James Hardie(JHX) - 2025 Q4 - Annual Report

Section 1: Company and Governance Information Introduction James Hardie Industries plc is a global leader in manufacturing fiber cement building solutions and a market leader in fiber gypsum and cement-bonded boards in Europe - The company identifies itself as a world leader in fiber cement manufacturing and a market leader in European fiber gypsum and cement-bonded boards[12] - Primary geographic markets include the United States, Australia, Europe, and New Zealand[12] Information on the Company This section details the company's history, business operations, organizational structure, and physical assets, including the ongoing funding agreement for asbestos-related liabilities History and Development of the Company Founded in 1888, James Hardie pioneered asbestos-free fiber cement technology and is pursuing a merger with The AZEK Company Inc. while managing historical asbestos liabilities - The company was established in 1888, listed on the ASX in 1951, and pioneered asbestos-free fiber cement technology in the late 1970s[19] - In March 2025, the company entered into a definitive merger agreement with The AZEK Company Inc., expected to close in the second half of calendar year 2025, subject to shareholder approval and other conditions[20] - Under the Amended and Restated Final Funding Agreement (AFFA), the company makes annual payments to the Asbestos Injuries Compensation Fund (AICF), with total contributions since inception of approximately A$2.34 billion as of March 31, 2025[23] - Due to the funding arrangement and contractual interests, James Hardie is considered the primary beneficiary of AICF and consolidates it for financial reporting purposes, despite having no legal ownership[24] Business Overview James Hardie is the 1 global producer of fiber cement and a European leader in fiber gypsum, emphasizing product durability, design flexibility, and resistance to environmental factors - The company is the world's 1 producer of fiber cement (Hardie® brand) and a European market leader in fiber gypsum (fermacell® brand)[28] - Principal raw materials for fiber cement are cellulose fiber, silica, Portland cement, and water, while for fiber gypsum they are gypsum, recycled paper, and water, with supply managed through established relationships and contracts[42][43] - The marketing strategy focuses on brand recognition, customer education, and a differentiated product range, marketing directly to homeowners, architects, and builders in addition to selling through distributors and dealers[50][57] - The company's competitive advantage is supported by continued investment in R&D for new products and process technologies, with intellectual property consisting of patents, manufacturing know-how, and trade secrets[59][60][61] Organizational Structure James Hardie Industries plc is incorporated and domiciled in Ireland, with significant wholly-owned subsidiaries across various jurisdictions - JHI plc is incorporated and domiciled in Ireland, with a table listing its significant wholly-owned subsidiaries across jurisdictions including Australia, the US, Germany, and the Netherlands[68][69] Property, Plants and Equipment The company owns manufacturing plants globally, with plans for capacity expansion in the US and Europe, while total capital expenditures decreased in FY25 Manufacturing Nameplate Capacity (mmsf) as of 31 March 2025 | Region | Current Capacity (mmsf) | Planned Future Capacity (mmsf) | | :--- | :--- | :--- | | United States fiber cement | 4,979 | 6,479 | | Asia Pacific fiber cement | 497 | 497 | | Europe fiber gypsum | 1,143 | 1,395 | | Europe fiber cement | — | 300 | Capital Expenditures by Fiscal Year (US$ Millions) | Region | FY2025 | FY2024 | FY2023 | | :--- | :--- | :--- | :--- | | North America Fiber Cement | $287.2 | $298.1 | $392.0 | | Asia Pacific Fiber Cement | $53.1 | $47.8 | $136.2 | | Europe Building Products | $74.3 | $89.7 | $57.8 | | General Corporate and R&D | $7.6 | $13.7 | $5.3 | | Total Capital Expenditures | $422.2 | $449.3 | $591.3 | - In August 2024, the company shut down manufacturing in the Philippines, and in fiscal year 2024, it cancelled plans for a greenfield site in Truganina, Australia, with both properties currently for sale[82] Directors, Senior Management and Employees This section provides comprehensive details on the company's leadership, remuneration practices, and corporate governance framework James Hardie Executive Team The company's management is led by an executive team covering key functions, including the CEO, CFO, and regional presidents - The executive team as of April 30, 2025, is led by CEO Aaron Erter, appointed in September 2022, and CFO Rachel Wilson, appointed in August 2023[83][84] - The team includes heads of Human Resources, Legal, Technology, Information, and Operations, as well as regional presidents for North America, Asia Pacific, and Europe[85][86][87][88][89][93][94][95] Board of Directors The Board of Directors comprises nine non-executive directors with diverse international experience, chaired by an independent non-executive director - The Board is led by Independent, Non-Executive Chair Anne Lloyd, who was appointed to the Board in November 2018 and as Chair in November 2022[97] - The Board consists of nine non-executive directors with diverse international experience in finance, manufacturing, retail, and technology sectors[96] Remuneration Report The company's remuneration philosophy emphasizes pay-for-performance, with a significant portion of executive compensation being at-risk and tied to long-term incentives - The company's pay-for-performance philosophy aims to position total target remuneration at the median of its US-based peer group, with approximately 87% of the CEO's and 67% of other Senior Executive Officers' target compensation being 'at-risk'[114][119][120][121] FY2025 Senior Executive Officer Target Compensation (US$) | Senior Executive Officer | Annual Base Salary | STI Target Value | LTI Target Value | Total Target Compensation | | :--- | :--- | :--- | :--- | :--- | | A Erter | 1,090,000 | 1,417,000 | 6,100,000 | 8,607,000 | | R Wilson | 644,800 | 483,600 | 1,100,000 | 2,228,400 | | S Gadd | 699,660 | 489,762 | 1,100,000 | 2,289,422 | | R Kilcullen | 501,120 | 325,728 | 650,000 | 1,476,848 | | T Beastrom | 468,000 | 304,200 | 500,000 | 1,272,200 | - The Long-Term Incentive (LTI) plan for FY2023-2025 had the following outcomes: ROCE RSUs vested at 2.0x target based on an average ROCE of 48.6%, the Scorecard LTI vested at an average of 1.57x target, while the Relative TSR RSUs for FY2022-2024 did not vest as performance was at the 22.7th percentile[164][171][179][180] - For FY2026, base salaries for senior executives were increased, and the peer group for benchmarking was updated to a 20-company peer group by removing two homebuilders[182][183][184] - The company has stock ownership guidelines requiring the CEO to hold 5x base salary and other Senior Executive Officers to hold 2x base salary in company stock[191] Corporate Governance Report The company's corporate governance framework aligns with ASX Principles and NYSE Standards, with an independent Board overseeing strategy and risk through dedicated committees - The company's governance framework is evaluated against ASX Corporate Governance Principles and NYSE Corporate Governance Standards, noting minor differences such as the shareholder appointment of the auditor under Irish law[270][272] - The Board has three standing committees: Audit, People & Remuneration, and Nominating & Governance, all composed entirely of independent directors as of the report date[281][272] - The Board utilizes a skills matrix to ensure an appropriate mix of experience in areas like Manufacturing, Materials, Strategy, Risk Management, Financial Acumen, and Global Business, with all directors except the CEO deemed independent[319][320][318] - The company has a Global Code of Business Conduct, an Insider Trading Policy prohibiting hedging of unvested equity, and an Anti-Bribery and Corruption Policy, with an anonymous ethics hotline available to all employees[348][353][355][350] - The Audit Committee oversees the risk management framework, and management concluded internal controls over financial reporting were effective in FY25[380][383] Section 2: Financial Review and Statements Reading this Report This section contains a standard safe harbor statement regarding forward-looking statements, cautioning readers about inherent risks and uncertainties - The report includes forward-looking statements concerning future performance, the AZEK merger, dividend payments, and asbestos-related contributions, which are subject to risks and uncertainties[397][398] Management's Discussion and Analysis (MD&A) The MD&A section reviews the company's financial condition and operating results, highlighting critical accounting estimates and segment performance Critical Accounting Estimates Management identifies several critical accounting policies requiring significant judgment and estimation, particularly for the asbestos liability - The most critical accounting estimates include: Accounting for the AFFA, Inventory valuation, Accounting for Income Tax, Goodwill and Other Intangible Assets, and Impairment of Long-Lived Assets[404] - The asbestos liability is recognized based on an undiscounted and uninflated central estimate of projected future cash flows, as management views the timing and amounts as not fixed or readily determinable, and an appropriate inflation rate is uncertain over the long term[405] Operating Results For FY25, net sales decreased 1% to $3.88 billion, and net income fell 17% to $424.0 million, driven by lower volumes and restructuring charges Financial Highlights (FY25 vs FY24) | US$ Millions (except per share data) | FY25 | FY24 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $3,877.5 | $3,936.3 | ($58.8) | (1%) | | Gross profit | $1,505.0 | $1,588.4 | ($83.4) | (5%) | | Operating income | $655.9 | $767.4 | ($111.5) | (15%) | | Net income | $424.0 | $510.2 | ($86.2) | (17%) | | Diluted EPS | $0.98 | $1.16 | ($0.18) | (16%) | - North America Fiber Cement net sales decreased 1% due to a 3% volume decline, partially offset by a 2% increase in average net sales price, with operating income margin falling 2.5 percentage points to 29.4%[426][427][429] - Asia Pacific Fiber Cement net sales decreased 8% (7% in A$), driven by a 19% volume decline primarily from the closure of Philippines operations, incurring restructuring expenses of US$50.3 million[430][431][433] - Europe Building Products net sales increased 3% (4% in €) due to 4% volume growth and higher pricing, though operating income margin decreased 1.6 percentage points to 7.7% due to higher costs[434][437][438] Liquidity and Capital Allocation The company's cash position increased in FY25, with significant capital expenditures and share repurchases, and a $4.3 billion bridge commitment secured for the AZEK merger Cash Flow Summary (US$ Millions) | Cash Flow Activity | FY25 | FY24 | | :--- | :--- | :--- | | Net cash provided by operating activities | $802.8 | $914.2 | | Net cash used in investing activities | $446.7 | $470.5 | | Net cash used in financing activities | $165.9 | $210.1 | - Capital expenditures were US$422.2 million in FY25, with an estimated US$325 million planned for FY26[457] - The company repurchased 4.5 million shares for US$149.9 million in FY25, with share repurchases expected to be paused until after the AZEK merger is completed[460] - In April 2025, after the fiscal year end, the company used existing cash to pay off its outstanding term loan balance of US$295.3 million[449][649] Outlook and Trend Information For fiscal year 2026, the company anticipates a slight downturn in the US residential market but relative flatness in Australia and Europe, aiming to outperform in all segments - FY2026 Outlook: - US Residential Market: Expected to be down vs FY25, with Repair & Remodel declining more than New Construction - Australia Market: Addressable housing market expected to be relatively flat - Europe Market: Overall addressable market expected to be flat - Company Performance: Expects to outperform end markets across all three segments[465][466][467][468] Consolidated Financial Statements This section presents the audited consolidated financial statements for the fiscal years ended March 31, 2025, 2024, and 2023, prepared in accordance with U.S. GAAP Report of Independent Registered Public Accounting Firm Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting, identifying the Asbestos Liability Valuation as a Critical Audit Matter - The independent auditor, Ernst & Young LLP, issued an unqualified opinion on the consolidated financial statements and the company's internal control over financial reporting as of March 31, 2025[471][472] - The Asbestos Liability Valuation was identified as a Critical Audit Matter due to the inherent uncertainty and complexity of the actuarial estimates and subjective assumptions used[475][476] Financial Statements The consolidated financial statements present the company's financial position and performance, with total assets of $5.23 billion and net sales of $3.88 billion in FY25 Consolidated Balance Sheet Data (US$ Millions) | | 31 March 2025 | 31 March 2024 | | :--- | :--- | :--- | | Total current assets | $1,701.8 | $1,428.4 | | Total assets | $5,229.9 | $4,912.6 | | Total current liabilities | $810.2 | $797.7 | | Total liabilities | $3,068.4 | $3,053.7 | | Total shareholders' equity | $2,161.5 | $1,858.9 | Consolidated Statement of Operations Data (US$ Millions) | | FY2025 | FY2024 | FY2023 | | :--- | :--- | :--- | :--- | | Net sales | $3,877.5 | $3,936.3 | $3,777.1 | | Gross profit | $1,505.0 | $1,588.4 | $1,312.0 | | Operating income | $655.9 | $767.4 | $741.4 | | Net income | $424.0 | $510.2 | $512.0 | Notes to Consolidated Financial Statements The notes provide detailed explanations of accounting policies and financial results, including consolidation of AICF, restructuring expenses, debt, asbestos liabilities, and contingencies - The company consolidates the Asbestos Injuries Compensation Fund (AICF) as a Variable Interest Entity (VIE) because it is considered the primary beneficiary due to its funding obligations under the AFFA[487][489] - FY2025 restructuring expenses of US$50.3 million were recorded for the closure of the Philippines manufacturing and commercial operations[565][566] - As of March 31, 2025, the total asbestos liability was US$983.6 million, with the actuarial central estimate for the undiscounted and uninflated liability at US$907.4 million[476][592] - The company is defending an Australian securities class action filed in May 2023 and is subject to an ongoing ATO audit regarding transfer pricing, with no reserve recorded for either matter as of March 31, 2025[609][610] - The effective tax rate was 34.3% in FY25, compared to 32.4% in FY24 and 29.2% in FY23[613] Remuneration of Independent Registered Public Accounting Firm This section details the fees paid to the independent registered public accounting firm, Ernst & Young LLP, for professional services over the last three fiscal years Fees Paid to Independent Auditor (US$ Millions) | Description of Service | FY25 | FY24 | FY23 | | :--- | :--- | :--- | :--- | | Audit fees | $7.3 | $7.2 | $6.8 | | Audit-related fees | $0.1 | — | — | | Tax fees | $0.1 | — | — | | All other fees | $0.1 | — | — | - All services provided by the independent registered public accounting firm are pre-approved by the Audit Committee[652] Section 3: Risks, Legal, and Other Information Risk Factors The company identifies several significant business, financial, legal, regulatory, and asbestos-related risks that could materially affect its operations and financial position - Business Risks: Demand is highly dependent on residential and commercial construction markets, the company faces substantial competition, and there are risks of unforeseen delays and cost overruns in its capital expenditure programs[656][658][660] - Financial Risks: The acquisition of AZEK is expected to significantly increase debt to approximately US$4.4 billion, which could make the company more vulnerable to adverse economic conditions, and it is exposed to foreign currency exchange rate risk, particularly with non-US operations and Australian dollar-denominated asbestos liabilities[672][671] - Legal & Regulatory Risks: The business is subject to extensive environmental and health regulations, including those for crystalline silica, and cybersecurity incidents and evolving data privacy laws pose significant risks[674][675][679][682] - Asbestos-Related Risks: The obligation to make payments to the AICF under the AFFA could materially affect financial position and liquidity, and a potential escalation in claims could increase the asbestos liability and extend the payment period[689][693] Legal Proceedings The company is involved in various legal proceedings, including a recently concluded New Zealand claim, an ongoing Australian class action, and an ATO audit - The long-running New Zealand Weathertightness Claim (Cridge litigation) was concluded through a confidential settlement in March 2025, and no such claims are currently being actively litigated[608] - A securities class action was filed in Australia in May 2023 concerning statements made between February and November 2022, which the company believes were proper and is defending[609] - The company is subject to an ongoing audit by the Australian Taxation Office (ATO) regarding transfer pricing for income years 2010-2019, with the company believing its arrangements are compliant and having not recorded a reserve[610] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of March 31, 2025, an assessment affirmed by the independent auditor - Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2025[722] - Based on the COSO 2013 framework, management concluded that internal control over financial reporting was effective as of March 31, 2025, an assessment audited by Ernst & Young LLP, which also provided an unqualified opinion[724][725][728] Cybersecurity The company maintains a comprehensive cybersecurity program aligned with the NIST Cybersecurity Framework, with governance overseen by the Board and executive leadership - The company's cybersecurity program is aligned with the National Institute for Standards and Technology (NIST) Cybersecurity Framework[735] - Governance is overseen by the Board of Directors, the executive leadership team, the CIO, and a dedicated VP of Cybersecurity, with the Board receiving regular updates on cybersecurity practices and risks[740][743] - In fiscal year 2025, the company did not identify any cybersecurity threats that have materially affected or are reasonably likely to materially affect its business strategy, results of operations, or financial condition[744] Employees The company employed an average of 5,860 people in fiscal year 2025, with a significant portion in the US and Canada, and a satisfactory relationship with labor unions Average Number of Employees by Fiscal Year | Region/Function | FY2025 | FY2024 | FY2023 | | :--- | :--- | :--- | :--- | | Fiber Cement US & Canada | 3,543 | 3,337 | 3,228 | | Europe Building Products | 1,098 | 1,043 | 981 | | Fiber Cement Australia | 637 | 597 | 594 | | Other | 582 | 802 | 670 | | Total Employees | 5,860 | 5,679 | 5,473 | Listing Details James Hardie's securities trade on the ASX as CUFS and on the NYSE as ADSs under the symbol "JHX", with fees payable to the ADS depositary - The company's securities are listed on the ASX as CUFS and on the NYSE as ADSs, both under the ticker symbol "JHX"[747] - Deutsche Bank acts as the depositary for the ADS program and charges fees to holders for services like issuance/cancellation (up to US$0.05 per ADS) and an annual maintenance fee (up to US$0.05 per ADS)[751][753] Purchases of Equity Securities by the Issuer and Affiliated Purchases Information regarding the company's share buyback programs and related activity is detailed in Note 17 to the consolidated financial statements - Information on share buyback programs is detailed in Note 17 to the audited consolidated financial statements[757] Taxation This section summarizes the material US and Irish tax consequences for shareholders, including dividend taxation, capital gains, and withholding tax exemptions - US Taxation: For US Shareholders, distributions are generally taxed as dividends, which are expected to qualify for the lower "qualified dividend income" tax rate, and the company does not expect to be classified as a Passive Foreign Investment Company (PFIC)[764][765][771] - Irish Taxation: Dividends are subject to a 25% Irish Dividend Withholding Tax (DWT), but exemptions are available for shareholders resident in EU or treaty countries (like the US) who provide the necessary documentation, with ADS holders with a US registered address potentially exempt from submitting a declaration[780][781][783] - Non-Irish resident shareholders are generally not subject to Irish tax on capital gains from the sale of shares, unless the shares are connected to a trade carried on in Ireland through a branch or agency[788] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to foreign currency exchange, interest rate, and commodity price risks, with mitigation strategies in place - The company is exposed to foreign currency risk, with approximately 30.2% of FY25 net sales and 34.1% of expenses denominated in currencies other than the US dollar[799] - A one percentage point change in interest rates would result in a US$9.1 million change in annual cash interest expense, assuming its variable-rate facilities were fully drawn[802] - A +/- 10% change in the average cost of core commodities would have impacted the cost of sales for fiscal year 2025 by approximately +/- US$50.9 million[804] Other Information This section provides miscellaneous corporate information, confirming the company's Irish domicile and the absence of Irish exchange controls - The company is domiciled in Ireland and registered under number 485719[806] - There are no Irish exchange controls restricting the import/export of capital or remittances to non-resident security holders, and no limitations on non-residents holding or voting the company's common stock[809][810] Section 4: Shareholder and Reference Information Share/CHESS Units of Foreign Securities Information As of April 30, 2025, the company had 429.86 million CUFS outstanding, with Australia holding the largest beneficial ownership Geographic Distribution of Beneficial Ownership (31 March 2025) | Geographic Region | Percentage | | :--- | :--- | | Australia | 50.95% | | United States | 19.51% | | United Kingdom | 5.40% | | Europe (ex-UK) | 7.55% | | Asia | 4.09% | | Other | 12.50% | - As of April 30, 2025, the top 20 CUFS holders controlled 87.58% of the company's shares[820] - Substantial shareholders with holdings over 3% include AustralianSuper Pty Ltd (6.04%), Blackrock, Inc. (5.70%), OppenheimerFunds, Inc (5.48%), The Vanguard Group, Inc (5.12%), and KKR Entities (4.08%)[819] Glossary of Abbreviations and Definitions This section provides a glossary of abbreviations and definitions used throughout the report, along with reconciliations of non-GAAP financial measures - The glossary defines key terms and abbreviations used in the report, such as AFFA, AICF, CUFS, LTI, and ROCE[821][822] Reconciliation of Net Income to Adjusted Net Income (US$ Millions) | | FY25 | FY24 | FY23 | | :--- | :--- | :--- | :--- | | Net income | $424.0 | $510.2 | $512.0 | | Asbestos related expenses and adjustments | 140.5 | 153.3 | 38.4 | | AICF interest income | (10.9) | (9.0) | (4.2) | | Restructuring expenses | 50.3 | 20.1 | — | | Merger costs & related interest | 17.3 | — | — | | Tax adjustments | 23.1 | 32.9 | 59.3 | | Adjusted net income | $644.3 | $707.5 | $605.5 | Adjusted Diluted Earnings Per Share (US$) | | FY25 | FY24 | FY23 | | :--- | :--- | :--- | :--- | | Adjusted diluted earnings per share | $1.49 | $1.61 | $1.36 | Exhibit List This section lists all exhibits filed with the Form 20-F, including foundational corporate documents, material contracts, and required SEC certifications - The exhibit list includes foundational corporate documents, material contracts such as debt and AFFA agreements, equity plans, the AZEK merger agreement, and required SEC certifications[838][839][840][841][842] Signatures The annual report is signed and certified by the company's Chief Executive Officer and Chairperson on behalf of the Board of Directors - The Form 20-F is signed by Aaron Erter (CEO) and Anne Lloyd (Chairperson) on May 20, 2025[843][844][845]