20-F 1 d112576d20f.htm FORM 20-F Form 20-F
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)

¨  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

x   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended 31 March 2016

OR

¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

¨  SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

For the transition period from       to

Commission file number 1-15240

JAMES HARDIE INDUSTRIES plc

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

Ireland

(Jurisdiction of incorporation or organization)

Europa House, Second Floor

Harcourt Centre

Harcourt Street, Dublin 2, Ireland

(Address of principal executive offices)

Natasha Mercer

Corporate Secretary

(Contact name)

353 1411 6924 (Telephone)                 353 1479 1128 (Facsimile)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class:

  Name of each exchange on which registered:

Common stock, represented by CHESS Units of Foreign Securities

  New York Stock Exchange*

CHESS Units of Foreign Securities

  New York Stock Exchange*
American Depositary Shares, each representing one unit of CHESS Units of Foreign Securities   New York Stock Exchange
* Listed, not for trading, but only in connection with the registered American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission


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Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report:

445,579,351 shares of common stock at 31 March 2016

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  x  Yes  ¨  No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  ¨  Yes  x  No

Note — Checking the box will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  x  Yes  ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  x  Yes  ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See the definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

  x     

Accelerated filer

  ¨     

Non-accelerated filer

  ¨     

 

 

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

US GAAP

  x     

International Financial Reporting Standards as issued by the International Accounting

Standards Board

  ¨     

Other

  ¨     

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

¨  Item 17  ¨  Item 18

If this is an Annual Report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

¨  Yes  x  No


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LOGO

2016

ANNUAL REPORT

ON FORM 20-F

 

 

LOGO


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James Hardie 2016 Annual Report on Form 20-F   i

 

 

 

TABLE OF CONTENTS

 

   

Page(s)

     

Form 20-F Cross-Reference Index

        ii      

 

    

Section 1

    1      
    

Introduction

    1      
    

Selected Financial Data

    1      
    

Information on the Company

    3      
    

History and Development of the Company

    3      
    

Business Overview

    5      
    

Organizational Structure

    13      
    

Property, Plants and Equipment

    14      
    

Directors, Senior Management and Employees

    18      
    

James Hardie Executive Team

    18      
    

Board of Directors

    23      
    

Remuneration Report

    29      
    

Corporate Governance Report

    69      
    

 

Section 2

    89      
    

Reading this Report

    89      
    

Management’s Discussion and Analysis

    91      
    

Consolidated Financial Statements

    118      
    

Notes to Consolidated Financial Statements

    124      
    

Remuneration of Independent Registered Public Accounting Firm

    169      
    

 

Section 3

    170      
    

Risk Factors

    170      
    

Legal Proceedings

    188      
    

Controls and Procedures

    190      
    

Employees

    192      
    

Listing Details

    192      
    

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

    196      
    

Constitution

    197      
    

Material Contracts

    206      
    

Exchange Controls

    206      
    

Taxation

    206      
    

Quantitative and Qualitative Disclosures About Market Risk

    216      
    

 

Section 4

    219      
    

SHARE/CHESS Units of Foreign Securities Information

    219      
    

Glossary of Abbreviations and Definitions

    222      
    

Exhibit List

    227      
    
Signatures     235      

 


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James Hardie 2016 Annual Report on Form 20-F   ii

 

 

 

FORM 20-F CROSS REFERENCE

 

   

Page(s)

PART 1

    
    

Item 1. Identity of Directors, Senior Management and Advisers

    Not applicable      
    

Item 2. Offer Statistics and Expected Timetable

    Not applicable      

Item 3. Key Information

    
    

A. Selected Financial Data

    1-3      
    

B. Capitalization and Indebtness

    Not applicable      
    

C. Reasons for the Offer and Use of Proceeds

    Not applicable      
    

D. Risk Factors

    170-187      
    

Item 4. Information on the Company

    
    

A. History and Development of the Company

    3-7; 10-11; 16-17      
    

B. Business Overview

    5-13      
    

C. Organizational Structure

    5; 13      
    

D. Property, Plants and Equipment

    14-17; 115      
    

Item 4A. Unresolved Staff Comments

    None      

Item 5. Operating and Financial Review and Prospects

    
    

A. Operating Results

    96-111      
    

B. Liquidity and Capital Resources

    112-116      
    

C. Research and Development, Patents and Licenses, etc

    11-12      
    

D. Trend Information

    116      
    

E. Off-Balance-Sheet Arrangements

    116      
    

F. Tabular Disclosure of Contractual Obligations

    117      
    

G. Safe Harbor

    89-90      

Item 6. Directors, Senior Management and Employees

    
    

A. Directors and Senior Management

    18-28      
    

B. Compensation

    29-68      
    

C. Board Practices

    23-28; 69-88      
    

D. Employees

    192      
    

E. Share Ownership

    59-60; 64-68      

Item 7. Major Shareholders and Related Party Transactions

    
    

A. Major Shareholders

    219-221      
    

B. Related Party Transactions

    79      
    

C. Interests of Experts and Counsel

    None      

Item 8. Financial Information

    
    

A. Consolidated Statements and Other Financial Information

    118-168; 202-203      
    

B. Significant Changes

    None      
    

Item 9. The Offer and Listing

    
    

A. Offer and Listing Details

    192-195      
    

B. Plan of Distribution

    Not applicable      
    

C. Markets

    193-194      
    

D. Selling Shareholders

    Not applicable      


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James Hardie 2016 Annual Report on Form 20-F   iii

 

 

 

 

FORM 20-F CROSS REFERENCE (continued)

   

Page(s)

PART 1 (continued)

    

 

E. Dilution

    Not applicable      
    

F. Expenses of the Issue

    Not applicable      
    

Item 10. Additional Information

    

A. Share Capital

    Not applicable      
    

B. Memorandum and Articles of Association

    197-206      
    

C. Material Contracts

    206      
    

D. Exchange Controls

    206      
    

E. Taxation

    206-215      
    

F. Dividends and Paying Agents

    Not applicable      
    

G. Statement by Experts

    Not applicable      
    

H. Documents on Display

    215      
    

I. Subsidiary Information

    Not applicable      
    

Item 11. Quantitative and Qualitative Disclosures About Market Risk

    216-218      

Item 12. Description of Securities Other Than Equity Securities

    

A. Debt Securities

    Not applicable      
    

B. Warrants and Rights

    Not applicable      
    

C. Other Securities

    Not applicable      

D. American Depositary Shares

    194-195      

 

PART II

    

Item 13. Defaults, Dividend Arrearages and Delinquencies

    None      
    

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

    None      
    

Item 15. Controls and Procedures

    190-191      
    

Item 16A. Audit Committee Financial Expert

    83      
    

Item 16B. Code of Business Conduct and Ethics

    81-82      
    

Item 16C. Principal Accountant Fees and Services

    169      
    

Item 16D. Exemptions from the Listing Standards for Audit Committees

    None      
    

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

    196      
    

Item 16F. Change in Registrant’s Certifying Accountant

    None      
    

Item 16G. Corporate Governance

    69-88      
    

Item 16H. Mine Safety Disclosures

    15-16      
    

 

PART III

    

Item 17. Financial Statements

    Not applicable      

Item 18. Financial Statements

    118-168      
    

Item 19. Exhibits

    227-234      


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James Hardie 2016 Annual Report on Form 20-F   1

 

 

 

SECTION 1

INTRODUCTION

James Hardie Industries plc is a world leader in the manufacture of fiber cement siding and backerboard. Our products are used in a number of markets, including new residential construction (single and multi-family housing), manufactured housing, repair and remodeling and a variety of commercial and industrial applications. We manufacture numerous types of fiber cement products with a variety of patterned profiles and surface finishes for a range of applications, including external siding and trim and soffit lining, internal linings, facades and floor and tile underlay. Our current primary geographic markets include the United States of America (“US”, “USA” or the “United States”), Canada, Australia, New Zealand, the Philippines and Europe.

James Hardie Industries plc is a “public limited company,” incorporated and existing under the laws of Ireland. Except as the context otherwise may require, references in this Annual Report on Form 20-F (this “Annual Report”) to “James Hardie,” the “James Hardie Group,” the “Company,” “JHI plc,” “we,” “our” or “us” refer to James Hardie Industries plc, together with its direct and indirect wholly owned subsidiaries as of the time relevant to the applicable reference.

For certain information about the basis of preparing the financial information in this Annual Report, see “Section 2 – Reading this Report.” In addition, this Annual Report contains statements that constitute “forward-looking statements.” For an explanation of forward-looking statements and the risks, uncertainties and assumptions to which they are subject, see “Section 2 – Reading this Report.” Further, a “Glossary of Abbreviations and Definitions” has also been included under Section 4 of this Annual Report.

The term “fiscal year” refers to our fiscal year ended 31 March of such year; the term “dollars,” “US$” or “$” refers to US dollars; and the term “A$” refers to Australian dollars. For the exchange rates used to convert Australian dollar denominated amounts into US dollars, see Note 2 to our consolidated financial statements in Section 2.

Information contained in or accessible through the websites mentioned in this Annual Report does not form a part of this Annual Report unless we specifically state that it is incorporated by reference herein. All references in this Annual Report to websites are inactive textual references and are for information only.

SELECTED FINANCIAL DATA

We have included in this Annual Report the audited consolidated financial statements of the Company, consisting of our consolidated balance sheets as of 31 March 2016 and 2015, and our consolidated statements of operations and comprehensive income, cash flows for each of the years ended 31 March 2016, 2015 and 2014 and changes in shareholders’ (deficit) equity, together with the related notes thereto. The consolidated financial statements included in this Annual Report have been prepared in accordance with accounting principles generally accepted in the US (“US GAAP”).


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James Hardie 2016 Annual Report on Form 20-F   2

 

 

 

The selected consolidated financial information, summarized below for the five most recent fiscal years has been derived in part from the Company’s consolidated financial statements. You should read the selected consolidated financial information in conjunction with the Company’s consolidated financial statements and related notes contained in “Section 2 – Consolidated Financial Statements” and with the information provided in “Section 2 – Management’s Discussion and Analysis.” Historic financial data is not necessarily indicative of our future results and you should not unduly rely on it.

 

    (Millions of US dollars)  
Consolidated Statement of Operations Data   2016     2015     2014     2013     2012  

Net sales

  $     1,728.2      $     1,656.9      $     1,493.8      $     1,321.3      $   1,237.5   

Income from operations1

    244.4        291.3        99.5        45.5        604.3   

Net income1

  $ 244.4      $ 291.3      $ 99.5      $ 45.5      $ 604.3   

 

    (Millions of US dollars)  
Consolidated Balance Sheet Data   2016     2015     2014     2013     2012  

Total assets

  $     2,040.4      $     2,044.5      $     2,104.0      $     2,113.2      $   2,310.0   

Net assets

    (225.2     (202.6     (199.0     18.2        126.4   

Common stock

  $ 231.4      $ 231.2      $ 230.6      $ 227.3      $ 224.0   

 

    (Number)  
Shares   2016     2015     2014     2013     2012  

Basic weighted average number of common shares

    445.3        445.0        442.6        439.2        436.2   

Diluted weighted average number of common shares

    447.2        446.4        444.6        440.6        437.9   

 

    (US dollar)  
Earnings Per Share   2016     2015     2014     2013     2012  

Income from operations per common share — basic

  $     0.55      $     0.65      $     0.22      $     0.10      $     1.39   

Net income per common share — basic

    0.55        0.65        0.22        0.10        1.39   

Income from operations per common share — diluted

    0.55        0.65        0.22        0.10        1.38   

Net income per common share — diluted

    0.55        0.65        0.22        0.10        1.38   

Dividends declared per share

    0.58        0.60        0.73        0.43        0.04   

Dividends paid per share

  $ 0.58      $ 0.88      $ 0.45      $ 0.43      $ 0.04   

 

Other Financial Data   2016     2015     2014     2013     2012  

Net cash provided by operating activities (Millions of US dollars)

    $       260.4        $   179.5        $     322.8        $    109.3        $  387.2   

Net cash used in investing activities (Millions of US dollars)

    (66.6     (277.9     (118.8     (59.7     (49.9

Net cash used in financing activities (Millions of US dollars)

    $      (154.4     $      (4.6     $    (186.3     $  (158.7     $   (84.4

Volume (million square feet)

           

North America and Europe Fiber Cement2

    2,000.5        1,849.7        1,696.9        1,488.5        1,331.8   

Asia Pacific Fiber Cement3

    449.6        456.2        417.2        393.7        392.3   

Net Sales (Millions of US dollars)

           

North America and Europe Fiber Cement

    $    1,386.3        $1,276.5        $  1,127.6        $  951.4        $  862.0   

Asia Pacific Fiber Cement3

    $       341.9        $   380.4        $      366.2        $  369.9        $  375.5   

Average sales price per unit (per thousand square feet)

           

North America and Europe Fiber Cement

    US$    676        US$  675        US$  652        US$  626        US$  642   

Asia Pacific Fiber Cement3

    A$ 1,020        A$  942        A$  930        A$  901        A$  906   

 

1

Income from operations and net income include the following: asbestos adjustments, Asbestos Injuries Compensation Fund (“AICF”) selling, general and administrative (“SG&A”) expenses, Australian Securities and Investments


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James Hardie 2016 Annual Report on Form 20-F   3

 

 

 

  Commission (“ASIC”) related (expenses) recoveries, asset impairment charges, non-recurring stamp duty and New Zealand weathertightness claims expenses. Income from operations and net income in fiscal year 2012 includes an income tax benefit of US$485.2 million recognized upon RCI Pty Ltd’s successful appeal of the Australian Taxation Office’s (“ATO”) disputed 1999 amended tax assessment.

 

     (Millions of US dollars)  
Other Financial Data    2016      2015      2014      2013      2012  

Asbestos adjustments benefit (expense)

     5.5         33.4         (195.8      (117.1      (15.8

AICF SG&A expenses

     (1.7      (2.5      (2.1      (1.7      (2.8

AICF interest (expense) income

     (0.3      1.4         2.9         7.0         3.3   

ASIC related expenses

     -           -           -           (2.6      (1.1

Asset impairments

     -           -           -           (16.9      (14.3

Non-recurring stamp duty

     -           (4.2      -           -           -     

New Zealand weathertightness claims4

     (0.5      4.3         (1.8      (13.2      (5.4

 

     For additional information on asbestos adjustments, AICF SG&A expenses, asset impairment charges, non-recurring stamp duty and New Zealand weathertightness, see “Section 2 – Management’s Discussion and Analysis” and Notes 7, 11 and 14 to our consolidated financial statements in Section 2.

 

2 During the year ended 31 March 2016, the Company changed the name of its USA and Europe segment to the North America and Europe segment to better reflect the segment’s geographic nature; however, the composition of the segment remained the same.

 

3 Asia Pacific Fiber Cement segment includes all fiber cement manufactured in Australia, New Zealand and the Philippines and sold in Australia, New Zealand, Asia, the Middle East and various Pacific Island Nations.

 

4 The Company began separately disclosing New Zealand weathertightness claims expense in fiscal year 2013 and did so for fiscal year 2012 for comparative purposes only.

INFORMATION ON THE COMPANY

History and Development of the Company

James Hardie was established in 1888 as an import business, listing on the Australian Securities Exchange (“ASX”) in 1951 to become a publicly owned company in Australia. After becoming a listed company, we built a diverse portfolio of building and industrial products. In the late-1970s, we pioneered the development of asbestos-free fiber cement technology and in the early-1980’s began designing and manufacturing a wide range of fiber cement building products that made use of the benefits that came from the products’ durability, versatility and strength. Using the technical and manufacturing expertise developed in Australia, we expanded into the United States, opening our first fiber cement plant in Fontana, California in February 1990.

In September 2001, in order to maximize the benefit of our strong international growth and in order to generate higher returns for shareholders from the James Hardie Group’s continuing international expansion, the shareholders of James Hardie Industries Limited (“JHIL”), then the ultimate parent company of the James Hardie Group and the vehicle with which our shareholding was listed with the ASX, agreed to exchange their shares for shares in James Hardie Industries N.V. (“JHINV”), a Dutch public limited liability company. JHINV retained its primary listing on the ASX, and in October 2001, to reflect the new corporate structure, JHIL transferred all of its fiber cement businesses to JHINV.


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James Hardie 2016 Annual Report on Form 20-F   4

 

 

 

In February 2010, our legal name was changed to James Hardie Industries SE when our legal form was converted from a Dutch public limited liability company to a Societas Europaea (“SE”), a European public limited liability company. This was the first stage of a two-stage re-domicile proposal to change our registered corporate domicile from the Netherlands to Ireland. On 17 June 2010, we implemented Stage 2 of the re-domicile and changed our registered corporate domicile to Ireland to become an Irish SE, becoming an Irish tax resident on 29 June 2010. On 15 October 2012, we converted from an Irish SE into our current corporate form, an Irish public limited company (“plc”).

We conduct our operations under legislation in various jurisdictions. As an Irish plc, we are governed by the Irish Companies Act 2014 and we operate under the regulatory requirements of numerous jurisdictions and organizations, including the ASX, ASIC, the New York Stock Exchange (“NYSE”), the United States Securities and Exchange Commission (“SEC”), the Irish Takeover Panel and various other rulemaking bodies.

The address of our registered office in Ireland is Europa House, Second Floor, Harcourt Centre, Harcourt Street, Dublin 2, Ireland. The telephone number there is +353 1411 6924. Our agent in the United States is CT Corporation. Its office is located at 111 Eight Avenue – 13th Floor, New York, New York 10011. The address of our registered office in Australia is Level 3, 22 Pitt Street, Sydney NSW 2000 and the telephone number there is +61 2 8845 3360. Our share registry is maintained by Computershare Registry Services Pty Ltd. All enquires and correspondence regarding holdings should be directed to: Computershare Investor Services Pty Ltd, Level 5, 115 Grenfell Street, Adelaide, SA 5000; telephone: +61 3 9415 4000, toll free within Australia: 1 300 855 080 or toll free from the US 1 855 298 3404.

Our Agreement with Asbestos Injuries Compensation Fund

Prior to 1987, ABN 60 Pty Limited (formerly JHIL) (“ABN 60”) and two of its former subsidiaries, Amaca Pty Limited (“Amaca”) and Amaba Pty Limited (“Amaba”) (together the “Former James Hardie Companies”), manufactured products in Australia that contained asbestos. These products have resulted in liabilities for the Former James Hardie Companies in Australia.

In February 2007, our shareholders approved the Amended and Restated Final Funding Agreement (“AFFA”) entered into on 21 November 2006 to provide long-term funding to AICF for the compensation of proven Australian-related personal injuries for which the Former James Hardie Companies are found liable. AICF, an independent trust, subsequently assumed ownership of the Former James Hardie Companies. We do not own AICF, however, we are entitled to appoint three directors, including the Chairman and the New South Wales (“NSW”) Government is entitled to appoint two directors.

Under the terms of the AFFA, subject to the operation of an annual cash flow cap, James Hardie 117 Pty Ltd (the “Performing Subsidiary”) will make annual payments to AICF. The amount of these annual payments is dependent on several factors, including our free cash flow (as defined in the AFFA), actuarial estimations, actual claims paid, operating expenses of AICF, changes in the AUD/USD exchange rate and the annual cash flow cap. JHI plc owns 100% of the Performing Subsidiary and guarantees the Performing Subsidiary’s obligation. As a result, for US GAAP purposes, we consider JHI plc to be the primary beneficiary of AICF.


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James Hardie 2016 Annual Report on Form 20-F   5

 

 

 

Although we have no legal ownership in AICF, for financial reporting purposes, our interest in AICF is considered variable and we consolidate AICF due to our pecuniary and contractual interests in AICF as a result of the funding arrangements outlined in the AFFA. For additional information on our consolidation of AICF and asbestos-related assets and liabilities, see Note 2 to our consolidated financial statements.

Corporate Structure

The following diagram summarizes our current corporate structure:

 

LOGO

Business Overview

General Overview of Our Business

Based on net sales, we believe we are the largest manufacturer of fiber cement products and systems for internal and external building construction applications in the United States, Australia, New Zealand, and the Philippines. We market our fiber cement products and systems under various Hardie brand names, such as HardiePlank®, HardiePanel®, HardieTrim® and HardieBacker® boards, and other brand names such as Artisan® by James Hardie, Cemplank®, Scyon® and HardieLinea®.

The breakdown of our net sales by operating segment for each of our last three fiscal years is as follows:

 

    (Millions of US dollars)  
     2016     2015     2014  

North America and Europe Fiber Cement

  $     1,386.3      $     1,276.5      $     1,127.6   

Asia Pacific Fiber Cement

    341.9        380.4        366.2   

Total Net Sales

  $ 1,728.2      $ 1,656.9      $ 1,493.8   


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James Hardie 2016 Annual Report on Form 20-F   6

 

 

 

Products

We manufacture a wide-range of fiber cement building materials for both internal and external use across a broad range of applications, including: external siding, internal walls, floors, ceilings, soffits, trim, fencing and facades. While there are some market specific products, our core product ranges, being planks, which are used for external siding and flat sheets, are used for internal and external wall linings and floor underlayments and are sold across all of the markets in which we operate.

Products Used in External Applications

We developed a proprietary technology platform that enables us to produce thicker yet lighter-weight fiber cement products that are generally easier to handle than most traditional building products. Further, we believe that our products provide certain performance, design and cost advantages, while offering comparable aesthetics to competing products such as wood and vinyl siding.

Performance and design advantages:

    Our fiber cement products exhibit resistance to the damaging effects of moisture, fire, impact and termites compared to natural and engineered wood and wood-based products;
    Competing products do not duplicate fiber cement aesthetics and the characteristics necessary for effectively accepting paint applications;
    Our fiber cement products provide the ability to imprint designs that closely resemble the patterns and profiles of traditional building materials such as wood and stucco;
    The surface properties of our products provide an effective paint-holding finish, especially when compared to natural and engineered wood products, allowing for greater periods of time between necessary maintenance and repainting; and
    Compared to masonry construction, fiber cement is lightweight, physically flexible and can be cut using readily available tools, making our products more appealing across a broad range of architectural styles, be it of timber or steel-framed construction.

We believe the benefits associated with our fiber cement products have enabled us to gain a competitive advantage over competing products.

Products Used in Internal Applications

Compared to natural and engineered wood and wood-based products, we believe our product range for internal applications provide the same general advantages provided by our products for external applications. In addition, our fiber cement products for internal applications exhibit less movement in response to exposure to moisture and impact damage than many competing products, providing a more consistent and durable substrate on which to install tiles. Further, we believe our ceramic tile underlayment products exhibit better handling and installation characteristics compared to fiberglass mesh cement boards.

Significant New Products

In the United States, new products released over the last three years include HardieReveal2.0™ panel system, James Hardie® Insulated Lap Siding and Trim, HardieTrim® 2x™ board,


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HardieTrim® NT3® Roughsawn board, HardieTrim® Mouldings, Artisan® V-Rustic premium exterior siding, custom colors using our ColorPlus® Technology, and an improved touch-up accessory to support ColorPlus® products.

In Australia and New Zealand, new products released over the last three years include the ARChitectural™ Prefinished panel range for commercial applications, including Invibe® panels with Chromashield® Technology and Inraw® panels. Extensions to the existing Stria® cladding products have been launched to provide Stria® Standard 325mm, Stria® Wide 405mm, and Splayed 255mm cladding profiles. Similarly, Axon® cladding has now been extended to provide Axon® Smooth 133mm, Axon® Smooth 400mm, and Axon® Grained 133mm cladding.

In Australia only, our HardieDeck™ system provided a major new product application launch in 2015. HardieBrace®, a new online calculator tool, offers a way to simplify structural bracing calculations. Modcem® modular flooring has provided an entry into commercial flooring applications. Similarly, Systemboard™ cladding provided a niche multi-story construction product application. Additions to the range of building science offerings include HardieWrap® weather barrier, HardieFire® Insulation, HardieBreak® Thermal Strip, as well as the HardieSmart® Boundary, Aged Care and ZeroLot Wall Systems. Due to an evolution of the market in Australia, the Scyon® range of products has been repositioned under the James Hardie brand as James Hardie® products including Scyon® technology.

In New Zealand only, over the same timeframe, Secura® Interior Flooring, Secura® Exterior Flooring, Axent™ Fascia, HomeRAB® 4.5mm Pre Cladding, HardieGlaze®, Stria® Cladding, Axon® 400 and 133 Grained Cladding, Linea® Oblique™ Cladding and Easy Lap™ Panel have been launched.

In the Philippines, new products released over the past three years include the extension of the established Hardieflex™ board range with the inclusion of Hardieflex™ Wet Area Walls lining and Hardieflex™ Pro products, primarily for wet area application, and HardieFlex® Flooring.

The European business has launched HardieFloor™ Structural Flooring, and has developed an innovative range of products focused on improving acoustic performance of buildings, including HardieFloor dB™ Structural Acoustic Flooring, and HardieQStrip™ Acoustic Batten.

Principal Markets for Our Products

United States, Canada and Europe

In the US and Canada, the largest application for fiber cement building products is in external siding for the residential building industry. The external siding market includes various cladding types, including fiber cement, vinyl, natural wood, engineered wood, brick, stucco and stone. Based on industry estimates, vinyl has the largest share of the US and Canadian siding markets. External siding typically occupies a significant square footage component of the outside of every building. Selection of siding material is based on installed cost, durability, aesthetic appeal, strength, weather resistance, maintenance requirements and cost, insulating properties and other features. Different regions of the US and Canada show a preference amongst siding materials according to economic conditions, weather, materials availability and local preference.


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Demand for siding in the US and Canada fluctuates based on the level of new residential housing starts and the repair and remodeling activity of existing homes. The level of activity is generally a function of interest rates and the availability of financing to homeowners to purchase a new home or make improvements to their existing homes, inflation, household income and wage growth, unemployment levels, demographic trends, gross domestic product growth and consumer confidence. The sale of fiber cement products in the North America accounts for the largest portion of our net sales, accounting for 78%, 75% and 73% of our total net sales in fiscal years 2016, 2015 and 2014, respectively.

In the US and Canada, competition in the external siding market comes primarily from substitute products, such as natural or engineered wood, vinyl, stucco and brick. We believe we can continue to increase our market share from these competing products through targeted marketing programs designed to educate customers on our brand and the performance, design and cost advantages of our products.

In Europe, fiber cement building products are used in both residential and commercial building applications in external siding, internal walls, floors, soffits and roofing. We compete in most segments, except roofing, and promote the use of fiber cement products against traditional masonry, gypsum-based products and wood-based products. Since we commenced selling our products in Europe in fiscal year 2004, we have continued to work to grow demand for our products by building awareness among distributors, builders and contractors. Management believes that the growth outlook for fiber cement in Europe is favorable, in light of stricter insulation requirements driving demand for advanced exterior cladding systems, as well as better building practices increasing the use of fiber cement in interior applications.

Asia Pacific

In the Asia Pacific region, we principally sell into the Australian, New Zealand and Philippines markets, with the residential building industry representing the principal market for fiber cement products. The largest applications of fiber cement across our three primary markets are in external siding, internal walls, ceilings, floors, soffits, fences and facades. We believe the level of activity in this industry is generally a function of interest rates, inflation, household income and wage growth, unemployment levels, demographic trends, gross domestic product growth and consumer confidence. Demand for fiber cement building products is also affected by the level of new housing starts and renovation activity.

In Australia, competition for fiber cement has intensified over the past decade, with two competitors establishing fiber cement manufacturing facilities and competition from imports continuing to grow. Additionally, we continue to see competition from natural and engineered wood, wallboard, masonry and brick products.

In New Zealand, we continue to see competition intensifying as fiber cement imports have become more cost competitive and overseas manufacturers look to supplement their primary operating environments with additional markets.

In the Philippines, we have seen fiber cement gain acceptance across a broader range of product applications in the last decade, leading to additional fiber cement products entering the market,


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along with the increased use of gypsum in fiber cement applications. We see fiber cement having long-term growth potential not only in the Philippines, but across Asia and the Middle East, as the benefits of its light-weight and durability become more widely recognized.

Seasonality

Our businesses are seasonal and typically follow activity levels in the building and construction industry. In the United States, the calendar quarters ending in December and March generally reflect reduced levels of building activity depending on weather conditions. In Australia and New Zealand, the calendar quarter ending in March is usually the quarter most affected by a slowdown due to summer holidays. In the Philippines, construction activity diminishes during the wet season from June through September and during the last half of December due to the slowdown in business activity over the holiday period. Also, general industry patterns can be affected by weather, economic conditions, industrial disputes and other factors. See “Section 3 – Risk Factors.”

Raw Materials

The principal raw materials used in the manufacture of our fiber cement products are cellulose fiber (wood-based pulp), silica (sand), Portland cement and water. We have established supplier relationships for all of our raw materials across the various markets in which we operate and we do not anticipate having difficulty in obtaining our required raw materials from these suppliers. The purchase price of these raw materials and other materials can fluctuate depending on the supply-demand situation at any given point in time.

We work hard to reduce the effect of both price fluctuations and supply interruptions by entering into contracts with qualified suppliers and through continuous internal improvements in both our products and manufacturing processes.

Cellulose Fiber

Reliable access to specialized, consistent quality, low cost pulp is critical to the production of fiber cement building materials. As a result of our many years of experience and expertise in the industry, we share our internal expertise with pulp producers in New Zealand, the United States, Canada and Chile to ensure they are able to provide us with a highly specialized and proprietary formula crucial to the reinforcing cement matrix of our fiber cement products. We have confidentiality agreements with our pulp producers and we have obtained patents in the United States and in certain other countries covering certain unique aspects of our pulping formulas and processes that we believe cannot adequately be protected through confidentiality agreements. However, we cannot be assured that our intellectual property and other proprietary information will be protected in all cases. See “Section 3 – Risk Factors.”

Silica

High purity silica is sourced locally by the various production plants. In the majority of locations, we use silica sand as a silica source. In certain other locations, however, we process quartz rock and beneficiate silica sand to ensure the quality and consistency of this key raw material.


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Cement

Cement is acquired in bulk from local suppliers. We continue to evaluate options on agreements with suppliers for the purchase of cement that can lock in our cement prices over longer periods of time.

Water

We use local water supplies and seek to process all wastewater to comply with environmental requirements.

Sales, Marketing and Distribution

The principal markets for our fiber cement products are the United States, Australia, New Zealand, the Philippines, Canada, and in parts of Europe, including the United Kingdom and France. In addition, we have sold fiber cement products in many other markets, including China, Mongolia, Denmark, Germany, Hong Kong, India, the Middle East (Israel, Saudi Arabia, Lebanon and the United Arab Emirates), various Pacific Islands, Singapore, South Korea, Taiwan, and Vietnam. Our brand name, customer education in comparative product advantages, differentiated product range and customer service, including technical advice and assistance, provide the basis for our marketing strategy.

We offer our customers support through a specialized fiber cement sales force and customer service infrastructure in the United States, Australia, New Zealand, the Philippines and Europe. The customer service infrastructure includes inbound customer service support coordinated nationally in each country, and is complemented by outbound telemarketing capability. Within each regional market, we provide sales and marketing support to building products dealers and lumber yards and also provide support directly to the customers of these distribution channels, principally homebuilders and building contractors.

We maintain dedicated regional sales management teams in our major sales territories, with our national sales managers and national account managers, together with regional sales managers and sales representatives, maintaining relationships with national and other major accounts. Our various sales forces, which in some instances manage specific product categories, include skilled trades people who provide on-site technical advice and assistance.

In the United States, we sell fiber cement products for new residential construction predominantly to distributors, which then sell these products to dealers or lumber yards. This two-step distribution process is supplemented with direct sales to dealers and lumber yards as a means of accelerating product penetration and sales. Repair and remodel products in the United States are typically sold through the large home center retailers and specialist distributors. Our products are distributed across the United States and Canada primarily by road and, to a lesser extent, by rail.

In Australia and New Zealand, both new construction and repair and remodel products are generally sold directly to distributor/hardware stores and lumber yards rather than through the two-step distribution process. In the Philippines, a network of thousands of small to medium size dealer outlets sell our fiber cement products to consumers, builders and real estate developers,


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although in recent years, do-it-yourself type stores have started to enter the Philippines market. The physical distribution of our product in each country is primarily by road or sea transport. Products manufactured in Australia, New Zealand and the Philippines are also exported to a number of markets in Asia, various Pacific Islands, and the Middle East by sea transport.

Despite the fact that distributors and dealers are generally our direct customers, we also aim to increase primary demand for our products by marketing our products directly to homeowners, architects and builders. We encourage them to specify and install our products because of the quality and craftsmanship of our products. This “pull through” strategy, in turn, assists us in expanding sales for our distribution network as distributors benefit from the increasing demand for our products.

Geographic expansion of our fiber cement business has occurred in markets where framed construction is prevalent for residential applications or where there are opportunities to change building practices from masonry to framed construction. Expansion is also possible where there are direct substitution opportunities irrespective of the methods of construction. Our entry into the Philippines is an example of the ability to substitute fiber cement for an alternative product (in this case plywood). With the exception of our current major markets, as well as Japan and certain rural areas in Asia, Scandinavia, and Eastern Europe, most markets in the world principally utilize masonry construction for external walls in residential construction. Accordingly, further geographic expansion depends substantially on our ability to provide alternative construction solutions and for those solutions to be accepted in those markets.

Dependence on Trade Secrets and Research and Development (“R&D”)

We pioneered the successful development of cellulose reinforced fiber cement and, since the early-1980s, have progressively introduced products developed as a result of our proprietary product formulation and process technology. The introduction of differentiated products is one of the core components of our global business strategy. This product differentiation strategy is supported by our significant investment in research and development activities.

We view spending on research and development as the key to sustaining our existing product leadership position, by providing a continuous pipeline of innovative new products and technologies with sustainable performance and design advantages over our competitors. Further, through our investments in new process technology or by modifying existing process technology, we aim to keep reducing our capital and operating costs and to find new ways to make existing and new products. As such, we expect to continue allocating significant funding to these endeavors. For fiscal years 2016, 2015 and 2014, our expenses for R&D were US$29.5 million, US$31.7 million and US$33.1 million, respectively.

Our current patent portfolio is based mainly on fiber cement compositions, associated manufacturing processes and the resulting products. Our non-patented technical intellectual property consists primarily of our operating and manufacturing know-how and raw material and operating equipment specifications, all of which are maintained as trade secret information. We have enhanced our abilities to effectively create, manage and utilize our intellectual property and have implemented a strategy that increasingly uses patenting, licensing, trade secret protection and joint development to protect and increase our competitive advantage.


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In addition, we own a variety of licenses; industrial, commercial and financial contracts; and manufacturing processes. While we are dependent on the competitive advantage that these items provide as a whole, we are is not dependent on any one of them individually and do not consider any one of them individually to be material. We do not materially rely on intellectual property licensed from any outside third parties. However, we cannot assure that our intellectual property and other proprietary information will be protected in all cases. In addition, if our research and development efforts fail to generate new, innovative products or processes, our overall profit margins may decrease and demand for our products may fall. See “Section 3 – Risk Factors.”

Governmental Regulation

As an Irish plc, we are governed by the Irish Companies Act 2014 and are also subject to all applicable European Union level legislation. We also operate under the regulatory requirements of numerous jurisdictions and organizations, including the ASX, ASIC, the NYSE, the SEC, the Irish Takeover Panel and various other federal, state, local and foreign rulemaking bodies. See “Section 3 – Constitution” for additional information regarding the Irish Companies Act 2014 and regulations to which we are subject.

Environmental, Health and Safety Regulation

Our operations and properties are subject to extensive federal, state, local and foreign environmental protection, health and safety laws, regulations and ordinances governing activities and operations that may have adverse environmental effects. As it relates to our operations, our manufacturing plants produce regulated materials, including waste water and air emissions. The waste water produced from our manufacturing plants is internally recycled and reused before eventually being discharged to publicly owned treatment works, a process which is monitored by us, as well as by regulators. In addition, we actively monitor air emissions and other regulated materials produced by our plants so as to ensure compliance with the various environmental regulations under which we operate.

Some environmental laws provide that a current or previous owner or operator of real property may be liable for the costs of investigation, removal or remediation of certain regulated materials on, under, or in that property or other impacted properties. In addition, persons who arrange, or are deemed to have arranged, for the disposal or treatment of certain regulated materials may also be liable for the costs of investigation, removal or remediation of the regulated materials at the disposal or treatment site, regardless of whether the affected site is owned or operated by such person. Environmental laws often impose liability whether or not the owner, operator, transporter or arranger knew of, or was responsible for, the presence of such regulated materials. Also, third parties may make claims against owners or operators of properties for personal injuries, property damage and/or for clean-up associated with releases of certain regulated materials pursuant to applicable environmental laws and common law tort theories, including strict liability.

In the past, from time to time, we have received notices of alleged discharges in excess of our water and air permit limits. In each case, and in compliance with our Environmental Policy, we have addressed the concerns raised in those notices, in part, through capital expenditures intended to prevent future discharges in excess of permitted levels and, on occasion, the payment of associated minor fines.


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Environmental compliance costs in the future will depend, in part, on continued oversight of operations, expansion of operations and manufacturing activities, regulatory developments and future requirements that cannot presently be predicted.

Organizational Structure

JHI plc is incorporated and domiciled in Ireland and the table below sets forth our significant subsidiaries, all of which are wholly-owned by JHI plc, either directly or indirectly, as of 30 April 2016.

 

Name of Company   

Jurisdiction of
Establishment

  

Jurisdiction of
Tax Residence

James Hardie 117 Pty Ltd

   Australia    Australia

James Hardie Australia Pty Ltd

   Australia    Australia

James Hardie Building Products Inc.

   United States    United States

James Hardie Europe B.V.

   Netherlands    Netherlands

James Hardie Finance Holdings 1 Ltd

   Bermuda    Ireland

James Hardie Holdings Ltd

   Ireland    Ireland

James Hardie International Finance Ltd

   Ireland    Ireland

James Hardie International Group Ltd

   Ireland    Ireland

James Hardie International Holdings Ltd

   Ireland    Ireland

James Hardie New Zealand

   New Zealand    New Zealand

James Hardie NZ Holdings

   New Zealand    New Zealand

James Hardie North America Inc.

   United States    United States

James Hardie Philippines Inc.

   Philippines    Philippines

James Hardie Technology Ltd

   Bermuda    Ireland

James Hardie U.S. Investments Sierra Inc.

   United States    United States

RCI Holdings Pty Ltd

   Australia    Australia


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Property, Plants and Equipment

We believe we have some of the largest and lowest cost fiber cement manufacturing plants across the United States, Australia and New Zealand, with our plants servicing both domestic and export markets. Our plants are ideally located to take advantage of established transportation networks, allowing us to distribute our products into key markets, while also providing easy access to key raw materials.

Manufacturing Capacity

At 31 March 2016, we had manufacturing facilities at the following locations:

 

Plant Location    Owned /
Leased
    Design
Capacity
(mmsf)1
 

United States

      

Cleburne, Texas

     Owned        466   

Incremental capacity 2

       200   

Peru, Illinois

     Owned        560   

Plant City, Florida

     Owned        300   

Incremental capacity 3

       300   

Pulaski, Virginia

     Owned        600   

Reno, Nevada

     Owned        300   

Tacoma, Washington

     Owned        200   

Waxahachie, Texas

     Leased  4      360   

Fontana, California

     Owned        250   

Summerville, South Carolina

     Owned  5      190   
Plant Location    Owned /
Leased
    Design
Capacity
(mmsf)1
 

Australia

      

Rosehill, New South Wales

     Owned  6      180   

Carole Park, Queensland

     Owned        160   

New Zealand

      

Auckland

     Leased  7      75   

Philippines

      

Cabuyao City

     Owned  8      145   
 

 

 

1 The calculated annual design capacity is based on management’s historical experience with our production process and is calculated assuming continuous operation, 24 hours per day, seven days per week, producing 5/16” medium density product at a targeted operating speed. No accepted industry standard exists for the calculation of our fiber cement manufacturing facility design and utilization capacities.

 

2 Estimated commission in fiscal year 2019.

 

3 Estimated commission in fiscal year 2017.

 

4 The lease for our Waxahachie location expires on 31 March 2020, at which time we have an option to purchase the facility.

 

5 We suspended production at our Summerville, South Carolina location in November 2008. At the time of this Annual Report, no decision has been made on the future of the Summerville location although we anticipate starting production at this location in the future.

 

6 In December 2014, we completed the purchase of the land and buildings previously leased at our Rosehill, New South Wales facility.

 

7 We exercised our option to renew the Auckland leases for a further term of 10 years prior to the leases’ expiry on 22 March 2016. The Auckland leases now expire on 22 March 2026, at which time we have an option to renew them for a further term of 10 years expiring in March 2036. There is no option to purchase at the expiration of the leases.


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8 The land on which our Philippines fiber cement plant is located is owned by Ajempa Holding Inc. (“Ajempa”), a related party. Ajempa is 40% owned by our operating entity, James Hardie Philippines Inc., and 60% owned by the James Hardie Philippines Retirement Fund. James Hardie Philippines Inc. owns 100% of the fixed assets on the land owned by Ajempa.

Prior to the fourth quarter of fiscal year 2016, we disclosed an annual flat sheet design capacity based on operation of the machines for 24 hours per day, seven days per week, producing 5/16” medium density product at an optimal operating speed. However, beginning in the fourth quarter of fiscal year 2016, management determined that for measuring the annual flat sheet design capacity of the fiber cement network, the calculation should incorporate our historical experience with certain factors such as demand, product mix of varying thickness and density, batch size, plant availability and differing production speeds multiplied by 24 hours per day, seven days per week.

Based on the revised methodology noted above, for the year ended 31 March 2016, we had an annual flat sheet design capacity of 3,005 mmsf and 625 mmsf in the United States and Asia Pacific, respectively. It is important to note that annual design capacity does not necessarily reflect the actual capacity utilization rates of our manufacturing facilities, with actual utilization affected by factors such as demand, product mix, batch size, plant availability and production speeds. For fiscal year 2016, actual capacity utilization across our plants was an average of 70% and 73% in the United States and Asia Pacific, respectively.

Based on the revised methodology noted above, for the year ended 31 March 2015, we had an annual flat sheet design capacity of 3,041 mmsf and 559 mmsf in the United States and Asia Pacific, respectively. It is important to note that annual design capacity does not necessarily reflect the actual capacity utilization rates of our manufacturing facilities, with actual utilization affected by factors such as demand, product mix, batch size, plant availability and production speeds. For fiscal 2015, actual capacity utilization across our plants was an average of 72% and 83% in the United States and Asia Pacific, respectively.

During the first quarter of fiscal year 2016, we completed the sale of our Blandon, Pennsylvania location and our Australian Pipes business.

Mines

We lease silica quartz mine sites in Tacoma, Washington, Reno, Nevada and Victorville, California. The lease for our quartz mine in Tacoma, Washington expires in February 2018 (with options to renew). The lease for our silica quartz mine site in Reno, Nevada expires in January 2019. The lease for our silica mine site in Victorville, California expires on 31 May 2016. Further, we own rights to an additional property in Victorville, California. As of 30 April 2016, however, we have not begun to mine this site.

As a mine operator, we are required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), and rules promulgated by the SEC implementing that section of the Dodd-Frank Act, to provide certain information concerning mine safety violations and other regulatory matters concerning the operation of our mines. During fiscal year 2016, we did not receive any notices, citations, orders, legal action or other communication from the US Department of Labor’s Mine Safety and Health Administration that would necessitate


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additional disclosure under Section 1503(a) of the Dodd-Frank Act. Similarly, we have not experienced any mining-related fatalities in our mining operations. There are currently no pending legal actions before the Federal Mine Safety and Health Review Commission related to our mining operations.

Capital Expenditures

We utilize a mix of operating cash flow and debt facilities to fund our capital expenditure projects and investments. We continuously invest in equipment maintenance and upgrades to ensure continued environmental compliance and operating effectiveness of our plants. The following table sets forth our capital expenditures for the three most recent fiscal years:

 

    (Millions of US dollars)  
     2016      2015      2014  

North America and Europe Fiber Cement

  $         42.8       $         165.3       $         72.4   

Asia Pacific Fiber Cement

    28.5         94.4         40.7   

R&D and Corporate

    1.9         16.5         2.3   

Total Capital Expenditure

  $ 73.2       $ 276.2       $ 115.4   

Significant active capital expenditures

At 31 March 2016, the following significant capital expenditure projects remain in progress:

 

Project Description   Approximate
Investment
(US millions)
    Investment
to date
(US millions)
    Project
Start Date
  Expected
Commission
Date
  Expected
Capacity
Increase1

Plant City - 4th sheet machine

  $                 70.5      $                 68.8      Q4 FY14   FY17   9%

Cleburne - 3rd sheet machine

  $ 37.0      $ 35.7      Q4 FY14   FY19   6%

 

1 The expected capacity increase is based on management’s historical experience with our production process and is calculated assuming continuous operation, 24 hours per day, seven days per week, producing 5/16” medium density product at a targeted operating speed. It does not take into account factors such as product mix with varying thickness and density, batch size, plant availability and production speeds.

Significant completed capital expenditure projects

Following is a list of significant capital expenditure projects we have invested in over the three most recent fiscal years:

 

Project Description    Total
Investment
(US Millions)
       Fiscal Year of
Expenditure

Carole Park land and building purchase and capacity expansion

   $               85.3         FY14 - FY16

Plant City - 4th sheet machine

   $ 68.8         FY14 - FY16

Fontana Plant re-commisioning

   $ 49.0         FY13 - FY15

Rosehill land and buildings

   $ 37.5         FY15

Cleburne - 3rd sheet machine

   $ 35.7         FY14 - FY16

Tacoma land and buildings

   $ 28.3         FY15


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Capital Divestitures

During the three most recent fiscal years, we did not make any material capital divestitures. On 30 June 2015, we finalized the sale of our Australian Pipes business. Additionally, on 1 June 2015 we finalized the sale of our Blandon, Pennsylvania location. We do not consider the disposition of the pipes business or sale of Blandon, Pennsylvania location material divestitures or strategic shifts in the nature of our operations.


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DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

James Hardie Executive Team

Our management is overseen by our executive team, whose members cover the key areas of fiber cement research and development, production, manufacturing, investor relations, finance and legal.

Members of our executive team at 30 April 2016 (in alphabetical order) are:

Joe Blasko BSFS, JD

General Counsel and Chief Compliance Officer

Age 49

 

LOGO

 

Joe Blasko joined James Hardie as General Counsel and Chief Compliance Officer in June 2011.

 

Before joining James Hardie, Mr Blasko was Assistant General Counsel, and later, the General Counsel at Liebert Corporation, an Emerson Network Power Systems company and wholly-owned subsidiary of Emerson Electric Co. In his four years with Liebert/Emerson, Mr Blasko was responsible for establishing the legal department in Columbus, Ohio, managing and overseeing all legal matters and working closely with the executive management team. In this role, Mr Blasko also had global responsibilities which required expertise across multiple jurisdictions.

From 2004 to 2006, Mr Blasko was Associate General Counsel at The Scotts Miracle-Gro Company, serving as the effective “general counsel” to numerous corporate divisions within the organization. From 1997 to 2004, Mr Blasko gained considerable regulatory and litigation expertise working at Vorys, Sater, Seymour and Pease LLP in Ohio.

Mr Blasko has a Juris Doctor from Case Western Reserve University in Cleveland, Ohio, USA and a Bachelor of Science in Foreign Service from Georgetown University, USA, with a specialty in International Relations, Law and Organizations.


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Mark Fisher BSc, MBA

Executive Vice President – International

Age 45

 

LOGO

  Mark Fisher joined James Hardie in 1993 as a Production Engineer. Since then, he has worked for the Company as Finishing Manager, Production Manager and Product Manager at various locations; Sales and Marketing Manager; and as General Manager of our Europe Fiber Cement business. Mr Fisher was appointed Vice President — Specialty Products in November 2004, then Vice President — Research & Development in December 2005. In February 2008, his role was expanded to cover Engineering & Process Development.

In January 2010, he was appointed Executive General Manager – International, responsible for the Company’s non-US businesses in Australia, New Zealand, Philippines and Europe and the Company’s windows business. Effective 16 October 2015, Mr Fisher’s title became Executive Vice President – International. Mr Fisher continues to be responsible for international fiber cement operations, as well as, the Company’s non-fiber cement business development activities. He continues to report to the Company’s Chief Executive Officer (“CEO”), Mr Louis Gries.

Mr Fisher has a Bachelor of Science in Mechanical Engineering and an MBA from University of Southern California, USA.

Louis Gries BSc, MBA

Chief Executive Officer

Age 62

 

LOGO

 

Louis Gries joined James Hardie as Manager of the Fontana fiber cement plant in California in February 1991 and was appointed President of James Hardie Building Products, Inc. in December 1993. Mr Gries became Executive Vice President — Operations in January 2003, responsible for operations, sales and marketing in our businesses in the Americas, Asia Pacific and Europe.

 

He was appointed Interim CEO in October 2004 and became CEO in February 2005.

In April 2012, the Company announced that effective June 2012, Mr Gries would again assume responsibility for managing the US business. Effective 16 October 2015, responsibility for managing the Company’s Fiber cement operations in North America transitioned to Mr Ryan Sullivan and oversight of corporate responsibilities to Mr Matthew Marsh. As a result of this transition, Mr Gries is now focused on driving market demand growth for the Company’s fiber cement products and the continued creation of long-term shareholder value.

Before he joined James Hardie, Mr Gries worked for 13 years for USG Corp, including a variety of roles in research, plant quality and production, and product and plant management.

Mr Gries has a Bachelor of Science in Mathematics from the University of Illinois, USA and an MBA from California State University, Long Beach, USA.


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James Hardie 2016 Annual Report on Form 20-F   20

 

 

 

Matthew Marsh BA, MBA

Chief Financial Officer and Executive Vice President – Corporate

Age 41

 

LOGO

 

Matthew Marsh joined James Hardie as Chief Financial Officer (“CFO”) in June 2013. As CFO he oversees the Company’s overall financial activities, including accounting, tax, treasury, performance and competitor analysis, internal audit and financial operations.

 

Effective 16 October 2015, Mr Marsh’s role was expanded to include the role of Executive Vice President—Corporate. In this role, Mr Marsh continues his oversight of the Company’s overall financial management in addition to the oversight of

James Hardie’s global human resources, information systems, legal and compliance, and investor and media relations functions. He continues to report to the Company’s Chief Executive Officer, Mr Louis Gries.

After a 16-year career at General Electric Company (“GE”), Mr Marsh brings a strong background in financial management. Before joining James Hardie, Mr Marsh most recently served as CFO of GE Healthcare’s IT business. Prior to being named CFO of GE Healthcare IT, Mr Marsh oversaw the finance operations for GE Healthcare’s US Healthcare Systems and US Diagnostic Imaging businesses.

Prior to those appointments, Mr Marsh travelled globally with the GE Internal Audit Staff gaining extensive experience in several industries including appliances, information services, distribution and supply, aviation, plastics, financial services, capital markets and healthcare, across more than twenty countries. Mr Marsh has graduated from GE’s Financial Management Program (FMP).

Mr Marsh has a Bachelor of Arts in Economics and Public Affairs from Syracuse University, USA and an MBA from University of Chicago’s Booth School of Business, USA.


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Sean O’Sullivan BA, MBA, Fellow AIRA

Vice President — Investor & Media Relations

Age 50

 

LOGO

 

Sean O’Sullivan joined James Hardie as Vice President — Investor & Media Relations in December 2008. For the eight years prior to joining James Hardie, Mr O’Sullivan was Head of Investor Relations at St. George Bank, where he established and led the investor relations function.

 

Mr O’Sullivan’s background includes thirteen years as a fund manager for GIO Asset Management, responsible for domestic and global investments. During this period, he spent time on secondment with a McKinsey and Co. taskforce that

completed a major study into the Australian financial services industry. Mr O’Sullivan’s final position at GIO was General Manager of Diversified Investments where his responsibilities included determining the asset allocation for over A$10 billion in funds under management. After leaving GIO, Mr O’Sullivan worked for Westpac Banking Corporation in funds management sales.

In November 2014, Mr O’Sullivan was inducted as a Fellow of the Australasian Investor Relations Association (AIRA).

Mr O’Sullivan has a Bachelor of Arts in Economics from Sydney University, Australia and an MBA from Macquarie Graduate School of Management, Australia.


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James Hardie 2016 Annual Report on Form 20-F   22

 

 

 

Ryan Sullivan BSc, MS, MBA

Executive Vice President and President – James Hardie Building Products

Age 42

 

LOGO

 

Ryan Sullivan joined James Hardie in 2004 as the ColorPlus Manufacturing Manager. Since then, he has worked for the Company as Director of Global R&D and Engineering Services and Director of North America Supply Chain. In 2012, he became Director of the ColorPlus Business Unit, with product line responsibility for the North American ColorPlus business. In 2013, he was appointed as Executive General Manager of the Southern Division with full P&L responsibility.

 

Effective 16 October 2015, Mr Sullivan was promoted to the position of Executive

Vice President and President — James Hardie Building Products. In this role, Mr Sullivan is responsible for the daily management of James Hardie Building Products’ fiber cement operations in North America, including manufacturing, supply chain and engineering operations, R&D and product development, and sales and marketing. He continues to report to the Company’s Chief Executive Officer, Mr Louis Gries.

Before joining James Hardie, Mr Sullivan was a senior manager at Marconi Communications where he held numerous positions and had global responsibility. He has also worked in the fields of nuclear power and advanced robotics.

Mr Sullivan has a Bachelor of Science in Mechanical Engineering with a minor in Engineering Design from Carnegie Mellon University, USA, a Masters of Science in Electrical Engineering from the University of Pittsburgh, USA and an MBA from the University of Pittsburgh Katz School, USA.


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Board of Directors

James Hardie’s directors have widespread experience, spanning general management, finance, law, marketing and accounting. Each director also brings valuable international experience that assists with James Hardie’s growth.

Members of the Board of Directors (the “Board”) at 31 March 2016 are:

Michael Hammes BS, MBA

Age 74

 

LOGO

 

Michael Hammes was elected as an independent non-executive director of James Hardie in February 2007. He was appointed Chairman of the Board in January 2008 and is a member of the Audit Committee, the Remuneration Committee and the Nominating and Governance Committee.

 

Experience: Mr Hammes has extensive commercial experience at a senior executive level. He has held a number of executive positions in the medical products, hardware and home improvement, and automobile sectors, including CEO and Chairman of

Sunrise Medical, Inc. (2000-2007), Chairman and CEO of Guide Corporation (1998-2000), Chairman and CEO of Coleman Company, Inc. (1993-1997), Vice Chairman of Black & Decker Corporation (1992-1993) and various senior executive roles with Chrysler Corporation (1986-1990) and Ford Motor Company (1979-1986).

Directorships of listed companies in the past five years: Current – Director of Navistar International Corporation (since 1996); Director of DynaVox Mayer-Johnson (listed in April 2010).

Other: Resident of the United States.

Last elected: August 2014

Term expires: August 2016


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Donald McGauchie AO

Age 66

 

LOGO

 

Donald McGauchie joined James Hardie as an independent non-executive director in August 2003 and was appointed Acting Deputy Chairman in February 2007 and Deputy Chairman in April 2007. He is a member of the Nominating and Governance Committee.

 

Experience: Mr McGauchie has wide commercial experience within the food processing, commodity trading, finance and telecommunication sectors. He also has extensive public policy experience, having previously held several high-level

advisory positions to the Australian Government.

Directorships of listed companies in the past five years: Current – Chairman (since 2010) and Director (since 2010) of Australian Agricultural Company Limited; Chairman (since 2010) and Director (since 2003) of Nufarm Limited; Director of GrainCorp Limited (since 2009).

Other directorships: Chairman of Australian Wool Testing Authority (since 2005) and Director (since 1999); Former Director of The Reserve Bank of Australia (2001-2011)

Other: Resident of Australia.

Last elected: August 2013

Term expires: August 2016

Brian Anderson BS, MBA, CPA

Age 65

 

LOGO

 

Brian Anderson was appointed as an independent non-executive director of James Hardie in December 2006. He is Chairman of the Audit Committee and a member of the Remuneration Committee.

 

Experience: Mr Anderson has extensive financial and business experience at both executive and board levels. He has held a variety of senior positions, with thirteen years at Baxter International, Inc., including Corporate Vice President of Finance, Senior Vice President and CFO (1997-2004) and, more recently, Executive Vice

President and CFO of OfficeMax, Inc. (2004-2005). Earlier in his career, Mr Anderson was an Audit Partner of Deloitte & Touche LLP (1986-1991).

Directorships of listed companies in the past five years: Current – Chairman (since 2010) and Director (since 2005) of A.M. Castle & Co.; Director of PulteGroup (since 2005); Director of W.W. Grainger, Inc. (since 1999). Former – Lead Director of W.W. Grainger, Inc. (2011-2014).

Other: Resident of the United States.

Last elected: August 2015

Term expires: August 2018


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Russell Chenu BCom, MBA

Age 66

 

LOGO

 

Russell Chenu was appointed as a non-executive director of James Hardie in August 2014. He is a member of the Remuneration Committee and the Nominating and Governance Committee.

 

Experience: Mr Chenu joined James Hardie as Interim CFO in October 2004 and was appointed CFO in February 2005. He was elected to the Company’s Managing Board at the 2005 Annual General Meeting, re-elected in 2008 and continued as a member of the Managing Board until it was dissolved in June 2010. As CFO, he

was responsible for accounting, treasury, taxation, corporate finance, information technology and systems, and procurement. Mr Chenu retired as CFO in November 2013.

Mr Chenu is an experienced corporate and finance executive who held senior finance and management positions with a number of Australian publicly-listed companies. In a number of these senior roles, he was engaged in significant strategic business planning and business change, including several turnarounds, new market expansions and management leadership initiatives.

Mr Chenu has a Bachelor of Commerce from the University of Melbourne and an MBA from Macquarie Graduate School of Management, Australia.

Directorships of listed companies in the past five years: Current – Director of Reliance Worldwide Corporation Limited (since April 2016; listed April 2016); Director of CIMIC Group Limited (since 2014); Director of Metro Performance Glass Limited (since 2014).

Other: Resident of Australia.

Last elected: August 2014

Term expires: August 2017


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David D. Harrison BA, MBA, CMA

Age 69

 

LOGO

 

David Harrison was appointed as an independent non-executive director of James Hardie in May 2008. He is Chairman of the Remuneration Committee and a member of the Audit Committee.

 

  Experience: Mr Harrison is an experienced company director with a finance background, having served in corporate finance roles, international operations and information technology for 22 years with Borg Warner/General Electric Co. His previous experience includes 10 years at Pentair, Inc., as Executive Vice

President and CFO (1994-1996 and 2000-2007) and Vice President and CFO roles at Scotts, Inc. and Coltec Industries, Inc. (1996-2000).

Directorships of listed companies in the past five years: Current – Director of National Oilwell Varco (since 2003); Former – Director of Navistar International Corporation (2007-2012).

Other: Resident of the United States.

Last elected: August 2013

Term expires: August 2016

Andrea Gisle Joosen MSc, BSc

Age 52

 

LOGO

 

Andrea Gisle Joosen was appointed as an independent non-executive director of James Hardie in March 2015. She is a member of the Audit Committee.

 

  Experience: Ms Gisle Joosen is an experienced former executive with extensive experience in marketing, brand management and business development across a range of different consumer businesses. Her former roles include Chief Executive of Boxer TV Access AB in Sweden and Managing Director (Nordic region) of Panasonic, Chantelle AB and Twentieth Century Fox. Her early career involved

several senior marketing roles with Procter & Gamble and Johnson & Johnson.

Directorships of listed companies in the past five years: Current – Director of BillerudKorsnas AB (since 2015); Director of Dixons Carphone plc (since 2014); Director of ICA Gruppen AB (since 2010); Former – Director of Dixons Retail plc (2012-2013).

Other directorships: Chairman and Director of Teknikmagasinet AB (since 2015); Director of Mr Green AB (since 2015); Director of Neopitch AB (since 2004)

Other: Resident of Sweden.

Last elected: August 2015

Term expires: August 2018


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Alison Littley BA, FCIPS

Age 53

 

LOGO

 

Alison Littley was appointed as an independent non-executive director of James Hardie in February 2012. She is a member of the Audit Committee and the Remuneration Committee.

 

Experience: Ms Littley has substantial experience in multinational manufacturing and supply chain operations, and she brings a strong international leadership background building effective management teams and third party relationships. She has held a variety of positions, most recently as Chief Executive of Buying

Solutions, a UK Government Agency responsible for procurement of goods and services on behalf of UK government and public sector bodies (2006-2011). She has previously held senior management roles in Diageo plc (1999-2006) and Mars, Inc. (1981-1999). She serves on the Board of Weightmans LLP, a UK law firm and Eakin Healthcare Ltd, a medical device company.

Directorships of listed companies in the past five years: None.

Other: Resident of the United Kingdom.

Last elected: August 2015

Term expires: August 2018

James Osborne BA Hons, LLB

Age 67

 

LOGO

 

James Osborne was appointed as an independent non-executive director of James Hardie in March 2009. He is a member of the Nominating and Governance Committee.

 

Experience: Mr Osborne is an experienced company director with a strong legal background and a considerable knowledge of international business operations in North America and Europe. His career includes 35 years with the leading Irish law firm, A&L Goodbody, in roles which included opening the firm’s New York office in

1979 and serving as the firm’s managing partner (1982-1994). He has served as a consultant to the firm since 1994. Mr Osborne also contributed to the listing of Ryanair in London, New York and Dublin and continues to serve on Ryanair’s board.

Directorships of listed companies in the past five years: Current – Director of Ryanair Holdings plc (since 1996); Chairman and Director of Oneview Healthcare plc (since 2013, listed March 2016). Former – Chairman of Independent News & Media (2011-2012).

Other directorships: Chairman of Eason Holdings plc (since 2013); Chairman of Jellia Holdings Limited (since 2014); Chairman of ELST (since 2012)

Other: Resident of Ireland.

Last elected: August 2015

Term expires: August 2018


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Rudolf van der Meer M.Ch.Eng

Age 71

 

LOGO

 

Rudy van der Meer was appointed as an independent non-executive director of James Hardie in February 2007. He is Chairman of the Nominating and Governance Committee.

 

Experience: Mr van der Meer is an experienced former executive, with considerable knowledge of international business and the building and construction sector. During his 32-year association with Akzo Nobel N.V., he held a number of senior positions including CEO of Coatings (2000-2005), CEO of

Chemicals (1993-2000), and member of the five person Executive Board (1993-2005).

Directorships of listed companies in the past five years: Current – Director of LyondellBasell Industries N.V. (since 2010); Former – Member of the Supervisory Board of Hagemeyer N.V. (2006-2008); Chairman of the Supervisory Board of Royal Imtech N.V. (2005-2013).

Other directorships: Former Chairman of the Board of Energie Beheer Nederland B.V. (2006-2013); Chairman of the Supervisory Board of VGZ Health Insurance (since 2011)

Other: Resident of the Netherlands.

Last elected: August 2014

Term expires: August 2017


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James Hardie 2016 Annual Report on Form 20-F   29

 

 

 

Remuneration Report

This Remuneration Report describes our executive remuneration philosophy, programs and objectives and explains the decisions of the Remuneration Committee and the Board of Directors (the “Board”) for our senior executive officers’ fiscal year 2016 remuneration.

We are not required to produce a remuneration report under applicable Irish, Australian or US rules or regulations. However, taking into consideration our significant Australian and US shareholder bases and our primary listing on the ASX, we have voluntarily produced a remuneration report consistent with those provided by similarly situated companies for non-binding shareholder approval since 2005.

In this Remuneration Report, we first provide a summary of our business performance and the key remuneration considerations and decisions made in fiscal year 2016. We then describe in detail our remuneration philosophy, the individual elements of our remuneration program and the linkage between our remuneration programs and our pay-for-performance philosophy. For fiscal year 2016, our senior executive officers (Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and the other three highest paid executive officers based on total compensation that was earned or accrued for fiscal year 2016) (“Senior Executive Officers”) are:

 

    Louis Gries, CEO;
    Matthew Marsh, CFO and Executive Vice President – Corporate;
    Ryan Sullivan, Executive Vice President and President – James Hardie Building Products;
    Mark Fisher, Executive Vice President – International; and
    Joseph Blasko, General Counsel and Chief Compliance Officer

This Remuneration Report has been adopted by our Board on the recommendation of the Remuneration Committee.

EXECUTIVE SUMMARY

Fiscal Year 2016 Business Highlights1

We delivered strong financial performance in fiscal year 2016, highlighted by Adjusted net operating profit of US$242.9 million, Adjusted earnings before interest and taxes (“EBIT”) of US$350.7 million, and net sales of US$1.7 billion. In addition, we achieved a 45% increase in net cash provided by operating activities, compared to the fiscal year 2015, and $268.8 million of capital returned to shareholders through a combination of dividends and the previously announced share buyback program.

 

 

1  Please see the “Glossary of Abbreviations and Definitions” in Section 4 of this Annual Report for a reconciliation of non-GAAP financial measures used in this Remuneration Report to the most directly comparable US GAAP financial measure.


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The following graphs show our performance for key financial measures during fiscal year 2016, with a comparison to prior corresponding periods:

 

LOGO    LOGO    LOGO    LOGO

Fiscal Year 2016 Compensation Highlights

Our fiscal year 2016 compensation continued to reflect and promote our pay-for-performance philosophy and our stated goal to position Senior Executive Officer fixed base salary and benefits at the median and total target direct remuneration (comprising fixed and target variable remuneration) at the 75th percentile of our Peer Group (defined herein), if stretch short and long-term target performance goals are met. During May 2015, the Board, with the assistance of the Remuneration Committee and its independent remuneration advisers, undertook its annual review of our existing remuneration policies, programs and arrangements and determined the following for fiscal year 2016 pay programs:

    For fiscal year 2016, there were no increases in Mr Gries’ base salary or short-term incentive (“STI”) target. Mr Gries’ target long-term incentive (“LTI”) increased by US$500,000 to US$4.0 million. The Board made this adjustment in order to bring Mr Gries’ total compensation package in line with the total compensation packages of CEOs in our Peer Group.
   

Base salary increases for Messrs Marsh, Fisher, and Blasko were made in line with our annual compensation review guidelines and were adjusted as required to maintain positioning relative to market merit increase levels. The base salary increase for Mr Sullivan was made to properly align his base salary with the increased scope and accountability of his position. In addition, target LTI for fiscal year 2016 increased for Messrs Marsh, Sullivan, Fisher, and Blasko to better align LTI target values with (i) our CEO succession plan; (ii) our need to retain key senior executives through the eventual CEO transition process; (iii) our lean management structure; and (iv) the 75th percentile of


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our Peer Group LTI values, consistent with our remuneration philosophy. Base pay and target LTI increases in fiscal year 2016 for Senior Executive Officers, other than the CEO are as follows:

 

     Base Salary     Target LTI  
Name   Fiscal Year
2015 (US$)
    Fiscal Year
2016 (US$)
    Fiscal Year
2015 (US$)
    Fiscal Year
2016 (US$)
 

M Marsh

    500,000        520,000        500,000        900,000   

R Sullivan

    420,000        520,000        500,000        900,000   

M Fisher

    490,000        500,000        500,000        650,000   

J Blasko

    360,000        380,000        300,000        400,000   

 

    To better align and focus management’s performance on initiatives that are key to our success, the Remuneration Committee approved changes to the performance measures for the US business under the company performance plan (“CP Plan”) component of our annual STI. There are no changes to the other components of the CP Plan (performance measures for the Asia Pacific business, maximum payout levels and Remuneration Committee discretion on STI paid) or to the individual performance plan (“IP Plan”) component of our annual STI. A complete description of the performance hurdles applicable for fiscal year 2016 for the CP Plan is set in the section titled “Incentive Arrangements” later in this Remuneration Report.
    The Remuneration Committee established a performance-based compensation clawback policy in connection with performance-based compensation paid or awarded to certain executives. The clawback policy provides that the Board may, in all appropriate circumstances, recover from any current or former executive regardless of fault, that portion of any performance-based compensation erroneously awarded: (i) based on financial information required to be reported under applicable US or Australian securities laws or applicable exchange listing standards that would not have been paid in the three completed fiscal years preceding the year(s) in which an accounting restatement is required to correct a material error; or (ii) during the previous three completed fiscal years as a result of any errors or omissions in objective, calculable performance measures contained in formal papers presented to and relied upon by the Board for purposes of determining compensation to be paid or awarded, where the absence of such errors or omissions would have resulted in there being a material negative impact on the amount of performance-based compensation paid or awarded.


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James Hardie 2016 Annual Report on Form 20-F   32

 

 

 

Fiscal Year 2016 Total Target Compensation

Remuneration packages for Senior Executive Officers reflect our remuneration philosophy and comprise a mixture of fixed base salary and benefits and variable performance-based incentives. The Remuneration Committee seeks to appropriately balance fixed and variable remuneration in order to align our total compensation structure with our pay-for-performance philosophy. The following chart summarizes total target compensation awarded to each Senior Executive Officer in fiscal year 2016:

 

Summary of Fiscal Year 2016 Senior Executive Officer Target Compensation  
Senior Executive
Officer
  FY2016
Annual Base
Salary (US$)
    FY2016 STI Target
Value (US$)
    FY2016 LTI Target
Value (US$)
    FY2016 Total Target
Compensation
(US$)
 

L Gries

    950,000        1,187,500        4,000,000        6,137,500   

M Marsh

    520,000        312,000        900,000        1,732,000   

R Sullivan

    520,000        312,000        900,000        1,732,000   

M Fisher

    500,000        300,000        650,000        1,450,000   

J Blasko

    380,000        226,000        400,000        1,006,000   

Results of 2016 Remuneration Report Vote

In August 2015, our shareholders were asked to cast a non-binding advisory vote on our remuneration report for the fiscal year ended 31 March 2015. Although we are not required under applicable Irish, Australian or US laws or regulations to provide a shareholder vote on our executive remuneration practices, the Board believes that it is important to engage shareholders on this important issue and we have voluntarily submitted our remuneration report for non-binding shareholder approval on an annual basis since 2005 and currently intend to continue to do so. At our 2015 Annual General Meeting, our shareholders approved our remuneration report, with more than 86% of the votes cast in support of our remuneration program. The Remuneration Committee considered the results of this supportive advisory vote, together with the other factors and data discussed in this Remuneration Report, in determining our executive remuneration policies, objectives and decisions, as well as our shareholder engagement efforts to communicate these, in fiscal year 2016.

APPROACH TO SENIOR EXECUTIVE REMUNERATION

Remuneration Philosophy

As our main business and all of our Senior Executive Officers are located in the US, our remuneration philosophy is to provide our Senior Executive Officers with an overall package that is competitive with Peer Group companies (defined herein) exposed to the US housing market. Within this philosophy, the executive remuneration framework emphasizes operational excellence and shareholder value creation through incentives which link executive remuneration with the interests of shareholders. Our remuneration plans and programs are structured to enable us to: (i) attract and retain talented executives; (ii) reward outstanding individual and corporate performance; and (iii) align the interests of our executives to the interests of our shareholders,


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with the ultimate goal of improving long-term value for our shareholders. This pay-for-performance system continues to serve as the framework for executive remuneration, aligning the remuneration received with the performance achieved.

Composition of Remuneration Packages

In line with our remuneration philosophy, our goal is to position Senior Executive Officer fixed base salary and benefits at the median and total target direct remuneration (comprising fixed and target variable remuneration) at the 75th percentile of our Peer Group, if stretch short and long-term target performance goals are met. Performance goals for target variable performance-based incentive remuneration are set with the expectation that we will deliver results in the top quartile of our Peer Group. Performance below this level will result in variable remuneration payments below target (and potentially zero for poor performance). Performance above this level will result in variable remuneration payments above target.

Relative Weightings of Fixed and Variable Remuneration

The charts below detail the relative weightings of fixed versus variable remuneration for the CEO and other Senior Executive Officers for fiscal years 2016 and 2015. Fixed remuneration includes base salary and other fixed benefits. Variable remuneration is comprised of STI Awards and the following three LTI components: (i) relative total shareholder return restricted stock units (“Relative TSR RSUs”); (ii) return on capital employed restricted stock units (“ROCE RSUs”); and (iii) scorecard long-term incentive (“Scorecard LTI”), each of which are discussed later in this Remuneration Report. STI Awards include amounts incurred under the CP and IP plans for each fiscal year, paid in June of the following fiscal year, and LTI components are shown at total granted value.

 

LOGO


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James Hardie 2016 Annual Report on Form 20-F   34

 

 

 

 

LOGO

Setting Remuneration Packages

Remuneration decisions are based on the executive remuneration philosophy and framework described in this Remuneration Report. The Remuneration Committee reviews and the Board approves this framework each year.

Remuneration packages for Senior Executive Officers are evaluated each year to make sure that they continue to align with our compensation philosophy, are competitive with our Peer Group and developments in the market, and continue to support our business structure and objectives. In making decisions regarding individual Senior Executive Officers, the Remuneration Committee takes into account the results of an annual remuneration positioning review provided by the Remuneration Committee’s independent advisor, as well as the Senior Executive Officer’s responsibilities and performance.

All aspects of the remuneration package for our CEO, and CFO are determined by the Remuneration Committee and ratified by the Board. All aspects of the remuneration package for the remaining Senior Executive Officers are determined by the Remuneration Committee on the recommendation of the CEO.

Remuneration Committee Governance

The remuneration program for our Senior Executive Officers is overseen by our Remuneration Committee, the members of which are appointed by the Board. As prescribed by the Remuneration Committee Charter, the duties of the Remuneration Committee include, among other things: (i) administering and making recommendations on our incentive compensation and equity-based remuneration plans; (ii) reviewing the remuneration of directors; (iii) reviewing the remuneration framework for the Company; and (iv) making recommendations to the Board on our recruitment, retention and termination policies and procedures for senior management. The


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current members of the Remuneration Committee are David Harrison (Chairman), Brian Anderson, Russell Chenu, Michael Hammes and Alison Littley, the majority of whom are independent non-executive directors. A more complete description of these and other Remuneration Committee functions is contained in the Remuneration Committee’s Charter, a copy of which is available in the Corporate Governance section of our investor relations website (www.ir.jameshardie.com.au).

Summary of Executive Compensation Practices

The following table summarizes certain of the key governance practices employed by the Remuneration Committee relative to our executive compensation practices, including those practices which we believe are important drivers of both short- and long-term corporate performance and those practices which we believe are not aligned with the long-term interests of our shareholders:

 

What We Do   What We Don’t Do
ü    Retain independent compensation advisors reporting directly to Remuneration Committee      Prohibition on hedging of stock held by executives and directors
ü    Pay for performance model, with approximately 85% of our CEO’s total target compensation being performance-based “at risk” compensation and an average of approximately 67% total target compensation being performance-based “at risk” compensation for our other Senior Executive Officers      Limited employment agreements and severance arrangements
ü    Circuit breaker on annual STI awards to ensure that no annual incentive awards are paid unless minimum corporate performance levels are achieved      Limited change-in-control benefits
ü    Set robust share ownership requirements for all directors and Senior Executive Officers      No dividends paid on unvested equity awards
ü    Broad clawback policy on performance-based compensation      Limited perquisites and other benefits
ü    Set performance-based vesting conditions for all equity grants to Senior Executive Officers      No time-based LTI equity grants to Senior Executive Officers
ü    Provide the Remuneration Committee with ability to exercise “negative” discretion when determining the vesting and payout of our LTI programs      No excessive retirement or deferred compensation arrangements


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Remuneration Advisers

As permitted by the Remuneration Committee Charter, the Remuneration Committee retained Aon Hewitt (in the US) and Guerdon Associates (in Australia) as its independent advisers for matters regarding remuneration for fiscal year 2016. The Remuneration Committee reviews the appointment of its advisors each year. Both Aon Hewitt and Guerdon Associates provided the Remuneration Committee with written certification during fiscal year 2016 to support their re-appointment. In those certifications, the advisors: (i) confirmed that their pay recommendations were made without undue influence from any member of our management; and (ii) provided detailed responses to the six independence factors a Remuneration Committee should consider under relevant NYSE rules, and confirmed their independence based on these factors.

The Remuneration Committee reviewed these certifications before re-appointing each advisor for fiscal year 2017.

Peer Group Analysis

To assist the Remuneration Committee in making remuneration decisions, the Remuneration Committee evaluates the remuneration of our Senior Executive Officers against a designated set of companies (the “Peer Group”). The Peer Group, which is reviewed by the Remuneration Committee on an annual basis, consists of companies that are similar to us in terms of certain factors, including size, industry, and exposure to the US housing market. For fiscal year 2016, the Peer Group remained unchanged from fiscal year 2015. The Remuneration Committee believes that US market focused companies are a more appropriate peer group than ASX-listed companies, as they are exposed to the same macroeconomic factors in the US housing market as those we face. The names of the 24 companies comprising the Peer Group are set forth below.

 

Acuity Brands, Inc   Louisiana-Pacific Corp   Sherwin Williams Co
American Woodmark Corp   Martin Marietta Materials, Inc   Simpson Manufacturing Co., Inc
Apogee Enterprises, Inc   Masco Corporation   Trex Co., Inc
Armstrong World Indus, Inc   Mohawk Industries, Inc   USG Corp
Eagle Materials, Inc   Mueller Water Products, Inc   Valmont Industries, Inc
Fortune Brands Home & Security   NCI Building Systems, Inc   Valspar Corporation
Headwaters, Inc   Owens Corning   Vulcan Materials Co
Lennox International, Inc   Quanex Building Products Corp   Watsco, Inc

Performance Linkage with Remuneration Policy

During its annual review, the Remuneration Committee assessed our performance in fiscal year 2016 against the background of the continued gradual recovery in the US and Asia Pacific markets. This review included assessing fiscal year 2016 performance against:

    our historical performance;
    our Peer Group;


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    the goals in our STI and LTI variable remuneration plans; and
    the key objectives and measures the Board expects to see achieved, which are referred to as the “Scorecard” and further discussed later in this Remuneration Report.

Based on that review, the Board and the Remuneration Committee concluded that management’s performance in fiscal year 2016 was on the whole: (i) significantly above target on earnings and slightly above target on growth measures, resulting in STI variable remuneration outcomes being above target for fiscal year 2016; and (ii) superior to the 75th percentile of our Peer Group on TSR performance and substantially above expectations on long-term strategic measures included in the Scorecard (when taken together with performance in fiscal years 2014 and 2015), resulting in LTI variable remuneration being above target for fiscal years 2014-2016.

More details about this assessment, including the percentage of the maximum variable remuneration awarded to or forfeited by Senior Executive Officers is set out on pages 37 through 48 of this Remuneration Report.

DESCRIPTION OF 2016 REMUNERATION ELEMENTS

Base Salaries and Other Fixed Remuneration Benefits

Base salary provides a guaranteed level of income that recognizes the market value of the position and internal equities between roles, and the individual’s capability, experience and performance. Annual base salary increases are not automatic. Base salaries for Senior Executive Officers are positioned around the market median for positions of similar responsibility and are reviewed by the Remuneration Committee each year.

In addition, Senior Executive Officers may receive certain other limited fixed benefits, such as medical and life insurance benefits, car allowances, participation in executive wellness programs and an annual financial planning allowance. For fiscal year 2016, the base salary and value of other fixed benefits for each of our Senior Executive Officers is provided in the Base Pay and Other Benefits columns of the remuneration table, in sectioned titled “Remuneration Paid to Senior Executive Officers”.

Retirement Plan

In every country in which we operate, we offer employees access to pension, superannuation or individual retirement savings plans consistent with the laws of the respective country.

In the US, we sponsor a defined contribution plan, the James Hardie Retirement and Profit Sharing Plan (the “401(k) Plan”). The 401(k) Plan is a tax-qualified retirement and savings plan covering all US employees, including our Senior Executive Officers, subject to certain eligibility requirements. Participating employees were able to elect to reduce their current annual compensation by up to US$18,000 in calendar year 2015 and have the amount of such reduction contributed to the 401(k) Plan, with a maximum eligible compensation limit of US$265,000. In addition, we match employee contributions dollar for dollar up to a maximum of the first 6% of an employee’s eligible compensation.


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Incentive Arrangements

In addition to the base salary and other fixed benefits provided to our Senior Executive Officers, the Remuneration Committee reviews and approves a combination of both short-term and long-term variable incentive programs on an annual basis. For fiscal year 2016, our variable incentive plans for Senior Executive Officers were as follows:

 

       
Duration   Plan Name   Amount   Form Incentive Paid

STI (1 year)

  IP Plan   20% of STI Target     Cash
    CP Plan   80% of STI Target     Cash

LTI (3 - 4.5 years)

 

Long Term Incentive

Plan 2006 (“LTIP”)

  40% of LTI Target     ROCE RSUs
        30% of LTI Target     Relative TSR RSUs
        30% of LTI Target     Cash (Scorecard LTI)

STI Plans

On an annual basis, the Remuneration Committee approves a STI target for all Senior Executive Officers, expressed as a percentage of base salary, which is allocated between individual goals and company goals under the IP and CP Plans, respectively. For fiscal year 2016, the STI target percentage for Mr Gries was 125% of base salary and 60% of base salary for Messrs Marsh, Sullivan, Fisher and Blasko, with 80% allocated to the CP Plan and 20% allocated to the IP Plan for all Senior Executive Officers.

Since fiscal year 2014, the Remuneration Committee has applied a ‘circuit breaker’ to the STI plans which, for Senior Executive Officers, will prevent payment of any STI under the CP and IP Plans unless our performance exceeds a level approved by the Remuneration Committee each year. For fiscal year 2016, the ‘circuit breaker’ was set at 60% of our fiscal year 2016 plan Adjusted EBIT (indexed to housing starts) less any impairment costs the Remuneration Committee determines should be disregarded.

CP Plan

The CP Plan is based on a series of payout matrices for the US and Asia Pacific businesses, which provide a range of possible payouts depending on our performance against hurdles which assess volume growth relative to, and above, market (“Growth Measure”), earnings (“Return Measure”), and for the US business, performance of the interiors business and performance against certain “wood-look” competitors. Each Senior Executive Officer can receive between 0% and 300% of their STI target allocated to the CP Plan based on the results of the payout multiple the Senior Executive Officer is tied to. All Senior Executive Officers are tied to either the US multiple (Messr Sullivan) or a composite multiple derived from the metrics for the US (80%) and Asia Pacific (20%) businesses combined (Messrs Gries, Marsh, Fisher and Blasko).


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Payout Matrices

We use both performance measures (Growth Measure and Return Measure) in the payout matrices for our US and Asia Pacific businesses in order to ensure that as management increases its top line market growth focus, it does not do so at the expense of short- to medium-term earnings. Management is encouraged to balance market growth and earnings returns since achievement of a higher reward requires management to generate both strong earnings and growth relative to and above market. Higher returns on one measure at the expense of the other measure may result in a lower reward or no reward at all.

To ensure that the payout matrices represent genuinely challenging targets aligned with our executive remuneration philosophy, particularly in light of the continued, but gradual recovery of the US housing market, the Growth Measure is indexed to take into account changes in the US and Asia Pacific new housing starts and the US repair and remodel market and the Return Measure is indexed to take into account changes in pulp prices. The targets for the Return Measure exclude costs related to legacy issues. The Remuneration Committee has reserved for itself discretion to change the STI paid. Examples of instances when the Remuneration Committee would consider exercising this discretion include external factors outside of management’s control, and for the US CP Plan only, if the general shift toward smaller homes at each segment of the US market is considered sufficiently material. The Remuneration Committee will disclose the reasons for any such exercise of discretion.

The Remuneration Committee believes that the payout matrices are appropriate because they provide management with an incentive to achieve overall corporate goals, balance growth with returns in our primary markets, recognize the need to flexibly respond to strategic opportunities, incorporate indexing relative to market growth to account for factors beyond management’s control, and incorporate Remuneration Committee discretion to ensure appropriate outcomes. Payouts under the US matrix may range from 0% to 200% of target, while payouts under the Asia Pacific matrix may range from 0 to 300% of target.

We do not disclose the volume Growth Measure and earnings Return Measure targets for our US or Asia Pacific businesses since these are commercial-in-confidence. However, achieving a target payment for the Return Measure under either the US or Asia Pacific payout matrix for fiscal year 2016 would have required performance above the average of performance for the previous three years and the fiscal year 2016 plan. Achieving a target payout for the Growth Measure requires growth substantially above market growth.

Additional US Performance Metrics

In addition to the Growth Measure and Return Measure components of the CP plan, for the US business only, the Remuneration Committee has implemented additional performance measures in order to better align and focus management’s performance on initiatives that are key to the success of the US business. For fiscal year 2016, the Remuneration Committee approved changes to the performance measures for the US business to increase the weight of key business initiatives in the calculation of determining STI paid. As a result, the US payout multiple for fiscal year 2016 is determined by performance against the matrix multiple (Growth and Return measures for 70% of the STI opportunity), the interiors product business multiple (for 10% of STI


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opportunity), and the “Wood-look” multiple (for 20% of STI opportunity). The overarching formula for the US payout multiple is:

 

LOGO

Each payout factor (Matrix Factor, Interiors Factor, and “Wood-look” Factor) is capped as follows to properly balance management’s focus across volume growth, returns and key initiatives:

    Matrix Factor = capped at 2.0x
    Matrix Factor plus Interiors Factor = capped at 2.3x
    “Wood-look” Factor = capped at 1.25x

The Interiors Multiple is measured as a function of the revenue growth of our interiors business in fiscal year 2016. The “Wood-look” Multiple is measured as our growth against key “wood-look” competition.

We do not disclose the interiors volume growth or “wood-look” targets since these are commercial-in-confidence. However, achieving a target payment for fiscal year 2016 would have required performance above performance for fiscal year 2015 for interiors volume growth and substantial growth against key “wood-look” competition.

IP Plan

Under the IP Plan, the Remuneration Committee approves a series of one-year individual performance goals which, along with personal growth and development goals, are used to assess the performance of our Senior Executive Officers. The IP Plan links financial rewards to the Senior Executive Officer’s achievement of specific objectives that have benefited us and contributed to shareholder value, but are not captured directly by financial measures in the CP Plan. Each Senior Executive Officer can receive between 0% and 150% of their STI target allocated to the IP Plan based on achievement of individual performance and personal growth and development goals.

STI Plan Performance for Fiscal Year 2016

Our results and the subsequent STI payouts for fiscal year 2016 were above STI target as a result of:

    the US business performing substantially above target on the Return Measure due to lower production costs per unit, higher average net sales price, and lower organizational costs as a percentage of revenue;
    the US business performing below target on the Growth Measure;
    the US business performing significantly above target on the “Wood-look” Factor and above target on the Interiors Factor;
    Asia Pacific performing slightly above target on the Growth Measure due to the Australia and New Zealand businesses achieving growth above their respective targets, offset by the Philippines business achieving growth below target; and
    Asia Pacific performing above target on the Return Measure due to higher returns in Australia, New Zealand and the Philippines.


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The Senior Executive Officers’ performance and the subsequent STI payouts for fiscal year 2016 were generally at or above target based on each Senior Executive Officer’s achievement of fiscal year 2016 one-year individual performance and personal growth and development goals.

For fiscal year 2016, the amount to be paid to each of our Senior Executive Officers under the STI Plans is provided in the STI Award column of the remuneration table, in the section titled “Remuneration Paid to Senior Executive Officers”. The percentage of the maximum STI Variable Remuneration awarded to or forfeited by each Senior Executive Officer for (individual and company) performance in fiscal year 2016 compared to fiscal year 2015 was:

 

     STI Award1  
        Awarded %          Forfeited %  

L Gries

       

Fiscal Year 2016

     76           24   

Fiscal Year 2015

     100           -   

M Marsh

       

Fiscal Year 2016

     76           24   

Fiscal Year 2015

     100           -   

R Sullivan

       

Fiscal Year 2016

     80           20   

Fiscal Year 2015

     100           -   

M Fisher

       

Fiscal Year 2016

     74           26   

Fiscal Year 2015

     98           2   

J Blasko

       

Fiscal Year 2016

     74           26   

Fiscal Year 2015

     96           4   

 

1 Awarded = % of STI Award maximum actually paid. Forfeited = % of STI Award maximum foregone. STI Award amounts are paid in cash under the CP and IP Plans.

LTI Plans

Each year, the Remuneration Committee approves a LTI target for all Senior Executive Officers. The approved target is allocated between three separate components to ensure that each Senior Executive Officer’s performance is assessed across factors considered important for sustainable long-term value creation:

    ROCE RSUs are used as they are an indicator of high capital efficiency required over time;
    Relative TSR RSUs are used as they are an indicator of our performance relative to our Peer Group; and
    Scorecard LTI is an indicator of each Senior Executive Officer’s contribution to achieving our long-term strategic goals.


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Awards issued under the LTI Plans are issued pursuant to the terms of the Amended and Restated James Hardie Industries plc Long Term Incentive Plan 2006 (the “LTIP”). During fiscal year 2016, our Senior Executive Officers were granted the following awards under the LTIP:

 

     ROCE RSUs     TSR RSUs     Scorecard
LTI Units
 

L Gries

    254,480        292,514        286,290   

M Marsh

    57,258        65,816        64,415   

R Sullivan

    57,258        65,816        64,415   

M Fisher

    41,353        47,533        46,522   

J Blasko

    25,448        29,251        28,629   

RSUs issued under our LTI programs will be settled upon vesting in CUFS on a 1-to-1 basis. Unless the context indicates otherwise, in this Remuneration Report when we refer to our common stock, we are referring to the shares of our common stock that are represented by CUFS.

ROCE RSUs (40% of target LTI)

The Remuneration Committee introduced ROCE RSUs in fiscal year 2013 because the US housing market had stabilized to an extent which permitted the setting of multi-year financial metrics. The Remuneration Committee believes ROCE RSUs remain an appropriate component of the LTI Plan because they:

    allow the Remuneration Committee to replace the interim one-year metrics previously used during the US housing downturn with three-year financial metrics;
    tie the reward’s value to share price which provides alignment with shareholder interests;
    promote that we earn appropriate returns on the additional capital invested in response to the improvement in the US housing market;
    reward performance that is under management’s direct influence and control; and
    focus management on capital efficiency as the necessary precondition for the creation of additional shareholder value.


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Consistent with fiscal years 2013 through 2015, the maximum payout for the ROCE RSUs is 200% of target LTI. ROCE is determined by dividing Adjusted EBIT by Adjusted Capital Employed1. The ROCE hurdles will be indexed for changes to US and Asia Pacific addressable housing starts. The resulting Adjusted Capital Employed for each quarter of any fiscal year will be averaged to better reflect Capital Employed through a year rather than at a certain point in time.

ROCE hurdles for the ROCE RSUs are based on historical results and take into account the recovering US housing market and better optimization of our manufacturing plants. The three-year average ROCE for fiscal years 2013, 2014 and 2015 was 22.9%.

The hurdles for ROCE RSUs granted in fiscal year 2016 (for performance in fiscal years 2016 to 2018) were changed from those granted in fiscal year 2015 as follows:

 

Fiscal Years 2015-2016
ROCE
  Fiscal Years
2016-2018 ROCE
  % of ROCE
RSUs to vest
 

< 22.0%

  < 23.0%     0%   

³ 22.0%, but < 24.5%

  ³ 23.0%, but < 25.0%     25%   

³ 24.5%, but < 27.0%

  ³ 25.0%, but < 27.5%     50%   

³ 27.0%, but < 28.5%

  ³ 27.5%, but < 28.5%     75%   

³ 28.5%

  ³ 28.5%     100%  

At the conclusion of this three-year performance period, the Remuneration Committee will review management’s performance based on the quality of the returns balanced against management’s delivery of market share growth and performance against the Scorecard. Following this review, the Remuneration Committee can exercise negative discretion to reduce the number of shares received on vesting of the ROCE RSUs. This discretion can only be applied to reduce the number of shares which will vest.

 

1  For purposes of ROCE RSU vesting, “Adjusted EBIT” and “Adjusted Capital Employed” will be calculated as follows:

 

   “Adjusted EBIT” will be calculated as (i) EBIT as reported in our financial results; adjusted by (ii) deducting the earnings impact of legacy issues (such as asbestos adjustments and New Zealand weathertightness); and (iii) adding back asset impairment charges in the relevant period, unless otherwise determined by the Remuneration Committee.

 

   “Adjusted Capital Employed” will be calculated as Total Assets minus Current Liabilities as reported in our financial results; adjusted by: (i) excluding balance sheet items related to legacy issues (such as asbestos adjustments), dividends payable and deferred taxes; (ii) adding back asset impairment charges in the relevant period, unless otherwise determined by the Remuneration Committee; (iii) adding back leasehold assets for manufacturing facilities and other material leased assets; and (iv) deducting all greenfield construction-in-progress, and any brownfield construction-in-progress projects involving capacity expansion that are individually greater than US$20 million, until such assets reach commercial production and are transferred to the fixed asset register.


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ROCE RSUs Vesting in Fiscal Year 2016 (For Fiscal Years 2013-2015)

As a component of the fiscal year 2013 LTI Plan, we granted ROCE RSUs in September 2012. The ROCE RSUs comprised 40% of each executive’s LTI target and were granted assuming maximum performance (200% of target). Vesting of the ROCE RSUs is dependent on the average ROCE performance for fiscal years 2013-2015 and is subject to the Remuneration Committee’s negative discretion based on its judgment regarding the quality of returns balanced against management’s delivery of market share growth. The ROCE performance hurdles for this grant were approved as follows:

 

ROCE Performance Level    % of ROCE RSUs vested

<18.5%

   0%

³18.5% but < 19.5%

   25%

³19.5% but <20.5%

   50%

³20.5% but <21.5%

   75%

³21.5%

   100%

Based solely on the average ROCE result for fiscal years 2013-2015 of 22.9%, 100% of the ROCE RSUs granted would have vested. However, based on the Remuneration Committee’s assessment of the quality of returns balanced against management’s delivery of market share growth, the Remuneration Committee determined that it would apply negative discretion in the amount of 20%. As such, 80% of the outstanding fiscal year 2013 ROCE RSUs vested on 14 September 2015. Unvested ROCE RSUs from this grant were forfeited.

Relative TSR RSUs (30% of target LTI)

The Remuneration Committee believes that Relative TSR RSUs continue to be an appropriate component of the LTI Plan because they provide alignment with shareholders. Even if macro-economic conditions create substantial shareholder value, Senior Executive Officers will only receive payouts if the TSR of our shares exceeds a specified percentage of our Peer Group over a performance period.

We have used Relative TSR RSUs in our LTI Plan since fiscal year 2009. Consistent with fiscal years 2013 through 2015, the maximum payout for Relative TSR RSUs granted in fiscal year 2016 is 200% of target LTI.

Relative TSR, measure changes in our share price and the share prices of our Peer Group; and assumes all dividends and capital returns are reinvested when paid. Our relative TSR performance will be measured against the Peer Group over a 36 to 54 month period from grant date, with testing at the 36th month, 48th month and at the end of the 54 month period. To eliminate the impact of short-term share price changes, the starting point and each test date are


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measured using a 20 trading-day average closing price. Relative TSR RSUs will vest based on the following straight-line schedule:

 

Performance against Peer Group    % of Relative TSR
RSUs vested

<40th Percentile

   0%

40th Percentile

   25%

>40th Percentile - <60th Percentile

   Sliding Scale

60th Percentile

   50%

>60th Percentile - <80th Percentile

   Sliding Scale

³80th Percentile

   100%

The Remuneration Committee will continue to monitor the design of the Relative TSR RSU component of the LTI Plan for Senior Executive Officers with the aim of balancing investor preferences with the ability to motivate and retain Senior Executive Officers.

TSR RSUs Vesting in Fiscal Year 2016

As part of the fiscal year 2011 LTI Plan, in September 2010 we granted five year Relative TSR RSUs to senior executives. Vesting of these Relative TSR RSUs was dependent on our TSR performance relative to a set peer group, based on the following schedule:

 

Performance against Peer Group    % of Relative TSR
RSUs vested

<50th Percentile

   0%

50th Percentile

   33%

³51st but <75th Percentile

   Sliding Scale

³75th Percentile

   100%

In September 2015, the final test of relative TSR performance was completed, resulting in our TSR performance at the 76.9th percentile of the peer group (bringing the total vesting percentage for these grants over the five-year performance period to 100%).

As part of the fiscal year 2012 LTI Plan, in September 2011 we granted five year Relative TSR RSUs to senior executives. Vesting of these Relative TSR RSUs was dependent on our TSR performance relative to a set peer group, based on the same schedule as noted above for the fiscal year 2010 grants. In September 2015, the third test of relative TSR performance was completed, bringing the total vesting for this grant to 53.37% based on our TSR performance at the 57.6th percentile of the peer group. The fourth performance test (in March 2016) for these grants did not result in any additional vesting.


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As part of the fiscal year 2013 LTI Plan, in September 2012 we granted five year Relative TSR RSUs to senior executives. Vesting of these Relative TSR RSUs was dependent on our TSR performance relative to a set peer group, based on the following schedule:

 

Performance against Peer Group    % of Relative TSR
RSUs vested

<40th Percentile

   0%

³40th but <80th Percentile

   Sliding Scale

³80th Percentile

   100%

In September 2015, the first test of relative TSR performance was completed, resulting in 77% vesting for these grants based on our TSR performance at the 70.8th percentile of the peer group. The second performance test (in March 2016) for these grants did not result in any additional vesting.

Scorecard LTI (30% of target LTI)

We have used Scorecard LTI in our LTI Plan since fiscal year 2010. Each year, the Remuneration Committee approves a number of key management objectives and the measures it expects to see achieved in relation to these objectives. These objectives are incorporated into that year’s grant of Scorecard LTI. At the end of the three-year performance period, the Remuneration Committee assesses our Senior Executive Officers’ collective performance on each key objective and each individual Senior Executive Officer’s contribution to those achievements (with scores between 0 and 100) and the Board reviews this assessment. Senior Executive Officers may receive different ratings depending on the contribution they have made during the three-year performance period. Although most of the objectives in the Scorecard have quantitative targets, we consider some of the targets to be commercial-in-confidence. Consistent from fiscal year 2010, the maximum payout for Scorecard LTI is 300% of target LTI.

The Remuneration Committee believes that the Scorecard LTI continues to be an appropriate component of its LTI Plan because it:

    allows the Remuneration Committee to set targets for and reward executives on a balance of longer-term financial, strategic, business, customer and organizational development goals which it believes are important contributors to long-term creation of shareholder value;
    ties the reward’s value to our share price over the medium-term; and
    allows flexibility to apply rewards across different countries, while providing Senior Executive Officers with liquidity to pay tax or other material commitments at a time that coincides with vesting of shares (via the other components of the LTI Plan) as payment is in cash.

No specific weighting is applied to any single objective and the final Scorecard assessment reflects an element of judgment by the Board. The Board may only exercise negative discretion (i.e., to reduce the amount of Scorecard LTI that will ultimately vest). It cannot enhance the maximum reward that can be received.


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The amount received by Senior Executive Officers is based on both our share price performance over the three years from the grant date and the Senior Executive Officer’s Scorecard rating. At the start of the three-year performance period, we calculate the number of shares each Senior Executive Officer could have acquired if they received a maximum payout on the Scorecard LTI at that time (based on a 20 trading-day average closing price). Depending on the Senior Executive Officer’s rating (between 0 and 100), between 0% and 100% of the Senior Executive Officer’s Scorecard LTI awards will vest at the end of the three-year performance period. Each Senior Executive Officer will receive a cash payment based on our share price at the end of the period (based on a 20 trading-day average closing price) multiplied by the number of shares they could have acquired at the start of the performance period, adjusted downward in accordance with their Scorecard rating.

Further details related to the Scorecard for fiscal year 2016, including the method of measurement, historical performance against the proposed measures and the Board of Director’s expectations, were previously set out in our Remuneration Report for the fiscal year ended 31 March 2015. An assessment of our Scorecard performance for fiscal years 2014-2016 is set out below. We will provide an explanation of the final assessment of performance under the Scorecard for fiscal years 2016-2018 at the conclusion of fiscal year 2018.

Scorecard LTI for Fiscal Years 2014-2016

After fiscal year 2016, the Remuneration Committee reviewed our performance over fiscal years 2014-2016 against the Scorecard objectives set forth in fiscal year 2014, and the contribution of individual Senior Executive Officers towards the obtainment of such objectives. As a result of this evaluation, the Remuneration Committee determined that Senior Executive Officers received a weighted average Scorecard rating of 67.5% (with a range of 58% to 69%).

 

Performance Measure/ Rationale    Performance Metric/Results    Board Assessment

Grow exterior cladding market share and maintain category share in the US business

 

A key strategy for JH is to maximize its market share growth/ retention of the exterior cladding market for new housing starts and for Repair & Remodel markets.

  

Goal: PDG above market. Outperformance against ‘wood-look’ competition.

 

Result: PDG performance above the Board requirement. Growth above key competition and slight increase in exterior cladding market share.

   Performance exceeded
expectations
Build US organizational and leadership capability in support of the 35/90 growth target    Goal: Satisfactory progress on turnover and engagement initiatives capability build demonstrated by greater bench strength of high performing managers.    Performance below expectations

 

The amount of growth that 35/90 entails requires lower turnover levels and an increase in management depth and organizational capability.    Result: No improvement on average turnover during the three-year period. The business has benefitted from recruiting programs, career development and mentoring and leadership programs that are part of the talent management and development initiatives. Bench strength and overall organizational capability build has not kept pace with internal demand for talent.   


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Performance Measure/ Rationale    Performance Metric/Results    Board Assessment
Manufacturing capacity planning and sourcing efficiency    Goal: Commercial-in-confidence metrics for product and process efficiency and material yield used to confirm manufacturing performance and progress is effectively supporting our product leadership strategy.    Performance exceeded
expectations
The Company operates a national US network of manufacturing facilities.    Result: Product and process efficiency above Board expectations for the three year period, material yield remained flat.   
Safety    Goal: No fatalities, 2.0 or below incident rate (“IR”) and 20.0 or below severity rate (“SR”).    Performance below expectations

 

The safety of our employees is an essential objective of the Company.    Result:       IR       SR   
    

FY16          1.8     42.4

FY15          1.3     11.0

FY14          1.3     23.4

  
Effectively Manage Legacy Issues    Goal: Make acceptable progress on resolving or addressing issues.    Performance exceeded
expectations
Minimize financial and market position impact of legacy issues.    Result: Very positive progress on legacy issues over the three-year period with minimal impact or distraction on the business.   

Maintain market position on core products in Australian and NZ Markets and grow Scyon to greater proportion of Australian business

   Goal: Maintain or grow category share on core Australian and New Zealand products, achieve PDG in Australia and New Zealand and achieve growth of Scyon percentage of Australian business.    Performance met expectations
Value creating opportunity.    Result: Category share and PDG in Australia and New Zealand, as well as Scyon growth, met Board expectations for the three-year period.   
Australian capacity expansion    Goal: Completion of building construction, equipment installation and commissioning of Carole Park expansion.    Performance below expectations
The expansion will support expected growth over the next 20 years.    Result: Carole Park expansion complete, but start-up behind initial plan and spend was above budget. Production volumes at or above start-up expectations for most products.   


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CHANGES TO REMUNERATION FOR FISCAL YEAR 2017

Remuneration for Fiscal Year 2017

During May 2016, the Board, with the assistance of the Remuneration Committee and its independent remuneration advisers, undertook its annual review of our existing remuneration policies, programs and arrangements and determined to implement certain changes for fiscal year 2017.

CEO Compensation

For fiscal year 2017, there will be no changes to the CEO’s base salary, target STI or target LTI.

Other Senior Executive Officer Compensation

Base pay, target STI and target LTI increases in fiscal year 2017 for other Senior Executive Officers are as follows:

 

      Base Salary      Target STI     Target LTI  
Name    Fiscal Year
2016 (US$)
     Fiscal Year
2017 (US$)
     Fiscal Year
2016
    Fiscal Year
2017
    Fiscal Year
2016 (US$)
     Fiscal Year
2017 (US$)
 

M Marsh

     520,000         560,000         60     70     900,000         1,200,000   

R Sullivan

     520,000         600,000         60     80     900,000         1,500,000   

M Fisher

     500,000         515,000         60     60     650,000         650,000   

J Blasko

     380,000         405,000         60     60     400,000         450,000   

Base salary, STI target and LTI target increases for Messrs Marsh and Sullivan were made to properly align their base salaries with the increase in role scope and accountability that occurred for each during fiscal year 2016 in addition to better align their overall compensation practices with (i) our CEO succession plan, (ii) our need to retain key senior executives through the eventual CEO transition process, (iii) our lean management structure, and (iv) the 75th percentile of our Peer Group LTI values, consistent with our remuneration philosophy.

Base salary increases for Messrs Fisher and Blasko were made in line with our annual compensation review guidelines and were adjusted as required to maintain positioning relative to market merit increase levels. The small increase to Messr Blasko’s LTI target was made to better align his LTI target value with the 75th percentile of our Peer Group, consistent with our remuneration philosophy.

STI Plans

There will be no changes to the operation of the IP or CP Plans for fiscal year 2017 other than to establish new commercial-in-confidence targets aligned with our strategic initiatives as we do every year.


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LTI Plan

The Board and Remuneration Committee feel the current LTI Plan is having the desired effect of balancing the short-term focus of base salaries and STI program by tying equity-based rewards to performance achieved over multi-year periods and aligning equity incentives with long-term shareholder interests. Additionally, management understands the current plan and continues to be motivated by it. As such, the fiscal year 2017 LTI Plan is consistent with the plan for fiscal year 2016, with only minor updates to ROCE RSU hurdles and Scorecard objectives.

The 2016 Notice of Annual General Meeting will contain further details on the relative TSR RSU and ROCE RSU grants for fiscal year 2017. Changes to ROCE performance hurdles and Scorecard objectives for fiscal year 2017 are set forth below.

Changes to LTI Variable Compensation for Fiscal Year 2017

ROCE RSUs

The hurdles for ROCE RSUs to be granted in fiscal year 2017 (for performance in fiscal years 2017 to 2019) were increased from the hurdles for ROCE RSUs granted in fiscal year 2016 as follows:

 

Fiscal Years 2017-2019

ROCE

 

Fiscal Years 2016-2018

ROCE

      % of ROCE RSUs to vest

< 24.0%

  < 23.0%   0%

³ 24.0%, but < 26.0%

  ³ 23.0%, but < 25.0%   25%

³ 26.0%, but < 28.5%

  ³ 25.0%, but < 27.5%   50%

³ 28.5%, but < 29.5%

  ³ 27.5%, but < 28.5%   75%

³ 29.5%

  ³ 28.5%   100%

For fiscal year 2016, the Board has increased the threshold, target and maximum ROCE performance hurdles, thereby making it more difficult to achieve minimum, at target and maximum vesting. The Board believes this increase in performance hurdles is appropriate given the recovering housing market in the US and better optimization of manufacturing plants.

Scorecard LTI

The Remuneration Committee uses the Scorecard to set strategic objectives for which performance can only be assessed over a period of time. These objectives change from year-to-


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year in line with our strategic priorities. For fiscal year 2017, the Remuneration Committee has set the following seven Scorecard goals:

 

Performance Goal/ Rationale    Performance Metric    Board Expectation

Grow exterior cladding market share and maintain category share in the US business

 

A key strategy for us is to maximize our market share growth/retention of the exterior cladding market for new housing starts and for repair and remodel markets.

   Our PDG performance for exterior cladding compared to the underlying market (in standard feet) and outperformance of key competition.    PDG growth above market and outperformance against key competition.

Interiors Market Strategy Implementation

 

Necessary to sustain interiors business revenue and EBIT, and grow beyond the Company’s current market position.

   PDG together with the entry into adjacent markets. The latter achievement can include developing new technologies, expanding into new product categories or the acquisition of new technologies.    PDG growth above market and technology and/or product adjacent to existing markets identified and in process of development.

Build US Organizational and Leadership Capability in Support of the “35/90” Growth Target

 

In order to achieve 35/90, we will require lower turnover levels and an increase in management depth and organizational capability.

   A range of factors including the rate of salaried voluntary turnover, execution of programs to build organizational capability and bench strength for key roles.    Continued focus on turnover and engagement initiatives, success in external recruitment, onboarding of key positions, programs to build organizational capability, and development of/successful execution on a management team succession plan.

Safety

 

The safety of all employees is an essential objective of the Company.

  

Incident Rate (IR): Recordable incidents per 200,000 hours worked.

 

Severity Rate (SR): Days lost per 200,000 hours worked.

  

Zero fatalities.

 

IR: 2.0 or below.

 

SR: 20.0 or below.

Pursue Organic Growth in All Asia Pacific Markets and Grow Scyon and New Products to Greater Proportion of Asia Pacific Business

Value creating opportunity.

  

Category share and PDG.

 

Continued growth of Scyon and introduction and growth of new products in Asia Pacific.

  

Grow category share on core Australian and New Zealand products.

 

Grow PDG in Australia and New Zealand.

 

Achieve growth in Scyon as well as the introduction of new products in Asia Pacific.

Manufacturing Effectiveness and Sourcing Efficiency

 

We operate a national US network of manufacturing facilities.

  

First pass quality and service, as well as sheet machine product and process efficiency metrics.

 

Manufacturing performance data is commercial-in-confidence.

   Commercia-in-confidence targets will be reviewed to confirm progress is supporting the Company’s product leadership strategy.

Define a Clear Vision and Strategy for Non-Fiber Cement Business

 

Developing sustainable growth beyond the Company’s traditional products may create shareholder value through increased profits and lower risk through diversification.

   This measure is subjective and achievement can take many different forms, including developing a vision or business development framework, new technologies, or expanding into new product categories.    Progress against this goal will be reviewed to ensure any progress is supporting the Company’s position in the non-fiber cement marketplace.


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EXECUTIVE COMPENSATION PRACTICES

Clawback Provisions

The Remuneration Committee has established an executive performance-based compensation clawback policy in connection with performance-based compensation paid or awarded to certain executives. The clawback policy provides that the Board may, in all appropriate circumstances, recover from any current or former executive regardless of fault, that portion of any performance-based compensation erroneously awarded: (i) based on financial information required to be reported under applicable US or Australian securities laws or applicable exchange listing standards that would not have been paid in the three completed fiscal years preceding the year(s) in which an accounting restatement is required to correct a material error; or (ii) during the previous three completed fiscal year as a result of any errors or omissions in objective, calculable performance measures contained in formal papers presented to and relied upon by the Board for purposes of determining compensation to be paid or awarded, where the absence of such errors or omissions would have resulted in there being a material negative impact on the amount of performance-based compensation paid or awarded.

The clawback policy applies to any person designated as a participant by the Board in the annual LTI Plan and applies to any compensation that is granted, earned or vested based wholly or in part upon the attainment of any financial or other objective, calculable performance measure under any incentive, bonus, retirement or equity compensation plan maintained by the Company, including, without limitation, the STI Plan and LTI Plan. Salaries, discretionary bonuses, time-based equity awards and bonuses or equity awards based on subjective, non-financial measures, including strategic or personal performance metrics, are excluded.

The excess compensation requiring recovery shall be the amount of performance-based compensation that an executive received, based on the erroneous data, less the amount that would have been paid to the executive based on the restated or corrected data. All recoverable amounts shall be calculated on a pre-tax basis. For equity awards still held at the time of the recovery, the recoverable amount shall be the amount vested in excess of the number that should have vested under the restated or corrected financial reporting measure. For vested equity awards which have already been sold, the recoverable amount shall be the sale proceeds the executive received with respect to the excess number of shares.

In addition, all LTI grants made to Messrs Gries, Sullivan, Marsh and Fisher are subject to clawback provisions (either in their respective employment agreement or award grant documents) for violation of a limited non-compete provision that specifically prohibits executives from working for designated competitors or for any company that may enter the fiber cement market within two years of departure.

Stock Ownership Guidelines

The Remuneration Committee believes that Senior Executive Officers should hold a meaningful level of our stock to further align their interests with those of our shareholders. We have adopted stock ownership guidelines for the CEO and other Senior Executive Officers, respectively, which require them to accumulate holdings of three times and one times their base salary, respectively, in our stock over a period of five years from the effective date of the guidelines (1 April 2009) or the date the Senior Executive Officer first becomes subject to the applicable guideline.


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Until the stock ownership guidelines have been met, Senior Executive Officers are required to retain at least 75% of shares obtained under our LTI Plans (net of taxes and other costs). Once Senior Executive Officers have met or exceeded their stock ownership guidelines, they are required to retain at least 25% of shares issued under our LTI Plans through the vesting of RSUs (net of taxes and other costs) for a period of two years (by way of a holding lock), after which time those shares can be sold (provided the Senior Executive Officer remains at or above the stock ownership guideline).

The CEO’s holdings have exceeded the stock ownership guidelines for some years. All other Senior Executive Officers are tracking toward achievement of the minimum share accumulation threshold in accordance with the timeframe specified.

Equity Award Practices

Annual equity awards under the LTI Plan are generally approved by the Remuneration Committee in May of each year with awards generally issued in September of each year. We do not time the granting of equity awards to the disclosure of material information.

For details of the application of our insider-trading policy for equity award grant participants, including our prohibition on employee hedging transactions, see the “Insider Trading” section of this Annual Report.

Loans

We did not grant loans to Senior Executive Officers during fiscal year 2016. There are no loans outstanding to Senior Executive Officers.

EMPLOYMENT AND SEVERANCE ARRANGEMENTS

We maintain employment agreements with Messrs Gries, Sullivan, Marsh and Fisher, the material terms of which are outlined below. Other than as provided under the terms of their respective employment agreements, no other termination payments are payable, except as required under the terms of the applicable STI or LTI plans.

Employment Agreement with Louis Gries

Below is a summary of the key terms of Mr Gries’ current employment agreement:

    Executive Employment Agreement renewed effective as of 14 October 2010 providing for service as Chief Executive Officer.
    Mr Gries is an employee-at-will and either he or the Company may terminate his employment at any time or any reason.
    Base salary at an initial annual rate of US$950,000, subject to annual review and approval by Remuneration Committee.
    Participation in Company’s annual STI and LTI Plans, with a minimum STI target of 100% of his annual base salary, as established by the Company’s Board.
    Participation in the Company’s benefit, health and welfare plans and certain fringe benefits made generally available to Senior Executive Officers in accordance with his agreement and Company policies.
   

Provisions concerning consequences of termination of employment under specified circumstances, including: (i) termination by the Company for cause; (ii) termination by


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reason of death or disability; (iii) retirement; (iv) termination by the Company without cause or by Mr Gries with good reason; or (v) termination by Mr Gries without good reason.

    In the event that Mr Gries’ employment is terminated by the Company for any reason other than for cause, or if Mr Gries voluntarily terminates his employment for good reason, the Company shall pay to Mr Gries, in addition to any compensation or reimbursements he would otherwise be entitled to up to the date of termination: (i) an amount equal to 150% of his then current base salary; (ii) an amount equal to 150% of his average annual STI bonus actually paid, calculated based on the three full fiscal years immediately preceding the year of termination; (iii) his prorated bonus; (iv) no pro rata forfeiture of his unvested RSUs/Scorecard LTI grants – these will vest in accordance with the terms and timing of the specific grants; and (v) continuation of health and medical benefits at the Company’s expense for the duration of the consultation agreement referenced below, provided that Mr Gries signs the Company’s release of claims without revocation and has been and continues to remain in compliance with his confidentiality and noncompetition obligations as set forth in this agreement.
    In the event of Mr Gries’ retirement after the age of 65, or prior to age 65 with the approval of the Board, his then unvested RSUs and awards will not be forfeited and will be held through the applicable testing periods.
    In the event that Mr Gries’ employment is terminated for any reason other than by the Company for cause or due to his death, in addition to any severance payment he may be entitled to as set forth above, the Company and Mr Gries each agree to enter into a consulting arrangement for a minimum of two years, as long as Mr Gries adheres to certain non-competition and confidentiality provisions and executes a release of claims following the effective date of termination. Under the consulting agreement, Mr Gries will receive his annual target STI bonus and annual base salary in exchange for his consulting services and non-compete.

Employment Agreement with Ryan Sullivan

Below is a summary of the key terms of Mr Sullivan’s employment agreement:

    Effective 15 May 2016, the Company entered into an employment agreement with Mr Sullivan (the “Sullivan Agreement”), which has an initial term of three years and automatic one year renewals thereafter unless either Mr Sullivan or the Company notifies the other party at least 90 days before the expiration date that the Sullivan Agreement is not to be renewed. In the event that the Company is the party that determines not to renew, such non-renewal shall be treated as a termination without “Cause” (as defined in the Sullivan Agreement) and subject to the termination without “Cause” provisions of the Sullivan Agreement.
    The Sullivan Agreement provide for a base salary of not less than US$600,000 for Mr Sullivan, which shall be reviewed annually for increase in the discretion of the Remuneration Committee. Additionally, Mr Sullivan shall be eligible for an annual STI award with payout opportunities that are commensurate with his position and duties, with a minimum target annual STI award opportunity of not less than 80% of this the current base salary. Mr Sullivan shall also be eligible to participate in our annual LTI plan on terms commensurate with his position and duties, with a minimum annual target LTI award opportunity of not less than US$1,500,000.


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    Mr Sullivan shall be eligible for participation in our employee benefit, health and welfare plans and certain fringe benefits made generally available to Senior Executive Officers in accordance with Company policies.
    The Sullivan Agreement contains provisions concerning the consequences of termination of employment under specified circumstances, including: (i) termination by the Company for Cause; (ii) termination by reason of death or disability; (iii) termination by the Company without Cause or by Mr Sullivan with Good Reason; or (iv) termination by Mr Sullivan without good reason. In particular, in the event the Company terminates Mr Sullivan without Cause or Mr Sullivan voluntarily terminates for Good Reason, Mr Sullivan shall be entitled to: (i) a lump-sum amount equal to his unpaid base salary through and including the date of termination, as well as accrued, unused vacation pay and unreimbursed business expenses; (ii) a payment for any earned but unpaid annual incentive award for a completed calendar year prior to the date of termination; (iii) salary continuation for the two year period following the date of termination, provided the aggregate amount of such continuation payments shall be equal to the sum of (A) two times the base salary plus (B) one times the annual incentive award opportunity, as then in effect; (iv) an amount, if any, with respect to the annual incentive award opportunity for the year in which such termination of employment occurs, as determined under the terms and conditions of the Company’s annual incentive program(s); (v) all outstanding equity awards will remain subject to the terms and conditions of the applicable equity incentive plan and any corresponding award agreement(s); (vi) monthly payments for a period of 18 months equal to the premium Mr Sullivan would be required to pay for COBRA continuation coverage under the James Hardie’s health benefit plans, determined using the COBRA premium rate in effect for the level of coverage that Mr Sullivan has in place immediately prior to termination; and (vii) the Company will assist Mr Sullivan in finding other employment opportunities by providing to him, at James Hardie’s limited expense, reasonable professional outplacement services through the provider of the James Hardie’s choice for a period of up to 24 months.
    Pursuant to the confidentiality, non-competition and non-solicitation provisions of the Sullivan Agreement, for a period of 24 months following any termination of Mr Sullivan’s employment, Mr Sullivan shall be prohibited from: (i) directly or indirectly acting, engaging in, have a financial or other interest in, or otherwise serving as an employee, agent, partner, shareholder, director, or consultant for certain designated competitors of the Company; and (ii) employing or retaining or soliciting for employment any person who is an employee or consultant of the Company or soliciting suppliers or customers of the Company or inducing any such person to terminate his, her, or its relationship with the Company.

Employment Agreement with Matthew Marsh

Below is a summary of the key terms of Mr Marsh’s current employment agreement:

    Effective 15 May 2016, the Company entered into an employment agreement with Mr Marsh (the “Marsh Agreement”), which has an initial term of three years and automatic one year renewals thereafter unless either Mr Marsh or the Company notifies the other party at least 90 days before the expiration date that the Marsh Agreement is not to be renewed. In the event that the Company is the party that determines not to renew, such non-renewal shall be treated as a termination without “Cause” (as defined in the Marsh Agreement) and subject to the termination without “Cause” provisions of the Marsh Agreement.
   

The Marsh Agreement provide for a base salary of not less than US$560,000 for Mr Marsh, which shall be reviewed annually for increase in the discretion of the Remuneration


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Committee. Additionally, Mr Marsh shall be eligible for an annual STI award with payout opportunities that are commensurate with his position and duties, with a minimum target annual STI award opportunity of not less than 70% of this the current base salary. Mr Marsh shall also be eligible to participate in our annual LTI plan on terms commensurate with his position and duties, with a minimum annual target LTI award opportunity of not less than US$1,200,000.

    Mr Marsh shall be eligible for participation in our employee benefit, health and welfare plans and certain fringe benefits made generally available to Senior Executive Officers in accordance with Company policies.
    The Marsh Agreement contains provisions concerning the consequences of termination of employment under specified circumstances, including: (i) termination by the Company for Cause; (ii) termination by reason of death or disability; (iii) termination by the Company without Cause or by Mr Marsh with Good Reason; or (iv) termination by Mr Marsh without good reason. In particular, in the event the Company terminates Mr Marsh without Cause or Mr Marsh voluntarily terminates for Good Reason, Mr Marsh shall be entitled to: (i) a lump-sum amount equal to his unpaid base salary through and including the date of termination, as well as accrued, unused vacation pay and unreimbursed business expenses; (ii) a payment for any earned but unpaid annual incentive award for a completed calendar year prior to the date of termination; (iii) salary continuation for the two year period following the date of termination, provided the aggregate amount of such continuation payments shall be equal to the sum of (A) two times the base salary plus (B) one times the annual incentive award opportunity, as then in effect; (iv) an amount, if any, with respect to the annual incentive award opportunity for the year in which such termination of employment occurs, as determined under the terms and conditions of the Company’s annual incentive program(s); (v) all outstanding equity awards will remain subject to the terms and conditions of the applicable equity incentive plan and any corresponding award agreement(s); (vi) monthly payments for a period of 18 months equal to the premium Mr Marsh would be required to pay for COBRA continuation coverage under the James Hardie’s health benefit plans, determined using the COBRA premium rate in effect for the level of coverage that Mr Marsh has in place immediately prior to termination; and (vii) the Company will assist Mr Marsh in finding other employment opportunities by providing to him, at James Hardie’s limited expense, reasonable professional outplacement services through the provider of the James Hardie’s choice for a period of up to 24 months.
    Pursuant to the confidentiality, non-competition and non-solicitation provisions of the Marsh Agreement, for a period of 24 months following any termination of Mr Marsh’s employment, Mr Marsh shall be prohibited from: (i) directly or indirectly acting, engaging in, have a financial or other interest in, or otherwise serving as an employee, agent, partner, shareholder, director, or consultant for certain designated competitors of the Company; and (ii) employing or retaining or soliciting for employment any person who is an employee or consultant of the Company or soliciting suppliers or customers of the Company or inducing any such person to terminate his, her, or its relationship with the Company.

Employment Agreement with Mark Fisher

Below is a summary of the key terms of Mr Fisher’s current employment agreement:

    Executive Employment Agreement effective as of 31 March 2006.
    Mr Fisher is an employee-at-will and either he or the Company may terminate his employment at any time or for any reason.


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    Base salary subject to annual review and approval by Remuneration Committee.
    Participation in Company’s annual STI and LTI Plans, as established by the Company’s Board.
    Participation in the Company’s benefit, health and welfare plans and certain fringe benefits made generally available to Senior Executive Officers in accordance with Company policies.
    Provisions concerning consequences of termination of employment under specified circumstances, including: (i) termination by the Company for cause; (ii) termination by reason of death or disability; (iii) termination by the Company without cause or by Mr Fisher with good reason; or (iv) termination by Mr Fisher without good reason.
    In the event that Mr Fisher’s employment is terminated by the Company for any reason other than for cause or due to his death or if Mr Fisher voluntarily terminates his employment for good reason, in addition to any compensation or reimbursements he would otherwise be entitled to up to the date of termination, the Company and Mr Fisher each agree to enter into a consulting arrangement for a minimum of two years, as long as Mr Fisher adheres to certain non-competition and confidentiality provisions and executes a release of claims following the effective date of termination. Under the consulting agreement, Mr Fisher will receive his annual base salary as of the termination date for each year in exchange for his consulting services and non-compete.

REMUNERATION PAID TO SENIOR EXECUTIVE OFFICERS

Total Remuneration for Senior Executive Officers

Details of the remuneration for Senior Executive Officers in fiscal years 2016 and 2015 are set out below:

 

(US dollars)   Primary     Post-
employment
    Equity Awards     TOTAL  
Name   Base Pay     STI Award2     Other
Benefits3
    401(k)     Ongoing
Vesting4
    Mark-to
Market5
   

L Gries1

                                                       

Fiscal Year 2016

    950,000        2,424,875        134,174        15,919        6,283,244        1,228,260        11,036,472   

Fiscal Year 2015

    950,000        3,206,250        156,059        15,440        8,319,665        (908,777     11,738,637   
         

M Marsh

               

Fiscal Year 2016

    513,846        637,104        49,233        16,177        965,366        67,910        2,249,636   

Fiscal Year 2015

    493,846        810,000        47,903        15,877        619,567        (48,658     1,938,535   
         

R Sullivan

               

Fiscal Year 2016

    489,231        673,023        70,796        10,085        770,382        58,778        2,072,295   

Fiscal Year 2015

    392,308        680,400        54,687        16,846        475,721        (50,189     1,569,773   
         

M Fisher

               

Fiscal Year 2016

    496,923        597,600        36,657        16,038        753,040        126,265        2,026,523   

Fiscal Year 2015

    486,923        779,100        39,887        15,738        835,874        (106,421     2,051,101   
         

J Blasko

               

Fiscal Year 2016

    373,846        454,176        56,987        16,177        485,451        88,935        1,475,572   

Fiscal Year 2015

    350,769        561,600        48,223        16,015        569,377        (80,719     1,465,265   

TOTAL

                                                       

Fiscal Year 2016

    2,823,846        4,786,778        347,847        74,396        9,257,483        1,570,148        18,860,498   

Fiscal Year 2015

    2,673,846        6,037,350        346,759        79,916        10,820,204        (1,194,764     18,763,311   


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1 L Gries base pay includes US$170.184 and US$161,449 in fiscal years 2016 and 2015, respectively, which is allocated for tax purposes to his services on the Company’s Board.

 

2 For further details on STI awards paid for fiscal years 2016 and 2015, see page 41 of this Remuneration Report. Amounts reflect actual STI awards to be paid in June 2016 and paid in June 2015, for fiscal years 2016 and 2015, respectively.

 

3 Includes the aggregate amount of all other benefits received in the year indicated. Examples of benefits that may be received include medical and life insurance benefits, car allowances, membership in executive wellness programs, and financial planning and tax services.

 

4 Includes equity award expense for grants of Scorecard LTI awards, relative TSR RSUs and ROCE RSUs. Relative TSR RSUs are valued using a Monte Carlo simulation method. ROCE RSUs and Scorecard LTI awards are valued based on the Company’s share price at each balance date as well as the Remuneration Committee’s current expectation of the percentage of the RSUs or awards which will vest. The fair value of equity awards granted are included in compensation during the period in which the equity awards vest. For ROCE RSUs and Scorecard LTI awards, this amount excludes the equity award expense in fiscal years 2016 and 2015 resulting from changes in the Company’s share price, which is disclosed separately in the Equity Awards “Mark-to-Market” column.

 

5 The amount included in this column is the equity award expense in relation to ROCE RSUs and Scorecard LTI awards resulting solely from changes in the US dollar share price during fiscal years 2016 and 2015. During fiscal year 2016, there was a 17.4% appreciation in our share price from US$11.65 to US$13.68, as a result of changes in the AUD/USD exchange rate. During fiscal year 2015, there was an 11.8% depreciation in our share price from US$13.21 to US$11.65.

Variable Remuneration Payable in Future Years

Details of the accounting cost of the variable remuneration for fiscal year 2016 that may be paid to Senior Executive Officers in future years are set out below. The minimum amount payable is nil in all cases. The maximum amount payable will depend on the share price at time of vesting, and is therefore not possible to determine. The table below is based on the fair value of the RSUs and Scorecard LTI according to US generally accepted accounting standards and our estimate of the rating to be applied to Scorecard LTI.

 

   

Scorecard LTI¹

(US dollars)

       

ROCE RSUs²

(US dollars)

       

Relative TSR RSUs³

(US dollars)

 
     FY2016     FY2017     FY2018     FY2019         FY2016     FY2017     FY2018     FY2019         FY2016     FY2017     FY2018     FY2019  

L Gries

    468,721        868,443        868,443        404,480          312,481        578,962        578,962        269,653          439,296        813,923        813,923        381,317   

M Marsh

    105,461        195,397        195,397        91,007          70,308        130,266        130,266        60,672          98,842        183,134        183,134        85,797   

R Sullivan

    105,461        195,397        195,397        91,007          70,308        130,266        130,266        60,672          98,842        183,134        183,134        85,797   

M Fisher

    76,165        141,119        141,119        65,726          50,777        94,079        94,079        43,818          71,385        132,261        132,261        61,963   

J Blasko

    46,872        86,844        86,844        40,448          31,248        57,896        57,896        26,965          43,929        81,391        81,391        38,131   
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 
    802,680        1,487,200        1,487,200        692,668          535,122        991,469        991,469        461,780          752,294        1,393,843        1,393,843        653,005   
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

 

 

1 Represents annual SG&A expense for Scorecard LTI granted in September 2015. The fair value of each award is adjusted for changes in our common stock price at each balance sheet date until the final Scorecard rating is applied in September 2018, at which time the final value is based on our share price and the Senior Executive Officers Scorecard rating at the time of vesting.

 

2 Represents annual SG&A expense for the ROCE RSUs granted in September 2015. The fair value of each RSU is adjusted for changes in our common stock price at each balance sheet date until September 2018 when ROCE results are known and the Remuneration Committee makes a determination on the amount of negative discretion to be applied and some, all or none of the awards become vested.

 

3 Represents annual SG&A expense for the relative TSR RSUs granted in September 2015 with fair market value estimated using the Monte Carlo option-pricing method.


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OUTSTANDING EQUITY AWARDS HELD BY SENIOR EXECUTIVE OFFICERS

The following tables set forth information regarding outstanding equity awards held by our Senior Executive Officers as of 30 April 2016.

Options

As at 30 April 2016, no Senior Executive Officers held stock options.

Restricted Stock Units

 

Name   Grant
Date
    Release
Date
    Holding and
Unvested at
1 April 2015
    Granted     Total
Value at
Grant¹
(US$)
    Vested     Lapsed     Holding and
Unvested at
30 April 2016
    Fair
Value
per RSU2
(US$)
 

L Gries

    15-Sep-10 3      15-Sep-13        128,405        577,255      $ 2,595,627        (128,405     -          -        $ 4.4965   
    15-Sep-11 3      15-Sep-14        406,591        606,852      $ 2,500,291        (123,603     -          282,988      $ 4.1201   
    14-Sep-12 3      14-Sep-15        273,732        273,732      $ 2,041,356        (210,773     -          62,959      $ 7.4575   
    14-Sep-12 4      14-Sep-15        284,916        284,916      $ 2,697,385        (227,932     (56,984     -        $ 9.4673   
    16-Sep-13 3      16-Sep-16        295,824        295,824      $ 1,994,593        -          -          295,824      $ 6.7425   
    16-Sep-13 4      16-Sep-16        278,393        278,393      $ 2,640,140        -          -          278,393      $ 9.4835   
    16-Sep-14 3,5      16-Sep-17        260,346        260,346      $ 1,883,812        -          -          260,346      $ 7.2358   
    16-Sep-14 4      16-Sep-17        232,980        232,980      $ 2,607,442        -          -          232,980      $ 11.1917   
    16-Sep-15 3      16-Sep-18        -          292,514      $ 2,448,459        -          -          292,514      $ 8.3704   
      16-Sep-15 4      16-Sep-18        -          254,480      $ 3,227,875        -          -          254,480      $ 12.6842   

M Marsh

    16-Sep-13 3      16-Sep-16        33,400        33,400      $ 225,200        -          -          33,400      $ 6.7425   
    16-Sep-13 4      16-Sep-16        31,431        31,431      $ 298,076        -          -          31,431      $ 9.4835   
    16-Sep-13 6      16-Sep-16        56,128        56,128      $ 482,734        -          -          56,128      $ 8.6006   
    16-Sep-14 3      16-Sep-17        38,787        38,787      $ 280,655        -          -          38,787      $ 7.2358   
    16-Sep-14 4      16-Sep-17        33,283        33,283      $ 372,493        -          -          33,283      $ 11.1917   
    16-Sep-15 3      16-Sep-18        -          65,816      $ 550,906        -          -          65,816      $ 8.3704   
      16-Sep-15 4      16-Sep-18        -          57,258      $ 726,272        -          -          57,258      $ 12.6842   

R Sullivan

    15-Sep-11 3      15-Sep-14        11,543        17,227      $ 70,977        (3,509     -          8,034      $ 4.1201   
    14-Sep-12 3      14-Sep-15        7,064        7,064      $ 52,680        (5,439     -          1,625      $ 7.4575   
    14-Sep-12 4      14-Sep-15        7,353        7,353      $ 69,613        (5,882     (1,471     -        $ 9.4673   
    16-Sep-13 3      16-Sep-16        23,857        23,857      $ 160,856        -          -          23,857      $ 6.7425   
    16-Sep-13 4      16-Sep-16        22,451        22,451      $ 212,914        -          -          22,451      $ 9.4835   
    16-Sep-14 3      16-Sep-17        38,787        38,787      $ 280,655        -          -          38,787      $ 7.2358   
    16-Sep-14 4      16-Sep-17        33,283        33,283      $ 372,493        -          -          33,283      $ 11.1917   
    16-Sep-15 3      16-Sep-18        -          65,816      $ 550,906        -          -          65,816      $ 8.3704   
      16-Sep-15 4      16-Sep-18        -          57,258      $ 726,272        -          -          57,258      $ 12.6842   

M Fisher

    15-Sep-10 3      15-Sep-13        14,905        67,003      $ 301,279        (14,905     -          -        $ 4.4965   
    15-Sep-11 3      15-Sep-14        45,906        68,516      $ 282,293        (13,955     -          31,951      $ 4.1201   
    14-Sep-12 3      14-Sep-15        30,905        30,905      $ 230,474        (23,796     -          7,109      $ 7.4575   
    14-Sep-12 4      14-Sep-15        32,168        32,168      $ 304,544        (25,734     (6,434     -        $ 9.4673   
    16-Sep-13 3      16-Sep-16        33,400        33,400      $ 225,200        -          -          33,400      $ 6.7425   
    16-Sep-13 4      16-Sep-16        31,431        31,431      $ 298,076        -          -          31,431      $ 9.4835   
    16-Sep-14 3      16-Sep-17        38,787        38,787      $ 280,655        -          -          38,787      $ 7.2358   
    16-Sep-14 4      16-Sep-17        33,283        33,283      $ 372,493        -          -          33,283      $ 11.1917   
    16-Sep-15 3      16-Sep-18        -          47,533      $ 397,870        -          -          47,533      $ 8.3704   
      16-Sep-15 4      16-Sep-18        -          41,353      $ 524,530        -          -          41,353      $ 12.6842   

J Blasko

    14-Sep-12 3      14-Sep-15        22,075        22,075      $ 164,624        (16,997     -          5,078      $ 7.4575   
    14-Sep-12 4      14-Sep-15        22,977        22,977      $ 217,530        (18,381     (4,596     -        $ 9.4673   
    16-Sep-13 3      16-Sep-16        23,857        23,857      $ 160,856        -          -          23,857      $ 6.7425   
    16-Sep-13 4      16-Sep-16        22,451        22,451      $ 212,914        -          -          22,451      $ 9.4835   
    16-Sep-14 3      16-Sep-17        23,272        23,272      $ 168,392        -          -          23,272      $ 7.2358   
    16-Sep-14 4      16-Sep-17        19,970        19,970      $ 223,498        -          -          19,970      $ 11.1917   
    16-Sep-15 3      16-Sep-18        -          29,251      $ 244,843        -          -          29,251      $ 8.3704   
      16-Sep-15 4      16-Sep-18        -          25,448      $ 322,788        -          -          25,448      $ 12.6842   


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James Hardie 2016 Annual Report on Form 20-F   60

 

 

 

 

 

1 Total Value at Grant = Fair Value per RSU multiplied by number of units granted.

 

2 Fair Value per RSU is estimated on the date of grant using a binomial lattice model that incorporates a Monte Carlo simulation for Relative TSR RSUs. For ROCE RSUs, the grant date fair value is our stock price on the date of grant. For service vesting RSUs, the fair value is our stock price on the date of grant, adjusted for the fair value of estimated dividends as the RSU holder is not entitled to dividends over the vesting period.

 

3 Relative TSR RSUs granted under the LTIP. These RSUs are subject to performance hurdles.

 

4 ROCE RSUs granted under the LTIP. These RSUs are subject to performance hurdles and/or application of negative discretion.

 

5 Mr Gries was also granted a cash-settled award (equivalent to 11,164 units) on 16 September 2014. This cash-settled award may vest based on the same vesting criteria as his relative TSR RSU grant and may only vest in the event that his relative TSR RSU grant vests in full. Upon vesting, the award will be settled in cash based on the number of units vested and the fair market value of our shares of common stock as of the relevant vesting date.

 

6 Time vested RSUs granted under the 2001 JHI plc Equity Incentive Plan (“2001 Plan”).

Scorecard LTI

 

Name   Grant
Date
    Release
Date
    Holding at
1 April 2015
    Granted     Vested1     Lapsed      Holding at
30 April 2016
 

L Gries

    14-Sep-12        14-Sep-15        320,531        320,531        (211,550     (108,981      -     
    16-Sep-13 2      16-Sep-16        313,192        313,192        -          -           313,192   
    16-Sep-14        16-Sep-17        262,103        262,103        -          -           262,103   
      16-Sep-15        16-Sep-18        -          286,290        -          -           286,290   

M Marsh

    16-Sep-13 2      16-Sep-16        35,360        35,360        -          -           35,360   
    16-Sep-14        16-Sep-17        37,443        37,443        -          -           37,443   
      16-Sep-15        16-Sep-18        -          64,415        -          -           64,415   

R Sullivan

    14-Sep-12        14-Sep-15        8,272        8,272        (5,459     (2,813      -     
    16-Sep-13 2      16-Sep-16        25,257        25,257        -          -           25,257   
    16-Sep-14        16-Sep-17        37,443        37,443        -          -           37,443   
      16-Sep-15        16-Sep-18        -          64,415        -          -           64,415   

M Fisher

    14-Sep-12        14-Sep-15        36,189        36,189        (19,903     (16,286      -     
    16-Sep-13 2      16-Sep-16        35,360        35,360        -          -           35,360   
    16-Sep-14        16-Sep-17        37,443        37,443        -          -           37,443   
      16-Sep-15        16-Sep-18        -          46,522        -          -           46,522   

J Blasko

    14-Sep-12        14-Sep-15        25,849        25,849        (14,216     (11,633      -     
    16-Sep-13 2      16-Sep-16        25,257        25,257        -          -           25,257   
    16-Sep-14        16-Sep-17        22,466        22,466        -          -           22,466   
      16-Sep-15        16-Sep-18        -          28,629        -          -           28,629   

 

 

1 Represents the number of Scorecard LTI awards vesting after the Remuneration Committee’s application of the scorecard in respect of fiscal years 2013-2015. A detailed assessment of the reasons for the scorecard ratings was set out in the fiscal year 2015 Remuneration Report.

 

2 Scorecard LTI awards in respect of fiscal years 2014-2016 will vest on 16 September 2016. A detailed assessment of the Remuneration Committee’s assessment of management’s performance is set out on page XX of this Remuneration Report.

REMUNERATION FOR NON-EXECUTIVE DIRECTORS

Fees paid to non-executive directors are determined by the Board, with the advice of the Remuneration Committee’s independent external remuneration advisers, within the maximum


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James Hardie 2016 Annual Report on Form 20-F   61

 

 

 

total amount of base and committee fees pool approved by shareholders from time-to-time. Shareholders at the 2014 AGM approved the current maximum aggregate base and committee fee pool of US$2.3 million per annum. No additional Board fees are paid to executive directors.

Remuneration Structure

Non-executive directors are paid a base fee for service on the Board. Additional fees are paid to the person occupying the positions of Chairman, Deputy Chairman and Board Committee Chairman, as well as for attendance at ad-hoc sub-committee meetings.

During fiscal year 2016, the Remuneration Committee reviewed non-executive directors’ fees, using market data and taking into consideration the level of fees paid to chairmen and directors of companies with similar size, complexity of operations and responsibilities and workload requirements. The Remuneration Committee recommended an increase in the non-executive director base fee for calendar year 2016 and the fee increase was effective from the start of the calendar year. The annual fee adjustment when calculated on a fiscal year basis equates to a 10.1% increase in base fee.

The tax equalization allowance, incorporated in the US domiciled chairman, audit committee chair and remuneration committee chair fees for fiscal years 2014, 2015 and 2016, has been discontinued for fiscal year 2017. The purpose of this allowance was to compensate the US domiciled directors for the reduction in net of tax compensation they received as a result of the Company’s re-domicile from the Netherlands to Ireland and this arrangement was concluded in fiscal year 2016.

 

Position  

Fiscal Year

 

2016 (US$)

   

Fiscal Year

 

2017 (US$)

 

Chairman

    464,984        402,426   

Deputy Chairman

    227,112        244,294   

Board member

    170,184        187,366   

Audit Committee Chair

    68,750        20,000   

Remuneration Committee Chair

    68,750        20,000   

N&GC Committee Chair

    20,000        20,000   

Ad-hoc Board sub-committee attendance 1

    3,000        3,000   

 

1 Fee is payable in respect of each ad-hoc Board sub-committee attended.

During fiscal year 2016, the Remuneration Committee approved a non-executive director tax equalization policy, in order to ensure that the Company continues to attract highly qualified persons to serve on the Board irrespective of their tax residence. In accordance with the policy, the Company will ensure that each non-executive director does not have an increased income tax liability as a direct result of their appointment to the Board. Accordingly, if Irish income taxes levied on their director compensation exceed net income taxes owed on such compensation in their country of tax residence, assuming it had been derived solely in their country of tax residence, such director is eligible to receive a tax equalization payment in respect of that excess.


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James Hardie 2016 Annual Report on Form 20-F   62

 

 

 

As the focus of the Board is on maintaining the Company’s long-term direction and well-being, there is no direct link between non-executive directors’ remuneration and the Company’s short-term results.

Board Accumulation Guidelines

Non-executive directors are encouraged to accumulate up to 1.5 times (and two times for the Chairman) the base fee in shares of the Company’s common stock (either personally, in the name of their spouse, or through a personal superannuation or pension plan). The Remuneration Committee reviews the guidelines and non-executive directors’ shareholdings on a periodic basis.

Director Retirement Benefits

We do not provide any benefits for our non-executive directors upon termination of their service on the Board.

Total Remuneration for Non-Executive Directors for the Years Ended 31 March 2016 and 2015

The table below sets out the remuneration for those non-executive directors who served on the Board during the fiscal years ended 31 March 2016 and 2015:

 

(US dollars)

Name

  Primary
Directors’ Fees1
    Other Payments2     Other Benefits3           TOTAL        

M Hammes

             

Fiscal Year 2016

    473,984        96,047        16,740        586,771   

Fiscal Year 2015

    468,754        -        15,715        484,469   
         

D McGauchie

             

Fiscal Year 2016

    232,922        -        15,741        248,663   

Fiscal Year 2015

    237,335        -        23,444        260,779   
         

B Anderson

             

Fiscal Year 2016

    244,935        72,605        -        317,540   

Fiscal Year 2015

    238,199        -        -        238,199   
         

D Harrison

             

Fiscal Year 2016

    238,934        49,308        7,307        295,549   

Fiscal Year 2015

    235,199        -        11,991        247,190   
         

A Littley

             

Fiscal Year 2016

    179,184        -        -        179,184   

Fiscal Year 2015

    167,449        -        -        167,449   
         

J Osborne

             

Fiscal Year 2016

    179,184        -        -        179,184   

Fiscal Year 2015

    170,449        -        -        170,449   
         

R Van Der Meer

             

Fiscal Year 2016

    188,847        -        -        188,847   

Fiscal Year 2015

    161,449        -        -        161,449   


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James Hardie 2016 Annual Report on Form 20-F   63

 

 

 

Total Remuneration for Non-Executive Directors (continued)

 

(US dollars)

Name

  Primary
Directors’ Fees1
    Other Payments2     Other Benefits3           TOTAL        

R Chenu 4

         

Fiscal Year 2016

    170,184        -        -        170,184   

Fiscal Year 2015

    101,717        -        22,879        124,596   
         

A Gisle Joosen5

         

Fiscal Year 2016

    173,184        -        -        173,184   

Fiscal Year 2015

    5,363        -        -        5,363   

Total Compensation for Non-Executive Directors

  

Fiscal Year 2016

    2,081,358        217,960        39,788        2,339,106   

Fiscal Year 2015

    1,785,914        -        74,029        1,859,943   

 

 

1 Amount includes base, Chairman, Deputy Chairman, Committee Chairman fees, as well as fees for attendance at ad hoc sub-committee meetings.

 

2 Amount relates to a one-off payment to partially compensate non-executive directors who have received a reduction in net compensation following the Company’s re-domicile from the Netherlands to Ireland. The impact of the re-domicile meant that US based non-executive directors incurred an increased income tax burden since the Irish tax rate is significantly higher than the US tax rate. The Board deferred consideration of such tax equalization measure for the affected non-executive directors until: (i) it fully understood the tax implications for the affected directors; and (ii) there was a clear improvement in the US housing market and business results began to improve.

 

3 Amount includes the cost of non-executive directors’ fiscal compliance in Ireland and other costs connected with Board-related events paid for by the Company. In addition to these costs, travel and subsistence expenses incurred by non-executive directors in attending board meetings held in Ireland which are paid or reimbursed by the Company have, pursuant to a direction from the Irish Revenue Commissioners effective from February 2014, been grossed up and subjected to Irish income taxes. The aggregate cost to the Company, including income taxes, for these costs in fiscal year 2016 and 2015 were US$282,789 and US$447,355, respectively. New Irish tax legislation was enacted with effect from January 2016 that specifically exempts travel and subsistence expenses incurred by non-executive directors in attending board meetings from Irish income taxes.

 

4 Appointed to the Board on 15 August 2014. In addition to the compensation set forth above, Mr Chenu continues to receive certain tax services from the Company, and remains eligible for certain tax equalization benefits relative to the vesting of previously granted equity awards, stemming from his prior service as an executive officer of the Company.

 

5 Appointed to the Board on 20 March 2015.

Director Remuneration for the years ended 31 March 2016 and 2015

For Irish reporting purposes, the breakdown of director’s remuneration between managerial services (which only relate to Mr Gries) and director services is:

 

     Years Ended 31 March  
(In US dollars)    2016      2015  

Managerial Services 1

     $     10,866,287           $     11,577,188     

Director Services 2

     2,792,080           2,468,747     
  

 

 

    

 

 

 
     $ 13,658,367           $ 14,045,935     
  

 

 

    

 

 

 


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James Hardie 2016 Annual Report on Form 20-F   64

 

 

 

 

 

1 Includes cash payments, non-cash benefits (examples include medical and life insurance benefits, car allowances, membership in executive wellness programs, financial planning and tax services), 401(k) benefits, and amounts expensed for outstanding equity awards for L Gries.

 

2 Includes compensation for all non-executive directors, which includes base, Chairman, Deputy Chairman, Committee Chairman and cost of non-employee directors’ fiscal compliance in Ireland, other costs connected with Board-related events paid for by the Company, travel and subsistence expenses incurred by non-executive directors in attending board meetings held in Ireland paid or reimbursed by the Company which have, pursuant to a direction from the Irish Revenue Commissioners effective from February 2014, been grossed up and subjected to Irish income taxes and a proportion of the CEO’s remuneration paid as fees for his service on the JHI plc Board in fiscal years 2016 and 2015. New Irish tax legislation was enacted with effect from January 2016 that specifically exempts travel and subsistence expenses incurred by non-executive directors in attending board meetings from Irish income taxes.

Share Ownership and Stock Based Compensation Arrangements

As of 30 April 2016 and 30 April 2015, the number of CUFS and RSUs beneficially owned by Senior Executive Officers is set forth below:

 

         
Name   CUFS at
30 April
2016
    CUFS at
30 April
2015
    RSUs at
30 April
2016
    RSUs at
30 April
2015
 

L Gries

    454,334        522,278        1,960,484        2,161,187   

M Marsh

    -            -            316,103        193,029   

R Sullivan

    15,459        7,427        251,111        144,338   

M Fisher

    91,767        149,689        264,847        260,785   

J Blasko

    18,917        -            149,327        134,602   

As of 30 April 2016 and 30 April 2015, the number of CUFS and RSUs beneficially owned by non-executive directors is set forth below:

 

Name   CUFS at
30 April
2016
    CUFS at
30 April
2015
 

M Hammes 1

    44,109        40,462   

D McGauchie

    8,372        20,372   

B Anderson 2

    18,920        16,995   

R Chenu 3

    93,712        156,306   

A Gisle Joosen 4

    1,000        -       

D Harrison 5

    19,259        17,184   

A Littley 6

    2,045        -       

J Osborne 7

    11,951        11,951   

R van der Meer

    17,290        17,290   

 

 

1 35,109 CUFS held in the name of Mr and Mrs Hammes and 9,000 CUFS held as American Depositary Shares (“ADSs”) in the name of Mr and Mrs Hammes.


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James Hardie 2016 Annual Report on Form 20-F   65

 

 

 

 

2 7,635 CUFS held in the name of Mr Anderson, 390 CUFS held as ADSs in the name of Mr Anderson and 10,895 CUFS held as ADSs in the name of Mr and Mrs Anderson.

 

3 Appointed to the Board on 15 August 2014. Mr Chenu also holds 32,306 RSUs as of 30 April 2016, over which he has no voting or investment control. These RSUs were previously granted to Mr Chenu during the term of his prior service as an executive officer of the Company. The vesting of these RSUs remains subject to the achievement of applicable performance criteria, as set forth under the terms of the applicable award agreement.

 

4 Appointed to the Board on 20 March 2015.

 

5 2,384 CUFS held in the name of Mr Harrison, 1,000 CUFS held as ADSs in the name of Mr Harrison and 15,875 CUFS held in the name of Mr and Mrs Harrison.

 

6 2,045 CUFS held as ADSs in the name of Ms Littley.

 

7 2,551 CUFS held in the name of Mr Osborne and 9,400 CUFS held in the name of Aurum Nominees Limited and held on behalf of Mr Osborne as beneficial owner.

Based on 445,580,065 shares of common stock outstanding at 30 April 2016 (all of which are subject to CUFS), no director or Senior Executive Officer beneficially owned 1% or more of the outstanding shares of the Company at 30 April 2016 and none of the shares held by directors or Senior Executive Officers have any special voting rights. As of 30 April 2016, there were no options outstanding under any of the Company’s stock-based compensation arrangements. Individual’s holding RSUs have no voting or investment power over these units.

Stock-Based Compensation Arrangements

At 31 March 2016, we had the following equity award plans:

    the LTIP; and
    the 2001 Plan.

LTIP

The Company uses the LTIP as the plan for LTI grants to Senior Executive Officers and selected members of executive management. Participants in the LTIP receive grants of RSUs and Scorecard LTI, each of which is subject to performance goals. Participants and award levels are approved by the Remuneration Committee based on local market standards, and the individual’s responsibility, performance and potential to enhance shareholder value. The LTIP was first approved at our 2006 AGM, and our shareholders have subsequently approved amendments to the LTIP in 2008, 2009, 2010, 2012 and 2015.

The LTIP provides for plan participants’ early exercise of certain benefits or early payout under the plan in the event of a “change in control,” takeover by certain organizations or liquidation. For RSUs, a “change of control” is deemed to occur if (1) a takeover bid is made to acquire all of the shares of the Company and it is recommended by the Board or becomes unconditional, (2) a transaction is announced which would result in one person owning all the issued shares in the Company, (3) a person owns or controls sufficient shares to enable them to influence the composition of the Board, or (4) a similar transaction occurs which the Board determines to be a control event. On a change of control, the Board can determine that all or some RSUs have vested on any conditions it determines, any remaining RSUs lapse.


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RSUs - From fiscal year 2009, the Company commenced using RSUs granted under the LTIP. RSUs issued under the LTIP are unfunded and unsecured contractual entitlements and generally provide for settlement in shares of our common stock, subject to performance vesting hurdles prior to vesting. Additionally, the Company has on occasion issued a small number of cash settled awards.

As of 31 March 2016, there were 3,347,644 RSUs outstanding under the LTIP, divided as follows:

 

Restricted Stock Units  
Grant
Type
  Grant Date   Granted     Vested as of
31 March 2016
    Outstanding
as of 31 March
2016
 

TSR

  September 2011     954,705        445,833        389,575   

TSR

  September 2012     432,654        306,214        91,474   

TSR

  September 2013     489,888        -          477,297   

ROCE

  September 2013     461,019        -          443,059   

TSR

  September 2014     459,317        -          459,317   

ROCE

  September 2014     403,716        -          403,716   

TSR

  September 2015     579,262        -          579,262   

ROCE

  September 2015     503,944        -          503,944   
Total Outstanding        3,347,644   

Scorecard LTI - From fiscal year 2010, the Company commenced using Scorecard LTI units granted under the LTIP. The Scorecard LTI is used by the Remuneration Committee to set strategic objectives which change from year to year, and for which performance can only be assessed over a period of time. The vesting of Scorecard LTI units is subject to the Remuneration Committee’s exercise of negative discretion. The cash payment paid to award recipients is based on JHI plc’s share price on the vesting date (which was amended from fiscal year 2012 to be based on a 20 trading-day closing average price).

As of 31 March 2016, there were 1,519,556 Scorecard LTI units outstanding under the LTIP, divided as follows:

 

Grant
Type
  Grant Date   Granted     Vested as of
31 March 2016
    Outstanding
as of 31 March
2016
 

Scorecard

  September 2013     518,647        -                498,441   

Scorecard

  September 2014     454,179        -                454,179   

Scorecard

  September 2015     566,936        -                566,936   

Total Outstanding

  

    1,519,556   

For additional information regarding the LTIP and award grants made thereunder, see Note 16 to our consolidated financial statements.


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2001 Plan

The 2001 Plan is intended to promote the Company’s long-term financial interests by encouraging management below the senior executive level to acquire an ownership position in the Company and align their interests with our shareholders. Selected employees under the 2001 Plan are eligible to receive awards in the form of RSUs, nonqualified stock options, performance awards, restricted stock grants, stock appreciation rights, dividend equivalent rights, phantom stock or other stock-based benefits. Award levels are determined based on the Remuneration Committee’s review of local market standards and the individual’s responsibility, performance and potential to enhance shareholder value.

The 2001 Plan was first approved by our shareholders and Board in 2001 and reapproved to continue until September 2021 at the 2011 AGM. An aggregate of 45,077,100 shares of common stock were made available for issuance under the 2001 Plan, subject to adjustment in the event of a number of prescribed events set out on the 2001 Plan. All of the outstanding options and RSUs granted under the 2001 Plan vest at the rate of 25% on the 1st anniversary of the grant, 25% on the 2nd anniversary date and 50% on the 3rd anniversary date, with the exception of the 16 September 2013 grant to the CFO which cliff vests on the third anniversary of the grant date.

The 2001 Plan is administered by our Remuneration Committee, and the Remuneration Committee or its delegate is authorized to determine: (i) who may participate in the 2001 Plan; (ii) the number and types of awards made to each participant; and (iii) the terms, conditions and limitations applicable to each award. The Remuneration Committee has the exclusive power to interpret and adopt rules and regulations to administer the 2001 Plan, including a limited power to amend, modify or terminate the 2001 Plan to meet any changes in legal requirements or for any other purpose permitted by law.

The purchase or exercise price of any award granted under the 2001 Plan may be paid in cash or other consideration at the discretion of our Remuneration Committee, including cashless exercises.

The exercise price for all options is the market value of the shares on the date of grant. The Company may not reduce the exercise price of such an option or exchange such an option or stock appreciation right for cash, or other awards or a new option at a reduced exercise price without shareholder approval or as permitted under specific restructuring events.

No unexercised options or unvested RSUs issued under the 2001 Plan are entitled to dividends or dividend equivalent rights.

Although the 2001 Plan permits the Remuneration Committee to grant stock options, performance awards, restricted stock awards, stock appreciation rights, dividend equivalent rights or other stock based benefits; however, no such awards are currently outstanding.

The 2001 Plan provides for the automatic acceleration of certain benefits and the termination of the plan under certain circumstances in the event of a “change in control.” A change in control will be deemed to have occurred if either (1) any person or group acquires beneficial ownership equivalent to 30% of our voting securities, (2) individuals who are currently members of our Board


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cease to constitute at least a majority of the members of our Board, or (3) there occurs the consummation of certain mergers (other than a merger that results in existing voting securities continuing to represent more than 5% of the voting power of the merged entity or a recapitalization or reincorporation that does not result in a material change in the beneficial ownership of the voting securities of the Company), the sale of substantially all of our assets or our complete liquidation or dissolution.

Options—Until fiscal year 2008, the Company issued options to purchase shares of our common stock issued under the 2001 Plan. As of 31 March 2016, there were 104,027 options outstanding under the 2001 Plan, divided as follows:

 

Options  
Grant Date   Granted     Outstanding
as of 31 March
2016
 

November 2006

    3,499,490        43,500   

December 2007

    5,031,310        60,527   
Total Outstanding        104,027   

RSUs—Since fiscal year 2009, the Company has issued restricted stock units under the 2001 plan, which are unfunded and unsecured contractual entitlements for shares to be issued in the future and may be subject to time vesting or performance hurdles prior to vesting. On vesting, restricted stock units convert into shares. We granted 327,354, 329,192 and 315,749 restricted stock units under the 2001 Plan in the years ended 31 March 2016, 2015 and 2014, respectively. Additionally, the Company has on occasion issued a small number of cash settled awards. As of 31 March 2016, there were 701,810 restricted stock units outstanding under this plan, divided as follows:

 

Restricted Stock Units  
Grant Date   Granted     Vested as of
31 March 2016
    Outstanding
as of 31 March
2016
 

September 2013

    56,128        -            56,128   

December 2013

    259,621        114,253        102,462   

December 2014

    329,192        78,054        223,117   

December 2015

    327,354        111        320,103   
Total Outstanding        701,810   

For additional information regarding the 2001 Plan and award grants made thereunder, see Note 16 to our consolidated financial statements.


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CORPORATE GOVERNANCE REPORT

Corporate Governance Statement

The Company believes strong corporate governance is essential to achieving both its short and long-term performance goals and to maintaining the trust and confidence of investors, employees, regulatory agencies and other stakeholders. The Board follows, both formally and informally, corporate governance principles designed to assure that the Board, through its membership, composition, Board committee structure and governance practices, is able to provide informed, competent and independent guidance and oversight and thereby promote long- term shareholder value. This Corporate Governance Statement (this “Statement”) describes the key aspects of the Company’s corporate governance framework.

During fiscal year 2016, the Board evaluated the Company’s corporate governance framework and practices and approved this Corporate Governance Statement. This Corporate Governance Statement is current as at 19 May 2016.

Overall Approach to Corporate Governance

The Company operates under the regulatory requirements of numerous jurisdictions, including those of its corporate domicile (Ireland) and its principal stock exchange listings (Australia and the United States). In presenting this Statement, the Board has evaluated the Company’s corporate governance framework in relation to the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (3rd Edition) (the “ASX Principles”), as well as the NYSE Corporate Governance Standards (the “NYSE Standards”).

ASX Principles

Pursuant to ASX Listing Rule 4.10.3, the Company is required to disclose in this Annual Report the extent to which it has followed the ASX Principles for fiscal year 2016 and must identify any areas where the Company has determined not to follow the ASX Principles and provide the reasons for not following them.

NYSE Standards

As a foreign private issuer with ADS listed on the NYSE, the Company is required to disclose in this Annual Report any significant ways in which its corporate governance practices differ from those followed by domestic companies under NYSE listing standards. Based on the requirements of the NYSE Standards, the Company believes that its corporate governance framework and practices were consistent with the NYSE Standards during fiscal year 2016, except as otherwise noted below:

    Generally, in the United States an audit committee of a public company is directly responsible for appointing the company’s independent registered public accounting firm, with such appointment being subsequently ratified by shareholders. Under Irish law, the independent registered public accounting firm is directly appointed by the shareholders where there is a new appointment. Otherwise, the appointment is deemed to continue unless the firm retires, is asked to retire or is unable to perform their duties; and


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    NYSE rules require each issuer to have an audit committee, a compensation committee (equivalent to a remuneration committee) and a nominating committee composed entirely of independent directors. As a foreign private issuer, the Company does not have to comply with this requirement; however, the Board committee charters reflect Australian and Irish practices, in that such Board committees have a majority of independent directors, unless a higher number is mandatory.

Availability of Key Governance Documents

This Statement, as well as the Company’s Constitution, Board committee charters and the other key governance and corporate policies referenced in this Statement, as updated from time to time, are available in the Corporate Governance section of the Company’s investor relations website (www.ir.jameshardie.com.au) or by requesting a copy from the Company Secretary at the Company’s corporate headquarters, Europa House, 2nd Floor, Harcourt Centre, Harcourt Street, Dublin 2.

The Board committee charters and other key governance and corporate policies referenced in this Statement were reviewed by the Board during fiscal year 2016.

Discussion of Corporate Governance Framework and Practices

The following discussion of the Company’s corporate governance framework and practices incorporates the disclosures required by the ASX Principles, and generally follows the order of the ASX Principles.

Principle 1: Lay Solid Foundations for Management and Oversight

The Role of the Board and Management

The principal role of the Board is to promote and protect shareholder value by providing strategic guidance to management and overseeing management’s implementation of the Company’s strategic goals and objectives. On an annual basis, the Board reviews the Company’s strategic priorities with management, including the Company’s business plan, and leads discussions on execution strategy, including budgetary considerations, to ensure that the Company has the appropriate resources to deliver the agreed strategy. The Board also monitors management, operational and financial performance against the Company’s goals on an ongoing basis through the year. To enable it to do this, the Board receives operational and financial updates at every scheduled Board meeting.

Given the size of the Company, it is not possible or appropriate for the Board to be involved in managing the Company’s day-to-day activities. However, the Board is accountable to shareholders by whom they are elected for delivering long-term shareholder value. To achieve this, the Board ensures that the Company has in place a framework of controls, which enables management to appraise and manage risk effectively with oversight from the Board, through clear and robust procedures and delegated authorities.

In accordance with the provisions of the Company’s Constitution, the Board committee charters and other applicable governance and corporate policies, the Board has delegated a number of


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powers to Board committees and responsibility for the day-to-day management of the Company’s affairs and the implementation of corporate strategy to the CEO. The responsibilities delegated to the CEO are established by the Board and include limits on the way in which the CEO can exercise such authority. In addition, the Board has also reserved certain matters to itself for decision, including:

    appointing, removing and assessing the performance and remuneration of the CEO and CFO;
    succession planning for the Board and senior management and defining the Company’s management structure and responsibilities;
    approving the overall strategy for the Company, including the business plan and annual operating and capital expenditure budgets;
    ensuring that the Company has in place an appropriate risk management framework and that the risk appetite and tolerances are set at an appropriate level;
    convening and monitoring the operation of shareholder meetings and approving matters to be submitted to shareholders for their consideration;
    approving annual and periodic reports, results announcements and related media releases, and notices of shareholder meetings;
    approving the dividend policy and interim dividends and, when appropriate, making recommendations to shareholders regarding the annual dividend;
    reviewing the authority levels of the CEO and management;
    approving the remuneration framework for the Company;
    overseeing corporate governance matters for the Company;
    approving corporate-level Company policies;
    considering management’s recommendations on various matters which are above the authority levels delegated to the CEO or management; and
    any other matter which the Board considers appropriate to be approved by the Board.

In discharging its duties, the Board aims to take into account, within the context of the industry in which the Company operates, the interests of the Company (including the interests of its employees), shareholders, and other stakeholders, and where possible, aligns its activities with current best practices in the jurisdictions in which the Company operates.

The full list of those matters reserved to the Board is formalized in our Board Charter. The Board Charter is available in the Corporate Governance section of our investor relations website (www.ir.jameshardie.com.au).

Board Committees

In order to ensure that the Board properly discharges its responsibilities and fulfills its oversight role, the Board has established the following standing Board committees:

    Audit Committee;
    Remuneration Committee; and
    Nominating and Governance Committee.

Additionally, from time to time, the Board may establish ad hoc Board committees to address particular matters. Each standing Board committee meets at least quarterly and has scheduled an annual calendar of meetings and discussion topics to assist it to properly discharge all of its


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responsibilities. Each Board committee Chairman reports to the Board at each scheduled Board meeting on their activities.

Each of the standing Board committees operates under a written charter adopted by the Board. On an annual basis, each committee, with the assistance of the Nominating and Governance Committee, undertakes a review of its charter for consistency with applicable regulatory requirements and current corporate governance principles and practices. Each of the standing Board committee charters is available on the Corporate Governance section of the Company’s investor relations website (www.ir.jameshardie.com.au).

Full discussions of the role and oversight responsibilities for each standing committee are provided below under Principle 2 (Nominating and Governance Committee), Principle 4 (Audit Committee) and Principle 8 (Remuneration Committee).

Board and Board Committee Meetings

The Board and each of the standing Board committees meet formally at least four times a year and on an ad hoc basis as deemed necessary or appropriate. Scheduled Board meetings are normally held over a period of one or two days, with Board committee meetings also taking place during such time. This meeting structure enhances the effectiveness of the Board and the Board committees. Board and Board committee meetings are generally held at the Company’s corporate headquarters in Ireland. At each scheduled meeting, the Board meets in executive session without management present for at least part of the meeting.

Prior to each scheduled Board or Board committee meeting, directors are provided timely and necessary information by Company management to allow them to fulfill their duties. The Nominating and Governance Committee periodically reviews the format, timeliness and content of information provided to the Board and Board committees. All directors receive access to all Board committee materials and may attend any Board committee meeting, whether or not they are members of such committee. Directors also receive the minutes of each committee’s deliberations and findings, as well as oral reports from each Board committee Chairman, at each scheduled Board meeting.

In discharging their duties, directors are provided with direct access to executive management and outside advisors and auditors.

The Board has regular discussions with the CEO and executive management regarding the Company’s strategy and performance, during which Board members formally review the Company’s progress. During the year, the Board and each Board committee develop and review an annual work plan created from the standing Board committee charters so that responsibilities of each Board committee are addressed at appropriate times throughout the year.


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The following table provides the composition of each standing Board committee during fiscal year 2016, as well as sets out the number of Board and Board committee meetings held, and each director’s attendance:

 

      Board     Audit     Remuneration     Nominating &
Governance
 
Name    H      A     Member    H      A     Member    H      A     Member    H      A  

M Hammes

     4         4           4         4           5         5           4         4   

D McGauchie

     4         4                                                       4         4   

B Anderson

     4         4      C      4         4           5         5                         

R Chenu

     4         4                                 5         5           2         2   

D Harrison

     4         4           4         4      C      5         5                         

A Gisle Joosen

     4         4           4         4                                               

A Littley

     4         4           4         4           5         5                         

J Osborne

     4         4                                                       4         4   

R van der Meer

     4         4                                                  C      4         4   

 

 

Board Committee member
C Board Committee chair
H Number of meetings held during the time the director held office or was a member of the Board committee during the fiscal year.
A Number of meetings attended during the time the director held office or was a member of the Board committee during the fiscal year. Non-committee members may also attend Board committee meetings from time to time; these attendances are not shown.

Company Secretary

The Company Secretary is accountable to the Board through the Chairman on all matters relative to the proper functioning of the Board. The Company Secretary is also responsible for ensuring that Board procedures are complied with. All directors have access to the Company Secretary for advice and services. The Board appoints and removes the Company Secretary.

Evaluation of Director Candidates

Before appointing a director or nominating a candidate to shareholders for election as a director, the Company undertakes background checks including checks as to the candidate’s education, experience, criminal history and bankruptcy. To facilitate shareholders making an informed decision on whether or not to elect or re-elect a director, the Board details in the Notice of Meeting all material information it possesses relevant to the decision.

Agreements with Directors and Senior Executives

Each incoming director receives a letter of appointment setting out the key terms and conditions of his or her appointment and the Company’s expectations of them in that role. No benefits are provided to our non-executive directors upon termination of appointment. The Company has executive agreements in place with certain senior executives where it is in the Company’s strategic interest. Certain senior executives have more specific written agreements and details of such agreements can be found in the Company’s Remuneration Report contained in “Section 1 – Remuneration.”


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Management Performance Evaluations

On an annual basis, the Remuneration Committee, and subsequently the Board review the performance of the CEO against performance measures approved by the Board and Remuneration Committee. The CEO annually reviews the performance of each of the CEO’s direct reports, assessing their performance against performance measures approved by the Remuneration Committee and the Board and reports to the Board through the Remuneration Committee on the outcome of those reviews. Performance evaluations for fiscal year 2016 were conducted in accordance with the process outlined above in April 2016 and May 2016. Further details on the assessment criteria for the CEO and other senior executive officers are set out in “Section 1 – Remuneration.”

Board Performance Evaluation

The Nominating and Governance Committee oversees the Board evaluation process and makes recommendations to the Board. During fiscal year 2016, the process, which was undertaken in February and March 2016, involved completion of a purpose-designed survey by each director and a private discussion between the Chairman and each director, and the results were reviewed and discussed by the Nominating and Governance Committee and the Board.

The Deputy Chairman discussed with the Board, the Chairman’s performance and contribution to the effectiveness of the Board.

Workplace Diversity

The Company recognizes the value of having a workforce that reflects the diverse communities and marketplaces in which we operate and serve. The Company believes that a skilled and diverse workforce, which encompasses a wealth of different viewpoints, skills, attributes, and life experiences, along with the unique strengths of each employee, contribute to the business performance at the Company.