Earnings Call Transcript - JHX Q4 2021

Operator, Operator

Thank you for joining us for James Hardie's Q4 FY '21 Results Conference Call. Today's call will be led by Dr. Jack Truong, CEO, and Mr. Jason Miele, CFO. I will now turn the conference over to CEO, Dr. Jack Truong. Please proceed.

Jack Truong, CEO

Good morning and good evening, everyone. Thank you for joining us on our fourth quarter and full fiscal year 2021 earnings call. I will begin today's call by discussing business highlights from a global company perspective. After I go through business highlights, our CFO, Jason Miele, will cover our fourth quarter and year-to-date fiscal year 2021 financial results. I will then provide a brief preview of our upcoming annual Investors Day. After that, we will open up for questions. Let's now turn to Page 5 for a review of business highlights. Now before I discuss the success to date of our strategic transformation, I think it is important to provide some context to why the transformation was required. What you see on this page is the financial performance of James Hardie over the five years between fiscal year 2015 and fiscal year 2019. If you look at the performance over the five years prior to fiscal year 2020, you will see stable and average financial results where profitable growth has fallen. Net sales grew at a compound annual growth rate or CAGR of 7%, adjusted EBIT CAGR of 7%, adjusted net income CAGR of 9%. This is a clear lack of leverage on our incremental sales growth. And lastly, looking at operating cash flow, again what you see is just modest growth with a CAGR of 13% over the same five years. These results reiterate a lack of leverage within the business and an inability to generate significant cash flow with each additional dollar of sales. When we look at these financial results holistically, they do not reflect the results of a high-performing global company, which is our mission. Let's now turn to Page 6 to discuss the new James Hardie and our transformational progress. You will recall that in February 2019, I laid out what would be the first steps in our transformation to become a new James Hardie. The first initiative we undertook was the foundational step change in terms of leveraging our scale as the world's largest fiber cement producer to become a world-class manufacturer through the execution of James Hardie's lean manufacturing strategy. Our network of plants is on a continuous improvement path by being more predictable with less variability in production output, better quality, and lower costs. Progress in this initiative has enabled us to be a better partner to our customers. Globally, through the end of fiscal year 2021, we have generated over $107 million in lean savings. Continued focus on these foundational elements of our transformation will be critical to building scale and enabling future profitable growth globally. Second, we transformed our commercial organization to be truly customer-focused. We took direct action to shift from an organization that focused solely on creating demand with homebuilders and contractors to partnering more closely with our customers to enable profitable growth for them and also for James Hardie. Instilling this true customer-focused mindset throughout our company has been critical to driving our growth above market while taking market share in all three geographies during the past two years. This connectivity to our customers and a shift to a push-pull strategy drove profitable growth on profitable growth in our North American business over the past eight quarters. Specifically, we delivered net sales growth of 8% in fiscal year 2020 and 12% growth in fiscal year 2021 versus 8% over the previous five fiscal years and expansion of EBIT margin to 29% from 24%. Additionally, over the past two years, we have significantly expanded our European business, highlighted by net sales increasing to EUR 350 million in fiscal year 2021 from EUR 318 million in fiscal year 2019. And adjusted EBIT increased 4x to EUR 36 million in fiscal year 2021 from EUR 9 million in fiscal year 2019. We also saw strong results in our Asia Pacific region, where adjusted EBIT margin expanded to 28% from 24%. The third step in our transformation was the integration of our supply chain with that of our customers for mutual benefits. This critical integration ensured that we are able to continuously service the market seamlessly through our customers, providing them with the products they want when they need them. During fiscal year 2021, we delivered record operating cash flow of $787 million, a 2.6x increase from fiscal year 2019 operating cash flow of $304 million. Underpinning our entire transformation was the implementation of a globally integrated management system. This management system enabled us to make better and more holistic decisions at the right time across various levels within the company. The successful execution of a global strategic plan is a testament to the hard work and dedication of all James Hardie employees from around the world. The considerable progress we made has allowed James Hardie to deliver record global net sales and global adjusted EBIT for three consecutive quarters. In fact, for fiscal year 2021, all three of our operating regions delivered double-digit growth in EBIT. While the financial results across the past two fiscal years are commendable, it is the transformation itself that has created a new James Hardie with a strong foundation on which to build. We believe it is this foundation that will enable us to scale and drive significant future profitable growth for our company globally. Let's now turn to Page 7 to discuss our step change in financial results. When we take a step back and look at the progress we made during the past two years to fundamentally transform our company, I'm pleased with the financial results. We delivered a step change in our financial results during the past two years, including records in global net sales, global adjusted EBIT, global adjusted net income, and global operating cash flow in fiscal year 2021. We increased net sales by $400 million globally in fiscal year 2019, a 16% increase over two years. More significant than that, we increased adjusted EBIT and adjusted net income by 25% and 23% CAGR, respectively, over the past two years. What this indicates is that as a global company we have been able to increase our leverage in a way that every incremental sales dollar returns much more profit to the bottom line. Most impressively is a significant increase in operating cash flow over the past two years. The financial results delivered during the past two years reaffirm that we are on the right path of being a high-performing global company. Now shifting to Page 8. Over the past 24 months, we delivered strong revenue growth and EBIT growth across the three regions. We expanded the scale and scope of James Hardie as a global company and also expanded the scale and profitability of each region. The acquisition of Fermacell three years ago, along with the successful integration and expansion of our European business, now truly position us as a leading global building material company. Our global management system has been key in enabling us to replicate global strategy across all three regions while at the same time allow our regional teams to execute the plans locally to deliver on results for the region and for total company. Moving on to Page 9 for an update on our FY 2022 and FY 2024 targets. Reflecting on our step-change performance and executing our lean manufacturing strategy and push-pull strategy to deliver consistent financial results globally, I'm very pleased to announce today that we are upgrading our global adjusted EBIT margin targets for fiscal year 2022 through fiscal year 2024. In North America, our historical adjusted EBIT margin target range of 20% to 25% is now increased to a new range between 25% to 30% annually for the next three years. Similarly, in our Asia Pacific region, our historical adjusted EBIT margin target range of 20% to 25% is now increased to a new range of between 25% to 30% for the next three years. In our European business, the average annual adjusted EBIT margin will be increased to between 11% and 16% for the next three years. The previous target was 10%. These new global target for adjusted EBIT margin reflect the progress we have made during the past two years to fundamentally transform our global business. We believe that, as the new James Hardie, we will continue to deliver growth above market and strong returns. Turning to Page 10 for a summary of our global results from the fourth quarter of fiscal year 2021. The fourth quarter of fiscal year 2021 marked the eighth straight quarter of delivering consistent financial results globally, with all three regions delivering strong profitable growth. Specifically, in the fourth quarter, we delivered USD 807 million of global net sales, which is a 20% increase versus the prior corresponding period. And we delivered global adjusted net income of close to USD 125 million, which was an increase of 44% over the prior corresponding period. Most importantly, we delivered strong financial results in all three regions for the third consecutive quarter. All three regions delivered double-digit growth in both net sales and EBIT. In North America, we delivered net sales of USD 555 million, a growth of 17%, with strong EBIT of nearly USD 153 million, an increase of 27% over Q4 of previous year. These are excellent results given that we compared to a very strong Q4 of the previous year that had a net sales growth of 12% and EBIT growth of 26%. Further, we continued to deliver strong EBIT margin of 27.5% for the quarter. In Europe, we delivered record net sales of close to EUR 105 million, a 12% increase over the prior corresponding period. And we exited the quarter with an EBIT of EUR 15.7 million and a record EBIT margin of 15%. And in Asia Pacific, we delivered net sales growth of 11% in Australian dollars, with EBIT of AUD 43.7 million and an excellent EBIT margin of 26.9%. Marking our eighth straight quarter of delivering global growth with strong returns, these results reflect our continued ability as a global company to execute on our global strategy across all three regions. I would now like to turn it over to our CFO, Jason, to provide additional details on our financial results.

Jason Miele, CFO

Thank you, Jack. Good morning and good afternoon, everyone. I will start on Slide 12 with our global results. This is our eighth straight quarter of generating strong global financial returns and our third straight quarter with record global results. And this marks the third consecutive quarter we've been able to deliver strong results in all three regions simultaneously. In the fourth quarter, each region delivered double-digit net sales growth and double-digit EBIT growth. In the fourth quarter, global net sales increased by 20%. This represents significant growth on growth, as last year, in the fourth quarter, we increased net sales by 8%. Globally, our customer focus and customer integration strategies continue to become embedded in every country we do business in and drive these strong top-line results. Net sales of USD 807 million in the fourth quarter represents a record quarterly result for James Hardie. Through continuous improvement of lean manufacturing globally and integration of our supply chain with our customers, we are able to translate that strong top-line result into an even stronger bottom-line outcome. Global adjusted EBIT improved 43% and global adjusted net income increased 44% in the fourth quarter. Global adjusted net income in the fourth quarter of USD 124.9 million also represents another all-time record high for James Hardie in a quarter. For the full year, adjusted net income increased 30% to USD 458 million. Operating cash flow for the full year increased 74% to a record USD 786.9 million. And as Jack just discussed earlier, we have transformed into a new James Hardie over the past two years, and the global financial results in fiscal year 2021 reflect that transformation. I'll now review each region in more detail, starting with North America on Page 13. In North America, the team delivered another excellent quarter. In the fourth quarter, net sales increased by 17% to USD 555.3 million. This represents the highest net sales in one quarter ever achieved by the U.S. business. It is also worth noting the fourth quarter result represents significant growth on growth. That is we had a strong fourth quarter last year as well, where we delivered net sales growth of 12% in the fourth quarter, which we have now been able to improve upon by another 17%. This significant growth is driven by our continued focus to partner and integrate with our customers. The full year net sales result of just over USD 2 billion is also a record for North America, and it marks the first time we have exceeded $2 billion in net sales. In addition, our exteriors volume increased 12% in the fourth quarter and 11% for the full year, driven by continued share gain as our team continues to focus on customer engagement and integration. Our outstanding top-line results in North America were coupled with even better adjusted EBIT growth, which increased by 27% for the quarter to USD 152.9 million and 25% for the full year. We also expanded our EBIT margins in fiscal year 2021, delivering a full year adjusted EBIT margin of 28.8%, a 290 basis point increase from the prior year. The outstanding adjusted EBIT and margin results for both the quarter and full year were driven by volume and price/mix growth, strong organic volume growth, continued lean manufacturing savings, and lower SG&A, partially offset by higher freight costs. The North American team is now delivering consistent double-digit net sales growth at a step-change EBIT margin level. As we transformed over the past two years into a new James Hardie, the foundational improvements provided by lean, our push-pull strategy, and supply chain integration with our customers have provided us the confidence to raise the target adjusted EBIT margin range for North America. As Jack just stated, we have increased our target EBIT margin range to 25% to 30% for fiscal year '22 through fiscal year '24. Turning now to Page 14 to discuss the Europe results. In Europe, the team delivered a third straight quarter of strong results. In the fourth quarter, net sales increased 12% to a record EUR 104.6 million. This follows net sales growth of 8% in the second quarter and 12% growth in the third quarter. For the full year, net sales of EUR 350.6 million also represents a record full year result. The team's focus on our push-pull strategy and replicating best practices from our North America and Asia Pacific businesses continued to deliver improved top-line results as the year progressed. The team remains focused on driving gross margin improvement through growth in high-margin products and continued penetration in existing and new fiber cement markets. Fiber cement net sales increased 24% in the fourth quarter. Most impressively, adjusted EBIT margin of 15% for the fourth quarter also represents a record result for the year. Fiscal year '21 represents the third full year since acquisition. The team is now fully integrated into James Hardie, and the European business exits fiscal year '21 with significant momentum. The new James Hardie will be a high-performance global company, and our European business is an important part of our global footprint. The team's success in executing our strategic initiatives has provided us the confidence to raise the Europe adjusted EBIT margin target range to 11% to 16% for fiscal year '22 through fiscal year '24. Let's now move to Page 15 for our strong Asia Pacific results. In the fourth quarter, net sales increased 11% in Australian dollars compared to the prior corresponding period. This top-line growth was led by continued share gains in Australia and New Zealand and 25% net sales growth in the Philippines. The strong top-line results in the fourth quarter were translated into even stronger earnings results with adjusted EBIT growth of 46% in Australian dollars at an adjusted EBIT margin of 26.9% for the fourth quarter. The excellent fourth-quarter performance in our Asia Pacific region was driven by execution of our strategic objectives, including customer integration and lean manufacturing. In addition, you will recall, earlier this fiscal year, we announced we are consolidating our regional production for Australia and New Zealand to our two Australia-based manufacturing facilities. We also closed the unprofitable James Hardie Systems business. These adjustments, in addition to the team's execution of our strategic objectives, have helped drive the improved adjusted EBIT margin performance in Asia Pacific. And full year adjusted EBIT margin expanded to 28%. As a result of this continued performance improvement, we have raised the Asia Pacific adjusted EBIT margin target range for fiscal year '22 through fiscal year '24 to be between 25% to 30%. Moving now to Page 16 to discuss operating cash flows and capital expenditure. Operating cash flow increased 74% for the full year to USD 787 million. The step-change performance in operating cash flow was driven by increased profitable sales globally and further integration with our customers to reduce working capital for both them and us. This step change in cash flow performance has enabled us to improve our liquidity position and return capital to shareholders, which I will discuss further in a few slides. Shifting to the right-hand side of the slide, you'll see a summary of our capital expenditures. For the full year, capital expenditures totaled USD 111 million. Over the past six months, we have added key capacity additions to enable our continued profitable organic growth. Specifically, in Asia Pacific we commissioned a new sheet machine in Carole Park during the third quarter of fiscal year '21, which has additional capacity to service our Australia and New Zealand markets with high-value building products. In North America, our greenfield capacity expansion in Prattville, Alabama remains on track. Sheet machine #1 in Prattville has been shipping products to customers since March 2021 and ramping up ahead of our internal targets. Further, sheet machine #2 in Prattville remains on track to be commissioned in July. Adding the right capacity at the right time positions us to continue to drive market share gains and flow products to our customers and the end users. At Investor Day next week, we will discuss capacity expansion further, specifically capacity expansion plans for the next few years. We expect the total capital expenditures, including regular maintenance, to average approximately USD 250 million per year for the three-year period of fiscal year 2022 through fiscal year 2024. Let's turn to Page 17 to discuss our liquidity profile. The execution of our global strategy has led to significantly improved cash flow and thus continuous improvement in our liquidity and leverage positions over the past 12 months. During the year, we were able to reduce our debt levels while maintaining strong liquidity and financial flexibility. As announced on January 15, 2021, we redeemed USD 400 million of senior unsecured notes. The redemption of these notes will save us approximately USD 20 million of interest expense per year. And at March 31, 2021, we had liquidity of USD 703.8 million and a net leverage ratio of 0.9x, a significant improvement over the past 12 months. Now moving to Page 18 for an update on capital management and allocation. Our strong capital structure and cash flows have enabled us to execute on all of our capital allocation objectives. We continue to preserve our strong liquidity position and financial flexibility. We are positioned to continue to invest in organic growth, including capacity expansion, market-driven innovation, and marketing directly to the homeowner. In January, we reduced debt by USD 400 million. And in April, we returned over USD 300 million to shareholders via the previously announced special dividend. We have a strong balance sheet and a strong liquidity position to execute on our organic growth priorities. And finally, please turn to Page 19 to discuss guidance. As announced this morning, we are introducing full year fiscal year 2022 guidance. Our guidance for the full year adjusted net income is a range of between USD 520 million and USD 570 million. The comparable figure for the prior year fiscal year 2021 was USD 458 million. This guidance range represents a 14% to 24% year-on-year improvement in adjusted net income. Included in this guidance range as well as the new increased adjusted EBIT margin targets, we expect significant cost headwinds due to the inflationary pressures we are experiencing worldwide. Globally, we are anticipating between USD 100 million to USD 150 million in cost headwinds in fiscal year '22 versus fiscal year '21. These cost headwinds are primarily driven by pulp, pallets, and freight. We believe we can mitigate these headwinds and deliver adjusted net income of between $520 million and $570 million by executing the following: one, drive a richer product mix based on market demand and disciplined price management; two, continued execution of lean manufacturing; three, continued execution of our push-pull strategy and customer integration to deliver growth above market and flow product to the world; and four, deliver incremental capacity in the right place at the right time to meet market demand. As previously mentioned, we have also increased our target ranges for adjusted EBIT margin in each region for the periods of fiscal year '22 through fiscal year '24. North American target adjusted EBIT margin is now 25% to 30%. Asia Pacific target adjusted EBIT margin is now 25% to 30%, and Europe target adjusted EBIT margin is 11% to 16%. I will now hand the call back over to Jack to go through a brief preview of our global Investor Day that will take place next week.

Jack Truong, CEO

Thank you, Jason. Now moving to Page 21 for a preview of our upcoming Investor Day. I have shared earlier that the past two years were about building a strong foundation to transform our company into a new James Hardie, a company that delivers consistent profitable growth globally. This transformation has been about becoming a world-class manufacturer through our execution of lean manufacturing strategy. Becoming more customer-focused, we are building stronger and more integrated partnerships with our customers and becoming more integrated with our customer supply chain for mutual benefits. All of our initiatives are underpinned by a globally integrated management system that allows us to make better, more holistic, and faster decisions across various levels within the company. The strong foundation we have built over the past two years enables us to drive consistent profitable growth on a global scale. I'm very excited today to share with you additional details about this next phase of our transformation. There are three critical strategic initiatives in this next phase of profitable organic growth: number one, expand the James Hardie brand from the premier professional brand into a market-leading global consumer brand that focuses on homeowners to create demand; number two, global innovation that allows us to expand into other exterior looks to grow into adjacent categories; number three, penetrate and drive growth in existing and new markets and segments. Now turning to Page 22 for a summary of the integrated marketing campaign. The first of the three key strategic initiatives is our new 360-degree integrated marketing campaign that targets homeowners directly to create demand. Historically, the James Hardie brand has resonated strongest with professionals. It evoked a brand that is well appreciated and trusted, with products that are durable, low maintenance, and noncombustible. We're now excited to extend the James Hardie brand into a consumer brand where we market directly to homeowners and communicate to them the endless possibilities of aesthetic and design that our products offer, in addition to the superior properties of our technology. By marketing directly to the homeowners, we believe it will create even more demand and enhance the emotional attachment to James Hardie brand products. During our upcoming annual Investor Day, our marketing team will share some exciting details on this new 360-degree integrated campaign. Shifting now to Page 23 for a summary of our global innovation. The next focus of our upcoming annual Investor Day is on global innovation that will transform the way the world builds. As I mentioned during our Q3 earnings call, our approach to innovation is about developing market-driven innovation to drive profitable organic growth. We believe our market-driven innovation strategy will increase our growth opportunities by opening new markets and expanding on existing markets. What you see on this slide are four examples or four new innovations in action. On the top left is an example of new fiber cement interlocking plank products for the European market. This image is from a project in the U.K. that is going to use our new Hardie brand VL planks in a very dramatic design-forward manner. Back in our Q3 presentation, I shared that, in Europe, interlocking planks make up roughly 80% of the plank market. Interlocking planks are a natural product portfolio extension for us in Europe, for new fiber cement growth. It enables us to provide our customers with a full suite of fiber cement plank products that are quicker to install, that allow homeowners to have endless possibilities of beautiful designs while getting the long-lasting beauty and trusted protection of James Hardie fiber cement technologies. On the top right and bottom left pictures, you see examples of our North American innovation featuring two homes built with our Hardie Textured Panels that deliver a step goal of rendered aesthetic. On the bottom right, you see a picture from a completed project in Australia that was built with our latest innovation, Hardie Fine Texture Cladding. You will hear more details during our annual Investor Day. What I can tell you is that we're all very excited about these true market-driven innovations that will provide homeowners with endless design possibilities while maintaining the trusted protection and low maintenance they have come to expect from James Hardie. Ultimately, these true market-driven innovations will expand opportunity for future organic growth for our company. I can't wait for you to hear more at our upcoming annual Investor Day. Now turning to Page 24. The James Hardie Investor Day will take place as one session on Monday, May 24, between 5:00 p.m. and 7:15 p.m. New York City time, or Tuesday, May 25, between 7:00 a.m. and 9:15 a.m. Sydney, Australia time. This session will be recorded and available on our investor relations website. You can sign up for this session at the link shown on this slide. The agenda for the day is broken into three major sections: an update on our overall strategy and our focus for the next three years; a deep dive into our new global initiative of growth through marketing to homeowners; and growth through global innovation. We look forward to sharing additional details with you on all of these three topics. We're very excited for the future that lies ahead for our company. Now I would like to open up for questions.

Operator, Operator

Your first question comes from Peter Steyn from Macquarie.

Peter Steyn, Analyst

Congrats on good results. Quick question just in relation to North American top line. Jack, could you give us a bit of a sense? There's obviously a few things moving around at the moment, the ability to meet the market where demand is at this point given Prattville's ramp-up. And then there were obviously some disruptions from a weather perspective in the quarter. Could you give us a bit of a sense of how the Texas weather events played out for you? And comments on your ability to meet demand right at this point given that the second line at Prattville is only due in July.

Jack Truong, CEO

Yes, okay. Peter, thanks for your questions. Right now, as you mentioned, our Prattville facility is ramping up very nicely. And so with our ability now to be integrated closely with our customers, we're able to take the future-forward demand from our customers and have the right production plan to allow us to flow our products from our plant into the marketplace. That has been really the key driver for us to manage through the growth within the quarter despite the disruptions that we had in about eight days in February when we had a deep freeze in Texas. And as you know, we have two big plants in Texas that service the market. Nevertheless, given the lean approach that we have had in our company, the integration with our customers, and the great collaboration between different functions within our company, we were able to mitigate the temporary shutdown of our plants for those eight days and come back strongly to serve the market and finish the quarter strong, as you saw in our results.

Peter Steyn, Analyst

And your ability to serve the market, therefore, continues unabated notwithstanding the fact that Prattville is still ramping up.

Jack Truong, CEO

Yes. Prattville is continuing to ramp up, and our line 2 expansion there will begin to ramp up around the middle of this summer. We have also added additional capacity to our Waxahachie plant that is just starting to increase. Currently, we see strong demand in the marketplace, and as we connect more with homeowners, we aim to deliver more value and better understand their needs. This will enable us to work closely with our customers to provide more high-value products to the market, such as color products, trim, and more branded Hardie products, allowing us to capture greater value and meet market demands. As demand remains strong, we can deliver those high-value James Hardie products to the marketplace.

Operator, Operator

Your next question comes from Keith Chau from MST Marquee.

Keith Chau, Analyst

First question, Jack. I guess I only get one, so maybe I'll ask a follow-up to Peter's in a different way. Do you have enough product to meet market demand without placing your customers on allocation? That's the follow-up. Additionally, there was no mention of PDG in the materials released at all. While you've talked about growth exceeding the market, your long-term incentives include a target of 6% to 8% between fiscal years '21 and '23. I’m not sure if that will be discussed in your Investor Day next week, but could you provide some insight into your volume aspirations moving forward and what was previously classified as PDG?

Jack Truong, CEO

Yes. So let me answer your second question first. The calculation of PDG is not an exact science and isn't something that we run and look at on a quarterly basis. We look at this on an annual basis to have a little bit more accurate description of what's going on, but if you look at the PDG or growth of our market in fiscal year '20 and fiscal year 2021, in both of those years, we averaged 7% to 8% a year. And that is the growth rate that we aim to continue to deliver, and that is really part of our plan. I think that was highlighted by Jason during the guidance that we gave for the net income this year. And then coming back to your first question, yes, we are able to supply the market. However, it's also very important, as we alluded to during the call, is that since this is a strong-demand market and, at the same time, there is also a strong inflationary environment that we're in. We are a lot more connected to the homeowner to really understand what are the true needs of the homeowners and the market. By doing that, we're able to work with our customers to really be able to reach the market and sell more of the high-value products and then be able to focus on those rather than just produce and sell the low-end products. So really, at the end of the day, what we're trying to do in a strong-demand and high-inflation period is to make sure our manufacturing assets are really leveraged accordingly to serve the market need from the homeowner's perspective, dealer perspective, customer perspective, and also James Hardie.

Keith Chau, Analyst

Perhaps just as a follow-on, though, a hypothetical question. And I know it differs by region across the U.S., but hypothetically, once Prattville comes online, how much growth do you think you could deliver to this market? Or how much more capacity do you have to deliver growth into this market? Will it be something like 15% total volume growth, 20% volume growth? Can you give us a sense of that, please?

Jack Truong, CEO

Yes. Keith, it's just like what I mentioned in answering your last question. What we will be looking at is really ensuring that we drive more value of production coming off of our production lines rather than just looking at pure volumes. We want to make sure that as we invest in new capacity that we leverage on the new capacity as well as the existing capacity to produce more high-value products that James Hardie offers that homeowners want. So hypothetically, if our customers really look to buy more Cemplank versus Hardie plank, we'll work closely with our customers to ensure that the market actually wants more Hardie plank than Cemplank. There will always be room and place where Cemplank is good to sell too, but in general, particularly during this high-demand time, it's really more toward the Hardie brand products.

Operator, Operator

Your next question comes from Brook Campbell-Crawford from JPMorgan.

Brook Campbell-Crawford, Analyst

Yes. Just first one, around kind of price, for Jason probably. I think the last update talked about 2% to 3% type effective price increase through the top line and North America in FY '22. I'm just wondering if you can provide an update on that, if that's still an appropriate target for us. I have a follow-up as well.

Jason Miele, CFO

Yes, that's right, Brook. We took a price increase on January 1 in North America. That price increase went through, approximately 3%. Now as Jack mentioned there a few times, we're definitely very focused on delivering the right price/mix that our customers want and that the end user wants. So we will have a heavy focus on price/mix. Therefore, we intend to achieve a better printed price outcome in the financial results, but the price increase went through on January 1.

Brook Campbell-Crawford, Analyst

And just on the new products. Are you planning to provide any sort of sales targets around that for FY '22? And including in that, have you factored any sales relating to new products in '22 guidance?

Jason Miele, CFO

We will discuss new products and targets at the Investor Day. We want to ensure we talk about the new products more openly at Investor Day next week, but there are certainly figures within the guidance that have been considered.

Operator, Operator

Your next question comes from Simon Thackray from Jefferies Australia.

Simon Thackray, Analyst

Jack, I'd never really thought about framing my long-term commitments with a footnote that said only until FY '24, so I just want to understand the context of that guidance against the margins delivered in FY '21 given the benefit you got from SG&A and what happens going forward given the cost headwinds you've called out of $100 million to $150 million, I think you did, Jason. So just in that framework, I just want to understand the relative SG&A benefit in the delivered margins in FY '21 and what the expected growth in dollar terms is for SG&A in the regions in '22. And then just to finalize, I'll get a clear picture of what the role of price is in '22 in offsetting the cost escalation.

Jack Truong, CEO

Yes. So let me answer that strategically. And then Jason can fill in a little bit more context on the details. The way to think about this is that we're a company driven by organic growth of our market. So we are still really focusing on how we will continue to drive growth with our market with strong returns. So the 7%, 8% growth of our market is our objective. It’s really about having more volume through our lean network of plants. That will be the first key driver for our margin expansion. Number two is continue to drive lean. So as we get more volume to our plants and we continue to improve our lean execution, then we should continue to have leverage on the savings. Third, it’s very, very important, which is really in reference to Keith and Peter. It’s not only about volume growth anymore. It's really about volume, price, and mix. We have to ensure that as a market leader, we continue to add more value to the marketplace, from the homeowners and our customers back to us. That means that as we continue to deliver lean manufacturing of higher-value products, this would leverage into our margin. This would give us the flexibility to invest in the SG&A that will go into innovations, marketing, and direct to the homeowners so that we can continue to create new demand that can increase more volume of those high-value products.

Simon Thackray, Analyst

That makes sense to me. So what was the regional contribution to margin from lower SG&A in FY '21, considering the impacts of COVID and lower travel?

Jason Miele, CFO

Yes, in the past we mentioned that we would reinvest about 200 basis points of SG&A over the next several quarters, and we are proceeding with that plan. Looking ahead in our guidance, we anticipate facing $100 million to $150 million in inflationary pressure. We will allocate funds toward marketing and SG&A, with approximately $45 million earmarked for the campaign and related expenses. Additionally, we will invest in innovation and talent development. Considering these investments along with the inflationary pressures, our guidance for adjusted net income is set at $520 million to $570 million. These increases will affect the EBIT margin ranges.

Sophie Spartalis, Analyst

I just wanted to explore a little bit around this higher volume, price/mix. We've talked about it very much at the top level, but what is that ideal volume price/mix going forward versus where you are today in terms of new products, existing products?

Jack Truong, CEO

Yes, we will discuss this in more detail at the annual Investor Day, but the main focus of our innovation is to reduce costs. Any cost savings we can achieve will create more value in the marketplace, which can be reflected in the pricing of our new products. For instance, the average net selling price of our new product is approximately 2.5 times higher than that of the Hardie plank based on the same standard comparison. This shows that by increasing shipments of higher-value products that genuinely benefit the market, we can achieve greater profit margins while utilizing the same asset base. This approach and strategy will guide our efforts moving forward.

Lisa Huynh, Analyst

So I just had a question in terms of the renovation market. We're seeing higher raw material costs drive up the costs of building a home. Can you talk about whether you're seeing any risk emerge for demand in any of your key end markets as a result of the higher cost of construction, particularly in new construction, but also renovation?

Jack Truong, CEO

Actually, just so you know, there is a significant shortage of lumber in the marketplace across North America and Australia/New Zealand. This affects the new construction market more than the renovation or remodeling markets. This is a market where we see huge opportunity, which I discussed in the third quarter earnings call. It is also a key focus for us going forward, particularly the initiative of marketing to homeowners. This really is an opportunity to reach directly to those homeowners who live in their homes that need to be remodeled and renovated; for homeowners to really understand what James Hardie experiences, solutions that we deliver, to help them make better decisions and quicker renovations with James Hardie's products. This is a huge growth opportunity for us going forward.

Lisa Huynh, Analyst

Okay, sure. And then I guess, just on the theme of inflation, given a one-quarter lag to what typically happens in prices, do you see any kind of ability to offset this through buying terms going forward?

Jack Truong, CEO

Buying.

Jason Miele, CFO

Sorry, Lisa. Is your question about how we procure raw materials?

Lisa Huynh, Analyst

Yes, just whether there's any ability to kind of offset the inflation we're seeing going forward through procurement savings or anything similar.

Jason Miele, CFO

Yes. Our procurement teams worldwide do a good job of getting the best possible pricing, Lisa, but the inflationary pressures are global. At this point, the $100 million to $150 million headwind includes our ability to procure better than maybe some others, but that would all be considered in that estimate we provided.

Paul Quinn, Analyst

I have a question regarding the growth of North American exterior siding. While you experienced strong growth this quarter, one of your competitors outpaced you. Do you think you're losing market share, and are there steps you can take to improve your position?

Jack Truong, CEO

Yes, Paul. I think first of all, our competitor had a good quarter. What you should really look at is the trend line over time. A year ago, in the fourth quarter, we had double-digit growth. We also had double-digit growth this time, whereas there was negative growth for our competitor a year ago. If you look at it from a trend line perspective, we have actually outperformed our two key competitors over the last 12 months.

Paul Quinn, Analyst

And do you think that's going to continue going forward?

Jack Truong, CEO

Absolutely. We have every intention. That's what the strategy of ours is. We will continue to partner closely with our customers and push, pull. We're investing to directly reach homeowners to expand our footprints even more within the R&R market and the innovation that we plan to launch shortly to go into adjacent categories to drive more growth above market.

Peter Wilson, Analyst

I might just follow that one up on Q4 volumes in North America. So I take the point that PCP had double-digit growth, but that was also true of the third quarter. Yet I guess the relative growth rate did slow in the fourth quarter, 12% exteriors, 1% interiors. Is there any other factor that you could highlight for why that growth rate might have slowed?

Jason Miele, CFO

Yes, Peter. One thing to consider when you're thinking about third quarter growth versus fourth quarter growth is that typically in the U.S. there’s a housing cycle where the third quarter dips. We would have certainly seen that in the prior year. This year, that did not occur. Coming out of COVID, the market has been strong straight through. You would have seen our volume in North America grow in Q2, grow again in Q3, and grow again in Q4. The prior year, there was a normal seasonal dip in Q3. This explains part of it, but Q4 volumes increased a bit.

Peter Wilson, Analyst

Yes. I'm not looking sequentially, but are you effectively saying that there was a bit of a pull forward this year into that December quarter and that's why the March quarter was a little bit soft?

Jason Miele, CFO

No. I'm saying Q3 last year had a normal seasonal dip, so the Q3 comp this year appears stronger than the Q4 comp.

Jack Truong, CEO

No. We have had strong demand ever since last May, Peter.

Peter Wilson, Analyst

Okay. And just one last one, if I could, on Europe. The new target, 13% to 16%, in the presso it says that was versus the prior guidance of 10%. It may well be that I just missed it, but I understood that your prior target was for FY '22 of 14%-plus EBIT margin. So just a question on that. And I guess, versus a Q4 15%, why you might be expecting that to soften a little bit.

Jason Miele, CFO

Yes, Peter, that's a valid point. We did set a target of exiting FY '22 at 14%. The 10% refers to our acquisition of Fermacell, and we have consistently indicated our expectation of it being a 10% EBIT margin business in the first couple of years. Both targets remain relevant. We opted to highlight the 10%, which we've mentioned several times. Just as we achieved a 15% EBIT margin this year, one year ahead of schedule, we anticipate reaching the 14% target as well. That target is still in place. Regarding softening, Q4 is usually a high-volume quarter for the European market, which allowed us to achieve that 15% EBIT margin. We don’t anticipate any softening, although there are various factors to keep in mind, including inflationary pressures.

Peter Wilson, Analyst

Okay, sure. And if we think about a long-term view of targets, it was always Hardie's type as a long-term target, which many interpret to be 20% by FY '30. Is that still the expectation, assuming you're closer to the APAC and U.S. eventually?

Jason Miele, CFO

Yes. We set a 10-year target of EUR 1 billion of revenue and 20-plus EBIT margin. That still stands. This is a target range for the next three years. As we get localized fiber cement manufacturing and a few other things, we can continue to drive that margin to that 20% long-term target.

Peter Steyn, Analyst

Jack and Jason, sorry. I was going to cancel that, but perhaps I'll just follow up with a quick question on the back of Pete's question regarding Europe. Very strong performance. Jason, you've pointed to the seasonal performance, but could you just talk to us about the commercial state of the business? Generally, you've seen a bit of momentum growing there, but where are things at in the execution of push-pull in particular in Europe?

Jack Truong, CEO

Yes. So Peter, just like I mentioned during the call, we're now operating as a globally integrated company. The global strategy that was really started to be executed here in North America in the past two years has really been well understood and has begun to be replicated in Europe. That really started about nine months ago in earnest. The team there has really been looking closely together as a European team and well connected to the North American team and Asia Pacific team to really understand the global strategy. More importantly, they understand how to execute that locally, so that we focus on the critical few priorities and then focus on the high-value products that the market needs. This has been the key driver that allowed us to have three strong quarters in Europe, culminating in a record quarter this past fourth quarter. Let me give you one example. One of the high-margin products in Europe is our fiber gypsum floor products. During the COVID time, many people stayed home. Our flooring product has great acoustic properties and impact resistance. The team was able to get very good traction in repair and remodeling markets to penetrate with our fiber gypsum flooring product, which is very high margin and has a high average selling price. The team has penetrated the German, Benelux, and Swiss markets, giving rise to significant profitable growth for our business in Europe. It’s really about the global strategy starting to gain traction with local execution in the right way to yield the results you saw in Q4.

Operator, Operator

Your next question comes from Keith Chau from MST Marquee.

Keith Chau, Analyst

Jason, maybe, first one, for you. The eight-day shutdown of the plants in Texas, did that have an impact on overall volumes for the quarter? Or did you manage to catch up on volume that may have been missed when that plant was shut down?

Jack Truong, CEO

Very, very good question, Keith. With the lean operating system we have, we were able to shut down the plant quickly and maintain it during the frozen eight days. We then came out smoothly on the other side. That was a huge help in terms of how we were able to recover and respond in the marketplace. We look at a loss of eight days of production in our two Texas plants, which is a significant volume. However, it’s not something we can fully recover. The key is looking at volume, price, mix. With our customers, we were able to make the right holistic decisions, balancing volume and then mix and price to be able to come out with a solid financial performance that delivered on net sales and EBIT dollars for the quarter.

Keith Chau, Analyst

Jack, that's very helpful. My understanding of your comment is that while volumes may not have been affected, there could be some recoveries that weren't as effective due to the shutdown, which may have hindered cost recovery. Is that the correct interpretation?

Jack Truong, CEO

Exactly.

Jason Miele, CFO

Yes.

Keith Chau, Analyst

Okay. And then the second follow-on is just on your lean target. So obviously tracking towards that $139 million global target, but I don't think I've seen enough updated targets beyond FY '22. Can you just give us a sense of how to interpret what the potential benefits could be going forward, whether you're expecting North American lean benefits to be north of $100 million? And if so, by when? And the same discussion for the other regions, please.

Jack Truong, CEO

I think the new EBIT margin target for both North America and Asia Pacific is really a signal here. Yes, we will have new lean targets. Those will be announced at the annual Investor Day next week, Keith.

Simon Thackray, Analyst

I think Keith got in ahead of me on the sequential North American volume growth and why the margins went down sequentially, so I'll park that one. Just a quick one on the New Zealand leaky claims and the press reports now coming out in New Zealand on a $200 million class action. Is there anything to sort of update us with, with respect to New Zealand around that?

Jason Miele, CFO

Yes, Simon. The press you're seeing in the past couple of days pertains to a case that just began on Monday in the Auckland high court. There was also a case that completed in December of 2020 in the Wellington high court. We expect to hear the judge's findings from that in the middle of this year. For now, we are going to wait for the ruling from one of the high courts.

Brook Campbell-Crawford, Analyst

Yes. Just one quick follow-up on North America volumes. I’m wondering if you can provide an update on how exteriors in North America are performing in the current quarter and what kind of growth rates are expected.

Jack Truong, CEO

For North American volumes, we're seeing growth in the high teens.

Operator, Operator

Thank you. There are no further questions at this time. I'll now hand back to Dr. Truong for closing remarks.

Jack Truong, CEO

Well, thank you all very much for joining us today. I would just like to take the opportunity to extend my gratitude and thanks to all James Hardie colleagues around the world. Our exceptional financial results in fiscal year 2021 are really the direct result of their continued execution of the global strategy. The progress that we've made over the past two years to fundamentally transform how we operate is nothing short of extraordinary. Their efforts in this regard have put us in a position to enable significant future global growth. We're truly a new James Hardie company, a company that leverages its global reach, capabilities, and scale to execute and deliver on financial results consistently. I'm excited for what the future holds as we embark on this next phase of profitable growth. Thank you all, and have a great day.

Operator, Operator

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.