James Hardie Industries - Q4 2021
May 17, 2021
Transcript
Operator (participant)
Thank you for standing by, and welcome to James Hardie's Q4 FY 2021 Results conference call. Today's call will be hosted by Dr. Jack Truong, CEO, and Mr. Jason Neely, CFO. There will be a presentation followed by a question-and-answer session. All participants are in a listen-only mode. 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 CEO, Dr. Jack Truong. Please go ahead.
Jack Truong (CEO)
Good morning and good evening, everyone. Thank you for joining us on our fourth quarter and full fiscal year twenty twenty-one earnings call. I will begin today's call by discussing business highlights from the global company perspective. After I go through business highlights, our CFO, Jason Neely, will cover our fourth quarter and year-to-date fiscal year twenty twenty-one financial results. I will then provide a brief preview of our upcoming annual Investors Day. After that, we'll open up for questions. Let's now turn to page five for a review of business highlights. Now, before I discuss the success today of our strategic transformation, I think it is important to provide some context to why the transformation was required. What you see on this page is the financial performance of James Hardie over the five years between fiscal year twenty fifteen and fiscal year twenty nineteen.
If you look at the 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 rate of CAGR of 7%, adjusted EBIT CAGR of 7%, adjusted net income CAGR of 9%. This is a clear lack of leverage on our incremental sales growth. Now lastly, looking at operating cash flow, 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 cash flow with each additional dollar of sales. When we look at these financial results holistically, they do not reflect the results of a high-performing global company, which is our mission.
Let's now turn to page six to discuss the new James Hardie and our transformational progress. You will recall that in February twenty nineteen, I laid out what would be the first steps in our transformation to become a new James Hardie. The first initiative we undertook was a foundational step change in terms of leveraging on our scale as the world's largest fiber cement producer, to become a world-class manufacturer through the execution of James Hardie's lean manufacturing strategy. Our network of plants is on a continuous improvement path of being more predictable, with less variability in production output, better quality, and lower cost. Progress in this initiative has enabled us to be a better partner to our customers. Globally, through the end of fiscal year twenty twenty-one, we have generated over $107 million in lean savings.
Continued focus on this foundational element of our transformation will be critical to building scale and enabling future profitable growth globally. Second, we transform our commercial organization to be truly customer-focused. We took direct action to shift from an organization that focused solely on creating 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-focused mindset throughout our company has been critical to driving our growth above market, 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.
Specifically, we delivered net sales growth of 8% in fiscal year 2020, and 12% growth in fiscal year 2021, which is 8% over the previous five fiscal years, and expansion of EBIT margin to 29% from 0.4%. Additionally, over the past two years, we have significantly expanded our European business, highlighted by net sales increase of EUR 350 million in fiscal year 2021 from EUR 318 million in fiscal year 2019, and adjusted EBIT increased four times to EUR 36 million in fiscal year 2021 from EUR 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%.
The third step in our transformation was the integration of our supply chain with that of our customers for mutual benefits. This critical integration ensures that we are able to continuously service the market seamlessly to our customers, provide them with the products they want when they need them. During fiscal year 2021, we delivered record operating cash flow of $787 million, a 2.6 times increase from fiscal year 2019, operating cash of $304 million. Underpinning our entire transformation was the implementation of a Global 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 our global strategic plan is a testament to the hard work and dedication of all James Hardie employees around the world.
The considerable progress we made has allowed James Hardie to deliver a record global net sales and global Adjusted EBIT for three consecutive quarters. In fact, for fiscal year 2021, all three of our operating regions delivered double-digit growth in EBIT. 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. We believe it is this foundation that will enable us to scale and to drive significant future profitable growth for our company globally. Let's now turn to page seven to discuss our step change in financial results. When I take a step back and look at the progress we made during the past two years to fundamentally transform our company, I'm pleased with the financial results.
We delivered a step change in our financial results during the past two years, including records in global net sales, global adjusted EBIT, global adjusted net income, and global operating cash flow in fiscal year 2021. We increased net sales by $400 million globally in fiscal year 2019, a 16% increase over two years. More significant than that, we increased adjusted EBIT and adjusted net income by 25% and 23% CAGR, respectively, over the past two years. What this indicates is that as a global company, we have been able to increase our leverage in a way that every incremental sales dollar returns much more profit to the bottom line. Most impressively is the significant increase in operating cash flow over the past two years.
The financial results delivered during the past two years reaffirm that we are on the right path of being a high-performing global company. Now shifting to page eight. Over the past twenty-four months, we delivered strong, strong revenue growth and EBIT growth across the three regions. We expanded the scale and scope of James Hardie as a global company and also expanded the scale and profitability of each region. The acquisition of Fermacell two years ago, along with the successful integration and expansion of our European business, now truly positions us as a leading global building materials company. 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 plan locally to deliver on results for the region and for the total company.
Moving on to page 9 for an update on our FY 2022 and FY 2024 targets. Reflecting on our step change performance in executing our Lean Manufacturing strategy and push-pull strategy to deliver consistent financial results globally, I'm very pleased to announce today that we're upgrading our global adjusted EBIT margin targets for fiscal year 2022 through fiscal year 2024. In North America, our historical adjusted EBIT margin target range of 20%-25% is now increased to a new range between 25%-30% annually for the next three years. Similarly, in our Asia Pacific region, our historical adjusted EBIT margin target range of 20%-25% is now increased to a new range of between 25%-30% for the next three years.
In our European business, the average annual adjusted EBIT margin will be increased to between 11% and 16% for the next three years. The previous target was 10%. These new global targets for adjusted EBIT margin reflect the progress we have made during the past two years to fundamentally transform our global business. We believe that as the new James Hardie, we will continue to deliver growth above markets and strong returns. Turning to page 10 for a summary of global results for the fourth quarter of fiscal year 2021. The fourth quarter of fiscal year 2021 marked the eighth straight quarter of delivering consistent financial results globally, with all three regions delivering strong, profitable growth. Specifically, in the fourth quarter, we delivered $807 million of global net sales, which is 20% increase versus the prior corresponding period.
And we delivered global adjusted net income of close to $125 million, which was an increase of 44% over the prior corresponding period. Most importantly, we delivered strong financial results in all three regions for the third consecutive quarter. All three regions delivered double-digit growth in both net sales and EBIT. In North America, we delivered net sales of $555 million, a growth of 17%, with strong EBIT of nearly $153 million, an increase of 27% over Q4 of previous year. These are excellent results, given that we comped a very strong Q4 of the previous year that had a net sales growth of 12% and EBIT growth of 26%. Further, we continue to deliver strong EBIT margin of 27.5% for the quarter.
In Europe, we delivered record net sales of close to EUR 105 million, a 12% increase over the prior corresponding period, and we exit the quarter with an EBIT of EUR 15.7 million and a record EBIT margin of 15%. In Asia Pacific, we delivered net sales growth of 11% in Australian dollars, with EBIT of AUD 43.7 million and an excellent EBIT margin of 26.9%. Marking our eighth straight quarter of delivering global growth with strong returns, these results reflect our continued ability as a global company to execute on our global strategy across all three regions. I would now like to turn it over to our CFO, Jason, to provide additional details on our financial results.
Jason Neely (CFO)
Thank you, Jack. Good morning, and good afternoon, everyone. I'll start on slide twelve with our global results. This is our eighth straight quarter of generating strong global financial returns and our third straight quarter with record global results and this marks the third consecutive quarter we've been able to deliver strong results in all three regions simultaneously. In the fourth quarter, each region delivered double-digit net sales growth and double-digit EBIT growth. In the fourth quarter, global net sales increased by 20%. This represents significant growth on growth, as last year in the fourth quarter, we increased net sales by 8%. Globally, our customer focus and customer integration strategies continue to become embedded in every country we do business in and drive these strong top-line results.
Net sales of $807 million in the fourth quarter represent a record quarterly result for James Hardie. 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 43%, and global Adjusted Net Income increased 44% in the fourth quarter. Global Adjusted Net Income in the fourth quarter of $124.9 million also represents another all-time record high for James Hardie in a quarter. For the full year, Adjusted Net Income increased 30% to $458 million. Operating cash flow for the full year increased 74% to a record $786.9 million.
As Jack just discussed earlier, we have transformed into a new James Hardie over the past two years, and the global financial results in fiscal year twenty-twenty-one reflect that transformation. I'll now review each region in more detail, starting with North America on page 13. In North America, the team delivered another excellent quarter. In the fourth quarter, net sales increased by 17% to $555.3 million. This represents the highest net sales in one quarter ever achieved by the U.S. business. It is also worth noting the fourth quarter result represents significant growth on growth. That is, we had a strong fourth quarter last year as well, when we delivered net sales growth of 12% in the fourth quarter, which we have now been able to improve upon by another 17%.
This significant growth is driven by our continued focus to partner and integrate with our customers. The full year net sales result of just over $2 billion is also a record for North America, and it marks the first time we have exceeded $2 billion in net sales. In addition, our exteriors volume increased 12% in the fourth quarter and 11% for the full year, driven by continued share gain as our team continues to focus on customer engagement and integration. Our outstanding top-line results in North America were coupled with even better adjusted EBIT growth, which increased by 27% for the quarter to $152.9 million and 25% for the full year.
We also expanded our EBIT margins in fiscal year 2021, delivering a full year adjusted EBIT margin of 28.8%, a 290 basis point increase from the prior year. The outstanding adjusted EBIT and margin results for both the quarter and full year were driven by volume and price mix growth, strong organic volume growth, continued Lean Manufacturing savings, and lower SG&A, partially offset by higher freight costs. The North American team is now delivering consistent double-digit net sales growth at a step change EBIT margin level. As we transformed over the past two years into a new James Hardie, the foundational improvements provided by Lean, our push-pull strategy, and supply chain integration with our customers have provided us the confidence to raise the target adjusted EBIT margin range for North America.
As Jack just stated, we've increased our target EBIT margin range to 25%-30% for fiscal year 2022 through fiscal year 2024. Turning now to page 14 to discuss the Europe results. In Europe, the team delivered a third straight quarter of strong results. In the fourth quarter, net sales increased 12% to a record EUR 104.6 million. This follows net sales growth of 8% in the second quarter and 12% growth in the third quarter. For the full year, net sales of EUR 350.6 million also represents a record full year result. The team's focus on our push-pull strategy and replicating best practices from our North America and Asia Pacific businesses, continued to deliver improved top line results as the year progressed.
The team remains focused on driving gross margin improvement through growth in high margin products and continued penetration in existing and new fiber cement markets. Fiber cement net sales increased 24% in the fourth quarter. Most impressively, adjusted EBIT margin of 15% for the fourth quarter also represents a record result for Europe. Fiscal year 2021 represents the third full year since acquisition. The team is now fully integrated into James Hardie, and the European business exits fiscal year 2021 with significant momentum. The new James Hardie will be a high performance global company, and our European business is an important part of our global footprint. The team's success in executing our strategic initiatives has provided us the confidence to raise the Europe adjusted EBIT margin target range to 11%-16% for fiscal year 2022 through fiscal year 2024.
Let's now move to page 15 for our strong Asia Pacific results. In the fourth quarter, net sales increased 11% in AUD compared to the prior corresponding period. This top line growth was led by continued share gains in Australia and New Zealand, and 25% net sales growth in the Philippines. The strong top line results in the fourth quarter were translated into even stronger earnings results, with adjusted EBIT growth of 46% in AUD at an adjusted EBIT margin of 26.9% for the fourth quarter. The excellent fourth quarter performance in our Asia Pacific region was driven by execution of our strategic objectives, including customer integration and lean manufacturing. In addition, you will recall earlier this fiscal year, we announced we are consolidating our regional production for Australia and New Zealand to our two Australia-based manufacturing facilities.
We also closed the unprofitable James Hardie Systems business. These adjustments, in addition to the team's execution of our strategic objectives, have helped drive the improved adjusted EBIT margin performance in Asia Pacific. The full year adjusted EBIT margin expanded to 28% as a result of this continued performance improvement. We have raised the Asia Pacific adjusted EBIT margin target range for fiscal year 2022 through fiscal year 2024, to be between 25% to 30%. Moving now to page 16 to discuss operating cash flows and capital expenditure. Operating cash flow increased 74% for the full year to $787 million. This step change performance in operating cash flow was driven by increased profitable sales globally and further integration with our customers to reduce working capital for both them and us.
This step change in cash flow performance has enabled us to improve our liquidity position and return capital to shareholders, which I will discuss further in a few slides. Shifting to the right-hand side of the slide, you will see a summary of our capital expenditures. For the full year, capital expenditures totaled $111 million. Over the past six months, we have added key capacity additions to enable our continued profitable organic growth. Specifically, in Asia Pacific, we commissioned a new sheet machine in Carroll Park during the third quarter of fiscal year 2021, which adds additional capacity to service our Australia and New Zealand markets with high-value building products. In North America, our greenfield capacity expansion in Prattville, Alabama, remains on track.
Sheet machine number one in Prattville has been shipping products to customers since March 2021 and ramping up ahead of our internal targets. Further, sheet machine number two in Prattville remains on track to be commissioned in July. Adding the right capacity at the right time positions us to continue to drive the share gains and flow products to our customers and the end users. At Investor Day next week, we will discuss capacity expansion further, specifically capacity expansion plans for the next few years. We expect the total capital expenditures, including regular maintenance, to average approximately $250 million per year for the three-year period of fiscal year 2022 through fiscal year 2024. Let's turn to page 17 to discuss our liquidity profile.
The execution of our global strategy has led to significantly improved cash flow and thus, continuous improvement in our liquidity and leverage position over the past twelve months. During the year, we were able to reduce our debt levels while maintaining strong liquidity and financial flexibility. As announced on January 15th, 2021, we redeemed $400 million of senior unsecured notes. The redemption of these notes will save approximately $20 million of interest expense per year. At March 31st, 2021, we had liquidity of $703.8 million and a net leverage ratio of 0.9x, a significant improvement over the past twelve months. Now, moving to page 18 for an update on 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. We're positioned to continue to invest in organic growth, including capacity expansion, market-driven innovation, and marketing directly to the homeowner. In January, we reduced debt by $400 million, and in April, we returned over $300 million to shareholders via the previously announced special dividend. We have a strong balance sheet and a strong credit position to execute on our organic growth priorities. And finally, please turn to page 19 to discuss guidance. As announced this morning, we are introducing full year fiscal year 2022 guidance. Our guidance for the full year adjusted net income is a range of between $520 million and $570 million. The comparable figure for the prior year, fiscal year 2021, was $458 million.
This guidance range represents a 14% to 24% year-on-year improvement in Adjusted Net Income. Included in this guidance range, as well as the new increased Adjusted EBIT margin targets, we expect significant cost headwinds due to the inflationary pressures we are experiencing worldwide. Globally, we are anticipating between $100 million to $150 million in cost headwinds in fiscal year 2022 versus fiscal year 2021. These cost headwinds are primarily driven by pallets and freight. We believe we can mitigate these headwinds and deliver Adjusted Net Income of between $520 million and $570 million by executing the following. One, drive a richer product mix based on market demand and disciplined price management. Two, continued execution of Lean Manufacturing.
Three, continued execution of our push-pull strategy and customer integration to deliver growth above market and flow product to the wall. And four, deliver incremental capacity in the right place at the right time to meet market demand. As previously mentioned, we have also increased our target ranges for adjusted EBIT margin in each region for the periods of fiscal year 2022 through fiscal year 2024. North American target adjusted EBIT margin is now 25%-30%. Asia Pacific target adjusted EBIT margin is now 25%-30%, and Europe target adjusted EBIT margin is 11%-16%. I will now hand the call back over to Jack to go through a brief preview of our Global Investor Day that will take place next week.
Jack Truong (CEO)
Thank you, Jason. Now moving to page twenty-one for a preview of our upcoming Investor Day. I have shared earlier, the past two years was about building a strong foundation to transform our company into a new James Hardie, a company that delivers consistent, profitable growth globally. This transformation has been about becoming a world-class manufacturer through our execution of lean manufacturing strategy, becoming more customer-focused via building stronger and more integrated partnership with our customers, and become more integrated with our customer supply chain for mutual benefit. All of our new initiatives are underpinned by a globally integrated management system that allow us to make better, more holistic and faster decisions across various levels within the company. The strong foundation we have built over the past two years enable us to drive consistent profitable growth on a global scale.
I'm very excited today to share with you additional details about this next phase of our transformation. There are three critical strategic initiatives in this next phase of profitable organic growth. Number one, extend James Hardie brand from the premier professional brand into a market-leading global consumer brand that focuses on the homeowners to create demand. Number two, global innovation that allow us to expand into other exterior looks to grow into adjacent categories. Number three, and penetrating and driving growth in existing and new markets and segments. Now turn to page 22 for a summary of integrated marketing campaign. The first of three, of the three key strategic initiatives is our new 360-degree integrated marketing campaign that targets homeowners directly to create demand. Historically, James Hardie brand has resonated strongest with professionals.
It evokes a brand that's well appreciated and trusted, with products that are durable, low maintenance, and non-combustible. We're now excited to extend James Hardie brand into a consumer brand, where we market directly to homeowners and communicate to them the endless possibilities of aesthetic and design that our products offer, in addition to the superior properties of our technology. By marketing directly to the homeowners, we believe it will create even more demand and enhance the emotional attachment to James Hardie brand products. During our upcoming Annual Investor Day, our marketing team will share some exciting details of this new 360-degree integrated campaign. Shifting now to page 23 for a summary of our global innovation. The next focus of our upcoming Annual Investor Day is on global innovation that will transform the way the world builds.
As I mentioned during our Q3 earnings call, our approach to innovation is about developing market-driven innovation to drive profitable organic growth. We believe our market-driven innovation strategy will increase our growth opportunities by opening new markets and expanding on existing markets. What you see on this slide are four examples of our four new innovations in action. On the top left is an example of our new fiber cement interlocking plank products for the European market. This image is from a project in the U.K. that is going to use our new Hardie brand VL planks in a very dramatic, design-forward manner. Back in our Q3 presentation, I shared that in Europe, interlocking planks make up roughly 80% of the plank market. Interlocking plank is a natural product portfolio expansion for us in Europe for our new fiber cement growth.
It enables us to provide our customer with a full suite of fiber cement plank products that are quicker to install that enable homeowners to have endless possibilities of beautiful designs, while getting the long-lasting beauty and trusted protection of James Hardie's fiber cement technologies. On the top right and the bottom left pictures, you see examples of our North American innovation, featuring two homes built with our Hardie Texture Panels that deliver a stucco or render aesthetic. On the bottom right, you see a picture from a completed project in Australia that was built with our latest innovation, Hardie Fine Texture Cladding. You will hear more details during our Annual Investor Day.
What I can tell you is that we're all very excited about these true market-driven innovations that will provide homeowners with endless design possibilities, while maintaining trusted protection and low maintenance they have come to expect from James Hardie. Ultimately, these true market-driven innovations will expand opportunity for future organic growth for our company. I can't wait for you to hear more in our upcoming Annual Investors Day. Now, turn to page 24. James Hardie Annual Investor Day will take place as one session on Monday, May twenty-fourth, between 5:00 P.M. and 7:15 P.M. New York City time, or Tuesday, May twenty-fifth, between 7:00 A.M. and 9:15 A.M. Sydney, Australia time. The session will be recorded and available on our investor relations website. You can sign up for the session at the link shown on this slide.
The agenda for the day is broken into three major sections: an update on our overall strategy and the focus for the next two years, a deep dive into our new global initiative of growth through marketing to homeowners, and three, growth through global innovation. We look forward to sharing additional detail with you on all of these three topics. We're very excited for the future that lies ahead of our company. Now, I would like to open up for questions.
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 ask that participants limit themselves to one question per turn. Should you wish to ask further questions, you will need to rejoin the queue. Your first question comes from Peter Steyn from Macquarie. Please go ahead.
Good evening, Jack and Jason. Thanks very much for the opportunity, and congrats on the good results. Quick question just in relation to North American top line. Jack, could you give us a bit of a sense, there's obviously a few things moving around at the moment, the ability to meet the market where demand is at this point, given Prattville's ramp-up. And then there were obviously some disruptions from a weather perspective in the quarter. Could you give us a bit of a sense of how the Texas weather events played out for you? And comment on your ability to meet demand right at this point, given that the second line at Prattville is only due in July?
Jack Truong (CEO)
Yes. Good morning, Peter. Thank you for your questions. Right now, you know, as you mentioned, you know, our Prattville facility is really ramping up very nicely. And then, so with our ability now to be integrated closely with our customers, we're able to take the demand that future forward demand from our customers and be able to have the right production plan and to allow us to flow our products from our plant into the marketplace. And so that is has been really the key driver for us to really manage through the growth within the quarter despite the disruptions that we had during about eight days in February, when we had a deep freeze in Texas.
As you know, we have two big plants in Texas that service the market. But you know, given the lean approach that we have had in our company, the integration with our customers, and then the really great collaboration between the different functions within our company, we're able to mitigate the temporary shutdown of our plant for those eight days and be able to come back strongly to serve the market, and to be able to finish the quarter strong that you saw in our results.
Thanks. Thanks, Jack. And your ability to serve the market therefore continues unabated, notwithstanding the fact that Prattville is still ramping up?
Yes, so you know, as we are, Prattville continues to ramp up, and then we are, as we also mentioned, that our line two in Prattville, for example, will be ramping up through the middle of this summer. And we also have added additional capacity to our Waxahachie plant, which is now start to be increased. But really the key is that we currently see a strong demand in the marketplace. And it is also at the same time that we as we connect more and more with our with the homeowners in the marketplace.
We're able to really deliver more value and really understand more about the needs of the homeowners, and be able to work closely with our customers to really roll out more high-value products to the marketplace, such as the color products, such as trim and more branded Hardie products that allow us to capture more of that value and really deliver the products that the market need. So as the demand continues to be strong, we're able to deliver those high value James Hardie products to the marketplace.
... Thanks, Jack. I'll leave it there.
Operator (participant)
Thank you. Your next question comes from Keith Chau from MST Marquee. Please go ahead.
Keith Chau (Basic Industrial Analyst)
Good afternoon, Jack and Jason. First question, Jack. Well, I guess I only get one, so maybe I'll ask a follow-on to Peter's, in another way. Have you got enough product to supply the market without putting your customers on allocation? And so that's the follow on. And then my question is, there wasn't any mention of PDG within the materials releases at all. So I know you've been talking about growth above market, but in your, your LTIs, you know, there's a target in there of 6%-8% between FY 2021 and 2023. So I don't know if you'll be talking at that, in your Investor Day next week, but can you give us a sense of what your volume aspirations are going forward, and what was previously considered PDG please?
Jack Truong (CEO)
Yeah. So let me answer your second question first. You know, the calculation of PDG is not an exact science. And it's something that we'd rather than look at on a quarterly basis. We look at on an annual basis to have a little bit more accurate description of what's going on. But if you look at the PDG or growth of our market in the fiscal year 2020 and fiscal year 2021, in both of those years, we average 7%-8% a year. And that's the growth rate that we aim to continue to deliver. And that is really part of our plan.
I think that was highlighted by Jason during the guidance that we gave for the net income this year, and then coming back to your first question, yes, we are able to supply the market. But I think something that's also very important, as we have alluded to during the call, is that since this is a strong demand market, and at the same time, there's also a strong inflationary environment that we're in, and also for us now that we are a lot more connected to the homeowners to really understand what are the true needs of the homeowners and the market.
By doing that, we're able to really work with our customers to really be able to really market and sell more of the high value products and be able to focus on those rather than just produce and then sell the low-end products.
Keith Chau (Basic Industrial Analyst)
Thank you.
Jack Truong (CEO)
So really, at the end of the day, what we're trying to do in a strong demand and high inflation period is about making sure that our manufacturing assets are really leveraged accordingly to serve the market needs from the homeowner perspective, the builder perspective, and our customer perspective, as well as James Hardie.
Keith Chau (Basic Industrial Analyst)
Thanks, Jack. Perhaps just as a follow-on, but a hypothetical question, and I know it differs by region, across the U.S., but hypothetically, once Prattville comes online, how much growth do you think you could deliver to this market? Or how much more capacity do you have to deliver growth into this market? Would it be something like 15% total volume growth, 20% volume growth? Can you give us a sense of that, please?
Jack Truong (CEO)
Yeah, sure, Keith. I think that's what I mentioned in answering your last question, is that we're what we'll be looking at is really now more about making sure that we drive more value of production coming off of our production line, rather than just looking at purely volume. We want to ensure that as we invest in new capacity, that we want to ensure that we leverage on the new capacity as well as the existing capacity to produce more of the high value products that James Hardie offer the homeowners want.
So hypothetically, if our customers really look to buy more of Cemplank, which is HardiePlank, we need to work closely with our customers to ensure that the markets actually need more of HardiePlank than just selling Cemplank, for example. Because there's always going to be really a place where Cemplank is a good to sell to. But in general, most of the time, particularly during this high demand time, that's being more toward the Hardie Brand products.
Keith Chau (Basic Industrial Analyst)
Thanks, Jack. I'll circle back. Thank you.
Operator (participant)
Thank you. Your next question comes from Brook Campbell-Crawford, from JP Morgan. Please go ahead.
Brook Crawford (Quantitative Research Analyst)
Yeah, thanks for taking my question. Just first one around price for Jason, probably. I think the last update, talking about 2%-3% type effective price increase through the top line in North America in FY 2022. Just want to make sure you provide an update on that, if that's still an appropriate target for us. I have a follow-up as well.
Jason Neely (CFO)
Yeah. Sorry. Brooke, we took a price increase on January first in North America. That price increase went through approximately 3%. Now, as Jack mentioned there a few times, we're definitely very focused on delivering the right price mix that our customers want and that the end user wants. So we have a heavy focus on price mix, and so we intend to achieve a better printed price outcome in the financial results, but the price increase went through on January first.
Brook Crawford (Quantitative Research Analyst)
Thanks for that. And just on the new products, are you planning to provide any sort of sales targets around that for FY 2022? Including in that, have you factored any sales related to new products in 2022 guidance?
Jason Neely (CFO)
Yeah, we'll talk more about new products and targets and whatnot, Brooke, at the Investor Day. We don't want - we wanna make sure we talk about the NPI, those new products more wholesomely at Investor Day next week. But certainly, there are amounts within the guidance that are considered.
Brook Crawford (Quantitative Research Analyst)
Okay.
Operator (participant)
Thank you. Your next question comes from Simon Thackray from Jefferies Australia. Please go ahead.
Simon Thackray (Managing Director)
Thanks, Jack. Thanks, Jason. Jack, I never really thought about framing my long-term commitments with a footnote set only until FY 2024. So I just wanna understand the context of that guidance against the margins delivered in FY 2021, given the benefit you got from SG&A and what happens going forward, given the cost headwinds you've called out of $100-150 million. I think you did, Jason. So just in that framework, I just wanna understand the relative SG&A benefit in the delivered margins in FY 2021, and what the expected growth in dollar terms is for SG&A in the regions in 2022. And then, just to finalize, so I get a clear picture, what the role of price is in 2022 in offsetting the cost escalation.
Jack Truong (CEO)
Yeah. So let me, yeah, and answer that strategically, and then so Jason can fill in some little bit more context on the details. But you know, the way to think about this is that, you know, we're -- remember, we're a company that's based on organic growth of our market. So, we are still really driving our plans all about how we continue to drive growth of our market with strong returns. And, the 7-8% growth of our market is our objective. So, really about having more volume through to our now continually lean network of plants. So that's, that is the first, really key driver for our margin expansion. Number two, we continue to drive lean.
So as we get more volume to our plants, and as we continue to improve on our lean execution, then we should really continue to have the leverage on the savings. And third, this is very, very important, which is really the key, that I have really just answered to Keith and Peter, is that it's not only about volume growth anymore, it's really about volume price mix. You know, we have to make sure that we continue to you know, as a market leader, it's our role to continue to add more value to the marketplace, so from the homeowners, our customers, and back to us. And that is, make sure that we deliver the product that the market need and want.
And that is the higher value products, and that means that as we continue to have lean manufacturing of higher value products, and that would leverage into our margin. That would allow us then have the flexibility to invest in the SG&A that will go into innovation, that will go into marketing directly to the homeowners, so that we can continue to create new demand, but increase more volume of continuing high value product through our plants. And then really keep driving profitable growth on profitable growth consistently across the three regions that we operate in around the world.
Simon Thackray (Managing Director)
That makes sense to me. So just then, the regional contribution to margin from lower SG&A in FY 2021, given what was happening with COVID, of course, and lower travel, et cetera. So what was the regional contribution to SG&A to margin in FY 2021?
Jason Neely (CFO)
Yes, I mean, I think in the past, we said we're gonna reinvest about 200 basis points of SG&A over the next several quarters. And we will be doing that. So as you look forward in the guidance we gave, there's $100-$150 million of inflationary pressure. We will-
Simon Thackray (Managing Director)
Mm-hmm.
Jason Neely (CFO)
-invest in marketing and SG&A. The marketing investment is, you know, roughly $45 million for the It's Possible campaign and the associated items. And then we will invest in innovation and talent capability. And with all those investments, as well as that inflationary pressure, that is the guidance, $520 million-$570 million Adjusted Net Income, and those increases-
Simon Thackray (Managing Director)
Yep.
Jason Neely (CFO)
to the EBIT margin ranges. So
Simon Thackray (Managing Director)
I understand that. That's super helpful.
Jason Neely (CFO)
Price improvements.
Simon Thackray (Managing Director)
No, that's super helpful. I was actually asking what the contribution was from lower SG&A to regional EBIT margin outcomes in FY twenty-one, given it was lower for the reasons described. How much, how many basis points of improvement from lower SG&A in North America, Europe, and Asia-Pac?
Jason Neely (CFO)
Roughly the $200 we'll reinvest.
Simon Thackray (Managing Director)
Oh, I see. Okay. Thank you.
Jason Neely (CFO)
Sure.
Operator (participant)
Thank you. Your next question comes from Sophie Spartalis from Bank of America. Please go ahead.
Sophie Spartalis (Senior Research Equities Analyst)
Good evening, Jack and Jason. Thanks for the details today. I just wanted to explore a little bit about around this, you know, higher volume price mix. We talked a bit about it very much at a top level, but what is that ideal volume price mix going forward versus where you are today, in terms of new products, existing products?
Jack Truong (CEO)
Yes, you know, we, you know, our, we'll talk more on the annual investor's day. But, you know, the key for all the innovation is really about driving to better on the wall cost. So anything that we can take out cost in between that and create more value in the marketplace, and that can be reflected on the price of the new product. So, you know, for example, the new product that we have to share with you right now, I mean, the average net selling price for that product on the same feet comparing to the HardiePlank is about two and a half times more.
So you can see that as we gain, shifting to more high value products that deliver value, real value to the marketplace, we can really deliver really higher profit margin with the same asset base. And so it is really the approach and the strategy that we drive going forward.
Sophie Spartalis (Senior Research Equities Analyst)
So Jack, just in terms of that margin guidance that you've provided, how much of that business guidance are you assuming, given you said, Jay, that new products are included in the margin guidance? Like, what's that growth trajectory of those new products coming into that price mix to give you that margin range?
Jack Truong (CEO)
Sophie, it's too early to disclose that right now, Sophie.
Sophie Spartalis (Senior Research Equities Analyst)
Okay. Okay, that's fine. Thank you.
Operator (participant)
Thank you. Your next question comes from Lisa Huynh from Citi. Please go ahead.
Lisa Huynh (Investment Analyst)
Hi, morning, Jason and Jack. So I just had a question in terms of the renovation market. We're seeing higher raw material costs drive up the cost of building a home. Can you talk about whether you're seeing any risks emerge for them in any of your key end markets as a result of, you know, the higher cost of construction, particularly in new construction, but also renovation? Thanks.
Jack Truong (CEO)
Actually, you know, as you probably know, that right now there's a big shortage of lumber in the marketplace across, you know, North America, Australia, and New Zealand. So, you know, that will affect more in the new construction and not so much in the renovation and remodeling markets. And so it is the market that we see a huge opportunity, which I have discussed in the third quarter earnings call. And it is also an area that really is a key focus for us going forward, particularly the initiative of our marketing to the homeowners. It's really an opportunity to reach directly to those homeowners who live in current homes that may need to be remodeled and renovated.
And for the homeowner to really understand what James Hardie, the exterior solutions that we deliver, so that they can help them make better decision and quicker to renovate their home with James Hardie's products. So that is a huge growth opportunity for us going forward.
Lisa Huynh (Investment Analyst)
Okay, sure. And then I guess just on the theme of inflation, you know, given a one quarter lag to what typically happens in prices, do you see any kind of ability to offset this through buying terms, going forward?
Jason Neely (CFO)
Sorry, Lisa, is your question about how we procure-
Lisa Huynh (Investment Analyst)
Yes.
Jason Neely (CFO)
- raw materials?
Lisa Huynh (Investment Analyst)
Yeah, just whether there's any ability to kind of offset the inflation we're kind of seeing going forward, yeah, through procurement savings or anything of the like.
Jason Neely (CFO)
Yeah, our procurement teams worldwide do a good job of getting the best possible pricing, Lisa. But, I mean, the inflationary pressures are global. At this point, you know, $100 million-$150 million headwind includes, you know, our ability to procure better than maybe some others. But that would all be considered in that estimate we provided today.
Lisa Huynh (Investment Analyst)
Yeah, thanks.
Operator (participant)
Thank you. Your next question comes from Paul Quinn, from RBC Capital Markets. Please go ahead.
Paul Quinn (Stock Analyst)
Okay, thanks very much. Good evening, guys. Just question on exterior, North America exterior siding growth. You had very strong growth in the quarter, but one of your competitors grew even faster. Do you feel you're losing market share? Is there things that you can do to catch up?
Jack Truong (CEO)
Yeah, Paul, I think first of all, I think our competitor has had a good quarter. I think what you should really look at is that the trend line over time. You know, a year ago, fourth quarter, we had double digit growth, and now we also had a double digit growth, whereas it was a negative growth for our competitor a year ago. So it's really about if you look at it from a trend line perspective, it's actually we're out. For the last twelve months, that we actually outperformed our two key competitors.
Paul Quinn (Stock Analyst)
And do you think that, just as a follow-up, do you think that's gonna continue going forward then?
Jack Truong (CEO)
Absolutely, and in every intention, you know, that's what the strategy of our we're continuing to partner closely with our customers in push pull. We're investing to reach the homeowners directly, to expand our footprint even more within the R&R market, and then the innovation that we plan to launch very shortly, to really drive more growth above market. Absolutely.
Paul Quinn (Stock Analyst)
Great. That's all. Thank you.
Jack Truong (CEO)
Thank you.
Operator (participant)
Thank you. Your next question comes from Peter Wilson, from Credit Suisse. Please go ahead.
Peter Wilson (VP)
Thank you. I might just follow that one up on Q4 volumes in North America. So I take the point that PCP had double-digit growth, but that was also true of the third quarter. Yet I guess that, you know, the relative growth rate did slow in the fourth quarter, 12% exteriors, 1% interiors. Is there any other factor that you could highlight for why the growth rate might have slowed?
Jason Neely (CFO)
Yeah, Peter, I think, one thing you've got to consider when you're thinking about third quarter growth versus fourth quarter growth is typically, in the U.S. there's a housing cycle where the third quarter dips. We would have certainly seen that in the prior year. This year, that did not occur. Coming out of COVID, the market has been strong straight through. And so you would have seen our volume in North America grow in Q2, grow again in Q3, and grow again in Q4, if I'm talking linearly. Whereas in the prior year, you would have had that normal seasonal dip in Q3. But that-- if you're looking at our Q3 growth, versus our Q4 growth, that explains part of it.
Peter Wilson (VP)
Yeah, I'm not-
Jason Neely (CFO)
Q4 volume-
Peter Wilson (VP)
sequentially, but are you effectively saying that there was a bit of a pull forward this year into the that December quarter, and that's why the March quarter was a little bit soft?
Jason Neely (CFO)
No, I'm saying, Q3 last year had a normal seasonal dip, so the Q3 comp this year appeared stronger than the Q4 comp, I think.
Peter Wilson (VP)
Okay. There was also thought about the Texas event, and you said you were able to mitigate it on the supply side. Was there any effect on the demand side in terms of?
Jack Truong (CEO)
No, we have had strong, strong demand ever since last May, Peter.
Peter Wilson (VP)
Mm-hmm. Okay, and just one last one, if I could, on Europe. The new target, 13%-16%, in the preso, it says that was, you know, versus the prior guidance of 10%. It may well be that I just missed it, but I understood that your prior target was for FY 2022 of 14% plus EBIT margin. So just a question on that, and I guess versus the Q4 15%, you know, why you might be expecting that to soften a little bit?
Jason Neely (CFO)
Yeah, Peter, that's a fair point on the we did list a target of exiting FY 2022 at 14%. The 10% is a reference to when we acquired Fermacell. We've said multiple times that we expected it to be in the first couple of years, a 10% EBIT margin business. So those are both still valid. We chose to use the 10%, which we've referred to more times, but we certainly still expect, just like we exited this year at 15%, which was nearly a year early, to hit that 14% target. That target still remains as well. As far as softening, Q4 is a high volume quarter for the European business. And so they did get some leverage to deliver that 15% EBIT margin.
So we don't see the range as a softening, it's just, like any entity, there's a range to consider things like inflationary pressures, et cetera.
Peter Wilson (VP)
Okay, sure. And if we think about, I guess, long-term view of targets, it was always, you know, Hardie’s EBIT, a long-term target, which I think many interpreted to be, you know, 20% by FY 30. Is Hardie’s EBIT still the expectation that’s in, you know, closer to the APAC and US eventually?
Jason Neely (CFO)
Yeah, we set a ten-year target of $1 billion and EUR 1 billion of revenue and 20-plus EBIT margin. That still stands. This is a target range for the next few years. Obviously, as you get localized fiber cement manufacturing and a few other things, we can continue to drive that margin to that 20% long-term target.
Peter Wilson (VP)
Perfect. Okay. Thank you. I'll leave it there.
Operator (participant)
Thank you. Your next question comes from Peter Steyn, from Macquarie. Please go ahead.
Peter Steyn (Division Director and Managing Director)
Thanks, Jack and Jason. Sorry, I was going to cancel that, but, perhaps, I'll just follow up with a quick question on the back of Peter's question re Europe. Very strong performance. Jason, you've pointed to the seasonal performance, but could you just talk to us about the commercial state of the business generally? You know, you've seen a bit of momentum growing there, but, where are things at in the execution of Push-Pull, in particular in Europe?
Jack Truong (CEO)
Yeah. So Peter, just like I just mentioned in the call, is that, you know, we are, we're now operating as a globally integrated company. And so the global strategy that we really started to be executed here in North America the past two years has really been now understood and then start to be replicated in Europe, really started about nine months ago in earnest. So the team there has really been working closely together as a European team and then well connected to the North American team and Asia Pacific team to really understand the global strategy and more importantly, understand how to execute that locally. So in terms of the focus on the critical few priorities and then the...
And then focus on the high value products that the market need and really drive the penetration into the marketplace has really been the key driver that allow us to have three good quarters in Europe and then really culminated in the record quarter this past fourth quarter. Let me give you one example. You know, one of the high margin products in Europe is our fiber gypsum floor products. So during COVID time, a lot more people stay at home, and so our flooring products has great acoustic attenuation properties, as well as the impact resistance.
So during the past really nine months and four months the team was able to get very good traction to in the repair and remodeling markets to penetrate with our fiber gypsum flooring product. This is really high margin, high average selling price. And we penetrate the German markets, penetrate the Benelux, and then markets and Switzerland markets, that gave rise to a very good profit growth for our business in Europe. It's really about the global strategy start to gain traction of local execution in the right way to get to the result that you saw in Q4.
Peter Steyn (Division Director and Managing Director)
Thanks, Jack. Really appreciate that specific example. Cheers.
Jack Truong (CEO)
Thank you.
Operator (participant)
Thank you. Your next question comes from Keith Chau from MST Marquee. Please go ahead.
Keith Chau (Basic Industrial Analyst)
Hi, Jack and Jason, again. Jason, maybe first one to you. The eight-day shutdown of the plant, in Texas, did that have an impact on overall volumes for the quarter, or did you manage to catch up on volume that may have been missed when that plant was shut down?
Jack Truong (CEO)
Very, very good question, Keith. I think what we are able to do first and foremost is that, you know, with the lean operating system that we have, that we are really able to shut down the plant quickly and keep it really maintained during the frozen eight days, and then we are able to come out very smoothly on the other side. And that was a huge help in terms of how we are able to recover and then respond in the marketplace. And of course, with the loss of eight days of production in our two Texas plants, which is a very big volume, that of course is not something that we can recover fully in that volume.
But really, the end of the day, what we look at is really that volume price mix. And so, we were able to work closely with our customers, and be able to make the right holistic decision, balance in volume, and then mix in price to be able to come out with a really good set of financials that deliver on net sales and then and EBIT dollars for the quarter.
Keith Chau (Basic Industrial Analyst)
Thanks, Jack. That’s very helpful. So my interpretation of that comment is, volumes weren't necessarily impacted, but there may have been some recoveries that were a bit high, or you weren't able to recover costs as effectively as you may would have otherwise if you didn't have that shutdown. Would that be the right interpretation?
Jack Truong (CEO)
Exactly.
Keith Chau (Basic Industrial Analyst)
Okay, thank you.
Jack Truong (CEO)
Yeah.
Keith Chau (Basic Industrial Analyst)
And then the second follow-on is just on your lean targets. So obviously, tracking towards that $139 million global target, but I don't think I've seen an updated target beyond FY 2022. Can you just give us a sense of how to, I guess, interpret what the potential benefits could be going forward? Whether you're expecting North America lean benefits to be north of $100 million, and if so, by when? And the same discussion for the other regions, please. Thank you.
Jack Truong (CEO)
I think that by giving a new EBIT margin target for both North America and APAC is very kind of a signal here, a little bit is that, yes, so we will have new lean targets, and that will be announced at the annual Investor Day next week, Keith.
Keith Chau (Basic Industrial Analyst)
That's great. Thanks very much, Jack. Appreciate it.
Jack Truong (CEO)
Thanks.
Operator (participant)
Thank you. Your next question comes from Simon Thackray from Jefferies Australia. Please go ahead.
Simon Thackray (Managing Director)
Oh, thanks very much. I think Keith got in ahead of me on the sequential North American volume growth, and why the margins went down sequentially, so I'll park that one. Thanks, Keith. Just a quick one on the New Zealand leaky claims and the press reports now coming out of New Zealand on the $200 million class action. Is there anything to sort of update us with respect to New Zealand around that?
Jason Neely (CFO)
Yeah, Simon, so, the press you're seeing the past couple of days is related to a case that just began on Monday in the Auckland High Court. And then there was also a case that completed in December of 2020 in the Wellington High Court. We'd expect to hear the judge's findings from that in the middle of this year. And for now, we're gonna leave that until one of the high courts does rule on one of those cases.
Simon Thackray (Managing Director)
All right. Thanks. Thanks, guys. Appreciate it.
Jason Neely (CFO)
Sure.
Operator (participant)
Thank you. Your next question comes from Brook Campbell-Crawford, from JP Morgan. Please go ahead.
Brook Crawford (Quantitative Research Analyst)
Yeah, thanks. Just one quick follow-up on, again, on North America volume. Just wondering if you're able to provide a sense of, of how exteriors in North America are tracking in, the current quarter? What sort of growth rates?
Jack Truong (CEO)
Well, Brooke, for the North American volumes, we're in the high teens.
Brook Crawford (Quantitative Research Analyst)
Okay, great. Thanks.
Operator (participant)
Thank you. There are no further questions at this time. I'll now hand back to Jack Truong for closing remarks.
Jack Truong (CEO)
Thank you all very much for joining us today. I'd just like to take the opportunity to extend my gratitude and thanks to all our colleagues around the world. Our exceptional financial results in fiscal year 2021 are really direct results of the continued execution of our global strategy. The progress that we've made over the past two years to fundamentally transform how we operate is nothing short of extraordinary. The efforts in this regard have put us in a position to enable significant future global growth. We're truly a new James Hardie company, a company that leverages on its global reach, global capabilities, and global scale to execute and deliver on financial results consistently. I'm excited for what the future holds as we embark on this next phase of profitable growth.
Thank you all, and have a great day.
Operator (participant)
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.