20-F 1 d274409d20f.htm 20-F 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

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

For the fiscal year ended 31 March 2017

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:

440,843,275 shares of common stock at 31 March 2017

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

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

Large accelerated filer

 

Accelerated filer

 

Non-accelerated filer

 

Emerging growth company

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised† financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after 5 April 2012.

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

US GAAP

 

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    No

 

 

 


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LOGO

2017

ANNUAL REPORT

ON FORM 20-F

 

 

LOGO


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James Hardie 2017 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

    2     
    

Information on the Company

    3     
    

History and Development of the Company

    3     
    

Business Overview

    5     
    

Organizational Structure

    14     
    

Property, Plants and Equipment

    14     
    

Directors, Senior Management and Employees

    19     
    

James Hardie Executive Team

    19     
    

Board of Directors

    24     
    

Remuneration

    30     
    

Corporate Governance Report

    49     
    

 

Section 2

    70     
    

Reading this Report

    70     
    

Management’s Discussion and Analysis

    72     
    

Consolidated Financial Statements

    100     
    

Notes to Consolidated Financial Statements

    106     
    

Remuneration of Independent Registered Public Accounting Firm

    148     
    

 

Section 3

    149     
    

Risk Factors

    149     
    

Legal Proceedings

    167     
    

Controls and Procedures

    169     
    

Employees

    171     
    

Listing Details

    171     
    

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

    175     
    

Constitution

    176     
    

Material Contracts

    185     
    

Exchange Controls

    185     
    

Taxation

    185     
    

Quantitative and Qualitative Disclosures About Market Risk

    195     
    

 

Section 4

    198     
    

SHARE/CHESS Units of Foreign Securities Information

    198     
    

Glossary of Abbreviations and Definitions

    201     
    

Exhibit List

    203     
    
Signatures     211     

 


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James Hardie 2017 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

    2-3     
    

B. Capitalization and Indebtness

    Not applicable     
    

C. Reasons for the Offer and Use of Proceeds

    Not applicable     
    

D. Risk Factors

    149-166     
    

Item 4. Information on the Company

    
    

A. History and Development of the Company

    3-5; 17-18     
    

B. Business Overview

    5-13     
    

C. Organizational Structure

    5; 14     
    

D. Property, Plants and Equipment

    14-18; 97     
    

Item 4A. Unresolved Staff Comments

    None     

Item 5. Operating and Financial Review and Prospects

    
    

A. Operating Results

    77-93     
    

B. Liquidity and Capital Resources

    93-98     
    

C. Research and Development, Patents and Licenses, etc

    12   
    

D. Trend Information

    98     
    

E. Off-Balance-Sheet Arrangements

    98     
    

F. Tabular Disclosure of Contractual Obligations

    99     
    

G. Safe Harbor

    70-71     

Item 6. Directors, Senior Management and Employees

    
    

A. Directors and Senior Management

    19-29     
    

B. Compensation

    30-48     
    

C. Board Practices

    24-29; 49-69     
    

D. Employees

    171     
    

E. Share Ownership

    43-48     

Item 7. Major Shareholders and Related Party Transactions

    
    

A. Major Shareholders

    198-200     
    

B. Related Party Transactions

    60     
    

C. Interests of Experts and Counsel

    None     

Item 8. Financial Information

    
    

A. Consolidated Statements and Other Financial Information

    100-147; 181-182     
    

B. Significant Changes

    None     
    

Item 9. The Offer and Listing

    
    

A. Offer and Listing Details

    171-174     
    

B. Plan of Distribution

    Not Applicable     
    

C. Markets

    172-173     
    

D. Selling Shareholders

    Not Applicable     


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James Hardie 2017 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

    176-185     
    

C. Material Contracts

    185     
    

D. Exchange Controls

    185     
    

E. Taxation

    185-193     
    

F. Dividends and paying agents

    Not Applicable     
    

G. Statement by Experts

    Not Applicable     
    

H. Documents on Display

    193-194     
    

I. Subsidiary Information

    Not Applicable     
    

Item 11. Quantitative and Qualitative Disclosures About Market Risk

    195-197     

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

    173-174     

 

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

    169-170     
    

Item 16A. Audit Committee Financial Expert

    63-64     
    

Item 16B. Code of Ethics

    61-62     
    

Item 16C. Principal Accountant Fees and Services

    148     
    

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

    None     
    

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

    175     
    

Item 16F. Change in Registrant’s Certifying Accountant

    None     
    

Item 16G. Corporate Governance

    49-69     
    

Item 16H. Mine Safety Disclosures

    16-17     
    

 

PART III

    

Item 17. Financial Statements

    Not Applicable     

Item 18. Financial Statements

    100-147     
    

Item 19. Exhibits

    203-210     


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James Hardie 2017 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.

As of 30 June 2016, the Company changed its reportable operating segments. Previously, the Company reported on three operating segments: (i) North America and Europe Fiber Cement, (ii) Asia Pacific Fiber Cement, and (iii) Research and Development. As of 30 June 2016, the Company began reporting on four operating segments: (i) North America Fiber Cement, (ii) International Fiber Cement, (iii) Other Businesses, and (iv) Research and Development. The significant changes to how certain businesses are reported in the new segment structure are as follows: (i) our European business is now reported in the International Fiber Cement segment, along with the other businesses that were historically reported in the Asia Pacific Fiber Cement segment, and (ii) business development, including some non-fiber cement operations, such as our windows business in North America, are now reported in the Other Businesses segment as opposed to previously being reported in the North America and Europe Fiber Cement segment. The Company has provided its historical segment information to be consistent with the new reportable segment structure. The change in reportable segments had no effect on the Company’s financial position, results of operations or cash flows for the periods presented. Readers are referred to Note 17 of our consolidated financial statements in Section 2 for further information on our segments.


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James Hardie 2017 Annual Report on Form 20-F    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 2017 and 2016, and our consolidated statements of operations and comprehensive income, cash flows and changes in shareholders’ deficit for each of the years ended 31 March 2017, 2016 and 2015, 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”).

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   2017     2016     2015     2014     2013  

Net sales

  $     1,921.6     $     1,728.2     $     1,656.9     $     1,493.8     $     1,321.3  

Income from operations1

    276.5       244.4       291.3       99.5       45.5  

Net income1

  $ 276.5     $ 244.4     $ 291.3     $ 99.5     $ 45.5  
    (Millions of US dollars)  
Consolidated Balance Sheet Data   2017     2016     2015     2014     2013  

Total assets

  $     2,012.7     $     2,029.4     $     2,036.4     $     2,104.0     $     2,113.2  

Net assets

    (212.2     (225.2     (202.6     (199.0     18.2  

Common stock

  $ 229.1     $ 231.4     $ 231.2     $ 230.6     $ 227.3  
    (Millions)  
Shares   2017     2016     2015     2014     2013  

Basic weighted average number of common shares

    442.7       445.3       445.0       442.6       439.2  

Diluted weighted average number of common shares

    443.9       447.2       446.4       444.6       440.6  
    (US dollar)  
Earnings Per Share   2017     2016     2015     2014     2013  

Income from operations per common share – basic

  $     0.62     $     0.55     $     0.65     $     0.22     $     0.10  

Net income per common share – basic

    0.62       0.55       0.65       0.22       0.10  

Income from operations per common share – diluted

    0.62       0.55       0.65       0.22       0.10  

Net income per common share – diluted

    0.62       0.55       0.65       0.22       0.10  

Dividends declared per share

    0.39       0.58       0.60       0.73       0.43  

Dividends paid per share

  $ 0.39     $ 0.58     $ 0.88     $ 0.45     $ 0.43  


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James Hardie 2017 Annual Report on Form 20-F    3

 

 

 

Other Financial Data   2017     2016     2015     2014     2013  

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

    $       292.1       $   260.4       $     179.5       $    322.8       $   109.3  

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

    (109.0     (66.6     (277.9     (118.8     (59.7

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

    $      (212.7     $  (154.4     $        (4.6     $  (186.3     $  (158.7

Volume (million square feet)

           

North America Fiber Cement

    2,215.4       1,969.2       1,821.5       1,672.7       1,468.0  

International Fiber Cement2

    487.2       480.9       484.4       441.4       414.2  

International Fiber Cement excluding the Australian Pipes business

    487.2       471.1       442.8       404.1       381.0  

Net Sales (Millions of US dollars)

           

North America Fiber Cement

    $    1,493.4       $1,335.0       $  1,224.7       $1,083.6       $   913.7  

International Fiber Cement2

    411.8       379.4       418.4       399.2       397.5  

International Fiber Cement excluding the Australian Pipes business

    411.8       374.3       392.3       373.1       371.3  

Other Businesses

    $         16.4       $     13.8       $       13.8       $     11.0       $     10.1  

Average sales price per unit (per thousand square feet)

           

North America Fiber Cement

    $          665       $      669       $        666       $      641       $      616  

International Fiber Cement2

    775       729       811       846       897  

International Fiber Cement excluding the Australian Pipes business

    $          775       $      734       $        829       $      859       $      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, AICF interest (expense) income, Australian Securities and Investments Commission (“ASIC”) related expenses, asset impairment charges, non-recurring stamp duty and New Zealand weathertightness claims expenses.

 

    (Millions of US dollars)  
Other Financial Data   2017     2016     2015     2014     2013  

Asbestos adjustments benefit (expense)

  $       40.4     $       5.5     $       33.4     $     (195.8   $     (117.1

AICF SG&A expenses

    (1.5     (1.7     (2.5     (2.1     (1.7

AICF interest (expense) income

    (1.1     (0.3     1.4       2.9       7.0  

ASIC related expenses

    -         -         -         -         (2.6

Asset impairments

    -         -         -         -         (16.9

Non-recurring stamp duty

    -         -         (4.2     -         -    

New Zealand weathertightness claims

    -         (0.5     4.3       (1.8     (13.2

Asbestos and other tax adjustments

  $ (9.9   $ (1.5   $ 37.5     $ 99.1     $ 49.2  

 

   For additional information on asbestos adjustments, AICF SG&A expenses, AICF interest (expense) and New Zealand weathertightness, see “Section 2 – Management’s Discussion and Analysis” and Notes 11 and 13 to our consolidated financial statements in Section 2.

 

2 International Fiber Cement segment includes all fiber cement products manufactured in Australia, New Zealand and the Philippines and sold in Australia, New Zealand, Asia, the Middle East (Israel, Kuwait, Qatar and United Arab Emirates) and various Pacific Islands. This segment also includes product manufactured in the United States that is sold in Europe.

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,


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James Hardie 2017 Annual Report on Form 20-F    4

 

 

 

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.

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 or toll free within Australia: 1 300 855 080.

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”) (collectively 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


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James Hardie 2017 Annual Report on Form 20-F    5

 

 

 

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.

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


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James Hardie 2017 Annual Report on Form 20-F    6

 

 

 

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)  
     2017     2016     2015  

North America Fiber Cement

  $     1,493.4     $     1,335.0     $     1,224.7  

International Fiber Cement

    411.8       379.4       418.4  

Other Businesses

    16.4       13.8       13.8  

Total Net Sales

  $ 1,921.6     $ 1,728.2     $ 1,656.9  

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, decking and facades. While there are some market specific products, our core product ranges, being planks, which are used for external siding and flat panels, which 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 durability and performance advantages leading to improved maintenance, while offering comparable aesthetics to competing products such as wood and superior aesthetics when compared to 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.


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James Hardie 2017 Annual Report on Form 20-F    7

 

 

 

Products Used in Internal Applications

Compared to natural and oriented strand board 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.

Non-Fiber Cement Products

In addition to our portfolio of fiber cement product offerings, we continue to invest in business development opportunities aligned with our long term strategy, including our fiberglass windows business in North America.

Significant New Products

In the United States, new products released over the last three years include the HardieReveal 2.0™ panel system, James Hardie® Insulated Lap Siding and Trim, HardieTrim® 2x™ board, 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, extensions to the existing Stria® cladding products have been launched to provide Stria® Standard 325mm, Stria® Wide 405mm, 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 addition, HardieBrace®, a new online calculator tool is available in Australia and New Zealand, which offers a way to simplify structural bracing calculations.

In Australia only, HardieEdge® trim for covering slab edges provides an easy to install solution to unfinished, rough concrete slab edges that would otherwise detract from the appearance of a wall clad with James Hardie products. The HardieDeck™ system continues to provide a major new product offering since its launch in 2015. Modcem® modular flooring has provided an entry into commercial flooring applications. Similarly, Systemboard™ cladding provided a niche multi-story construction product application. Ritek® permanent formwork walling system, a quality durable finished wall solution, will expand our product and systems offering into the growing medium to high density construction segment. 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, Intertenancy and ZeroLot® Wall Systems. The launch of new wall systems are also supported by the Compliant System® trade mark. The performance of the ZeroLot® wall system is supported by the new Coreshield® protective sealer technology.

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


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James Hardie 2017 Annual Report on Form 20-F    8

 

 

 

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. An improved version of their wall jointing compound has been launched under the HardieFlex® Putty trade mark.

The European business continues to provide HardieFloor™ Structural Flooring, HardieFloor dB™ Structural Acoustic Flooring, and HardieQStrip™ Acoustic Batten into the market.

Principal Markets for Our Products

United States and Canada

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, oriented strand board, hardboard, 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.

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 North America accounts for the largest portion of our net sales, accounting for 78%, 77% and 74% of our total net sales in fiscal years 2017, 2016 and 2015, respectively.

In the US and Canada, competition in the external siding market comes primarily from substitute products, such as natural or Oriented Strand Board, 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.

International

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.


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James Hardie 2017 Annual Report on Form 20-F    9

 

 

 

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, along with the increased use of gypsum in fiber cement applications. In fiscal year 2017, our results were unfavorably impacted by the entrance of competitor imports. We expect this change in the overall competitive landscape to remain for some time.

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.

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.

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.


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James Hardie 2017 Annual Report on Form 20-F    10

 

 

 

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.

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.


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James Hardie 2017 Annual Report on Form 20-F    11

 

 

 

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, 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.


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James Hardie 2017 Annual Report on Form 20-F    12

 

 

 

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 R&D activities.

We view spending on R&D 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 2017, 2016 and 2015, our expenses for R&D were US$30.3 million, US$29.5 million and US$31.7 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 and trade secret protection to protect and increase our competitive advantage.

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 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 R&D 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


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James Hardie 2017 Annual Report on Form 20-F    13

 

 

 

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 enhanced administrative controls and/or capital expenditures intended to prevent future discharges in excess of permitted levels and, on occasion, the payment of associated minor fines.

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.


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James Hardie 2017 Annual Report on Form 20-F    14

 

 

 

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 2017.

 

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 Designated Activity Company

   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 NZ Holdings Ltd

   Bermuda    New Zealand

James Hardie North America Inc.

   United States    United States

James Hardie NV

   Netherlands    Netherlands

James Hardie Philippines Inc.

   Philippines    Philippines

James Hardie Research (Holdings) Pty Ltd

   Australia    Australia

James Hardie Research Pty Ltd

   Australia    Australia

James Hardie Research USA LLC

   United States    United States

James Hardie Technology Ltd

   Bermuda    Ireland

James Hardie U.S. Investments Sierra Inc.

   United States    United States

RCI Holdings Pty Ltd

   Australia    Australia

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.


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James Hardie 2017 Annual Report on Form 20-F    15

 

 

 

Manufacturing Capacity

At 31 March 2017, we had manufacturing facilities at the following locations:

 

Plant Location    Owned /
Leased
    Design
Capacity
(mmsf)1
 

United States

      

Cleburne, Texas

     Owned       666  

Peru, Illinois

     Owned       560  

Plant City, Florida

     Owned  2      600  

Pulaski, Virginia

     Owned       600  

Reno, Nevada

     Owned       300  

Tacoma, Washington

     Owned  3      200  

Waxahachie, Texas

     Owned  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 We began work to recommission Plant City SM3, which will become the 4th active sheet machine at this location. We expect this sheet machine to be operational in early fiscal year 2018. This incremental capacity is included in the table above.

 

3 In the third quarter of fiscal year 2017, we announced a US$121.5 million greenfield capacity project at our Tacoma, Washington facility with an expected commissioning date in the second half of fiscal year 2019. This incremental capacity is not included in the table above.

 

4 In February 2017, we completed the purchase of land, building, and machinery and equipment previously leased at our Waxahachie, Texas facility.

 

5 We suspended production at our Summerville, South Carolina location in November 2008. The plant is currently being re-commissioned and is expected to be commissioned in early fiscal year 2018.

 

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.

 

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.

 

   We are adding additional capacity in the Philippines with an estimated total cost of PHP550 (US$11.0 million utilizing the exchange rate on 31 March 2017) with an expected completion date in the first half of fiscal year 2018. This incremental capacity is not included in the table above.


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James Hardie 2017 Annual Report on Form 20-F    16

 

 

 

We continually evaluate the capacity required to service the US housing market, and as a result, to ensure we meet demand and achieve our market penetration objectives, we have completed and continue to start-up and commission several lines across our manufacturing network. For a discussion of significant active and recently completed capacity expansion projects, see “Capital Expenditures.”

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. Additionally, commencing in the second quarter of fiscal year 2017, management adjusted the definition of plant availability pertaining to idled, non-commissioned, and start-up lines when determining annual flat sheet design capacity and capacity utilization.

Based on the methodology noted above, for the year ended 31 March 2017, we had an annual flat sheet design capacity of 2,879 mmsf and 619 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 2017, actual capacity utilization across our plants was an average of 94% and 92% in the United States and Asia Pacific, respectively.

Based on the “design capacity methodology” as defined above, for the year ended 31 March 2016, we had an annual flat sheet design capacity of 2,500 mmsf and 659 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 89% in the United States and Asia Pacific.

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 and Reno, Nevada. 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. We also had leased a mining site for silica in Victorville, California; however, that lease expired on 31 May 2016 and has not been renewed. Further, we own an additional property in Victorville, California which could be mined for silica. As of 30 April 2017, however, we have not begun to mine this site and have no immediate plans to do so. Finally, we continue to lease a parcel of land in Victorville, California adjacent to and for access to our owned property, as well as providing an equipment area for mining operations.


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James Hardie 2017 Annual Report on Form 20-F    17

 

 

 

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 2017, 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 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)  
     2017      2016      2015  

North America Fiber Cement

  $         76.1      $         40.3      $         163.3  

International Fiber Cement

    24.4        28.7        94.4  

Other Businesses

    0.7        2.3        2.0  

R&D and Corporate

    0.7        1.9        16.5  

Total Capital Expenditure

  $ 101.9      $ 73.2      $ 276.2  

Significant active capital expenditures

At 31 March 2017, the following significant capital expenditures related to capacity projects remain in progress:

 

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

Tacoma greenfield expansion

  $                 121.5     $                 4.9     Q4 FY17   FY19   8%

Summerville recommissioning2

    16.2       9.6     Q3 FY17   FY18   -

Phillipines capacity expansion

  $ 11.0     $ 8.3     Q4 FY16   FY18   16%

 

 

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.

 

2 We previously suspended production at our Summerville, South Carolina location in November 2008. The plant has a design capacity of 190 mmsf.


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James Hardie 2017 Annual Report on Form 20-F    18

 

 

 

Significant completed capital expenditure projects

The 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 SM4 - 3rd operating sheet machine

     71.2        FY14 - FY17

Fontana Plant recommisioning

     49.0        FY13 - FY15

Cleburne - 3rd sheet machine

     40.8        FY14 - FY17

Rosehill land and buildings

     37.5        FY15

Tacoma land and buildings

     28.3        FY15

Waxahachie lease buyout

   $ 16.5        FY17

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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James Hardie 2017 Annual Report on Form 20-F    19

 

 

 

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 R&D, production, manufacturing, human resources, marketing, investor relations, finance and legal.

Members of our executive team at 30 April 2017 (in alphabetical order) are:

Joe Blasko BSFS, JD

General Counsel and Chief Compliance Officer

Age 50

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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James Hardie 2017 Annual Report on Form 20-F    20

 

 

 

Sean Gadd BEng, MBA

Executive Vice President, Markets and Segments

Age 44

LOGO

    

Sean Gadd joined James Hardie in 2004 as a Regional Engineering Manager for the Asia Pacific business, and progressed to Plant Manager for both the Carole Park and Rosehill facilities in Australia. Mr Gadd then moved to the US in 2006 to take the role of Manufacturing Manager for Trim and various manufacturing facilities across the US.

In 2009, Mr Gadd ran the US trim business for James Hardie with responsibility for both Manufacturing and Sales, followed by a brief assignment leading Supply Chain. In 2012, Mr Gadd was promoted to the role of Vice President of Sales for Western USA and Canada. Over the next year, his role was expanded to include the Midwest and Northeast of the USA.

Mr Gadd was appointed Executive General Manager in September 2013 with full responsibility for the Northern Division. In October 2015, he was appointed Executive Vice President, Markets and Segments, North America with responsibility for Strategic Marketing and Development.

Mr Gadd has a Bachelor of Engineering in Manufacturing Management and an executive MBA from the Australian Graduate School of Management, Australia.

Louis Gries BSc, MBA

Chief Executive Officer

Age 63

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 Chief Executive Officer (“CEO”) in October 2004 and became CEO in February 2005. In addition to being the Company’s CEO, Mr Gries is responsible for managing the Company’s fiber cement operations in North America.

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 2017 Annual Report on Form 20-F    21

 

 

 

Ryan Kilcullen BSc, MS

Executive Vice President – Operations

Age 36

LOGO

    

Ryan Kilcullen joined James Hardie in 2007 as a PcI/PdI Engineer. Since then, he has worked for the Company in various manufacturing and supply chain roles including Process Engineer, Production Manager, and Supply Chain Engineer. In 2012, he became Supply Chain Manager, ColorPlus Business Unit, responsible for the end-to-end design and performance of our ColorPlus product line supply chain. In 2013, he became responsible for North American Supply Chain operations, with responsibilities that included Procurement, Network Planning, Production Planning, Transportation, Distribution Management, Customer Service, and Inside Sales. In June 2015, he was appointed Vice President – Central Operations, responsible for the Company’s Supply Chain Operations and Centralized Manufacturing functions.

In August 2016, he was appointed Executive Vice President – Operations, responsible for the Company’s Supply Chain, Manufacturing, Engineering, and Environmental, Health & Safety Operations.

Mr Kilcullen has a Bachelor of Science in Industrial Engineering from Rensselaer Polytechnic Institute and a Master of Engineering in Logistics from Massachusetts Institute of Technology.


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James Hardie 2017 Annual Report on Form 20-F    22

 

 

 

Matthew Marsh BA, MBA

Chief Financial Officer and Executive Vice President – Corporate

Age 42

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 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.

Jason Miele, BA

Vice President, Investor and Media Relations

Age 40

LOGO

    

Jason Miele was appointed to the position of Vice President – Investor and Media Relations in February 2017. Mr Miele has responsibility for overseeing the Company’s investor relations strategy and successful interface with external audiences, communicating the Company’s business strategy and its financial performance to various stakeholders including shareholders, investment analysts, and the financial media.

Mr Miele has 19 years of relevant professional experience, including 10 years of experience with James Hardie, where he has served in various finance and operational support roles, most recently as James Hardie’s Group Controller, a position he has held since 2013.

Mr Miele has a Bachelor’s Degree from the University of California at Santa Barbara, where he graduated with a degree in Business Economics with an emphasis in Accounting.


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James Hardie 2017 Annual Report on Form 20-F    23

 

 

 

Kirk Williams BA, JD

Chief Human Resources Officer

Age 41

LOGO

    

Kirk Williams joined James Hardie in 2017 as Chief Human Resources Officer. Mr Williams brings 16 years of experience in human resources gained while employed at Walmart, Honeywell International, Allianz Life Insurance Company of North America and American Express.

Most recently, he was Vice President of Human Resources at Archer Daniels Midland, where he served as a strategic business partner for two of the company’s four business units and had human resources responsibility for the Latin and South American businesses. Prior to those roles, Mr Williams held various management positions within Walmart.

Through his broad experience across a diverse group of industries, Mr Williams has developed a strong background in a broad range of areas, including employee engagement, talent management, leadership development, cultural initiatives, compensation, benefits and human resources management.

Mr Williams has a Juris Doctor from Chicago-Kent College of Law where he graduated with Honors and a Bachelor of Arts (International Relations) from Kent State University where he graduated Cum Laude.


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James Hardie 2017 Annual Report on Form 20-F    24

 

 

 

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 2017 are:

Michael Hammes BS, MBA

Age 75

 

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: Former – Director of Navistar International Corporation (1996-2017); Director of DynaVox Mayer-Johnson (2010-2016).

Other: Resident of the United States.

Last elected: August 2016

Term expires: August 2019


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James Hardie 2017 Annual Report on Form 20-F    25

 

 

 

Brian Anderson BS, MBA, CPA

Age 66

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 – Director of Stericycle Inc. (since January 2017); Director of PulteGroup (since 2005); Director of W.W. Grainger, Inc. (since 1999). Former – Chairman (2010-2016) and Director (2005-2016) of A.M. Castle & Co.; Lead Director of W.W. Grainger, Inc. (2011-2014).

Other: Member of the Governing Board of the Center for Audit Quality (since September 2016); resident of the United States.

Last elected: August 2015

Term expires: August 2017


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James Hardie 2017 Annual Report on Form 20-F    26

 

 

 

Russell Chenu BCom, MBA

Age 67

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 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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James Hardie 2017 Annual Report on Form 20-F    27

 

 

 

David D. Harrison BA, MBA, CMA

Age 70

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 2016

Term expires: August 2019

Andrea Gisle Joosen MSc, BSc

Age 53

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 Mr Green AB (since 2015; listed November 2016); 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: Director of Teknikmagasinet AB (since 2015); Director of Neopitch AB (since 2004); resident of Sweden.

Last elected: August 2015

Term expires: August 2018


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James Hardie 2017 Annual Report on Form 20-F    28

 

 

 

Alison Littley BA, FCIPS

Age 54

 

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).

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

Other: Director of Weightmans LLP (since 2013); Director of Eakin Healthcare Limited (since 2015); resident of the United Kingdom.

Last elected: August 2015

Term expires: August 2018

James Osborne BA Hons, LLB

Age 68

 

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). Former – Chairman of Independent News & Media (2011-2012).

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

Last elected: August 2015

Term expires: August 2018


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James Hardie 2017 Annual Report on Form 20-F    29

 

 

 

Rudolf van der Meer M.Ch.Eng

Age 72

 

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 – Chairman of the Supervisory Board of Royal Imtech N.V. (2005-2013).

Other: Chairman of the Supervisory Board of VGZ Health Insurance (since 2011); resident of the Netherlands.

Last elected: August 2014

Term expires: August 2017


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James Hardie 2017 Annual Report on Form 20-F    30

 

 

 

Remuneration

The remuneration information provided in this Annual Report outlines the key remuneration and share ownership information for our Board of Directors and our Senior Executive Officers (defined below) for fiscal year 2017. 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 and we intend to continue to do so for fiscal year 2017. A more extensive remuneration report, which further details our remuneration policies and practices will be provided separately to our shareholders in July 2017, together with the 2017 Notice of Annual General Meeting (“AGM”) and accompanying materials.

For fiscal year 2017, 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 2017) (“Senior Executive Officers”) are:

    Louis Gries, CEO;
    Matthew Marsh, CFO and Executive Vice President – Corporate;
    Sean Gadd, Executive Vice President – Markets and Segments;
    Joseph Blasko, General Counsel and Chief Compliance Officer; and
    Mark Fisher, former Executive Vice President – International.

Mr Fisher is included in this remuneration discussion based on his level of compensation and status as an executive officer as of 31 March 2017. Subsequent to 31 March 2017, Mr Fisher voluntarily terminated his employment with us as of 3 April 2017.

Description of 2017 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 2017, 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 the section 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.


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James Hardie 2017 Annual Report on Form 20-F    31

 

 

 

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 2016 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.

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 2017, our variable incentive plans for Senior Executive Officers were as follows:

 

       
Duration   Plan Name   Amount   Form Incentive Paid

Short Term Incentive (“STI”) (1 year)

  Individual Performance Plan (“IP Plan”)   20% of STI Target     Cash
    Company Performance Plan (“CP Plan”)   80% of STI Target     Cash

Long Term Incentive (“LTI”) (3 –4.5 years)

  Long Term Incentive Plan 2006 (“LTIP”)   40% of LTI Target     Return on Capital Employed (“ROCE”) Restricted Stock Units (“RSUs”)
      30% of LTI Target     Relative Total Shareholder Return (“TSR”) RSUs
        30% of LTI Target     Cash (Scorecard LTI)

STI Plans

On an annual basis, the Remuneration Committee approves an 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 2017, the STI target percentage for Mr Gries was 125% of base salary, 70% of base salary for Mr Marsh, and 60% of base salary for Messrs Fisher, Gadd 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 2017, the ‘circuit breaker’ was set at 60% of our fiscal year 2017 plan Adjusted EBIT (indexed to housing starts) less any impairment costs the Remuneration Committee determines should be disregarded.


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James Hardie 2017 Annual Report on Form 20-F    32

 

 

 

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 (Mr Gadd) or a composite multiple derived from the metrics for the US (80%) and Asia Pacific (20%) businesses combined (Messrs Gries, Marsh, Fisher and Blasko).

IP Plan

Under the IP Plan, the Remuneration Committee approves a series of one-year individual performance goals which, along with goals on our core organizational values, 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 core organizational values goals.

STI Plan Performance for Fiscal Year 2017

For fiscal year 2017, 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.” A more in-depth discussion regarding our corporate performance relative to the CP Plan and Senior Executive Officer performance under the IP Plan will be provided in our remuneration report, which will be separately issued to shareholders in July 2017.

LTI Plans

Each year, the Remuneration Committee approves an 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 US peer companies; and
    Scorecard LTI is an indicator of each Senior Executive Officer’s contribution to achieving our long-term strategic goals.


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James Hardie 2017 Annual Report on Form 20-F    33

 

 

 

Awards issued under the LTI Plans are issued pursuant to the terms of the LTIP. During fiscal year 2017, our Senior Executive Officers were granted the following awards under the LTIP:

 

     ROCE RSUs     TSR RSUs     Scorecard
LTI Units
 

L Gries

    194,626       218,159       218,954  

M Marsh

    58,388       65,448       65,686  

M Fisher

    31,627       35,451       35,580  

S Gadd

    31,627       35,451       35,580  

J Blasko

    21,895       24,543       24,632  

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

Vesting criteria for each type of LTI award are as follows:

    ROCE RSUs awarded in fiscal year 2017 may vest on 16 September 2019 based on the achievement of certain ROCE hurdles for fiscal years 2017-2019 (the “Performance Period”). Specifically, if our three year average ROCE for fiscal years 2017-2019 is: (i) less than 24%, then no ROCE RSUs will vest; (ii) is equal to or greater than 24% but less than 26%, then 25% of the ROCE RSUs will vest; (iii) is equal to or greater than 26% but less than 28.5%, then 50% of the ROCE RSUs will vest; (iv) is equal to or greater than 28.5% but less than 29.5%, then 75% of the ROCE RSUs will vest; and (v) is equal to or greater than 29.5%, then 100% of the ROCE RSUs will vest. At the conclusion of this 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. Vested ROCE RSUs will be settled in CUFS on a 1-to-1 basis.
    TSR RSUs awarded in fiscal year 2017 may vest if the TSR of our shares exceeds a specified percentage of our US peer group over the performance period. The peer group for measuring TSR consists of the same 24 peer companies exposed to the US housing market which we use for compensation benchmarking purposes. Our TSR performance is measured against the peer group over a 36 to 54 month period from the grant date, with testing after the 36th month, 48th month and at the end of the 54th month period. To eliminate the impact of short-term price changes, the starting point and each test date are measured using an average 20 trading-day closing price. TSR RSUs will vest based on the following schedule: (i) if the TSR of our shares is below the 40th percentile of the peer group, then no TSR RSUs will vest, (ii) if the TSR of our shares is equal to the 40th percentile of the peer group, then 25% of the TSR RSUs will vest; (iii) if the TSR of our shares is equal to the 60th percentile of the peer group, then 50% of the TSR RSUs will vest; and (iv) if the TSR of our shares is equal or greater than the 80th percentile of the peer group, then 100% of the TSR RSUs will vest. The vesting percentage between points is on a straight-line interpolated basis. Vested TSR RSUs will be settled in CUFS on a 1-to-1 basis.


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James Hardie 2017 Annual Report on Form 20-F    34

 

 

 

    Scorecard LTI cash-settled awards granted in fiscal year 2017 may vest on 16 September 2019 based on our achievement of certain specified strategic goals and objectives and each Senior Executive Officer’s contribution to the achievement of such objectives during the Performance Period. In fiscal year 2017, the Remuneration Committee approved a number of key management objectives and the measures it expects to see achieved in relation to these objectives. These objectives are incorporated into the fiscal year 2017 grant. At the end of the Performance Period, the Remuneration Committee will assess our Senior Executive Officers’ collective performance and each Senior Executive Officer’s individual contribution to that performance. Senior Executive Officers may receive different ratings depending on the contribution they have made during the Performance Period. No specific weighting is applied to any single objective and the final Scorecard assessment reflects an element of judgment by the Board. The amount received by each Senior Executive Officer is based on both our share price performance over the Performance Period and that Senior Executive Officer’s Scorecard rating. Depending on the collective performance related to the specified objectives and the Senior Executive Officer’s rating (between 0 and 100), between 0% and 100% of the Senior Executive Officer’s Scorecard LTI awards may vest at the end of the Performance Period. Scorecard LTI are settled in cash based the number of units vested and the 20 trading-day average closing price of our CUFS at the end of the Performance Period.

A more in-depth discussion regarding our LTI Plans and the awards issued thereunder will be provided in our remuneration report, which will be separately issued to shareholders in July 2017.

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.


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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 and Fisher were subject to a specific clawback provision 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.

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).

As of 31 March 2017, all Senior Executive Officers have achieved the minimum share accumulation threshold.

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 2017. There are no loans outstanding to Senior Executive Officers.


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Employment and Severance Arrangements

During fiscal year 2017, we maintained employment agreements with each of Messrs Gries, Marsh and Fisher. Mr Fisher resigned from his employment on 3 April 2017, and as a result, his employment agreement is no longer in effect. 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 the Remuneration Committee.
    Participation in the 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 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


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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 Matt 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 provides for a base salary of not less than US$560,000, or such greater amount as may be established by the Remuneration Committee, for Mr Marsh. The base salary shall be reviewed annually for increase in the discretion of the Remuneration 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” (as defined in the Marsh Agreement); 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


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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.

Prior Employment Agreement with Mark Fisher

Prior to his resignation on 3 April 2017, we were a party to an employment agreement with Mr Fisher, which was effective as of 31 March 2006. Below is a summary of the key terms of Mr Fisher’s prior employment agreement:

    Mr Fisher is an employee-at-will and either he or the Company may terminate his employment at any time or for any reason.
    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 was 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.


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Remuneration Paid to Senior Executive Officers

Total Remuneration for Senior Executive Officers

Details of the remuneration for Senior Executive Officers in fiscal years 2017 and 2016 are set out below:

 

(US dollars)   Primary     Post-
employment
    Equity Awards     TOTAL  
Name   Base Pay2     STI
Award3
    Other
Benefits4
    401(k)     Ongoing
Vesting5
    Mark-to
Market6
   

L Gries1

                                                       

Fiscal Year 2017

    979,269       1,061,625       117,701       15,900       6,164,203       1,678,876       10,017,574  

Fiscal Year 2016

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

M Marsh

               

Fiscal Year 2017

    569,231       370,048       77,579       16,454       1,339,162       241,857       2,614,331  

Fiscal Year 2016

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

M Fisher

               

Fiscal Year 2017

    526,231       276,246       41,030       8,977       848,150       198,944       1,899,578  

Fiscal Year 2016

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

S Gadd

               

Fiscal Year 2017

    421,231       227,174       34,429       16,011       913,691       178,409       1,790,945  

Fiscal Year 2016

    396,923       493,776       56,836       16,038       604,505       61,017       1,629,095  
         

J Blasko

               

Fiscal Year 2017

    412,885       229,392       71,357       16,246       610,218       140,177       1,480,275  

Fiscal Year 2016

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

TOTAL

                                                       

Fiscal Year 2017

    2,908,847       2,164,485       342,096       73,588       9,875,424       2,438,263       17,802,703  

Fiscal Year 2016

    2,731,538       4,607,531       333,887       80,349       9,091,606       1,572,387       18,417,298  

 

 

1 L Gries base pay includes US$189,005 and US$170,184 in fiscal years 2017 and 2016, respectively, which is allocated for tax purposes to his services on the Company’s Board.

 

2 Base pay for FY2017 includes salary paid to Senior Executive Officers for the 27 bi-weekly paychecks received during FY2017 as compared to 26 bi-weekly paychecks as is typically standard in most fiscal years. This additional bi-weekly pay period was a function of the number of bi-weekly pay dates during FY2017 only and does not represent an increase in the base salary rate for Senior Executive Officers.

 

3 For further details on STI awards paid for fiscal years 2017 and 2016, see “Incentive Arrangements” above in this Remuneration section. Amounts reflect actual STI awards to be paid in June 2017 and paid in June 2016, for fiscal years 2017 and 2016, respectively.

 

4 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.

 

5

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


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  amount excludes the equity award expense in fiscal years 2017 and 2016 resulting from changes in the Company’s share price, which is disclosed separately in the Equity Awards “Mark-to-Market” column.

 

6 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 2017 and 2016. During fiscal year 2017, there was a 14.9% appreciation in our share price from US$13.68 to US$15.72, as a result of changes in the AUD/USD exchange rate. During fiscal year 2016, there was a 17.4% appreciation in our share price from US$11.65 to US$13.68.

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 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 and Board Committee Chairman (and had been paid to the Deputy Chairman prior to his retirement), as well as for attendance at ad-hoc sub-committee meetings.

During fiscal year 2017, 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 2017 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 2.6% increase in base fee.

 

Position  

Fiscal Year

 

2017 (US$)

   

Fiscal Year

 

2018 (US$)

 

Chairman

    404,066       408,984  

Board member

    189,006       193,924  

Audit Committee Chair

    20,000       20,000  

Remuneration Committee Chair

    20,000       20,000  

Nominating & Governance Committee Chair

    20,000       20,000  

Ad-hoc Board sub-committee attendance1

    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


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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.

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 a minimum of 1.5 times (and two times for the Chairman) the non-executive director 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 2017 and 2016

The table below sets out the remuneration for those non-executive directors who served on the Board during the fiscal years ended 31 March 2017 and 2016:

 

(US dollars)

Name

  Primary
Directors’ Fees1
    Other Payments2     Other Benefits3           TOTAL        

M Hammes

             

Fiscal Year 2017

    410,065       -       28,142       438,207  

Fiscal Year 2016

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

D McGauchie

             

Fiscal Year 2017

    151,610       -       21,882       173,492  

Fiscal Year 2016

    232,922       -       15,741       248,663  
         

B Anderson

             

Fiscal Year 2017

    215,005       -       8,906       223,911  

Fiscal Year 2016

    244,935       72,605       -       317,540  
         

D Harrison

             

Fiscal Year 2017

    209,005       -       10,324       219,329  

Fiscal Year 2016

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

A Littley

             

Fiscal Year 2017

    195,005       -       16,030       211,035  

Fiscal Year 2016

    179,184       -       -       179,184  


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Total Remuneration for Non-Executive Directors (continued)

 

(US dollars)

Name

  Primary
Directors’ Fees1
    Other Payments2     Other Benefits3           TOTAL        
         

J Osborne

             

Fiscal Year 2017

    201,005       -       -       201,005  

Fiscal Year 2016

    179,184       -       -       179,184  
         

R Van Der Meer

             

Fiscal Year 2017

    209,005       -       1,531       210,536  

Fiscal Year 2016

    188,847       -       -       188,847  
         

R Chenu4

         

Fiscal Year 2017

    195,005       -       4,390       199,395  

Fiscal Year 2016

    170,184       -       -       170,184  
         

A Gisle Joosen

         

Fiscal Year 2017

    189,005       -       1,406       190,411  

Fiscal Year 2016

    173,184       -       -       173,184  

Total Compensation for Non-Executive Directors

 

Fiscal Year 2017

    1,974,710       -       92,611       2,067,321  

Fiscal Year 2016

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

 

 

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.

 

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 and Company product received in accordance with the Policy on Products for Friends and Family. 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 was US$282,789. 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 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.


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Director Remuneration for the years ended 31 March 2017 and 2016

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)    2017      2016  

Managerial Services1

     $ 9,828,569          $ 10,866,287    

Director Services2

     2,256,327          2,792,080    
  

 

 

    

 

 

 
     $     12,084,896          $     13,658,367    
  

 

 

    

 

 

 

 

 

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, former Deputy Chairman, Committee Chairman and cost of non-employee directors’ fiscal compliance in Ireland, and Company product received in accordance with the employee program as well as other costs connected with Board-related events paid for by the Company. It includes 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 2017 and 2016. 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

As of 30 April 2017 and 30 April 2016, the number of CUFS and RSUs beneficially owned by Senior Executive Officers is set forth below:

 

         
Name   CUFS at
30 April
2017
    CUFS at
30 April
2016
    RSUs at
30 April
2017
    RSUs at
30 April
2016
 

L Gries

    404,038       454,334       1,453,105       1,960,484  

M Marsh

    59,557       -           318,980       316,103  

M Fisher

    78,698       91,767       106,973       264,847  

J Blasko

    32,803       18,917       144,379       149,327  

S Gadd

    36,407       -           228,034       216,193  


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As of 30 April 2017 and 30 April 2016, the number of CUFS and RSUs beneficially owned by non-executive directors is set forth below:

 

Name  

CUFS at

30 April
2017

   

CUFS at

30 April
2016

 

M Hammes 1

    44,109       44,109  

D McGauchie 2

    8,372       8,372  

B Anderson 3

    18,920       18,920  

R Chenu

    105,518       93,712  

A Gisle Joosen

    2,480       1,000  

D Harrison 4

    19,259       19,259  

A Littley 5

    2,045       2,045  

J Osborne 6

    22,551       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.

 

2 Resigned from the Board on 11 August 2016.

 

3 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.

 

4 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 as ADSs in the name of Mr and Mrs Harrison.

 

5 2,045 CUFS held as ADSs in the name of Ms Littley.

 

6 2,551 CUFS held in the name of Mr Osborne and 20,000 CUFS held in the name of Aurum Nominees Limited and held on behalf of Mr Osborne as beneficial owner.

Based on 440,859,888 shares of common stock outstanding at 30 April 2017 (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 2017 and none of the shares held by directors or Senior Executive Officers have any special voting rights. As of 30 April 2017, 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 2017, we had the following equity award plans:

    the LTIP; and
    the 2001 Plan.


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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.

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 2017, there were 2,720,664 RSUs outstanding under the LTIP, divided as follows:

 

Restricted Stock Units  
Grant
Type
  Grant Date   Granted     Vested as of
31 March 2017
    Outstanding
as of 31 March
2017
 

TSR

  September 2014     459,317       -         438,766  

ROCE

  September 2014     403,716       -         386,082  

TSR

  September 2015     579,262       -         555,776  

ROCE

  September 2015     503,944       -         483,512  

TSR

  September 2016     456,819       -         452,681  

ROCE

  September 2016     407,539       -         403,847  
Total Outstanding       2,720,664  

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).


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As of 31 March 2017, there were 1,432,622 Scorecard LTI units outstanding under the LTIP, divided as follows:

 

Scorecard LTI  
Grant
Type
  Grant Date   Granted     Vested as of
31 March 2017
    Outstanding
as of 31 March
2017
 

Scorecard

  September 2014     454,179       -               434,341  

Scorecard

  September 2015     566,936       -               543,950  

Scorecard

  September 2016     458,484       -               454,331  

Total Outstanding

 

    1,432,622  

For additional information regarding the LTIP and award grants made thereunder, see Note 15 to our consolidated financial statements.

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 21 February 2017 grant 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.


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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.

The 2001 Plan also permits the Remuneration Committee to grant stock options, performance awards, restricted stock awards, stock appreciation rights, dividend equivalent rights or other stock based benefits.

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 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 2017, there were 48,896 options outstanding under the 2001 Plan, as follows:

 

Options  
Grant Date   Granted     Outstanding
as of 31 March
2017
 

December 2007

    5,031,310       48,896  
Total Outstanding       48,896  


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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 315,636, 327,354, and 329,192 restricted stock units under the 2001 Plan in the years ended 31 March 2017, 2016 and 2015, respectively. Additionally, the Company has on occasion issued a small number of cash settled awards. As of 31 March 2017, there were 619,581 restricted stock units outstanding under this plan, divided as follows:

 

Restricted Stock Units  
Grant Date   Granted     Vested as of
31 March 2017
    Outstanding
as of 31 March
2017
 

December 2014

    329,192       149,768       118,911  

December 2015

    327,354       79,336       197,064  

December 2016

    297,388       -           285,358  

February 2017

    18,248       -           18,248  
Total Outstanding       619,581  

For additional information regarding the 2001 Plan and award grants made thereunder, see Note 15 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 2017, the Board evaluated the Company’s corporate governance framework and practices and approved this Statement. This Statement is current as at 12 May 2017.

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 2017 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 ADSs 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 2017, 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
   

NYSE rules require each issuer to have an audit committee, a compensation committee (equivalent to a remuneration committee) and a nominating committee composed entirely


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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 or percentage is mandated.

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 2017.

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 throughout 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 powers to Board committees and responsibility for the day-to-day management of the Company’s


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


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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 2017, 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

     1        1                                                      1        1  

B Anderson

     4        4     C      4        4          5        5                        

R Chenu

     4        4                                5        5          4        4  

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 information 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 reviews the performance of each of the CEO’s direct reports throughout the year, 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 annually. Performance evaluations for fiscal year 2017 were conducted in accordance with the process outlined above in April and May 2017. Further details on the assessment criteria for the CEO and other senior executive officers are set out in “Section 1 – Remuneration” of this Annual Report and will be included in our separate remuneration report which will be issued to our shareholders in July 2017.

Board Performance Evaluation

The Nominating and Governance Committee oversees the Board evaluation process and makes recommendations to the Board. During fiscal year 2017, the process, which was undertaken in February and March 2017, involved the 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.

Further, during fiscal year 2017, the Chairman of the Nominating and Governance Committee discussed with the Board, the Chairman’s performance and contribution to the effectiveness of the Board.

Workplace Diversity

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 of the Company.

The Company has implemented a Workplace Diversity Policy that reflects a broader view of diversity than those covered by the ASX Principles and supports certain of our core organizational values, including Operating with Respect and Building Organizational Advantage. The Workplace Diversity Policy, which is located in the Corporate Governance section of the Company’s investor relations website (www.ir.jameshardie.com.au), applies to all individuals recruited or employed by the Company and reflects the organization’s inclusive view of diversity, which includes individual differences related to race, gender, age, national origin, religion, sexual orientation or disability.

The Board, with assistance from management, is responsible for approving and monitoring the Company’s diversity policy and measurable objectives in the context of the Company’s unique circumstances and industry. The Board assesses the policy and objectives annually and the Company’s progress in achieving them.

The Board has delegated responsibility to the Nominating and Governance Committee for monitoring the effectiveness of this policy to the extent it relates to diversity of the Board’s composition, senior leadership, management, and the organization as a whole and for reviewing and recommending any updates to this policy, as deemed necessary.


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Details of diversity composition across various levels of the organization at the end of fiscal year 2017 are set out below:

 

Level    Percentage of female
employees
   Percentage of employees with
diversity characteristics

James Hardie Board1

   22% (2 of 9)    33% (3 of 9)

US BUSINESS 2

Senior leadership positions3

   12% (18 of 148)    28% (41 of 148)

All management positions

   15% (59 of 399)    32% (129 of 399)

Total workforce

   11% (310 of 2,793)    38% (1,048 of 2,793)

NON-US BUSINESSES 4

Senior leadership positions3

   13% (4 of 32)     

All management positions

   22% (29 of 131)     

Total workforce

   18% (184 of 1,031)     

 

 

1 Includes gender and race diversity characteristics for the Board.
2 Includes US employees with diversity characteristics including gender, race or national origin.
3 Senior Leaders are defined as individuals at senior manager and director level and above who participate in the Company and Individual Performance (CIP) Plan.
4 Race/national origin diversity characteristics vary between countries and are therefore not captured in aggregate for Non-US businesses.

The Board has a goal to maintain:

    diversity characteristics in excess of 30%; and
    women in excess of 20% among non-executive directors.

With regard to the Company’s senior leadership, management, and the organization as a whole, the following table outlines the organization’s five primary objectives in promoting diversity during fiscal year 2017, the actions in place or undertaken to achieve these objectives, the progress made against these objectives during fiscal year 2017 and the fiscal year 2018 plans.

 

Objectives   FY17 Actions and Outcomes   FY18 Plans
To promote a culture of diversity (which includes gender, skills, experience, and other elements that reflect a broad representation of individuals with various backgrounds)  

 •  All global employees were registered for and completed Code of Conduct and Business Ethics training by the end of FY17.

 •  The Global Management Team, former North American Management Team and Human Resources Management Team met for two full days to analyze and evaluate HR-related data and develop an action plan to improve the JH work environment.

 •  Values reset – A training and Global Management Team-led effort was implemented to explain Company values to employees, including a module focused on Operating with Respect.

 •  A 90 minute face-to-face facilitated session on our code of conduct, focusing on our core values, was created for roll out across APAC manufacturing.

 

 

 •  Pilot launch of a cultural assessment in Q1FY18 with select departments as we continually drive to enhance the work environment, with a company-wide rollout later in FY18.

 •  Values training rolled out across North America at end of FY17 and will be rolled out internationally during the first half of FY18.


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Objectives   FY17 Actions and Outcomes   FY18 Plans
To ensure that recruitment and selection processes are based on merit  

 •  6 individuals graduated from the Engineering Development Program (EDP), 33% of whom were women.

 •  MBA Leadership Program recruiting, targeted to bring future general management talent into the organization, has resulted in 26 hires since its inception in 2011, 15% of whom were female and 65% of whom had other diversity characteristics. MBA Leadership Program recruiting hired 6 individuals in FY17, all of whom had diversity characteristics.

 •  Of the total hires from January 2016 to January 2017 in the US, 13% of new employees were female and of these new female employees, 18% were hired into management roles.

 

 

 •  Recruitment for management roles continues to be a focus for FY18.

 •  We plan to continue the EDP program and maintain or enhance the diversity characteristics of the program participants.

 •  Engagement with external recruitment firms to ensure a greater percentage of diverse, qualified applicants.

To provide talent management and development opportunities which provide equal opportunities for all current employees  

 •  During Calendar Year 2016 (“CY16”), 224 new roles and internal promotions were offered. Of these, 61 were female (27%); 47 were non-Caucasian (21%). 12 of the 61 (20%) were both female and non-Caucasian.

 •  In April 2016, a second group of high potential employees went through our senior management development program (Blue Line), 11% of whom were female and 21% of whom were non-Caucasian.

 •  The Asia Pacific Leadership development program for high potentials in 2016 included 20% females and the program for 2017 includes 23% females.

 •  24% of high potentials identified in Australia and New Zealand in 2016 are women, compared to the overall percentage of Women in Australia and New Zealand of 15%.

 •  Established Women in Sales at Hardie (WISH) to address challenges unique to women in sales. 36 women participated in the support group, which provided networking and development opportunities to the participants.

 

 

 •  Establishing a more robust talent assessment for use at all levels in the organization.

 •  Piloting a leadership program that would apply to employees at various levels of experience within the Company.

 •  Develop a women’s leadership program to assist in the development of high potential females within the Company.


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Objectives   FY17 Actions and Outcomes   FY18 Plans
To reward and remunerate fairly  

 •  Management conducted a review of California employees for disparate pay treatment. Overall, female employees in California were paid the equivalent or more than their male peers. In instances where they were paid lower, there was significantly less tenure, education or experience in a similar role.

 •  The Workplace Gender Equality Act (WGEA) report is submitted to the Australian government on an annual basis. In June 2016, WGEA confirmed that JH Australia is compliant with the Workplace Gender Equality Act 2012 (Act).

 •  Annually, management conducts an employee wage benchmarking study to ensure remunerations are aligned with the Company remuneration philosophy. In CY16, the study included all corporate and plant locations.

 

   •  Conducting hourly wage surveys and market studies to ensure employee compensation properly reflects each individual’s role and experience.
To provide flexible work practices  

 •  Flexible working arrangements are discussed with each employee and individual arrangements are offered as job requirements permit.

 

   •  Initiating a review of paid time off plans and examining proposed changes in leave time policy.

Principle 2: Structure the Board to Add Value

Composition of the Board

The Board currently comprises eight non-executive directors and one executive director (being the CEO). In accordance with the Company’s Constitution, the Board must have no less than three and not more than twelve directors, with the precise number to be determined by the Board.

Directors may be elected by our shareholders at general meetings or appointed by the Board and elected at the next general meeting if there is a vacancy. A person appointed as a director by the Board must submit him or herself for re-election at the next AGM. The Board and our shareholders have the right to nominate candidates for the Board. Directors may be dismissed by our shareholders at a general meeting. In accordance with the Company’s Constitution and the ASX Listing Rules, no director (other than the CEO) shall hold office for a continuous period of more than three years without being re-elected by shareholders at an AGM. The Company’s Constitution provides that at each AGM, one-third of the directors (excluding the CEO) must retire and, if eligible, may offer themselves for re-election.

The Board’s overriding desire is to maximize its effectiveness by appointing the best candidates for vacancies and closely reviewing the performance of directors subject to re-election. Directors are not automatically nominated for re-election at the end of their term. Nomination for re-election is based on a number of factors, including an assessment of their individual performance, independence, tenure, and their skills and experience relative to the needs of the Company. The Nominating and Governance Committee and the Board discuss the performance of each director


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due to stand for re-election at the next AGM before deciding whether to recommend their re-election.

As part of the appointment process, the Nominating and Governance Committee, in consultation with the Board, considers the size and composition of the Board, the current range of skills, competencies and experience and the desired range of skills, as well as Board renewal, succession and diversity plans. The Nominating and Governance Committee identifies suitable candidates, with assistance from an external consultant, where appropriate, and a number of directors meet with those candidates before the Board selects the most suitable candidate, based on a recommendation from the Nominating and Governance Committee.

Director Independence

In accordance with the ASX Principles and the NYSE Standards, the Company requires that a majority of directors on the Board and the Board committees, as well as the Chairman of the Board and each committee, be independent, unless a greater number is required to be independent under the rules and regulations of the ASX, the NYSE or other applicable regulatory body.

All directors are expected to bring their independent views and judgment to the Board and Board committees and must declare any potential or actual conflicts of interest. For a director to be considered independent, the Board must determine the director does not have any direct or indirect business or other relationship that could materially interfere with such director’s exercise of independent judgment. In assessing the independence of each director, the Board considers the standards for determining director independence set forth in the ASX Principles and the NYSE Standards and evaluates all potential conflicting relationships on a case-by-case basis, considering the materiality of each potential or actual conflict of interest.

During fiscal year 2017, the Board, with the assistance of the Nominating and Governance Committee, undertook an independence assessment of each director. The Board determined that, with the exception of Louis Gries, as CEO of the Company, and Russell Chenu, each of Michael Hammes, Brian Anderson, Andrea Gisle Joosen, David Harrison, Alison Littley, James Osborne and Rudolph van der Meer is independent. Mr Chenu is not considered independent, based upon the nature of his previous employment as CFO of the Company.

Prior to determining the independence of Brian Anderson, the Board considered his role as a director of PulteGroup, a home builder in the United States. PulteGroup does not buy any of the Company’s products directly from the Company, although it does buy the Company’s products through some of the Company’s customers. PulteGroup receives a rebate from the Company or the Company’s suppliers in respect of some of its purchases in accordance with a rebate program applicable to similar home builders. These transactions are conducted on an arm’s length basis, are similar to the transactions the Company has entered into with other similarly situated home builders, are in accordance with the Company’s normal terms and conditions and are not material to PulteGroup or to the Company. The rebate program existed and was disclosed to the Board before Mr Anderson became a director. It is not considered that Mr Anderson has any influence over these transactions.


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The Board believes that, notwithstanding the length of Mr Hammes’, Mr Anderson’s and Mr van der Meer’s tenure, they each remain independent in character and judgment and have not formed an association with management that could interfere with their ability to exercise independent judgment.

Director Qualifications and Board Diversity

The Board seeks to achieve a mix of skills, experience and expertise to maximize the effectiveness of the Board and utilizes a skills matrix in reviewing Board composition and in succession planning. The following lists the mix of skills, experience and diversity the Board has and is looking to achieve, taking into consideration the strategic objectives of the Company.

Key Board Skills and Experience

 

Executive Leadership    Board Experience    Succession Planning    Governance

Strategy

   Financial Acumen    Corporate Finance    Risk Management

Global Experience

  

Health, Safety and

Environmental

   Human Resources and
Executive Remuneration
   Manufacturing

Market Experience

              

Information regarding Board diversity can be found in the “Workplace Diversity” section above.

Directors must be able to devote a sufficient amount of time to prepare for, and effectively participate in, Board and Board committee meetings. The Nominating and Governance Committee reviews the other commitments of directors annually and otherwise, as required. In fiscal year 2017, as part of the review, the Nominating and Governance Committee noted that Mr Anderson serves on a total of four public company audit committees (including the Company’s Audit Committee). The Board has determined that such simultaneous service does not impair the ability of Mr Anderson to effectively serve as chairman of the Company’s Audit Committee.

Biographical information for each member of the Board, along with the skills, qualifications, experience and relevant expertise for each director, and his or her date and term of appointment, are summarized in the Board biography section of this Annual Report and also appear in the Corporate Governance section of the Company’s investor relations website (www.ir.jameshardie.com.au).

Nominating and Governance Committee

The Board has established the Nominating and Governance Committee to identify and recommend to the Board individuals qualified to become members of the Board, develop and recommend to the Board a set of corporate governance principles, and perform a leadership role in shaping the Company’s corporate governance policies. The duties and responsibilities of the Nominating and Governance Committee include:

    identifying and recommending to the Board individuals qualified to become directors;
    overseeing the evaluation of the Board and senior management;
    assessing the independence of each director;


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    reviewing the conduct of the AGM; and
    performing a leadership role in shaping the Company’s corporate governance policies.

A more complete description of these duties and responsibilities and other Nominating and Governance Committee functions is contained in the Nominating and Governance Committee’s Charter, a copy of which is available in the Corporate Governance section of the Company’s investor relations website (www.ir.jameshardie.com.au).

The current members of the Nominating and Governance Committee are Rudolf van der Meer (Chairman of the Nominating and Governance Committee), Russell Chenu, Michael Hammes, and James Osborne, the majority of whom are independent non-executive directors.

Succession Planning

The Board, together with the Nominating and Governance Committee, has developed, and periodically reviews with the CEO, management succession plans, policies and procedures for the CEO and certain other members of executive management.

Retirement and Tenure Policy

The Company does not have a retirement and tenure policy. The length of tenure of individual directors is one of many factors considered by the Board when assessing the independence, performance and contribution of a director, in succession planning, and as part of the Board’s decision-making process when considering whether a director should be recommended by the Board for re-election.

Related Party Transactions

Other than the compensation arrangements with our executive officers and directors, which are disclosed in “Section 1 – Remuneration” of this Annual Report, the Company has not entered into any related party transactions requiring disclosure during fiscal year 2017.

Induction and Continuing Development

The Company has an induction program for new directors. This program includes an overview of the Company’s governance arrangements and directors’ duties in Ireland, the United States and Australia, plant and market tours to understand the Company’s strategic plans and impart relevant industry knowledge, briefings on the Company’s risk management and control framework, financial results and key risks and issues, and meeting other directors, the CEO and members of management. New directors are also provided with comprehensive orientation materials including relevant corporate documents and policies.

In addition, the Company regularly schedules time at Board meetings to develop the Board’s understanding of the Company’s operations and regulatory environment, including updates on topical developments from management and external experts.

Board Leadership Structure

In an effort to promote the efficient undertaking of its roles and responsibilities, the Board has appointed one of its independent, non-executive members, Michael Hammes, as Chairman. In his


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role as Chairman, Mr Hammes co-ordinates the Board’s duties and responsibilities and acts as an active liaison between management and the Company’s non-executive directors, maintaining frequent contact with the CEO and being advised generally on the progress of Board and Board committee meetings. In his role as Chairman, Mr Hammes also:

    provides leadership to the Board;
    chairs Board and shareholder meetings;
    facilitates Board discussions;
    monitors, evaluates and assesses the performance of the Board and Board committees; and
    is a member of and attends meetings of all Board committees.

Remuneration

For a detailed discussion of the Company’s remuneration policies for directors and executives, and the link between remuneration and overall corporate performance, see “Section 1 – Remuneration” of this Annual Report.

Board Accumulation Guidelines

Non-executive directors are encouraged to accumulate up to 1.5 times (and 2 times for the Chairman) the base Board member fee in the Company’s shares (either personally, in the name of their spouse, or through a personal superannuation or pension plan) over a reasonable time following their appointment. The Remuneration Committee reviews the guidelines and non-executive directors’ share holdings on a periodic basis.

Independent Advice and Access to Information

In addition to their access to the Company Secretary and senior management, the Board, the Board committees and individual directors may all seek independent professional advice at the Company’s expense for the proper performance of their duties.

Indemnification

The Company’s Constitution provides for indemnification of any person who is (or who was) a director, the Company Secretary, or an employee or any other person deemed by the Board to be an agent of the Company, who suffers any loss as a result of any action in discharge of their duties, in the absence of a willful act or default and subject to the provisions of the Irish Companies Acts.

The Company and certain of its subsidiaries have provided Deeds of Access, Insurance and Indemnity to directors and executives who are directors or officers of the Company or its subsidiaries.

Principle 3: Act Ethically and Responsibly

Global Code of Business Conduct

The Company seeks to maintain high standards of integrity and is committed to ensuring that the Company conducts its business in accordance with high standards of ethical behavior. The


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Company requires its employees to comply with both the spirit and the letter of all laws and other statutory requirements governing the conduct of the Company’s activities in each country in which the Company operates. The Company has adopted a Global Code of Business Conduct (the “Code of Conduct”) which applies to all of the Company’s employees and directors. The Code of Conduct covers many aspects of corporate policy and addresses compliance with legal and other responsibilities to stakeholders. All directors and employees of the Company worldwide are required to review the Code of Conduct on an annual basis. As part of its oversight functions, the Audit Committee oversees the Code of Conduct and reviews the policy on an annual basis. A copy of the Code of Conduct is available in the Corporate Governance section of the Company’s investor relations website (www.ir.jameshardie.com.au).

The Company did not grant any waivers from the provisions of the Code of Conduct during fiscal year 2017.

Complaints/Ethics Hotline

The Code of Conduct provides employees with advice about who they should contact if they have information or questions regarding potential violations of the policy. Globally, the Company maintains an ethics hotline operated telephonically (except in France) by an independent external provider which allows employees to report anonymously any concerns. All Company employees worldwide are reminded annually of the existence of the ethics hotline.

All complaints, whether to the ethics hotline or otherwise, are initially reported directly to the General Counsel and Chief Compliance Officer, US Employment Counsel and the Director of Internal Audit (except in cases where the complaint refers to one of them). The material complaints are referred immediately to the Chairman of the Board and the Audit Committee. Less serious complaints are reported to the Audit Committee on a quarterly basis.

Interested parties who have a concern about the Company’s conduct, including accounting, internal accounting controls or audit matters, may communicate directly with the Company’s Chairman, directors as a group, the Chairman of the Audit Committee or Audit Committee members. These communications may be confidential or anonymous, and may be submitted in writing to the Company Secretary at the Company’s corporate headquarters or submitted by phone on +353 (0)1 411 6924. All concerns will be forwarded to the appropriate directors for their review and will be simultaneously reviewed and addressed by the Company’s General Counsel and Chief Compliance Officer in the same way that other concerns are addressed. The Company’s Code of Conduct, which is described above, prohibits any employee from retaliating or taking any adverse action against anyone for raising or helping to resolve a concern about integrity.

Insider Trading

All directors and employees of the Company are subject to the Company’s Insider Trading Policy. Under the Insider Trading Policy, employees and directors may generally conduct transactions in the Company’s securities during a four week period beginning two days after the announcement of quarterly or full year results, or such other periods as may be designated by the Board provided that such persons are not in possession of material, non-public information. The Insider Trading


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Policy also contains preclearance requirements for certain designated senior employees and directors, as well as general prohibitions on hedging activities or selling any shares for short-swing profit. There is a general prohibition on hedging unvested shares, options or RSUs.

The Board recognizes that it is the individual responsibility of each director and employee to ensure he or she complies with the Insider Trading Policy and applicable insider trading laws.

A copy of the Insider Trading Policy is available in the Corporate Governance section of the Company’s investor relations website (www.ir.jameshardie.com.au).

Principle 4: Safeguard Integrity in Corporate Reporting

Audit Committee

The Board has established the Audit Committee to oversee the adequacy and effectiveness of the Company’s accounting and financial policies and controls. The Audit Committee provides advice and assistance to the Board in fulfilling its responsibilities and, amongst other matters:

    overseeing the Company’s financial reporting process and reports on the results of its activities to the Board;
    reviewing with management and the external auditor the Company’s annual and quarterly financial statements and reports to shareholders; discussing earnings releases as well as information and earnings guidance provided to analysts;
    reviewing and assessing the Company’s risk management strategy, policies and procedures and the adequacy of the Company’s policies, processes and frameworks for managing risk;
    exercising general oversight of the appointment and provision of all external audit services to the Company, the remuneration paid to the external auditor, and the performance of the Company’s internal audit function;
    reviewing the adequacy and effectiveness of the Company’s internal compliance and control procedures;
    reviewing the Company’s compliance with legal and regulatory requirements; and
    establishing procedures for complaints regarding accounting, internal accounting controls and auditing matters, including any complaints from whistle-blowers.

A more complete description of these and other Audit Committee functions is contained in the Audit Committee’s Charter, a copy of which is available in the Corporate Governance section of the Company’s investor relations website (www.ir.jameshardie.com.au).

The Audit Committee meets at least quarterly in a separate executive session with the external auditor and internal auditor, respectively. The Chairman of the Audit Committee reports to the full Board following each Audit Committee meeting. As part of such report, the Chairman of the Audit Committee will inform the Board of any general issues that arise with respect to the quality or integrity of the Company’s financial statements, the Company’s compliance with legal or regulatory requirements, the Company’s risk management framework, the performance and independence of the external auditor, or the performance of the internal audit function.

The current members of the Audit Committee are Brian Anderson (Chairman of the Audit Committee), Michael Hammes, David Harrison, Andrea Gisle Joosen and Alison Littley, all of


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whom are independent non-executive directors. All members of the Audit Committee are financially literate and have sufficient business, industry and financial expertise to act effectively as members of the Audit Committee. In addition, in accordance with the SEC rules, the Nominating and Governance Committee and the Board have determined that Mr Anderson and Mr Harrison qualify as “audit committee financial experts.” The skills, qualifications, experience and relevant expertise for each member are summarized in the Board biography section of this Annual Report.

Internal Audit

The Vice President of Internal Audit heads the internal audit department. It is the role of the internal audit department to provide assurance, independent of management, that the Company’s internal processes, controls and procedures are operating to provide an effective financial reporting and risk management framework. The Internal Audit Charter sets out the independence of the internal audit department, its scope of work, responsibilities and audit plan. The internal audit department’s work plan is approved annually by the Audit Committee. The Vice President of Internal Audit reports to the Chairman of the Audit Committee and meets quarterly with the Audit Committee in executive sessions.

External Audit

Ernst & Young LLP has served as the Company’s external auditors since fiscal year 2009. The external auditor reviews each quarterly and half-year consolidated financial statements and audits the full year consolidated financial statements. The external auditor attends each meeting of the Audit Committee, including an executive session where members of the Audit Committee are present. The Audit Committee has approved policies to ensure that all non-audit services performed by the external auditor, including the amount of fees payable for those services, receive prior approval. The Audit Committee also reviews the remuneration paid to the external auditor and makes recommendations to the Board regarding the maximum compensation to be paid to the external auditor and concerning their reappointment as external auditor. The lead audit engagement partner is required to rotate every five years.

The Audit Committee reviews and approves management representations made to the external auditor as part of the audit of the full year results.

Representatives of Ernst & Young LLP are present at each AGM to make a statement if they desire to do so and are available to respond to appropriate questions from shareholders.

Consistent with applicable SEC rules, the CEO and CFO of the Company have provided the certifications required by Section 302 and 906 of the Sarbanes Oxley Act 2002, which, among other things, certify that to the best of each individual’s knowledge:

    the financial statements, and other financial information included in this Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Annual Report; and
    this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report.


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Principle 5: Make Timely and Balanced Disclosure

Continuous Disclosure and Market Communication

The Company strives to comply with all relevant disclosure laws and listing rules in Australia (ASX and ASIC) and the United States (SEC and NYSE).

The Company’s Continuous Disclosure and Market Communication Policy aims to ensure timely communications so that investors can readily:

    understand the Company’s strategy and assess the quality of its management;
    examine the Company’s financial position and the strength of its growth prospects; and
    receive any news or information that might reasonably be expected to materially affect the price or market for the Company securities.

The CEO is responsible for ensuring the Company complies with its continuous disclosure obligations. A Disclosure Committee comprised of senior management (CEO, CFO, General Counsel and the Vice President – Investor and Media Relations) is responsible for all decisions regarding market disclosure obligations outside of the Company’s normal financial reporting calendar. Both the Audit Committee and Nominating and Governance Committee reviewed the Company’s disclosure practices under the Continuous Disclosure and Market Communication policy during fiscal year 2017. A copy of the Continuous Disclosure and Market Communication policy is available in the Corporate Governance section of the Company’s investor relations website (www.ir.jameshardie.com.au).

Principle 6: Respect the Rights of Shareholders

Communication

The Company is committed to communicating effectively with the Company’s shareholders and engaging them through a range of communication channels in a program that includes:

    making management briefings and presentations accessible via a live webcast and/or teleconference following the release of quarterly and annual results;
    audio webcasts of other management briefings and the annual shareholder meeting;
    a comprehensive investor relations website that displays all announcements and notices (promptly after they have been cleared by the ASX), major management and investor road show presentations;
    site visits and briefings on strategy for investment analysts;
    regular engagement with institutional shareholders to discuss a wide range of governance issues;
    an email alert service to advise shareholders and other interested parties of announcements and other events; and
    equality of access for shareholders and investment analysts to briefings, presentations and meetings and equality of media access to the Company, on a reasonable basis.

Shareholders can also elect to receive communications from the Company and its share registry, by electronic means. In addition, shareholders can communicate directly with the Company and its registry via the Company’s investor relations website (www.ir.jameshardie.com.au).


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Annual General Meeting

The 2016 AGM was held in Ireland and shareholders were able to participate in the AGM via teleconference of proceedings. The 2017 AGM will also be held in Ireland, and shareholders not present in Ireland who wish to participate in the meeting, including asking questions about the management of the Company, can do so via teleconference. In addition, shareholders have the opportunity to submit questions to the Company online or by returning the question form enclosed with the Notice of Meeting in advance of the meeting. Questions received from shareholders will be collated and the Chairman will address as many questions as possible at the meeting. Shareholders also have the opportunity to ask questions of the external auditor at the AGM about the conduct of the audit and the preparation of the auditor’s report.

Notices of Meeting are accompanied by explanatory notes which provide clear and concise information regarding the business to be transacted at the meeting.

Further details regarding the 2017 AGM will be set out in the 2017 AGM Notice of Meeting. This will be posted to all shareholders and made available on the Company’s website.

Each shareholder (other than an ADS holder) has the right to:

    attend the AGM either in person or by proxy;
    speak at the AGM; and
    exercise voting rights, including at the AGM, subject to their instructions on the Voting Instruction Form.

While ADS holders cannot vote directly, ADS holders can direct the voting of their underlying shares through the ADS depositary.

Principle 7: Recognize and Manage Risk

Risk Management Objectives

The Company believes that sound risk management policies, procedures and controls produce a system of risk oversight, risk management and internal control that is fundamental to good corporate governance and compliance and creation of shareholder value. The objective of the Company’s risk management policies, procedures and controls is to ensure that:

    the Company’s principal strategic, operational and financial risks are identified and assessed;
    the Company’s risk appetite for each risk is considered;
    effective systems are in place to monitor and manage risks; and
    reporting systems, internal controls and arrangements for monitoring compliance with laws and regulations are adequate.

Risk management does not involve avoiding all risks. The Company’s risk management policies seek to strike a balance between ensuring that the Company continues to generate financial returns while simultaneously managing risks appropriately by setting appropriate strategies, objectives, controls and tolerance levels.


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The Company’s business, operations and financial condition are subject to various risks and uncertainties, including risks related to economic and regulatory concerns. For additional information, see “Section 3 – Risk Factors” which outlines the significant factors that may adversely affect the Company’s business, operations, financial performance and condition or industry, and information as to how the Company manages certain of these risks.

Risk Management Framework

The Board and its standing Board committees oversee the Company’s overall strategic direction, including setting risk management strategy, processes, tolerance and parameters. Generally, the Audit Committee is responsible for oversight of the Company’s risk management strategy, policies, procedures and controls. The Audit Committee reviews, monitors and discusses these matters with the CEO, CFO, General Counsel, Vice President of Internal Audit and other senior business leaders. The Audit Committee, CEO, CFO and General Counsel report periodically to the Board on the Company’s risk management policies, processes and controls. The Audit Committee and the Board review and evaluate the Company’s risk management strategies and processes on an on-going basis throughout the course of each fiscal year.

The Audit Committee is supported in its oversight role by the policies put in place by management to oversee and manage material business risks, as well as the roles played by internal risk management committees, as described below, and internal and external audit functions. The internal and external audit functions are separate from and independent of each other and each has a direct reporting line to the Audit Committee. The CEO and the CEO’s direct reports are the primary management forum for risk assessment and management within the Company.

Consistent with its oversight functions, the Audit Committee reviewed the Company’s risk management framework and internal controls during fiscal year 2017. As part of the review, information was reported by management to the Audit Committee to enable it to assess the effectiveness of the Company’s risk management and internal control systems. In addition, consistent with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, during fiscal year 2017, management assessed the effectiveness of the Company’s internal controls over financial reporting and the effectiveness of the Company’s internal control over financial reporting has been audited by Ernst & Young LLP. Based on its assessment, management concluded that the Company’s internal controls over financial reporting were effective as of 31 March 2017. For additional information, see “Section 3 – Controls and Procedures” of this Annual Report.

Risk Management Committee

The Company maintains a management level risk committee that focuses on operation-related risks and corporate-related risks (the “Risk Management Committee”). The Risk Management Committee comprises a cross-functional group of employees who review and monitor the risks facing the Company from the perspective of their area of responsibility. The Risk Management Committee is coordinated by Internal Audit and the General Counsel. The Vice President of Internal Audit and the General Counsel also provide quarterly reports to the Audit Committee on key risks and the procedures in place for mitigating them.


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Financial Statements Disclosure Committee

The Financial Statements Disclosure Committee is a management committee comprised of senior finance, accounting, compliance, legal, tax, treasury and investor relations executives in the Company, which meets with the CEO, CFO and General Counsel prior to the Board’s consideration of any quarterly or annual results. The Financial Statements Disclosure Committee is a forum for the CEO, CFO and General Counsel to discuss, and, on the basis of those discussions, report to the Audit Committee, about a range of risk management procedures, policies and controls, covering the draft results materials, business unit financial performance and the current status of legal, tax, treasury, accounting, compliance, internal audit, complaints and disclosure control matters.

Policies for Management of Material Business Risks

Management has put in place a number of key policies, processes and independent controls to provide assurance as to the integrity of the Company’s systems of internal control and risk management. In addition to the measures described elsewhere in this Annual Report, the more significant policies, processes or controls adopted by the Company for oversight and management of material business risks are:

    engagement with members of the Risk Management Committee, at least quarterly, to assess the key strategic, operations, reporting and compliance risks facing the Company, the level of risk and the processes implemented to manage each of these key risks over the upcoming twelve months;
    quarterly reporting to executive management, the Audit Committee, and annual reporting to the Board, of the Risk Management Committee’s assessment regarding the key strategic, operations, reporting and compliance risks facing the Company;
    a program for the Audit Committee to review in detail each year the Company’s general risk tolerance and all items identified by the Risk Management Committee as high focus risks;
    quarterly meetings of the Financial Statements Disclosure Committee to review all quarterly and annual financial statements and results;
    an internal audit department with a direct reporting line to the Chairman of the Audit Committee;
    regular monitoring of the liquidity and status of the Company’s finance facilities;
    maintaining an appropriate global insurance program;
    maintaining policies and procedures in relation to treasury operations, including the use of financial derivatives and issuing procedures requiring significant capital and recurring expenditure approvals; and
    implementing and maintaining training programs in relation to legal and regulatory compliance issues such as trade practices/antitrust, insider trading, foreign corrupt practices and anti-bribery, employment law matters, trade secrecy and intellectual property protection.

Limitations of Control Systems

Due to the inherent limitations in all control systems and the fact that there are resource constraints in the design of any control system, management does not expect that the Company’s


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internal risk management and control systems will prevent or detect all error and all fraud. No matter how well it is designed and operated, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

The inherent limitations in all control systems include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls’ effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Principle 8: Remunerate Fairly and Responsibly

Remuneration Committee

The Remuneration Committee oversees the Company’s overall remuneration structure, policies and programs, assesses whether the Company’s remuneration structure establishes appropriate incentives for management and employees, and approves any significant changes in the Company’s remuneration structure, policies and programs. Amongst other things, the Remuneration Committee:

    administers and makes recommendations on the Company’s incentive compensation and equity-based remuneration plans;
    reviews the remuneration of directors;
    reviews the remuneration framework for the Company; and
    makes recommendations to the Board on the Company’s recruitment, retention and termination policies and procedures for senior management.

The current members of the Remuneration Committee are David Harrison (Chairman of the Remuneration Committee), 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 the Company’s investor relations website (www.ir.jameshardie.com.au), and in “Section 1 – Remuneration” of this Annual Report. In addition, details of the Company’s remuneration philosophy, policies, plans and procedures during fiscal year 2017 will be disclosed in our separate remuneration report which will be made available to our shareholders in connection with the 2017 AGM.


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SECTION 2

READING THIS REPORT

Forward-Looking Statements

This Annual Report contains forward-looking statements. James Hardie may from time to time make forward-looking statements in its periodic reports filed with or furnished to the SEC, on Forms 20-F and 6-K, in its annual reports to shareholders, in offering circulars, invitation memoranda and prospectuses, in media releases and other written materials and in oral statements made by the Company’s officers, directors or employees to analysts, institutional investors, existing and potential lenders, representatives of the media and others. Statements that are not historical facts are forward-looking statements and such forward-looking statements are statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Examples of forward-looking statements include:

    statements about the Company’s future performance;
    projections of the Company’s results of operations or financial condition;
    statements regarding the Company’s plans, objectives or goals, including those relating to strategies, initiatives, competition, acquisitions, dispositions and/or its products;
    expectations concerning the costs associated with the suspension or closure of operations at any of the Company’s plants and future plans with respect to any such plants;
    expectations concerning the costs associated with the significant capital expenditure projects at any of the Company’s plants and future plans with respect to any such projects;
    expectations regarding the extension or renewal of the Company’s credit facilities including changes to terms, covenants or ratios;
    expectations concerning dividend payments and share buy-backs;
    statements concerning the Company’s corporate and tax domiciles and structures and potential changes to them, including potential tax charges;
    statements regarding tax liabilities and related audits, reviews and proceedings;
    statements regarding the possible consequences and/or potential outcome of legal proceedings brought against us and the potential liabilities, if any, associated with such proceedings;
    expectations about the timing and amount of contributions to AICF, a special purpose fund for the compensation of proven Australian asbestos-related personal injury and death claims;
    expectations concerning the adequacy of the Company’s warranty provisions and estimates for future warranty-related costs;
    statements regarding the Company’s ability to manage legal and regulatory matters (including, but not limited to, product liability, environmental, intellectual property and competition law matters) and to resolve any such pending legal and regulatory matters within current estimates and in anticipation of certain third-party recoveries; and
   

statements about economic conditions, such as changes in the US economic or housing market conditions or changes in the market conditions in the Asia Pacific region, the levels


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of new home construction and home renovations, unemployment levels, changes in consumer income, changes or stability in housing values, the availability of mortgages and other financing, mortgage and other interest rates, housing affordability and supply, the levels of foreclosures and home resales, currency exchange rates, and builder and consumer confidence.

Words such as “believe,” “anticipate,” “plan,” “expect,” “intend,” “target,” “estimate,” “project,” “predict,” “forecast,” “guideline,” “aim,” “will,” “should,” “likely,” “continue,” “may,” “objective,” “outlook” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Readers are cautioned not to place undue reliance on these forward-looking statements and all such forward-looking statements are qualified in their entirety by reference to the following cautionary statements.

Forward-looking statements are based on the Company’s current expectations, estimates and assumptions and because forward-looking statements address future results, events and conditions, they, by their very nature, involve inherent risks and uncertainties, many of which are unforeseeable and beyond the Company’s control. Such known and unknown risks, uncertainties and other factors may cause actual results, performance or other achievements to differ materially from the anticipated results, performance or achievements expressed, projected or implied by these forward-looking statements. These factors, some of which are discussed under “Risk Factors” in Section 3 of this Annual Report, include, but are not limited to: all matters relating to or arising out of the prior manufacture of products that contained asbestos by current and former James Hardie subsidiaries; required contributions to AICF, any shortfall in AICF funding and the effect of currency exchange rate movements on the amount recorded in the Company’s financial statements as an asbestos liability; the continuation or termination of the governmental loan facility to AICF; compliance with and changes in tax laws and treatments; competition and product pricing in the markets in which the Company operates; the consequences of product failures or defects; exposure to environmental, asbestos, putative consumer class action or other legal proceedings; general economic and market conditions; the supply and cost of raw materials; possible increases in competition and the potential that competitors could copy the Company’s products; reliance on a small number of customers; a customer’s inability to pay; compliance with and changes in environmental and health and safety laws; risks of conducting business internationally; compliance with and changes in laws and regulations; currency exchange risks; dependence on customer preference and the concentration of the Company’s customer base on large format retail customers, distributors and dealers; dependence on residential and commercial construction markets; the effect of adverse changes in climate or weather patterns; possible inability to renew credit facilities on terms favorable to the Company, or at all; acquisition or sale of businesses and business segments; changes in the Company’s key management personnel; inherent limitations on internal controls; use of accounting estimates; and all other risks identified in the Company’s reports filed with Australian, Irish and US securities regulatory agencies and exchanges (as appropriate). The Company cautions you that the foregoing list of factors is not exhaustive and that other risks and uncertainties may cause actual results to differ materially from those referenced in the Company’s forward-looking statements. Forward-looking statements speak only as of the date they are made and are statements of the Company’s current expectations concerning future results, events and conditions. The Company assumes no obligation to update any forward-looking statements or information except as required by law.


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MANAGEMENT’S DISCUSSION AND ANALYSIS

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes, including the accounting policies affecting our financial condition and results of operations, which are fully described in Note 2 to our consolidated financial statements, presented later in this Annual Report.

In the following discussion and analysis, we intend to provide management’s explanation of the factors that have affected our financial condition and results of operations for the fiscal years covered by the financial statements included in this Annual Report, as well as management’s assessment of the factors and trends which are anticipated to have a material effect on our financial condition and results of operations in future periods.

As of 30 June 2016, the Company changed its reportable operating segments. Previously, the Company reported on three operating segments: (i) North America and Europe Fiber Cement, (ii) Asia Pacific Fiber Cement, and (iii) Research and Development. As of 30 June 2016, the Company began reporting on four operating segments: (i) North America Fiber Cement, (ii) International Fiber Cement, (iii) Other Businesses, and (iv) Research and Development. The significant changes to how certain businesses are reported in the new segment structure are as follows: (i) our European business is now reported in the International Fiber Cement segment, along with the other businesses that were historically reported in the Asia Pacific Fiber Cement segment, and (ii) business development, including some non-fiber cement operations, such as our windows business in North America, are now reported in the Other Businesses segment as opposed to previously being reported in the North America and Europe Fiber Cement segment. The Company has provided its historical segment information to be consistent with the new reportable segment structure. The change in reportable segments had no effect on the Company’s financial position, results of operations or cash flows for the periods presented. Readers are referred to Note 17 of our consolidated financial statements in Section 2 for further information on our segments.

Application of Critical Accounting Policies

The preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements and the reported revenue and expenses during the periods presented therein. On an ongoing basis, management evaluates its estimates and judgments in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its estimates and judgments on historical experience and on various other factors it believes to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.

We have identified the following critical accounting policies under which significant judgments, estimates and assumptions are made and where actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods:


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Accounting for the AFFA

The AFFA was approved by shareholders in February 2007 to provide long-term funding to AICF. For a discussion of the AFFA and the accounting policies utilized by the Company related to the AFFA and AICF, see Note 2 in the consolidated financial statements.

The amount of the asbestos liability has been recognized by reference to (but not exclusively based upon) the most recent actuarial estimate of projected future cash flows as calculated by KPMG Actuarial Pty Ltd (“KPMGA”), who are engaged and appointed by AICF under the terms of the AFFA. Based on their assumptions, KPMGA arrived at a range of possible total future cash flows and calculated a central estimate, which is intended to reflect a probability-weighted expected outcome of those actuarially estimated future cash flows projected by the actuary to occur through 2077. We recognize the asbestos liability in the consolidated financial statements by reference to (but not exclusively based upon) the undiscounted and uninflated central estimate.

Adjustments in the asbestos liability due to changes in the actuarial estimate of projected future cash flows and changes in the estimate of future operating costs of AICF are reflected in the consolidated statements of operations and comprehensive income during the period in which they occur. Claims paid by AICF and claims-handling costs incurred by AICF are treated as reductions in the accrued balances previously reflected in the consolidated balance sheets.

In estimating the potential financial exposure, KPMGA has made a number of assumptions, including, but not limited to, assumptions related to the total number of claims that are reasonably estimated to be asserted through 2077, the typical cost of settlement (which is sensitive to, among other factors, the industry in which a plaintiff claims exposure, the alleged disease type and the jurisdiction in which the action is brought), the legal costs incurred in the litigation of such claims, the rate of receipt of claims, the settlement strategy in dealing with outstanding claims and the timing of settlements.

Due to inherent uncertainties in the legal and medical environment, the number and timing of future claim notifications and settlements, the recoverability of claims against insurance contracts, and estimates of future trends in average claim awards, as well as the extent to which the above named entities will contribute to the overall settlements, the actual amount of liability could differ materially from that which is currently projected.

We recognize the asbestos liability in the consolidated financial statements on an undiscounted and uninflated basis. We considered discounting when determining the best estimate under US GAAP. We have recognized the asbestos liability by reference to (but not exclusively based upon) the central estimate as undiscounted on the basis that it is our view that the timing and amounts of such cash flows are not fixed or readily determinable. We considered inflation when determining the best estimate under US GAAP. It is our view that there are material uncertainties in estimating an appropriate rate of inflation over the extended period of the AFFA. We view the undiscounted and uninflated central estimate as the best estimate under US GAAP.

An updated actuarial assessment is performed as of 31 March each year. Any changes in the estimate will be reflected as a charge or credit to the consolidated statements of operations for the year then ended. Material adverse changes to the actuarial estimate would have an adverse


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effect on our business, results of operations and financial condition. A copy of KPMGA’s actuarial assessment as at 31 March 2017 is available on the Investor Relations area of our website (www.ir.jameshardie.com.au).

Sales Rebates and Discounts

We record estimated reductions to sales for customer rebates and discounts including volume, promotional, cash and other rebates and discounts. Rebates and discounts are recorded based on management’s best estimate when products are sold. The estimates are based on historical experience for similar programs and products. Management reviews these rebates and discounts on an ongoing basis and the related accruals are adjusted, if necessary, as additional information becomes available.

Accounts Receivable

We evaluate the collectability of accounts receivable on an ongoing basis based on historical bad debts, customer credit-worthiness, current economic trends and changes in our customer payment activity. An allowance for doubtful accounts is provided for known and estimated bad debts. Although credit losses have historically been within our expectations, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. Because our accounts receivable are concentrated in a relatively small number of customers, a significant change in the liquidity or financial position of any of these customers could impact their ability to make payments and result in the need for additional allowances which would decrease our net sales.

Inventory

Inventories are recorded at the lower of cost or market. In order to determine market, management regularly reviews inventory quantities on hand and evaluates significant items to determine whether they are excess, slow-moving or obsolete. The estimated value of excess, slow-moving and obsolete inventory is recorded as a reduction to inventory and an expense in cost of sales in the period in which it is identified. This estimate requires management to make judgments about the future demand for inventory and is therefore at risk to change from period to period. If our estimate for the future demand for inventory is greater than actual demand and we fail to reduce manufacturing output accordingly, we could be required to record additional inventory reserves, which would have a negative impact on our gross profit.

Further, we have distributor arrangements that we maintain with certain customers where we own inventory that is physically located in a customer’s or third party’s warehouse. As a result, our ability to effectively manage inventory levels may be impaired, which would cause our total inventory turns to decrease. In that event, our expenses associated with excess and obsolete inventory could increase and our cash flow could be negatively impacted.

Accrued Warranty Reserve

We have offered, and continue to offer, various warranties on our products, including a 30-year limited warranty on certain of our fiber cement siding products in the United States. Because our


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fiber cement products have only been used in North America since the early 1990s, there is a risk that these products will not perform in accordance with our expectations over an extended period of time. A typical warranty program requires that we replace defective products within a specified time period from the date of sale. We record an estimate for future warranty-related costs based on an analysis by us, which includes the historical relationship of warranty costs to installed product. Based on this analysis and other factors, we adjust the amount of our warranty provisions as necessary. Although our warranty costs have historically been within calculated estimates, if our experience is significantly different from our estimates, it could result in the need for additional reserves.

Accounting for Income Tax

We recognize deferred tax assets and deferred tax liabilities for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts using enacted tax rates in effect for the year in which we expect the differences to reverse. We record a valuation allowance to reduce the deferred tax assets to the amount that we are more likely than not to realize. We must assess whether, and to what extent, we can recover our deferred tax assets. If full or partial recovery is unlikely, we must increase our income tax expense by recording a valuation allowance against the portion of deferred tax assets that we cannot recover. We believe that we will recover all of the deferred tax assets recorded (net of valuation allowance) on our consolidated balance sheet at 31 March 2017. However, if facts later indicate that we will be unable to recover all or a portion of our net deferred tax assets, our income tax expense would increase in the period in which we determine that recovery is unlikely.

We evaluate our uncertain tax positions in accordance with the guidance for accounting for uncertainty in income taxes. We believe that our reserve for uncertain tax positions, including related interest, is adequate. Due to our size and the nature of our business, we are subject to ongoing reviews by taxing jurisdictions on various tax matters, including challenges to various positions we assert on our income tax returns. The amounts ultimately paid upon resolution of these matters could be materially different from the amounts previously included in our income tax expense and therefore could have a material impact on our tax provision, net income and cash flows. Positions taken by an entity in its income tax returns must satisfy a more-likely-than-not recognition threshold, assuming that the positions will be examined by taxing authorities with full knowledge of all relevant information, in order for the positions to be recognized in the consolidated financial statements. Each quarter we evaluate the income tax positions taken, or expected to be taken, to determine whether these positions meet the more-likely-than-not threshold. We are required to make subjective judgments and assumptions regarding our income tax exposures and must consider a variety of factors, including the current tax statutes and the current status of audits performed by tax authorities in each tax jurisdiction. To the extent an uncertain tax position is resolved for an amount that varies from the recorded estimated liability, our income tax expense in a given financial statement period could be materially affected.

Impairment of Long-Lived Assets

Long-lived assets, such as property, plant and equipment, are evaluated each quarter for events or changes in circumstances that indicate that an asset might be impaired because the carrying amount of the asset may not be recoverable. These include, without limitation, a significant


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adverse change in the extent or manner in which a long-lived asset or asset group is being used, a current period operating or cash flow loss combined with a history of operating or cash flow losses, a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group and/or a current expectation that it is more likely than not that a long-lived asset or asset group will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. Identifying these events and changes in circumstances, and assessing their impact on the appropriate valuation of the affected assets requires us to make judgments, assumptions and estimates.

When such indicators of potential impairment are identified, recoverability is tested by grouping long-lived assets that are used together and represent the lowest level for which cash flows are identifiable and distinct from the cash flows of other long-lived assets, which is typically at the production line or plant facility level, depending on the type of long-lived asset subject to an impairment review. Recoverability is measured by a comparison of the carrying amount of the asset group to the estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount exceeds the estimated undiscounted future cash flows, an impairment charge is recognized at the amount by which the carrying amount exceeds the estimated fair value of the asset group.

The methodology used to estimate the fair value of the asset group is typically based on a discounted cash flow analysis that considers the asset group’s highest and best use that would maximize the value of the asset group. In addition, the estimated fair value of an asset group also considers, to the extent practicable, a market participant’s expectations and assumptions in estimating the fair value of the asset group. If the estimated fair value of the asset group is less than the carrying value, an impairment loss is recognized at an amount equal to the excess of the carrying value over the estimated fair value of the asset group.

During the years ended 31 March 2017, 2016 and 2015, the Company recorded US$0.5 million, US$3.5 million and US$3.7 million of impairment charges related to individual assets which is included in Cost of goods sold on the consolidated statements of operations and comprehensive income.

In estimating the fair value of the asset group, we are required to make certain estimates and assumptions that include forecasting the useful lives of the assets, selecting an appropriate discount rate that reflects the risk inherent in future cash flows, forecasting market demand for our products and recommissioning idle assets to meet anticipated capacity constraints in the future. We have not made any material changes in the accounting methodology we use to assess impairment loss during the past three fiscal years. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to material impairment losses in future periods.


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Operating Results

Year ended 31 March 2017 compared to year ended 31 March 2016

Operating results for the consolidated group were as follows:

 

US$ Millions    FY17      FY16      Change %  

Net sales

   $ 1,921.6      $ 1,728.2        11  

Cost of goods sold

       (1,246.9        (1,096.0      (14

Gross profit

     674.7        632.2        7  
            

Selling, general and administrative expenses

     (291.6      (254.2      (15

Research and development expenses

     (30.3      (29.5      (3

Asbestos adjustments

     40.4        5.5       

Operating income

     393.2        354.0        11  
            

Net interest expense

     (27.5      (25.6      (7

Other income

     1.3        2.1        (38

Income before income taxes

     367.0        330.5        11  

Income tax expense

     (90.5      (86.1      (5

Net income

   $ 276.5      $ 244.4        13  

 

Total net sales of US$1,921.6 million for fiscal year 2017 increased 11% from fiscal year 2016. Net sales were favorably impacted by higher sales volumes in the North America Fiber Cement segment and higher sales volumes and a higher average net sales price in the International Fiber Cement segment.

Gross profit of US$674.7 million for fiscal year 2017 was 7% higher than fiscal year 2016. Our gross profit margin of 35.1% was 1.5 percentage points lower than fiscal year 2016.

SG&A expenses for fiscal year 2017 increased 15% to US$291.6 million. The increase primarily reflects increased investment in headcount and market development programs.

R&D expenses increased 3% for fiscal year 2017 when compared to fiscal year 2016 primarily due to an increase in the number of R&D projects being undertaken by the R&D team.

Asbestos adjustments for fiscal year 2017 were favorable compared to fiscal year 2016. The primary driver being a US$38.6 million favorable movement in the actuarial adjustment recorded at year end in line with KPMGA’s actuarial report and the US$1.8 million favorable impact of the depreciating AUD/USD spot exchange rate between balance sheet dates.

Other income reflects gains and losses on interest rate swaps and unrealized foreign exchange gains and losses. Fiscal year 2016 results also include the gain on sale of the Australian pipes business, which was sold in the first quarter of fiscal year 2016.

Net income increased from US$244.4 million in fiscal year 2016 to US$276.5 million in fiscal year 2017, primarily due to an increase in the underlying performance of the operating business units and the favorable movement of asbestos adjustments, partially offset by an increase in SG&A expenses.

 


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North America Fiber Cement Segment Results

Operating results for the North America Fiber Cement segment were as follows:

 

      FY17        FY16      Change %  

Volume (mmsf)

     2,215.4          1,969.2        13%  

Average net sales price per unit (per msf)

     US$665          US$669        (1%)  
                

Net sales (US$ millions)

     1,493.4          1,335.0        12%  

Gross profit

               3%  

Gross margin (%)

               (3.1 pts)  

Operating income (US$ millions)

     343.9          352.2        (2%)  

Operating income margin (%)

     23.0          26.4        (3.4 pts)  

Net sales for fiscal year 2017 were favorably impacted by higher volumes, partially offset by a slightly lower average net sales price. The increase in our sales volume in fiscal year 2017, compared to fiscal year 2016, was driven by growth in both the repair and remodel and new construction markets and continued improvement in our commercial execution resulting in improved market penetration.

For fiscal year 2017, average net sales price decreased slightly as a result of maintaining current strategic pricing levels and the ongoing execution of our tactical pricing strategies.

We note that there are a number of data sources that measure US housing market growth, most of which have reported mid to high single-digit growth in recent quarters when compared to prior corresponding periods. However, at the time of filing our fiscal year 2017 results, only the US Census Bureau data was available. According to the US Census Bureau, single family housing starts for the year ended 31 March 2017 were 791,100, or 6% above the year ended 31 March 2016.

While we have provided US Census Bureau data above, we note that this data can be different than other indices we use to measure US housing market growth, namely the McGraw-Hill Construction Residential Starts Data (also known as Dodge), the National Association of Home Builders and Fannie Mae.

The change in gross margin for fiscal year 2017 can be attributed to the following components:

 

Lower average net sales price

     (0.5 pts)    

Higher start up costs

     (0.9 pts)    

Higher production costs

     (1.7 pts)    
  

 

 

 

Total percentage point change in gross margin

             (3.1 pts)    
  

 

 

 


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Gross margin decreased 3.1 percentage points compared to fiscal year 2016 primarily as result of higher production and startup costs. The higher production costs resulted from unfavorable plant performance and higher freight costs. Plant performance was unfavorable as a result of elevated spend and production inefficiencies. The higher startup costs were due to the acceleration of certain capacity projects, combined with inefficient startup programs.

The increase in SG&A expense for fiscal year 2017, compared to fiscal year 2016, was driven by an increase in our headcount in an effort to build and align organizational capability with our anticipated growth, as well as, increased spending on our market development programs. As a percentage of sales, SG&A increased 0.4 percentage points in fiscal year 2017 compared to fiscal year 2016.

Operating income for fiscal year 2017 decreased 2% compared to fiscal year 2016, driven by a 15% increase in SG&A, offset by a 3% increase in gross profit.

Operating income margin for fiscal year 2017 decreased 3.4 percentage points to 23.0% when compared to fiscal year 2016, driven primarily by the increase in production costs, as described above.

International Fiber Cement Segment Results

The International Fiber Cement Segment is comprised of the following businesses: (i) Australia Fiber Cement, (ii) New Zealand Fiber Cement, (iii) Philippines Fiber Cement, and (iv) Europe Fiber Cement.

Operating results for the International Fiber Cement segment in US dollars were as follows:

 

      FY17      FY16      Change %  

Volume (mmsf)

     487.2        480.9        1%  

Volume (mmsf) excluding the Australian Pipes business

     487.2        471.1        3%  

Average net sales price per unit (per msf)

     US$775        US$729        6%  

Average net sales price per unit excluding the Australian Pipes business (per msf)

     US$775        US$734        6%  

Net sales (US$ millions)

     411.8        379.4        9%  

US$ Gross profit

             21%  

US$ Gross margin (%)

             3.9 pts  

Operating income (US$ millions)

     95.1        77.9        22%  

New Zealand weathertightness claims (US$ millions)

     –          (0.5     

Operating income excluding NZ weathertightness claims (US$ millions)

     95.1        78.4        21%  

US$ Operating income margin (%)

     23.1        20.5        2.6 pts  

US$ Operating income margin excluding NZ weathertightness claims (%)

     23.1        20.7        2.4 pts  

Volume for fiscal year 2017 increased 1% compared to fiscal year 2016, primarily driven by volume growth in our Australian, New Zealand and European businesses, partially offset by the


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sale of the Australian Pipes business at the end of the first quarter of fiscal year 2016 and lower volumes in the Philippines. Excluding the Australian Pipes business, volume increased 3%, attributable to higher volumes in Australia, New Zealand and Europe, partially offset by lower volume in the Philippines due to the penetration of competitor imports within the Philippines market.

Net sales for fiscal year 2017 increased 9% compared to fiscal year 2016, and increased 10% excluding Australian Pipes. The increase in net sales excluding Australian Pipes was primarily driven by the Australian and New Zealand businesses which had a higher average net sales price along with higher volumes. Average net sales price in US dollars was primarily driven by favorable product and geographic mix, and the effects of our annual price increase across the businesses.

The change in gross margin for fiscal year 2017 can be attributed to the following components:

 

Higher average net sales price and mix

     1.7 pts    

Lower production costs

     2.2 pts    
  

 

 

 

Total percentage point change in gross margin

             3.9 pts    
  

 

 

 

Production costs for the segment were favorable primarily due to the lack of Carole Park start-up costs in fiscal year 2017 compared to fiscal year 2016 and favorable plant performance, partially offset by higher freight and fixed costs.

Operating income for fiscal year 2017 increased 22% to US$95.1 million compared to fiscal year 2016 due to the increase in gross profit described above, partially offset by higher SG&A expenses. The increase in SG&A was driven by an increase in headcount in an effort to build and align organizational capability with anticipated demand growth, as well as, increased spending on our market development programs.

Country Analysis

Australia

Net sales for fiscal year 2017 increased from fiscal year 2016 primarily due to higher average net sales price and increased volume. The key drivers of net sales growth were favorable conditions in our addressable markets and market penetration, combined with the favorable impact of our price increase and favorable product mix.

For fiscal year 2017, production costs were lower compared to fiscal year 2016, driven by lower start-up costs in fiscal year 2017 compared to fiscal year 2016 associated with our new Carole Park sheet machine, favorable plant performance and lower input costs, partially offset by higher freight and fixed costs.

Operating income for fiscal year 2017 increased 31% compared to fiscal year 2016, driven by improved gross profit, partially offset by higher SG&A expenses related to marketing and employee costs.

According to Australian Bureau of Statistics data, approvals for detached houses, which are a key driver of the Australian business’ sales volume, were 115,838 for the year ended 31 March 2017,


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a decrease of 3% compared to fiscal year 2016. The other key driver of our sales volume is the alterations and additions market, which increased 4% for the 12 months ended 31 March 2017, compared to fiscal year 2016.

New Zealand

Net sales for fiscal year 2017 increased from fiscal year 2016 primarily due to a higher average net sales price due to our price increase and higher sales volumes from addressable markets. Operating income for the fiscal year 2017 increased compared to fiscal year 2016 driven by improved net sales.

Philippines

Volume for fiscal year 2017 decreased 9% compared to fiscal year 2016. While recent periods have shown an increase in volume, the change in the overall competitive landscape is expected to remain for some time. Operating income for fiscal year 2017 was lower compared to fiscal year 2016 due to lower sales volume driven by the entrance of competitor imports, combined with higher SG&A expenses related to marketing and employment costs, partially offset by favorable plant performance.

Europe

For fiscal year 2017, volume and operating income increased when compared to fiscal year 2016.

Other Businesses Segment Results

 

US$ Millions   FY17          FY16          Change %  

Net Sales

  $          16.4      $          13.8        19%  

Gross profit

            47%  

Gross profit margin (%)

            11.9 pts  

Operating loss

  $ (6.7    $ (8.6      22%  

We continue to invest in business development opportunities aligned with our long term strategy and continue to incur losses in our Other Businesses segment. Operating loss for fiscal year 2017 improved 22%, to an operating loss of US$6.7 million compared to fiscal year 2016, driven by increased sales volume, favorable product mix, favorable plant performance and lower SG&A expenses.


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Research and Development Segment

We record R&D expenses depending on whether they are core R&D projects that are designed to benefit all business units, which are recorded in our R&D segment; or commercialization projects for the benefit of a particular business unit, which are recorded in the individual business unit’s segment results. The table below details the expenses of our R&D segment

 

US$ Millions    FY17      FY16      Change %  

Segment R&D expenses

   $         (22.6)      $         (21.7)        (4

Segment R&D SG&A expenses

     (2.9)        (2.2)        (32

Total R&D operating loss

   $ (25.5)      $ (23.9)        (7

The change in segment R&D expenses for fiscal year 2017 compared to fiscal year 2016 is a result of the number of core R&D projects being undertaken by the R&D team. The expense will fluctuate period to period depending on the nature and number of core R&D projects being worked on and the AUD/USD exchange rates during the period.

Other R&D expenses associated with commercialization projects in business units are recorded in the results of the respective business unit segment. Other R&D expenses associated with commercialization projects were US$7.7 million for fiscal year 2017 compared to US$7.8 million for fiscal year 2016.

General Corporate

Results for General Corporate for fiscal years 2017 and 2016 were as follows:

 

US$ Millions    FY17          FY16          Change %  

General Corporate SG&A expenses

   $         (52.5)      $         (47.4)        (11

Asbestos:

          

Asbestos Adjustments

     40.4         5.5        

AICF SG&A Expenses1

     (1.5)        (1.7)        12  

General Corporate operating loss

   $ (13.6)      $ (43.6)        69  

 

1 Relates to non-claims related operating costs incurred by AICF, which we consolidate into our financial results due to our pecuniary and contractual interests in AICF. Readers are referred to Notes 2 and 11 of our consolidated financial statements for further information on the Asbestos Adjustments.

For fiscal year 2017, General Corporate SG&A expenses increased US$5.1 million, primarily due to higher employee costs and higher discretionary spending, partially offset by favorable movements in recognized foreign exchange gains.

Asbestos adjustments reflect a change in the actuarial estimate of the asbestos liability, insurance receivables, AICF claims handling costs and the foreign exchange translation impact of the Australian denominated asbestos related assets and liabilities being recorded on our consolidated balance sheets in US dollars at the reporting date for each respective period.


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The AUD/USD spot exchange rates are shown in the table below:

 

FY17      FY16  

31 March 2016

     0.7657      31 March 2015     0.7636  

31 March 2017

     0.7644      31 March 2016     0.7657  

Change ($)

     (0.0013    Change ($)     0.0021  

Change (%)

     -      Change (%)     -  

For fiscal years 2017 and 2016, the asbestos adjustments recorded by the Company were made up of the following components:

 

US$ Millions    FY17      FY16  

Change in actuarial estimates

   $           38.6      $             8.1  

Effect of foreign exchange rate movements

     1.8        (2.6

Asbestos adjustments

   $ 40.4      $ 5.5  

Per the KPMGA actuarial report, the undiscounted and uninflated central estimate net of insurance recoveries decreased to A$1.386 billion at 31 March 2017 from A$1.434 billion at 31 March 2016. The change in the undiscounted and uninflated central estimate of A$48.0 million, or 3%, is primarily due to lower average claims sizes and lower average defense legal cost assumptions for most disease types and a reduction in the assumed number of large mesothelioma claims. This was partially offset by lower future insurance recoveries as a result of a commutation agreement entered into by AICF during fiscal year 2017, in which cash of A$105.0 million was received in exchange for the discharge of certain insurance receivables.

During fiscal year 2017, mesothelioma claims reporting activity was below actuarial expectations for the second consecutive year. One of the more significant assumptions is the estimated peak period of mesothelioma disease claims, which is currently assumed to have occurred in the period 2014/2015 to 2016/2017. As the actual experience in fiscal year 2017 was favorable to expectations, no change to the assumed number of future mesothelioma claims is warranted at this time. However, potential variation in the estimated peak period of claims has an impact much greater than the other assumptions used to derive the discounted central estimate. In performing the sensitivity assessment of the estimated period of peak claims reporting for mesothelioma, if the peak claims reporting period was shifted two years from the currently assumed 2016/2017 (i.e. assuming that claim reporting begins to reduce after 2018/2019), together with increased claims reporting from 2026/2027 onwards, relative to current actuarial projections, the central estimate could increase by approximately 34% on a discounted basis.

At 31 March 2017, KPMGA has formed the view that, although there has been favorable claims reporting in fiscal year 2017, no change to the assumed number of future mesothelioma claims is warranted at this time. However, changes to the valuation assumptions may be necessary in future periods should mesothelioma claims reporting escalate or decline.

Asbestos gross cashflow expenditure of A$125.0 million for fiscal year 2017 were lower than the actuarial expectation of A$168.0 million, primarily as a result of favorable average claim settlement sizes, together with the favorable large claims experience in the year.


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Readers are referred to Notes 2 and 11 of our consolidated financial statements for further information on asbestos adjustments.

The following is an analysis of claims data for the fiscal years ended 31 March:

 

      FY17      FY16      Change %  

Claims received

     557        577        3  

Actuarial estimate for the period

     625        658        5  

Difference in claims received to actuarial estimate

     68        81        (16
              

Average claim settlement1 (A$)

     224,000        248,000        10  

Actuarial estimate for the period2 (A$)

     327,000        302,000        (8

Difference in claims paid to actuarial estimate (A$)

     103,000        54,000        91  

 

  1 Average claims settlement is derived as the total amount paid divided by the number of non-nil claim settlements

 

  2 This actuarial estimate is a function of the assumed experience by disease type and the relative mix of settlements assumed by disease type. Any variances in the assumed mix of settlements by disease type will have an impact on the average claim settlement experience.

For the full year ended 31 March 2017, we noted the following related to asbestos-related claims:

 

    Claims received during fiscal year 2017 were 11% below actuarial estimates;

 

    Claims received during fiscal year 2017 were 3% lower than fiscal year 2016;

 

    Mesothelioma claims reported for fiscal year 2017 were 7% below actuarial expectations and were 6% below fiscal year 2016;

 

    The average claim settlement for fiscal year 2017 was lower by 31% versus actuarial estimates;

 

    Average claim settlement sizes were lower for most disease types, including for mesothelioma and asbestosis, compared to actuarial expectations for fiscal year 2017; and

 

    The decrease in average claim settlement for fiscal year 2017 versus actuarial estimates was largely attributable to lower average claim sizes for non-large mesothelioma claims together with a lower number of large mesothelioma claims being settled compared to fiscal year 2016.

Net interest expense

Gross interest expense for fiscal year 2017 increased US$1.9 million when compared to fiscal year 2016, primarily due to the higher outstanding balance of our senior unsecured notes, partially offset by a reduction in the total cost of funding charged under our unsecured revolving credit facility in fiscal year 2017 when compared to the percentage charged under the bilateral credit facilities in fiscal year 2016. For fiscal year 2017, net AICF interest expense increased by US$0.8 million when compared to fiscal year 2016, due to an increase in the average balance of AICF’s borrowing under its loan facility with the New South Wales Government.


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Other income

For fiscal year 2017, other income decreased from US$2.1 million in fiscal year 2016 to US$1.3 million. The US$0.8 million unfavorable change in other income compared to fiscal year 2016 is primarily due to the non-recurring US$1.7 million gain on the sale of the Australian Pipes business in the first quarter of fiscal 2016 and the unfavorable movement of US$1.0 million in our net foreign exchange forward contracts, partially offset by a favorable movement of US$1.9 million in our interest rate swaps.

Income tax expense

Total income tax expense for fiscal year 2017 increased by US$4.4 million compared to fiscal year 2016. The increase was primarily due to a favorable movement in asbestos adjustments, partially offset by a decrease in the effective tax rate. The decrease in the effective tax rate was driven by a lower proportion of taxable earnings in jurisdictions with higher tax rates, in particular the USA.

Readers are referred to Note 14 of our consolidated financial statements for further information related to income tax.

Net income

Net income increased from US$244.4 million in fiscal year 2016 to US$276.5 million in fiscal year 2017.

Year ended 31 March 2016 compared to year ended 31 March 2015

Operating results for the consolidated group were as follows:

 

US$ Millions    FY16     FY15      Change %  

Net sales

   $ 1,728.2     $ 1,656.9        4  

Cost of goods sold

       (1,096.0       (1,078.1      (2

Gross profit

     632.2       578.8        9  
             

Selling, general and administrative expenses

     (254.2     (245.5      (4

Research and development expenses

     (29.5     (31.7      7  

Asbestos adjustments

     5.5       33.4        (84

Operating income

     354.0       335.0        6  
             

Net interest expense

     (25.6     (7.5     

Other income (expense)

     2.1       (4.9         

Income before income taxes

     330.5       322.6        2  

Income tax expense

     (86.1     (31.3         

Net income

   $ 244.4     $ 291.3        (16


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Total net sales of US$1,728.2 million for fiscal year 2016 were 4% higher than fiscal year 2015. Net sales were favorably impacted by higher volume in the North America Fiber Cement segment and higher volume in the International Fiber Cement segment, excluding Australian Pipes. Net sales were adversely impacted by the strengthening US dollar, which had a 4% unfavorable effect on group net sales.

Gross profit of US$632.2 million for the fiscal year 2016 was 9% higher than fiscal year 2015. Our gross profit margin of 36.6% was 1.7 percentage points higher than fiscal year 2015.

SG&A expenses for fiscal year 2016 increased 4% to US$254.2 million. The increase primarily reflects higher SG&A expenses in the business units in local currencies; partially offset by the favorable impact of the strengthening US dollar.

R&D expenses decreased 7% for fiscal year 2016 when compared to the prior year. The

decrease is a result of the strengthening US dollar; partially offset by an increase in the number of R&D projects being worked on by the R&D team.

Asbestos adjustments for fiscal year 2016 decreased compared fiscal year 2015. The primary driver being US$8.1 million favorable movement in the actuarial adjustment recorded at year end in line with KPMGA’s actuarial report; partially offset by US$2.6 million unfavorable impact of the appreciating AUD/USD spot exchange rate between balance sheet dates.

Net income decreased from US$291.3 million in fiscal year 2015 to US$244.4 million in fiscal year 2016, primarily due to higher income tax expense, higher interest expense and an unfavorable change in the asbestos adjustments; partially offset by the favorable underlying performance of the North America Fiber Cement segment.

 

 

North America Fiber Cement Segment Results

Operating results for the North America Fiber Cement segment were as follows:

 

     FY16      FY15      Change %  

Volume (mmsf)

     1,969.2        1,821.5        8%  

Average net sales price per unit (per msf)

     US$669        US$666        -     
              

Net sales (US$ millions)

     1,335.0        1,224.7        9%  

Gross profit

             18%  

Gross margin (%)

             2.8 pts  

Operating income (US$ millions)

     352.2        290.0        21%  

Operating income margin (%)

     26.4        23.7        2.7 pts  

Net sales for fiscal year 2016 were favorably impacted by higher volumes. The increase in our sales volume in fiscal year 2016 compared to fiscal year 2015 was primarily driven by growth in the repair and remodel and new construction markets and modest market penetration. For fiscal year 2016, average net sales price was flat, when compared fiscal year 2015. For fiscal year 2016, gross price was up in line with our price increase effective 1 March 2015; offset by unfavorable mix.


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James Hardie 2017 Annual Report on Form 20-F    87

 

 

 

We note that there are a number of data sources that measure US housing market growth, most of which have reported steady double-digit growth in recent quarters when compared to prior corresponding periods. However, at the time of filing our fiscal year 2016 results, only US Census Bureau data was available. According to the US Census Bureau, single family housing starts for the year ended 31 March 2016, single family housing starts were 745,700, or 17% above the year ended 31 March 2015.

While we have provided US Census Bureau data above, we note that it typically trends higher than other indices we use to measure US housing market growth, namely the McGraw-Hill Construction Residential Starts Data (also known as Dodge), the National Association of Home Builders and Fannie Mae.

The increase in gross margin of 2.8 percentage points for fiscal year 2016 is due to the following components:

 

Higher average net sales price

     0.4 pts   

Lower production costs

     2.4 pts   
  

 

 

 

Total percentage point change in gross margin

             2.8 pts   
  

 

 

 

Production costs for fiscal year 2016 were lower than fiscal year 2015, primarily as a result of our manufacturing plant network’s improved performance when compared to fiscal year 2015, as well as lower freight and lower input costs for pulp and utilities.

For fiscal year 2016, operating income of US$352.2 million, increased 21% over fiscal year 2015, reflecting lower freight, improved plant performance, lower unit costs and increased volumes; unfavorably impacted by higher segment SG&A expenses, primarily reflecting higher employee costs and marketing expenses. As a percentage of segment sales, fiscal year 2016 SG&A remained flat compared to fiscal year 2015.

Operating income margin for fiscal year 2016 increased 2.7 percentage points to 26.4% from 23.7% in fiscal year 2015, driven by higher net sales and lower production costs.

International Fiber Cement Segment Results

The International Fiber Cement segment is comprised of the following businesses: (i) Australia Fiber Cement, (ii) New Zealand Fiber Cement, (iii) Philippines Fiber Cement, and (iv) Europe Fiber Cement.


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James Hardie 2017 Annual Report on Form 20-F