UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended 31 March 2015
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
For the transition period from to
Commission file number 1-15240
JAMES HARDIE INDUSTRIES plc
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrants name into English)
Ireland
(Jurisdiction of incorporation or organization)
Europa House, Second Floor
Harcourt Centre
Harcourt Street, Dublin 2, Ireland
(Address of principal executive offices)
Natasha Mercer
Corporate Secretary
(Contact name)
353 1411 6924 (Telephone) 353 1479 1128 (Facsimile)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class: |
Name of each exchange on which registered: | |
Common stock, represented by CHESS Units of Foreign Securities |
New York Stock Exchange* | |
CHESS Units of Foreign Securities |
New York Stock Exchange* | |
American Depositary Shares, each representing five units of CHESS Units of Foreign Securities | New York Stock Exchange |
* | Listed, not for trading, but only in connection with the registered American Depositary Shares, pursuant to the requirements of the 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 issuers classes of capital or common stock as of the close of the period covered by the Annual Report:
445,680,673 shares of common stock at 31 March 2015
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. x 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 x 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. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See the definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |
x | |||
Accelerated filer |
¨ | |||
Non-accelerated filer |
¨ |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
US GAAP |
x |
International Financial Reporting Standards as issued by the International Accounting
Standards Board |
¨ |
Other |
¨ |
If Other has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
¨ Item 17 ¨ Item 18
If this is an Annual Report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨ Yes x No
2015
ANNUAL REPORT
ON FORM 20-F
James Hardie 2015 Annual Report on Form 20-F | i |
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Remuneration of Independent Registered Public Accounting Firm |
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Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
170 | |||||
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190 |
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James Hardie 2015 Annual Report on Form 20-F | ii |
Page(s) | ||||||
PART 1 |
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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 Indebtness |
Not applicable | |||||
C. Reasons for the Offer and Use of Proceeds |
Not applicable | |||||
D. Risk Factors |
143-160 | |||||
Item 4. Information on the Company |
||||||
A. History and Development of the Company |
3-5; 15-16 | |||||
B. Business Overview |
5-12 | |||||
C. Organizational Structure |
5; 13 | |||||
D. Property, Plants and Equipment |
14-16; 89 | |||||
Item 4A. Unresolved Staff Comments |
None | |||||
Item 5. Operating and Financial Review and Prospects |
||||||
A. Operating Results |
69-84 | |||||
B. Liquidity and Capital Resources |
85-90 | |||||
C. Research and Development, Patents and Licenses, etc |
11 | |||||
D. Trend Information |
90-91 | |||||
E. Off-Balance-Sheet Arrangements |
91 | |||||
F. Tabular Disclosure of Contractual Obligations |
91-92 | |||||
G. Safe Harbor |
62-63 | |||||
Item 6. Directors, Senior Management and Employees |
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A. Directors and Senior Management |
17-26 | |||||
B. Compensation |
27-41 | |||||
C. Board Practices |
42-61 | |||||
D. Employees |
166 | |||||
E. Share Ownership |
37-38 | |||||
Item 7. Major Shareholders and Related Party Transactions |
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A. Major Shareholders |
193-195 | |||||
B. Related Party Transactions |
50 | |||||
C. Interests of Experts and Counsel |
None |
Item 8. Financial Information |
||||||
A. Consolidated Statements and Other Financial Information |
93-142; 176-177 | |||||
B. Significant Changes |
None | |||||
Item 9. The Offer and Listing |
||||||
A. Offer and Listing Details |
166-169 | |||||
B. Plan of Distribution |
Not Applicable | |||||
C. Markets |
167-168 | |||||
D. Selling Shareholders |
Not Applicable |
James Hardie 2015 Annual Report on Form 20-F | iii |
FORM 20-F CROSS REFERENCE (continued)
Page(s) | ||||
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 |
171-179 | |||||
C. Material Contracts |
180 | |||||
D. Exchange Controls |
180 | |||||
E. Taxation |
180-188 | |||||
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 |
168-169 |
PART II |
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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 |
164-165 | |||||
Item 16A. Audit Committee Financial Expert |
56 | |||||
Item 16B. Code of Business Conduct and Ethics |
51 | |||||
Item 16C. Principal Accountant Fees and Services |
143 | |||||
Item 16D. Exemptions from the Listing Standards for Audit Committees |
None | |||||
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
170 | |||||
Item 16F. Change in Registrants Certifying Accountant |
None | |||||
Item 16G. Corporate Governance |
42-61 | |||||
Item 16H. Mine Safety Disclosures |
15 |
PART III |
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Item 17. Financial Statements |
Not Applicable | |||||
Item 18. Financial Statements |
93-142 | |||||
Item 19. Exhibits |
202-209 |
James Hardie 2015 Annual Report on Form 20-F | 1 |
James Hardie Industries plc is a world leader in the manufacture of fiber cement siding and backerboard. Our products are used in a number of markets, including new residential construction (single and multi-family housing), manufactured housing, repair and remodeling and a variety of commercial and industrial applications. We manufacture numerous types of fiber cement products with a variety of patterned profiles and surface finishes for a range of applications, including external siding and soffit lining, internal linings, facades and floor and tile underlay. Our current primary geographic markets include the United States of America (US, USA or the United States), Canada, Australia, New Zealand, the Philippines and Europe.
James Hardie Industries plc is a public limited company, incorporated and existing under the laws of Ireland. Except as the context otherwise may require, references in this Annual Report on Form 20-F (this Annual Report) to James Hardie, the James Hardie Group, the Company, JHI plc, we, our or us refer to James Hardie Industries plc., together with its direct and indirect wholly owned subsidiaries as of the time relevant to the applicable reference.
This Annual Report contains statements that constitute forward-looking statements. For an explanation of forward-looking statements and the risks, uncertainties and assumptions to which they are subject, see Section 2 Reading this Report. Further, a Glossary of Abbreviations and Definitions has also been included under Section 4 of this Annual Report.
The term fiscal year refers to our fiscal year ended 31 March of such year; the term dollars, US$ or $ refers to US dollars; and the term A$ refers to Australian dollars. For the exchange rates used to convert Australian dollar denominated amounts into US dollars, see Note 2 to our consolidated financial statements in Section 2.
Information contained in or accessible through the websites mentioned in this Annual Report does not form part of this Annual Report unless we specifically state that it is incorporated by reference herein. All references in this report to websites are inactive textual references and are for information only.
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 2015 and 2014, and our consolidated statements of operations and comprehensive income, changes in shareholders (deficit) equity and cash flows for each of the years ended 31 March 2015, 2014 and 2013, 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 Companys financial statements. You should read the
James Hardie 2015 Annual Report on Form 20-F | 2 |
selected consolidated financial information in conjunction with the Companys financial statements and related notes contained in Section 2 Consolidated Financial Statements and with the information provided in Section 2 Managements Discussion and Analysis. Historic financial data is not necessarily indicative of our future results and you should not unduly rely on it.
(Millions of US dollars) | ||||||||||||||||||||
Consolidated Statement of Operations Data | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
Net sales |
$ | 1,656.9 | $ | 1,493.8 | $ | 1,321.3 | $ | 1,237.5 | $ | 1,167.0 | ||||||||||
Income (loss) from operations1 |
291.3 | 99.5 | 45.5 | 604.3 | (347.0 | ) | ||||||||||||||
Net income (loss)1 |
$ | 291.3 | $ | 99.5 | $ | 45.5 | $ | 604.3 | $ | (347.0 | ) |
(Millions of US dollars) | ||||||||||||||||||||
Consolidated Balance Sheet Data | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
Total assets |
$ | 2,044.5 | $ | 2,104.0 | $ | 2,113.2 | $ | 2,310.0 | $ | 1,960.6 | ||||||||||
Net assets |
(202.6 | ) | (199.0 | ) | 18.2 | 126.4 | (454.5 | ) | ||||||||||||
Common stock |
$ | 231.2 | $ | 230.6 | $ | 227.3 | $ | 224.0 | $ | 222.5 |
(Number) | ||||||||||||||||||||
Shares | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
Basic weighted average number of common shares |
445.0 | 442.6 | 439.2 | 436.2 | 435.6 | |||||||||||||||
Diluted weighted average number of common shares |
446.4 | 444.6 | 440.6 | 437.9 | 435.6 |
(US dollar) | ||||||||||||||||||||
Earnings Per Share | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
Income (loss) from operations per common share basic |
$ | 0.65 | $ | 0.22 | $ | 0.10 | $ | 1.39 | $ | (0.80 | ) | |||||||||
Net income (loss) per common share basic |
0.65 | 0.22 | 0.10 | 1.39 | (0.80 | ) | ||||||||||||||
Income (loss) from operations per common share diluted |
0.65 | 0.22 | 0.10 | 1.38 | (0.80 | ) | ||||||||||||||
Net income (loss) per common share diluted |
0.65 | 0.22 | 0.10 | 1.38 | (0.80 | ) | ||||||||||||||
Dividends declared per share |
0.60 | 0.73 | 0.43 | 0.04 | - | |||||||||||||||
Dividends paid per share |
$ | 0.88 | $ | 0.45 | $ | 0.43 | $ | 0.04 | $ | - |
Other Financial Data | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
Net cash provided by operating activities (Millions of US dollars) |
$ 179.5 | $ 322.8 | $ 109.3 | $ 387.2 | $ 147.2 | |||||||||||||||
Net cash used in investing activities (Millions of US dollars) |
(277.9) | (118.8 | ) | (59.7 | ) | (49.9 | ) | (49.6 | ) | |||||||||||
Net cash used in financing activities (Millions of US dollars) |
$ (4.6) | $ (186.3 | ) | $ (158.7 | ) | $ (84.4 | ) | $ (89.7 | ) | |||||||||||
Volume (million square feet) |
||||||||||||||||||||
USA and Europe Fiber Cement |
1,849.7 | 1,696.9 | 1,488.5 | 1,331.8 | 1,248.0 | |||||||||||||||
Asia Pacific Fiber Cement2 |
456.2 | 417.2 | 393.7 | 392.3 | 407.8 | |||||||||||||||
Net Sales (Millions of US dollars) |
||||||||||||||||||||
USA and Europe Fiber Cement |
$ 1,276.5 | $1,127.6 | $ 951.4 | $ 862.0 | $ 814.0 | |||||||||||||||
Asia Pacific Fiber Cement2 |
$ 380.4 | $ 366.2 | $ 369.9 | $ 375.5 | $ 353.0 | |||||||||||||||
Average sales price per unit (per thousand square feet) |
||||||||||||||||||||
USA and Europe Fiber Cement |
US$ 675 | US$ 652 | US$ 626 | US$ 642 | US$ 648 | |||||||||||||||
Asia Pacific Fiber Cement2 |
A$ 942 | A$ 930 | A$ 901 | A$ 906 | A$ 906 |
1 | Income (loss) from operations and net income (loss) include the following: asbestos adjustments, Asbestos Injuries Compensation Fund (AICF) selling, general and administrative (SG&A) expenses, Australian Securities and |
James Hardie 2015 Annual Report on Form 20-F | 3 |
Investments Commission (ASIC) related (expenses) recoveries, asset impairment charges, non-recurring stamp duty and New Zealand weathertightness claims expenses. |
(Millions of US dollars) | ||||||||||||||||||||
Other Financial Data | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
Asbestos adjustments benefit (expense) |
33.4 | (195.8 | ) | (117.1 | ) | (15.8 | ) | (85.8 | ) | |||||||||||
AICF SG&A expenses |
(2.5 | ) | (2.1 | ) | (1.7 | ) | (2.8 | ) | (2.2 | ) | ||||||||||
ASIC related (expenses) recoveries |
- | - | (2.6 | ) | (1.1 | ) | 8.7 | |||||||||||||
Asset impairments |
- | - | (16.9 | ) | (14.3 | ) | - | |||||||||||||
Non-recurring stamp duty |
(4.2 | ) | - | - | - | - | ||||||||||||||
New Zealand weathertightness claims3 |
4.3 | (1.8 | ) | (13.2 | ) | (5.4 | ) | - |
For additional information on asbestos adjustments, AICF SG&A expenses, asset impairment charges, non-recurring stamp duty and New Zealand weathertightness, see Section 2 Managements Discussion and Analysis and Notes 7, 11 and 14 to our consolidated financial statements in Section 2. |
2 | Asia Pacific Fiber Cement segment includes all fiber cement manufactured in Australia, New Zealand and the Philippines and sold in Australia, New Zealand, Asia, the Middle East and various Pacific Islands. |
3 | The Company began separately disclosing New Zealand weathertightness claims expense in fiscal year 2013 and did so for fiscal year 2012 for comparative purposes only. |
History and Development of the Company
James Hardie was established in 1888 as an import business, listing on the Australian Securities Exchange (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-1980s 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 at Fontana, California in February 1990.
In September 2001, in order to maximize the benefit of our strong international growth and in order to generate higher returns for shareholders from the James Hardie Groups continuing international expansion, the shareholders of James Hardie Industries Limited (JHIL), then the ultimate parent company of the James Hardie Group and the vehicle with which our shareholding was listed with the ASX, agreed to exchange their shares for shares in James Hardie Industries N.V. (JHINV), a Dutch public limited liability company. JHINV retained its primary listing on the ASX, and in October 2001, to reflect the new corporate structure, JHIL transferred all of its fiber cement businesses to JHINV.
In February 2010, our legal name was changed to James Hardie Industries SE when our legal form was converted from a Dutch public limited liability company to a Societas Europaea (SE), a European public limited liability company. This was the first stage of a two-stage re-domicile proposal to change our registered corporate domicile from the Netherlands to Ireland. On 17 June 2010, we implemented Stage 2 of the re-domicile and changed our registered corporate domicile
James Hardie 2015 Annual Report on Form 20-F | 4 |
to Ireland to become an Irish SE, becoming an Irish tax resident on 29 June 2010. On 15 October 2012, we converted from an Irish SE into our current corporate form, an Irish public limited company (plc).
We conduct our operations under legislation in various jurisdictions. As an Irish plc, we are governed by the Irish Companies Acts and we operate under the regulatory requirements of numerous jurisdictions and organizations, including the ASX, ASIC, the New York Stock Exchange (NYSE), the United States Securities and Exchange Commission (SEC), the Irish Takeover Panel and various other rulemaking bodies.
The address of our registered office in Ireland is Europa House, Second Floor, Harcourt Centre, Harcourt Street, Dublin 2, Ireland (the Corporate Address). The telephone number there is +353 1411 6924. Our agent in the United States is CT Corporation. Its office is located at 3 Winners Circle, 3rd Floor, Albany, New York 12205. The address of our registered office in Australia is Level 3, 22 Pitt Street, Sydney NSW 2000 and the telephone number there is +61 28845 3360. Our share registry is maintained by Computershare Registry Services Pty Ltd. All enquires 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, toll free within Australia: 1 300 855 080 or toll free from the US 1855 298 3404.
Our Agreement with Asbestos Injuries Compensation Fund
Prior to 1987, ABN 60 Pty Limited (formerly JHIL) (ABN 60) and two of its former subsidiaries, Amaca Pty Limited (Amaca) and Amaba Pty Limited (Amaba) (together the Former James Hardie Companies), manufactured products in Australia that contained asbestos. These products have 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 injury claims 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 Subsidiarys obligation. As a result, for purposes of US GAAP, 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.
James Hardie 2015 Annual Report on Form 20-F | 5 |
Corporate Structure
The following diagram summarizes our current corporate structure:
General Overview of Our Business
Based on net sales, we believe we are the largest manufacturer of fiber cement products and systems for internal and external building construction applications in the United States, Australia, New Zealand, and the Philippines. We market our fiber cement products and systems under various Hardie brand names, such as HardieBacker® boards, and other brand names such as Artisan® Lap siding and Artisan® Accent Trim by James Hardie, Cemplank® and Prevail® siding and Scyon® advanced lightweight cement composite products such as Scyon® Stria® cladding.
The breakdown of our net sales by operating segment for each of our last three fiscal years is as follows:
(Millions of US dollars) | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
USA and Europe Fiber Cement |
$ | 1,276.5 | $ | 1,127.6 | $ | 951.4 | ||||||
Asia Pacific Fiber Cement |
380.4 | 366.2 | 369.9 | |||||||||
Total Net sales |
$ | 1,656.9 | $ | 1,493.8 | $ | 1,321.3 |
Products
We manufacture a wide-range of fiber-cement building materials for both internal and external use across a broad range of applications, including: external siding, internal walls, floors, ceilings, soffits, roofing, lattice, decorative columns, fencing and facades. While there are some market specific products, our core product ranges, being planks, which are used for external siding and
James Hardie 2015 Annual Report on Form 20-F | 6 |
flat sheets, which are used for internal and external wall linings and floor underlayments, are sold across all of the markets in which we operate.
Products Used in External Applications
We developed a proprietary technology platform that enables us to produce thicker yet lighter-weight fiber cement products that are generally easier to handle than most traditional building products. Further, we believe that our products provide certain performance, design and cost advantages, while offering comparable aesthetics to competing products such as wood and 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 engineered wood 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.
Significant New Products
In the United States, new products released over the last three years include a new profile HZ10® HardiePlank® siding, HardieTrim® Mouldings, Artisan® V-Rustic premium exterior siding and an improved touch up accessory to support products using ColorPlus® technology.
In Australia and New Zealand, new products released over the last three years include the ARChitectural Prefinished panel range for commercial applications, including Invibe® panels with Chromashield® Technology and Inraw® panels.
James Hardie 2015 Annual Report on Form 20-F | 7 |
In Australia only, the HardieBrace®, a new online calculator tool, offers a way to simplify structural bracing calculations. Modcem® modular flooring has provided an entry into commercial flooring applications. Additions to the range of building science offerings include HardieEdge® termite barrier, HardieWrap® weather barrier, HardieFire® Insulation, HardieBreak® Thermal Strip, as well as the HardieSmart® Boundary, Aged Care and ZeroLot Wall Systems. Due to an evolution of the market in Australia, the Scyon® range of products has been repositioned under the James Hardie brand as James Hardie® products including Scyon® technology.
In New Zealand only, over the same timeframe, Secura® Interior Flooring, Secura® Exterior Flooring, Axent Fascia, HomeRAB® 4.5mm Pre Cladding, HardieGlaze® Listello and Grande lining, Stria® Cladding, Axon® 400 and 133 Grain Cladding, Linea® Oblique Cladding and Easy Lap Panel have been launched under the repositioned James Hardie brand.
In the Philippines, new products released over the past three years include the extension of the established Hardieflex board range with the inclusion of Hardieflex Wet Area lining boards and Hardieflex Pro primarily for wet area application and HardieFlex® Flooring.
The European business has launched HardieFloor Structural Flooring, and has developed an innovative range of products focused on improving acoustic performance of buildings, including HardieFloor dB Structural Acoustic Flooring, and HardieQStrip Acoustic Batten.
Principal Markets for Our Products
United States, Canada and Europe
In the US and Canada, the largest application for fiber cement building products is in external siding for the residential building industry, which includes options such as vinyl, stucco, fiber cement, natural and engineered wood and brick, with vinyl having the largest share of the US and Canadian siding markets. External siding typically occupies a significant square footage component of the outside of every building. Selection of siding material is based on installed cost, durability, aesthetic appeal, strength, weather resistance, maintenance requirements and cost, insulating properties and other features. Different regions of the US and Canada show a decided 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 the US accounts for the largest portion of our net sales, accounting for 75%, 73% and 70% of our total net sales in fiscal years 2015, 2014 and 2013, respectively.
In the US and Canada, competition in the external siding market comes primarily from substitute products, such as natural or engineered wood, vinyl, stucco and brick. We believe we can continue to increase our market share from these competing products through targeted marketing
James Hardie 2015 Annual Report on Form 20-F | 8 |
programs designed to educate customers on our brand and the performance, design and cost advantages of our products.
In Europe, fiber cement building products are used in both residential and commercial building applications in external siding, internal walls, floors, soffits and roofing. We compete in most segments, except roofing, and promote the use of fiber cement products against traditional masonry, gypsum-based products 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. Management believes that the growth outlook for fiber cement in Europe is favorable, in light of stricter insulation requirements driving demand for advanced exterior cladding systems, as well as better building practices increasing the use of fiber cement in interior applications.
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 siding, internal walls, ceilings, floors, soffits, fences and facades. We believe the level of activity in this industry is generally a function of interest rates, inflation, household income and wage growth, unemployment levels, demographic trends, gross domestic product growth and consumer confidence. Demand for fiber cement building products is also affected by the level of new housing starts and renovation activity.
In Australia, we face competition from two primary competitors with domestic manufacturing facilities, along with increased competition from imports. 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 acceptance across a broader range of product applications in the last decade, leading to additional fiber cement products entering the market, along with the increased use of gypsum in fiber cement applications. 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.
Seasonality
Our earnings are seasonal and typically follow activity levels in the building and construction industry. In the United States, the calendar quarters ending in December and March generally reflect reduced levels of building activity depending on weather conditions. In Australia and New Zealand, the calendar quarter ending in March is usually the quarter most affected by a slowdown due to summer holidays. In the Philippines, construction activity diminishes during the wet season from June through September and during the last half of December due to the slowdown in
James Hardie 2015 Annual Report on Form 20-F | 9 |
business activity over the holiday period. Also, general industry patterns can be affected by weather, economic conditions, industrial disputes and other factors. See Section 3 Risk Factors.
Raw Materials
The principal raw materials used in the manufacture of our fiber cement products are cellulose fiber (wood-based pulp), silica (sand), Portland cement and water. We have established supplier relationships for all of our raw materials across the various markets in which we operate and we do not anticipate having difficulty in obtaining our required raw materials from these suppliers. The purchase price of these raw materials and other materials can fluctuate depending on the supply-demand situation at any given point in time.
We work hard to reduce the effect of both price fluctuations and supply interruptions by entering into contracts with qualified suppliers and through continuous internal improvements in both our products and manufacturing processes.
Cellulose Fiber
Reliable access to specialized, consistent quality, low cost pulp is critical to the production of fiber cement building materials. As a result of our many years of experience and expertise in the industry, we share our internal expertise with pulp producers in New Zealand, the United States, Canada, and Chile to ensure they are able to provide us with a highly specialized and proprietary formula crucial to the reinforcing cement matrix of our fiber cement products. We have confidentiality agreements with our pulp producers and we have obtained patents in the United States and in certain other countries covering certain unique aspects of our pulping formulas and processes that we believe cannot adequately be protected through confidentiality agreements. However, we cannot be assured that our intellectual property and other proprietary information will be protected in all cases. See Section 3 Risk Factors.
Silica
High purity silica is sourced locally by the various production plants. In the majority of locations, we use silica sand as a silica source. In certain other locations, however, we process quartz rock and beneficiate silica sand to ensure the quality and consistency of this key raw material.
Cement
Cement is acquired in bulk from local suppliers. We continue to evaluate options on agreements with suppliers for the purchase of cement that can lock in our cement prices over longer periods of time.
Water
We use local water supplies and seek to process all wastewater to comply with environmental requirements.
James Hardie 2015 Annual Report on Form 20-F | 10 |
Sales, Marketing and Distribution
The principal markets for our fiber cement products are the United States, Australia, New Zealand, the Philippines, Canada, and in parts of Europe, including the United Kingdom and France. In addition, we have sold fiber cement products in many other markets, including Belgium, China, Denmark, French Caribbean, Germany, Hong Kong, Hungary, India, Indonesia, Ireland, Italy, Malta, Mexico, the Middle East (Israel, Saudi Arabia, Lebanon, and the United Arab Emirates), the Netherlands, Norway, various Pacific Islands, Singapore, South Africa, South Korea, Spain, Sri Lanka, Switzerland, Taiwan, Turkey and Vietnam. Our brand name, customer education in comparative product advantages, differentiated product range and customer service, including technical advice and assistance, provide the basis for our marketing strategy.
We offer our customers support through a specialized fiber cement sales force and customer service infrastructure in the United States, Australia, New Zealand, the Philippines and Europe. The 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 the United States, we sell fiber cement products for new residential construction predominantly to distributors, which then sell these products to dealers or lumber yards. This two-step distribution process is supplemented with direct sales to dealers and lumber yards as a means of accelerating product penetration and sales. Repair and remodel products in the United States are typically sold through the large home center retailers and specialist distributors. Our products are distributed across the United States and Canada primarily by road and, to a lesser extent, by rail.
In Australia and New Zealand, both new construction and repair and remodel products are generally sold directly to distributor/hardware stores and lumber yards rather than through the two-step distribution process. In the Philippines, a network of thousands of small to medium size dealer outlets sell our fiber cement products to consumers, builders and real estate developers, although in recent years, do-it-yourself type stores have started to enter the Philippines market. The physical distribution of our product in each country is primarily by road or sea transport. Products manufactured in Australia, New Zealand and the Philippines are also exported to a number of markets in Asia, various Pacific Islands, and the Middle East by sea transport.
Despite the fact that distributors and dealers are generally our direct customers, we also aim to increase primary demand for our products by marketing our products directly to homeowners, architects and builders. We encourage them to specify and install our products because of the quality and craftsmanship of our products. This pull through strategy, in turn, assists us in
James Hardie 2015 Annual Report on Form 20-F | 11 |
expanding sales for our distribution network as distributors benefit from the increasing demand for our products.
Geographic expansion of our fiber cement business has occurred in markets where framed construction is prevalent for residential applications or where there are opportunities to change building practices from masonry to framed construction. Expansion is also possible where there are direct substitution opportunities irrespective of the methods of construction. Our entry into the Philippines is an example of the ability to substitute fiber cement for an alternative product (in this case plywood). With the exception of our current major markets, as well as Japan and certain rural areas in Asia, Scandinavia, and Eastern Europe, most markets in the world principally utilize masonry construction for external walls in residential construction. Accordingly, further geographic expansion depends substantially on our ability to provide alternative construction solutions and for those solutions to be accepted in those markets.
Dependence on Trade Secrets and Research and Development (R&D)
We pioneered the successful development of cellulose reinforced fiber cement and, since the early-1980s, have progressively introduced products developed as a result of our proprietary product formulation and process technology. The introduction of differentiated products is one of the core components of our global business strategy. This product differentiation strategy is supported by our significant investment in research and development activities.
We view spending on research and development 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. For fiscal years 2015, 2014 and 2013, our expenses for R&D were US$31.7 million, US$33.1 million and US$37.2 million, respectively.
Our current patent portfolio is based mainly on fiber cement compositions, associated manufacturing processes and the resulting products. Our non-patented technical intellectual property consists primarily of our operating and manufacturing know-how and raw material and operating equipment specifications, all of which are maintained as trade secret information. We have enhanced our abilities to effectively create, manage and utilize our intellectual property and have implemented a strategy that increasingly uses patenting, licensing, trade secret protection and joint development to protect and increase our competitive advantage.
In addition, we own a variety of licenses; industrial, commercial and financial contracts; and 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 does 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 research and development 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.
James Hardie 2015 Annual Report on Form 20-F | 12 |
Governmental Regulation
As an Irish plc, we are governed by the Irish Companies Acts 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 Memorandum and Articles of Association for information regarding Irish Companies Acts and regulations to which we are subject.
Environmental, Health and Safety Regulation
Our operations and properties are subject to extensive federal, state, local and foreign environmental protection, health and safety laws, regulations and ordinances governing activities and operations that may have adverse environmental effects. As it relates to our operations, our manufacturing plants produce regulated materials, including waste water and air emissions. The waste water produced from our manufacturing plants is internally recycled and reused before eventually being discharged to publicly owned treatment works, a process which is monitored by us, as well as by regulators. In addition, we actively monitor air emissions and other regulated materials produced by our plants so as to ensure compliance with the various environmental regulations under which we operate.
Some environmental laws provide that a current or previous owner or operator of real property may be liable for the costs of investigation, removal or remediation of certain regulated materials on, under, or in that property or other impacted properties. In addition, persons who arrange, or are deemed to have arranged, for the disposal or treatment of certain regulated materials may also be liable for the costs of investigation, removal or remediation of the regulated materials at the disposal or treatment site, regardless of whether the affected site is owned or operated by such person. Environmental laws often impose liability whether or not the owner, operator, transporter or arranger knew of, or was responsible for, the presence of such regulated materials. Also, third parties may make claims against owners or operators of properties for personal injuries, property damage and/or for clean-up associated with releases of certain regulated materials pursuant to applicable environmental laws and common law tort theories, including strict liability.
In the past, from time to time, we have received notices of alleged discharges in excess of our water and air permit limits. In each case, and in compliance with our Environmental Policy, we have addressed the concerns raised in those notices, in part, through capital expenditures intended to prevent future discharges in excess of permitted levels and, on occasion, the payment of associated minor fines.
Environmental compliance costs in the future will depend, in part, on continued oversight of operations, expansion of operations and manufacturing activities, regulatory developments and future requirements that cannot presently be predicted.
James Hardie 2015 Annual Report on Form 20-F | 13 |
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 2015.
Name of Company |
Jurisdiction of |
Jurisdiction of | ||
James Hardie 117 Pty Ltd |
Australia | Australia | ||
James Hardie Aust. Holdings Pty Ltd |
Australia | Ireland | ||
James Hardie Austgroup Pty Ltd |
Australia | Ireland | ||
James Hardie Australia Management Pty Ltd |
Australia | Ireland | ||
James Hardie Australia Pty Ltd |
Australia | Australia | ||
James Hardie Building Products Inc. |
United States | United States | ||
James Hardie Europe B.V. |
Netherlands | Netherlands | ||
James Hardie Finance Holdings 1 Ltd |
Bermuda | Ireland | ||
James Hardie Finance Holdings 3 Ltd |
Bermuda | Ireland | ||
James Hardie Holdings Ltd |
Ireland | Ireland | ||
James Hardie International Finance Ltd |
Ireland | Ireland | ||
James Hardie International Group Ltd |
Ireland | Ireland | ||
James Hardie International Holdings Ltd |
Ireland | Ireland | ||
James Hardie New Zealand |
New Zealand | New Zealand | ||
James Hardie NZ Holdings |
New Zealand | New Zealand | ||
James Hardie North America Inc. |
United States | United States | ||
James Hardie Philippines Inc. |
Philippines | Philippines | ||
James Hardie Technology Ltd |
Bermuda | Ireland | ||
James Hardie U.S. Investments Sierra LLC |
United States | United States | ||
RCI Holdings Pty Ltd |
Australia | Australia |
James Hardie 2015 Annual Report on Form 20-F | 14 |
Property, Plants and Equipment
We believe we have some of the largest and lowest cost fiber cement manufacturing plants across the United States, Australia and New Zealand, with our plants servicing both domestic and export markets. Our plants are ideally located to take advantage of established transportation networks, allowing us to distribute our products into key markets, while also providing easy access to key raw materials.
Manufacturing Capacity
At 31 March 2015, we had manufacturing facilities at the following locations:
1 | The calculated annual design capacity is based on managements historical experience with our production process and is calculated assuming continuous operation, 24 hours per day, seven days per week, producing 5/16 medium density product at a targeted operating speed. No accepted industry standard exists for the calculation of our fiber cement manufacturing facility design and utilization capacities. |
2 | Estimated commission in fiscal year 2017. |
3 | The lease for our Waxahachie location expires on 31 March 2020, at which time we have an option to purchase the facility. |
4 | We suspended production at our Blandon, Pennsylvania and Summerville, South Carolina locations in November 2007 and November 2008, respectively. In the fourth quarter of fiscal year 2015, we began actively marketing the Blandon location for sale, and at the time of this Annual Report, we anticipate completing a sale and disposition of the property during the first half of fiscal year 2016. At the time of this Annual Report, no decision has been made on the future of the Summerville location. |
5 | In December 2014, we completed the purchase of the land and buildings previously leased at our Rosehill, New South Wales facility. |
6 | The Auckland leases expire on 22 March 2016, at which time we have an option to renew the leases for two further terms of 10 years expiring in March 2036. There is no option to purchase at the expiration of the lease. |
7 | The land on which our Philippines fiber cement plant is located is owned by Ajempa Holding Inc. (Ajempa), a related party. Ajempa is 40% owned by our operating entity, James Hardie Philippines Inc., and 60% owned by the James Hardie Philippines Retirement Fund. James Hardie Philippines Inc. owns 100% of the fixed assets on the land owned by Ajempa |
James Hardie 2015 Annual Report on Form 20-F | 15 |
8 | The Meeandah lease expires on 23 March 2019, and contains options to renew for two further terms of 10 years expiring in March 2039. The current annual design capacity for the Meeandah facility is 50 thousand tons of reinforced concrete pipes per year. On 6 May 2015, we entered into a conditional sale agreement to sell our Australian concrete pipes business. At the date of this Annual Report, the sale is still subject to the satisfactory completion of various contract conditions, but is expected to close in the first half of fiscal year 2016. |
Based on the design capacities of our various fiber cement manufacturing facilities, for the year ended 31 March 2015, we had an annual flat sheet design capacity of 3,230 mmsf and 520 mmsf in the United States and Asia Pacific, respectively. It is important to note that annual design capacity does not necessarily reflect the actual capacity utilization rates of our manufacturing facilities, with actual utilization affected by factors such as demand, product mix, batch size, plant availability and production speeds. For fiscal 2015, actual capacity utilization across our plants was an average of 65% and 84% in the United States and Asia Pacific, respectively.
Mines
We lease silica quartz mine sites in Tacoma, Washington, Reno, Nevada and Victorville, California. The lease for our quartz mine in Tacoma, Washington expires in February 2018 (with options to renew). The lease for our silica quartz mine site in Reno, Nevada expires in January 2019. The lease for our silica mine site in Victorville, California expires in June, 2015. Further, we own rights to an additional property in Victorville, California, however, as of 30 April 2015, we have not begun to mine this site.
As a mine operator, we are required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), and rules promulgated by the SEC implementing that section of the Dodd-Frank Act, to provide certain information concerning mine safety violations and other regulatory matters concerning the operation of our mines. During fiscal year 2015, we did not receive any notices, citations, orders, legal action or other communication from the US Department of Labors Mine Safety and Health Administration that would necessitate additional disclosure under Section 1503(a) of the Dodd-Frank Act.
Capital Expenditures
We utilize a mix of operating cash flow and debt facilities to fund our capital expenditure projects and investments, and expect to incur significant capital expenditures through fiscal year 2017 with a focus on capacity expansion projects at existing plants, the refurbishment and re-commissioning of idled production assets and the development of new locations in anticipation of a continued improvement in our operating environment. Additionally, we continuously invest in equipment maintenance and upgrades 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) | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
USA and Europe Fiber Cement |
$ | 165.3 | $ | 72.4 | $ | 43.2 | ||||||
Asia Pacific Fiber Cement |
94.4 | 40.7 | 10.7 | |||||||||
R&D and Corporate |
16.5 | 2.3 | 7.2 | |||||||||
Total Capital Expenditure |
$ | 276.2 | $ | 115.4 | $ | 61.1 |
James Hardie 2015 Annual Report on Form 20-F | 16 |
Significant active capital expenditures
At 31 March 2015, the following significant capital expenditure projects remain in progress:
Project Description | Approximate Investment (US millions) |
Investment to date (US millions) |
Project Start Date |
Expected Commission Date |
Expected Capacity Increase1 |
|||||||||
Plant City - 4th sheet machine |
$ | 70.5 | $ | 62.0 | Q4 FY14 | FY17 | 9% | |||||||
Cleburne - 3rd sheet machine |
$ | 37.0 | $ | 31.1 | Q4 FY14 | FY17 | 6% | |||||||
Carole Park - Capacity expansion |
$ | 80.1 | $ | 76.9 | Q1 FY14 | First Half FY16 | 40% |
1 | The expected capacity increase is based on managements 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
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 | ||||
Carol Park land and building purchase and capacity expansion |
$ | 76.9 | FY14 / FY15 | |||
Plant City sheet machine #4 |
$ | 62.0 | FY14 / FY15 | |||
Fontana Plant re-commisioning |
$ | 49.0 | FY13 - FY15 | |||
Rosehill land and buildings |
$ | 37.5 | FY15 | |||
Cleburne sheet machine #3 |
$ | 31.1 | FY14 / FY15 | |||
Tacoma land and buildings |
$ | 28.3 | FY15 |
Capital Divestitures
During the three most recent fiscal years, we did not make any material capital divestitures. However, on 6 May 2015, we entered into a conditional sale agreement to sell our Australian concrete pipes business. At the date of this Annual Report, the sale is still subject to the satisfactory completion of various contract conditions, but is expected to close in the first half of fiscal year 2016. We do not consider the disposition of the pipes business a material divestiture or a strategic shift in the nature of our operations. Additionally, in the fourth quarter of fiscal year 2015, we executed a conditional sale agreement to sell our Blandon, Pennsylvania location, where production was suspended in November 2007. We expect to complete the sale of this property in the first half of fiscal year 2016.
James Hardie 2015 Annual Report on Form 20-F | 17 |
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
Our management is overseen by our executive team, whose members cover the key areas of fiber cement research and development, production, manufacturing, investor relations, finance and legal.
Members of our executive team at 30 April 2015 (in alphabetical order) are:
Joe Blasko BSFS, JD
General Counsel
Age 48
|
Joe Blasko joined James Hardie as General Counsel in June 2011. Mr Blasko reports to the Companys Chief Executive Officer (CEO).
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.
James Hardie 2015 Annual Report on Form 20-F | 18 |
Mark Fisher BSc, MBA
Executive General Manager International
Age 44
|
Mark Fisher joined James Hardie in 1993 as a Production Engineer. Since then, he has worked for the Company as Finishing Manager, Production Manager and Product Manager at various locations; Sales and Marketing Manager; and as General Manager of our Europe Fiber Cement business. Mr Fisher was appointed Vice President Specialty Products in November 2004, then Vice President Research & Development in December 2005. In February 2008, his role was expanded to cover Engineering & Process Development. |
In January 2010, he was appointed Executive General Manager International, responsible for the Companys non-US businesses in Australia, New Zealand, Philippines and Europe and the Companys windows business.
Mr Fisher has a Bachelor of Science in Mechanical Engineering and an MBA from University of Southern California, USA.
Sean Gadd BEng, MBA
Executive General Manager Northern Division
Age 42
|
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 he ran the US trim business for James Hardie with responsibility for both Manufacturing and Sales, followed by a brief assignment leading Supply |
Chain. In 2011, Mr Gadd was promoted to the role of Vice President of Sales for the 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 P&L responsibility for the Northern Division.
Mr Gadd has a Bachelor of Engineering in Manufacturing Management and an Executive MBA from the Australian Graduate School of Management, Australia.
James Hardie 2015 Annual Report on Form 20-F | 19 |
Louis Gries BSc, MBA
Chief Executive Officer
Age 61
|
Louis Gries joined James Hardie as Manager of the Fontana fiber cement plant in California in February 1991 and was appointed President of James Hardie Building Products, Inc. in December 1993. Mr Gries became Executive Vice President Operations in January 2003, responsible for operations, sales and marketing in our businesses in the Americas, Asia Pacific and Europe.
He was appointed Interim CEO in October 2004 and became CEO in February 2005. In April 2012, the Company announced that effective June 2012, | |
Mr Gries would again assume responsibility for managing the US business. |
Before he joined James Hardie, Mr Gries worked for 13 years for USG Corp, including a variety of roles in research, plant quality and production, and product and plant management.
Mr Gries has a Bachelor of Science in Mathematics from the University of Illinois, USA and an MBA from California State University, Long Beach, USA.
Matthew Marsh BA, MBA
Chief Financial Officer
Age 40
|
Matthew Marsh joined James Hardie as Chief Financial Officer (CFO) in June 2013. As CFO he oversees the companys overall financial activities, including accounting, tax, treasury, performance and competitor analysis, internal audit and financial operations. Mr Marsh is also responsible for the companys technology and information systems.
After a 16-year career at General Electric Company (GE), Mr Marsh brings a strong background in financial management. Before joining James Hardie, | |
Mr Marsh most recently served as CFO of GE Healthcares IT business. Prior to being named CFO of GE Healthcare IT, Mr Marsh oversaw the finance operations for GE Healthcares US Healthcare Systems and US Diagnostic Imaging businesses. |
Prior to those appointments Mr Marsh travelled globally with the GE Internal Audit Staff gaining extensive experience in several industries including appliances, information services, distribution and supply, aviation, plastics, financial services, capital markets and health care, across more than twenty countries. Mr Marsh has graduated from GEs Financial Management Program (FMP).
Mr Marsh has a Bachelor of Arts in Economics and Public Affairs from Syracuse University, USA and an MBA from University of Chicagos Booth School of Business, USA.
James Hardie 2015 Annual Report on Form 20-F | 20 |
Sean OSullivan BA, MBA
Vice President Investor & Media Relations
Age 49
|
Sean OSullivan joined James Hardie as Vice President Investor & Media Relations in December 2008. For the eight years prior to joining James Hardie, Mr OSullivan was Head of Investor Relations at St. George Bank, where he established and led the investor relations function.
Mr OSullivans background includes thirteen years as a fund manager for GIO Asset Management, responsible for domestic and global investments. During this period, he spent time on secondment with a McKinsey and Co. taskforce | |
that completed a major study into the Australian financial services industry. Mr OSullivans final position at GIO was General Manager of Diversified Investments where his responsibilities included determining the asset allocation for over A$10 billion in funds under management. After leaving GIO, Mr OSullivan worked for Westpac Banking Corporation in funds management sales. |
Mr OSullivan has a Bachelor of Arts in Economics from Sydney University, Australia and an MBA from Macquarie Graduate School of Management, Australia.
Ryan Sullivan BSc, MS, MBA
Executive General Manager Southern Division
Age 41
|
Ryan Sullivan joined James Hardie in 2004 as the ColorPlus Manufacturing Manager. Since then, he has worked for the Company as Director of Global R&D and Engineering Services and Director of North America Supply Chain. In 2012, he became Director of the ColorPlus Business Unit, with product line responsibility for the North American ColorPlus business. In 2013, he was appointed to the James Hardie Management Team as Executive General Manager of the Southern Division with full P&L responsibility.
|
Before joining James Hardie, Mr Sullivan was a senior manager at Marconi Communications where he held numerous positions and had global responsibility. He has also worked in the fields of nuclear power and advanced robotics.
Mr Sullivan has a Bachelor of Science in Mechanical Engineering with a minor in Engineering Design from Carnegie Mellon University, USA, a Masters of Science in Electrical Engineering from the University of Pittsburgh, USA and an MBA from the University of Pittsburgh Katz School, USA.
James Hardie 2015 Annual Report on Form 20-F | 21 |
James Hardies directors have widespread experience, spanning general management, finance, law, marketing and accounting. Each director also brings valuable international experience that assists with James Hardies growth.
Members of the Board of Directors as at 31 March 2015 are:
Michael Hammes BS, MBA
Age 73
|
Michael Hammes was elected as an independent non-executive director of James Hardie in February 2007. He was appointed Chairman of the Board in January 2008 and is a member of the Audit Committee, the Remuneration Committee and the Nominating and Governance Committee.
Experience: Mr Hammes has extensive commercial experience at a senior executive level. He has held a number of executive positions in the medical products, hardware and home improvement, and automobile sectors, including | |
CEO and Chairman of Sunrise Medical, Inc. (2000-2007), Chairman and CEO of Guide Corporation (1998-2000), Chairman and CEO of Coleman Company, Inc. (1993-1997), Vice Chairman of Black & Decker Corporation (1992-1993) and various senior executive roles with Chrysler Corporation (1986-1990) and Ford Motor Company (1979-1986). |
Directorships of listed companies in the past five years: Current Director of Navistar International Corporation (since 1996); Director of DynaVox Mayer-Johnson (listed in April 2010).
Other: Resident of the United States.
Last elected: August 2014
Term expires: August 2017
James Hardie 2015 Annual Report on Form 20-F | 22 |
Donald McGauchie AO
Age 65
|
Donald McGauchie joined James Hardie as an independent non-executive director in August 2003 and was appointed Acting Deputy Chairman in February 2007 and Deputy Chairman in April 2007. He is Chairman of the Nominating and Governance Committee.
Experience: Mr McGauchie has wide commercial experience within the food processing, commodity trading, finance and telecommunication sectors. He also has extensive public policy experience, having previously held several high-level advisory positions to the Australian Government. |
Directorships of listed companies in the past five years: Current Chairman (since 2010) and Director (since 2010) of Australian Agricultural Company Limited; Chairman (since 2010) and Director (since 2003) of Nufarm Limited; Director of GrainCorp Limited (since 2009); Former Chairman of Telstra Corporation Limited (2004-2009).
Other: Chairman of Australian Wool Testing Authority (since 2005) and Director since 1999; Former Director of The Reserve Bank of Australia (2001-2011); resident of Australia.
Last elected: August 2013
Term expires: August 2016
Brian Anderson BS, MBA, CPA
Age 64
|
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 Chief Financial Officer (1997-2004) and, | |
more recently, Executive Vice President and Chief Financial Officer 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 Chairman (since 2010) and Director (since 2005) of A.M. Castle & Co.; Director of PulteGroup (since 2005); Director of W.W. Grainger, Inc. (since 1999); Former Lead Director of W.W. Grainger, Inc. (2011-2014).
Other: Resident of the United States.
Last elected: August 2012
Term expires: August 2015
James Hardie 2015 Annual Report on Form 20-F | 23 |
Russell Chenu BCom, MBA
Age 65
|
Russell Chenu was appointed as a non-executive director of James Hardie in August 2014. He is a member of the Remuneration Committee.
Experience: Russell Chenu joined James Hardie as Interim CFO in October 2004 and was appointed CFO in February 2005. He was elected to the Companys Managing Board at the 2005 Annual General Meeting (AGM), 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 executive 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 Leighton Holdings Limited (since 2014); Director of Metro Performance Glass Limited (since 2014).
Other: Resident of Australia
Last elected: August 2014
Term expires: August 2017
James Hardie 2015 Annual Report on Form 20-F | 24 |
David D. Harrison BA, MBA, CMA
Age 68
|
David Harrison was appointed as an independent non-executive director of James Hardie in May 2008. He is Chairman of the Remuneration Committee and a member of the Audit Committee.
| |
Experience: Mr Harrison is an experienced company director with a finance background, having served in corporate finance roles, international operations and information technology during 22 years with Borg Warner/General Electric Co. His previous experience includes ten years at Pentair, Inc., as Executive Vice |
President and Chief Financial Officer (1994-1996 and 2000-2007) and Vice President and Chief Financial Officer 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); Former Director of Navistar International Corporation (2007-2012).
Other: Resident of the United States.
Last elected: August 2013
Term expires: August 2016
Andrea Gisle Joosen MSc, BSc
Age 51
|
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 Dixons Retail plc (2012-2013).
Other: Director of Mr Green AB (since 2015); Director of Neopitch AB (since 2004) and Lighthouse Group AB (since 2015); resident of Sweden.
Last elected: Ms Gisle Joosen will be standing for election at the August 2015 AGM.
James Hardie 2015 Annual Report on Form 20-F | 25 |
Alison Littley BA, FCIPS
Age 52
|
Alison Littley was appointed as an independent non-executive director of James Hardie in February 2012. She is a member of the Audit Committee and the Remuneration Committee.
| |
Experience: Ms Littley has substantial experience in multinational manufacturing and supply chain operations, and she brings a strong international leadership background building effective management teams and third party relationships. She has held a variety of positions, most recently as Chief Executive |
of Buying Solutions, a UK Government Agency responsible for procurement of goods and services on behalf of UK government and public sector bodies (2006-2011). She has previously held senior management roles in Diageo plc (1999-2006) and Mars, Inc. (1981-1999). She serves on the Board of Weightmans LLP, a UK law firm and TG Eakin Ltd, a medical device company.
Directorships of listed companies in the past five years: None.
Other: Resident of the United Kingdom.
Last elected: August 2012
Term expires: August 2015
James Osborne BA Hons, LLB
Age 66
|
James Osborne was appointed as an independent non-executive director of James Hardie in March 2009. He is a member of the Nominating and Governance Committee.
| |
Experience: Mr Osborne is an experienced company director with a strong legal background and a considerable knowledge of international business operations in North America and Europe. His career includes 35 years with the leading Irish law firm, A&L Goodbody, in roles which included opening the firms New York office in |
1979 and serving as the firms managing partner (1982-1994). He has served as a consultant to the firm since 1994. Mr Osborne also contributed to the listing of Ryanair in London, New York and Dublin and continues to serve on Ryanairs board.
Directorships of listed companies in the past five years: Current Director of Ryanair Holdings plc (since 1996); Former Chairman of Independent News & Media (2011-2012), Chairman of Newcourt Group plc (2004-2009).
Other: Chairman of Eason Holdings plc (since 2013); Chairman of Jellia Holdings Limited (since 2004); Chairman of ELST (since 2012); resident of Ireland.
Last elected: August 2012
Term expires: August 2015
James Hardie 2015 Annual Report on Form 20-F | 26 |
Rudolf van der Meer M.Ch.Eng
Age 70
|
Rudy van der Meer was elected as an independent non-executive director of James Hardie in February 2007. He is a member of the Nominating and Governance Committee.
Experience: Mr van der Meer is an experienced former executive, with considerable knowledge of international business and the building and construction sector. During his 32-year association with Akzo Nobel N.V., he held a number of senior positions including CEO of Coatings (2000-2005), CEO of | |
Chemicals (1993-2000), and member of the five person Executive Board (1993-2005). |
Directorships of listed companies in the past five years: Current Director of LyondellBasell Industries N.V. (since 2010); Former Member of the Supervisory Board of Hagemeyer N.V. (2006-2008); Chairman of the Supervisory Board of Imtech N.V. (2005-2013).
Other: Former Chairman of the Board of Energie Beheer Nederland B.V. (2006 - 2013); Chairman of the Supervisory Board of VGZ Health Insurance (since May 2011); resident of the Netherlands.
Last elected: August 2014
Term expires: August 2017
James Hardie 2015 Annual Report on Form 20-F | 27 |
We are not required to produce a remuneration report under applicable Irish, Australian or US rules or regulations. However, taking into consideration our Australian shareholder base and primary listing on the ASX, we have voluntarily produced a remuneration report consistent with those provided by similarly situated Australian-domiciled companies for non-binding shareholder approval since 2005 and we intend to continue to do so for fiscal year 2015. The remuneration information provided in this Annual Report outlines the key remuneration and share ownership information for our Board of Directors and certain of our senior executive officers (chief executive officer, chief financial officer and the other three highest paid executive officers based on total compensation that was earned or accrued for fiscal year 2015) (collectively, our Senior Executive Officers). A more extensive remuneration report, which further details our remuneration policies and practices for fiscal year 2015, will be provided separately to our shareholders in July 2015, together with the 2015 Notice of AGM and accompanying materials.
Remuneration Philosophy
Our remuneration philosophy is to provide our Senior Executive Officers with an overall package that is competitive with US listed peer group companies exposed to the US housing market, while emphasizing operational excellence and shareholder value creation through incentives which link executive remuneration with the interests of shareholders.
Composition of Remuneration Packages
Remuneration packages for Senior Executive Officers reflect our remuneration philosophy and comprise a mixture of fixed base salary and benefits and variable performance-based incentive remuneration, which is dependent upon the achievement of both short- and long-term goals.
Our policy is to position Senior Executive Officer fixed base salary and benefits at the median and total target direct remuneration (comprising fixed and target variable remuneration) at the 75th percentile of our US listed peer group companies, if stretch short and long-term target performance goals are met.
Performance goals for target variable performance-based incentive remuneration are set with the expectation that we will deliver results in the top quartile of our US listed peer group companies. Performance below this level will result in variable remuneration payments below target (and potentially zero for poor performance). Performance above this level will result in variable remuneration payments above target.
The executive remuneration framework described in this Annual Report also applies to the other members of our executive team, who work to manage our business. Our five most highly compensated Senior Executive Officers in fiscal year 2015 were:
| Louis Gries, Chief Executive Officer |
| Matthew Marsh, Chief Financial Officer |
| Mark Fisher, Executive General Manager International |
| Ryan Sullivan, Executive General Manager Southern Division |
| Sean Gadd, Executive General Manager Northern Division |
James Hardie 2015 Annual Report on Form 20-F | 28 |
Base Salaries and Other Benefits
Base salary provides a guaranteed level of income that recognizes the market value of the position and internal equities between roles, and the individuals capability, experience and performance. 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, although increases are not automatic. In addition, Senior Executive Officers may receive certain other limited fixed benefits, such as medical and life insurance benefits, car allowances, participation in executive wellness programs and an annual financial planning allowance. For fiscal year 2015, 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, located under the heading Remuneration for Senior Executive Officers.
Incentive Arrangements
In addition to the base salary and 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 2015, our variable incentive plans for Senior Executive Officers were as follows:
Duration | Plan Name | Amount | Form Incentive Paid | |||
Short-term (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 (LTI) (3 - 4.5 years) | Long Term Incentive Plan 2006 (LTIP) | 40% of LTI Target | Return on Capital Employed (ROCE) Restricted Stock Units (RSUs) | |||
30% of LTI Target | Relative Total Shareholder Return (TSR) RSUs | |||||
30% of LTI Target | Cash (Scorecard LTI) |
STI Plans
On an annual basis, the Remuneration Committee approves a 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 2015, the STI target percentage for Mr Gries was 125% of base salary and 60% of base salary for Messrs Marsh, Fisher, Gadd and Sullivan, with 80% allocated to the CP Plan and 20% allocated to the IP Plan for all Senior Executive Officers.
CP Plan
The CP Plan, which is approved by the Remuneration Committee, 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 performance hurdles which assess volume growth relative to, and above, market and earnings. Each Senior Executive Officer can receive between 0% and 300% of their STI target allocated to the CP Plan based on the results of the payout matrix the
James Hardie 2015 Annual Report on Form 20-F | 29 |
Senior Executive Officer is tied to. All Senior Executive Officers are tied to either the US payout matrix or a composite multiple derived from the payout matrices for the US and Asia Pacific businesses. We use two performance hurdles in the payout matrices to ensure that as management increases its top line market growth focus, it does not do so at the expense of short- to medium-term earnings. Management is encouraged to balance market growth and earnings returns since achievement of strong rewards requires management to generate both strong earnings and growth relative to and above market. Higher returns on one measure at the expense of the other measure may result in a lower reward or no reward at all.
IP Plan
Under the IP Plan, the Remuneration Committee approves a series of one-year individual performance goals which, along with personal growth and development goals, are used to assess the performance of our Senior Executive Officers. The IP Plan links financial rewards to the Senior Executive Officers achievement of specific objectives that have benefited us and contributed to shareholder value, but are not captured directly by financial measures in the CP Plan. Each Senior Executive Officer can receive between 0% and 150% of their STI target allocated to the IP Plan based on achievement of individual performance goals.
For fiscal year 2015, the amount to be paid to each of our Senior Executive Officers under the STI Plan is provided in the Bonus column of the Remuneration Table, located under the heading Remuneration for Senior Executive Officers.
LTI Plans
Each year, the Remuneration Committee approves a LTI target for all Senior Executive Officers. The approved target is allocated between three separate components to ensure that each Senior Executive Officers performance is assessed across factors considered important for sustainable long-term value creation:
| ROCE RSUs are used as they are considered an indicator of high capital efficiency required over time; |
| TSR RSUs are used as they are considered an indicator of our performance relative to our US peer companies; and |
| Scorecard LTI is considered an indicator of each Senior Executive Officers contribution to achieving our long-term strategic goals. |
Awards issued under the LTI Plans are issued pursuant to the terms of our Long-Term Incentive Plan 2006 (the LTIP). During fiscal year 2015, our Senior Executive Officers were granted the following awards under the LTIP:
ROCE | TSR RSUs | Scorecard | ||||||||||
L Gries |
232,980 | 260,346 | 262,103 | |||||||||
M Marsh |
33,283 | 38,787 | 37,443 | |||||||||
M Fisher |
33,283 | 38,787 | 37,443 | |||||||||
R Sullivan |
33,283 | 38,787 | 37,443 | |||||||||
S Gadd |
33,283 | 38,787 | 37,443 |
James Hardie 2015 Annual Report on Form 20-F | 30 |
Vesting criteria for each type of LTI award are as follows:
| ROCE RSUs awarded in fiscal year 2015 may vest on 16 September 2017 based on the achievement of certain ROCE hurdles for fiscal years 2015-2017 (the Performance Period) and any negative discretion applied by the Remuneration Committee. Specifically, if our three year average ROCE for fiscal years 2015-2017 is: (i) less than 22%, then no ROCE RSUs will vest; (ii) is equal to or greater than 22% but less than 24.5%, then 25% of the ROCE RSUs will vest; (iii) is equal to or greater than 24.5% but less than 27.0%, then 50% of the ROCE RSUs will vest; (iv) is equal to or greater than 27.0% but less than 28.5%, then 75% of the ROCE RSUs will vest; and (v) is equal to or greater than 28.5%, then 100% of the RSUs will vest. The Remuneration Committee can exercise negative discretion to reduce the number of shares received following vesting of the ROCE RSUs based on its assessment of the quality of returns balanced against managements delivery of market share growth and performance against the final Scorecard for fiscal years 2015-2017. Following the end of the Performance Period, vested ROCE RSUs will be settled in CUFS (as defined herein) on a 1-for-1 basis. |
| TSR RSUs awarded in fiscal year 2015 may vest if the TSR of our shares exceeds a specified percentage of our US peer group over the performance period. The peer group for measuring TSR consists of the same 24 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 36 to 54 month period from the grant date, with testing after the 36th month, 48th month and at the end of the 54th month period. To eliminate the impact of short-term price changes, the starting point and each test 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 40th percentile of the peer group, then 25% of the TSR RSUs will vest; (iii) if the TSR of our shares is equal to the 60th percentile of the peer group, then 60% of the TSR RSUs will vest; and (iv) if the TSR of our shares is equal or greater than the 80th percentile of the peer group, then 100% of the TSR RSUs will vest. The vesting percentage between points is on a straight-line interpolated basis. For all Senior Executive Officers, all vested TSR RSUs will be settled in CUFS on a 1-for-1 basis. In addition, during fiscal year 2015, Mr. Gries was granted a cash-settled award (equivalent to 11,164 units). This cash-settled award may vest based on the same vesting criteria as his TSR RSU grant and may only vest in the event that his TSR RSU grant vests in full. Upon vesting, the award will be settled in cash based on the number of units vested and the fair market value of our CUFS as of the relevant vesting date. |
| Scorecard LTI cash-settled awards granted in fiscal year 2015 may vest on 16 September 2017 based on our achievement of certain specified strategic goals and objectives and each Senior Executive Officers contribution to the achievement of such objectives during the Performance Period. In fiscal year 2015, 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 2015 grant. At the end of the Performance Period, the Remuneration Committee will assess our Senior Executive Officers collective performance and each Senior Executive Officers individual contribution to that performance. Senior Executive Officers may receive different |
James Hardie 2015 Annual Report on Form 20-F | 31 |
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 Officers Scorecard rating. Depending on the collective performance related to the specified objectives and the Senior Executive Officers rating (between 0 and 100), between 0% and 100% of the Senior Executive Officers Scorecard LTI awards may vest at the end of the Performance Period. Following 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. |
Employment and Severance Arrangements
Other than the employment agreements for Messrs Gries and Fisher and the severance arrangement with Mr Marsh discussed below, we do not maintain employment or severance arrangements with members of our executive team and all executive team members are at-will employees and may be terminated at any time and for any reason. Other than for Messrs Gries, Marsh and Fisher, no other termination payments are payable, except as required under the terms of the applicable STI or LTI plans.
Employment Agreement with Louis Gries
Below is a summary of the key terms of Mr Gries current employment agreement:
| Executive Employment Agreement renewed effective as of 14 October 2010 providing for service as Chief Executive Officer. |
| Mr Gries is an employee-at-will and either he or the Company may terminate his employment at any time or any reason. |
| Base salary at an initial annual rate of US$950,000, subject to annual review and approval by Remuneration Committee. |
| Participation in Companys annual STI and LTI Plans, with a minimum STI target of 100% of his annual base salary, as established by the Companys Board of Directors. |
| Participation in the Companys benefit, health and welfare plans and certain fringe benefits made generally available to Senior Executive Officers in accordance with his agreement and Company policies. |
| Provisions concerning consequences of termination of employment under specified circumstances, including: (i) termination by the Company for cause; (ii) termination by reason of death or disability; (iii) retirement; (iv) termination by the Company without cause or by Mr Gries with good reason; or (v) termination by Mr Gries without good reason. |
| In the event that Mr Gries employment is terminated by the Company for any reason other than for cause, or if Mr Gries voluntarily terminates his employment for good reason, the Company shall pay to Mr Gries, in addition to any compensation or reimbursements he would otherwise be entitled to up to the date of termination: (i) an amount equal to 150% of his then current base salary; (ii) an amount equal to 150% of his average annual STI bonus actually paid, calculated based on the three full fiscal years immediately preceding the year of termination; (iii) his prorated bonus; (iv) no pro rata forfeiture of his |
James Hardie 2015 Annual Report on Form 20-F | 32 |
unvested RSUs/Scorecard LTI grants these will vest in accordance with the terms and timing of the specific grants; and (v) continuation of health and medical benefits at the Companys expense for the duration of the consultation agreement referenced below, provided that Mr Gries signs the Companys release of claims without revocation and has been and continues to remain in compliance with his confidentiality and noncompetition obligations as set forth in this agreement. |
| In the event of Mr Gries retirement after the age of 65, or prior to age 65 with the approval of the Board, his then unvested RSUs and awards will not be forfeited and will be held through the applicable testing periods. |
| In the event that Mr Gries employment is terminated for any reason other than by the Company for cause or due to his death, in addition to any severance payment he may be entitled to as set forth above, the Company and Mr Gries each agree to enter into a consulting arrangement for a minimum of two years, as long as Mr Gries adheres to certain non-competition and confidentiality provisions and executes a release of claims following the effective date of termination. Under the consulting agreement, Mr Gries will receive his annual target STI bonus and annual base salary in exchange for his consulting services and non-compete. |
Employment Agreement with Mark Fisher
Below is a summary of the key terms of Mr Fishers current employment agreement:
| Executive Employment Agreement effective as of 31 March 2006. |
| Mr Fisher is an employee-at-will and either he or the Company may terminate his employment at any time or for any reason. |
| Base salary subject to annual review and approval by Remuneration Committee. |
| Participation in Companys annual STI and LTI Plans, as established by the Companys Board of Directors. |
| Participation in the Companys benefit, health and welfare plans and certain fringe benefits made generally available to Senior Executive Officers in accordance with Company policies. |
| Provisions concerning consequences of termination of employment under specified circumstances, including: (i) termination by the Company for cause; (ii) termination by reason of death or disability; (iii) termination by the Company without cause or by Mr Fisher with good reason; or (iv) termination by Mr Fisher without good reason. |
| In the event that Mr Fisher employment is terminated by the Company for any reason other than for cause or due to his death or if Mr Fisher voluntarily terminates his employment for good reason, in addition to any compensation or reimbursements he would otherwise be entitled to up to the date of termination, the Company and Mr Fisher each agree to enter into a consulting arrangement for a minimum of two years, as long as Mr Fisher adheres to certain non-competition and confidentiality provisions and executes a release of claims following the effective date of termination. Under the consulting agreement, Mr Fisher will receive his annual base salary as of the termination date for each year in exchange for his consulting services and non-compete. |
Severance Arrangement with Matt Marsh
In connection with his retention as Chief Financial Officer, in June 2013, we agreed that in the event the Company terminates Mr Marsh during his first two years of employment (24 June 2013
James Hardie 2015 Annual Report on Form 20-F | 33 |
through 24 June 2015) for any reason other than for cause, or if Mr Marsh terminates his employment for good reason, the Company agreed to pay Mr Marsh his then annual base salary and annual target STI bonus, provided that he signs and complies with (i) a resignation letter resigning from all office and director positions held at the time, and (ii) a general release of claims following the effective date of termination.
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$17,500 in calendar year 2014 and have the amount of such reduction contributed to the 401(k) Plan, with a maximum eligible compensation limit of US$260,000. In addition, we match employee contributions dollar for dollar up to a maximum of the first 6% of an employees eligible compensation.
Remuneration for Senior Executive Officers
Details of remuneration for our Senior Executive Officers in fiscal years 2015 and 2014 are set out below:
(US dollars) | Primary | Post- employment |
Equity Awards | Other | TOTAL | |||||||||||||||||||||||||||
Name | Base Pay | Bonuses2 | Other Benefits3 |
401(k) | Ongoing Vesting4 |
Mark-to Market5 |
Other Non- recurring |
|||||||||||||||||||||||||
L Gries1 |
||||||||||||||||||||||||||||||||
Fiscal Year 2015 |
950,000 | 3,206,250 | 156,059 | 15,440 | 8,319,665 | (908,777 | ) | - | 11,738,637 | |||||||||||||||||||||||
Fiscal Year 2014 |
951,743 | 2,835,750 | 112,564 | 15,228 | 6,272,763 | 1,461,408 | - | 11,649,456 | ||||||||||||||||||||||||
M Marsh6 |
||||||||||||||||||||||||||||||||
Fiscal Year 2015 |
493,846 | 810,000 | 47,903 | 15,877 | 619,567 | (48,658 | ) | - | 1,938,535 | |||||||||||||||||||||||
Fiscal Year 2014 |
350,769 | 687,744 | 30,564 | 19,938 | 196,070 | 24,004 | 288,666 | 1,597,755 | ||||||||||||||||||||||||
M Fisher |
||||||||||||||||||||||||||||||||
Fiscal Year 2015 |
486,923 | 779,100 | 39,887 | 15,738 | 835,874 | (106,421 | ) | - | 2,051,101 | |||||||||||||||||||||||
Fiscal Year 2014 |
473,061 | 673,344 | 43,505 | 15,612 | 712,419 | 158,794 | - | 2,076,735 | ||||||||||||||||||||||||
R Sullivan |
||||||||||||||||||||||||||||||||
Fiscal Year 2015 |
392,308 | 680,400 | 54,687 | 16,846 | 475,721 | (50,189 | ) | - | 1,569,773 | |||||||||||||||||||||||
Fiscal Year 2014 |
311,539 | 529,848 | 81,054 | 15,508 | 209,217 | 66,392 | - | 1,213,558 | ||||||||||||||||||||||||
S Gadd |
||||||||||||||||||||||||||||||||
Fiscal Year 2015 |
362,308 | 608,400 | 39,475 | 16,846 | 456,513 | (50,632 | ) | - | 1,432,910 | |||||||||||||||||||||||
Fiscal Year 2014 |
281,538 | 463,680 | 36,753 | 16,131 | 220,293 | 47,816 | - | 1,066,211 | ||||||||||||||||||||||||
TOTAL |
||||||||||||||||||||||||||||||||
Fiscal Year 2015 |
2,685,385 | 6,084,150 | 338,011 | 80,747 | 10,707,340 | (1,164,677 | ) | - | 18,730,956 | |||||||||||||||||||||||
Fiscal Year 2014 |
2,368,650 | 5,190,366 | 304,440 | 82,417 | 7,610,762 | 1,758,414 | 288,666 | 17,603,715 |
James Hardie 2015 Annual Report on Form 20-F | 34 |
1 | L Gries base pay includes US$161,449 and US$155,818 in fiscal years 2015 and 2014, respectively, which is allocated for tax purposes to his services on the JHI plc Board. |
2 | For further details on bonuses paid in fiscal years 2015 and 2014, see Incentive Arrangements. Fiscal year 2015 reflects actual bonuses to be paid in June 2015. |
3 | Includes the aggregate amount of all other benefits received by the Senior Executive Officer in the year indicated. Examples of benefits that may be received by Senior Executive Officers include medical and life insurance benefits, car allowances, membership in executive wellness programs, financial planning and tax services. |
4 | Includes equity award expense for grants of Scorecard LTI awards, relative TSR RSUs, ROCE RSUs and Hybrid RSUs. As part of the fiscal year 2012 LTI plan, the Company granted RSUs to senior executives on the basis of managements attainment of certain EBIT goals in fiscal year 2012 (Hybrid RSUs). During June 2014, these Hybrid RSUs vested. Relative TSR RSUs are valued using a Monte Carlo simulation method. Hybrid RSUs, ROCE RSUs and Scorecard LTI awards are valued based on the Companys share price at each balance date as well as the Remuneration Committees current expectation of the percentage of the RSUs or awards which will vest. The fair value of equity awards granted are included in compensation during the period in which the equity awards vest. For Hybrid RSUs, ROCE RSUs and Scorecard LTI awards, this amount excludes the equity award expense in fiscal years 2015 and 2014 resulting from changes in the Companys share price, which is disclosed separately in the Equity Awards Mark-to-Market column. |
5 | The amount included in this column is the equity award expense in relation to Hybrid RSUs, ROCE RSUs and Scorecard LTI resulting solely from changes in the US dollar share price during fiscal years 2015 and 2014. During fiscal year 2015, there was a 11.8% depreciation in our share price from US$13.21 to US$11.65, as a result of changes in the AUD/USD exchange rate. During fiscal year 2014, there was a 29.5% appreciation in our share price from US$10.20 to US$13.21. |
6 | Commenced employment 24 June 2013. Upon hire and reflected in his fiscal 2014 compensation, Mr Marsh received cash in the amount of US$288,666 which is included in the Other compensation column as well as a one-time grant of time-vested RSUs as compensation for foregone compensation and benefits at his prior employer. These RSUs were granted 16 September 2013 and are scheduled to cliff vest on the third anniversary of the grant date. The equity award expense for these time-vested RSUs is included in the Ongoing Vesting column. |
Remuneration for the Board of Directors
Fees paid to non-executive directors are determined by the Board, with the advice of the Remuneration Committees independent external remuneration advisers, within the maximum total amount of base and committee fee pool approved by shareholders from time to time. Shareholders at the 2014 AGM approved the current maximum aggregate base and committee fee pool of US$2.3 million per annum. No additional Board fees are paid to executive Board directors.
Remuneration Structure
Non-executive directors are paid a base fee for service on the Board. Additional fees are paid to the person occupying the positions of Chairman, Deputy Chairman and Board Committee Chairman, as well as for attendance at ad-hoc Board sub-committee meetings.
During fiscal year 2015, the Remuneration Committee reviewed non-executive directors fees, using market data and taking into consideration the level of fees paid to chairmen and directors of companies with similar size, complexity of operations and responsibilities and workload requirements. In addition, an allowance is considered for the reduction in net of tax remuneration for US domiciled directors as a result of the Companys re-domicile from the Netherlands to Ireland. The Remuneration Committee recommended an increase in non-executive director fees for calendar year 2015 and fee increases are effective from the start of the calendar year. The annual fee adjustments when calculated on a fiscal year basis include a 1.9% increase in base
James Hardie 2015 Annual Report on Form 20-F | 35 |
fees, and a tax equalization adjustment allowance for the US domiciled chairman, audit committee chair and remuneration committee chair of 6.7%, collectively.
Position | Fiscal Year
2015 (US$) |
Fiscal Year
2016 (US$) |
||||||
Chairman |
459,754 | 485,837 | ||||||
Deputy Chairman |
217,335 | 221,385 | ||||||
Board member |
161,449 | 164,457 | ||||||
Audit Committee Chair |
73,750 | 85,000 | ||||||
Remuneration Committee Chair |
73,750 | 85,000 | ||||||
N&GC Committee Chair |
20,000 | 20,000 | ||||||
Ad-hoc Board sub-committee attendance 1 |
3,000 | 3,000 |
1 | Fee is payable in respect of each ad-hoc Board sub-committee attended. |
As the focus of the Board is on maintaining the long-term direction and well-being of the Company, there is no direct link between non-executive directors remuneration and the short-term results of the Company.
Director Retirement Benefits
We do not provide any benefits for our non-executive directors upon termination of their service on the Board.
Total Remuneration for Non-Executive Directors for the Years Ended 31 March 2015 and 2014
The table below sets out the remuneration for those non-executive directors who served on the Board during the fiscal years ended 31 March 2015 and 2014:
(US dollars) Name |
Primary Directors Fees1 |
Other Payments2 | Other Benefits3 | TOTAL | ||||||||||||
M Hammes |
||||||||||||||||
Fiscal Year 2015 |
468,754 | - | 15,715 | 484,469 | ||||||||||||
Fiscal Year 2014 |
394,779 | 122,958 | 24,761 | 542,498 | ||||||||||||
D McGauchie |
||||||||||||||||
Fiscal Year 2015 |
237,335 | - | 23,444 | 260,779 | ||||||||||||
Fiscal Year 2014 |
222,255 | - | 18,711 | 240,966 | ||||||||||||
B Anderson |
||||||||||||||||
Fiscal Year 2015 |
238,199 | - | - | 238,199 | ||||||||||||
Fiscal Year 2014 |
195,818 | 79,770 | - | 275,588 | ||||||||||||
D Harrison |
||||||||||||||||
Fiscal Year 2015 |
235,199 | - | 11,991 | 247,190 | ||||||||||||
Fiscal Year 2014 |
188,318 | 81,821 | - | 270,139 | ||||||||||||
A Littley |
||||||||||||||||
Fiscal Year 2015 |
167,449 | - | - | 167,449 | ||||||||||||
Fiscal Year 2014 |
155,818 | - | 547 | 156,365 |
James Hardie 2015 Annual Report on Form 20-F | 36 |
Total Remuneration for Non-Executive Directors (continued) |
(US dollars) Name |
Primary Directors Fees1 |
Other Payments2 | Other Benefits3 | TOTAL | ||||||||||||
J Osborne |
||||||||||||||||
Fiscal Year 2015 |
170,449 | - | - | 170,449 | ||||||||||||
Fiscal Year 2014 |
155,818 | - | - | 155,818 | ||||||||||||
R Van Der Meer |
||||||||||||||||
Fiscal Year 2015 |
161,449 | - | - | 161,449 | ||||||||||||
Fiscal Year 2014 |
155,818 | - | - | 155,818 | ||||||||||||
R Chenu4 |
||||||||||||||||
Fiscal Year 2015 |
101,717 | - | 22,879 | 124,596 | ||||||||||||
Fiscal Year 2014 |
N/A | N/A | N/A | N/A | ||||||||||||
A Gisle Joosen5 |
||||||||||||||||
Fiscal Year 2015 |
5,363 | - | - | 5,363 | ||||||||||||
Fiscal Year 2014 |
N/A | N/A | N/A | N/A | ||||||||||||
Total Compensation for Non-Executive Directors |
| |||||||||||||||
Fiscal Year 2015 |
1,785,914 | - | 74,029 | 1,859,943 | ||||||||||||
Fiscal Year 2014 |
1,468,624 | 284,549 | 44,019 | 1,797,192 |
1 | Amount includes base, Chairman, Deputy Chairman, Committee Chairman fees, as well as fees for attendance at ad hoc Board sub-committee meetings. |
2 | Amount relates to a one-off payment to partially compensate non-executive directors who have received a reduction in net compensation following the Companys re-domicile from the Netherlands to Ireland. The impact of the re-domicile meant that US based non-executive directors incurred an increased income tax burden since the Irish tax rate is significantly higher than the US tax rate. The Board deferred consideration of a tax equalization measure for the affected non-executive directors until (i) it fully understood the tax implications for the affected directors, and (ii) there was a clear improvement in the US housing market and business results began to improve. |
3 | Amount includes the cost of non-executive directors fiscal compliance in Ireland and other costs connected with Board-related events paid for by the Company. In addition to these costs, travel and subsistence expenses incurred by non-executive directors in attending board meetings held in Ireland which are paid or reimbursed by the Company have, pursuant to a direction from the Irish Revenue Commissioners effective from February 2014, been grossed up and subjected to Irish income taxes. The aggregate cost to the Company, including income taxes, for these costs in fiscal year 2015 was US$447,355. |
4 | Elected to the Board on 15 August 2014. In addition to the compensation set forth above, Mr Chenu continues to receive certain financial planning and tax services from the Company, and remains eligible for certain tax equalization benefits relative to the vesting of previously granted equity awards, stemming from his prior service as an executive officer of the Company. |
5 | Appointed to the Board on 20 March 2015. |
James Hardie 2015 Annual Report on Form 20-F | 37 |
Share Ownership and Stock Based Compensation Arrangements
As a company incorporated under the laws of Ireland, we have listed our securities for trading on the ASX through the use of the Clearing House Electronic Subregister System (CHESS), via CHESS Units of Foreign Securities (CUFS). CUFS are a form of depositary security that represent a beneficial ownership interest in the securities of a non-Australian corporation. Each of our CUFS represents the beneficial ownership of one share of common stock, the legal ownership of which is held by CHESS Depositary Nominees Pty Ltd (CDN). As of 30 April 2015 and 30 April 2014, the number of CUFS and RSUs beneficially owned by Senior Executive Officers is set forth below:
Name | CUFS at 30 April 2015 |
CUFS at 30 April 2014 |
RSUs at 30 April 2015 |
RSUs at 2014 |
||||||||||||
L Gries |
522,278 | 471,501 | 2,161,187 | 2,185,634 | ||||||||||||
M Marsh |
- | - | 193,029 | 120,959 | ||||||||||||
M Fisher |
149,689 | 204,464 | 260,785 | 255,295 | ||||||||||||
R Sullivan |
7,427 | - | 144,338 | 83,352 | ||||||||||||
S Gadd |
26,049 | 26,049 | 146,957 | 84,964 |
As of 30 April 2015 and 30 April 2014, the number of CUFS and RSUs beneficially owned by non-executive directors is set forth below:
CUFS at 30 April 2015 |
CUFS at 30 April 2014 |
|||||||
M Hammes 1 |
40,462 | 38,444 | ||||||
D McGauchie 2 |
20,372 | 20,372 | ||||||
B Anderson 3 |
16,995 | 15,195 | ||||||
R Chenu 4 |
156,306 | - | ||||||
A Gisle Joosen 5 |
- | - | ||||||
D Harrison 6 |
17,184 | 14,934 | ||||||
A Littley |
- | - | ||||||
J Osborne 7 |
11,951 | 2,551 | ||||||
R Van Der Meer |
17,290 | 17,290 |
1 | 31,462 CUFS held in the name of Mr and Mrs Hammes and 9,000 CUFS held as American Depositary Shares (ADSs) in the name of Mr and Mrs Hammes. |
2 | 6,000 CUFS held for the McGauchie Superannuation Fund for which Mr McGauchie is a trustee and beneficiary. |
3 | 7,635 CUFS held in the name of Mr Anderson, 390 CUFS held as ADSs in the name of Mr Anderson and 8,970 CUFS held as ADSs in the name of Mr and Mrs Anderson. |
James Hardie 2015 Annual Report on Form 20-F | 38 |
4 | Elected to the Board on 15 August 2014. In addition, Mr Chenu holds 91,767 RSUs as of 30 April 2015, over which he has no voting or investment control. These RSUs were previously granted to Mr Chenu during the term of his prior service as an executive officer of the Company. The vesting of these RSUs remains subject to the achievement of applicable performance criteria, as set forth under the terms of the applicable award agreement. |
5 | Joined the Board on 20 March 2015. |
6 | 2,384 CUFS held in the name of Mr Harrison, 1,000 CUFS held as ADSs in the name of Mr Harrison and 13,800 CUFS held in the name of Mr and Mrs Harrison. |
7 | 2,551 CUFS held in the name of Mr Osborne and 9,400 CUFS held in the name of Aurum Nominees Limited and held on behalf of Mr Osborne as beneficial owner. |
Based on 445,680,673 shares of common stock outstanding at 30 April 2015 (all of which are subject to CUFS), no director or Senior Executive Officer beneficially owned 1% or more of the outstanding shares of the Company at 30 April 2015 and none of the shares held by directors or Senior Executive Officers have any special voting rights. As of 30 April 2015, there were no options outstanding under any of the Companys stock-based compensation arrangements. Individuals holding RSUs have no voting or investment power over these units.
Stock-Based Compensation Arrangements
At 31 March 2015, we had the following equity award plans:
| the LTIP; and |
| the 2001 Equity Incentive Plan (the 2001 Plan). |
LTIP
The Company uses the LTIP as the plan for LTI grants to Senior Executive Officers and selected members of executive management. Participants in the LTIP receive grants of RSUs and Scorecard LTI, each of which is subject to performance goals. Additionally, the Company has on occasion issued a small number of other performance-based cash-settled awards. Participants and award levels are approved by the Remuneration Committee based on local market standards, and the individuals responsibility, performance and potential to enhance shareholder value. The LTIP was first approved at our 2006 AGM, and our shareholders have subsequently approved amendments to the LTIP in 2008, 2009, 2010 and 2012.
The LTIP provides for plan participants early exercise of certain benefits or early payout under the plan in the event of a change in control, takeover by certain organizations or liquidation. For RSUs, a change of control is deemed to occur if (1) a takeover bid is made to acquire all of the shares of the Company and it is recommended by the Board or becomes unconditional, (2) a transaction is announced which would result in one person owning all the issued shares in the Company, (3) a person owns or controls sufficient shares to enable them to influence the composition of the Board, or (4) a similar transaction occurs which the Board determines to be a control event. On a change of control, the Board can determine that all or some RSUs have vested on any conditions it determines, any remaining RSUs lapse.
RSUs - From fiscal year 2009, the Company commenced using RSUs granted under the LTIP. RSUs issued under the LTIP are unfunded and unsecured contractual entitlements and generally provide for settlement in CUFS, subject to performance vesting hurdles prior to vesting.
James Hardie 2015 Annual Report on Form 20-F | 39 |
As of 31 March 2015, there were 3,350,131 RSUs outstanding under the LTIP, divided as follows:
Restricted Stock Units | ||||||||||||||
Grant Type |
Grant Date | Granted | Vested as of 30 April 2015 |
Outstanding as of 30 April 2015 |
||||||||||
TSR |
September 2010 | 951,194 | 640,931 | 183,360 | ||||||||||
TSR |
September 2011 | 954,705 | 275,682 | 559,726 | ||||||||||
TSR |
September 2012 | 432,654 | - | 397,688 | ||||||||||
ROCE |
September 2012 | 450,336 | - | 413,940 | ||||||||||
TSR |
September 2013 | 489,888 | - | 480,345 | ||||||||||
ROCE |
September 2013 | 461,019 | - | 452,039 | ||||||||||
TSR |
September 2014 | 459,317 | - | 459,317 | ||||||||||
ROCE |
September 2014 | 403,716 | - | 403,716 | ||||||||||
Total Outstanding |
|
3,350,131 |
Scorecard LTI - From fiscal year 2010, the Company commenced using Scorecard LTI units granted under the LTIP. The Scorecard LTI is used by the Remuneration Committee to set strategic objectives which change from year to year, and for which performance can only be assessed over a period of time. The vesting of Scorecard LTI units is subject to the Remuneration Committees exercise of negative discretion. The cash payment paid to award recipients is based on JHI plcs share price on the vesting date (which was amended from fiscal year 2012 to be based on a 20 trading-day closing average price).
As of 31 March 2015, there were 1,428,405 Scorecard LTI units outstanding under the LTIP, divided as follows:
Scorecard LTI | ||||||||||||||
Grant Type |
Grant Date | Granted | Vested as of 30 April 2015 |
Outstanding as of 30 April 2015 |
||||||||||
Scorecard |
September 2012 | 506,627 | - | 465,682 | ||||||||||
Scorecard |
September 2013 | 518,647 | - | 508,544 | ||||||||||
Scorecard |
September 2014 | 454,179 | - | 454,179 | ||||||||||
Total Outstanding |
|
1,428,405 |
For additional information regarding the LTIP and award grants made thereunder, see Note 16 to our consolidated financial statements.
2001 Plan
The 2001 Plan is intended to promote the Companys long-term financial interests by encouraging management below the senior executive level to acquire an ownership position in the Company and align their interests with our shareholders. Selected employees under the 2001 Plan are eligible to receive awards in the form of RSUs, nonqualified stock options, performance awards,
James Hardie 2015 Annual Report on Form 20-F | 40 |
restricted stock grants, stock appreciation rights, dividend equivalent rights, phantom stock or other stock-based benefits. Award levels are determined based on the Remuneration Committees review of local market standards and the individuals responsibility, performance and potential to enhance shareholder value.
The 2001 Plan was first approved by our shareholders and Board in 2001 and reapproved to continue until September 2021 at the 2011 AGM. An aggregate of 45,077,100 CUFS were made available for issuance under the 2001 Plan, subject to adjustment in the event of a number of prescribed events set out on the 2001 Plan. All of the outstanding options and RSUs granted under the 2001 Plan vest at the rate of 25% on the 1st anniversary of the grant, 25% on the 2nd anniversary date and 50% on the 3rd anniversary date, with the exception of the 16 September 2013 grant to the CFO which cliff vests on the third anniversary of the grant date.
The 2001 Plan is administered by our Remuneration Committee, and the Remuneration Committee or its delegate is authorized to determine: (i) who may participate in the 2001 Plan; (ii) the number and types of awards made to each participant; and (iii) the terms, conditions and limitations applicable to each award. The Remuneration Committee has the exclusive power to interpret and adopt rules and regulations to administer the 2001 Plan, including a limited power to amend, modify or terminate the 2001 Plan to meet any changes in legal requirements or for any other purpose permitted by law.
The purchase or exercise price of any award granted under the 2001 Plan may be paid in cash or other consideration at the discretion of our Remuneration Committee, including cashless exercises.
The exercise price for all options is the market value of the shares on the date of grant. The Company may not reduce the exercise price of such an option or exchange such an option or stock appreciation right for cash, or other awards or a new option at a reduced exercise price without shareholder approval or as permitted under specific restructuring events.
No unexercised options or unvested RSUs issued under the 2001 Plan are entitled to dividends or dividend equivalent rights.
Although the 2001 Plan permits the Remuneration Committee to grant stock options, performance awards, restricted stock awards, stock appreciation rights, dividend equivalent rights or other stock based benefits; however, no such awards are currently outstanding.
The 2001 Plan provides for the automatic acceleration of certain benefits and the termination of the plan under certain circumstances in the event of a change in control. A change in control will be deemed to have occurred if either (1) any person or group acquires beneficial ownership equivalent to 30% of our voting securities, (2) individuals who are currently members of our Board cease to constitute at least a majority of the members of our Board, or (3) there occurs the consummation of certain mergers (other than a merger that results in existing voting securities continuing to represent more than 5% of the voting power of the merged entity or a recapitalization or reincorporation that does not result in a material change in the beneficial ownership of the voting securities of the Company), the sale of substantially all of our assets or our complete liquidation or dissolution.
James Hardie 2015 Annual Report on Form 20-F | 41 |
OptionsUntil fiscal year 2008, the Company issued options to purchase CUFS issued under the 2001 Plan. As of 31 March 2015, there were 511,780 options outstanding under the 2001 Plan, divided as follows:
Options | ||||||||
Grant Date | Granted | Outstanding as of 30 April 2015 |
||||||
December 2005 |
5,224,100 | 185,000 | ||||||
November 2006 |
3,499,490 | 223,700 | ||||||
December 2007 |
5,031,310 | 103,080 | ||||||
Total Outstanding | 511,780 |
RSUsSince fiscal year 2009, the Company has issued restricted stock units under the 2001 plan, which are unfunded and unsecured contractual entitlements for shares to be issued in the future and may be subject to time vesting or performance hurdles prior to vesting. On vesting, restricted stock units convert into CUFS. We granted 329,192, 315,749 and 265,988 restricted stock units under the 2001 Plan in the years ended 31 March 2015, 2014 and 2013, respectively. As of 31 March 2015, there were 657,870 restricted stock units outstanding under this plan, divided as follows:
Restricted Stock Units | ||||||||||||
Grant Date | Granted | Vested as of 30 April 2015 |
Outstanding as of 30 April 2015 |
|||||||||
December 2012 |
265,988 | 117,317 | 102,022 | |||||||||
September 2013 |
56,128 | - | 56,128 | |||||||||
December 2013 |
259,621 | 59,658 | 171,664 | |||||||||
December 2014 |
329,192 | - | 328,056 | |||||||||
Total Outstanding | 657,870 |
For additional information regarding the 2001 Plan and award grants made thereunder, see Note 16 to our consolidated financial statements.
James Hardie 2015 Annual Report on Form 20-F | 42 |
Corporate Governance Statement
The Company believes strong corporate governance is essential to achieving both its short and long-term performance goals and to maintaining the trust and confidence of investors, employees, regulatory agencies and other stakeholders. The Board of Directors follows, both formally and informally, corporate governance principles designed to assure that the Board, through its membership, composition, committee structure and governance practices, is able to provide informed, competent and independent guidance and oversight and thereby promote long-term term shareholder value. This Corporate Governance Statement (this Statement) describes the key aspects of the Companys corporate governance framework.
During fiscal year 2015, the Board evaluated the Companys corporate governance framework and practices and approved this Corporate Governance Statement. This Corporate Governance Statement is current as at 20 May 2015.
Overall Approach to Corporate Governance
The Company operates under the regulatory requirements of numerous jurisdictions, including, those of its corporate domicile (Ireland) and its principal stock exchange listings (Australia and the United States). In presenting this Statement, the Board has evaluated the Companys corporate governance framework in relation to the ASX Corporate Governance Councils Corporate Governance Principles and Recommendations (2nd Edition with 2010 Amendments) (the ASX Principles), as well as the NYSE Corporate Governance Standards (the NYSE Standards).
ASX Principles
Pursuant to ASX Listing Rule 4.10.3, the Company is required to disclose in this Annual Report the extent to which it has followed the ASX Principles for fiscal year 2015 and must identify any areas where the Company has determined not to follow the ASX Principles and provide the reasons for not following them.
Additionally, in March 2014, the ASX Corporate Governance Council released the ASX Corporate Governance Councils Corporate Governance Principles and Recommendations (3rd Edition) (the ASX Principles Third Edition), which applies to listed companies in respect of their first full financial year commencing on or after 1 July 2014. The Board has completed an evaluation of its current corporate governance framework in light of the ASX Principles Third Edition, and has made the necessary changes to the Companys framework and practices to facilitate compliance with the ASX Principles Third Edition in fiscal year 2016.
NYSE Standards
As a foreign private issuer with ADS listed on the NYSE, the Company is required to disclose in this Annual Report any significant ways in which its corporate governance practices differ from those followed by domestic companies under NYSE listing standards. Based on the requirements of the NYSE Standards, the Company believes that the Companys corporate governance
James Hardie 2015 Annual Report on Form 20-F | 43 |
framework and practices were consistent with the NYSE Standards during fiscal year 2015, except as otherwise noted below:
| Generally, in the United States an audit committee of a public company is directly responsible for appointing the companys independent registered public accounting firm, with such appointment being subsequently ratified by shareholders. Under Irish law, the independent registered public accounting firm is directly appointed by the shareholders where there is a new appointment. Otherwise, the appointment is deemed to continue unless the firm retires, is asked to retire or is unable to perform their duties; and |
| NYSE rules require each issuer to have an audit committee, a compensation committee (equivalent to a remuneration committee) and a nominating committee composed entirely of independent directors. As a foreign private issuer, the Company does not have to comply with this requirement; however, the committee charters reflect Australian and Irish practices, in that such committees have a majority of independent directors, unless a higher number is mandatory. |
Availability of Key Governance Documents
This Statement, as well as our Articles of Association, Board committee charters and the other key governance and corporate policies referenced in this Statement, as updated from time to time, are available in the Corporate Governance section of the Companys investor relations website (www.ir.jameshardie.com.au) or by requesting a copy from the company secretary at the Companys corporate headquarters at the Corporate Address.
Discussion of Corporate Governance Framework and Practices
The following discussion of the Companys corporate governance framework and practices incorporates the disclosures required by the ASX Principles, and generally follows the order of the ASX Principles.
Principle 1: Lay Solid Foundations for Management and Oversight
The Role of the Board and Management
The principal role of the Board is to promote and protect shareholder value by providing strategic guidance to management and overseeing managements implementation of the Companys strategic goals and objectives. On an annual basis, the Board reviews the Companys strategic priorities with management, including the Companys business plan, and leads discussions on execution strategy, including budgetary considerations, to ensure that the Company has the appropriate resources to deliver the agreed strategy. The Board also monitors management, operational and financial performance against the Companys goals on an ongoing basis through the year. To enable it to do this, the Board receives operational and financial updates at every scheduled Board meeting.
Given the size of the Company, it is not possible or appropriate, however, for the Board to be involved in managing the Companys day-to-day activities. However, the Board is accountable to shareholders by whom they are elected for delivering long-term shareholder value. To achieve this, the Board ensures that the Company has in place a framework of controls, which enables management to appraise and manage risk effectively with oversight from the Board, through clear and robust procedures and delegated authorities.
James Hardie 2015 Annual Report on Form 20-F | 44 |
In accordance with the provisions of the Articles of Association, committee charters and other applicable corporate policies, the Board has delegated a number of powers to Board committees and responsibility for the day-to-day management of the Companys affairs and the implementation of corporate strategy to the CEO. The responsibilities delegated to the CEO are established by the Board and include limits on the way in which the CEO can exercise such authority. In addition, the Board has also reserved certain matters to itself for decision, including:
| appointing, removing and assessing the performance and remuneration of the CEO and CFO; |
| succession planning for the Board and senior management and defining the Companys management structure and responsibilities; |
| approving the overall strategy for the Company, including the business plan and annual operating and capital expenditure budgets; |
| ensuring that the Company has in place an appropriate risk management framework and that the risk appetite and tolerances are set at an appropriate level; |
| convening and monitoring the operation of shareholder meetings and approving matters to be submitted to shareholders for their consideration; |
| approving annual and periodic reports, results announcements and related media releases, and notices of shareholder meetings; |
| approving the dividend policy and interim dividends and when appropriate making recommendations to shareholders regarding the annual dividend; |
| reviewing the authority levels of the CEO and management; |
| approving the remuneration framework for the Company; |
| overseeing corporate governance matters for the Company; |
| approving corporate-level Company policies; |
| considering managements recommendations on various matters which are above the authority levels delegated to the CEO or management; and |
| any other matter which the Board considers appropriate to be approved by the Board. |
In discharging its duties, the Board aims to take into account, within the context of the industry in which the Company operates, the interests of the Company (including the interests of its employees), shareholders, and other stakeholders, and where possible, aligns its activities with current best practices in the jurisdictions in which the Company operates.
The full list of those matters reserved to the Board is formalized in our Board Reserved Powers Charter. This charter together with the policies and Board committee charters referred to in this Corporate Governance Statement, were reviewed by the Board during fiscal year 2015 and are available in the Corporate Governance section of our investor relations website (www.ir.jameshardie.com.au).
Board Committees
In order to ensure that the Board properly discharges its responsibilities and fulfils its oversight role, the Board has established the following standing committees: (i) Audit Committee; (ii) Remuneration Committee and (iii) Nominating and Governance Committee. Additionally, from time to time, the Board may establish ad hoc committees to address particular matters. Each standing committee meets at least quarterly and has scheduled an annual calendar of meetings and discussion topics to assist it to properly discharge all of its responsibilities. Each committee Chairman reports to the Board at each Board meeting on their activities.
James Hardie 2015 Annual Report on Form 20-F | 45 |
Each of the standing committees operates under a written charter adopted by the Board. On an annual basis, each committee, with the assistance of the Nominating and Governance Committee, undertakes a review of its charter for consistency with applicable regulatory requirements and current corporate governance principles and practices. Each of the standing committee charters is available on the Corporate Governance section of the Companys investor relations website (www.ir.jameshardie.com.au).
Full discussions of the role and oversight responsibilities for each standing committee are provided below under Principle 2 (Nominating and Governance Committee), Principle 4 (Audit Committee) and Principle 8 (Remuneration Committee).
Board and Committee Meetings
The Board and each of its standing committees meet formally at least four times a year and on an ad hoc basis as deemed necessary or appropriate. Scheduled Board meetings are normally held over a period of two days, with Board committee meetings also taking place during such time. This meeting structure enhances the effectiveness of the Board and its committees. Board and committee meetings are generally held at the Companys corporate headquarters in Ireland. At each scheduled meeting, the Board meets in executive session without management present for at least part of the meeting.
Prior to each scheduled Board or committee meeting, directors are provided timely and necessary information by Company management to allow them to fulfil their duties. The Nominating and Governance Committee periodically reviews the format, timeliness and content of information provided to the Board and its committees. All directors receive access to all committee materials and may attend any committee meeting, whether or not they are members of such committee. Directors also receive the minutes of each committees deliberations and findings, as well as oral reports from each committee Chairman, at each scheduled Board meeting.
In discharging their duties, directors are provided with direct access to executive management and outside advisors and auditors.
The Board has regular discussions with the CEO regarding the Companys strategy and performance, during which Board members formally review the Companys progress. During the year, the Board and each committee develop and review an annual work plan created from the standing committee charters so that responsibilities of each committee are addressed at appropriate times throughout the year.
James Hardie 2015 Annual Report on Form 20-F | 46 |
The following table provides the composition of each standing committee during fiscal year 2015, as well as sets out the number of board and committee meetings held, and each directors attendance:
Board | Audit | Remuneration | Nominating & Governance |
|||||||||||||||||||||||||||||||||||
Name | H | A | Member | H | A | Member | H | A | Member | H | A | |||||||||||||||||||||||||||
M Hammes |
5 | 5 | ● | 5 | 5 | ● | 6 | 6 | ● | 5 | 5 | |||||||||||||||||||||||||||
D McGauchie |
5 | 5 | C | 5 | 4 | |||||||||||||||||||||||||||||||||
B Anderson |
5 | 4 | C | 5 | 4 | ● | 6 | 5 | ||||||||||||||||||||||||||||||
R Chenu |
2 | 2 | ● | 2 | 2 | |||||||||||||||||||||||||||||||||
D Harrison |
5 | 5 | ● | 5 | 5 | C | 6 | 6 | ||||||||||||||||||||||||||||||
A Gisle Joosen |
- | - | ● | - | - | |||||||||||||||||||||||||||||||||
A Littley |
5 | 5 | ● | 5 | 5 | ● | 2 | 2 | ||||||||||||||||||||||||||||||
J Osborne |
5 | 5 | ● | 5 | 5 | |||||||||||||||||||||||||||||||||
R Van Der Meer |
5 | 5 | ● | 5 | 5 |
● | Committee member |
C | Committee chair |
H | Number of meetings held during the time the director held office or was a member of the committee during the fiscal year. |
A | Number of meetings attended during the time the director held office or was a member of the committee during the fiscal year. Non-committee members may also attend committee meetings from time to time; these attendances are not shown. |
Management Performance Evaluation
On an annual basis, the Remuneration Committee and subsequently the Board reviews the performance of the CEO. The CEO reviews the performance of his direct reports (comprising the CFO, General Counsel, Executive General Managers for US North, US South and International, Senior Director of Human Resources and Organizational Development, and the Vice President of Investor and Media Relations) against performance measures approved by the Remuneration Committee and the Board annually and reports to the Board through the Remuneration Committee on the outcome of those reviews. The Board reviews the performance of the CEOs direct reports annually. Performance evaluations for fiscal year 2015 were conducted in accordance with the process outlined above. Further details on the assessment criteria for the CEO and our other Senior Executive Officers are set out in Section 1 Remuneration of this Annual Report.
Principle 2: Structure the Board to Add Value
Composition of the Board
The Board currently comprises nine non-executive directors and one executive director (being the CEO). In accordance with the Articles of Association, the Board must have no less than three and not more than twelve directors, with the precise number to be determined by the Board.
James Hardie 2015 Annual Report on Form 20-F | 47 |
Directors may be elected by our shareholders at general meetings or appointed by the Board and elected at the next general meeting if there is a vacancy. A person appointed as a director by the Board must submit him or herself for re-election at the next AGM. The Board and our shareholders have the right to nominate candidates for the Board. Directors may be dismissed by our shareholders at a general meeting. In accordance with the Articles of Association, no director (other than the CEO) shall hold office for a continuous period of more than three years, or past the end of the third AGM following his or her appointment, whichever is longer, without submitting him or herself for re-election.
The Boards overriding desire is to maximize its effectiveness by appointing the best candidates for vacancies and closely reviewing the performance of directors subject to re-election. Directors are not automatically nominated for re-election at the end of their term. Nomination for re-election is based on a number of factors, including an assessment of their individual performance, independence, tenure, and their skills and experience relative to the needs of the Company. The Nominating and Governance Committee and the Board discuss the performance of each director due to stand for re-election at the next AGM before deciding whether to recommend their re-election.
As part of the appointment process, the Nominating and Governance Committee, in consultation with the Board, considers the size and composition of the Board, the current range of skills, competencies and experience and the desired range of skills, competencies and experience, as well as Board renewal, succession and diversity plans. The Nominating and Governance Committee identifies suitable candidates, with assistance from an external consultant where appropriate, and a number of directors meet with those candidates before the Board selects the most suitable candidate, based on a recommendation from the Nominating and Governance Committee.
During fiscal year 2015, there were two non-executive director appointments to the Board. Mr Russell Chenu was appointed as a non-executive director by shareholders at the 2014 AGM on 15 August 2014 and Ms Andrea Gisle Joosen was appointed as an independent non-executive director by the Board on 20 March 2015. Ms Gisle Joosen will stand for election by shareholders as an independent non-executive director at the 2015 AGM.
Director Independence
In accordance with the ASX Principles and the NYSE Standards, the Company requires that a majority of directors on the Board and committees, as well as the Chairman of the Board and each committee, be independent, unless a greater number is required to be independent under the rules and regulations of the ASX, the NYSE or other applicable regulatory body.
All directors are expected to bring their independent views and judgment to the Board and committees and must declare any potential or actual conflicts of interest. For a director to be considered independent, the Board must determine the director does not have any direct or indirect business or other relationship that could materially interfere with such directors exercise of independent judgment. In assessing the independence of each director, the Board considers the standards for determining director independence set forth in the ASX Principles and the NYSE Standards and evaluates all potential conflicting relationships on a case-by-case basis, considering the materiality of each potential or actual conflict of interest.
James Hardie 2015 Annual Report on Form 20-F | 48 |
During fiscal year 2015, the Board, with the assistance of the Nominating and Governance Committee, undertook an independence assessment of each director and determined that, with the exception of Russell Chenu, each non-executive director of the Company is independent. Mr Chenu is not considered independent, based upon the nature of his previous employment as Chief Financial Officer of the Company. This determination was made prior to his nomination for appointment as a director and again during the annual review of director independence.
Prior to determining the independence of Brian Anderson, the Board considered his role as a director of PulteGroup, a home builder in the United States. PulteGroup does not buy any of the Companys products directly from the Company, although it does buy the Companys products through some of the Companys customers. PulteGroup receives a rebate from the Company or the Companys suppliers in respect of some of its purchases in accordance with a rebate program applicable to similar home builders.
These transactions are conducted on an arms length basis, are similar to the transactions the Company has entered into with other similarly situated home builders, are in accordance with the Companys normal terms and conditions and are not material to PulteGroup or to the Company. The rebate program existed and was disclosed to the Board before Mr Anderson became a director. It is not considered that Mr Anderson has any influence over these transactions.
Director Qualifications
The Board seeks to achieve a mix of skills, experience and expertise to maximize the effectiveness of the Board. The core characteristics desired include, a breadth and depth of executive experience, independent thinking, an ability to exercise independent judgment and strong interpersonal and communication skills. The skills, experience and expertise areas which the Board currently considers to be particularly relevant include those in international business, manufacturing, marketing and finance. Information regarding Board diversity can be found in Workplace Diversity below.
Directors must be able to devote a sufficient amount of time to prepare for, and effectively participate in, Board and Board committee meetings. The Nominating and Governance Committee reviews the other commitments of directors annually and otherwise, as required. In fiscal year 2015, as part of the review, the Nominating and Governance Committee noted that Mr Anderson serves on a total of four public company audit committees (including the Companys). The Board has determined that such simultaneous service does not impair the ability of Mr Anderson to effectively serve as chairman of the Companys Audit Committee.
Biographical information for each member of the Board, along with the skills, qualifications, experience and relevant expertise for each director, and his or her term of appointment, are summarized in the Board biography section of this Annual Report and also appear in the Corporate Governance section of the Companys investor relations website (www.ir.jameshardie.com.au).
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Nominating and Governance Committee
The Board has established the Nominating and Governance Committee to identify and recommend to the Board individuals qualified to become members of the Board, develop and recommend to the Board a set of corporate governance principles, and perform a leadership role in shaping the Companys corporate governance policies. The duties and responsibilities of the Nominating and Governance Committee include:
| identifying and recommending to the Board individuals qualified to become directors; |
| overseeing the evaluation of the Board and senior management; |
| assessing the independence of each director; |
| reviewing the conduct of the AGM; and |
| performing a leadership role in shaping the Companys corporate governance policies. |
A more complete description of these and other Nominating and Governance Committee functions is contained in the Nominating and Governance Committees Charter, a copy of which is available in the Corporate Governance section of the Companys investor relations website (www.ir.jameshardie.com.au).
The current members of the Nominating and Governance Committee are Donald McGauchie (Chairman), Michael Hammes, James Osborne and Rudolf van der Meer, all of whom are independent non-executive directors.
Succession Planning
The Board, together with the Nominating and Governance Committee, has developed, and periodically reviews with the CEO, management succession plans, policies and procedures for the CEO and certain other members of executive management.
Board Performance Evaluation
The Nominating and Governance Committee oversees the Board evaluation process and makes recommendations to the Board. During fiscal year 2015, a purpose-designed survey was used by directors to self-assess the operation of the Board and each committee, and the results were reviewed and discussed by the Nominating and Governance Committee and the Board.
The Chairman and Deputy Chairman discussed with each director, and the Deputy Chairman discussed with the Chairman, the Chairmans performance and contribution to the effectiveness of the Board. The Nominating and Governance Committee and the Board annually discuss the performance of the CEO and the CEOs direct reports, and the Chairman provides feedback to the CEO. The CEO uses the feedback as part of an annual review of his direct reports.
Retirement and Tenure Policy
The Company does not have a retirement and tenure policy. The length of tenure of individual directors is one of many factors considered by the Board when assessing the independence, performance and contribution of a director, in succession planning, and as part of the Boards decision-making process when considering whether a director should be recommended by the Board for re-election.
James Hardie 2015 Annual Report on Form 20-F | 50 |
Related Party Transactions
Other than the compensation arrangements with our executive officers and directors, which are disclosed in Section 1 Remuneration of this Annual Report, the Company has not entered into any related party transactions requiring disclosure during fiscal year 2015.
Induction and Continuing Development
The Company has an induction program for new directors. This program includes an overview of the Companys governance arrangements and directors duties in Ireland, the United States and Australia, plant and market tours to understand the Companys strategic plans and impart relevant industry knowledge, briefings on the Companys risk management and control framework, financial results and key risks and issues, and meeting other directors, the CEO and members of management. New directors are also provided with comprehensive orientation materials including relevant corporate documents and policies.
In addition, the Company regularly schedules time at Board meetings to develop the Boards understanding of the Companys operations and regulatory environment, including updates on topical developments from management and external experts.
Letter of Appointment
Each incoming director receives a letter of appointment setting out the key terms and conditions of his or her appointment and the Companys expectations of them in that role. We do not provide any benefits to our non-executive directors upon termination of appointment.
Board Leadership Structure
In an effort to promote the efficient undertaking of its roles and responsibilities, the Board has appointed one of its independent, non-executive members, Michael Hammes, as Chairman. In his role as Chairman, Mr Hammes co-ordinates the Boards duties and responsibilities and acts as an active liaison between management and the Companys non-executive directors, maintaining frequent contact with the CEO and being advised generally on the progress of Board and committee meetings. In his role as Chairman, Mr Hammes:
| provides leadership to the Board; |
| chairs Board and shareholder meetings; |
| facilitates Board discussion; |
| monitors, evaluates and assesses the performance of the Board and committees; and |
| is a member of and attends meetings of all committees. |
The Board has appointed Donald McGauchie as Deputy Chairman to assist Mr Hammes in his role as Chairman and fulfill the obligations of Chairman in his absence.
Remuneration
For a detailed discussion of the Companys remuneration policies for directors and executives, see Section 1 Remuneration of this Annual Report.
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Board Accumulation Policy
Non-executive directors are expected to accumulate a minimum of 1.5 times (and 2 times for the Chairman) their total base remuneration (excluding Board Committee fees) in the Companys shares (either personally, in the name of their spouse, or through a personal superannuation or pension plan) over a reasonable time following their appointment. The Remuneration Committee monitors non-executive directors progress against this policy on a periodic basis.
Independent Advice and Access to Information
In addition to their access to senior management, the Board, its committees and individual directors, may all seek independent professional advice at the Companys expense for the proper performance of their duties. The company secretary is responsible to the Board for ensuring that Board procedures are complied with and advising the Board on governance matters. All directors have access to the company secretary for advice and services. The Board appoints and removes the company secretary.
Indemnification
The Companys Articles of Association provide for indemnification of any person who is (or who was) a director, the company secretary, or an employee or any other person deemed by the Board to be an agent of the Company, who suffers any loss as a result of any action in discharge of their duties, in the absence of a willful act or default and subject to the provisions of the Irish Companies Acts.
The Company and certain of its subsidiaries have provided Deeds of Access, Insurance and Indemnity to directors and executives who are directors or officers of the Company or its subsidiaries.
Principle 3: Promote Ethical and Responsible Decision-Making
Global Code of Business Conduct and Ethics
The Company seeks to maintain high standards of integrity and is committed to ensuring that the Company conducts its business in accordance with high standards of ethical behavior. The Company requires its employees to comply with both the spirit and the letter of all laws and other statutory requirements governing the conduct of the Companys activities in each country in which we operate. The Company has adopted a Global Code of Business Conduct and Ethics (the Code of Conduct) which applies to all of the Companys employees and directors. The Code of Conduct covers many aspects of corporate policy and addresses compliance with legal and other responsibilities to stakeholders. All directors and employees of the Company worldwide are required to review the Code of Conduct on an annual basis. As part of its oversight functions, the Audit Committee oversees the Code of Conduct and reviews the policy on an annual basis. A copy of the Code of Conduct is available in the Corporate Governance section of the Companys investor relations website (www.ir.jameshardie.com.au).
The Company did not grant any waivers from the provisions of the Code of Conduct during fiscal year 2015.
James Hardie 2015 Annual Report on Form 20-F | 52 |
Complaints/Ethics Hotline
The Code of Conduct provides employees with advice about who they should contact if they have information or questions regarding potential violations of the policy. Globally, the Company maintains an ethics hotline operated telephonically (except in France) by an independent external provider which allows employees to report anonymously any concerns. All Company employees worldwide are reminded annually of the existence of the ethics hotline.
All complaints, whether to the ethics hotline or otherwise, are initially reported directly to the General Counsel, US Employment Counsel and the Director of Internal Audit (except in cases where the complaint refers to one of them). The material complaints are referred immediately to the Chairman of the Board and the Audit Committee. Less serious complaints are reported to the Audit Committee on a quarterly basis.
Interested parties who have a concern about the Companys conduct, including accounting, internal accounting controls or audit matters, may communicate directly with the Companys Chairman, Deputy Chairman, directors as a group, the Chairman of the Audit Committee or Audit Committee members. These communications may be confidential or anonymous, and may be submitted in writing to the company secretary at the Companys corporate headquarters at the Corporate Address or submitted by phone on +353 (0)1 411 6924. All concerns will be forwarded to the appropriate directors for their review and will be simultaneously reviewed and addressed by the Companys General Counsel in the same way that other concerns are addressed. The Companys Code of Conduct, which is described above, prohibits any employee from retaliating or taking any adverse action against anyone for raising or helping to resolve a concern about integrity.
Insider Trading
All directors and employees of the Company are subject to the Companys Insider Trading Policy. Under the Insider Trading Policy, employees and directors may generally conduct transactions in the Companys securities during a four week period beginning two days after the announcement of quarterly or full year results, or such other periods as may be designated by the Board; provided that such persons are not in possession of material, non-public information. The Insider Trading Policy also contains preclearance requirements for certain designated senior employees and directors, as well as general prohibitions on hedging activities or selling any shares for short-swing profit. There is a general prohibition on hedging unvested shares, options or RSUs.
The Board recognizes that it is the individual responsibility of each director and employee to ensure he or she complies with the Insider Trading Policy and applicable insider trading laws.
A copy of the Insider Trading Policy, is available in the Corporate Governance section of the Companys investor relations website (www.ir.jameshardie.com.au).
Workplace Diversity
The Company recognizes the value of having a workforce that reflects the diverse communities and marketplaces in which we operate and serve. The Company believes that a skilled and
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diverse workforce, which encompasses a wealth of different viewpoints, skills, attributes, life experiences along with the unique strengths of each employee, contributes collectively to the business performance at the Company.
The Company has implemented a Workplace Diversity Policy that reflects a broader view of diversity than those covered by the ASX Principles and supports certain of our core organizational values, including Operating with Respect and Building Organizational Advantage. The policy, which is located in the Corporate Governance section of the Companys investor relations website (www.ir.jameshardie.com.au) applies to all individuals recruited or employed by the Company and reflects the organizations inclusive view of diversity, which includes individual differences related to race, gender, age, national origin, religion, sexual orientation or disability.
The Board, with assistance from management, is responsible for approving and monitoring the Companys diversity policy and measurable objectives in the context of the organizations unique circumstances and industry. The Board assesses the policy and objectives annually and the organizations progress in achieving them.
The Board has delegated responsibility to the Nominating and Governance Committee for monitoring the effectiveness of this policy to the extent it relates to diversity of the Boards composition, senior leadership, management, and the organization as a whole and for reviewing and recommending any updates to this policy as deemed necessary.
Details of diversity composition across various levels of the organization as at the end of fiscal year 2015 are set out below:
Level | Percentage of female employees |
Percentage of employees with diversity characteristics | ||
James Hardie Board1 |
22% (2 of 9) | 33% (3 of 9) | ||
US BUSINESS 2 | ||||
Senior leadership positons3 |
10% (12 of 119) | 26% (31 of 119) | ||
All management positions |
13% (41 of 306) | 27% (84 of 306) | ||
Total workforce |
11% (236 of 2,188) | 35% (757 of 2,188) | ||
NON-US BUSINESSES 4 | ||||
Senior leadership positions |
6% (2 of 34) | |||
All management positions |
11% (12 of 111) | |||
Total workforce |
14% (141 of 1,017) |
1 | Includes gender and race diversity characteristics for Board. |
2 | Includes gender, race and national origin diversity characteristics for US Business. |
3 | Individuals at senior manager and director level and above who participate in James Hardies Company and Individual Performance (CIP) Plan. |
4 | Race/national origin diversity characteristics vary between countries and are therefore not captured in aggregate for Non-US Businesses. |
James Hardie 2015 Annual Report on Form 20-F | 54 |
The Board has a goal to achieve (i) diversity characteristics in excess of 30%, and (ii) women in excess of 20% among non-executive directors.
With regard to the Companys senior leadership, management, and the organization as a whole, the following table outlines the organizations five primary objectives in promoting diversity during fiscal year 2015, the actions in place or undertaken to achieve these objectives, and the progress made against these objectives during fiscal year 2015.
Objectives | Fiscal year 2014 actions in place and progress |
Fiscal year 2015 year to date progress | ||
To promote a culture of diversity (which includes gender, skills, experience, and cultural background) | All employees receive training on the Companys anti-discrimination and harassment and Code of Business Conduct and Ethics policies as part of the employee on-boarding program and on an annual basis. In calendar year 2014, the Board and the Nomination & Governance Committee evaluated and approved the Companys diversity measures.
|
All U.S. employees were registered for new anti-discrimination and harassment training in early December 2014 and 99% had completed the training as of
early February 2015. All global employees were registered for Code of Conduct and Business Ethics training in fiscal year 2015 and 84% had completed the training as of February 2015. | ||
To ensure that recruitment and selection processes are based on merit | Structured interview evaluation process is in place for sales applicants and designed to mitigate bias in hiring decisions. MBA Leadership Program recruiting, targeted to bring
future general management talent into the organisation, has resulted in 9 hires since its inception in 2011, with 33% female and 33% non- Caucasian hires.
|
As of June 2015, the structured interview evaluation process used in sales will be expanded
for salaried manufacturing and corporate applicants. MBA Leadership Program recruiting (for June 2015) is in process and is expected to result in additional candidates with diversity characteristics. | ||
To provide talent management and development opportunities which provide equal opportunities for all current employees | Every employee has an individual Openings under the Director-level are posted on-line and communicated internally. All current employees who meet the
qualifications are invited to participate in the internal interviewing process.
|
Individual development plans are well integrated into the review process. Between January 2014 and January 2015, 47 employees were offered new roles/promotions as a result of the internal posting and interviewing process. Of these, 15 were women (32%), and 17 (36%) were non-Caucasian. In fiscal year 2015, based on the quantitative testing for high potential talent, we have a senior management development program whereby 20% of the participants are female and 20% are non- Caucasian. |
James Hardie 2015 Annual Report on Form 20-F | 55 |
Objectives | Fiscal year 2014 actions in place and progress |
Fiscal year 2015 year to date progress | ||
To reward and remunerate fairly | In fiscal year 2013 and again in fiscal year 2014, the organisation communicated pay grades and criteria for promotion across sales to help ensure there is no discrepancy in pay by role. Hourly
manufacturing wages are tied to completed certifications. All employees are provided access to training to complete certifications.
|
No change in reward and remuneration programs noted in fiscal year 2014. | ||
To provide flexible work practices | Flexible working arrangements are discussed with each employee and individual arrangements are offered as job requirements permit.
|
No change. |
Principle 4: Safeguard Integrity in Financial Reporting
Audit Committee
The Board has established the Audit Committee to oversee the adequacy and effectiveness of the Companys accounting and financial policies and controls. The Audit Committee provides advice and assistance to the Board in fulfilling its responsibilities and, amongst other matters:
| overseeing the Companys financial reporting process and reports on the results of its activities to the Board; |
| reviewing with management and the external auditor the Companys annual and quarterly financial statements and reports to shareholders; discussing earnings releases as well as information and earnings guidance provided to analysts; |
| reviewing and assessing the Companys risk management strategy, policies and procedures and the adequacy of the Companys, policies, processes and frameworks for managing risk; |
| exercising general oversight of the appointment and provision of all external audit services to the Company, the remuneration paid to the external auditor, and the performance of the Companys internal audit function; |
| reviewing the adequacy and effectiveness of the Companys internal compliance and control procedures; |
| reviewing the Companys compliance with legal and regulatory requirements; and |
| establishing procedures for complaints regarding accounting, internal accounting controls and auditing matters, including any complaints from whistle-blowers. |
A more complete description of these and other Audit Committee functions is contained in the Audit Committees Charter, a copy of which is available in the Corporate Governance section of the Companys investor relations website (www.ir.jameshardie.com.au).
The Audit Committee meets at least quarterly in a separate executive session with the external auditor and internal auditor, respectively. The Chairman of the Audit Committee reports to the full Board following each committee meeting. As part of such report, the Chairman of the Audit
James Hardie 2015 Annual Report on Form 20-F | 56 |
Committee will inform the Board of any general issues that arise with respect to the quality or integrity of the Companys financial statements, the Companys compliance with legal or regulatory requirements, the Companys risk management framework, the performance and independence of the external auditor, or the performance of the internal audit function.
The current members of the Audit Committee are Brian Anderson (Chairman), Michael Hammes, David Harrison, Andrea Gisle Joosen and Alison Littley, all of whom are independent non-executive directors. All members of the Audit Committee are financially literate and have sufficient business, industry and financial expertise to act effectively as members of the Audit Committee. In addition, in accordance with the SEC rules, the Nominating and Governance Committee and the Board have determined that Mr Anderson and Mr Harrison qualify as audit committee financial experts.
Internal Audit
The Director of Internal Audit heads the internal audit department. It is the role of the internal audit department to provide assurance, independent of management, that the Companys internal processes, controls and procedures are operating to provide an effective financial reporting and risk management framework. The Internal Audit Charter sets out the independence of the internal audit department, its scope of work, responsibilities and audit plan. The internal audit departments work plan is approved annually by the Audit Committee. The Director of Internal Audit reports to the Chairman of the Audit Committee and meets quarterly with the Audit Committee in executive sessions.
External Audit
Ernst & Young LLP has served as the Companys external auditors since fiscal year 2009. The external auditor reviews each quarterly and half-year consolidated financial statements and audits the full year consolidated financial statements. The external auditor attends each meeting of the Audit Committee, including an executive session where members of the Audit Committee are present. The Audit Committee has approved policies to ensure that all non-audit services performed by the external auditor, including the amount of fees payable for those services, receive prior approval. The Audit Committee also reviews the remuneration paid to the external auditor and makes recommendations to the Board regarding the maximum compensation to be paid to the external auditor and concerning their reappointment as external auditor. The lead audit engagement partner is required to rotate every five years.
The Audit Committee reviews and approves management representations made to the external auditor as part of the audit of the full year results.
Representatives of Ernst & Young LLP are present at each AGM to make a statement if they desire to do so and are available to respond to appropriate questions from shareholders.
Principle 5: Make Timely and Balanced Disclosure
Continuous Disclosure and Market Communication
We strive to comply with all relevant disclosure laws and listing rules in Australia (ASX and ASIC) and the United States (SEC and NYSE).
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Our Continuous Disclosure and Market Communication Policy aims to ensure timely communications so that investors can readily:
| understand the Companys strategy and assess the quality of its management; |
| examine the Companys financial position and the strength of its growth prospects; and |
| receive any news or information that might reasonably be expected to materially affect the price or market for the Company securities. |
The CEO is responsible for ensuring the Company complies with its continuous disclosure obligations. A Disclosure Committee comprised of senior management (CEO, CFO, General Counsel and the Vice President - Investor and Media Relations) is responsible for all decisions regarding market disclosure obligations outside of the Companys normal financial reporting calendar. Both the Audit Committee and Nominating and Governance Committee reviewed the Companys disclosure practices under the Continuous Disclosure and Market Communication policy during fiscal year 2015. A copy of the Continuous Disclosure and Market Communication policy is available in the Corporate Governance section of the Companys investor relations website (www.ir.jameshardie.com.au).
Principle 6: Respect the Rights of Shareholders
Communication
The Company is committed to communicating effectively with the Companys shareholders and engaging them through a range of communication channels in a program that includes:
| making management briefings and presentations accessible via a live webcast and/or teleconference following the release of quarterly and annual results; |
| audio webcasts of other management briefings and the annual shareholder meeting; |
| a comprehensive investor relations website that displays all announcements and notices (promptly after they have been cleared by the ASX), major management and investor road show presentations; |
| site visits and briefings on strategy for investment analysts; |
| regular engagement with institutional shareholders to discuss a wide range of governance issues; |
| an email alert service to advise shareholders and other interested parties of announcements and other events; and |
| equality of access for shareholders and investment analysts to briefings, presentations and meetings and equality of media access to the Company, on a reasonable basis. |
Annual General Meeting
The 2014 AGM was held in Ireland and shareholders were able to participate in the AGM via teleconference of proceedings on the Companys investor relations website. The 2015 AGM will be held in Ireland, and shareholders not present in Ireland who wish to participate in the meeting, including asking questions, can do so via a teleconference of the meeting. Further details regarding the 2015 AGM will be set out in the 2015 AGM Notice of Meeting.
Each shareholder (other than an ADS holder) has the right to:
| attend the AGM either in person or by proxy; |
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| speak at the AGM; and |
| exercise voting rights, including at the AGM, subject to their instructions on the Voting Instruction Form. |
While ADS holders cannot vote directly, ADS holders can direct the voting of their underlying shares through the ADS depositary.
Principle 7: Recognize and Manage Risk
Risk Management Objectives
The Company believes that sound risk management policies, procedures and controls produce a system of risk oversight, risk management and internal control that is fundamental to good corporate governance and compliance and creation of shareholder value. The objective of the Companys risk management policies, procedures and controls is to ensure that:
| the Companys principal strategic, operational and financial risks are identified and assessed; |
| the Companys risk appetite for each risk is considered; |
| effective systems are in place to monitor and manage risks; and |
| reporting systems, internal controls and arrangements for monitoring compliance with laws and regulations are adequate. |
Risk management does not involve avoiding all risks. The Companys risk management policies seek to strike a balance between ensuring that the Company continues to generate financial returns while simultaneously managing risks appropriately by setting appropriate strategies, objectives, controls and tolerance levels.
Risk Management Framework
The Board and its standing committees oversee the Companys overall strategic direction, including setting risk management strategy, processes, tolerance and parameters. Generally, the Audit Committee is responsible for oversight of the Companys risk management strategy, policies, procedures and controls. The Audit Committee reviews, monitors and discusses these matters with the CEO, CFO, General Counsel, Director of Internal Audit and other senior business leaders. The Audit Committee, CEO, CFO and General Counsel report periodically to the Board on the Companys risk management policies, processes and controls. The Audit Committee and the Board review and evaluate the Companys risk management strategies and processes on an on-going basis throughout the course of each fiscal year.
The Audit Committee is supported in its oversight role by the policies put in place by management to oversee and manage material business risks, as well as the roles played by internal risk management committees, as described below, and internal and external audit functions. The internal and external audit functions are separate from and independent of each other and each has a direct reporting line to the Audit Committee. The CEO and the CEOs direct reports are the primary management forum for risk assessment and management within the Company.
Consistent with its oversight functions, the Audit Committee reviewed the Companys risk management framework and internal controls during fiscal year 2015. As part of the review,
James Hardie 2015 Annual Report on Form 20-F | 59 |
information was reported by management to the Audit Committee to enable it to assess the effectiveness of the Companys risk management and internal control systems. In addition, consistent with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, during fiscal year 2015, management assessed the effectiveness of the Companys internal controls over financial reporting and the effectiveness of the Companys internal control over financial reporting has been audited by Ernst & Young LLP. Based on its assessment, management concluded that the Companys internal controls over financial reporting were effective as of 31 March 2015. For additional information, see Section 3 Controls and Procedures of this Annual Report.
Risk Management Committees
The Company maintains two separate management level risk committees, one for operation-related risks and one for corporate-related risks (the Risk Management Committees). This structure allows each committee to focus on individual risks in greater detail. Each committee comprises a cross-functional group of employees who review and monitor the risks facing the Company from the perspective of their area of responsibility. These Risk Management Committees are coordinated by Internal Audit and the General Counsel. The Internal Audit Director and the General Counsel also provide quarterly reports to the Audit Committee on key risks and the procedures in place for mitigating them.
Financial Statements Disclosure Committee
The Financial Statements Disclosure Committee is a management committee comprised of senior finance, accounting, compliance, legal, tax, treasury and investor relations executives in the Company, which meets with the CEO, CFO and General Counsel prior to the Boards consideration of any quarterly or annual results. The Financial Statements Disclosure Committee is a forum for the CEO, CFO and General Counsel to discuss, and, on the basis of those discussions, report to the Audit Committee, about a range of risk management procedures, policies and controls, covering the draft results materials, business unit financial performance and the current status of legal, tax, treasury, accounting, compliance, internal audit, complaints and disclosure control matters.
Policies for Management of Material Business Risks
Management has put in place a number of key policies, processes and independent controls to provide assurance as to the integrity of the Companys systems of internal control and risk management. In addition to the measures described elsewhere in this Annual Report, the more significant policies, processes or controls adopted by the Company for oversight and management of material business risks are:
| engagement with members of the Risk Management Committees at least quarterly to assess the key strategic, operations, reporting and compliance risks facing the Company, the level of risk and the processes implemented to manage each of these key risks over the upcoming twelve months; |
| quarterly reporting to executive management, Audit Committee, and annual reporting to the Board, of the Risk Management Committees assessment regarding the key strategic, operations, reporting and compliance risks facing the Company; |
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| a program for the Audit Committee to review in detail each year the Companys general risk tolerance and all items identified by the Risk Management Committees as high focus risks; |
| quarterly meetings of the Financial Statements Disclosure Committee to review all quarterly and annual financial statements and results; |
| an internal audit department with a direct reporting line to the Chairman of the Audit Committee; |
| regular monitoring of the liquidity and status of the Companys finance facilities; |
| maintaining an appropriate global insurance program; |
| maintaining policies and procedures in relation to treasury operations, including the use of financial derivatives and issuing procedures requiring significant capital and recurring expenditure approvals; and |
| implementing and maintaining training programs in relation to legal and regulatory compliance issues such as trade practices/antitrust, insider trading, foreign corrupt practices and anti-bribery, employment law matters, trade secrecy and intellectual property protection. |
Limitations of Control Systems
Due to the inherent limitations in all control systems and the fact that there are resource constraints in the design of any control system, management does not expect that the Companys internal risk management and control systems will prevent or detect all error and all fraud. No matter how well it is designed and operated, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
The inherent limitations in all control systems include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Principle 8: Remunerate Fairly and Responsibly
Remuneration Committee
The Remuneration Committee oversees the Companys overall remuneration structure, policies and programs, assesses whether the Companys remuneration structure establishes appropriate incentives for management and employees, and approves any significant changes in the Companys remuneration structure, policies and programs. Amongst other things, the Remuneration Committee:
| administers and makes recommendations on the Companys incentive compensation and equity-based remuneration plans; |
James Hardie 2015 Annual Report on Form 20-F | 61 |
| reviews the remuneration of directors; |
| reviews the remuneration framework for the Company; and |
| makes recommendations to the Board on the Companys recruitment, retention and termination policies and procedures for senior management. |
The current members of the Remuneration Committee are David Harrison (Chairman), Brian Anderson, Russell Chenu, Michael Hammes and Alison Littley, the majority of whom are independent non-executive directors.
A more complete description of these and other Remuneration Committee functions is contained in the Remuneration Committees Charter, a copy of which is available in the Corporate Governance section of the Company investor relations website (www.ir.jameshardie.com.au), and in Section 1 Remuneration of this Annual Report. In addition, a full discussion of the Companys remuneration philosophy, policies, plans and procedures during fiscal year 2015 will be disclosed in a Remuneration Report which will be made available to shareholders in connection with the 2015 AGM.
James Hardie 2015 Annual Report on Form 20-F | 62 |
Forward-Looking Statements
This Annual Report contains forward-looking statements. James Hardie may from time to time make forward-looking statements in its periodic reports filed with or furnished to the SEC, on Forms 20-F and 6-K, in its annual reports to shareholders, in offering circulars, invitation memoranda and prospectuses, in media releases and other written materials and in oral statements made by the Companys officers, directors or employees to analysts, institutional investors, existing and potential lenders, representatives of the media and others. Statements that are not historical facts are forward-looking statements and such forward-looking statements are statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Examples of forward-looking statements include:
| statements about the Companys future performance; |
| projections of the Companys results of operations or financial condition; |
| statements regarding the Companys plans, objectives or goals, including those relating to strategies, initiatives, competition, acquisitions, dispositions and/or its products; |
| expectations concerning the costs associated with the suspension or closure of operations at any of the Companys plants and future plans with respect to any such plants; |
| expectations concerning the costs associated with the significant capital expenditure projects at any of the Companys plants and future plans with respect to any such projects; |
| expectations regarding the extension or renewal of the Companys credit facilities including changes to terms, covenants or ratios; |
| expectations concerning dividend payments and share buy-backs; |
| statements concerning the Companys corporate and tax domiciles and structures and potential changes to them, including potential tax charges; |
| statements regarding tax liabilities and related audits, reviews and proceedings; |
| expectations about the timing and amount of contributions to Asbestos Injuries Compensation Fund (AICF), a special purpose fund for the compensation of proven Australian asbestos-related personal injury and death claims; |
| expectations concerning indemnification obligations; |
| expectations concerning the adequacy of the Companys warranty provisions and estimates for future warranty-related costs; |
| statements regarding the companys ability to manage legal and regulatory matters (including but not limited to product liability, environmental, intellectual property and competition law matters) and to resolve any such pending legal and regulatory matters within current estimates and in anticipation of certain third-party recoveries; and |
| statements about economic conditions, such as changes in the US economic or housing recovery or changes in the market conditions in the Asia Pacific region, the levels of new home construction and home renovations, unemployment levels, changes in consumer |
James Hardie 2015 Annual Report on Form 20-F | 63 |
income, changes or stability in housing values, the availability of mortgages and other financing, mortgage and other interest rates, housing affordability and supply, the levels of foreclosures and home resales, currency exchange rates, and builder and consumer confidence. |
Words such as believe, anticipate, plan, expect, intend, target, estimate, project, predict, forecast, guideline, aim, will, should, likely, continue, may, objective, outlook and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Readers are cautioned not to place undue reliance on these forward-looking statements and all such forward-looking statements are qualified in their entirety by reference to the following cautionary statements.
Forward-looking statements are based on the Companys current expectations, estimates and assumptions and because forward-looking statements address future results, events and conditions, they, by their very nature, involve inherent risks and uncertainties, many of which are unforeseeable and beyond the Companys control. Such known and unknown risks, uncertainties and other factors may cause actual results, performance or other achievements to differ materially from the anticipated results, performance or achievements expressed, projected or implied by these forward-looking statements. These factors, some of which are discussed under Risk Factors in Section 3 of this Annual Report, include, but are not limited to: all matters relating to or arising out of the prior manufacture of products that contained asbestos by current and former James Hardie subsidiaries; required contributions to AICF, any shortfall in AICF and the effect of currency exchange rate movements on the amount recorded in the Companys financial statements as an asbestos liability; governmental loan facility to AICF; compliance with and changes in tax laws and treatments; competition and product pricing in the markets in which the Company operates; the consequences of product failures or defects; exposure to environmental, asbestos, putative consumer class action or other legal proceedings; general economic and market conditions; the supply and cost of raw materials; possible increases in competition and the potential that competitors could copy the Companys products; reliance on a small number of customers; a customers inability to pay; compliance with and changes in environmental and health and safety laws; risks of conducting business internationally; compliance with and changes in laws and regulations; the effect of the transfer of the Companys corporate domicile from the Netherlands to Ireland, including changes in corporate governance and any potential tax benefits related thereto; currency exchange risks; dependence on customer preference and the concentration of the Companys customer base on large format retail customers, distributors and dealers; dependence on residential and commercial construction markets; the effect of adverse changes in climate or weather patterns; possible inability to renew credit facilities on terms favorable to the Company, or at all; acquisition or sale of businesses and business segments; changes in the Companys key management personnel; inherent limitations on internal controls; use of accounting estimates; and all other risks identified in the Companys reports filed with Australian, Irish and US securities regulatory agencies and exchanges (as appropriate). The Company cautions you that the foregoing list of factors is not exhaustive and that other risks and uncertainties may cause actual results to differ materially from those referenced in the Companys forward-looking statements. Forward-looking statements speak only as of the date they are made and are statements of the Companys current expectations concerning future results, events and conditions. The Company assumes no obligation to update any forward-looking statements or information except as required by law.
James Hardie 2015 Annual Report on Form 20-F | 64 |
MANAGEMENTS DISCUSSION AND ANALYSIS
The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes, including the accounting policies affecting our financial condition and results of operations, which are fully described in Note 2 to our consolidated financial statements, presented later in this Annual Report.
In the following discussion and analysis, we intend to provide managements explanation of factors that have affected our financial condition and results of operations for the fiscal years covered by the financial statements, as well as managements assessment of factors and trends which are anticipated to have a material effect on our financial condition and results of operations in future periods.
The discussion and analysis following includes several non-GAAP measures to provide additional information concerning our performance. We believe that these non-GAAP measures enhance an investors overall understanding of our financial performance by being more reflective of our core operational activities and more comparable with our financial results over various periods. In addition, management use non-GAAP financial measures internally for strategic decision making, forecasting future results and evaluating current performance. Non-GAAP financial measures discussed include:
| Adjusted operating income and operating income margin |
| Adjusted net income |
| Adjusted effective tax rate |
| Adjusted EBITDA |
| Adjusted selling, general and administrative expenses |
We have reconciled these non-GAAP financial measures to the most directly comparable US GAAP financial measure for fiscal years 2015, 2014 and 2013 in the Glossary of Abbreviations and Definitions in Section 4 below. These non-GAAP financial measures are not prepared in accordance with US GAAP; therefore, the information is not necessarily comparable to other companies financial information and should be considered as a supplement to, not a substitute for, or superior to, the corresponding measures calculated in accordance with US GAAP.
Application of Critical Accounting Policies
The preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements and the reported revenue and expenses during the periods presented therein. On an ongoing basis, management evaluates its estimates and judgments in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its estimates and judgments on historical experience and on various other factors it believes to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.
James Hardie 2015 Annual Report on Form 20-F | 65 |
We have identified the following critical accounting policies under which significant judgments, estimates and assumptions are made and where actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods:
Accounting for the AFFA
The AFFA was approved by shareholders in February 2007 to provide long-term funding to AICF. For a discussion of the AFFA and the accounting policies utilized by the Company related to the AFFA and AICF, see Note 2 Summary of Significant Accounting Policies in the consolidated financial statements.
The amount of the asbestos liability has been recognized by reference to (but not exclusively based upon) the most recent actuarial estimate of projected future cash flows as calculated by KPMGA Pty Ltd (KPMGA), who are engaged and appointed by AICF under the terms of the AFFA. Based on their assumptions, KPMGA arrived at a range of possible total future cash flows and calculated a central estimate, which is intended to reflect a probability-weighted expected outcome of those actuarially estimated future cash flows projected by the actuary to occur through 2076. We recognize the asbestos liability in the consolidated financial statements by reference to (but not exclusively based upon) the central estimate.
Adjustments in the asbestos liability due to changes in the actuarial estimate of projected future cash flows and changes in the estimate of future operating costs of AICF are reflected in the consolidated statements of operations and comprehensive income during the period in which they occur. Claims paid by AICF and claims-handling costs incurred by AICF are treated as reductions in the accrued balances previously reflected in the consolidated balance sheets.
In estimating the potential financial exposure, KPMGA has made a number of assumptions, including, but not limited to, assumptions related to the total number of claims that are reasonably estimated to be asserted through 2076, the typical cost of settlement (which is sensitive to, among other factors, the industry in which a plaintiff claims exposure, the alleged disease type and the jurisdiction in which the action is brought), the legal costs incurred in the litigation of such claims, the rate of receipt of claims, the settlement strategy in dealing with outstanding claims and the timing of settlements.
Due to inherent uncertainties in the legal and medical environment, the number and timing of future claim notifications and settlements, the recoverability of claims against insurance contracts, and estimates of future trends in average claim awards, as well as the extent to which the above named entities will contribute to the overall settlements, the actual amount of liability could differ materially from that which is currently projected.
We recognize the asbestos liability in the consolidated financial statements on an undiscounted and uninflated basis. We considered discounting when determining the best estimate under US GAAP. We have recognized the asbestos liability by reference to (but not exclusively based upon) the central estimate as undiscounted on the basis that it is our view that the timing and amounts of such cash flows are not fixed or readily determinable. We considered inflation when determining the best estimate under US GAAP. It is our view that there are material uncertainties in estimating
James Hardie 2015 Annual Report on Form 20-F | 66 |
an appropriate rate of inflation over the extended period of the AFFA. We view the undiscounted and uninflated central estimate as the best estimate under US GAAP.
An updated actuarial assessment is performed as of 31 March each year. Any changes in the estimate will be reflected as a charge or credit to the consolidated statements of operations for the year then ended. Material adverse changes to the actuarial estimate would have an adverse effect on our business, results of operations and financial condition. A copy of KPMGAs actuarial assessment as at 31 March 2015 is available on the Investor Relations area of our website (www.ir.jameshardie.com.au).
Sales Rebates and Discounts
We record estimated reductions to sales for customer rebates and discounts including volume, promotional, cash and other rebates and discounts. Rebates and discounts are recorded based on managements best estimate when products are sold. The estimates are based on historical experience for similar programs and products. Management reviews these rebates and discounts on an ongoing basis and the related accruals are adjusted, if necessary, as additional information becomes available.
Accounts Receivable
We evaluate the collectability of accounts receivable on an ongoing basis based on historical bad debts, customer credit-worthiness, current economic trends and changes in our customer payment activity. An allowance for doubtful accounts is provided for known and estimated bad debts. Although credit losses have historically been within our expectations, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. Because our accounts receivable are concentrated in a relatively small number of customers, a significant change in the liquidity or financial position of any of these customers could impact their ability to make payments and result in the need for additional allowances which would decrease our net sales.
Inventory
Inventories are recorded at the lower of cost or market. In order to determine market, management regularly reviews inventory quantities on hand and evaluates significant items to determine whether they are excess, slow-moving or obsolete. The estimated value of excess, slow-moving and obsolete inventory is recorded as a reduction to inventory and an expense in cost of sales in the period in which it is identified. This estimate requires management to make judgments about the future demand for inventory, and is therefore at risk to change from period to period. If our estimate for the future demand for inventory is greater than actual demand and we fail to reduce manufacturing output accordingly, we could be required to record additional inventory reserves, which would have a negative impact on our gross profit.
Further, we have distributor arrangements that we maintain with certain customers where we own inventory that is physically located in a customers or third partys warehouse. As a result, our ability to effectively manage inventory levels may be impaired, which would cause our total inventory turns to decrease. In that event, our expenses associated with excess and obsolete inventory could increase and our cash flow could be negatively impacted.
James Hardie 2015 Annual Report on Form 20-F | 67 |
Accrued Warranty Reserve
We have offered, and continue to offer, various warranties on our products, including a 30-year limited warranty on certain of our fiber cement siding products in the United States. Because our fiber cement products have only been used in North America since the early 1990s, there is a risk that these products will not perform in accordance with our expectations over an extended period of time. A typical warranty program requires that we replace defective products within a specified time period from the date of sale. We record an estimate for future warranty-related costs based on an analysis by us, which includes the historical relationship of warranty costs to installed product. Based on this analysis and other factors, we adjust the amount of our warranty provisions as necessary. Although our warranty costs have historically been within calculated estimates, if our experience is significantly different from our estimates, it could result in the need for additional reserves.
Accounting for Income Tax
We recognize deferred tax assets and deferred tax liabilities for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts using enacted tax rates in effect for the year in which we expect the differences to reverse. We record a valuation allowance to reduce the deferred tax assets to the amount that we are more likely than not to realize. We must assess whether, and to what extent, we can recover our deferred tax assets. If full or partial recovery is unlikely, we must increase our income tax expense by recording a valuation allowance against the portion of deferred tax assets that we cannot recover. We believe that we will recover all of the deferred tax assets recorded (net of valuation allowance) on our consolidated balance sheet at 31 March 2015. However, if facts later indicate that we will be unable to recover all or a portion of our net deferred tax assets, our income tax expense would increase in the period in which we determine that recovery is unlikely.
We evaluate our uncertain tax positions in accordance with the guidance for accounting for uncertainty in income taxes. We believe that our reserve for uncertain tax positions, including related interest, is adequate. Due to our size and the nature of our business, we are subject to ongoing reviews by taxing jurisdictions on various tax matters, including challenges to various positions we assert on our income tax returns. The amounts ultimately paid upon resolution of these matters could be materially different from the amounts previously included in our income tax expense and therefore could have a material impact on our tax provision, net income and cash flows. Positions taken by an entity in its income tax returns must satisfy a more-likely-than-not recognition threshold, assuming that the positions will be examined by taxing authorities with full knowledge of all relevant information, in order for the positions to be recognized in the consolidated financial statements. Each quarter we evaluate the income tax positions taken, or expected to be taken, to determine whether these positions meet the more-likely-than-not threshold. We are required to make subjective judgments and assumptions regarding our income tax exposures and must consider a variety of factors, including the current tax statutes and the current status of audits performed by tax authorities in each tax jurisdiction. To the extent an uncertain tax position is resolved for an amount that varies from the recorded estimated liability, our income tax expense in a given financial statement period could be materially affected.
James Hardie 2015 Annual Report on Form 20-F | 68 |
Impairment of Long-Lived Assets
Long-lived assets, such as property, plant and equipment, are evaluated each quarter for events or changes in circumstances that indicate that an asset might be impaired because the carrying amount of the asset may not be recoverable. These include, without limitation, a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used, a current period operating or cash flow loss combined with a history of operating or cash flow losses, a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group and/or a current expectation that it is more likely than not that a long-lived asset or asset group will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. Identifying these events and changes in circumstances, and assessing their impact on the appropriate valuation of the affected assets requires us to make judgments, assumptions and estimates.
When such indicators of potential impairment are identified, recoverability is tested by grouping long-lived assets that are used together and represent the lowest level for which cash flows are identifiable and distinct from the cash flows of other long-lived assets, which is typically at the production line or plant facility level, depending on the type of long-lived asset subject to an impairment review. Recoverability is measured by a comparison of the carrying amount of the asset group to the estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount exceeds the estimated undiscounted future cash flows, an impairment charge is recognized at the amount by which the carrying amount exceeds the estimated fair value of the asset group.
The methodology used to estimate the fair value of the asset group is typically based on a discounted cash flow analysis that considers the asset groups highest and best use that would maximize the value of the asset group. In addition, the estimated fair value of an asset group also considers, to the extent practicable, a market participants expectations and assumptions in estimating the fair value of the asset group. If the estimated fair value of the asset group is less than the carrying value, an impairment loss is recognized at an amount equal to the excess of the carrying value over the estimated fair value of the asset group.
In fiscal years 2015 and 2014, we did not record any asset impairment charges at a plant level. Asset impairment charges at a plant level of US$12.5 million were recognized in fiscal year 2013.
In estimating the fair value of the asset group, we are required to make certain estimates and assumptions that include forecasting the useful lives of the assets, selecting an appropriate discount rate that reflects the risk inherent in future cash flows, forecasting market demand for our products and recommissioning idle assets to meet anticipated capacity constraints in the future. We have not made any material changes in the accounting methodology we use to assess impairment loss during the past three fiscal years. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to material impairment losses in future periods.
James Hardie 2015 Annual Report on Form 20-F | 69 |
Operating Results
Year ended 31 March 2015 compared to year ended 31 March 2014
Operating results for the consolidated group were as follows:
US$ Millions | FY15 | FY14 | Change % | |||||||||
Net sales |
$ | 1,656.9 | $ | 1,493.8 | 11 | |||||||
Cost of goods sold |
(1,078.1 | ) | (987.4 | ) | (9 | ) | ||||||
Gross profit |
578.8 | 506.4 | 14 | |||||||||
|
||||||||||||
Selling, general and administrative expenses |
(245.5 | ) | (224.4 | ) | (9 | ) | ||||||
Research and development expenses |
(31.7 | ) | (33.1 | ) | 4 | |||||||
Asbestos adjustments |
33.4 | (195.8 | ) | |||||||||
Operating income |
335.0 | 53.1 | ||||||||||
|
||||||||||||
Net interest expense |
(7.5 | ) | (1.1 | ) | ||||||||
Other (expense) income |
(4.9 | ) | 2.6 | |||||||||
Income before income taxes |
322.6 | 54.6 | ||||||||||
Income tax (expense) benefit |
(31.3 | ) | 44.9 | |||||||||
Net income |
$ | 291.3 | $ | 99.5 |
James Hardie 2015 Annual Report on Form 20-F | 70 |
USA and Europe Fiber Cement Results
Operating results for the USA and Europe Fiber Cement segment were as follows:
FY15 | FY14 | Change % | ||||||||||
Volume (mmsf) |
1,849.7 | 1,696.9 | 9% | |||||||||
Average net sales price per unit (per msf) |
US$675 | US$652 | 4% | |||||||||
|
||||||||||||
Net sales (US$ millions) |
1,276.5 | 1,127.6 | 13% | |||||||||
Gross profit |
17% | |||||||||||
Gross margin (%) |
1.1 pts | |||||||||||
Operating income (US$ millions) |
285.9 | 237.0 | 21% | |||||||||
Operating income margin (%) |
22.4 | 21.0 | 1.4 pts |
Net sales for fiscal year 2015 were favorably impacted by higher volumes and a higher average net sales price. The increase in our sales volume in fiscal year 2015 compared to fiscal year 2014 was primarily driven by further market penetration and modest growth in the repair and remodel market and new construction market. Further, the increase in our average net sales price in fiscal year 2015 reflects the ongoing execution of our pricing strategies, favorable product mix and the reduction of pricing inefficiencies, when compared to the prior year.
We note that there are a number of indicators that measure US housing market growth, most of which have reported between low single digit growth and slight contraction in recent quarters when compared to prior corresponding periods. However, at the time of filing our fiscal year 2015 results, only the US Census Bureau data is available. According to the US Census Bureau, single family housing starts for the year ended 31 March 2015 were 638,800, 3% above fiscal year 2014.
While we have provided US Census Bureau data above, we note that it typically trends higher than other indices we use to measure US housing market growth, namely the McGraw-Hill Construction Residential Starts Data (also known as Dodge), the National Association of Home Builders and Fannie Mae.
The increase in gross margin of 1.1 percentage points for fiscal year 2015 is due to the following components:
Higher average net sales price |
2.7 pts | |||
Higher production costs |
(1.6 pts) | |||
|
|
|||
Total percentage point change in gross margin |
1.1 pts | |||
|
|
Production costs for fiscal year 2015 were higher than fiscal year 2014, primarily due to higher input costs driven by the market prices for pulp, gas, silica and the costs incurred with starting up our Fontana, California plant in fiscal year 2015; partially offset by economies of scale achieved through a 9% increase in volume.
James Hardie 2015 Annual Report on Form 20-F | 71 |
Fiscal year 2015 operating income of US$285.9 million, an increase of 21% over fiscal year 2014, primarily reflects increased volumes and a higher average net sales price; unfavorably impacted by higher SG&A, primarily reflecting higher compensation expenses due to increased headcount. As a percentage of segment sales, fiscal year 2015 SG&A expenses increased by 0.1 percentage points compared to fiscal year 2014.
Operating income margin for fiscal year 2015 increased 1.4 percentage points to 22.4% from 21.0% in fiscal year 2014, driven by higher net sales; partially offset by higher production costs.
Asia Pacific Fiber Cement Results
Operating results for the Asia Pacific Fiber Cement segment in US dollars were as follows:
FY15 | FY14 | Change % | ||||||||||
Volume (mmsf) |
456.2 | 417.2 | 9% | |||||||||
|
||||||||||||
Net sales (US$ millions) |
380.4 | 366.2 | 4% | |||||||||
US$ Gross profit |
7% | |||||||||||
US$ Gross margin (%) |
1.0 pts | |||||||||||
Operating income (US$ millions) |
94.1 | 81.1 | 16% | |||||||||
New Zealand weathertightness claims (US$ millions) |
4.3 | (1.8 | ) | |||||||||
Operating income excluding NZ weathertightness claims (US$ millions) |
89.8 | 82.9 | 8% | |||||||||
Operating income margin (%) |
24.7 | 22.1 | 2.6 pts | |||||||||
US$ Operating income margin excluding NZ weathertightness claims (%) |
23.6 | 22.6 | 1.0 pts |
James Hardie 2015 Annual Report on Form 20-F | 72 |
For fiscal year 2015, the Asia Pacific Fiber Cement segment results in US dollars were unfavorably impacted by the change in the weighted average period AUD/USD exchange rate relative to fiscal year 2014. Operating results for the Asia Pacific Fiber Cement segment in Australian dollars were as follows:
FY15 | FY14 | Change % | ||||||||||
Volume (mmsf) |
456.2 | 417.2 | 9% | |||||||||
Average net sales price per unit (per msf) |
A$942 | A$930 | 1% | |||||||||
|
||||||||||||
Net sales (A$ millions) |
434.5 | 392.4 | 11% | |||||||||
A$ Gross profit |
14% | |||||||||||
A$ Gross margin (%) |
1.0 pts | |||||||||||
Operating income (A$ millions) |
107.4 | 86.9 | 24% | |||||||||
New Zealand weathertightness claims (A$ millions) |
4.9 | (1.9 | ) | |||||||||
Operating income excluding NZ weathertightness claims (A$ millions) |
102.5 | 88.8 | 15% | |||||||||
Operating income margin (%) |
24.7 | 22.1 | 2.6 pts | |||||||||
A$ Operating income margin excluding NZ weathertightness claims (%) |
23.6 | 22.6 | 1.0 pts |
Net sales in Australian dollars for fiscal year 2015 increased largely due to higher sales volumes and higher average net sales price, when compared to fiscal year 2014. In our Australian business, the key drivers of net sales growth were favorable conditions in our addressable markets and a favorable product mix. In our New Zealand business, volume grew across all regions; however, net sales growth was partially offset by a lower average selling price due to product mix. In our Philippines business, net sales were driven higher by growth in our addressable markets and continued market penetration.
According to Australian Bureau of Statistics data, approvals for detached houses, which are a key driver of the Asia Pacific business sales volume, were 114,676 for the year ended 31 March 2015, an increase of 9%, compared to fiscal year 2014. The other key driver of our sales volume is the alterations and additions market, which was flat for the 12 months ended 31 December 2014, compared to prior corresponding period.
According to Statistics New Zealand data, consents for dwellings excluding apartments, which are the primary driver of the New Zealand business net sales, were 23,168 for the year ended 31 March 2015, an increase of 12% over fiscal year 2014.
James Hardie 2015 Annual Report on Form 20-F | 73 |
In Australian dollars, the increase in gross margin of 1.0 percentage point for fiscal year 2015 is due to the following components:
Higher average net sales price |
1.0 pts | |||
Flat production costs |
- | |||
|
|
|||
Total percentage point change in gross margin |
1.0 pts | |||
|
|
Production costs for fiscal year 2015 were flat compared to fiscal year 2014, due to higher input costs driven by higher market prices of pulp, offset by improved plant performance and the financial impact of purchasing our Rosehill facility.
During the third quarter of fiscal year 2015, we purchased the land and buildings previously leased at our Rosehill, New South Wales facility for A$45.0 million. As a result of the purchase, we released remediation and straight line rent provisions required as a lessee, resulting in a benefit to cost of goods sold of A$3.0 million for the full year.
In Australian dollars, operating income (including New Zealand weathertightness claims) for fiscal year 2015 increased 24% over fiscal year 2014, driven by higher net sales, partially offset by higher SG&A, which as a percentage of net sales increased by 3.2 percentage points compared to fiscal year 2014, largely due to higher compensation and marketing related expenses.
For fiscal year 2015, we recorded a benefit related to New Zealand weathertightness claims, compared to an expense in the prior year. The benefit in the current year is driven by a decrease in the provision, a result of a higher rate of claim resolution, fewer open claims at the end of the period and a continued reduction in the number of new claims received when compared to fiscal year 2014.
In Australian dollars, operating income (excluding New Zealand weathertightness claims) for fiscal year 2015 increased by 15% comparted to fiscal year 2014.
On 6 May 2015, we entered into a conditional sale agreement to sell our Australian concrete pipes business. At the date of this Annual Report, the sale is still subject to the satisfactory completion of various contract conditions, but is expected to close in the first half of fiscal year 2016.
Research and Development Segment
We record R&D expenses depending on whether they are core R&D projects that are designed to benefit all business units, which are recorded in our R&D Segment; or commercialization projects for the benefit of a particular business unit which are recorded in the individual business units segment results. The table below details the expenses of our R&D Segment:
US$ Millions | FY15 | FY14 | Change % | |||||||||
Segment R&D expenses |
(24.2 | ) | (22.2 | ) | (9 | ) | ||||||
Segment R&D SG&A expenses |
(1.8 | ) | (2.2 | ) | 18 | |||||||
Total R&D operating loss |
(26.0 | ) | (24.4 | ) | (7 | ) |
James Hardie 2015 Annual Report on Form 20-F | 74 |
The change in Segment R&D expenses from fiscal year 2014 to fiscal year 2015 is a result of the number of core R&D projects being worked on by the R&D team. The expense fluctuates period to period depending on the nature and number of core R&D projects being worked on during the period.
Other R&D expenses associated with commercialization projects in business units are recorded in the results of the respective business unit segment. In total, these costs were US$7.5 million for fiscal year 2015, compared to US$10.9 million for fiscal year 2014.
General Corporate Segment
Results for the General Corporate Segment for fiscal years 2015 and 2014 are as follows:
US$ Millions | FY15 | FY14 | Change % | |||||||||
General Corporate SG&A expenses |
(49.9 | ) | (42.7 | ) | (17 | ) | ||||||
Asbestos: |
||||||||||||
Asbestos Adjustments |
33.4 | (195.8 | ) | |||||||||
AICF SG&A Expenses1 |
(2.5 | ) | (2.1 | ) | (19 | ) | ||||||
General Corporate operating loss |
(19.0 | ) | (240.6 | ) | 92 |
1 | Relates to non-claims related operating costs incurred by AICF, which we consolidate into our financial results due to our pecuniary and contractual interests in AICF. See Notes 2 and 11 of our consolidated financial statements for further information on asbestos adjustments. |
For fiscal year 2015, General Corporate SG&A Expenses increased by US$7.2 million, compared to fiscal year 2014. The increase in General Corporate SG&A is driven by a non-recurring stamp duty of US$4.2 million, US$2.0 million in compensation related expenses and US$1.6 million of recognized foreign exchange losses. The increase in compensation related expenses was largely driven by company performance-based incentive bonuses and higher headcount.
Asbestos adjustments reflect a change in the actuarial estimate of the asbestos liability, insurance receivables, AICF claims handling costs and the foreign exchange translation impact of the Australian denominated asbestos related assets and liabilities being recorded on our consolidated balance sheet in US dollar at the reporting date for each respective period. For fiscal year 2015, the Australian dollar spot exchange rate against the US dollar depreciated 17% to US$0.76.
For fiscal years 2015 and 2014, the asbestos adjustments recorded by the Company were made up of the following components:
US$ Millions | FY15 | FY14 | Change % | |||||||||
Change in actuarial estimates |
(111.3 | ) | (308.2 | ) | 64 | |||||||
Recovery of insurance receivables |
- | 15.2 | ||||||||||
Effect of foreign exchange rate movements |
144.7 | 97.2 | 49 | |||||||||
Asbestos adjustments |
33.4 | (195.8 | ) |
See Notes 2 and 11 of our consolidated financial statements for further information on asbestos adjustments.
James Hardie 2015 Annual Report on Form 20-F | 75 |
Per the KPMGA actuarial report, the undiscounted and uninflated central estimate net of insurance recoveries remained relatively flat at A$1.566 billion at 31 March 2015 compared to A$1.547 billion at 31 March 2014. The change in the undiscounted and uninflated central estimate of A$19.2 million or 1% is primarily due to an increase in the projected future number of mesothelioma claims, reflecting both a higher numbers of claims and a change in the incidence pattern for mesothelioma, lower nil settlement rates being assumed for lung cancer, partially offset by lower average claims sizes and lower average defense legal cost assumptions for most disease types.
During the 2015 fiscal year, mesothelioma claims reporting activity was above actuarial expectations for the third consecutive year. One of the critical assumptions is the estimated peak year of mesothelioma disease claims, which is currently assumed to occur in the period 2014/2015 to 2016/2017. Potential variation in this estimate has a much greater impact than the other assumptions used to derive the discounted central estimate. In performing the sensitivity assessment of the estimated period of peak claims reporting for mesothelioma, KPMGA determined that if claims reporting does not begin to reduce until after 2018/19 together with increased claims reporting from 2026/27 onwards, the discounted central estimate could increase by approximately 26% on a discounted basis. At 31 March 2015, KPMGA formed the view that the higher claims reporting activity assumed in the short and medium term is not necessarily indicative of longer term impacts, as at this stage it is too early to form such a long-term conclusion on the basis of two years of experience.
The following is an analysis of claims data for the fiscal years ended 31 March:
FY15 | FY14 | Change % | ||||||||||
Claims received |
665 | 608 | (9 | ) | ||||||||
Actuarial estimate for the period |
610 | 540 | (13 | ) | ||||||||
Difference in claims received to actuarial estimate |
(55 | ) | (68 | ) | 19 | |||||||
|
||||||||||||
Average claim settlement1 (A$) |
254,000 | 253,000 | - | |||||||||
Actuarial estimate for the period2 (A$) |
289,000 | 262,000 | (10 | ) | ||||||||
Difference in claims paid to actuarial estimate (A$) |
35,000 | 9,000 |
1 | Average claims settlement is derived as the total amount paid divided by the number of non-nil claim settlements |
2 | This actuarial estimate is a function of the assumed experience by disease type and the relative mix of settlements assumed by disease type. Any variances in the assumed mix of settlements by disease type will have an impact on the average claim settlement experience. |
For the full year ended 31 March 2015, we noted the following related to asbestos-related claims:
| Claims received during fiscal year 2015 were 9% above actuarial estimates and prior year; |
| The higher reported mesothelioma claims experience noted during fiscal 2014 continued into fiscal year 2015; |
| The A$ average claim settlement is flat for fiscal year 2015, compared to fiscal year 2014; |
| The A$ average claim settlement for fiscal year 2015 is 12% lower compared to actuarial estimates; |
James Hardie 2015 Annual Report on Form 20-F | 76 |
| Average claim settlement sizes are generally lower across all disease types compared to actuarial expectations for fiscal year 2015; and |
| The decrease in average claim settlement for fiscal year 2015 versus actuarial estimates is largely attributable to a lower number of large mesothelioma claims being settled compared to fiscal year 2014. |
Asbestos claims paid of A$154.3 million for fiscal year 2015 were higher than the actuarial expectation of A$148.9 million. All figures provided in this Claims Data section are gross of insurance and other recoveries.
Net interest expense
Gross interest expense for fiscal year 2015 increased US$5.8 million compared to fiscal year 2014, primarily as a result of higher average balances of funds drawn on our debt facilities and interest incurred on our senior notes which were issued in the fourth quarter of fiscal year 2015. Capitalized interest for fiscal year 2015 totaled US$1.7 million compared to nil for fiscal year 2014, as we were in a net cash position in fiscal year 2014.
For fiscal year 2015, AICF net interest income decreased US$1.5 million compared to fiscal year 2014, primarily a result of the combined impact of higher interest expense incurred as a result of the drawdowns made on the AICF loan facility and a decrease in interest income as a result of lower investment balances held by AICF in fiscal year 2015 compared to fiscal year 2014.
Other (expense) income
For fiscal year 2015, other (expense) income moved from income of US$2.6 million in fiscal year 2014 to an expense of US$4.9 million due to the timing of foreign exchange gains and losses and the unrealized gains and losses resulting from the changes in the fair value of our interest rate swaps at the balance sheet dates.
Income tax (expense) benefit
Total income tax expense for fiscal year 2015 increased by US$76.2 million from fiscal year 2014. The change is primarily due to a reduction in the unfavorable asbestos adjustments and an unfavorable change in tax adjustments compared to fiscal year 2014 relating to a non-recurring receipt of interest from the Australian Taxation Office (ATO) in the third quarter of fiscal year 2014; resulting from the finalization of a successful appeal of disputed amended tax assessment.
The adjusted effective tax rate for fiscal year 2015 increased compared to fiscal year 2014 primarily due to a higher proportion of taxable earnings in jurisdictions with higher tax rates, in particular the USA.
See Note 15 of our consolidated financial Statements for further information related to income tax.
James Hardie 2015 Annual Report on Form 20-F | 77 |
Net income
Net income increased from US$99.5 million in fiscal year 2014 to US$291.3 million in fiscal year 2015. Net income excluding asbestos, New Zealand weathertightness claims, non-recurring stamp duty and other tax adjustments increased 12% from US$197.2 million in fiscal year 2014 to US$221.4 million in fiscal year 2015.
Year ended 31 March 2014 compared to year ended 31 March 2013
Operating results for the consolidated group were as follows:
US$ Millions | FY14 | FY13 | Change % | |||||||||
Net sales |
$ | 1,493.8 | $ | 1,321.3 | 13 | |||||||
Cost of goods sold |
(987.4 | ) | (902.0 | ) | (9 | ) | ||||||
Gross profit |
506.4 | 419.3 | 21 | |||||||||
|
||||||||||||
Selling, general and administrative expenses |
(224.4 | ) | (218.6 | ) | (3 | ) | ||||||
Research and development expenses |
(33.1 | ) | (37.2 | ) | 11 | |||||||
Asset Impairments |
- | (16.9 | ) | |||||||||
Asbestos adjustments |
(195.8 | ) | (117.1 | ) | (67 | ) | ||||||
Operating income |
53.1 | 29.5 | 80 | |||||||||
|
||||||||||||
Net interest (expense) income |
(1.1 | ) | 2.4 | |||||||||
Other income |
2.6 | 1.8 | 44 | |||||||||
Income before income taxes |
54.6 | 33.7 | 62 | |||||||||
Income tax benefit |
44.9 | 11.8 | ||||||||||
Net income |
$ | 99.5 | $ | 45.5 |
James Hardie 2015 Annual Report on Form 20-F | 78 |
USA and Europe Fiber Cement Results
Operating results for the USA and Europe Fiber Cement segment were as follows:
FY14 | FY13 | Change | ||||||||||
Volume (mmsf) |
1,696.9 | 1,488.5 | 14% | |||||||||
Average net sales price per unit (per msf) |
US$652 | US$626 | 4% | |||||||||
Net sales (US$ Millions) |
1,127.6 | 951.4 | 19% | |||||||||
Gross profit |
26% | |||||||||||
Gross margin (%) |
2.1 pts | |||||||||||
Operating income (US$ Millions) |
237.0 | 145.6 | 63% | |||||||||
Asset impairments (US$ Millions) |
- | (16.9 | ) | |||||||||
Operating income excluding asset impairments (US$ Millions) |
237.0 | 162.5 | 46% | |||||||||
Operating income margin (%) |
21.0 | 15.3 | 5.7 pts | |||||||||
Operating income margin excluding asset impairments (US$ Millions) |
21.0 | 17.1 | 3.9 pts |
Net sales increased 19% in fiscal year 2014, primarily due to higher sales volume and a higher average net sales price. Sales volume increased 14% to 1,696.9 million square feet in fiscal year 2014, reflecting increased activity in the new construction market segment, further market penetration, and modest growth in the repair and remodel market segment, relative to the prior year. The average net sales price increased 4% to US$652 per thousand square feet in fiscal year 2014, reflecting the ongoing execution of our pricing strategies and also the reduction of pricing inefficiencies, when compared to fiscal year 2013.
According to the US Census Bureau, single family housing starts, which are one of the key drivers of the companys performance, were 615,400 for the fiscal year ended 31 March 2014, 9% above the prior year. Industry data for the full year indicates gains in both single-family and multi-family production relative to the prior year.
James Hardie 2015 Annual Report on Form 20-F | 79 |
The increase in gross margin of 2.1 percentage points for fiscal year 2014 is due to the following components:
Higher average net sales price |
2.5 pts | |||
Higher production costs |
(0.4 pts) | |||
|
|
|||
Total percentage point change in gross margin |
2.1 pts | |||
|
|
Input costs were driven higher primarily by the market prices for pulp, cement, silica and utilities, and by plant inefficiencies as a result of the recommissioning and ramp-up in production at our Fontana, California location.
Operating income for fiscal year 2014 increased 63% over fiscal year 2013, to US$237.0 million. The increase in operating income was primarily driven by higher sales volume, and a higher average net sales price, partially offset by higher production costs, as noted above and higher SG&A expenses. SG&A expenses increased primarily due to performance-based incentive bonuses and higher headcount as we enhanced organizational capabilities. Additionally, in fiscal year 2013, we recorded asset impairment charges of US$16.9 million, which did not recur in fiscal year 2014. Operating income excluding asset impairment charges increased 46% from US$162.5 million in fiscal year 2013, to US$237.0 million in fiscal year 2014.
Asia Pacific Fiber Cement Results
Operating results for the Asia Pacific Fiber Cement segment in US dollars were as follows:
FY14 | FY13 | Change | ||||||||||
Volume (mmsf) |
417.2 | 393.7 | 6% | |||||||||
|
||||||||||||
Net sales (US$ Millions) |
369.9 | 375.5 | (1%) | |||||||||
US$ Gross profit |
6% | |||||||||||
US$ Gross margin (%) |
(2.4) pts | |||||||||||
Operating income (US$ Millions) |
81.1 | 61.7 | 31% | |||||||||
New Zealand weathertightness claims (US$ millions) |
(1.8) | (13.2) | 86% | |||||||||
Operating income excluding NZ weathertightness claims (US$ Millions) |
82.9 | 74.9 | 11% | |||||||||
Operating income margin (%) |
22.1 | 16.7 | 5.4 pts | |||||||||
US$ Operating income margin excluding NZ weathertightness claims (%) |
22.6 | 24.9 | (2.3) pts |
James Hardie 2015 Annual Report on Form 20-F | 80 |
For fiscal year 2014, the Asia Pacific Fiber Cement segment results in US dollars were impacted by an unfavorable change in the weighted average period AUD/USD exchange rate relative to the prior fiscal year. Operating results for the Asia Pacific Fiber Cement segment in Australian dollars were as follows:
FY14 | FY13 | Change % | ||||||||||
Volume (mmsf) |
417.2 | 393.7 | 6% | |||||||||
Average net sales price per unit (per msf) |
A$930 | A$901 | 3% | |||||||||
|
||||||||||||
Net sales (A$ Millions) |
392.4 | 358.5 | 9% | |||||||||
A$ Gross profit |
18% | |||||||||||
A$ Gross margin (%) |
2.4 pts | |||||||||||
Operating income (A$ Millions) |
86.9 | 59.8 | 45% | |||||||||
New Zealand weathertightness claims (A$ millions) |
(1.9) | (13.6) | (86%) | |||||||||
Operating income excluding NZ weathertightness claims (A$ Millions) |
88.8 | 73.4 | 21% | |||||||||
Operating income margin (%) |
22.1 | 16.7 | 5.4 pts | |||||||||
A$ Operating income margin excluding NZ weathertightness claims (%) |
22.6 | 20.5 | 2.1 pts |
In Australian dollars, net sales in fiscal year 2014 increased 9% compared to the prior fiscal year, primarily due to higher average net sales prices and an increase in sales volumes. These favorable impacts were constrained by a reduction in the repair and remodel market in Australia, and more than offset by a 10% depreciation in the Australian dollar/US dollar average exchange rate, leading to a decrease in US dollar net sales for fiscal year 2014, relative to the fiscal year 2013.
According to the Australian Bureau of Statistics, approvals for detached houses, which are the primary driver of the Asia Pacific business sales volume, were 104,394 for our fiscal year ended 31 March 2014, an increase of 16% compared to fiscal year 2013.
According to Statistics New Zealand data, consents for dwellings excluding apartments, which are the primary driver of the New Zealand business net sales, were 19,768 for our fiscal year ended 31 March 2014, an increase of 25% compared to fiscal year 2013.
In Australian dollars, the increase in gross margin of 2.4 percentage points for fiscal year 2014 is due to the following components:
Production costs |
1.3 pts | |||
Average net sales price |
1.1 pts | |||
|
|
|||
Total percentage point increase in gross margin |
2.4 pts | |||
|
|
James Hardie 2015 Annual Report on Form 20-F | 81 |
Production costs decreased as a result of the favorable impact of economies of scale, achieved through a 6% increase in Asia Pacific volume, partially offset by higher input costs. The average net sales price increase primarily reflects product-specific price increases compared to fiscal year 2013.
Operating income for fiscal year 2014 increased 31% over fiscal year 2013 to US$81.1 million. The increase in US dollar operating income for fiscal year 2014 was partially offset by 10% depreciation in the AUD/USD average exchange rate. In Australian dollars, operating income increased 45% compared to fiscal year 2013, primarily due to an increase in the Australian dollar average net sales price, a decrease in production costs, a decrease in New Zealand weathertightness expenses and the non-recurring benefit of the release of certain remediation and straight-line rent provisions required as a lessee, following the purchase of previously-leased Carole Park facility. Operating income margin was 5.4 percentage points higher at 22.1%.
New Zealand weathertightness expenses decreased by US$11.4 million in fiscal year 2014 compared to fiscal year 2013, driven lower by the combined effects of an increased rate of claim-resolution leading to fewer open cases, substantial reductions in the values of new claims received, and fewer new claims being received.
Research and Development Segment
We record R&D expenses on projects that are designed to benefit all business units, or core R&D, in our R&D segment, while product specific commercialization projects in business units are recorded in the individual business units segment results. The table below details the expenses of our R&D segment:
US$ Millions | FY14 | FY13 | Change % | |||||||||
Segment R&D expenses |
(22.2 | ) | (23.6 | ) | 6 | % | ||||||
Segment R&D SG&A expenses |
(2.2 | ) | (2.4 | ) | 8 | % | ||||||
Total R&D operating loss |
(24.4 | ) | (26.0 | ) | 6 | % |
The change in segment R&D expenses compared to the prior fiscal year is a result of the number of core R&D projects currently being worked on by the R&D team. This will fluctuate year to year depending on the nature and number of core R&D projects being worked on by the R&D segment.
Other R&D expenses associated with commercialization projects in business units are recorded in the results of the respective business unit segment. In total, these costs were US$10.9 million for fiscal year 2014, 20% lower than US$13.6 million in fiscal year 2013.
James Hardie 2015 Annual Report on Form 20-F | 82 |
General Corporate Segment
Results for the General Corporate Segment for fiscal years 2014 and 2013 are as follows:
US$ Millions | FY14 | FY13 | Change % | |||||||||
General Corporate SG&A expenses |
(42.7 | ) | (33.0 | ) | (29%) | |||||||
Asbestos: |
||||||||||||
Asbestos Adjustments |
(195.8 | ) | (117.1 | ) | (67%) | |||||||
AICF SG&A Expenses 1 |
(2.1 | ) | (1.7 | ) | (24%) | |||||||
General Corporate operating loss |
(240.6 | ) | (151.8 | ) | (58%) |
1 | Relates to non-claims related operating costs incurred by AICF, which we consolidate into our financial results due to our pecuniary and contractual interests in AICF. See Notes 2 and 11 of our consolidated financial statements for further information on asbestos adjustments. |
General Corporate SG&A expenses increased 29% to US$42.7 million for fiscal year 2014. The increase primarily reflects a US$7.7 million increase in compensation expenses and the net unfavorable impact of US$5.6 million of prior year non-recurring transactions, partially offset by a US$2.1 million decrease in professional fees and a US$1.0 million decrease in other administrative expenses when compared with fiscal year 2013. Compensation expenses increased primarily due to performance-based incentive bonuses.
Asbestos adjustments reflect a change in the actuarial estimate of the asbestos liability, insurance receivables, AICF claims handling costs and the foreign exchange translation impact of the Australian denominated asbestos related assets and liabilities being recorded on our consolidated balance sheet in US dollar at the reporting date for each respective period. For fiscal year 2014, the Australian dollar spot exchange rate against the US dollar depreciated 12% to US$0.92.
For fiscal years 2015 and 2014, the asbestos adjustments recorded by the Company were made up of the following components:
US$ Millions | FY14 | FY13 | Change % | |||||||||
Change in actuarial estimates |
(308.2 | ) | (129.2 | ) | ||||||||
Recovery of insurance receivables |
15.2 | 11.9 | 28% | |||||||||
Effect of foreign exchange rate movements |
97.2 | 0.2 | ||||||||||
Asbestos adjustments |
(195.8 | ) | (117.1 | ) | (67%) |
See Notes 2 and 11 of our consolidated financial statements later in this section for further information on asbestos adjustments.
Per the KPMGA actuarial report, the undiscounted and uninflated central estimate net of insurance recoveries, of the asbestos liability increased from A$1.345 billion at 31 March 2013 to A$1.547 billion at 31 March 2014. The increase in the undiscounted and uninflated central estimate of A$202.0 million is primarily due to an increase in the projected future number of claims for mesothelioma reflecting both higher levels of claims volumes and a change in the incidence pattern for mesothelioma, an increased allowance for large claims for mesothelioma
James Hardie 2015 Annual Report on Form 20-F | 83 |
resulting from higher numbers of large claims, lower nil settlement rates being assumed for mesothelioma and lung cancer, partially offset by lower average claims sizes and average defense legal cost assumptions for most disease types.
During the 2014 fiscal year, mesothelioma claims reporting activity has been above actuarial expectations for the second consecutive year. One of the critical assumptions is the estimated peak year of mesothelioma disease claims, which was previously assumed to have occurred in 2010/2011. Potential variation in this estimate has an impact much greater than the other assumptions used to derive the discounted central estimate. In performing the sensitivity assessment of the estimated period of peak claims reporting for mesothelioma, KPMGA has determined that if claims reporting does not begin to reduce until after 2018/2019, the discounted central estimate could increase by approximately 22% (in addition to the 17% increase that has already been factored into the 31 March 2014 valuation). At 31 March 2014, KPMGA has formed the view that the higher claims reporting assumed in the short and medium term is not necessarily indicative of longer term impacts, as at this stage it is too early to form such a conclusion on the basis of one years experience.
Following is an analysis of claims data for the years ended 31 March:
FY14 | FY13 | Change % | ||||||||||
Claims received |
608 | 542 | (12 | ) | ||||||||
Actuarial estimate for the period |
540 | 504 | (7 | ) | ||||||||
Difference in claims received to actuarial estimate |
(68 | ) | (38 | ) | ||||||||
|
||||||||||||
Average claim settlement1 (A$) |
253,000 | 231,000 | (10 | ) | ||||||||
Actuarial estimate for the period2 (A$) |
262,000 | 277,000 | 5 | |||||||||
Difference in claims paid to actuarial estimate (A$) |
9,000 | 46,000 |
1 | Average claims settlement is derived as the total amount paid divided by the number of non-nil claim settlements |
2 | This actuarial estimate is a function of the assumed experience by disease type and the relative mix of settlements assumed by disease type. Any variances in the assumed mix of settlements by disease type will have an impact on the average claim settlement experience. |
The higher average claim settlement in fiscal year 2014 is largely attributable to mesothelioma claims, which are more costly to settle and represented a larger proportion of total claims than in the prior year. However, average claim sizes for mesothelioma were slightly below actuarial expectations for fiscal year 2014, with the average cost of settling non-mesothelioma claims being in line with, or below, actuarial expectations for the full year ended 31 March 2014.
Asbestos claims paid of A$140.4 million for fiscal year 2014 are higher than the actuarial expectation of A$131.4 million. All figures provided in this Claims Data section are gross of insurance and other recoveries.
Net interest (expense) income
For fiscal year 2014 we recorded net interest expense of US$1.1 million, compared to net interest income of US$2.4 million in fiscal year 2013. The decrease from a net income position in fiscal
James Hardie 2015 Annual Report on Form 20-F | 84 |
year 2013 to a net expense position in 2014 was primarily driven by a US$4.1 million decrease in AICF interest income, a US$0.5 million increase in credit facility fees and other borrowing costs related to the external credit facilities and a US$1.5 million decrease in realized losses attributed to interest rate swaps.
Income tax benefit
Our income tax rate was a benefit of 82.2% for fiscal year 2014, compared to benefit of 35.0% for fiscal year 2013. During fiscal year 2014, the effective tax rate was impacted by an unfavorable asbestos adjustment of US$195.8 million, compared to an unfavorable asbestos adjustment of US$117.1 million in fiscal 2013, partially offset by a favorable adjustment of A$17.3 million (US$15.4 million), from a refund received from the ATO in January 2014, related to the successful appeal by our wholly owned subsidiary RCI Pty Ltd (RCI) of its disputed amended tax assessment.
Income tax expense excluding asbestos-related and other tax adjustments increased from US$37.4 million in fiscal year 2013 to US$54.2 million in fiscal year 2014. The Adjusted effective tax rate increased from 21.3% in fiscal year 2013 to 21.6% in fiscal year 2014, primarily due to a higher proportion of taxable earnings in jurisdictions with higher tax rates relative to the prior year.
Net income
Net income increased from US$45.5 million in fiscal year 2013 to US$99.5 million in fiscal year 2014. Net income excluding asbestos, asset impairments, ASIC expenses, New Zealand product weathertightness claims and tax adjustments increased 40% from US$140.8 million in fiscal year 2013 to US$197.2 million in fiscal year 2014.
James Hardie 2015 Annual Report on Form 20-F | 85 |
Liquidity and Capital Resources
Overview
Our treasury policy regarding liquidity management, foreign exchange risk management, interest rate risk management and cash management is administered by our treasury department which is centralized in Ireland. The policy is reviewed annually and is designed to ensure that we have sufficient liquidity to support our business activities and meet future business requirements in the countries in which we operate. We aim to mitigate certain risks associated with fluctuations in interest rates and foreign currency fluctuations. Our strategies to reduce such risks may result in us entering into non-speculative interest rate swaps and foreign currency forward contracts. For a more detailed discussion on our financial instruments, see Note 12 to our consolidated financial statements. For a more detailed discussion on foreign currency exchange rate and interest rate risks, see Quantitative and Qualitative Disclosures About Market Risk in Section 3 of this Annual Report.
We moved to a net debt position of US$330.5 million at 31 March 2015 compared to a net cash position of US$167.5 million at 31 March 2014 (excluding AICFs drawdown on its standby loan facility with the NSW Government, which we are not a party to, guarantor of or security provider in respect of).
Sources of Liquidity
During fiscal year 2015, we met our liquidity and capital requirements through a mix of external debt facilities, cash reserves and cash flows from operations. These internal and external sources of liquidity were primarily used during fiscal year 2015 to fund the expansion, renovation and maintenance of existing production facilities, the purchase and construction of new facilities, fund our annual contribution to AICF in accordance with the terms of the AFFA, and the funding of our working capital requirements, consisting primarily of inventory, accounts receivable and accounts payable. While our working capital requirements fluctuate seasonally during months of the year when overall construction and renovation volumes increase, such fluctuations, generally, have not had a significant impact on our short-term or long-term liquidity.
There are certain restrictions that are either imposed upon us as an Irish plc operating under Irish law, or imposed upon us as a party to the AFFA, which may restrict the ability of subsidiaries to transfer funds to us in the form of cash dividends, loans or advances. For more detailed discussion on these restrictions, see Section 3 Risk Factors. Even with these restrictions, we anticipate that our cash on hand, cash flows from operations, net of estimated payments under the AFFA, and available unutilized credit facilities will be sufficient to fund our planned capital expenditures and working capital requirements for at least the next 12 month period.
Cash Flow Year Ended 31 March 2015
Operating Activities
Net operating cash flow decreased US$143.3 million to US$179.5 million. The movement compared to the prior year was largely driven by our contribution to AICF, which was
James Hardie 2015 Annual Report on Form 20-F | 86 |
US$113.0 million higher in fiscal year 2015 than fiscal year 2014. Additionally, cash used to meet working capital requirements was US$44.1 million higher in fiscal year 2015, consisting of a decrease in cash inflows from accounts payable and increases in inventory compared to fiscal year 2014. In fiscal year 2014, cash inflows due to the increase in accounts payable were US$48.5 million compared to US$30.8 million inflows in fiscal year 2015. The movement in accounts payable relate to increases in rebate programs, timing of invoices, and interest related to our senior notes. The increase in inventory is primarily driven by the increase in production in anticipation for the calendar 2015 US building season, addition of the Fontana facility to the network and the expansion of our vendor managed inventory program.
Investing Activities
Net cash used in investing activities increased from US$118.8 million in the prior corresponding full year to US$277.9 million. The increase in cash used in investing activities compared to fiscal year 2014 reflects the continued execution of our capacity expansion plans across our businesses and other investments to improve our manufacturing network.
Financing Activities
Net cash used in financing activities of US$186.3 million in fiscal year 2014 decreased to US$4.6 million in fiscal year 2015. The movement was primarily related to the issuance of senior unsecured notes of US$325.0 million and a net draw down on our debt facilities of US$75.0 million, which was partially offset by a US$191.0 million increase in cash used to pay dividends, largely a result of the one-time 125 year anniversary special dividend paid during the first quarter of fiscal year 2015.
James Hardie 2015 Annual Report on Form 20-F | 87 |
Borrowings
Bilateral Credit Facilities
As of 31 March 2015, we had the following uncollateralized credit facilities available to us:
Description | Effective Interest Rate |
Total Facility (US$ Millions) |
Principal Drawn (US$ Millions) |
Remaining Facility Available (US$ Millions) |
||||||||||||
Term facilities, can be drawn in US$, variable interest rates based on LIBOR plus margin, can be repaid and redrawn until March 2016 | - | $ | 50.0 | $ | - | $ | 50.0 | |||||||||
Term facilities, can be drawn in US$, variable interest rates based on LIBOR plus margin, can be repaid and redrawn until April 2016 | - | 150.0 | - |