James Hardie Industries : 2021 Global Investor Day Transcript

JHX Global Investor Day 2021

James Brennan-Chong:

(Silence) Good morning, good afternoon, and good evening. Welcome to the James Hardie Global Investor Day, a new James Hardie. I am James Brennan-Chong, Director of Investor Relations here at James Hardie and I'll be your host today. We truly appreciate you taking the time to join us and we are excited about this opportunity to virtually connect with all of you. At today's investor day, we'll highlight the strategic initiatives that have not only transformed James Hardie over the past two years, but those strategic initiatives that ensure we continue to be a high-performance global company that delivers organic growth above market with strong returns.

James Brennan-Chong:

Following the innovation presentation, we'll then take a short five-minute break after which we will close the presentation with our chief financial officer, Jason Miele, and our CEO, Dr. Jack Truong. Jason will provide a financial update and then Jack will provide some brief closing remarks. Finally, we'll move to a live 45-minute question and answer session with Jack and Jason. Before we begin, I must mention that statements made in today's presentation may contain forward looking information. Actual results may differ materially from what we are presenting today. The information you now see identifies and gives you details about some of the risks regarding those forward-looking statements, as well as where to go to get more information about our risk factors.

James Brennan-Chong:

Shortly after the conclusion of today's presentation, we will be making a replay of the event available, and we'll also be posting downloadable slides on our website. During the course of today's presentation, you can submit questions by the Q&A feature of the hosting platform. We encourage you to ask questions regarding materials presented today, and we will try to address these questions as part of the 45-minute Q&A at the end of the program. Thanks for taking the time to join us today and welcome to the new James Hardie. Now, it's my pleasure to introduce Chief Executive Officer of James Hardie, Dr. Jack Truong.

Dr. Jack Truong:

Good morning, good afternoon and good evening, everyone. I'd like to take the opportunity to welcome you to the James Hardie Global Investor Day in 2021. We truly appreciate your taking the time to join us and we're looking forward to sharing additional details about our future growth strategy with you. Since February, 2019, we have been on a journey of global transformation from being a big small company to a small big company. Our progress to date has been exceptional across all of our key strategic initiatives. The foundation we have built will enable us to continue to drive profitable growth into the future. Over these past two years, it's not simply about better execution of what we already had, but it is about the true transformation that our company has become. We're now a new James Hardie.

Dr. Jack Truong:

Today, I will share with you the new strategic initiatives that will help ensure our continued profitable growth as a new James Hardie. First, I want to share with you our global vision and mission. Our vision is to be a premier consumer brand and company that offer endless design possibilities to exteriors and interiors of the home. This clear and specific vision provide a blueprint on which we can build a future of

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JHX Global Investor Day 2021

a new James Hardie. Throughout the day today, you will hear a lot more about these strategic initiatives that will ensure we meet this vision.

Dr. Jack Truong:

Our mission of the new James Hardie is to be a high-performance global company that deliver organic growth above markets with strong returns, consistently, quarter on quarter and year on year. This clear and specific mission ensure we are focused on delivering value to you, our shareholders. Before I discuss the success to date of our strategic transformation, it's also 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 five years between fiscal year 2015 and fiscal year 2019.

Dr. Jack Truong:

Now, if you look at our performance over the five years prior to fiscal year 2020, you will see stable and average financial results, where profitable growth has stalled. Net sales grew at a compound annual growth rates or CAGR of 7%, adjusted EBIT CAGR of 7%, adjusted net income CAGR was 9%. This is a clear lack of leverage on our now incremental sales growth. Lastly, look at the operating cashflow. Again, what you see is just modest growth with a CAGR of 13% over the same five years. These results reiterate a lack of leverage within the business and an inability to generate significant cashflow with each additional dollar of sales.

Dr. Jack Truong:

When we look at these financial results holistically, they do not reflect the results of a high-performing global company, which is our mission. You will recall that in February, 2019, I laid out what would be the first steps in our transformation to become a new James Hardie. The first initiative we undertook was the foundational step of leveraging on our scale as the world largest fiber cement producer to become a world-class manufacturer through the execution of James Hardie LEAN manufacturing strategy. Our network of plants is on a continuous improvement path of becoming more predictable with less variability in production output, better quality and lower costs. Progress in this initiative has enabled us to be a better partner to our customers. Globally, through the end of fiscal year 2021, we have generated over $107 million in LEAN savings. Continued focus on this foundational elements about transformation will be critical to building scale and enabling future profitable growth globally.

Dr. Jack Truong:

Second, we transform our commercial organization to be truly customer focused. We took direct action to shift from an organization that focused solely on current demand with home builders and contractors to partnering more closely with our customers to enable profitable growth for them and also for James Hardie. Instilling this true customer focus mindset throughout our company has been critical to driving our growth above markets while taking market share in all three geographies during the past two years. This connectivity to our customers and a shift to the push/pull strategy drove profitable growth on profitable growth in our North American business over the past eight quarters. We delivered net sales growth of 8% in fiscal year 2020, and 12% growth in fiscal year 2021, versus 8% over the previous five years, and the expansion of EBIT margin to 29% from 24%.

Dr. Jack Truong:

Additionally, over the past two years, we have significantly expanded our European business highlighted by net sales increased with €351 million in fiscal year 2021 from €318 million in fiscal year 2019.

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Adjusted EBIT increased four times to €36 million in fiscal year 2021 from €9 million in fiscal year 2019. We also saw strong results in our Asia Pacific region where adjusted EBIT margin expanded to 28% from 24%.

Dr. Jack Truong:

The third step in our transformation was the integration of our supply chain with that of our customers for mutual benefits. This critical integration ensure we are able to continuously service the market seamlessly through our customers, providing them with the products they want when they need them. During fiscal year 2021, we delivered record operating cashflow of $787 million, a 2.6 time increase from fiscal year 2019 operating cashflow of $304 million.

Dr. Jack Truong:

Now, underpinning our entire transformation was the implementation of a globally integrated management system. This management system enabled us to make better and more holistic decisions at the right time across various levels within the company. The successful execution of global strategic plan is the testament to the hard work and dedication of all James Hardie employees from around the world. The considerable progress we have made has allowed James Hardie to deliver record global net sales and record global adjusted EBIT for three consecutive quarters. In fact, for fiscal year 2021, all three of our offering regions delivered double digit growth in EBIT.

Dr. Jack Truong:

Now, while the financial results across the past two fiscal years are commendable, it is the transformation itself that has created a new James Hardie with a strong foundation on which to build. Now, we believe it is foundation that will enable us to scale and drive significant future profitable growth globally. The key step to become a world-class manufacturers is through the execution of LEAN manufacturing strategy. As I just mentioned, our results to date have been significant as we have generated more than $107 million in global savings over the past eight quarters. While we're very pleased with the progress to date, we have a relentless focus on continuous improvements and on furthering our LEAN manufacturing capabilities.

Dr. Jack Truong:

LEAN is a perpetual journey. It is not a destination. As a result of our performance to date and our commitment to continuous improvement, we established a new three-year global savings target of $340 million beginning this fiscal year 2022. As I previously mentioned, the second part about initial transformation was to transform the commercial organization to be truly customer focused, instilling this true customer focus mindset throughout our company has been key to driving growth on growth in our north American business.

Dr. Jack Truong:

While I know our results speak for themselves, I think it's important to hear directly from our customers who have an instrumental in the success we have had the past two years. In these videos, you will hear from two of our largest customers. First, we have Hunter Lansing, CEO of Lansing Building Products.

Hunter and his team have been close partners with James Hardie team over the years, and has a unique view on how we have been transforming. Let's hear from Hunter directly on his experience with James Hardie during our transformation.

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Hunter Lansing:

What does the customer-vendor relationship feel like? We measure that twice a year with you. We survey our people, and our people give the very direct feedback on a lot of things, that being one of them. Early days, it was an F. It literally wasn't F and that was well-known within James Hardie. Today, it literally is an A. That has changed drastically. It's come a long way over the past, certainly, about the past couple of years, that's really advanced. You all have a more customer centric approach to what you're doing, customer meaning the distributor. Before, the feeling or the impression was we were regarded as sort of a means to an end and we were just a channel and a logistics organization. Today, it's much different than that. There's a true partnership and it feels like we're really locking arms and there's value and respect on both sides in the way that we're able to go out and to grow our business together.

Dr. Jack Truong:

Thank you to Hunter. The key takeaway from his message is how we have become a much better partner over the past two years, how much more connected and integrated we are with both of our supply chains and how we have aligned together to drive demand for both Lansing and for James Hardie. We will now hear from Mike Jost, Chief Operating Officer of ABC Supply Company. Mike has been a very good partner with my leadership team and me driving mutual business growth together. Let's hear what Mike has to say about our transformation.

Mike Jost:

So the relationship between ABC Supply and James Hardie has been an evolution of transactional to strategic. By transactional, I mean, manufacturer makes products, give us a price. We buy it, we warehouse it. We find people and we sell them that product. In the strategic relationship, we work with the manufacturer to identify targets, to identify markets, to figure out what's the right product for these customers, and then we bring it in and we work with the manufacturer to sell those customers. Over the last 15 years, we've completed that evolution. I'd say it really heated up just in the last three to four years. We're feeling that we're very much there as a strategic partner. We're a service company. We exist to give our customer exactly what they need the day they need it. So we have to work with partners that are going to plan inventory with us, that are going to look at the market needs, figure out what we need to have, and then when we sell something, quickly replenish us.

Mike Jost:

I can tell you, for the last several years, Hardie's probably been among the best manufacturers at doing that with us, especially in the pandemic years. There's a lot of supply chain issues right now. Hardie's our best partner at getting us what we need when we need it. Then going forward, what we'd love to work with them on is let's identify the products of the future. Let's figure out what else our consumers need. Obviously, they're the products company, we're the service company, but if Hardie can work to develop what the homeowners are going to want next, we'll work with them to find those markets to identify those customers and to get their new innovative products out into the marketplace as quickly as we can.

Dr. Jack Truong:

Thank you to Mike for sharing your thoughts with us. The key takeaway from this video is how encouraged he is about James Hardie investing in demand creation directly with homeowners and entering new categories through innovation to create value for ABC Supply. I want to take a step back and look at the progress we made during the past two years to fundamentally transform our company. I am pleased with our financial results. We delivered step change in our financial results during the past

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two years, including records in global net sales, global adjusted EBIT, global adjusted net income and global operating cashflow in fiscal year 2021. We increased net sales by $400 million globally since fiscal year 2019, a 16% increase over two years.

Dr. Jack Truong:

More significant than that, we increased adjusted EBIT and adjusted net income by 25% and 23% CAGR respectively over the past two years. The financial results delivered during the past two years reaffirm that we're on the right path of being a high-performing global company. Over the past 24 months, we delivered strong revenue growth and EBIT growth across the three regions. We expanded the scale of James Hardie as a global company, and also expanded the scale and profitability of each region. The acquisition of Fermacell three years ago, along with the successful integration and expansion of our European business now truly position us as a leading global building materials company.

Dr. Jack Truong:

Our global management system has been key in enabling us to replicate global strategy across all three regions while at the same time allowing our regional teams to execute the plans locally to deliver on results for the region and for the total company. As an interconnected global company, we have the front row seat to design changes from around the world. For example, one such design trend is what we call the modern look. It is characterized by clean lines and a more box shape with darker base colors. This design trend first began in Australia several years ago. In our position as a global company, we were able to see this trend moving this way to Scandinavia and ultimately into the West Coast of the US. This is a powerful example of direct benefits of being an interconnected global company. It allows our global innovation team to stay on top of change in design trends from around the world to proactively develop innovations that shape these design changes.

Dr. Jack Truong:

As you recall from our earnings call a week ago, there were three key strategic initiatives in the next phase of profitable organic growth in our company. Number one, extending the James Hardie brand from a premiere professional brand into a market leading consumer brand that focuses on direct marketing to the homeowners to create real demand. Number two, penetrating and driving growth in existing and new markets and segments, such as repair and remodel. Number three, global innovation that allow us to expand into other exterior looks and take advantage of the adjacent opportunities in each of our region.

Dr. Jack Truong:

Underpinning these three key strategic initiatives is our continued execution of the foundational initiative we began two years ago, and those are LEAN manufacturing, increased customer engagement via push/pull, increased integration on our supply chain. I want to briefly talk to each one on how they will enable us to continue to drive profitable organic growth and strong returns into the future.

Dr. Jack Truong:

The first of three key strategic initiatives is our new 360 degree integrated marketing campaign that target homeowners directly to create demand. Historically, Jim Hardie brand has resonated strongest with professionals and evoke a brand that is well appreciated and trusted with products that are durable, low maintenance and non-combustible. We're now very excited to extend the James Hardie brand into a consumer brand where we market directly to homeowners and communicate to them the

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