UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
OR
For the fiscal year ended 31 March 2020
OR
OR
Date of event requiring this shell company report
For the transition period from to
Commission file number 1-15240
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
Corporate Secretary
(Contact name)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class: | Trading Symbol: | Name of each exchange on which registered: |
Common stock, represented by CHESS Units of Foreign Securities | JHX | New York Stock Exchange* |
CHESS Units of Foreign Securities | JHX | New York Stock Exchange* |
* Listed, not for trading, but only in connection with the registered American Depositary Shares, pursuant to the requirements of the U.S. Securities and Exchange Commission | ||
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ Yes ☒ No
Note — Checking the box will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
☒ | ||
Accelerated filer | ☐ | |
Non-accelerated filer | ☐ | |
Emerging growth company | ||
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after 5 April 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
☒ | ||
International Financial Reporting Standards as issued by the International Accounting Standards Board | ☐ | |
Other | ☐ | |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
☐ Item 17 ☐ Item 18
If this is an Annual Report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
2020
ANNUAL REPORT
ON FORM 20-F
TABLE OF CONTENTS
Page(s) | |
FORM 20-F CROSS REFERENCE
Page(s) | |
PART 1 | |
Item 1. Identity of Directors, Senior Management and Advisers | Not applicable |
Item 2. Offer Statistics and Expected Timetable | Not applicable |
Item 3. Key Information | |
A. 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 | 148-166 |
Item 4. Information on the Company | |
A. History and Development of the Company | 4-5; 17-18; 189 |
B. Business Overview | 6-13 |
C. Organizational Structure | 5; 14 |
D. Property, Plants and Equipment | 15-18; 89 |
Item 4A. Unresolved Staff Comments | None |
Item 5. Operating and Financial Review and Prospects | |
A. Operating Results | 77-86 |
B. Liquidity and Capital Resources | 86-91 |
C. Research and Development, Patents and Licenses, etc. | 12 |
D. Trend Information | 91 |
E. Off-Balance Sheet Arrangements | 91 |
F. Tabular Disclosure of Contractual Obligations | 92 |
G. Safe Harbor | 70-71 |
Item 6. Directors, Senior Management and Employees | |
A. Directors and Senior Management | 19-29 |
B. Compensation | 30-46 |
C. Board Practices | 24-29; 47-69 |
D. Employees | 171 |
E. Share Ownership | 43-46 |
Item 7. Major Shareholders and Related Party Transactions | |
A. Major Shareholders | 193-195 |
B. Related Party Transactions | 59 |
C. Interests of Experts and Counsel | Not Applicable |
Item 8. Financial Information | |
A. Consolidated Statements and Other Financial Information | 93-146; 178-179 |
B. Significant Changes | None |
Item 9. The Offer and Listing | |
A. Offer and Listing Details | 171-173 |
B. Plan of Distribution | Not Applicable |
C. Markets | 172 |
D. Selling Shareholders | Not Applicable |
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 | 174-181 |
C. Material Contracts | 181 |
D. Exchange Controls | 181-182 |
E. Taxation | 182-189 |
F. Dividends and Paying Agents | Not Applicable |
G. Statement by Experts | Not Applicable |
H. Documents on Display | 189 |
I. Subsidiary Information | Not Applicable |
Item 11. Quantitative and Qualitative Disclosures About Market Risk | 190-192 |
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 | 172-173 |
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 | 169-170 |
Item 16A. Audit Committee Financial Expert | 63 |
Item 16B. Code of Ethics | 61-62 |
Item 16C. Principal Accountant Fees and Services | 147 |
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 | 47-69 |
Item 16H. Mine Safety Disclosures | 16-17 |
PART III | |
Item 17. Financial Statements | Not Applicable |
Item 18. Financial Statements | 93-146 |
Item 19. Exhibits | 198-203 |
SECTION 1
INTRODUCTION
James Hardie Industries plc is a world leader in the manufacture of fiber cement siding and backerboard and a market leader in Europe for fiber gypsum products. 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. We also manufacture fiber gypsum products that are used in a variety of applications such as dry lining walls, timber frame walls and flooring applications. 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; the term “A$” refers to Australian dollars; and the term "EUR" or “€” refers to Euro.
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 2020 and 2019, and our consolidated statements of operations and comprehensive income, cash flows and changes in shareholders’ equity (deficit) for each of the years ended 31 March 2020, 2019 and 2018, 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.
Consolidated Statement of Operations Data (Millions of US dollars) | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||
Net sales | $ | 2,606.8 | $ | 2,506.6 | $ | 2,054.5 | $ | 1,921.6 | $ | 1,728.2 | ||||||||||
Income from operations1 | 241.5 | 228.8 | 146.1 | 276.5 | 244.4 | |||||||||||||||
Net income1 | $ | 241.5 | $ | 228.8 | $ | 146.1 | $ | 276.5 | $ | 244.4 | ||||||||||
Consolidated Balance Sheet Data (Millions of US dollars) | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||
Total assets | $ | 4,028.3 | $ | 4,032.6 | $ | 2,351.0 | $ | 2,012.7 | $ | 2,029.4 | ||||||||||
Net assets (liabilities) | 1,035.3 | 974.4 | (221.5 | ) | (212.2 | ) | (225.2 | ) | ||||||||||||
Common stock | $ | 230.6 | $ | 230.0 | $ | 229.5 | $ | 229.1 | $ | 231.4 | ||||||||||
Shares (Millions) | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||
Basic weighted average number of common shares | 442.6 | 441.9 | 441.2 | 442.7 | 445.3 | |||||||||||||||
Diluted weighted average number of common shares | 444.1 | 443.0 | 442.3 | 443.9 | 447.2 | |||||||||||||||
Earnings Per Share (US dollar) | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||
Income from operations per common share – basic | $ | 0.55 | $ | 0.52 | $ | 0.33 | $ | 0.62 | $ | 0.55 | ||||||||||
Net income per common share – basic | 0.55 | 0.52 | 0.33 | 0.62 | 0.55 | |||||||||||||||
Income from operations per common share – diluted | 0.54 | 0.52 | 0.33 | 0.62 | 0.55 | |||||||||||||||
Net income per common share – diluted | 0.54 | 0.52 | 0.33 | 0.62 | 0.55 | |||||||||||||||
Dividends declared per share | 0.36 | 0.40 | 0.38 | 0.39 | 0.58 | |||||||||||||||
Dividends paid per share | $ | 0.36 | $ | 0.40 | $ | 0.38 | $ | 0.39 | $ | 0.58 | ||||||||||
Other Financial Data | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||
Cash Flow (Millions of US dollars) | ||||||||||||||||||||
Net cash provided by operating activities2 | $ | 451.2 | $ | 304.0 | $ | 308.5 | $ | 382.5 | $ | 222.9 | ||||||||||
Net cash used in investing activities2 | (203.8 | ) | (864.4 | ) | (245.5 | ) | (109.0 | ) | (66.6 | ) | ||||||||||
Net cash (used in) provided by financing activities | $ | (179.0 | ) | $ | 364.2 | $ | 60.6 | $ | (210.0 | ) | $ | (121.2 | ) | |||||||
Volume (million square feet) | ||||||||||||||||||||
North America Fiber Cement | 2,481.6 | 2,308.1 | 2,238.8 | 2,215.4 | 1,969.2 | |||||||||||||||
Asia Pacific Fiber Cement3 | 532.6 | 546.1 | 494.7 | 448.2 | 449.6 | |||||||||||||||
Asia Pacific Fiber Cement excluding4 | 532.6 | 546.1 | 494.7 | 448.2 | 439.8 | |||||||||||||||
Europe Building Products5 | 827.5 | 815.8 | 34.0 | 39.0 | 31.3 | |||||||||||||||
Net Sales (Millions of US dollars) | ||||||||||||||||||||
North America Fiber Cement | $ | 1,816.4 | $ | 1,676.9 | $ | 1,578.1 | $ | 1,493.4 | $ | 1,335.0 | ||||||||||
Asia Pacific Fiber Cement3 | 418.4 | 446.8 | 425.4 | 370.6 | 341.9 | |||||||||||||||
Asia Pacific Fiber Cement excluding4 | 418.4 | 446.8 | 425.4 | 370.6 | 336.8 | |||||||||||||||
Europe Building Products5 | 371.4 | 368.3 | 36.3 | 41.2 | 37.5 | |||||||||||||||
Other Businesses6 | $ | 0.6 | $ | 14.6 | $ | 14.7 | $ | 16.4 | $ | 13.8 | ||||||||||
Average sales price per unit (per thousand square feet) | ||||||||||||||||||||
North America Fiber Cement | $ | 725 | $ | 718 | $ | 698 | $ | 665 | $ | 669 | ||||||||||
Asia Pacific Fiber Cement3 | 700 | 724 | 762 | 758 | 709 | |||||||||||||||
Asia Pacific Fiber Cement excluding4 | 700 | 724 | 762 | 758 | 713 | |||||||||||||||
Europe Building Products5 | $ | 345 | $ | 354 | $ | 950 | $ | 977 | $ | 986 | ||||||||||
____________
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, asset impairment charges and product line discontinuation expenses, New Zealand weathertightness claims and related tax adjustments. |
(Millions of US dollars) | ||||||||||||||||||||
Other Financial Data | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||
Asbestos adjustments (expense) benefit | $ | (58.2 | ) | $ | (22.0 | ) | $ | (156.4 | ) | $ | 40.4 | $ | 5.5 | |||||||
AICF SG&A expenses | (1.7 | ) | (1.5 | ) | (1.9 | ) | (1.5 | ) | (1.7 | ) | ||||||||||
AICF interest income (expense) | 1.4 | 2.0 | 1.9 | (1.1 | ) | (0.3 | ) | |||||||||||||
Loss on early debt extinguishment | — | (1.0 | ) | (26.1 | ) | — | — | |||||||||||||
Fermacell acquisition costs | — | — | (10.0 | ) | — | — | ||||||||||||||
Asset impairment charges and product line discontinuation expenses | (84.4 | ) | (29.5 | ) | — | — | — | |||||||||||||
New Zealand weathertightness claims | — | — | — | — | (0.5 | ) | ||||||||||||||
Tax adjustments | $ | 31.6 | $ | (19.7 | ) | $ | 47.3 | $ | (9.9 | ) | $ | (1.5 | ) | |||||||
For additional information on asbestos adjustments, AICF SG&A expenses, AICF interest income (expense), loss on early debt extinguishment, asset impairments and product line discontinuation and New Zealand weathertightness, see “Section 2 – Management’s Discussion and Analysis” and Notes 2, 7, 8, 11, 13, 15 and 19 to our consolidated financial statements in Section 2.
2 | Net cash provided by operating activities and net cash used in investing activities have been revised for fiscal years 2019 and 2018 to correct the amount of purchases of property, plant and equipment which were not yet paid. The Company concluded that the error did not have a material impact on the previously reported statement of cash flows for fiscal years 2019 and 2018 or affect the trend of financial results. See Note 2 to our consolidated financial statements in Section 2 for details on the immaterial change in statement of cash flow line items. |
3 | Asia Pacific 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. |
4 | Excludes the Australian Pipes business which we sold in the first quarter of fiscal year 2016. |
5 | Europe Building Products segment includes our Fermacell business acquired in April 2018 and our fiber cement products manufactured in the United States that are sold in Europe. |
6 | The Other Businesses segment ceased to be an operating and reportable segment effective 31 March 2020 due to the Company's completion of its exit of its non-fiber cement manufacturing and sales activities in North America, including fiberglass windows. |
.
INFORMATION ON THE COMPANY
History and Development of the Company
About James Hardie
James Hardie Industries plc is incorporated and existing under the laws of Ireland. As an Irish plc, we are governed by the Irish Companies Act 2014 and we operate under the regulatory requirements of numerous jurisdictions and organizations, including the Australian Securities Exchange ("ASX"), Australian Securities and Investments Commission ("ASIC"), the New York Stock Exchange (“NYSE”), the United States Securities and Exchange Commission (“SEC”), the Irish Takeover Panel and various other rulemaking bodies.
The address of our registered office in Ireland is Europa House, Second Floor, Harcourt Centre, Harcourt Street, Dublin 2, D02 WR20, Ireland. The telephone number is +353 1411 6924. Our agent in the United States is CT Corporation. Its office is located at 28 Liberty Street - 42nd Floor, New York, New York 10005. The address of our registered office in Australia is Level 20, 60 Castlereagh Street, Sydney NSW 2000 and the telephone number is +61 2 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. Since then, we have expanded our product portfolio and global footprint, with fiber cement manufacturing plants across the United States, Australia, New Zealand and the Philippines. In April 2018, we completed the acquisition of Fermacell, a market leader in fiber gypsum and cement-bonded boards in Europe. Today, James Hardie is a leading global manufacturer of a wide range of fiber cement and fiber gypsum building products in each of the United States, Australia, Europe, New Zealand and the Philippines.
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 2020:
Business Overview
General Overview of Our Business
We are a world leader in the manufacture of fiber cement building materials. Based on net sales, we believe we are the largest manufacturer of fiber cement products and systems for 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 brand names, such as HardiePlank®, HardiePanel®, HardieTrim® and HardieBacker® boards, and other brand names such as Aspyre Collection by James Hardie™, Artisan®, Reveal®, Cemplank®, Scyon® and Linea®. We are also a market leader in the European premium dry lining business, especially in Germany and Switzerland. We market our fiber gypsum and cement-bonded boards under the Fermacell® brand and our fire-protection boards under the AESTUVER® brand.
The breakdown of our net sales by operating segment for each of our last three fiscal years is as follows:
(Millions of US dollars) | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
North America Fiber Cement | $ | 1,816.4 | $ | 1,676.9 | $ | 1,578.1 | ||||||
Asia Pacific Fiber Cement | 418.4 | 446.8 | 425.4 | |||||||||
Europe Building Products | 371.4 | 368.3 | 36.3 | |||||||||
Other Businesses1 | 0.6 | 14.6 | 14.7 | |||||||||
Total Net Sales | $ | 2,606.8 | $ | 2,506.6 | $ | 2,054.5 | ||||||
____________
1 | The Other Businesses segment ceased to be an operating and reportable segment effective 31 March 2020. |
Products
We manufacture fiber cement, fiber gypsum and cement bonded boards. Our fiber cement building materials includes a wide-range of products for both internal and external use across a broad range of applications, including: external siding, internal walls, floors, ceilings, soffits, trim, decking and facades. While there are some market specific products, our core fiber cement products, planks and flat panels are sold across all of the markets in which we operate. Our fiber gypsum and cement-bonded boards are used mainly for interior applications such as dry lining walls, walls in timber frame buildings and flooring solutions. In addition, our cement-bonded boards are used in exterior and industrial applications as well as for fire protection.
Products Used in External Applications
We developed a proprietary technology platform that enables us to produce thicker yet lighter-weight fiber cement products that are generally easier to handle than most traditional building products. Further, we believe that our fiber cement products provide certain durability and performance advantages leading to improved maintenance, while offering comparable aesthetics to competing products, such as wood, and superior aesthetics when compared to vinyl siding.
Performance and design advantages:
• | Our fiber cement products exhibit resistance to the damaging effects of moisture, fire, impact and termites compared to natural and engineered wood and wood-based products; |
• | Competing products do not duplicate fiber cement aesthetics 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; |
• | The surface properties of our products provide an effective paint-holding finish, especially when compared to natural and engineered wood products, allowing for greater periods of time between necessary maintenance and repainting; and |
• | Compared to masonry construction, fiber cement is lightweight, physically flexible and can be cut using readily available tools, making our products more appealing across a broad range of architectural styles, be it of timber or steel-framed construction. |
We believe the benefits associated with our fiber cement products have enabled us to gain a competitive advantage over competing products.
Products Used in Internal Applications
Compared to natural and oriented strand board ("OSB") and wood-based products, we believe our product range for internal applications provide the same general advantages provided by our products for external applications. In addition, our fiber cement products for internal applications exhibit less movement in response to exposure to moisture and impact damage than many competing products, providing a more consistent and durable substrate on which to install tiles. Further, we believe our ceramic tile underlayment products exhibit better handling and installation characteristics compared to fiberglass mesh cement boards. We believe our fiber gypsum products offer superior stability, fire safety and sound insulation properties compared to OSB and gypsum plaster boards. Furthermore, we believe our fiber gypsum flooring solutions offer superior handling properties, especially in the modernization of existing buildings, compared to wet screed solutions.
Significant New Products
In the United States, new products released over the last three years include Hydrodefense HardieBackerTM, expanded ColorPlus offering through the Dream CollectionTM and Statement CollectionTM higher ventilation VentedPlus HardieSoffitTM. In addition, we also launched the Aspyre Collection by 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 growing product lines Stria® cladding and Axon® cladding have been launched to increase design versatility in line with Modern design trends with Stria® Splayed 255mm and Axon® Grained 133mm cladding, respectively. More recently, we expanded our exteriors offer with looks, ExoTec® VeroTM façade panel, a pre-finished concrete look panel and EasyTex™ panel, a revolutionary fiber cement panel embedded with a fine texture to deliver a modern render design aesthetic.
In Australia, we have also launched performance systems and accessories as part of our HardieSmart® range that enable high performance solutions with low wall footprint for narrow land lots, these aim to include HardieFire® Insulation, HardieBreak® Thermal Strip, as well as the HardieSmart® Boundary, Aged Care, Intertenancy and ZeroLot® Wall Systems. Lastly, building on New Zealand’s success, RABTM board was launched in Australia, a fiber cement rigid air barrier that can be used beneath cladding, providing added protection against the elements. This panel is sealed with James Hardie’s innovative CoreShield® penetrating sealer technology.
In New Zealand, over the same timeframe, the growing Secura® flooring line in Australia was launched in the region including both Secura® Interior Flooring and Secura® Exterior Flooring, and the Trim and RAB® lines were expanded by launching Axent® Fascia, HomeRABTM 4.5mm Pre Cladding, respectively.
In the Philippines, new products released over the past three years include the Hardieflex® Filled Wall System (a permanent formwork wall system tailored for the Philippines market), Hardieflex® Wet Area Walls lining
and Hardieflex® Vented Eaves. An improved version of their wall jointing compound has been launched under the HardieFlex® putty trademark.
In Europe, new fiber cement products released over the past three years include HardieWindbreaker™ sheathing board and associated accessories, a solution to provide the next generation in weather defense for buildings, along with HardieFoamTM, a solution for install of HardieBacker®. In our Fermacell business, new products released over the last three years include AESTUVER® Tx board, a key milestone for our fire protection boards offering.
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 external 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 70%, 67% and 77% of our total net sales in fiscal years 2020, 2019 and 2018, respectively. The year-over-year change from fiscal year 2018 to fiscal year 2019 in the percentage of net sales attributable to our North America sales was primarily a result of our Fermacell acquisition.
In the US and Canada, competition in the external siding market comes primarily from substitute products, such as natural wood or OSB, vinyl, stucco and brick. We believe we can continue to increase our market share from these competing products through targeted marketing programs designed to educate customers on our brand and the performance, design and cost advantages of our products.
Asia Pacific
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 cladding, internal walls, ceilings, floors, soffits 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.
Europe
In April 2018, we completed the acquisition of Fermacell, a market leader in fiber gypsum and cement-bonded boards in Europe. Similar to 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’s products comprise fiber gypsum and cement-bonded boards, two complementary products in the high performance board space, mainly used in: (1) timber frame construction; (2) dry lining applications; (3) Do-It-Yourself ("DIY"); and (4) structural fire protection. Fermacell’s products are sold into the residential repair and remodel, commercial and residential new construction markets.
Fermacell’s key markets in Europe include Germany, Switzerland, UK, Denmark, France, Belgium, Netherlands and Luxembourg, where we sell our products to residential and commercial new-build as well as to repair and remodel. In addition, our fire protection AESTUVER® boards are sold to projects worldwide.
In Europe, our fiber cement building products are used in both residential and commercial building applications in external siding, internal walls, floors and soffits. We compete in most segments, except roofing, and promote the use of fiber cement products against traditional masonry and wood-based 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.
Seasonality
On a consolidated basis we do not have significant seasonality, however we do see shifts in our segments within the year. Our businesses 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. In Europe, the quarter ending September is affected by summer holidays and the quarter ending December is affected by a slow-down in construction activities around calendar year-end holidays. Also, general industry patterns can be affected by weather, economic conditions, industrial disputes and other factors. See “Section 3 – Risk Factors.”
Raw Materials
The principal raw materials used in the manufacture of our fiber cement products are cellulose fiber (wood-based pulp), silica (sand), Portland cement and water. The key raw materials used in the manufacture of our fiber gypsum products are gypsum, recycled paper and water. We have established supplier relationships for all of our raw materials across the various markets in which we operate, and we do not anticipate having difficulty in obtaining our required raw materials from these suppliers. The purchase price of these raw
materials and other materials can fluctuate depending on the supply-demand situation at any given point in time.
We work hard to reduce the effect of both price fluctuations and supply interruptions by entering into contracts with qualified suppliers and through continuous internal improvements in both our products and manufacturing processes.
Cellulose Fiber
Reliable access to specialized and consistent quality pulp is critical to the production of fiber cement building materials. As a result of our many years of experience and expertise in the industry, we share our internal expertise with pulp producers in New Zealand, the United States, Canada and Chile to ensure they are able to provide us with a highly specialized and proprietary formula crucial to the reinforcing cement matrix of our fiber cement products. We have confidentiality agreements with our pulp producers, and we have obtained patents in the United States and in certain other countries covering certain unique aspects of our pulping formulas and processes that we believe cannot adequately be protected through confidentiality agreements. However, we cannot be assured that our intellectual property and other proprietary information will be protected in all cases. See “Section 3 – Risk Factors.”
Silica
High purity silica is sourced locally by the various production plants. In the majority of locations, we use silica sand as a silica source. In certain other locations, however, we process quartz rock and beneficiate silica sand to ensure the quality and consistency of this key raw material.
Cement
Cement is acquired in bulk from local suppliers. We continue to evaluate options on agreements with suppliers for the purchase of cement that can lock in our cement prices over longer periods of time.
Water
We primarily use local water supplies and process all wastewater to comply with environmental requirements.
Gypsum
The primary types of gypsum used in the production of our fiber gypsum products are natural and synthetic gypsum. Natural gypsum is extracted and processed in Germany and Spain. Synthetic gypsum is obtained from coal-fired power plants in Germany, Poland and the Netherlands. While synthetic gypsum will be phased out due to the coal power plant phase-out in the European Union, we are well positioned for the future with natural gypsum sources. In Germany, we have secured long-term contracts for the supply of natural gypsum and we have invested in a natural gypsum mine in Spain.
Recycled Paper
Recycled paper is generally acquired from local suppliers and we currently maintain long-term contracts with our key suppliers.
Sales, Marketing and Distribution
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, France, Denmark and Germany. In addition, in the past fiscal year, we have sold fiber cement products in several other markets, including Switzerland, the Middle East, South Korea, Taiwan, Hong Kong and various Pacific Islands. The principal markets for our fiber gypsum products are in Europe, including Germany, Switzerland, Denmark, France, Belgium, Netherlands, Luxembourg and the United Kingdom.
Our brand names, customer education in comparative product advantages, differentiated product range and customer service, including technical advice and assistance, provide the basis for our marketing strategy.
We offer our customers support through a specialized fiber cement and fiber gypsum sales force and customer service infrastructure in North America, Australia, New Zealand, the Philippines and Europe.
Our customer service infrastructure includes inbound customer service support coordinated nationally in each country, and is complemented by outbound telemarketing capability. Within each regional market, we provide sales and marketing support to building products dealers and lumber yards and also provide support directly to the customers of these distribution channels, principally homebuilders and building contractors.
We maintain dedicated regional sales management teams in our major sales territories, 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 North America, 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 North America are typically sold through the large home center retailers and specialist distributors. Our products are distributed across North America primarily by road and, to a lesser extent, by rail.
In Australia and New Zealand, both new construction and repair and remodel products are 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, DIY 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.
In Europe, both new construction and repair and remodel products are primarily sold to builder’s merchants and DIY type stores. These customers then sell the products to applicators such as dry liners, timber frame companies, smaller applicators and end consumers. Our products are distributed across Europe primarily by road and rail and, to a lesser extent, by sea transport.
Despite the fact that distributors and dealers are generally our direct customers, we also aim to increase primary demand for our products by marketing our products directly to homeowners, architects and builders. We encourage them to specify and install our products because of the quality and craftsmanship of our products.
Geographic expansion of our fiber cement business has occurred in markets where framed construction is prevalent for residential applications or where there are opportunities to change building practices from masonry to framed construction. Expansion is also possible where there are direct substitution opportunities irrespective of the methods of construction. 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 new ways to make existing and new products. As such, we expect to continue allocating significant funding to these endeavors.
Our current patent portfolio is based mainly on fiber cement compositions, associated manufacturing processes and the resulting products. Our non-patented technical intellectual property consists primarily of our operating and manufacturing know-how and raw material and operating equipment specifications, all of which are maintained as trade secret information. We have enhanced our abilities to effectively create, manage and utilize our intellectual property and have implemented a strategy that increasingly uses patenting and trade secret protection to protect and increase our competitive advantage.
In addition, we have a variety of industrial, commercial and financial contracts relating to our proprietary manufacturing processes. While we are dependent on the competitive advantage that these items provide as a whole, we are not dependent on any one of them individually and do not consider any one of them individually to be material. We do not materially rely on intellectual property licensed from any outside third parties. However, we cannot assure that our intellectual property and other proprietary information will be protected in all cases. In addition, if our R&D efforts fail to generate new, innovative products or processes, our overall profit margins may decrease and demand for our products may fall. See “Section 3 – Risk Factors.”
Governmental Regulation
As an Irish plc, we are governed by the Irish Companies Act 2014 and are also subject to all applicable European Union level legislation. We also operate under the regulatory requirements of numerous jurisdictions and organizations, including the ASX, ASIC, the NYSE, the SEC, the Irish Takeover Panel and various other federal, state, local and foreign rulemaking bodies. See “Section 3 – Constitution” for additional information regarding the Irish Companies Act 2014 and regulations to which we are subject.
Environmental, Health and Safety Regulation
Our operations and properties are subject to extensive federal, state, local and foreign environmental protection, health and safety laws, regulations and ordinances governing activities and operations that may
have adverse environmental effects. As it relates to our operations, regulated material, including wastewater and air emissions, may be produced at some of our manufacturing plants. The wastewater produced from our manufacturing plants is internally recycled and reused before eventually being discharged to publicly owned treatment works, a process which is monitored by us, as well as by regulators. In addition, we actively monitor air emissions and other regulated materials produced by our plants so as to ensure compliance with the various environmental regulations under which we operate.
Some environmental laws provide that a current or previous owner or operator of real property may be liable for the costs of investigation, removal or remediation of certain regulated materials on, under, or in that property or other impacted properties. In addition, persons who arrange, or are deemed to have arranged, for the disposal or treatment of certain regulated materials may also be liable for the costs of investigation, removal or remediation of the regulated materials at the disposal or treatment site, regardless of whether the affected site is owned or operated by such person. Environmental laws often impose liability whether or not the owner, operator, transporter or arranger knew of, or was responsible for, the presence of such regulated materials. Also, third parties may make claims against owners or operators of properties for personal injuries, property damage and/or for clean-up associated with releases of certain regulated materials pursuant to applicable environmental laws and common law tort theories, including strict liability.
In the past, from time to time, we have received notices of alleged discharges in excess of our water and air permit limits. In each case, and in compliance with our Environmental Policy, we have addressed the concerns raised in those notices, in part, through enhanced administrative controls and/or capital expenditures intended to prevent future discharges in excess of permitted levels and, on occasion, the payment of minor associated fines.
Environmental compliance costs in the future will depend, in part, on continued oversight of operations, expansion of operations and manufacturing activities, regulatory developments and future requirements that cannot presently be predicted.
Organizational Structure
JHI plc is incorporated and domiciled in Ireland and the table below sets forth our significant subsidiaries, all of which are wholly-owned by JHI plc, either directly or indirectly, as of 30 April 2020.
Name of Company | Jurisdiction of Establishment | Jurisdiction of Tax Residence | ||
Fermacell B.V. | Netherlands | Netherlands | ||
Fermacell Schraplau GmbH | Germany | Germany | ||
James Hardie 117 Pty Ltd | Australia | Australia | ||
James Hardie Australia Pty Ltd | Australia | Australia | ||
James Hardie Building Products Inc. | United States | United States | ||
James Hardie Europe B.V. | Netherlands | Netherlands | ||
James Hardie Europe GmbH | Germany | Germany | ||
James Hardie Europe Holdings GmbH | Germany | Germany | ||
James Hardie Holdings Limited | Ireland | Ireland | ||
James Hardie International Finance Designated Activity Company | Ireland | Ireland | ||
James Hardie International Group Limited | Ireland | Ireland | ||
James Hardie International Holdings Limited | Ireland | Ireland | ||
James Hardie New Zealand Limited | New Zealand | New Zealand | ||
James Hardie NL1 B.V. | Netherlands | Netherlands | ||
James Hardie NL2 B.V. | Netherlands | Netherlands | ||
James Hardie NZ Holdings Limited | New Zealand | New Zealand | ||
James Hardie North America, Inc | United States | United States | ||
James Hardie NV | Netherlands | Netherlands | ||
James Hardie Philippines Inc | Philippines | Philippines | ||
James Hardie Research (Holdings) Pty Ltd | Australia | Australia | ||
James Hardie Research Pty Ltd | Australia | Australia | ||
JH Research USA, LLC | United States | United States | ||
James Hardie Spain S.L.U. | Spain | Spain | ||
James Hardie Technology Holdings 1 Limited | Ireland | Ireland | ||
James Hardie Technology Holdings 2 Limited | Ireland | Ireland | ||
James Hardie Technology Limited | Bermuda | Ireland | ||
James Hardie U.S. Investments Sierra Inc. | United States | United States | ||
RCI Holdings Pty Ltd | Australia | Australia | ||
Property, Plants and Equipment
We believe we have some of the largest and lowest cost fiber cement manufacturing plants across the United States, Australia, New Zealand and the Philippines, with our plants servicing both domestic and export markets. We also have six manufacturing plants in Europe. Our plants are ideally located to take advantage of established transportation networks, allowing us to distribute our products into key markets, while also providing easy access to key raw materials.
Manufacturing Capacity
At 31 March 2020, we had manufacturing facilities at the following locations:
Plant Location | Owned / Leased | Nameplate Capacity (mmsf)1 | |||
United States fiber cement 2 | |||||
Cleburne, Texas | Owned | 666 | |||
Peru, Illinois | Owned | 560 | |||
Plant City, Florida | Owned | 600 | |||
Pulaski, Virginia | Owned | 600 | |||
Reno, Nevada | Owned | 300 | |||
Tacoma, Washington | Owned | 500 | |||
Waxahachie, Texas | Owned | 360 | |||
Fontana, California | Owned | 250 | |||
Summerville, South Carolina | Owned | 3 | 190 | ||
Asia Pacific fiber cement | |||||
Australia | |||||
Rosehill, New South Wales | Owned | 180 | |||
Carole Park, Queensland | Owned | 4 | 160 | ||
New Zealand | |||||
Auckland | Leased | 5 | 75 | ||
Philippines | |||||
Cabuyao City | Owned | 6 | 172 | ||
Europe fiber gypsum | |||||
Münchehof, Germany | Owned | 441 | |||
Orejo, Spain | Owned | 275 | |||
Wijchen, the Netherlands | Owned | 273 | |||
Siglingen, Germany | Owned | 7 | 154 | ||
Other | |||||
Calbe, Germany | Owned | 8 | 41 | ||
Schraplau, Germany | Owned | 9 | N/A | ||
____________
1 | The calculated annual nameplate capacity in the United States, Europe and Asia Pacific is based on management’s historical experience with our production process and is calculated assuming continuous operation, 24 hours per day, seven days per week, producing 5/16” medium density product at a targeted operating speed. No accepted industry standard exists for the calculation of our fiber cement, fiber gypsum and cement bonded board manufacturing facility nameplate, design and utilization capacities. |
2 | In the fourth quarter of fiscal year 2018, we announced a Greenfield capacity project in Prattville, Alabama. The expected commissioning date will be in fiscal year 2022. This project will add an additional nameplate 600 mmsf to our manufacturing capacity. This incremental capacity is not included in the table above. |
3 | On 5 May 2020, we announced our operational decision to shut down production at our Summerville, South Carolina plant. We expect the plant to close in mid calendar year 2020. |
4 | 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. This expansion project was completed in the third quarter of fiscal year 2020. We anticipate we will commission this sheet machine in early fiscal year 2022. This incremental capacity is not included in the table above. |
5 | On 5 May 2020, we announced our strategic decision to move to a regional model for the manufacture and supply of fiber cement products for the New Zealand Market. We will cease all manufacturing of products in New Zealand under this model and shift manufacturing from Auckland, New Zealand to our Rosehill and Carole Park plants in Australia. The Auckland leases expire on 22 March 2026. |
6 | 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. |
7 | On 5 May 2020, we announced the temporary closure of our Siglingen, Germany plant. |
8 | Our Calbe, Germany plant produces cement bonded boards. |
9 | Our Schraplau, Germany facility is a raw materials processing facility for our fiber gypsum plants. As a result, no annual nameplate capacity is available. |
We continually evaluate the capacity required to service the housing markets in which we operate to ensure we meet demand and achieve our market penetration objectives. For a discussion of significant active and recently completed capacity expansion projects, see “Capital Expenditures” below.
Management has determined that for measuring the annual design capacity of the fiber cement and fiber gypsum network, the calculation should incorporate our expected production based upon our historical experience with certain factors such as demand, product mix of varying thickness and density, batch size, plant availability, differing production speeds and downtime expectations.
Based on the methodology noted above, for the year ended 31 March 2020 and 2019, we had an annual fiber cement flat sheet design capacity of 4,330 mmsf and 4,060 mmsf in the United States, respectively, and 730 mmsf and 707 mmsf in Asia Pacific, respectively. For the years ended 31 March 2020 and 2019, we had an annual design capacity of 790 mmsf and 800 mmsf, respectively, for our European fiber gypsum plants. It is important to note that annual design capacity does not necessarily reflect the actual capacity utilization rates of our manufacturing facilities. Actual utilization is calculated using actual production, which is affected by factors such as demand, product mix, batch size, plant availability and production speeds. For fiscal year 2020, actual capacity utilization across our fiber cement and fiber gypsum plants was an average of 79%, 77% and 90% in the United States, Europe and Asia Pacific, respectively. For fiscal year 2019, actual capacity utilization across our fiber cement and fiber gypsum plants was an average of 84%, 75% and 95% in the United States, Europe and Asia Pacific, respectively.
Mines
In North America, we lease silica quartz mine sites in Tacoma, Washington and Reno, Nevada. The lease for our quartz mine in Tacoma, Washington expires in February 2022 (with additional options to renew). The lease for our silica quartz mine site in Reno, Nevada expires in January 2024. We also own property in Victorville, California which could be mined for silica. As of 30 April 2020, 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.
As a mine operator in the US, we are required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), and rules promulgated by the SEC implementing that section of the Dodd-Frank Act, to provide certain information concerning mine safety violations and other regulatory matters concerning the operation of our mines. During fiscal year 2020, we did not receive any notices, citations, orders, legal action or other communication from the US Department of Labor’s Mine Safety and Health Administration that would necessitate additional disclosure under Section 1503(a) of the Dodd-Frank Act. Similarly, we have not experienced any mining-related fatalities in our mining operations.
There are currently no pending legal actions before the Federal Mine Safety and Health Review Commission related to our mining operations.
Our Fermacell business has an operating license for a mining facility in Schraplau, Germany, however no active mining is being undertaken, or allowed with respect to the former owner FELS-WERKE GmbH, and the mine is only being used for storage of material. We also have an investment in a natural gypsum mine in Spain.
Our New Zealand business quarries and removes sand from a site in North Auckland according to rights to do so for a period through until 31 March 2021.
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) | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
North America Fiber Cement | $ | 137.1 | $ | 246.8 | $ | 182.5 | ||||||
Asia Pacific Fiber Cement | 32.2 | 41.1 | 24.9 | |||||||||
Europe Building Products | 23.5 | 26.0 | — | |||||||||
Other Businesses | — | 1.5 | 2.0 | |||||||||
R&D and Corporate | 1.0 | 2.1 | 0.8 | |||||||||
Total Capital Expenditures | $ | 193.8 | $ | 317.5 | $ | 210.2 | ||||||
Significant active capital expenditures
At 31 March 2020, 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 (mmsf) | |||||||||
Prattville Greenfield expansion | $ | 240.0 | $ | 214.1 | Q4FY18 | FY22 | 600 | |||||||
____________
1 | The expected nameplate 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. |
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 | ||||
Summerville recommissioning | $ | 15.7 | FY17 - FY18 | |||
Philippines capacity expansion | 18.0 | FY16 - FY19 | ||||
Tacoma Greenfield expansion | 147.0 | FY17 - FY20 | ||||
Carole Park Brownfield expansion | $ | 21.6 | FY19 - FY20 | |||
Capital Divestitures
During the three most recent fiscal years, we did not make any material capital divestitures. In fiscal year 2020, a US$61.7 million impairment charge was recorded to Property, Plant and Equipment associated with the closures of our Summerville, USA and Penrose, New Zealand manufacturing facilities, as well as, the closure of James Hardie Systems and the impairment of additional non-core assets. We do not consider the exit from our Summerville, USA plant or from the James Hardie Systems business a material divestiture or a strategic shift in the nature of our operations. Further, we do not consider the closure of our Penrose, New Zealand plant a material divestiture. We announced our plans to close the plant due to our strategic decision to shift to an import sales model with product to be manufactured and imported from Australia.
In fiscal year 2019, a US$8.7 million impairment charge was recorded to Property, Plant and Equipment which includes US$6.1 million associated with our decision to cease production of our fiberglass windows business and US$2.6 million related to the discontinuation of our MCT product line. We do not consider the exit from our fiberglass windows business or our MCT product line a material divestiture or strategic shift in the nature of our operations. See Note 8 to our consolidated financial statements in Section 2 for additional information about our impairment charges to Property, Plant and Equipment.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
James Hardie Executive Team
Our management is overseen by our executive team, whose members cover the key areas of finance, human resources, investor relations, legal, manufacturing, marketing, operations, production, R&D and sales.
Members of our management executive team at 30 April 2020 are:
Jack Truong BS, PhD Chief Executive Officer Age 57 | |
 | Dr Jack G. Truong joined James Hardie as President of International Operations in April 2017. Dr Truong was announced Chief Executive Officer ("CEO") successor and appointed President and Chief Operating Officer with the responsibility of running the Company's global business in September 2018. He was officially appointed CEO in January 2019. Dr Truong’s ability to anticipate global market trends and deliver profitable revenue growth is evidenced by his extensive multinational and multisector business experience. Prior to James Hardie, Dr Truong was the President and Chief Executive Officer of leading home appliance manufacturer, Electrolux North America Inc, a $5+ billion revenue and 14,000+ employee business at the time of his leadership. |
Before joining Electrolux, Dr Truong enjoyed a successful 22-year career at 3M Company, where he held senior leadership roles throughout the United States, Europe and Asia-Pacific, including Vice President and General Manager of the Global Construction and Home Improvements Division and Global Office Supplies Division. As an engineer and inventor himself – earning his PhD in chemical engineering from the Rensselaer Polytechnic Institute in New York – Dr Truong is the recipient of 11 U.S. patents and several international patents. Dr Truong also enjoys giving time to philanthropic causes and professional industry associations, receiving multiple accolades for his humanitarian work and business accomplishments. | |
Jason Miele BA Chief Financial Officer Age 43 | |
 | Jason Miele was appointed as Chief Financial Officer (“CFO”) in February 2020. As CFO he oversees the Company’s overall financial activities, including accounting, tax, treasury, performance and competitor analysis, internal audit, financial operations, information systems, and investor and media relations. Mr Miele has over 13 years of experience with James Hardie and has served in a number of important roles during his tenure, including most recently, as Vice President – Investor and Media Relations, a position he held from February 2017. In that role, Mr Miele had responsibility for overseeing James Hardie’s investor relations strategy and communicating James Hardie’s business strategy and its financial performance |
to various stakeholders including shareholders, investment analysts, and the financial media. Prior to that, Mr Miele served in a variety of roles of increasing responsibility, in finance functions such as Treasury, Controllership and Operational Finance, including reporting to the CFO as the Global Treasurer and later the Global Controller. Mr Miele has supported the James Hardie business during his tenure, working in multiple geographies including Dublin, Ireland, Amsterdam, Netherlands, Mission Viejo, California and Chicago, Illinois in the United States and most recently, Sydney, Australia. Mr Miele has a Bachelor’s Degree from the University of California at Santa Barbara, where he graduated with a degree in Business Economics with an emphasis in Accounting. | |
Sean Gadd BEng, MBA Executive Vice President, North America Commercial Age 47 | |
 | 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. In December 2018, Mr Gadd was appointed Executive Vice President, North America Commercial with responsibility for sales, products, segments and marketing. Mr Gadd has a Bachelor of Engineering in Manufacturing Management and an executive MBA from the Australian Graduate School of Management, Australia. | |
Ryan Kilcullen BSc, MS Executive Vice President – Operations Age 39 | |
 | 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. | |
Conrad Groenewald B.Tech, MDP, MBA General Manager, Asia Pacific Age 47 | |
 | Conrad Groenewald joined James Hardie in January 2015 as General Manager, Asia Pacific. As General Manager for Asia Pacific based in Sydney, Australia, Mr Groenewald has responsibility for running the Company’s business across Australia, New Zealand, the Philippines and the rest of SE Asia. Before joining James Hardie, Mr Groenewald held senior executive roles with the shared services entity of NSW Health, HealthShare NSW; initially as the Chief Operating Officer and then moving into the role of Chief Executive Officer. During his time in this role, he was responsible for setting the strategic direction of HealthShare NSW, while ensuring that the 7,000 staff provided professional services to the NSW |
Health department’s back of the house services. After graduating in 1995, Mr Groenewald started his career as a Process Engineer at Mondi Paper (part of Anglo American Group) in South Africa. There he progressed through the business to Production Manager, and eventually Operations Manager, prior to emigrating to Australia in 2002. In Australia, Mr Groenewald joined Visy Industries where he spent almost 10 years in Senior Operations Management roles across various divisions throughout Australia. Mr Groenewald has an MBA from The Open University UK, an MDP Business Administration and Management from UNISA, and has a Chemical Engineering qualification and Bachelor of Technology in Pulp and Paper from Durban University of Technology. | |
Jörg Brinkmann MS, PhD General Manager, Europe Age 41 | |
 | Dr Jörg Brinkmann joined James Hardie as General Manager, Europe in April 2018 as part of the Fermacell GmbH acquisition. In this role he is responsible for running the Company’s European activities, which are headquartered in Düsseldorf, Germany. Before joining James Hardie, Dr Brinkmann held several German as well as international leadership roles in Sales and Marketing at the Xella Group (the former owner of the Fermacell business) starting in 2005. In 2014 he was appointed CEO of the former Fermacell Company with responsibility for the entire business. Under his leadership, the company achieved significant profitable growth. |
Dr Brinkmann holds a Masters degree (“Diplom-Kaufmann”) from the University of Duisburg-Essen as well as a PhD from the University of Hohenheim, Germany. | |
Julie Katigan BA, MA Chief Human Resources Officer Age 53 | |
 | Julie Katigan joined James Hardie as Chief Human Resources Officer (“CHRO”) in May 2019. As CHRO she has responsibility for the Company’s global human resource activities, including employee engagement, leadership and talent development and human resources strategy. Most recently, Ms Katigan was the Senior Vice President, Human Resources for XPO Logistics’ Americas and Asia Pacific Supply Chain business unit, responsible for approximately 25,000 employees in 400 locations across the globe. Prior to XPO Logistics, Ms Katigan held senior human resources leadership roles in |
both business partnering and specialty areas such as Talent Management and Organizational Development, with well-established companies that included Colfax Corporation, Electrolux, Mead Johnson Nutrition and Ford Motor Company. Ms Katigan has a Bachelor of Arts degree in English and a Master’s degree in Labor and Industrial Relations from Michigan State University. | |
Joe Blasko BSFS, JD General Counsel and Chief Compliance Officer Age 53 | |
 | 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. | |
Board of Directors
James Hardie’s non-executive directors have widespread experience, spanning general management, finance, manufacturing, marketing and accounting. Each non-executive director also brings valuable international experience that assists with James Hardie’s growth. For additional information, see "Section 1 - Corporate Governance Report" of this Annual Report.
Members of the Board of Directors (the “Board”) at 30 April 2020 are:
Michael Hammes BS, MBA Age 78 | |
 | Michael Hammes was elected as an independent non-executive director of James Hardie in February 2007. He was appointed Chairman of the Board in January 2008 and is a member of the Remuneration Committee and the Nominating and Governance Committee. Experience: Mr Hammes has extensive commercial experience at a senior executive level. He has held a number of executive positions in the medical products, hardware and home improvement, and automobile sectors, including CEO and Chairman of Sunrise Medical, Inc. (2000-2007), Chairman and CEO of Guide Corporation (1998-2000), Chairman and CEO of Coleman Company, Inc. (1993-1997), Vice Chairman of Black & Decker Corporation (1992-1993) and various senior executive |
roles with Chrysler Corporation (1986-1990) and Ford Motor Company (1966-1986). Directorships of listed companies in the past five years: Former – Director of Navistar International Corporation (1996-2017); Director of DynaVox Mayer-Johnson (2010-2016). Other: Resident of the United States. Last elected: August 2018 Term expires: August 2021 | |
Brian Anderson BS, MBA, CPA Age 69 | |
 | 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. 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 | |
Russell Chenu BCom, MBA Age 70 | |
 | 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 72 | |
 | David Harrison was appointed as an independent non-executive director of James Hardie in May 2008. He is Chairman of the Nominating and Governance Committee and a member of the Audit Committee. Experience: Mr Harrison is an experienced company director with a finance background, having served in corporate finance roles, international operations and information technology for 22 years with Borg Warner/General Electric Co. His previous experience includes 10 years at Pentair, Inc., as Executive Vice President and CFO (1994-1996 and 2000-2007) and Vice President and CFO roles at Scotts, Inc. and Coltec Industries, Inc. (1996-2000). |
Directorships of listed companies in the past five years: Current – Director of National Oilwell Varco (since 2003). Other: Resident of the United States. Last elected: August 2019 Term expires: August 2022 | |
Andrea Gisle Joosen MSc, BSc Age 56 | |
 | Andrea Gisle Joosen was appointed as an independent non-executive director of James Hardie in March 2015. She is a member of the Audit Committee. Experience: Ms Gisle Joosen is an experienced former executive with extensive experience in marketing, brand management and business development across a range of different consumer businesses. Her former roles include Chief Executive of Boxer TV Access AB in Sweden and Managing Director (Nordic region) of Panasonic, Chantelle AB and Twentieth Century Fox. Her early career involved several senior marketing roles with Procter & Gamble and Johnson & Johnson. |
Directorships of listed companies in the past five years: Current – Director of BillerudKorsnas AB (since 2015); Director of Dixons Carphone plc (since 2014); Director of ICA Gruppen AB (since 2010). Former –Director of Mr Green AB (2015 - 2019). Other: Director of Logent AB (since December 2019); Director of Qred AB (since June 2019); Director of Acast AB (since 2018); Director of Neopitch AB (since 2004); resident of Sweden. Last elected: August 2018 Term expires: August 2021 | |
Persio V. Lisboa BS Age 54 | ||||
 | Persio Lisboa was appointed as an independent non-executive director of James Hardie in February 2018. He is Chairman of the Remuneration 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: Former - Director of Broadwind Energy, Inc. (2016-2018). Other: Resident of the United States. Last elected: August 2018 Term expires: August 2021 | ||||
Anne Lloyd, BS, CPA Age 58 | |
 | Anne Lloyd was appointed as an independent non-executive director of James Hardie in November 2018. During fiscal year 2020, Ms Lloyd served as a member of the Audit Committee until 26 August 2019, at which time she stepped down from such position concurrent with her appointment as Interim CFO. Effective 26 August 2019, Ms Lloyd was appointed as Interim CFO, a position she held until 25 February 2020. Experience: Ms Lloyd, an experienced corporate and finance executive, served as Chief Financial Officer of Martin Marietta Materials, Inc. a leading supplier of aggregates and heavy building materials, for over 12 years from June 2005 until her retirement in August 2017. She joined Martin Marietta in 1998 as Vice President and Controller and |
was promoted to Chief Accounting Officer in 1999. She was subsequently appointed Treasurer (2006-2013) and promoted to Executive Vice President in 2009. Earlier in her career, Ms Lloyd spent 14 years with Ernst & Young LLP (1984-1998), latterly as a senior manager and client service executive for the natural resources, mining, insurance and healthcare industries. Directorships of listed companies in the past five years: Current - Director of Insteel Industries, Inc (since April 2019); Director of Highwoods Properties, Inc. (since 2018). Former - Director of Terra Nitrogen Company, L.P. (2009-2018). Other: Resident of the United States. Last elected: August 2019 Term expires: August 2022 | |
Moe Nozari BA, MS, PhD and Postdoctoral Research Fellow Age 77 | |
 | Dr Moe Nozari was appointed as an independent non-executive director of James Hardie in November 2019. He is a member of the Remuneration Committee and the Nominating and Governance Committee. Experience: Dr Nozari worked at 3M for thirty eight years. Latterly, he served as an Executive Vice President of Consumer and Office Business at 3M Company, from 2002 until his retirement from 3M in July 2009. Prior to that he served as an Executive Vice President of Consumer and Office Markets at 3M Company from 1999 to 2002 and served as its Group Vice President of Consumer and Office Markets Group from 1996 to 1999. Dr Nozari joined 3M, in the Central Research Laboratories in 1971 and advanced to the position of Technical Director of the Photographic Products Division. |
After a succession of managerial and business responsibilities in 1986 he was named a Division Vice President, then a Group Vice President in 1996. While at 3M his focus was on the development of new products, brands, identification, and development of people. Other: Resident of the United States. Last elected: Dr Nozari will be standing for election at the August 2020 Annual General Meeting. | |
Rada Rodriguez MSc Age 61 | |
 | Rada Rodriguez was appointed as an independent non-executive director of James Hardie in November 2018. She is a member of the Nominating and Governance Committee. Experience: Ms Rodriguez has served as Chief Executive Officer of Schneider Electric GmbH, part of Schneider Electric Group, a global energy management and automation company, for 9 years and has been Senior Vice President, Corporate Alliances since 2017. Since joining the company in 1999, she has held a progression of senior roles including Head of International Research and Development for Schneider Electric Sweden, and Senior Vice President and Zone President, Central and Eastern Europe. |
Prior to joining Schneider Electric GmbH, she worked at Lexel Group (later acquired by Schneider) and before that she worked for 5 years at Colasit Scandinavia AB, a Swiss industrial machinery manufacturer. She started her career with K-Konsult AB, a Swedish technical consulting firm with a focus on installation technology where she worked for 5 years as a design engineer. Directorships of listed companies in the past five years: Former – Director of Eltel AB (2015-2017). Other: Director of Messe Berlin GmbH (since November 2019); Director of ZVEI (since 2014); resident of Germany. Last elected: August 2019 Term expires: August 2022 | |
Remuneration
The remuneration information provided in this Annual Report outlines the key remuneration and share ownership information for our Board of Directors and our Senior Executive Officers (defined below) for fiscal year 2020. A remuneration report, which further details our remuneration policies and practices will be provided separately to our shareholders in July 2020, together with the 2020 Notice of Annual General Meeting (“AGM”) and accompanying materials.
For fiscal year 2020, our senior executive officers (Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and the other three highest paid executive officers based on total compensation that was earned or accrued for fiscal year 2020) (“Senior Executive Officers”) are:
• | Dr Jack Truong, CEO; |
• | Jason Miele, CFO (from 25 February 2020); |
• | Sean Gadd, Executive Vice President, North America Commercial; |
• | Joe Blasko, General Counsel and Chief Compliance Officer; |
• | Ryan Kilcullen, Executive Vice President – Operations; and |
• | Matthew Marsh, Former CFO (through August 2019). |
In addition to Messrs Miele and Marsh, Ms Anne Lloyd, a member of the Company's Board of Directors, served as the Company's Interim CFO from August 2019 to February 2020. Ms Lloyd served in the Interim CFO position following Mr Marsh's departure while the Company sought to retain a new CFO. Remuneration paid to Ms Lloyd for her service as Interim CFO is set forth in the remuneration for non-executive directors section of this Annual Report.
DESCRIPTION OF 2020 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 allowance, participation in executive wellness programs and an annual financial planning allowance. For fiscal year 2020, the base salary and value of other fixed benefits for each of our Senior Executive Officers is provided in the Base Pay and Other Benefits columns of the remuneration table in the section titled “Remuneration Paid to Senior Executive Officers”.
Retirement Plan
In every country in which we operate, we offer employees access to pension, superannuation or individual retirement savings plans consistent with the laws of the respective country.
In the US, we sponsor a defined contribution plan, the James Hardie Retirement and Profit Sharing Plan (the “401(k) Plan”). The 401(k) Plan is a tax-qualified retirement and savings plan covering all US employees, including our Senior Executive Officers, subject to certain eligibility requirements. Participating employees were able to elect to reduce their current annual compensation by up to US$19,000 in calendar year 2019 and have the amount of such reduction contributed to the 401(k) Plan, with a maximum eligible compensation
limit of US$280,000. 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 2020, our variable incentive plans for Senior Executive Officers were as follows:
Duration | Plan Name | Amount | Form Incentive Paid |
Short Term Incentive ("STI") (1 year) | Individual Performance Plan ("IP Plan") | 20% of STI Target | Cash |
Company Performance Plan ("CP Plan") | 80% of STI Target | Cash | |
Long Term Incentive ("LTI") (3 years) | Long Term Incentive Plan 2006 (“LTIP”) | 25% of LTI Target | Return on Capital Employed ("ROCE") Restricted Stock Units ("RSUs") |
25% of LTI Target | Relative Total Shareholder Return ("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 2020, the STI target percentage for Dr Truong was 100% of base salary, for Mr Miele a pro-rated target of 47% based on various positions he held during the year, 75% for Mr Marsh and 60% for Messrs Gadd, Blasko and Kilcullen, 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 Plan unless our performance exceeds a level approved by the Remuneration Committee each year. For fiscal year 2020, the ‘circuit breaker’ for participants tied to the US plan was set at Primary Demand Growth ("PDG") achievement of greater than -2%. In the event the US business did not achieve PDG greater than -2% for fiscal year 2020, the US Achieved Multiple used in the calculation of any composite multiple would also be zero.
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 relative to, and above, market (“Growth Measure”), earnings (“Return Measure”), and for the US business, performance of the interiors business. In addition for fiscal year 2020, for the US business, volume growth against the vinyl market was introduced as a metric in replacement of growth against the "wood look" competitors. Given the acquisition of Fermacell in April 2018, a CP Plan for James Hardie Europe ("JHEU") was developed based on revenue and returns similar in nature to the US and Asia Pacific plans. Each Senior Executive Officer can receive between 0.0x and 3.0x of their STI target allocated to the CP Plan based on the results of the plan of which the Senior Executive Officer is tied. All Senior Executive Officers are tied to either the US multiple (Messrs Gadd and Kilcullen) or a composite multiple derived from the metrics for the US, Asia Pacific and Europe businesses combined (70% US, 20% Asia Pacific and 10% Europe for Dr Truong, and Messrs Blasko, Miele and Marsh).
IP Plan
Under the IP Plan, the Remuneration Committee approves a series of one-year individual performance goals which, along with our leadership behaviors, are used to assess the performance of our Senior Executive Officers. The IP Plan links financial rewards to the Senior Executive Officer’s achievement of specific objectives aligned with the strategic plan and 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.
STI Plan Performance for Fiscal Year 2020
For fiscal year 2020, 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." A more in-depth discussion regarding our corporate performance relative to the CP Plan and Senior Executive Officer performance under the IP Plan will be provided in our remuneration report, which will be separately issued to shareholders in July 2020.
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. |
Awards issued under the LTI are issued pursuant to the terms of the LTIP. During fiscal year 2020, our Senior Executive Officers were granted the following awards under the LTIP:
ROCE RSUs | TSR RSUs | Scorecard LTI Units | ||||
J Truong | 85,064 | 157,949 | 226,636 | |||
J Miele | 13,760 | 23,275 | 41,281 | |||
S Gadd | 28,779 | 53,117 | 86,337 | |||
J Blasko | 17,987 | 33,198 | 53,961 | |||
R Kilcullen | 14,390 | 26,559 | 43,169 | |||
M Marsh1 | — | — | — | |||
____________
1 All of Mr Marsh's fiscal year 2020 grants were cancelled upon his termination on 20 September 2019.
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.
Vesting criteria for each type of LTI award are as follows:
• | ROCE RSUs awarded in fiscal year 2020 may vest on 17 August 2022 based on the achievement of certain ROCE hurdles for fiscal years 2020-2022 (the “Performance Period”). Specifically, if our three year average ROCE for fiscal years 2020-2022 is: |
◦ | (i) less than 24%, then no ROCE RSUs will vest; |
◦ | (ii) is equal to or greater than 24.0% but less than 26.0%, then 0.5x target of the ROCE RSUs will vest; |
◦ | (iii) is equal to or greater than 26.0% but less than 27.5%, then 1.0x target of the ROCE RSUs will vest; |
◦ | (iv) is equal to or greater than 27.5% but less than 28.5%, then 1.5x target of the ROCE RSUs will vest; and |
◦ | (v) is greater than 28.5%, then 2.0x target of the ROCE RSUs will vest. |
At the conclusion of this 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. Vested ROCE RSUs will be settled in CUFS on a 1-to-1 basis.
• | TSR RSUs awarded in fiscal year 2020 may vest on 17 August 2022 if the TSR of our shares exceeds a specified percentage of our US peer group during the performance period. The peer group for measuring TSR consists of the same 20 peer companies exposed to the US housing market which we use for compensation benchmarking purposes. Our TSR performance is measured against the peer group over a three-year period from the grant date. To eliminate the impact of short-term price changes, the TSR starting point and end date are measured using an average 20 trading-day closing price. TSR RSUs will vest based on the following schedule: |
◦ | (i) if the TSR of our shares is below the 40th percentile of the peer group, then no TSR RSUs will vest; |
◦ | (ii) if the TSR of our shares is equal to the 60th percentile of the peer group, then 1.0x target TSR RSUs will vest; and |
◦ | (iii) if the TSR of our shares in greater than the 80th percentile of the peer group than 2.0x target TSR RSUs will vest. |
The vesting percentage between points is on a straight-line interpolated basis. Vested TSR RSUs will be settled in CUFS on a 1-to-1 basis.
• | Scorecard LTI cash-settled awards granted in fiscal year 2020 may vest on 17 August 2022 based on our achievement of certain specified strategic goals and objectives and each Senior Executive Officer’s contribution to the achievement of such objectives during the Performance Period. In fiscal year 2020, the Remuneration Committee approved a number of key management objectives and the measures it expects to see achieved in relation to these objectives. These objectives are incorporated into the fiscal year 2020 grant. At the end of the Performance Period, the Remuneration Committee will assess our Senior Executive Officers’ collective performance and each Senior Executive Officer’s individual contribution to that performance. Senior Executive Officers may receive different ratings depending on the contribution they have made during the Performance Period. No specific weighting is applied to any single objective and the final Scorecard assessment reflects an element of judgment by the Board. The amount received by each Senior Executive Officer is based on both our share price performance over the Performance Period and that Senior Executive Officer’s Scorecard rating. Depending on the collective performance related to the specified objectives and the Senior Executive Officer’s rating, between 0.0x and 3.0x of target of the Senior Executive Officer’s Scorecard LTI target awards may vest at the end of the Performance Period. Scorecard LTI are settled in cash based the number of units vested and the 20 trading-day average closing price of our CUFS at the end of the Performance Period. |
A more in-depth discussion regarding our LTI Plans and the awards issued thereunder will be provided in our remuneration report, which will be separately issued to shareholders in July 2020.
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 2020 LTI grants made to Dr Truong and Messrs Gadd, Blasko, Kilcullen and Miele 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.
Stock Ownership Guidelines
The Remuneration Committee believes that Senior Executive Officers should hold a meaningful level of our stock to further align their interests with those of our shareholders. We have adopted stock ownership guidelines for the CEO and other Senior Executive Officers, respectively, which require them to accumulate holdings of three times and one times their base salary, respectively, in our stock over a period of five years from the effective date of the guidelines (1 April 2009) or the date the Senior Executive Officer first becomes subject to the applicable guideline.
Until the stock ownership guidelines have been met, Senior Executive Officers are required to retain at least 75% of shares obtained under our LTI Plans (net of taxes and other costs). Once Senior Executive Officers have met or exceeded their stock ownership guidelines, they are required to retain at least 25% of shares issued under our LTI Plans through the vesting of RSUs (net of taxes and other costs) for a period of two years (by way of a holding lock), after which time those shares can be sold (provided the Senior Executive Officer remains at or above the stock ownership guideline).
As of 31 March 2020, 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 2020. There are no loans outstanding to Senior Executive Officers.
Employment and Severance Arrangements
During fiscal year 2020, we maintained employment or severance agreements with Dr Truong and each of Messrs Gadd and Marsh. In addition, Mr Miele entered into an offer of employment agreement upon his acceptance as Chief Financial Officer on 25 February 2020. Matthew Marsh entered into a severance agreement upon his separation on 20 September 2019. Other than as provided under the terms of their respective employment agreements, no other termination payments are payable, except as required under the terms of the applicable STI or LTI plans.
Employment Agreement with Dr Jack Truong
Below is a summary of the key terms of Dr Truong’s current employment agreement:
• | The Employment Agreement is effective 31 January 2019 providing for service as CEO. |
• | Dr Truong is an employee-at-will and either he or the Company may terminate his employment at any time or any reason. |
• | Base salary at an initial annual rate of US$800,000, subject to annual review and approval by the Remuneration Committee. |
• | Participation in the Company’s annual STI and LTI Plans, with a minimum STI target of 100% of his annual base salary, as established by the Company’s Board. |
• | Participation in the Company’s benefit, health and welfare plans and certain fringe benefits made generally available to Senior Executive Officers in accordance with his agreement and Company policies. |
• | In the event that Dr Truong’s employment is terminated by the Company for any reason other than for “Cause”, or if Dr Truong voluntarily terminates his employment for “Good Reason”, in addition to those benefits that would be considered standard for any employee at termination (i.e., unpaid base salary, accrued vacation, unreimbursed business expenses and the payment of any earned but unpaid annual incentive award) Dr Truong will be entitled to receive the following benefits: |
◦ | An aggregate amount equal to the sum of: (i) two times Dr Truong’s base salary plus (ii) two times Dr Truong’s target annual incentive, payable in substantially equal periodic installments over the two year period following the date of termination; |
◦ | An amount, if any, with respect to the annual incentive award opportunity for the fiscal year in which termination of employment occurs, as determined under the terms and conditions of annual incentive program(s) then in-effect; |
◦ | All outstanding equity awards will be subject to the terms and conditions of the applicable equity incentive plan and any corresponding award agreement(s); provided, however, that (i) if the date of termination occurs prior to 21 August 2022, any service-based vesting criteria on the long-term incentive awards granted to Dr Truong on 21 August 2017 that were designated as retention awards will be deemed satisfied in full (but any performance criteria then still applicable to those awards will remain in effect); |
◦ | Monthly payments for a period of up to 24 months following the date of termination equal to the premium Dr Truong would be required to pay for continuation coverage under the Company’s health benefit plans; and |
◦ | The Company will provide Dr Truong with reasonable professional outplacement services for a period of up to 24 months following the date of termination. |
Offer of Employment with Jason Miele
Below is a summary of the key terms provided in Mr Miele's Offer of Employment, which was entered into in conjunction with his promotion to Senior Vice President, Chief Financial Officer effective 25 February 2020:
• | Mr Miele is an employee-at-will and either he or the Company may terminate his employment at any time or any reason. |
• | Base salary at an initial annual rate of US$400,000, subject to annual review and approval by the Remuneration Committee. |
• | Participation in the Company’s annual STI and LTI Plans, with a STI target of 60% of his annual base salary. |
• | Participation in the Company’s benefit, health and welfare plans and certain fringe benefits made generally available to Senior Executive Officers in accordance with his agreement and Company policies. |
• | In the event that Mr Miele is terminated by the Company without "Cause" or terminated by Mr Miele for "Good Reason", in addition to those benefits that would be considered standard for any employee |
at termination (i.e., unpaid base salary, accrued vacation, unreimbursed business expenses and the payment of any earned but unpaid annual incentive award) Mr Miele will be entitled to receive the following benefits:
◦ | Salary continuation for the one year period following the date of termination, provided the aggregate amount of such continuation payments shall be equal to the sum of (i) one times the base salary plus (ii) one times the annual incentive award opportunity, as then in-effect; |
◦ | All outstanding equity awards under the Company's equity incentive plans will be subject to the terms and conditions of the applicable plan and any corresponding award agreement(s); |
◦ | Monthly payments for a period of 12 months following the date of termination equal to the premium Mr Miele would be required to pay for continuation coverage under the Company’s health benefit plans; and |
◦ | The Company will provide Mr Miele with reasonable professional outplacement services for a period of up to 12 months following the date of termination. |
Severance Agreement with Matthew Marsh
Effective 20 September 2019, we entered into a severance agreement with Mr Marsh. In consideration for the severance and other benefits described below, Mr Marsh executed a general release of claims against the Company. Mr Marsh's severance agreement provided for severance in the form of salary continuation payments totaling approximately US$321,000 over a six month period and an amount equal to the COBRA premiums for up to six months following separation or until Mr Marsh obtains new employment, whichever comes first. All outstanding equity awards are subject to the terms and conditions of the applicable award agreements and plan documentation.
Severance Agreement with Sean Gadd
During fiscal year 2019, we entered into a severance agreement with Mr Gadd in order to provide him with certain severance benefits under various termination scenarios. In the event of termination by the Company without cause or by the executive for good reason or death and disability, these benefits would be in ad