Thank you for standing by and welcome to the James Hardie Industries, JHX, Q1 FY 2022 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 would now like to hand the conference over to Dr. Jack Truong, Chief Executive Officer. Please go ahead.

Good morning and good evening to everyone. Thank you for joining us on our first quarter fiscal year 2022 earnings call. I will begin today's call by providing a brief update on our global strategy that was announced in our Annual Investor Day in this past May. This is now the 9th consecutive quarter about company delivering on strong financial results with growth above market and strong returns based on the consistent execution of our global strategy. Our CFO, Jason Miele, will then cover our financial results for the quarter and also an update on our full year guidance. After that, we'll open up for questions. So let's now turn to Page 5 for an update on our strategy. In our Investor Day at the end of May, we described our three critical strategic initiatives that will enable consistent profitable growth globally for our company from fiscal year 2022 to fiscal year 2024. The three strategic initiatives are number one, expanding the James Hardie brand from a premium professional brand into a market-leading consumer brand that focuses on marketing directly to the homeowners to create true demand of our products; number two, penetrating and driving growth in existing and new markets such as repair and remodel; and number three, commercializing global innovations that allow us to expand into other exterior looks and to take advantage of the adjacent opportunities in each of our regions. In addition, we will continue to execute and deal on a significant foundation we have built over the past three years. This foundation includes continue on our path of becoming a world-class manufacturer via lean, continuing to partner closely with our customers via push-pull strategy and continuing to integrate our supply chain with our customers to serve the markets. Let's now turn to Page 6 to…

Thank you, Jack. Good morning, and good evening, everyone. I’ll start on Slide 14 with our global results. This is our fourth straight quarter with record global results including quarterly records for net sales, adjusted EBIT and adjusted net income. This also marks the fourth consecutive quarter we’ve been able to deliver strong results in all three regions simultaneously. In the first quarter, each region again delivered double-digit net sales growth and double-digit EBIT growth while also expanding their adjusted EBIT margin. In my view, our ability to expand global adjusted EBIT and EBITDA margins and our ability to drive leverage on our outstanding top line results is the real standout of our first quarter results. We invested significantly in our strategic initiatives during the quarter with SG&A up 36% globally and like most companies, we have significant inflationary cost pressures. Yet, we were able to still drive margin expansion and drive leverage to the bottom line with adjusted net income improving 50% on a plus 35% net sales performance. As I just mentioned, global net sales increased 35% to US$843.3 million. This excellent top line results was driven by strong volume growth in all three regions totaling 25% percent global volume growth and net sales growth included 10% price mix improvement as our teams in all three regions successfully gain momentum and driving a higher value product mix. Through continuous improvements of lean manufacturing globally and integration of our supply chain with our customers, we were able to translate that strong top line results into an even stronger bottom line outcome. Global adjusted EBIT improved 45% and global adjusted net income increased 50%. Global adjusted net income in the first quarter of US$134.2 million represents another all-time record high for a quarter. And as I mentioned earlier, we were…

Thank you. [Operator Instructions] First question comes from Peter Steyn from Macquarie. Please go ahead.

Good evening, Jack and Jason. Thanks very much for your time and congrats on the results. So two questions, just got your CapEx guidance, Jason, you mentioned greenfield and brownfield intentions in all three regions. Could you perhaps give us a little bit more detail there in terms of some of the nascent thinking, where the investment is likely to focus?

Yes, Peter, obviously we're focused on high value product penetration. And so as we think about new capacity, it'll be through that lens as well as innovation. But as mentioned on the earlier, we do expect to have greenfield capacity expansion in all three regions, so in Australia, Europe, as well as North America.

So where you moving closer to 5% [indiscernible] in Europe, are we in the context of a sales performance?

That is the plan, Peter.

Okay, perfect. And then my second question would just be around the cost guidance, obviously increasing that just curious on the SG&A and R&D spaces have largely a function of increased marketing spend. And is that a consequence of better outcomes than what you've been expecting at the stage that you're wanting to ramp up that investment and press just a little bit of detail and sort of strategic thinking around that?

Peter, that's a very good question. Yes. So as I had mentioned, the early results about campaign I've been very successful, allows us to really reach the right target groups, which really the Christine's the definitive female homeowners that fit our demographics as well as, they live in the homes that really need to be remodeled. And then, so it is – so that's based on those data, we and the financial results that are coming out, that what we see is that there's a really good path for us to continue to not only continue with the program and accelerate and then expand throughout the U.S. as well as in other part of the world that we operate in. And second is that we also have a full line of innovative products that that we plan to launch and commercialize. So it is about being able to drive growth with high margin and then be able to reinvest some of that to continue with that path.

Yes. Perfect. That makes sense. And in the meantime, you’ve got the capacity to very easily serve the market that’s coming at you as you see it and via incremental investment from a marketing point of view.

Correct.

Perfect. Thanks. I’ll leave it there. Appreciate it.

Thanks Peter.

Thank you. Your next question comes from Andrew Scott from Morgan Stanley. Please go ahead.

Jack and Jason, well done and great results. Just couple of questions. Jack given the market strength, just interested in your thoughts on announcing a second price increase for this year.

Well, Andrew, our plan has always been that we do value pricing and then so we will be taken our annual price increase about the same time every year. The only difference is that this past year, we moved our price increase up to really line with beginning of the calendar year. So it is our – that is our path.

Okay, understood. Just thought the market might have been strong enough to sustain a second increase.

Well, it is – our strategy is really about delivering more value to our consumers and customers and it’s really about making sure that we can market the high value products that deliver a strong value proposition to the homeowners. And that is our strategy. And that’s what you saw in our Q1 results that we were able to get that price mix to go higher, much higher than the normal price increase – invoice, price increase for the sake of invoice price increase.

Absolutely. It was a great outcome there. Just second question. We can’t talk about industrial companies in that moment without focusing on supply chain. So just interested, can you talk about any specific inputs for you that are not just seeing price appreciation, but actually difficulty in obtaining those supply. And in terms of your supply to customers, how is that tracking? Maybe if you can talk about service metrics, whether it’s delivery in full or other metrics, please?

Yes. I think Andrew, if you look at our – I think Slide 8 or 9, that that really show the volume growth that we have in North America, the past seven or eight quarters. So we’re able to deliver volume to the marketplace in North America in double digit and we’ll continue to do so. And just as you know, that we have Prattville, I think Jason mentioned that the start up of Prattville line 1 is going well and we just started line 2. And together with a leaned approach and then our supply chain integration in our customers that would allow us to essentially make the right products that the market needs, and then be able to flow the product from our production line to the marketplace. So these are the key initiatives that that we have in driving within our company to ensure that we serve the markets on what the products can deliver the value.

Okay. Thank you. That’s great.

Thank you.

Thanks, Andrew.

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

Hi Jack. Hi Jason. I was expecting to see COGS guidance maybe drive some of the impact upgrade. Can you just talk a little bit about what you seeing there now that that COGS inflation guides to the top end of the rage, maybe around freight and pulp, just because it seems like a lot of them had started declining? So I’d just love to get your thoughts. Thank you.

Yes, Lee it’s a good question. So I’d say it’s more of a narrowing of a range than increasing. So obviously, we have three more months of actuals under our belt and better site lines into the future. Certainly pulp and freight haven’t – while they haven’t gotten down significantly, they’ve normalized a bit. The other piece of that guidance would be our expectations around volumes have increased since the last time we spoke and that that guidance is in total dollars. So that’s go in the opposite direction.

Okay. That makes sense. Thank you. And then maybe can you just talk about Australian manufacturing. Have you seen any impact through lockdown at Roseville?

No. Fortunately we're able to continue to run our plant in Australia both in Roseville and Carole Park to be able to serve our customers.

Cool. Thank you.

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

Hi, good morning, Jack. Good morning, Jason. I'm just interested in the ASP uplift you guys saw in North America. I guess, can we kind of talk about that in a little bit more detail about contribution to the ASP uplift we saw from pulling forward the annual price increase, but also higher value products.

Yeah, so this is really the first full quarter that we really fully execute at the high value product mix penetration. So the way to think about that is really two-third of what we've seen there is related to price, competitor price and one-third to the mix. And as we have indicated at the Investors Day as well as last quarter earnings, that the num number one, that we would shift the market from the siding brand of Cemplank into Hardie brand. And then second is that as we penetrate more into the repair and remodeling market, particularly remodel and that our colder products is where we offer the highest value proposition to the markets and so as we invest it in marketing and reaching the home owners, and really tell that story about the superior products that James Hardie has and that really drove a lot of the growth of our color products.

Yeah. Thanks Jack. And I guess as a follow-up, of the ASP improvement that's been driven by the higher value products, would you – it sounds like a large proportion of that is transitioning the customer base from Cemplank to the standard Hardie board rather than a big uptake of the textured panels as it currently stands. It's still early days to understand?

That's correct. So the way to think about it, Lisa is that in the first quarter results, a lot of that was due to the transition from Cemplank to Hardy brand plank, so Hardy brand products. And then second is the Hardy brand exterior with color plus technology. Maybe that's what the product that we penetrate into remodeling segments. And then there's a little bit of the new market led innovation in there. But it's still too early for that to gain some momentum as part of the overall mix yet, but as time goes on, we should expect to see that the color products were continuing to accelerate and then of course with the market led innovations.

Thanks.

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

Good morning. Just regard to the manufacturing strategy going forward. It seems that you've pulled on a lot of the brownfield and greenfield to capacity just from a top down level. Are you still envisaging having particular plant producing particular products and how do you expect to service market or will it be a more of a I guess integrated network servicing sort of full country? Can you just walk through the strategy there, please.

Yeah, it should also, certainly the greenfield and brownfield capacity of the bigger patch for three week region, we don't move product from one region to another region. So as we begin now to really to accelerate our growth in any of the sides, our business today now is a lot bigger than it was three, four years ago. And that the growth rate that we would expect to plan for is that we – that we are really getting in into this stage or it is about having more of what we call the focus factory or a certain plant or really dedicated to do certain type of products so that we have a more integrated network to serve our market a lot better.

Okay. So you're going down the route of dedicated plan for different products servicing the entire U.S. region?

Correct. So for example, I think we haven't announced in the last quarter earnings that the – some of your plant in South Carolina that we're about to recommission and that plant will be pretty much dedicated to producing our siding brand products, for example.

Okay. That's clear. Thanks, Jack. And then just in terms of the geographical mix that you now seeing for these higher value product initiatives, are you gaining share in sort of your traditionally weaker market team, maybe just provide some color as to where the volumes are going up particularly in the U.S. and Europe?

Yes. Because – doing with the recent COVID environment, the consumer behavior has really changed. Let me walk you through it. There's a couple of examples. In the U.S., we have more and more people want to remodel their homes because the price of home is going up. And then certainly new construction has not been built enough homes to satisfy the needs in the marketplace. And so there's been a heightened awareness. That's what need for homeowners to do stay put, and then remodel their home. So that's – so we can see a lot more of the remodeling activities. And so if we're able to reach those homeowners and we're about to want to remodel, and that's just where a lot more of our high value products, like the Hardie brand exterior with color, that where we can deliver different, so many different types of designs that would fit the homeowner's needs. And until someone in new – in Northeast of the U S. is going to have the shingles with cedar shape type of look or the wood look. And then someone in the West Coast of the U.S. can have a more than marker and a flat look. And we do have those products now that can satisfy those needs. And then if you move across to Europe, for right now there's – in Germany, for example, it's a lot more folks that like to re-remodel their condo, their apartments, because that's really the living behavior in Germany, for example. And so when that happens, what we see more and more people would like to use the fiber gypsum product from James Hardie particularly in the flooring products or our products are very durable. It is one board that can deliver on the impact resistance, the acoustics attenuation properties, as well as the compliant with the fire rating code. So it's really a lot of these behaviors are happening now is really play into our strength and having the diverse portfolio of products that can satisfy those changing consumer needs.

Okay. That's great. Thanks, Jack.

Thank you. Your next question comes from Simon Thackray from Jefferies. Please. Go ahead.

Thank you very much. Good morning, Jack. Good morning, Jason.

Hi, Simon. Good morning.

Good morning.

Good morning. Good morning. Just wanting to explore a little bit more, the mixed shift that you observed the cut you do have 7% in North America in particular with Cemplank, just want to understand how much of that that shift was by convincing folks that a significant price rise in the commodity board was occurring. What was the sort of extent of price rise or price lift that you saw in commodity board that helped convince products also to move towards a value product – branded product?

Simon, is more of the fact that we're able now to communicate the value that we deliver not only to throughout direct customers, but also to the home owners and the builders in that with the Hardie brand exterior products we have a much better service. And at the same time, our product have much better – the Hardie brand products have much better warranty for the homeowners. And those are really key value that we're able to move the market from Cemplank to Hardie brand. And also at the same time Cemplank brand is more of the fiber brand is not so much of a brand that would deliver more value to the consumers and homeowners. And then through the Hardie brand experience they can upgrade to different combination with colors and then really have the total exterior of the home that have many different types of designs that various homeowners around the country really want and need, which is not – that Cemplank brand. Yes.

So, the value, it was really the value proposition that did the shift more so than pushing out on price in Cemplank to convince people that value proposition metrics?

Yes. First – first and foremost is really about having the home owners really be able to have different designs based on a broad portfolio of Hardie brand products. I mean, the Cemplank also very narrow brand. And also at the same time we also took some really big price increase on Cemplank at the same time to make sure that we can narrow that gap. So is the combination of that really push it across.

Yes, no. That make that make sense. You said, in your comments, previously prospect to expectations were 4% to 6% and now 7% to 9%, which is showing great confidence and great traction with the strategy. You – I’m interested from both of you how that upgrade to price mix is also influencing your thoughts around CapEx and capacity going back to [indiscernible] original question, to what extent has that sort of increased your ambitions or accelerated your ambitions for capacity and CapEx for the business to meet future demand?

Well, I think Simon, and a couple of things that really mean that this is what we mentioned in our Investor Day, is that we’re now in the position of driving – creating and driving demand of our products and through market indirectly to the homeowners and then of course, through innovation because, the re-remodeling market is a very large market in the geography that we operate in, and up into now is for the exterior of the homes is no brand, and no company really talk to the homeowners and really show them the different benefits that the product can deliver. And we are that’s how strategy is really about driving demand of our high value products directly to the home owners and be able to bring that demand to our customers. So it is a – the early success that we have is really give us some really good confidence that as we continue to drive more profitable growth, that we can reinvest in marketing and innovation and then to be able to be in a position to accelerate growth. And through that, we know that we have to look very hard at our capacity plan and to make sure that we have the right planning in place to be able to be in a position to grow at that level.

That’s super helpful, Jack. And just against that background, I mean, the home builders have talked about capacity constraints. We talked about them in Australia and New Zealand and increasingly in Europe, has that been a limiter, or do you think that’s a limit on some of the volume aspirations? Are there bottlenecks in industry that are perhaps even holding back what are very impressive numbers in this quarter? Is there, is there any sort of, not concerns, but are there any sort of speed limiters within the industry, the construction industry for you guys, but you can see this year?

Simon is really about as we look at capacity and then set expansion of our footprint and growth, we want to make sure that that because now that we have building the capability to communicate directly and marketing directly to the homeowners you want me to show that we market and sell high value products as opposed to market and sell a low-end stuff. And that really add little value to the homeowners. So, we’re – as we make this transition to drive growth is it’s important that, that we would as stick our strategy for really driving growth of those key products, as opposed to just grab volume just for sake of volume.

Sure. But, sorry, I think what I was saying is, are you seeing any industry bottlenecks, any industry constraints on just being able to actually physically do the work, get the work done?

Yes. Certainly. Certainly the trend of lack of skilled labor is still pretty strong limiting factor, and I think that's really been faced across all geographies.

Thanks Jack. Thanks Jason. Appreciate it.

Thanks.

Thank you. Your next question comes from Daniel Kang from CLSA. Please. Go ahead.

Hey Jack. Hey Jason.

Hey Daniel.

We welcome back.

Thank you. Ready to do that. Just I had – I guess a question on North America, really strong performance now the record result, sells up 28% but either with only a similar amount by 29%. So we're not seeing that operating leverage come through. Is that due to primarily just the reinvestment and growth initiatives?

That's correct, Daniel. We have a very big market and integrated marketing campaign that we started really about the beginning of the year and then it accelerate through the quarter, and that will come continue to be a key driver for profit growth in our company. And to that, that is what you saw is the – not as much in leverage to the bottom line as you see in other regions. And also at the same time we have this also comp two to the backdrop of very high inflation on input costs that we experienced during the quarter.

Got it. And then the price mix performance in a very impressive, just very early in the campaign both in North America and ANZ. You provide us some guidance for North America 7% to 9%, which makes sense as a campaign? Jason mentioned it accelerates. Should we expect it's similar to [indiscernible] for ANZ from 6% towards that 7% to 9% level?

It is too early to tell yet in ANZ, Daniel, because the key driver that we have in North America that we started, consumer marketing campaigns just about the beginning of the year. So we'll get in that momentum here in the U.S. and we have yet to start in Australia, so is it that remained to be seen.

Right. I'll live with that. Thanks very much, Jack.

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

Good evening, Jack and Jason. Just, my first question focusing on the North America division, a great outcome for the period, obviously. Just wondering if you can give us some steer on how exteriors and interiors volumes are tracking in the second quarter to date. And for the first quarter, just completed with any particular standout regions in the U.S. we saw outside's growth, or whether there were any competitive sub-straights you think you took share from a higher rate than what you'd normally consider?

Well, I think for first of all your, the first question, Keith, is that in North America, we see very, very strong growth in the lowest area, and it's no surprise in that the area or the color product gains a lot of penetration. And that's also the area that high concentration of remodeling type of jobs. So it is an area that, that we are to gain a lot of momentum during this past quarter, along with, of course in our traditional area.

Sorry, Jack, did you say the lower U.S.?

The low – in the lowest, which is the Northeast, Canada and Pacific Northwest.

Okay. Great. And sorry, just going back on the interiors and exteriors growth in the period to-date. Can you give us a bit of a steer on where – whether it's tracking at the moment?

Well – so our focus is really on really drive high value product mix. So we – we now look at the total volume and we're running around mid teens.

Yes. Okay, cool. And then just to follow-up on the question on CapEx and the potential European plant and periods gone by, you've always been a fan of kind of setting key milestones before setting new targets. One example being the EBIT margin target for the North American Fiber Cement division, so in that context, if you look at intentions to put on a fiber cement plant in Europe, what are some of the key milestones that you'd want to see as a management team for that business to be tracking that before formally committing to a plants – fiber cement plant in Europe?

What is right now, the key that we are – in that we keep that internal confidential right now. But certainly I can share is this – is that the target that we set out for Europe back in February, 2019 in terms of having the exit EBIT margin coming out at the end of this year, there'll be in that 14% range is kind of the first milestone that, we really want to and to get to do. we were to have the right, the operating approach to put investment for fiber cement, because to really get to that level, it means that we needed to have certain amount of revenue in fiber cement at the right mix that will allow it to accelerate to our ambition of having the €1 billion business, of total business in Europe with 20% EBIT margin by 2029.

That’s right. Thanks very much, Jack. I appreciate your time.

Thank you.

Thank you. Your next question comes from Peter Wilson from Credit Suisse. Please go ahead.

Thanks, morning. Would you mind giving us market commentary, specifically commentary on the repair and remodel market in North America because in recent weeks there's been a bit of mixed commentary from U.S. companies. Some saying that the R&R market is still very strong and others saying that demand is starting to come off. So just interested in what you're saying right now in that R&R segment?

Good morning, Peter. That we – what we actually see is R&R market is quite strong. I mean what we saw particularly this past quarter is that the market – we estimate the market growth R&R is roughly 15% in U.S. particularly and also given that the, I think someone asked about, the effects of COVID, then Delta variant, so – is still a lot of folks are still want to work from home. And so there's a heightened need to continue to remodel their homes. And also at the same time, there's a not enough of new home been built to do satisfy the needs of all of the demand for homes out there. And so the low interest rates – is still here. So we still, we see a lot of key indicators that continue to point to a strong on our market going forward.

Okay. Good. And then in the context of your expectation in North America to deliver above market growth this year, can you speak about the customer piece right now in North America? Because I imagine, how do you there are some very happy customers, but for some of the other suppliers who, capacity constrained and have castles on allocation, that there's some pretty dissatisfied customers. Can you speak to, what it's like on the ground there now and how that customer pays feed into your expectations sort of rest of the year?

Well, I think that the key first – is that we continue to add more value to our customers by in insurance, our customers make more money, selling our products and our competition and that means that we need our job and our role is to create demand about a high value products with the home owners, so that we can bring that demand to our customers to return and to sales for them and then sales for us. And at the same time, as we integrate our supply chain with our customers is it's allowed us to serve the market throughout customers better than our competition. So those are the key – two key values that we're delivering to our customers to ensure that we continue to add more value to them, so that we continue to build stronger partnership every day with our customers. Not only in North America, but it's also in Asia Pacific and also in Europe. And if you see that our results across all three geographies really been – really strong for the last four quarters.

Good. Okay. Thanks Jack. I'll leave it there. Cheers.

Cheers.

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

Yes. Thanks very much. Just two easy questions, one, great to hear that Prattville is coming up nicely. Just if you could remind us what the volume addition to that plant is on a North American basis?

Yes, Paul. On a nameplate capacity basis, both those lines are 300 million standard fee nameplate capacity.

Each.

Each. Correct, so total for those first two sheet machines in Prattville is 600 million standard fee, nameplate.

Okay. And then just on ColorPlus, if you could give us an indication, I mean, that seemed like one of the areas for growth for ASP, what the market penetration is. So what ColorPlus is, as a percentage of already branded products?

It is still relatively lower than the now expectation patient. And it's really frankly hasn't grown – that mix hasn't grown during the past few years, so it is a big focus for us. And the key driver for us is really being able to market and reach directly to the targeted homeowners to be able to tell that value story. And that is really the key initiative of consumer market we're driving to degree – accelerate the growth of Color, because that use to be a big opportunity for our company going forward. But typically when – with the remodeling segment is a growth segment that we see.

Okay. So to help us track, where are you at now then?

I don't think we disclosed that…

In brown numbers…

Yes, we certainly don't disclose the split of ColorPlus versus Hardie Paul.

Okay. So there is basically no way for us to track the growth of ColorPlus, right?

Not today. But I think where contractors worry about how high value product mix that we just closed. We just include the Hardie brand exteriors, the Hardie brand exterior with ColorPlus, and then they assume with all the Hardie brand market led innovations.

All right. Thanks.

Thanks, Paul.

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

Well. So before we end the call, I would just like to take the opportunity to extend my gratitude and thanks to all James Hardie colleagues from around the world, our exceptional financial results in the first quarter of fiscal year 2022, a direct result of their continued execution of our global strategy together as a global company. These outstanding first quarter results are another indication that we are truly a new James Hardie company. A company that continued to leverage on its global reach, its global capabilities and its global scale to execute together and deliver on our financial results consistently. I'm excited for the remaining of the fiscal year 2022 and beyond as we continue this next phase of profit growth. Thank you and have good night and good morning.

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