Thank you for standing by, and welcome to James Hardie's Q4 FY '21 Results Conference Call. Today's call will be hosted by Dr. Jack Truong, CEO; and Mr. Jason Miele, CFO. [Operator Instructions] I would now like to hand the conference over to CEO, Dr. Jack Truong. Please go ahead.

Good morning and good evening, everyone. Thank you for joining us on our fourth quarter and full fiscal year 2021 earnings call. I will begin today's call by discussing business highlights from a global company perspective. After I go through business highlights, our CFO, Jason Miele, will cover our fourth quarter and year-to-date fiscal year 2021 financial results. I will then provide a brief preview of our upcoming annual Investors Day. After that, we will open up for questions. Let's now turn to Page 5 for a review of business highlights. Now before I discuss the success to-date of our strategic transformation, I think it is important to provide some context to why the transformation was required. What you see on this page is the financial performance of James Hardie over the 5 years between fiscal year 2015 and fiscal year 2019. If you look at the performance over the 5 years prior to fiscal year 2020, you will see stable and average financial results where profitable growth has fallen. Net sales grew at a compound annual growth rate or CAGR of 7%, adjusted EBIT CAGR of 7%, adjusted net income CAGR of 9%. This is a clear lack of leverage on our incremental sales growth. And lastly, looking at operating cash flow, again what you see is just modest growth with a CAGR of 13% over the same 5 years. These results reiterate a lack of leverage within the business and an inability to generate significant cash flow with each additional dollar of sales. When we look at these financial results, holistically, they do not reflect the results of a high-performing global company which is our mission. Let's now turn to Page 6 to discuss the new James Hardie and our transformational progress. You will recall that, in February…

Thank you, Jack. Good morning and good afternoon, everyone. I will start on Slide 12 with our global results. This is our eighth straight quarter of generating strong global financial returns and our third straight quarter with record global results. And this marks the third consecutive quarter we've been able to deliver strong results in all 3 regions simultaneously. In the fourth quarter, ease region delivered double-digit net sales growth and double-digit EBIT growth. In the fourth quarter, global net sales increased by 20%. This represents significant growth on growth, as last year, in the fourth quarter, we increased net sales by 8%. Globally our customer focus and customer integration strategies continue to become embedded in every country we do business in and drive these strong top line results. Net sales of USD 807 million in the fourth quarter represents a record quarterly result for James Hardie. Through continuous improvement of lean manufacturing globally and integration of our supply chain with our customers, we are able to translate that strong top line result into an even stronger bottom line outcome. Global adjusted EBIT improved 43% and global adjusted net income increased 44% in the fourth quarter. Global adjusted net income in the fourth quarter of USD 124.9 million also represents another all-time-record high for James Hardie in a quarter. For the full year, adjusted net income increased 30% to USD 458 million. Operating cash flow for the full year increased 74% to a record USD 786.9 million. And as Jack just discussed earlier, we have transformed into a new James Hardie over the past 2 years, and the global financial results in fiscal year 2021 reflect that transformation. I'll now review each region in more detail, starting with North America on Page 13. In North America, the team delivered another…

Thank you, Jason. Now moving to Page 21 for a preview of our upcoming Investors Day. I have shared earlier the past 2 years was about building a strong foundation to transform our company into a new James Hardie, a company that deliver consistent profitable growth globally. This transformation has been about becoming a world-class manufacturer through our execution of lean manufacturing strategy. Becoming more customer focused, we are building stronger and more integrated partnership with our customers and become more integrated with our customer supply chain for mutual benefits. All of our initiatives are underpinned by a globally integrated management system that allow us to make better, more holistic and faster decision across various levels within the company. The strong foundation we have built over the past 2 years enable us to drive consistent profitable growth on a global scale. I'm very excited today to share with you additional details about this next phase of our transformation. There are 3 critical strategic initiatives in this next phase of profitable organic growth: number one, expand James Hardie brand from the premier professional brand into a market-leading global consumer brand that focuses on the homeowners to create demand; number two, global innovation that allow us to expand into other exterior looks to grow into adjacent categories; number three, and penetrating and driving growth in existing and new markets and segments. Now turning to Page 22 for a summary of integrated marketing campaign. The first of the 3 key strategic initiatives is our new 360-degree integrated marketing campaign that target homeowners directly to create demand. Historically, James Hardie brand has resonated strongest with professionals. And it evoked a brand that is well appreciated and trusted, with products that are durable, low maintenance and well -- and noncombustible. We're now excited to extend…

[Operator Instructions] Your first question comes from Peter Steyn from Macquarie.

Congrats on good results. Quick question just in relation to North American top line. Jack, could you give us a bit of a sense? There's obviously a few things moving around at the moment, the ability to meet the market where demand is at this point given Prattville's ramp-up. And then there were obviously some disruptions from a weather perspective in the quarter. Could you give us a bit of a sense of how the Texas weather events played out for you? And comments on your ability to meet demand right at this point given that the second line at Prattville is only due in July.

Yes, okay. Peter, thanks for your questions. Right now, as you mentioned, our Prattville facility is ramping up very nicely. And then so with our ability now to be integrated closely with our customers, we're able to take the demand, that future forward demand from our customers; and be able to have the right production plan to allow us to flow our products from our plant into the marketplace. So that has been really the key driver for us to really manage through the growth within the quarter despite the disruptions that we had in about 8 days in February when we had a deep freeze in Texas. And as you know, we have 2 big plants in Texas that service the market, so -- but given the leaned approach that we have had in our company, the integration with our customers and then the -- really the great collaboration between the different function within our company, we're able to mitigate the temporary shutdown of our plant for those 8 days and be able to come back strongly to serve the market and to be able to finish the quarter strong that you saw in our results.

And your ability to serve the market, therefore, continues unabated notwithstanding the fact that Prattville is still ramping up.

Yes. So we are -- Prattville is continuing to ramp up. And we are -- as you also mentioned, our line 2 in Prattville expansion will be ramping up toward the middle of this summer. And we also have added additional capacity to our Waxahachie plant that will just now start to be increased, but really the key is that we currently see a strong demand in the marketplace. And it is also at the same time that we -- as we connect more and more without -- with homeowners in the marketplace. And we will definitely deliver more value; and really understand more about the needs of the homeowners and be able to work closely with our customers to really flow out more high-value products to the marketplace such as the color products, such as Trim and more branded Hardie products that allow us to capture more value and really deliver what -- the products that the market need. So as more -- demand continues to be strong, we're able to deliver those high-value James Hardie product to the marketplace.

Your next question comes from Keith Chau from MST Marquee.

First question, Jack -- well, I guess I only get one -- maybe I'll ask a follow-on to Peter's in another way. Have you got enough product to supply the market without putting your customers on allocation? And so that's the follow-on. And then my question is there wasn't any mention of PDG within the materials releases at all. So I know you've been talking about growth above market, but in your LTIs, there's a target in there of 6% to 8% between FY '21 and '23. So I don't know if you'll be talking of that in your Investor Day next week, but can you give us a sense of what your volume aspirations are going forward and what was previously considered PDG, please?

Yes. So let me answer your second question, first. The calculation of PDG is not an exact science and isn't something that we run and look at on a quarterly basis. We look this on an annual basis to have a little bit more accurate description of what's going on, but if you look at the PDG or growth of our market in the fiscal year '20 and fiscal year 2021, in both of those years, we averaged 7% to 8% a year. And that is the growth rate that we aim to continue to deliver, and that is really part of our plan. And I think that was highlighted by Jason during the guidance that we gave for the net income this year. And then coming back to your first question. Yes, we are able to supply the market, and -- but I think something that -- also very important, as we have alluded to during the call, is that since this is a strong-demand market and, at the same time, there is also a strong inflationary environment that we're in -- and so for us, now that -- we are a lot more connected to the homeowner to really understand what are the true needs of the homeowners and the market. And by doing that, we're able to really work with our customers, to really be able to reach market and sell more of the high-value products and then be able to focus on those rather than just produce and sell the low-end products. So really, at the end of the day, what we're trying to do in a strong-demand and high-inflation period, it's about making sure that for our -- the manufacturing asset are really leveraged accordingly to serving that market need from the homeowner perspective, to dealer perspective, our customer's perspective and as well as James Hardie.

Perhaps just as a follow-on, though, a hypothetical question. And I know it differs by region across the U.S., but hypothetically, once Prattville comes on the -- online, how much growth do you think you could deliver to this market? Or how much more capacity do you have to deliver growth into this market? Will it be something like 15% total volume growth, 20% volume growth? Can you give us a sense of that, please?

Yes. Keith, it's just like what I mentioned in your last -- answering your last question. It's that we will -- what we'll be looking at is really now more about making sure that we drive more value of production coming off of our production lines rather than just looking at pure volumes. We want to make sure that we -- as we invest in new capacity that -- we want to make sure that we leverage on the new capacity as well as the existing capacity to produce more of the high-value product that James Hardie offers that homeowners want. So hypothetically, if our customers really look the buy more of Cemplank versus Hardie plank, we'll work closely with our customers to ensure that the markets actually knew more of Hardie plank than this -- sell them Cemplank, for example. So there are always going to be room and place where Cemplank is a -- good to sell too, but in general, most of time, particularly during this high-demand time, it's really more toward the Hardie brand products.

Your next question comes from Brook Campbell-Crawford from JPMorgan.

Yes. Just first one, around kind of price, for Jason probably. I think the last update talking about 2% to 3% type effective price increase through the top line and North America in FY '22. I'm just wondering if you can provide an update on that, if that's still an appropriate target for us. I have a follow-up as well.

Yes, that's right, Brook. We took a price increase on January 1 in North America. That price increase went through, approximately 3%. Now as Jack mentioned there a few times, we're definitely very focused on delivering the right price/mix that our customers want and that the end user wants. So we will have a heavy focus on price/mix. And so we intend to achieve a better printed price outcome in the financial results, but the price increase went through on January 1.

And just on the new products. Are you planning to provide any sort of sales targets around that for FY '22? And including in that, have you factored any sales relating to new products in '22 guidance?

We'll talk more about new products and targets and whatnot, Brook, at the Investor Day. We don't want -- we want to make sure we talk about the NPI, those new products more openly at Investor Day next week, but certainly there are amounts within the guidance that are considered.

Your next question comes from Simon Thackray from Jefferies Australia.

Jack, I'd never really thought about framing my long-term commitments with a footnote that said only until FY '24, so I just want to understand the context of that guidance against the margins delivered in FY '21 given the benefit you got from SG&A; and what happens going forward given the cost headwinds you've called out of $100 million to $150 million, I think you did, Jason. So just in that framework, I just want to understand the relative SG&A benefit in the delivered margins in FY '21 and what the expected growth in dollar terms is for SG&A in the regions in '22. And then just to finalize, I'll get a clear picture what the role of price is in '22 in offsetting the cost escalation.

Yes. So let me answer that strategically. And then Jason can fill in some -- a little bit more context on the details, but the way to think about this is that we're -- remember we're a company that -- based on organic growth of our market. So we are still really driving -- really our plan is all about how we will continue to drive growth with our market with strong returns. And so the 7%, 8% growth of our market is our objective. So it's really about having more volume through our -- well, now continue by lean network of plants. So that is -- will be the first really key driver for our margin expansion. Number two is continue to drive lean. So as we get more volume to our plants and we continue to improve our lean execution, then we should really continue to have the leverage on the savings. And third, this is very, very important, which is really to Keith that I have really -- the answer to Keith and Peter, is that it's not only about volume growth anymore. It's really about volume, price, mix. It's that we have to make sure that we continue to -- as a market leader, it's our role to continue to add more value to the marketplace, from the homeowners and our customers and back to us. And that is make sure that we deliver the products that the market needs and wants, and that is the higher-value product. And that means that, as we continue to have lean manufacturing of higher-value products, that would leverage into our margin. So that would allow us then have the flexibility to invest in the SG&A that will go into innovations, that will go into market and directly to the homeowners so that we can continue to create new demand that increase more volume of -- it's continuing high-value product to our plants then and then really keep driving profitable growth on profitable growth consistently across the 3 regions that we operate in around the world.

That makes sense to me. So just then the regional contribution to margin from lower SG&A in FY '21 given what was happening with COVID, of course, and lower travel, et cetera. So what was the regional contribution for -- to SG& -- to margin in FY '21?

Yes. I mean I think, in the past, we've said we're going to reinvest about 200 basis points of SG&A over the next several quarters, and we will be doing that. So as you look forward in the guidance we gave, there's $100 million to $150 million of inflationary pressure. We will invest in marketing and SG&A. The marketing investment is roughly $45 million for the, it's possible, campaign and the associated items. And then we will invest in innovation and talent capability. And with all those investments as well as that inflationary pressure, that is the guidance, $520 million to $570 million adjusted net income. And there increases to the EBIT margin ranges. So [indiscernible] price improvements.

Yes. I understand that. That's super helpful. I was actually asking what the contribution was from lower SG&A to regional EBIT margin outcomes in FY '21 given it was lower, for the reasons described. How much -- how many basis points of improvement from lowering SG&A in North America, Europe and Asia Pac?

[Indiscernible] roughly, the 200, we'll reinvest.

Your next question comes from Sophie Spartalis from Bank of America.

I just wanted to explore a little bit around this higher volume, price/mix. We've talked about it very much at the top level, but what is that ideal volume price/mix going forward versus where you are today in terms of new products, existing products?

Yes. We -- I'll -- we'll talk more on the annual Investors Day, but the key for all the innovation is really about driving to better on-the-wall costs. So anything that we can take out costs in between that and create more value in the marketplace, and that can be reflected on the price of the new products. So for example, the new product that we have to -- shared with you right now -- I mean the average net selling price for that products going -- on the same standard sheet, comparing to the Hardie plank, is about 2.5x more. So you can see that as we gained shipment to more high-value products that deliver value, real value, to the marketplace, we can really deliver really higher profit margin at -- with this -- for the same asset base. And so it is really the approach and the strategy that we drive going forward.

So Jack, just in terms of that margin guidance that you've provided: How much of that, just as a rough guide, are you assuming -- because you said, Jason, that new products are included in the margin guidance. Like what's that growth trajectory of those new products coming into that price/mix to give you that margin range?

Sophie -- it's too early to disclose that right now, Sophie.

Your next question comes from Lisa Huynh from Citi.

So I just had a question in terms of the renovation market. We're seeing higher raw material costs drive up the costs of building a home. Can you talk about whether you're seeing any risk emerge for demand in any of your key end markets as a result of the higher cost of construction, particularly in new construction but also renovation?

Well, actually, just so you know, that right now there is a big shortage of lumber in the marketplace across North America and Australia and New Zealand. So that in general affects more in the new construction and not so much in renovation or remodeling markets. And it is a market that we see huge opportunity, which I have discussed in the third quarter earnings call. And it is also an area that really is a key focus for us going forward, particularly the initiative of marketing to the homeowners. It is really an opportunity to reach directly to those homeowners who always -- who live in current home that needs to be remodeled and renovated; and for the homeowners to really understand what -- James Hardie experience, solutions that we deliver so that they help them make better decision and quicker to renovate their home with James Hardie's products. So that is a huge growth opportunity for us going forward.

Okay, sure. And then I guess, just on the theme of inflation, given a 1-quarter lag to what typically happens in prices, do you see any kind of ability to offset this through buying terms going forward?

Buying.

Sorry, Lisa. Is your question about how we procure raw materials?

Yes, just whether there's any ability to kind of offset the inflation we're kind of seeing going forward, yes, through procurement savings or anything of the like.

Yes. Our procurement teams worldwide do a good job, again the best possible pricing, Lisa, but I mean the inflationary pressures are global. And at this point, $100 million to $150 million headwind includes our ability to procure better than maybe some others, but that would all be considered in that estimate we provided today.

Your next question comes from Paul Quinn from RBC Capital Markets.

Just question on exterior -- North American exterior, siding growth. You had very strong growth in the quarter, but one of your competitors grew even faster. Do you feel you're losing market share? Are there things that you can do to catch up?

Yes. Paul, I think -- first of all, I think our competitor has had a good -- had good quarter. I think what you should really look at is that -- the trend line over time. We -- a year ago, fourth quarter, we had a double-digit growth. And now we also had a double-digit growth, whereas there was negative growth for our competitor a year ago. So it's -- really it's about, if you look at it from the -- from kind of trend line perspective, it's actually we're -- for the last 12 months, that we actually outperformed our 2 key competitors.

And do you think that -- just as a follow-up. Do you think that's going to continue going forward there?

Absolutely, in every intention. That's what the strategy of our -- we will continue to partnering closely with our customers and push, pull. We're investing to reach the homeowners directly to expand our footprints even more within the R&R market and the innovation that we plan to launch very shortly to go into adjacent category to really drive more growth above market. Absolutely.

Your next question comes from Peter Wilson from Crédit Suisse.

I might just follow that one up on Q4 volumes in North America. So I take the point that pcp had double-digit growth, but that was also true of the third quarter, yet I guess the relative growth rate did slow in the fourth quarter, 12% exteriors, 1% interiors. Is there any other factor that you could highlight for why that growth rate might have slowed?

Yes, Peter. I think one thing you've got to consider when you're thinking about third quarter growth versus fourth quarter growth is typically in the U.S. there's a housing cycle where the third quarter dips. So we would have certainly seen that in the prior year. This year, did -- that did not occur. Coming out of COVID, the market has been strong straight through. And so you would have seen our volume in North America grow in Q2, grow again in Q3 and grow again in Q4, if I'm talking [indiscernible], whereas in the prior year, you would have had that normal seasonal dip in Q3. So that -- if you're looking at our Q3 growth versus our Q4 growth, that explains part of it, but Q4 volumes increased a bit.

Yes. I'm not looking sequentially, but are you effectively saying that there was a bit of a pull forward this year into that December quarter and that's why the March quarter was a little bit soft?

No. I'm saying Q3 last year had a normal seasonal dip, so the Q3 comp this year appears stronger than the Q4 comp.

Price increase.

Okay. Did -- it was also for -- about the Texas event. And you said you were able to mitigate it on the supply side. Was there any effect on the demand side in terms of.

No. We have had strong demand ever since last May, Peter.

Okay. And just one last one, if I could, on Europe. The new target, 13% to 16%, in the presso it says that was versus the prior guidance of 10%. It may well be that I just missed it, but I understood that your prior target was for FY '22 of 14%-plus EBIT margin. So just a question on that. And I guess, versus a Q4 15%, why you might be expecting that to soften a little bit.

Yes, Peter, fair point on the -- we did list the target of exiting FY '22 at 14%. The 10% is reference to when we acquired Fermacell. We said multiple times that we expected it to be, in the first couple years, a 10% EBIT margin business. So those are both still valid. We chose to use the 10% which we've referred to more times, but we certainly still expect, just like we exited this year at 15%, which was 1 year early, to hit that 14% target. That target still remains as well. As far as softening, Q4 is a high-volume quarter for the European business, and so they did get some leverage to deliver that 15% EBIT margin. So we don't see the range -- or the softening. It's just like any entity. There's a range to consider, things like inflationary pressures, et cetera.

Okay, sure. And if we think about, I guess, long-term view of targets, it was always Hardie's type was a long-term target, which I think many interpret it to be 20% by FY '30. Is Hardie's type still the expectation, assuming you're closer to the APAC and U.S. eventually?

Yes. We set a 10-year target of EUR 1 billion of revenue and 20-plus EBIT margin. That still stands. This is a target range for the next 3 years. Obviously, as you get localized fiber cement manufacturing and a few other things, we can continue to drive that margin to that 20% long-term target.

Your next question comes from Peter Steyn from Macquarie.

Jack and Jason, sorry. I was going to cancel that, but perhaps I'll just follow up with a quick question on the back of Pete's question re Europe. Very strong performance. Jason, you've pointed to the seasonal performance, but could you just talk to us about the commercial state of the business? Generally you've seen a bit of momentum growing there, but where are things at in the execution of push-pull in particular in Europe?

Yes. So Peter, just like I just mentioned during the call is that we're now operating as a globally integrated company. And so the global strategy that was really started to be executed here in North America in the past 2 years has really been now well understood and then start to be replicated in Europe. Really it's not about 9 months ago in earnest. So the team there has really been kind of looking closely together as a European team and well connected to the North American team and Asia Pacific team to really understand the global strategy and more importantly understand how to execute that locally so that we focus on the critical few priorities and then the -- and then focus on the high-value products that the market need and really drive the penetration into the marketplace. They've really been the key driver that allow us to have 3 good quarters in Europe and then really culminated in a record quarter this past fourth quarter. Let me give you one example. One of the high-margin products in Europe is our fiber gypsum floor products. So during COVID time, a lot more people stayed at home. And so the -- our flooring product has great acoustic [indiscernible] properties as well as the impact resistance. So during the past really 9 months and 12 months, the team was able to get very good traction to -- in repair and remodeling markets to penetrate with our fiber gypsum flooring product, which is really high margin, high -- to average selling price. And with the penetrated German markets, penetrated Benelux and -- markets and Switzerland markets, that gave rise to a very good profitable growth for our business in Europe. So it's really about the global strategy start to gain traction at local execution in the right way to get to the result that you saw in Q4.

Your next question comes from Keith Chau from MST Marquee.

Jason, maybe, first one, for you. The 8-day shutdown of the plants in Texas, did that have an impact on overall volumes for the quarter? Or did you manage to catch up on volume that may have been missed when that plant was shut down?

Very, very good question, Keith. I think what we're able to do, first and foremost, is that with the lean operating system that we have, we were able to shut down the plant quickly and keep it really maintained during the frozen 8 days. And then we're able to come out very smoothly on the other side. And that was a huge help in term of how we're able to recover and then respond in the marketplace. And of course, we look at a loss of 8 days of production in our 2 Texas plant, which is a very big volume that -- of course, it's not something that we can recover fully in that volume, but really, the end of the day, what we look at is really that volume, price, mix. So we were able to work closely with our customers and be able to make the right holistic decisions, balances in volume and then mix and price to be able to come out with a really good set of financial that delivered on net sales and EBIT dollars for the quarter.

Jack, that's very helpful. So my interpretation of that comment is volumes weren't necessarily impacted, but there may have been some recoveries that were -- or you weren't able to recover costs as effectively as you may would have otherwise if you didn't have that shutdown. Would that be the right interpretation?

Exactly.

Yes.

Okay. And then the second follow-on is just on your lean target. So obviously tracking towards that $139 million global target, but I don't think I've seen enough updated targets beyond FY '22. Can you just give us a sense of how to, I guess, interpret what the potential benefits could be going forward, whether you're expecting North American lean benefits to be north of $100 million? And if so, by when? And the same discussion for the other regions, please.

Well, I think the -- my -- by giving the -- a new EBIT margin target for both North America and APAC is really kind of a signal here a little bit. It's that yes. So we'll have new lean targets. And that will be announced at the annual Investors Day next week, Keith.

Your next question comes from Simon Thackray from Jefferies Australia.

I think Keith got in ahead of me on the sequential North American volume growth and why the margins went down sequentially, so I'll park that one. Just a quick one on the New Zealand leaky claims and the press reports now coming out in New Zealand on a $200 million class action. Is there anything to sort of update us with, with respect to New Zealand around that?

Yes, Simon. So the press you're seeing the past couple days is related to a case that just began on Monday in the Auckland high court. And then there was also a case that completed in December of 2020 in the Wellington high court. We'd expect to hear the judge's findings from that in the middle of this year. And for now we're going to leave that until the -- one of the high courts does rule on one of those cases.

Your next question comes from Brook Campbell-Crawford from JPMorgan.

Yes. Just one quick follow-up on -- again on North America volumes. Just wondering if you're able to provide a sense of how exteriors in North America are tracking in the current quarter. What sort of growth rates?

So booked -- for the North American volumes, we're in the high teens.

Thank you. There are no further questions at this time. I'll now hand back to Dr. Truong for closing remarks.

Well, thank you all very much for joining us today. I would just like to take the opportunity to extend my gratitude and thanks to all James Hardie colleagues around the world. Our exceptional financial results in fiscal year 2021 are really direct results of their continued execution of global strategy. And the progress that we've made over the past 2 years to fundamentally transform how we operate is nothing short of extraordinary. Their efforts in this regard have put us in a position to enable significant future global growth. We're truly a new James Hardie company, a company that leverages on its global reach, global capabilities and global scale to execute and deliver on financial results consistently. I'm excited for what the future holds that we embark on this next phase of profitable growth. Thank you all, and have a great day.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.