James Hardie Industries - Q1 2022
August 9, 2021
Transcript
Operator (participant)
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. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Dr. Jack Truong, Chief Executive Officer. Please go ahead.
Jack Truong (CEO)
Good morning, and good evening, 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 this past May. This is now the ninth consecutive quarter of our company delivering on strong financial results with growth in our markets 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. Let's now turn to page five 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, extending the James Hardie brand from a premier 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 build on a significant foundation we have built over the past three years.
This foundation includes continuing 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 market. Let's now turn to page 6 to discuss additional details on how we're driving profitable organic growth through marketing directly to homeowners. During our investor day, we shared details about our 360-degree integrated marketing campaign that reaches homeowners directly to create demand. As I shared with you then, the four phases of Christine's path of targeted homeowners to purchase are awareness, consideration, purchase, and amplification. The TV campaign "It's Possible with James Hardie" is the foundation of the awareness phase.
It illustrates, through the power of emotional storytelling, the meaningful ways that a family find comfort, protection, joy, and safety from their home made with James Hardie brand exterior products. These are the James Hardie brand exterior products that continue to make their homes beautiful over time, and yet with superior durability that protect the family from the elements. To date, the TV commercial has been very successful in raising awareness of James Hardie with our targeted homeowners, the Christines. We have received very positive feedback from homeowners, builders, contractors, and customers. We continue to air this TV campaign in strategic growth markets across North America throughout the year. Consumers are relating to the emotional storytelling and are becoming more and more aware of the James Hardie brand and our exciting line of exterior products that meet their needs.
After the homeowners are aware of James Hardie, it's important that we reach them with the right content at the right time as they consider the option to beautify the exterior of their home. Which leads us to page seven, to discuss in more detail the consideration phase. In this second phase of the 360-degree integrated marketing campaign, we leverage on social media and key influencers to reach the homeowners that may consider the options. What you see on the left-hand side of this slide are just samples of the social media content that elevates the key emotional messaging from our TV commercial. We then engage with Christines, our targeted homeowners, with these contents via relevant conversations in social media platforms that Christines frequently visit.
To further augment and reinforce our story, we're partnering with key influencers and lifestyle experts, such as Taniya Nayak, to further expand our reach and to help educate the homeowners about the endless design possibilities with trusted protection that Hardie brand exterior products can deliver. In this segment by Taniya Nayak, which ran during a news hour in the northeast of the U.S. and then amplified across all of our key social media platforms, Taniya described how the whole exterior can positively impact its value, how upgrading with Hardie brand fiber cement products provide the number one return on investments of all major exterior remodel projects, and how Hardie brand fiber cement exteriors offer styles and colors that help achieve long-lasting beauty, and our Engineered for Climate technology provides durability and peace of mind protection.
You can watch this segment on many social media outlets, including our Instagram, LinkedIn, and Facebook, as indicated on the right-hand side of this slide. We're tracking the impact of our marketing campaign, including web sessions, leads generated, and of course, sales of high-value products. We're very encouraged with the early results. In fact, to date, our campaign has already delivered over 300 million impressions and reached Christine in the target market, an average of seven to nine times with the James Hardie story. What is also very encouraging is that traffic to our website by female consumers has increased seven times over the same period last year. Let's now turn to page eight. The second of our three core strategic initiatives is to penetrate and drive profitable growth in repair and remodel segments.
The key component of this strategy that we discussed during Investor Day back in May, is about driving a high-value product mix. On this page, you see the impact this particular strategy is having on our North American business. Starting on the left-hand side, what you see here is a plot of our current product portfolio in North America across two key criteria, price and value. In North America, we define our high-value products as our Hardie brand exterior products, Hardie brand exterior products with ColorPlus Technology, and all of our Hardie brand innovations, including the recently launched Hardie Texture Panels. The focus of our strategy in driving a high-value product mix is to create awareness and high demand for our differentiated line of products with homeowners in the remodeling segments, where our value propositions are strong.
In turn, it generates increased sales and margin for our customers and for us. Key strategic action we're executing to drive high-value product mix are, one, shift in demand from Cemplank products to Hardie brand exteriors where appropriate. Two, driving penetration of ColorPlus Technology products in the R&R segments, and three, expanding into adjacent markets where, with our market-led innovations. On the right-hand side, what you see here is the significant impact this strategy has had on our recent financial results in North America. Our teams are partnering with our customers to drive a higher value product mix, and you can see the results in Q1. The blue line on this chart represents the % volume growth for each quarter from fiscal year 2020 to Q1 of fiscal year 2022. The green bars represent the % price mix growth across the same time period.
When you focus on Q1 fiscal year 2022, you will observe the real impact that our strategy of driving high-value product mix has had on our financial results. Not only did we see strong volume growth of 21%, but equally important, we also saw a significant step change price mix growth of 7%. What this indicates is that by partnering closely with our customers, we have been successful in shifting to a higher value product mix and driving profitable growth. While not shown here, we have had similar success in Europe and Australia, New Zealand, in delivering similar strong results. Expansion of high-value product mix for growing our overall volume, along with lean manufacturing execution, were the key drivers in offsetting input cost inflation and marketing investment in the first quarter.
It enabled us to deliver a strong leverage to our bottom line in all three regions, North America, Europe, and Asia Pacific. Turning now to page nine for an update on innovation. In May 2021, we announced the launch of three new global innovations, Hardie Texture Panels in North America, Hardie Fine Texture Cladding in Australia, and Hardie VL Plank in Europe. We had very good traction with market acceptance and penetration of all three products since the launch. We continue to partner with our customers to drive awareness and adoption. Feedback from homeowners and our customers in North America have been overwhelmingly positive. Hardie Texture Panels deliver the contemporary design solutions that fit any home style that homeowners want and need. In addition, they offer protection properties such as durability, water resistance, and fade resistance.
What you see here are four examples of Hardie Texture Panels on two different homes in Oregon, one in California, and one in Utah. What I'd like to point out here about these pictures is how Hardie Texture Panels are prominent in a variety of home designs, from contemporary look to coastal to mixed design. Turning now to page 10. Similar to North America, feedback from homeowners and customers in Australia are also very positive. What you see on this page are four examples of Hardie Fine Texture Cladding in the Australian market, which, as you can see, help to augment the modern design look that is prominent throughout the continent. As with Hardie Texture Panels in North America, Hardie Fine Texture Cladding offer endless design possibilities for homeowners, while delivering on protection that homeowners need, durability, water resistance, and non-combustibility. Moving to page 11.
In Europe, we're also very pleased with the progress of our Hardie VL Plank product. Installers have been consistent in their positive feedback about the time savings the Hardie VL Plank offers compared to competitive solutions. Hardie VL Plank save approximately 20% of total installation time. On this page, you see examples of Hardie VL Plank in the U.K. and French markets. What I would point out is how Hardie VL Plank help to protect and provide a mixed design, modern look, which is becoming more popular with homeowners across the Western European continent. We are excited about these new innovations and how they will allow us to continue to penetrate and grow in large adjacent markets in each of our three operating regions. While we're excited about the early success of these three new innovations, our global innovation program is much bigger than just these three products.
Our innovation team is focused on our innovation pipeline to ensure we will have additional new innovations to provide endless design possibilities with superior durability and protection for the homeowners around the world. Turning to page 12 for a summary of our global results for the first quarter. This is now the ninth consecutive quarter we delivered consistent financial results, growth of our market, and strong returns. Specifically, in the first quarter, we delivered global net sales of over $843 million, which is 35% growth versus the prior corresponding period. And we delivered a global adjusted net income of more than $130 million, which is an increase of 50% over the prior corresponding period.
Most important, is that we delivered strong financial results in all three regions for four consecutive quarters, as all three regions delivered exceptional double-digit growth in both net sales and EBIT. In North America, driven by strong momentum in high-value product mix penetration and share gain, we achieved net sales of more than $577 million, and 28% growth. EBIT of more than $169 million and 29% growth for a continued strong EBIT margin of 29.3% for the quarter. In Europe, we delivered four straight quarters of strong organic growth. Net sales of more than 103 million EUR, 37% increase over the prior corresponding period. EBIT of more than 13 million EUR for a very good EBIT margin of 13.1%.
In Asia Pacific, with strong performance in all three countries, we deliver net sales of AUD 184 million, a 33% growth, and EBIT of AUD 50 million, a 50% growth, and a strong EBIT margin of 27.4%. Our strategy of driving penetration of high-value product mix in all three regions, along with lean manufacturing execution, was the key drivers in delivering positive leverage to the bottom line in all three regions. This was achieved against a backdrop of high input cost inflation and higher investments in marketing and innovation during the quarter. I would like now to turn over to our CFO, Jason, to provide additional details on our financial results.
Jason Miele (CFO)
Thank you, Jack. Good morning and good evening, everyone. I will 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 EBIT margin, and our ability to drive leverage on our outstanding top-line result, 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 had 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 $843.3 million. This excellent top-line result was driven by strong volume growth in all three regions, totaling 25% global volume growth... and net sales growth included 10% price mix improvement, as our teams in all three regions successfully gained momentum in driving a higher value product mix. Through continuous improvement of lean manufacturing globally and 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 45%, and global adjusted net income increased 50%.
Global adjusted net income in the first quarter of $134.2 million represents another all-time record high for a quarter. As I mentioned earlier, we were able to expand our global adjusted EBITDA margin by 110 basis points to 26% in the first quarter. We continue to generate strong cash flow with operating cash flow of $184.1 million in the first quarter. It is worth noting that these first quarter results are not reflective of simply comping an easy prior quarter due to COVID. Our first quarter results last year included our global net sales down only 5%, adjusted EBIT flat, and adjusted net income was only down 1% in the prior period. I will now review each region in more detail, starting with North America on page 15.
In North America, the team delivered another outstanding quarter. In the first quarter, net sales increased by 28% to $577.1 million. This represents the highest net sales in one quarter ever achieved by the North American business. It is worth noting that this first quarter result was against a comp of flat last year. This significant growth was driven by our continued focus to partner and integrate with our customers. In addition to strong volume growth, the team began gaining momentum in high-value product mix penetration with our customers. Price mix improved by 7%, and our expectation is we will deliver price mix improvement of 7%-9% for the full year.
These outstanding top-line results were coupled with even better adjusted EBIT growth, which increased by 29% in the quarter to $169.3 million, at an EBIT margin of 29.3%. The exceptional adjusted EBIT and margin results were driven by strong organic volume growth, particularly of high-value products and continued lean manufacturing savings. These margin accretive items were partially offset by our significant investment in growth initiatives and inflationary cost headwinds. The North American team continues to deliver consistent double-digit net sales growth at a step-changed EBIT margin level. Turning now to page sixteen to discuss the European results. In Europe, the team delivered a fourth straight quarter of strong results and a third straight quarter of double-digit net sales growth. In the first quarter, net sales increased 37% to EUR 103.3 million.
The team remains focused on high-value product mix penetration with our customers. Diversified net sales increased 91% in the quarter, which contributed to a 9% improvement in price mix. The combination of strong volumes, improved price mix, as well as lean improvements, resulted in Europe adjusted EBIT margins expanding year over year to 13.1%. Fiscal year 2022 represents the start of the fourth full year since the Fermacell acquisition. The European team is now fully integrated into James Hardie, and they have started fiscal year 2022 with significant momentum. Let's now move to page 17 to discuss Asia Pacific. In the first quarter, net sales increased 33% in Australian dollars. You will note that Asia Pacific price mix was negative for the quarter. This was due to the significant shift in Philippine sales volumes as a percentage of the total.
In the prior first quarter, the Philippines was shut down for much of the period due to COVID restrictions. However, in our Australian and New Zealand business, we are achieving similar results to that of North America and Europe, with price mix growth of 6% as the teams have strong momentum and high-value product mix penetration with our customers. The strong top-line results in the first quarter were translated into even stronger bottom-line results, with adjusted EBIT growth of 50% to AUD 50.4 million, at an EBIT margin of 27.4%. That is three hundred basis points of margin expansion versus the prior first quarter. Moving now to page 18 to discuss operating cash flows and capital expenditures.
We had strong operating cash flow of $184.1 million in the first quarter, and the trailing twelve-month operating cash flow was up 56% to $781.8 million. On the right-hand side of the slide, you see a summary of our capital expenditures. In the first quarter, capital expenditures totaled $43.4 million. Production at our Prattville, Alabama, facility continues to ramp up and is on track to be the best startup in our history globally. Sheet machine one started salable production in March, and sheet machine two began salable production in July. We believe this additional capacity will help us to continue to drive profitable growth and gain market share throughout fiscal year 2022.
Looking forward, we expect total capital expenditures to average between $250 million and $350 million per year over the three-year period for fiscal year 2022 through fiscal year 2024. This is an increase to our prior capital expenditure guidance and reflects greater investment in future capacity, both brownfield and greenfield, in all three regions as we continue to drive profitable growth. The right capacity at the right time positions us to continue to drive market share gains and flow products to our customers and the end users. Moving to page 19, we'll discuss capital management and allocation. Our strong capital structure and cash flows have enabled us to execute on all of our capital allocation objectives.
We continue to preserve a strong liquidity position and financial flexibility, and we are positioned to continue to invest in organic growth, including capacity expansion, market-driven innovation, and marketing directly to the homeowner. We remain focused on investing in growth and returning capital to our shareholders, while continuing to strengthen our balance sheet. Finally, let's turn to page twenty to discuss guidance. Significant momentum and high-value product mix penetration in all three regions, combined with continued market share gains and lean execution, gives us confidence in raising the adjusted net income guidance range, while also committing to further investment in our growth initiatives. We have raised our adjusted net income guidance to a range of $550-$590 million. The comparable figure for the prior year was $458 million.
The revised guidance range represents a 20% to 29% year-on-year improvement in adjusted net income. Specific to our North America segment, we are providing two points of guidance. First, for North America net sales for the full year, fiscal year 2022, we expect growth greater than 20%, and we expect price mix growth of between 7% and 9%. We've also revised our guidance regarding cost of goods sold, inflation, and investment in our strategic initiatives. Globally, we're anticipating between $120 million to $150 million in cost of goods sold inflationary headwinds in fiscal year 2022 versus fiscal year 2021. We have also increased our fiscal year 2022 expectation for investment in our growth initiatives. We now expect to invest between $100 million to $120 million in strategic growth initiatives.
Our first quarter results were exceptional. We delivered margin expansion in all three regions amongst a backdrop of global cost inflation and while investing aggressively in our strategic growth initiatives. We have now concluded our prepared remarks. I'll hand it over to the operator to commence the Q&A portion of today's meeting.
Operator (participant)
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. We do ask that participants limit themselves to two questions per person. Should you wish to ask another question, please rejoin the queue. The first question comes from Peter Stein from Macquarie. Please go ahead.
Peter Steyn (Analyst)
Good evening, Jack and Jason. Thanks very much for your time, and congrats on the results. Perhaps, so two questions. Just on the 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 recent thinking, where the investment is likely to focus, please?
Jason Miele (CFO)
Yeah, 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 earlier, we do expect to have greenfield capacity expansion in all three regions, so in Australia, Europe, as well as North America.
Peter Steyn (Analyst)
So we're moving closer to other cements in Europe, are we, in the context of the sales performance?
Jack Truong (CEO)
That is the plan, Peter.
Peter Steyn (Analyst)
Okay. And then, my second question would just be around the cost guidance, obviously increasing that. Just curious on the SG&A and R&D space, is it largely a function of increased marketing spending? Is that a consequence of better outcome than what you've been expecting at this stage, if you're wanting to ramp up that investment? Or perhaps just a little bit of detail and some strategic thinking around that.
Jack Truong (CEO)
Peter, that's a very good question. You know, it is. Yes, so as I had mentioned, the early results of our campaign have been very successful, allow us to really reach the right target groups, which is really the Christines, the female homeowners that fit our demographics, as well as, you know, they live in the homes that really need to be remodeled. And then, so that's based on those data, we and the financial results coming out of that, what we see is that it is a very good path for us to continue to not only continue with the program, but accelerate and then expand throughout the US, as well as the other part of the world that we operate in.
And second, is that we also have a full line of innovative products 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.
Peter Steyn (Analyst)
Yep. 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 provide incremental investment from a margin point of view.
Jason Miele (CFO)
... Okay, thanks for leaving it there. Appreciate it.
Jack Truong (CEO)
Thanks, Peter.
Operator (participant)
Thank you. Your next question comes from Andrew Scott from Morgan Stanley. Please go ahead.
Andrew Scott (Analyst)
Hi, Jack and Jason. Well done on great result. Just a couple questions. Jack, given the market strength, is it in your thought on announcing a second price increase for this year?
Jack Truong (CEO)
You know, Andrew, you know, our plan has always been that we do value pricing, and so we will be taking 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 realign with the beginning of the calendar year. So that is our path.
Andrew Scott (Analyst)
Okay, I understood. Just thought the market might have been strong enough to sustain a second increase.
Jack Truong (CEO)
Well, you know, it is you know, 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 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.
Andrew Scott (Analyst)
Yeah, absolutely. That was a great outcome there. Just a second question. We can't talk about industrial companies at the 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 that supply? And in terms of your supply to the customers, how is that tracking? Maybe if you can talk about service metrics, whether it's delivery in full or other metrics, please.
Jack Truong (CEO)
Yeah, I think, so if you look at our, I think, slide eight or nine, that really shows the volume growth that we have in North America the past seven or eight quarters. We're able to deliver the volume to the marketplace in North America in double digits, and we will continue to do so. And as you know, that we have Prattville. I think Jason mentioned that the startup of Prattville line one is going well, and we just started line two.
And then together with lean approach and then our supply chain integration of 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 we have been driving within our company to ensure that we serve the market on what the products can deliver the value.
Andrew Scott (Analyst)
Okay, thank you. That's enough.
Jack Truong (CEO)
Thank you. My pleasure.
Operator (participant)
Thank you. Your next question comes from Lee Power from UBS. Please go ahead.
Lee Power (Analyst)
Hi, Jack. Hi, Jason. I was expecting to see COGS guidance maybe drive some of the NPAT upside. Can you just talk a little bit about what you're seeing there now that the COGS inflation guides it to the rest, maybe around freight and pulp, just as it seems like a lot of them have started declining? So I just want to get your thoughts. Thank you.
Jason Miele (CFO)
Yeah, 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 sight lines into the future. Certainly, pulp and freight haven't gone 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 guidance is in total dollars. So that's going in the opposite direction.
Lee Power (Analyst)
Okay. That makes sense to me. And then, maybe can you just talk about Australian manufacturing? Have you seen any impacts through lockdowns locally?
Jack Truong (CEO)
No, fortunately, we're able to continue to run our plant in Australia, both in Rosehill and Carole Park, to basically serve our customers.
Lee Power (Analyst)
Okay. Cool. Thank you.
Operator (participant)
Thank you. Your next question comes from Lisa Huynh, from Citi. Please go ahead.
Lisa Huynh (Analyst)
Hi. Morning, Jack. Morning, Jason. I'm just interested in the ASP uplift you guys saw in North America. I guess, can we just talk about, you know, talk about that in a little bit more detail? Or what contribution to the ASP uplift we saw from, you know, pulling forward the annual price increase, but also high-value products?
Jack Truong (CEO)
Yeah, so this is really the first full quarter that we really fully execute the high-value product mix penetration. So the way to think about that is that it's really two-thirds of what we've seen there is really price improvement, and one-third to the mix. And as we have indicated at the Investors Day, as well as last quarter earnings, that the number one is that we would shift the market from the fighting brand of Cemplank into Hardie brand. And then second is that as we penetrate more into the repair and remodeling market, particularly remodeling, that our color products is where we offer the highest value proposition to the markets.
So as we invested in marketing and reaching the homeowners and really tell that story about the superior products that James Hardie has, and that's really drove a lot of the growth of our color products.
Lisa Huynh (Analyst)
Yeah, thanks, Jack. And I guess as a follow-up, you know, of that third, of the EBIT improvement that's been driven by the higher value products, do you? It sounds like a large proportion of that is transitioning the customer base from Cemplank to the, you know, more standard Hardie board rather than, you know, a big uptake of texture panels as it currently stands. Still early days, I understand?
Jack Truong (CEO)
Yeah, 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 Hardie brand planks, so Hardie brand products. And then second is the Hardie brand exterior with ColorPlus Technology, because that's 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 will continue to accelerate and then, of course, with the market-led innovations.
Lisa Huynh (Analyst)
Okay, sure. Thanks.
Operator (participant)
Thank you. Thank you, your next question comes from Sanchit Patel from Bank of America. Please go ahead.
Sanchin Patel (Analyst)
Thank you, Dorothy, and, Jack, just with regards to the manufacturing strategy going forward, if you just see that you've brought on a lot of the brownfield and greenfield capacity, just from a top-down level, are you still envisaging having particular plants producing particular products? And how do you expect to service the market? Or will it be more of a, I guess, integrated network servicing sort of full country? Can you just talk through the strategy there, please?
Jack Truong (CEO)
Yeah, it is also, you know, so certainly, the greenfield and brownfield capacity are really the big capacity for each region. We don't move product from one region to another region. So as we begin now to really to accelerate our growth and the size of our business today now is a lot bigger than it was three, four years ago.
At the growth rate that we would expect to plan for, it is that we really are getting into the stage where it is about having more of what we call a focus factory, or certain plants are really dedicated to produce certain type of products, so that we have a more integrated network to, as we serve our markets a lot better.
Sanchin Patel (Analyst)
Okay, so you're going down the route of dedicated plants for different products servicing-
Jack Truong (CEO)
Yes.
Sanchin Patel (Analyst)
the entire US region?
Jack Truong (CEO)
Correct. So for example, I think we have announced in the last quarter earnings that you know the Summerville plant in South Carolina that we're about to recommission. And that plant will be pretty much dedicated to producing our fighter brand products, for example.
Sanchin Patel (Analyst)
Okay, that's clear. Thanks, Jack. And then just in terms of the geographical mix that you're now seeing all this higher value product initiative, are you gaining share in sort of your traditionally weaker markets? Can you maybe provide some color as to where the volumes are going, particularly in the U.S. and Europe?
Jack Truong (CEO)
Yeah, you know, because, you know, during, you know, with, with the recent COVID environment, you know, the consumer behavior has really changed. Let me walk you through just a couple of examples. You know, in the U.S., you know, we have more and more people want to remodel their homes because, you know, if the price of home is going up, and then certainly new construction has not been building enough homes to satisfy the need in the marketplace. So there's been a heightened awareness as well as need for homeowners to stay put and then remodel their homes. So we can see a lot more of the remodeling activities.
When so if we're able to reach those homeowners, and as they're about to want to remodel, and that is where a lot more of our high-value products, like the Hardie brand exterior ColorPlus, that where we can deliver a different, many different types of design that would fit the homeowner's needs. And then, you know, it's someone in the Northeast of the U.S. can have the shingles with the shingle shake type of look or the wood look. And then someone in the West Coast of the U.S. can have a more of the modern and a flat look. And we do have those products now that can satisfy those needs.
Then as you move across to Europe, for you know right now, there's in Germany, for example, there's a lot more folks that like to remodel their condo, their apartments, because that's really the behavior in Germany, for example. And so when that happens, what we see, and more and more people would like to use the fiber gypsum product from James Hardie, particularly the flooring products or our products are very durable. It is one board that can deliver on the impact resistance, the acoustics, accumulation properties, as well as the complying with the fire rating code. So it it's really. So a lot of these behaviors are happening now.
It's really play into our strength of having a diverse portfolio of products that can satisfy those changing consumer needs.
Daniel Kang (Analyst)
Okay. That's right. Thanks, Jack.
Operator (participant)
Thank you. The next question comes from Simon Thackray from Jefferies. Please go ahead.
Simon Thackray (Analyst)
Thanks very much. Good morning, Jack. Good morning, Jason. Just like to explore the good morning. Just explore a little bit more the mix shift that you observed that got you to your 7% in North America, in particular with Cemplank. Just want to understand how much of 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 folks to also move towards value product?
Jack Truong (CEO)
Simon, it's more of the fact that we're able now to communicate the value that we deliver, not only to our direct customers, but also to the homeowners and the builders. And that with the Hardie brand exterior products, we have much better service. And at the same time, it also, our product had much better, the Hardie brand products had 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, the Cemplank brand is more of a fiber brand.
It's not so much of a brand that would deliver more value to the consumers and the homeowners. And through the Hardie brand exterior, they can upgrade to different combination with colors and then really have the total exterior of the home that have many different type of designs that various homeowners around the country really want and need.
Simon Thackray (Analyst)
The value-
Jack Truong (CEO)
Cemplank brand, yes.
Simon Thackray (Analyst)
It was really the value proposition that did the shift more so than pushing hard on price in Cemplank to convince people that value proposition makes sense.
Jack Truong (CEO)
So, first and foremost, it's really about having the homeowners really be able to have different designs based on the broad portfolio of Hardie brand products. Because Cemplank is also a 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.
Simon Thackray (Analyst)
Yeah.
Jack Truong (CEO)
So it's a combination of really that push it across.
Simon Thackray (Analyst)
Yeah. No, okay, that makes sense. It's just reading your comments, you know, previously price mix expectations were 4%-6%, they're now 7%-9%, which is showing, you know, great confidence and great traction with the strategy. You, I'm interested from, from both of you, how that upgrade to price mix is also influencing your thoughts around CapEx and capacity, going back to Peter's original question. To what extent has that sort of, you know, increased your ambitions or accelerated your ambitions for capacity and CapEx, you know, for, for the business to, to meet future demand?
Jack Truong (CEO)
Well, I think, Simon, there's a couple of things that really, this is what we mentioned in our Investors Day, is that we're now in the position of driving, creating and driving demand of our products, and through marketing directly to the homeowners and then, of course, through innovation. Because, you know, the remodeling market is a very large market in the geography that we operate in. And up until 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 our strategy.
It's really about driving, creating the demand of our high-value products directly to the homeowners and be able to bring that demand to our customers. It is the early success that we have has 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 plan in place to be able to be in a position to grow at that level.
Simon Thackray (Analyst)
... That's super helpful, Jack. And just against that background, though, I mean, you know, the homeowners have talked about capacity constraints. We talked about it in Australia and New Zealand, you know, increasing 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 the industry that are perhaps even holding back sort of very impressive numbers in this quarter? Is there any sort of, not concerns, but are there any sort of speed limiters within the industry, the construction industry, for you guys, that you can see this year?
Jack Truong (CEO)
You know, Simon, it is really about, as we look at capacity and then the expansion of our footprint and growth, we want to make sure that, because now that we have driven the capability of communicate directly and marketing directly to the homeowners, we want to make sure that we market and sell high-value products as opposed to market and sell low-end stuff and that really add little value to the homeowners, so as we make this transition and drive growth, it's important that we would stick to our strategy of really driving the growth of those key products, as opposed to just grab volume just for sake of volume.
Simon Thackray (Analyst)
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?
Jack Truong (CEO)
Yeah.
Simon Thackray (Analyst)
And so-
Jack Truong (CEO)
Certainly, I think this time, I think the trend of lack of skilled labor is still a pretty strong limiting factor, and I think that's really been faced across all geographies.
Simon Thackray (Analyst)
Thanks, Jack. Thanks, Jack. Appreciate it.
Jack Truong (CEO)
Thanks, Simon.
Operator (participant)
Thank you. Your next question comes from Daniel Kang from CLSA. Please go ahead.
Daniel Kang (Analyst)
Hey, Jack. Hey, Jason.
Jack Truong (CEO)
Hey, Daniel.
Daniel Kang (Analyst)
Hi, um-
Jack Truong (CEO)
Welcome back.
Daniel Kang (Analyst)
Thank you. Great to be back. Listen, I had, I guess a question for North America. Really strong performance, another record result, sales up 28%. But EBIT, you know, was only up a similar amount, like 29%. So we're not seeing that operating leverage come through. Is that due to primarily the reinvestment in growth initiatives?
Jack Truong (CEO)
That's correct, Daniel. As you know, we have a very big integrated marketing campaign that we started really about the beginning of the year and then accelerated through the quarter. That will continue to be a key driver for profitable growth in our company. So that's what you saw is the not as much in leverage to the bottom line as you see in other regions. Also at the same time, we have this also compares to the backdrop of a very high inflation on input costs that we experienced during the quarter.
Daniel Kang (Analyst)
Got it. And then the price/mix performance, you know, very impressive, just very early in the campaign both in North America and ANZ. You provided some guidance for North America, 6% to 9%, which makes sense as the campaign gains momentum, it accelerates. Should we see a similar scenario for ANZ from 6% towards that 6% to 9% level?
Jack Truong (CEO)
It is too early to tell yet in ANZ, Daniel, because the key driver that we have in North America, that we started a consumer marketing campaign just about the beginning of the year. So we've given that momentum here in the US, and we have yet to start in Australia. So it. That remains to be seen.
Daniel Kang (Analyst)
Right. I'll leave it there. Thanks very much, Jack.
Operator (participant)
Thank you. Your next question comes from Keith Chow from MST Marquee. Please go ahead.
Keith Chau (Analyst)
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 a steer on how interiors volumes are tracking in the second quarter to date, and for the first quarter just completed, were there any particular standout regions in the U.S. where you saw outsized growth or, you know, whether there were any competitive substrates you think you took share from at a higher rate than what you'd normally consider?
Jack Truong (CEO)
I think first your first question, Keith, is that in North America we see very strong growth in the Southwest area. And it's no surprise that the area where 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 we are gaining a lot of momentum during this last quarter, along with, of course, in our traditional area.
Keith Chau (Analyst)
Sorry, sorry, Jack, did you say the lower U.S.?
Jack Truong (CEO)
In the North, which is North, Northeast, Canada, and the Pacific Northwest.
Keith Chau (Analyst)
... Okay, great. And sorry, just going back on the, the interiors and exteriors growth in the period to date. Can you give us a bit of steering where that's tracking at the moment?
Jack Truong (CEO)
You know, our focus is really on really driving high-value product mix. We now look at the total volume, and we're running around mid-teens.
Keith Chau (Analyst)
Yeah. Okay, cool. And then just to follow up on the question on Capex, and the potential European plant. In periods gone by, you know, you've always been a fan of kind of setting key milestones before setting new targets. One example being the EBITDA margin target for the North America 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 at before formally committing to a plant, a fiber cement plant in Europe?
Jack Truong (CEO)
Well, it's right now the key that we keep that is totally confidential right now. But certainly, what I can share 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 to be in that 14% range, is kind of the first milestone that we really want to get to. To be able to have the right 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 would allow it to accelerate for our ambition of having a EUR 1 billion business, total business in Europe, with 20% EBIT margin, by 2029.
Keith Chau (Analyst)
That's great. Thanks very much, Jack. Appreciate you calling.
Jack Truong (CEO)
Thank you.
Operator (participant)
Thank you. Your next question comes from Peter Wilson, from Credit Suisse. Please go ahead.
Peter Wilson (Analyst)
Thanks. Morning. Would you mind giving us some 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 in what you're seeing right now in that R&R segment.
Jack Truong (CEO)
Good morning, Peter. What we actually see is R&R market is quite strong. I mean, what we saw particularly this last quarter is that we estimate the market growth on R&R is roughly 15% in North America. In the U.S., particularly. And also given that, I think someone asked about the effects of COVID or the Delta variant. So it's still a lot of folks who 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 are not enough new homes being built to really satisfy the needs of all the demand for homes out there.
And so the low interest rate is still here. So it's still. We see a lot of key indicators that continue to point to a strong R&R market going forward.
Peter Wilson (Analyst)
Okay. 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? I imagine, you know, for Hardie's there's some very happy customers, but for some of the other suppliers who, you know, are capacity constrained and have customers on allocation, that there's some pretty dissatisfied customers. Can you speak to, you know, what it's like on the ground there now, and how that customer piece feeds into your expectations for the rest of the year?
Jack Truong (CEO)
I think the key for us is that we continue to add more value to our customers by ensuring that our customers make more money selling our products than our competition. And that means that we need our job and our role is to create demand about high value products with the homeowners, so that we can bring that demand to our customers to return it, to sell for them and then sell for us. And at the same time, you know, as we integrate our supply chain with our customers, it's allow us to serve the market through our 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 a stronger partnership every day with our customers. Not only in North America, but it's also in Asia Pacific and also in Europe. And you see that our results across all three geographies have really been strong for the last four quarters.
Peter Wilson (Analyst)
Good. Okay. Thanks. I'll leave it there.
Operator (participant)
Thank you. Your next question comes from Paul Quinn from RBC Capital Markets. Please go ahead.
Paul Quinn (Analyst)
Yes, thanks very much. Just two easy questions. One, great to hear that Prattville is coming up nicely. Just can you remind us what the volume addition to that plant is on an operating basis?
Jason Miele (CFO)
Yeah, Paul, on a nameplate capacity basis, both those lines are 300 million square feet nameplate capacity.
Paul Quinn (Analyst)
Each?
Jason Miele (CFO)
Each. Each, correct. So total for those first two sheet machines in Prattville is 600 million standard feet nameplate.
Paul Quinn (Analyst)
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?
Jack Truong (CEO)
It is still relatively lower than the now expectation, and it's very frankly, it 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 marketing that we're driving to really accelerate the growth of color. Because that is a big opportunity for our company going forward, particularly when with the remodeling segment is a growth segment we see.
Paul Quinn (Analyst)
Okay, so to help us track, where, where are you at now, then?
Jason Miele (CFO)
I don't know how we disclose that.
Paul Quinn (Analyst)
In round numbers.
Jason Miele (CFO)
Yeah, we certainly don't disclose a split of ColorPlus versus Hardie brand as well.
Paul Quinn (Analyst)
So there's basically no way for us to track the growth of ColorPlus, right?
Jack Truong (CEO)
Not today, but I think where you can track is really about our high-value product mix that we disclosed, which is include the Hardie brand exteriors, the Hardie brand exterior with ColorPlus, and then with the Hardie brand market-led innovations.
Paul Quinn (Analyst)
Great. Go ahead. Thanks. Thanks, Paul.
Operator (participant)
Thank you. There are no further questions at this time. I'll now hand back to Dr. Jack Truong for closing remarks.
Jack Truong (CEO)
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 are a direct result of the continued execution of our global strategy together as a global company. These outstanding first quarter results are another indication that we're truly a new James Hardie company. A company that continues 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 remainder of the fiscal year 2022 and beyond, as we continue this next phase of profit growth. Thank you, and have a good night. And good morning.
Operator (participant)
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.