Thank you for standing by, and welcome to James Hardie Q3 FY '21 Results Briefing. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions]. I'd now like to hand the conference over to Mr. Jack Truong, CEO. Please go ahead.

Good morning, and good afternoon, everyone. Thank you for joining us in our third quarter fiscal year 2021 earnings call. I will begin today's call by providing an update on our global strategy. On my appointment as CEO in February 2019, I shared with you my strategic vision for James Hardie Company. Today, I want to spend some time providing an update on our progress over the past two years in the execution of that strategy. And more importantly, provide you with insight into the go-forward strategic initiatives that will enable us to continue to drive profit growth into the future. After I go through the strategy update, our CFO, Jason Miele, will then cover our third quarter and year-to-date fiscal year 2021 financial results. We'll then open the call up to questions. Before we get into the presentation, I wanted to first say how pleased I am to be able to announce today, especially dividends of US$0.70 per share, restating our return of capital even sooner than expected. We suspended dividends in March of 2020 at the onset of the global pandemic in an effort to ensure liquidity and financial flexibility. Ultimately, we were able to accelerate our strategy, integrate more closely with our customers, and drove record profits and cash flows. Based on these results of recent pay down and gross debt, and our confidence in continuing strong cash generation, we believe returning capital to our shareholders via special dividends is appropriate at this time. Now, let's turn to Page 5 for an update on our global strategy. In February of 2019, I first shared with you my vision of turning James Hardie Company from being a big-small company into a small-big company, a company that could deliver consistent profit growth, at a larger and grow in scale.…

Thank you, Jack. Good morning, and good afternoon, everyone. I will start on Slide 15 with our global results. As Jack just discussed, this is our seventh straight quarter of generating strong global financial returns, and our second straight quarter with record results. What I'm most pleased with is that we had all three regions deliver excellent results in the third quarter. And this marks the second consecutive quarter; we've been able to achieve this. All three regions delivering excellent financial results simultaneously. Global integration of our strategy and our team and the significant execution over the past two years are now being consistently realized in the financial results. This is a litmus test of the truly integrated global company. In the third quarter global net sales were up 20% as our customer focus and customer integration efforts continue to become embedded in every country we do business in. Through continuous improvement of lean manufacturing globally, an integration of our supply chain with our customers, we were able to translate that strong top line result into an even stronger bottom line outcome. Global adjusted EBIT improved 57% and global adjusted net operating profit after tax increased 59% in the third quarter. Global adjusted net operating profit after tax in the third quarter of $123.3 million represents a another all-time record high for James Hardie in a quarter. Operating cash flow for the nine months increased 72% to $678.4 million. At the start of this call, Jack discussed the key strategic transformations we have been through over the past two years. Specifically, lean manufacturing, becoming customer focused and integrating our supply chain with our customers. These strategic transformations globally have directly led to the step change in operating cash flow, as well as a strong top line and bottom line financial…

[Operator Instructions] Your first question comes from Peter Steyn of Macquarie. Please go ahead.

Good afternoon, Jack and Jason, I trust you can hear me thanks very much for the opportunity and congratulations on a very strong results. Was just keen to dig into your strategic intent to enlarge your target markets. And, Jack, if you could frame up for us how you would measure your success in the achievement of your vision here. You know, obviously historic there is been a couple of guiding lights as it were, for you just interested in how one would assess where you're seeing the endpoint and what the blind path would look like towards success?

Hi, Peter. Thank you. The way that we look at our market driven innovation program is that, the reason we do a lot of market research and market tests is to ensure that we provide the right products that our customers and home owners around the world would really come to appreciate the value, so that we can tailor the products accordingly. And so that's that is really the spirit of how we approach product development and our strategic intent have really gone to new categories really understand each of the categories and then be able to have very good penetration within the new categories. And our tradition is to create a new footprint just like the way that we have done in our current fiber cement into the current wood look category. But Peter it is still early yet within our the execution of the strategy and then of course as time goes on, we would have more and more clarity on what that journey would look like and the profile of that journey.

Yes, okay. I guess as a follow up, you know, I guess what I was trying to refer to in a roundabout way was $35.19 [ph] as well as be in the North light; so that $35.19 [ph] obviously changes. And I guess, folks are going to be looking for some sort of calibration around that. But I appreciate its early days. So I guess we'll wait for further guidance on how you see that in future.

That's correct, Peter. And just a follow up to that, too, is that, the global innovation that we are driving here is not just for North America. It is also a relevant new product platform for the European markets, as well as in Australia and New Zealand.

Yes, absolutely. That's clear. Thanks, Jay. I'll leave it there.

Thank you. Your next question comes from Brook Campbell-Crawford of JPMorgan. Please go ahead.

Yes, good evening. Thanks for taking my question. First, and just around the R&R opportunity, are you able to just elaborate really on how you're going to look to gain traction with the consumer because it's a slightly different approach, really. And then to have a B2B type, marketing efforts? And that's the first part of the question. And then the second part, do you sort of a marketing budget, and for this view, and direct to consumer sort of marketing approach in FY '22?

Yes. Good morning, Brook. And so the way to think about R&R is that, we currently this 44 million homes, owner occupied homes in America, that's more than 40 years old. And also with the onset of the pandemic, the behavior has changed, and a lot more folks are staying at home more and there is really that need to make the exterior of the home look more beautiful. And as we did more market research and what we learned is that there is really a lot of a very high percentage of homeowners out there that don't really know the capability about James Hardie exterior solutions that they can work with the designer is to be able to design their own sets look a lot more beautiful. And let's take the example of in the northeast of the U.S, where we have where vinyl is a standard in that market today. And as a company we have been trying to for many years to penetrate the market. But the key value that we bring in the market is curb appeal. And that means that it's important that for us as a brand that we need to reach directly to the home owners to really show the home owners, the endless possibilities that they can design their own to make it more beautiful that they can be proud of through James Hardie solutions. And yet, they have the protection of the durability to non-stability and low maintenance that our products offer. So, it's really about driving tour, creating the demand with the home owners and then as really to get the home owner to take the decision to really reside their home. Relative to the budgets that you have asked question for fiscal year 2022, were going to look at anywhere from between $30 million to $50 million.

Okay, thanks. That's the additional marketing expense just to confirm for this new approach with R&R, $30 million to $50 million?

Right. It's not just a 100% additional it's -- we've always done marketing activities, this is a more reallocating funds as well as there will be some, a good chunk of that is incremental but not entirely.

Understood. Maybe I can squeeze them in and with you, Jason just on operating cash flow clearly very strong in the nine months, presume that will be some operating cash flow in fourth quarter. Can you just remind me what the conditions that need to be met to potentially reduce the 35% contribution to this [indiscernible], what you need to achieve? And is there any potential for that over the next 12 months given your cash flow?

Yes, Brook, it's good question. It's not anything necessary, we need to achieve; it's in the contract, the amended final funding agreements. As you know, there's a calculation that occurs at the end of each fiscal year to the term end how much we pay to the fund. And it's the lower of two numbers 35% of our cash flow, or a top up with a top up concept, which is so that the fund has at least three years' worth of payments in cash. So really, when that occurs as they build large cash balance over time. And so as we drive cash flows up and provide them 35% of cash flows, they'll continue to grow their cash balance, if our payments then exceeds the claims in that year. So that is still something that will take a few more years.

Okay, great. Thanks.

Thank you. [Operator Instructions] Your next question comes from Abraham Akra of Jefferies. Please go ahead.

Great result. Firstly, I still think product shortages across the building material space from it to creditors? If so, when do you envision your competitors supply constraints going away?

Good morning, Abraham, we can't speak through to what our competitors are doing in that space. But what we can talk about from our companies that we're working very, very closely with our customers, to be able to have a future forward demand of our product through our customers many weeks out into the future, and then couple that with the lean manufacturing strategy that we have, we're able to plan our production out in a very lean way that allow us to produce and then flow the product directly to our customer to the market. So that is really the key drivers that allow us to deliver the record result that you saw today. For us, in North America, this past quarter, our exterior volume increased 19%. And then if you look at our volume for exterior a year ago, in the third quarter, that was on -- sort of up 13%. So first is really about understand more demand products into the future, and then have a better production plan to our lean system to deliver to the markets.

Got it. I guess as a follow up, can you estimate or do you have an idea as to how much demand was pulled forward into 3Q from the price?

Abraham, everything that we produce and ship to our customer to the market is pretty much went into the wall.

Understood. Thank you.

Thank you. Your next question comes from Lisa Huynh of Citi. Please go ahead.

Hi, morning, Jack. Morning, Jason. So I had a question around interiors. So there were about 4% in the December quarter, which is a slowdown from the 7% growth in the September quarter. Can you just talk briefly to what's driving this? Or is this a slowdown indicative of what you saw in the wider market more broadly?

Yes, it is firstly, the interior businesses. It's kind of hanging around the mid-single digits is pretty much kind of where it is, until we truly innovate in this category, and then add more new products to it. So that's more and more to be seen from that perspective. But right now, given the current pandemic scenarios, having the repair done inside a home with contractors is still quite limited.

Okay, sure. Got it. Thanks. And just a quick one, if I can slide it in on raw material costs. I can't say the usual input cost slide. We're hearing is meaningful increases dying to come through in both the spot market and contract volumes, the pulp, can you just remind us what proportion of your pulp supply is secured via long term contracts and whether you've seen any impact from this today?

Lisa, pulp kind of lags, the pulp market price is kind of lags one quarter into our financials. And certainly, pulp is starting to trend up. It was fairly flat for nine months or so. And we'll expect some pulp headwinds in FY '22 versus FY '21. But currently not anything we think is too substantial.

Okay, so thanks.

Thank you. Your next question comes from Lee Power from CLSA. Please go ahead.

Hi, Jack. Hi, Jason. Just quickly on lane in North America, you're at $61 million through three quarters. That's kind of the upper end of that target. You had for FY '21. Can you give us just an idea of how we should think about that for FY '21 and also any updated thinking on the reinvestment profile for lane going forward?

Good morning. For us, that lean is really about, we will continue to improve that continuous improvement mindset. So as now that we essentially exceeded the plan that we set out, back in February 2019, we were and we have just gone on through our strategic plan, and then we will plan to update the markets on what's the next target for the next three years would be and we will kind of share that with you in May at the next earnings call.

Okay, thank you.

Thank you. Your next question comes from Paul Quinn of RBC Capital Markets. Please go ahead.

Yes, I just want to follow up on the freight and pulp headwinds, you're seeing. What we're seeing in the in the pulp markets is, some of the producers that we have coverage over are raising prices over $100 at a ton. So if you could sort of outlined what you were expecting in freight and what your sensitivity to sort of the $10 increase in pulp is?

Yes, thanks, Paul. So we will be giving a clear, FY '22 guidance in May. We certainly do expect headwinds from pulp. And we do expect in the kind of ballpark you're referring to. And then we do expect freight to remain high. Freight has been quite high this year, and certainly a headwind in FY '21 versus FY '20. That said, we do expect to maintain strong EBIT margins in FY '22. And we'll provide more clarity on that in the May result.

Excellent. Great results. Thanks guys.

Your next question comes from Keith Chau of MST Marquee. Please go ahead.

Good evening, Jack and Jason. Question for you Jack, just on new product development. Obviously innovations, not necessarily new things at Hardie's that are suddenly ramping up over the course of the coming years. Just wondering if you could first of all give us a sense of you know, how product penetration has tracked maybe using easy to expel in Australia as an example, given that was launched last year, and what that ultimately contributed to volume growth as you ramped up commercialization of their products under your watch. And then as part of their question, is there a broad rule of thumb in terms of what you're targeting for on the walk cost versus your substitute products? Whether that be in dollar terms, or in terms of time savings, obviously, the latter. So it's a bit of an issue in the market at the moment with labor. So if you can give us a sense of what benefits you're looking to, I guess proliferate into the markets to compete with alternative products that would be very useful. Thank you.

Good morning, Keith. First question with the different version of these detects that we -- really been -- really still test selling in Australia with the right support. So really the first 12 months is really the acceptance has been very high. And it's really about three, the volume was more than 3X what we had planned. And just to give you another perspective with a plan for next year for that volume will be 10X. So that's the first and second thing is for the productivity. The key part of this innovation is that for us to address the labor shortage and to improve productivity is that we also target the on the wall costs to be anywhere from 10% to 25% less than the alternatives that we're going after. And that really depends on market to market. And of course, that is from the pure economics, functional type of approach. But at the same type of innovation is really what we try to go after as well is to evoke the emotional attachments of the home owners to add to the endless possibilities of designs and aesthetic that our total experience solutions from James Hardie can deliver to the homeowners.

Thanks, Jack. I'll circle back for a follow up.

Thank you. Your next question comes from Grant Slade of Morningstar. Please go ahead.

Hi, Jack and Jason, thanks so much for taking my question. I was just wanting to confirm with you how much the repair remodels segment of the North American market grew by in the third quarter if I could.

So based on our analysis Grant, what we estimate between 7% and 8%.

7% to 8%. Okay, great. Thanks very much.

Thank you. Your next question comes from Sophie Spartalis from Bank of America. Please go ahead.

Hi, Jack and Jason. Just wanted to ask a bit more of a big broader question. Just wanted to try and understand the possibility around the margin trajectory for the U.S. And I guess this is just in context of how we balance, this input cost trajectory, as we've been talking around the pulp pricing. The new margins of these new innovative products, and then the lower unit costs are expected from the expanded capacity that you've announced today. And then just as a follow up, what does all this mean, in terms of that long term margin guidance of 20% to 25%? Does that now seem redundant, given that you're delivering sort of 30% and expect to go higher? Thank you,

Good morning Sophie, I think I counted like six questions in one question. So let me first see that I can answer the first one here. So what you should expect from us is that we will continue the drive continuous improvement through a lean manufacturing strategy. So that means not only that, we need to keep the gain that we have in lean up until now. But we will continue to drive more efficiencies. So that's the first thing. And the second is, as we do that, we then will improve lean, not only in our manufacturing processes, but also improve lean in our supply chain to our customers and to the markets. And that is the second part of savings that that we're realizing in fiscal year '21. So those are the positive sides on the operation side. And then the second part is really about for product mix. So, as we're going through to drive more marketing directly to the homeowner to create demand, for the aesthetic products, that means more color products, which have a higher price and higher margin and also better mix for us. So that will be also the second key driver for the positive side. The third one would be the innovation. And the key innovation that we bring to the marketplace is that not only that has the functional performance that superior to what's in the market right now. But we also have the aesthetics and therefore, our new innovations that asked our gate to be commercialized into the marketplace will also be higher margins than our current product base. So, those will be the accretive margin for our business going forward. And then of course that will be offset by higher freight costs and as well higher pulp costs, which is much lesser extent than a few analysts have asked here. And of course, there can be some SG&A investment that we put back into the marketplace into our business. But net, net very pleased to see our margin, particularly in North America will be higher than what it has been for many years. And we -- we will give a more definitive guidance on what margin would be in May earnings call, which will be much more on the basis for our guidance for this coming fiscal year?

Yes, that's the guidance for FY '22. And thanks for the information or clarity, Jack. It's more around that long-term guidance that I think you've provided a couple of years ago -- a year ago now, where you had that long-term margin guidance of 20% to 25%, but that seems very redundant right now.

Correct. And then, you will -- in May, when we'll share the -- during the next three year plan that would give really updated long-term guidance as well.

Okay, great. So in May you will provide FY '22 plus a three-year guidance?

That's correct.

Okay, fantastic. Thank you.

Thank you. Our final question comes from Peter Wilson of Credit Suisse. Please go ahead.

Another margin question. Just on the R&D plants that you plan on opening; will they be a significant cost or not?

Peter, the R&D facilities that we'll plan to have -- one in -- kind of U.S. and Australia will be our capital expenditure.

Okay. Will it be material increase in capital -- ongoing capital expenditure?

It is -- it's -- it is going to be a good investment, but will not be at this or the order of magnitude that you will be familiar with in our manufacturing plants CapEx.

Okay. And then, just one on guidance. If my math is correct, your full year guidance implies that Q4 will be about 10% lower at the impact level than Q3 where usually fourth quarter is actually the strongest. So I'm just hoping you might provide us some sort of commentary or bridge from Q3 to Q4.

Yes, Peter, so a couple of things. One, this Q3 did not have the normal seasonality; I'd say that -- if you're kind of going back in history with that comparison. So we had a very strong Q3. The most notable item would be the redemption of the notes. So as I went through during the slides, you're going to have a $13.1 million charge in in the fourth quarter associated with the call premium, as well as the pull-forward and acceleration of the unamortized portion of the financing costs; so that would be the most significant item. And then, obviously, as we move forward with this consumer branding, we will have -- and talent acquisition will start increasing SG&A in the fourth quarter.

Okay, thank you. And just to get a feel for where we're at in terms of this growth investment journey; so essentially, like a lot of laser [ph] analysis kind of strategy being done, if you think about -- I guess the costs that you're currently incurring versus what you might be in a couple of years, are you currently incurring a significant cost of all these kind of growth planning?

Sorry Peter, when you say growth planning can you be -- can you be more specific?

Well, I guess at a high level you're been quite upfront that there will be increased cross investment going forward. I'm wondering how much of that has come through the Q3 results versus how much is to come?

Probably, one or two has already been factored in. And so, if you're speaking specifically about virtual capacity, so our estimate is $250 million per annum for the next three years on total CapEx. If you're thinking about the marketing, [indiscernible] in Q3, but that will increase overtime, similar to what we said last quarter as we started foreshadowing, and talking to you that our SGA would begin to increase over the next six to eight quarters that includes this -- mark this growth through marketing, as well as adding talent and capability to our organization.

Okay, that's good. I leave it there. Thank you.

Thank you. Your next question comes from James Brennan-Chong of UBS. Please go ahead.

Good morning, guys. Thanks for my -- for your time. Just to clarify, when you launched these new products, these products are going to be made on the same types of sheet machines that you've already got. And I guess what I'm just wondering is that there is no shortage of demand for your existing products right now, it's surging. How do you think about balancing, you know, day D-shaped [ph] machines producing more different SKUs going forward? Just wondering how you think about potentially bumping up against any particular capacity constraints for particular lines? How do you think about just allocating -- how much a sheet machine is producing for one product versus another and switching time [ph]? Thank you.

Good question, James. So I think for new products, it's important that we use the focused factory. So it's -- and also focused line to make sure that it's more dedicated to more of a -- to producing short run type of products; so it's for -- in North America, yes. So for new products, we pretty much limit to one plant and make sure that we allow us to have the capability to do -- to run smaller runs. And then, that's also the same in our Australian plants.

Got it. So not every -- so, I think you've got 10 or 11 plants across the U.S.; so not every plant is going to producing multiple different SKUs, it is just say one or two that will produce new products. Got it, thank you.

That's correct. It will be just one, yes.

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

Well, first of all, thank you all very much for, of course, jumping in the call. I just would like to, again, extend my gratitude and thanks to all James Hardie colleagues around the world; their continued execution of our global strategy over the past two years that helped fundamentally transform James Hardie Company, and essentially put us in a position to enable significant future global growth. We are much different company from where we were two years ago; we are focused on continuing to connect our global businesses to be with scale to an integrated management system that enable us to create more value for our customers and our market. I'm excited for what the future holds for James Hardie Company as we embark on this next phase of profitable growth driven by market-led innovation, our relentless focus on penetrating new and existing segments, and our extension of James Hardie brand into the consumer brand. Thank you. And have a good day and have a good morning.

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