leading quality and service levels; investing in future manufacturing capability and capacity; utilizing technology to better improve our customers’ experiences with us; and ensuring we meet our financial returns objective.

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.
Completion of capacity projects on budget and schedule. First pass quality and service, as well as sheet machine product and process efficiency metrics.
Manufacturing performance data is commercial-in-confidence.
Commercial-in-confidence targets will be reviewed to confirm progress is supporting the Company’s product leadership strategy.
Asia Pacific: Pursue organic growth in Asia Pacific markets.

Value creating opportunity.
Category share and PDG,
continued growth of Scyon and introduction and growth of new products in Asia Pacific, and maintain supply ahead of demand. Manufacturing performance data is commercial-in-confidence.
Maintain category share and PDG on core Australian and New Zealand products.

Achieve growth in Scyon as well as the introduction of new products in Asia Pacific.

Commercial-in-confidence targets will be reviewed to confirm progress is supporting the Company’s product leadership strategy.
JH Europe: Successfully integrate and grow the Fermacell business and develop a business plan to manufacture fiber cement products that meet European market needs.

Long-term growth of James Hardie in part requires growth businesses beyond North America and Asia Pacific core fiber cement.
Fiber gypsum market share growth in targeted countries.

Deliver fiber gypsum business case for EBIT and cash flow.
Increase in sales revenue and EBIT over the three-year period and progress with the development of the Europe business plan, including local R&D and manufacturing capability.


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
53
 
 

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 2018 LTI grants made to Messrs Gries and Marsh, as well as all Retention Grant Awards, 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 2019, all LTI grants made to members of the GMT will be subject to this 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


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
54
 
 

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 2018, all Senior Executive Officers have either achieved the minimum share ownership threshold or are within the initial five year accumulation period.
Equity Award Practices
Annual equity awards under the LTI Plan are generally approved by the Remuneration Committee in May of each year 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 2018. There are no loans outstanding to Senior Executive Officers.
Employment and Severance Arrangements
During fiscal year 2018, we maintained employment agreements with each of Messrs Gries and Marsh. 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 Louis Gries
Below is a summary of the key terms of Mr Gries’ current employment agreement:
•
Executive Employment Agreement renewed effective as of 14 October 2010 providing for service as Chief Executive Officer.
•
Mr Gries 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$950,000, 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.
•
Provisions concerning consequences of termination of employment under specified circumstances, including: (i) termination by the Company for cause; (ii) termination by reason of death or disability; (iii) retirement; (iv) termination by the Company without cause or by Mr Gries with good reason; or (v) termination by Mr Gries without good reason.
•
In the event that Mr Gries’ employment is terminated by the Company for any reason other than for cause, or if Mr Gries voluntarily terminates his employment for good reason, the Company shall pay to Mr Gries, in addition to any compensation or reimbursements he would otherwise be entitled to up to the date of termination: (i) an amount equal to 150% of his then current base salary; (ii) an amount equal to 150% of his average annual STI bonus actually paid, calculated based on the three full fiscal years immediately preceding the year of termination; (iii) his prorated bonus; (iv) no pro rata forfeiture of his unvested RSUs/Scorecard LTI grants - these will vest in accordance with the terms and timing of the specific grants; and (v) continuation of health and medical benefits at the


Table of Contents

 
 
James Hardie 2018 Annual Report on Form 20-F
55
 
 

Company’s expense for the duration of the consultation agreement referenced below, provided that Mr Gries signs the Company’s release of claims without revocation and has been and continues to remain in compliance with his confidentiality and noncompetition obligations as set forth in this agreement.
•
In the event of Mr Gries’ retirement after the age of 65, or prior to age 65 with the approval of the Board, his then unvested RSUs and awards will not be forfeited and will be held through the applicable testing periods.
•
In the event that Mr Gries’ employment is terminated for any reason other than by the Company for cause or due to his death, in addition to any severance payment he may be entitled to as set forth above, the Company and Mr Gries each agree to enter into a consulting arrangement for a minimum of two years, as long as Mr Gries adheres to certain non-competition and confidentiality provisions and executes a release of claims following the effective date of termination. Under the consulting agreement, Mr Gries will receive his annual target STI bonus and annual base salary in exchange for his consulting services and non-compete.
Employment Agreement with Matt Marsh
Below is a summary of the key terms of Mr Marsh’s current employment agreement:
•
Effective 15 May 2016, the Company entered into an employment agreement with Mr Marsh (the “Marsh Agreement”), which has an initial term of three years and automatic one year renewals thereafter unless either Mr Marsh or the Company notifies the other party at least 90 days before the expiration date that the Marsh Agreement is not to be renewed. In the event that the Company is the party that determines not to renew, such non-renewal shall be treated as a termination without “Cause” (as defined in the Marsh Agreement) and subject to the termination without “Cause” provisions of the Marsh Agreement.
•
The Marsh Agreement provides for a base salary of not less than US$560,000, or such greater amount as may be established by the Remuneration Committee, for Mr Marsh. The base salary shall be reviewed annually for increase in the discretion of the Remuneration Committee. Additionally, Mr Marsh shall be eligible for an annual STI award with payout opportunities that are commensurate with his position and duties, with a minimum target annual STI award opportunity of not less than 70% of this the current base salary. Mr Marsh shall also be eligible to participate in our annual LTI plan on terms commensurate with his position and duties, with a minimum annual target LTI award opportunity of not less than US$1,200,000.
•
Mr Marsh shall be eligible for participation in our employee benefit, health and welfare plans and certain fringe benefits made generally available to Senior Executive Officers in accordance with Company policies.
•
The Marsh Agreement contains provisions concerning the consequences of termination of employment under specified circumstances, including: (i) termination by the Company for Cause; (ii) termination by reason of death or disability; (iii) termination by the Company without Cause or by Mr Marsh with “Good Reason” (as defined in the Marsh Agreement); or (iv) termination by Mr Marsh without Good Reason. In particular, in the event the Company terminates Mr Marsh without Cause or Mr Marsh voluntarily terminate