Earnings Call Transcript - JHX Q2 2021

Operator, Operator

Thank you for being here, and welcome to the Q2 FY '21 results briefing conference call for James Hardie Industries. Today, Dr. Jack Truong, CEO, and Mr. Jason Miele, CFO, will be hosting the call. I will now pass it over to Dr. Jack Truong, CEO. Please proceed.

Jack Truong, CEO

Good morning, and good afternoon, everyone. Thank you for joining us on our Q2 2021 earnings call. I will begin by providing an update on the progress of how we have been executing our global strategy to deliver on our financial results consistently. Our CFO, Jason Miele, will then cover our Q2 and first half fiscal year 2021 financial results. Before I get into the contents of the presentation, I would like, first, to extend my gratitude and thanks to all James Hardie colleagues around the world. Their continued execution on global strategy, hard work, and relentless focus on health and safety have led the company to achieving its record quarter for total company in net sales, adjusted EBIT, adjusted net operating profit after tax and operating cash flow. Our success was driven by exceptional performance in delivering growth of our markets and strong returns across all 3 of our operating regions: North America, Europe and Asia Pacific. And as a total company, this marks the sixth straight quarter that we have delivered strong financial results. Our employees' commitment to continuous improvement and our strategic imperatives has been instrumental in delivering these strong results. Let's turn now to Page 5 for an update on our global strategy. Now back in August, I shared with you the summary of the progress toward our vision of transforming James Hardie from being a big small company to a small big company that can deliver consistent growth of our markets with strong returns. While significant and measurable progress has been made over the past 6 quarters, the critical actions we took in year 1 form a strong foundation for James Hardie to become a high-performing small big company. First, it was important that we started by executing a lean manufacturing strategy via our unique Hardie Manufacturing Operating System, HMAS, to transform James Hardie from being the world's largest fiber cement producer to being a world-class manufacturer. It means that as a network of plants, we would be on a continuous improvement path of becoming more predictable and with fewer variations in production output, quality and efficiency. Our significant progress during the past 2 years has enabled us to consistently and efficiently deliver premium quality products and services to our customers and subsequently to the market at a lower and more predictable cost. Second, we shifted the focus of the commercial organization from being a pull organization to a push-pull organization. It's about being a customer-focused company. Our true customers are the dealers, retailers and distributors. They are the focal point where we create more value for them every day by creating more demand for our products with the builders, contractors and installers and with better service and being easier to do business with. Instilling a customer-focused mindset throughout our company is critical to the success of our strategy. As a result of these two foundational strategic approaches, we delivered strong fiscal year '20 results, including a 7% growth of our markets and a 26% adjusted EBIT margin in North America, an increase of 17% year-over-year in total company's adjusted net operating profit after tax and a 48% year-over-year increase in total company's operating cash flow. Now with a strong foundation established in fiscal year 2020, we're now building on that momentum as a global company in fiscal year 2021. Thus far, in fiscal year 2021, our teams around the world have performed very well, continuing to execute and deliver consistent financial results quarter-on-quarter. We continue to strengthen the engagement and integration of our supply chain operations with our customers for mutual benefits. This has ensured that we are able to continuously service the market seamlessly through our customers, providing the markets the products they want and when they need them. Although the global pandemic caused disruptions in the markets around the world, it is an opportunity for us to accelerate our engagement with our customers to add more value for them and for their customers. It enables us to improve working capital for our customers while driving more demand and share gain of our products in the marketplace. Our consistent strategy and execution enabled us to deliver record financial results for the total company in Q2 fiscal year 2021, which includes strong growth above market and returns in all 3 of our regions: North America, Europe and Asia Pacific. We had significant positive momentum headed into the second half of fiscal year 2021 and into fiscal year 2022. We expect to continue to execute very well on our strategy and to build on our performance through the end of this year and beyond. Toward that end, as we approach fiscal year 2022 and the third year of our transformation, we will expand our focus toward developing new global growth platforms. It will allow James Hardie to continue to deliver consistent and profitable global growth well into the future. Innovation will enable us to enter adjacent markets and leverage our core strength in fiber cement technologies and our fiber gypsum technologies of brand strength and market access. Of critical importance is our intention to launch the first innovation platform in North America, Europe and Australia at the beginning of fiscal year 2022. This innovation platform is truly global in nature, and I'm very excited about what this will deliver for our company moving forward. As we move into the second half of fiscal year 2021, it's important that we continue our progress on the strategic initiatives we have put in place to shift into a small, big company. We will continue to execute on our critical few initiatives and deliver consistent profitable growth for our total company. As I mentioned back in August, a transformation of this magnitude is not easy. Critical to this transformation and underpinning the success continue to be the integrated and globally connected management system we put in place 2 years ago. This management system continues to allow us to make better decisions holistically at various levels within the company. It's also enabled teams to make appropriate adjustments quickly to keep our transformation on the right track. I remain very pleased with the progress we have made over the past two years to transform James Hardie from a big small company to a small big company. Now let's turn to Page 6. Before we get into some details on the progress of some of our core initiatives, I want to take a step back and provide some perspective on our global financial performance over the past 10 years. This will also put our recent results into context. For clarity, the black line represents global net sales by quarter in millions of U.S. dollars, where the green dotted line represents a global adjusted EBIT margin percentage by quarter. Starting on the left-hand side, between fiscal year 2011 and fiscal year 2018, you will notice a high degree of variability in the adjusted EBIT margin with steady albeit slower global sales growth. This volatility is indicative of a company that did not have the right globally connected and integrated processes to deliver consistent global profitability. It's also indicative of a manufacturing company that has high variability in cost per unit, as it is not operating under a globally connected lean methodology and of a company that is not closely connected with its customers to understand true demand in the markets and to flow the right products to the right customers and when they need them. What I'm describing is and what the chart shows over that time period is a big small company. As you move toward the right, however, you will begin to see where we started our transformational journey to become a small big company. First, in Q1 of fiscal year '19, we started to create a new James Hardie in Europe with our acquisition and integration of Fermacell. You would notice that this inflection point of global EBIT margin declined largely as a result of this acquisition, as you will see over time as we progress on the integration of global EBIT margin rebound. Which brings me to the second inflection point in Q4 of fiscal year '19, we began a lean manufacturing transformation. Through the information of lean capabilities and processes across our network of plants, we're able to reduce variability in our manufacturing processes and improve the predictability of output and consequently, manufacturing cost reductions. You can see the significant improvement in our global EBIT margin shortly after we began the transformation as we translated this reduction in variability and improvement in predictability into true cost savings across our network. Which brings me now to the third significant inflection point in Q2 of fiscal year 2020, where we initiated the strategic transformation of our commercial organization from pull to push-pull. This concerted effort to shift from a focus solely on various contractors and installers to a primary focus on our customers who are maintaining connection to our various contractors and installers was instrumental in driving real value for all. As we develop more meaningful partnerships with our customers, the financial results follow, as we started to gain share, drive growth and deliver strong returns. As we continue to replicate the North American strategies into our European and APAC businesses, we start to see true consistent global growth. In fact, it is the 3 important milestones: the integration of Fermacell; the execution of lean transformation; and now shift from pull to push-pull, that led directly to James Hardie delivering record worldwide financial results in Q2 of fiscal year 2021, which is also our 6th straight quarter of delivering strong results. On the prior slide, I reviewed the 3-year strategy that would pick James Hardie from being a big small company, to a small big company. What this chart reaffirms is that continued focus on global lean manufacturing, increased integration of customers across the world, combined with market-led innovation would drive accelerated profitable sales growth with consistent EBIT margins moving forward. Now let's turn to Page 7. As I just mentioned, one of the critical actions we took in fiscal year 2020 was to implement lean capabilities and processes across our network of plants via our Hardie Manufacturing Operating System with the objective of becoming a world-class manufacturer. Today, I wanted to share the significant financial impact we made since the beginning of fiscal year 2020 and when our lean journey began. On the left-hand side, you can see North America strong quarterly progress to date. In fiscal year '20, we generated close to USD 28 million in cost of goods sold savings. And through the first 6 months of fiscal year '21, we generated close to $18 million in year-to-date savings, which is fiscal year '19 baseline costs. In the 18 months since inception, we delivered close to $46 million in cumulative savings due to lean. Now in addition to cost savings, consistent lean execution also unlocked an incremental 12% of our operating capacity across the North American network of plants. Moving to the right-hand side, you will see a global lean savings core utility progress, which follows in line with our North American results. APAC and Europe generated $16-plus million in cost of goods sold lean savings versus the FY '19 baseline since inception. Global lean savings now total $62 million during the past 18 months. Our lean program not only delivers a lower cost per unit outcome for our operations, but also unlocked an incremental 12% of operational capacity across our North American network of plants. While our focus on lean has returned some impressive financial results, I'm just as pleased with the impact it has had on employee engagement and retention. As an example, in North America, our manufacturing employee retention was 85% in fiscal year '20 as we cut our staff turnover rate in half. I would like to take a moment to thank all of our manufacturing employees around the globe, the operators in HMOS who have been critical to the success of the lean initiative. But what I have been most impressed with is their commitment to work safely through the pandemic, while maintaining safe practices and continue to drive lean initiatives with results. This continued momentum in lean manufacturing execution was instrumental in delivering savings while unlocking incremental capacity to meet increased demand in the marketplace. Turning now to Page 8. In fiscal year 2021, one of our critical initiatives is about increased end-to-end engagement and integration of our customers through supply chain. This is about a true customer partnership where all facets of the supply chain work together in concert for mutual benefits. Specifically, this involves incorporation of our customers' demand signals into James Hardie supply chain operations which, in turn, enables us to provide them with the products they want, when they need them, and flow them through the value chain through the sites of builders and contractors. One of the critical elements of our strategy started in earnest earlier this fiscal year, and the results to date have been outstanding. On the left-hand side of this slide, you can see the quarterly breakout of the North American net sales growth in the dark green shaded bars and the inventory declines in the third quarter of fiscal year 2020, the black line. What you will notice is that over the past 9 months, North American net sales that decreased $85 million or 20% increased to $515 million in Q2 of this fiscal year. While at the same time, total inventory decreased $76 million or 35% to $142 million. Throughout this working capital optimization, we were able to serve the market well to our customers while helping to improve customers' working capital as well as ours. Simply put, improved integration of our customers, flowing products from our network of now more efficient plants and more predictable plants through our customers to the job sites has not only helped to drive sales growth and share gain but also helped to increase efficiency across the value chain and freed up valuable working capital in the process. I'm very pleased with the strong engagement and integration of our customers through the supply chain. And I truly expect to continue developing this critical partnership through the remainder of fiscal year 2021 and beyond. Now moving on to Page 9. On the left-hand side, you can see the trend in the operating cash flow over the past 4 years, shown in half-year periods. I think this slide is a good summary of the success of our strategy over the past 2 years. The strong profitable sales growth, coupled with continuous improvement in our lean manufacturing performance and the integration of our supply chain with our customers has led to a step change in our operating cash flow. For the half-year fiscal year 2021, our operating cash flow was $416.8 million, an all-time high and an increase of 66% versus the previous corresponding period. This strong operating cash flow helped increase our liquidity to USD 886 million. This also leveraged and lowered our lapse ratio to 1.32x as of September 30, 2020. The step change in our cash generation capability and our confidence in the execution of strategy, as demonstrated both in growing markets and in highly volatile markets, put us in a position today to announce a further strengthening of our balance sheet by paying down USD 400 million of debt by the end of the fiscal year and the reinstatement of ordinary dividends at the end of this fiscal year. I would now like to turn this over to our CFO, Jason Miele, to discuss additional details in our financial results.

Jason Miele, CFO

Thank you, Jack. I'll begin with our global results. As Jack noted earlier, we have achieved strong global financial returns for the sixth consecutive quarter, with solid results across all three regions. By executing and accelerating our strategy, we delivered impressive top-line results for both the second quarter and the first half. More importantly, we successfully converted that growth into strong bottom-line performance and record operating cash flows. In the second quarter, global volume rose by 8%, and net sales increased by 12%, driven by effective commercial execution across all three regions. Our strong top-line results in the second quarter led to an even stronger bottom-line outcome, with both global adjusted EBIT and global adjusted net operating profit increasing by 22% in the second quarter. Our ability to achieve a 22% adjusted EBIT improvement while net sales rose by 12% can be attributed to our strong execution of foundational strategic priorities, such as lean manufacturing and continued customer integration. We experienced significant EBIT growth across all three regions in the second quarter. In North America, adjusted EBIT rose by USD 23.9 million, a 19% increase. Europe saw an increase of EUR 4.2 million in adjusted EBIT, an 81% increase. Meanwhile, the Asia Pacific region reported an adjusted EBIT increase of AUD 14.6 million, a 37% increase. For the first half, global net sales grew by 4%, reaching approximately USD 1.36 billion, while global adjusted EBIT increased by 11%, primarily driven by strong performance in North America, where adjusted EBIT grew by USD 41.3 million. Additionally, our second-quarter results showed an adjusted net operating profit of $120.5 million, reflecting a 22% increase year-over-year and marking an all-time quarterly high for the James Hardie Group. For the first half, adjusted net operating profit amounted to $209.8 million, an 11% growth compared to the same period in fiscal year 2020. Notably, our operating cash flow for the first half surged by 66%, reaching $416.8 million, a significant indication of the success of our globally integrated strategy. This strong cash flow results from effective commercial execution and partnerships with customers to drive profitable sales growth, combined with deliberate lean manufacturing practices and efficient supply chain integration. Our robust cash flow has allowed us to announce our plans to further bolster our balance sheet and reinstate dividends at the end of the fiscal year. Moving on to the North American business, we had another exceptional quarter, with volume up 11% and net sales increasing by 12% compared to the previous year. Our exteriors volume rose by 11%, spurred by market share gains and strong customer engagement. Interiors saw a volume increase of 7% as the repair and remodel market rebounded post-pandemic. We have adjusted our annual price increase to January 1 instead of April 1, with an expected average net sales price increase of around 3%. Our top-line results were complemented by significant adjusted EBIT growth, which rose by 19% in the second quarter compared to last year, driven by lean manufacturing efficiencies and customer integration. This growth, however, faced some pressure from higher freight costs. Overall, the North American team achieved outstanding results with strong growth exceeding market trends and impressive returns, maintaining an adjusted EBIT margin of 28.9% in both the quarter and the first half. Turning to our European results, we previously indicated that Europe was heavily impacted by the COVID-19 pandemic, with a 12% decline in the first quarter due to shutdowns in key markets like the United Kingdom and France. However, in the second quarter, our European team successfully navigated the earlier uncertainty, witnessing a strong recovery. The reopening of markets in the UK and France significantly boosted fiber cement growth, with overall net sales rising by 8%. By product, fiber cement sales increased by 14%, while fiber gypsum sales grew by 7% compared to the same quarter last year. Entering the second half of the year, the focus remains on improving gross margins through growth in high-margin products and expansion into new markets. In the second quarter, adjusted EBIT was EUR 9.4 million, representing an 81% increase from the previous year, with an adjusted EBIT margin of 11.1%. We are encouraged by our team's ability to rapidly return to both top-line and bottom-line growth with enhanced EBIT margins. Now, regarding the Asia Pacific results, this region faced market volatility in the first quarter due to COVID-19 lockdowns in the Philippines and New Zealand. However, with restrictions easing, we saw a recovery in the second quarter, particularly from our Australian and New Zealand businesses. The New Zealand team achieved remarkable results, with double-digit sales growth and excellent EBIT growth. Following the closure of our James Hardie Systems business and the Penrose manufacturing facility, shifting production to Australia has improved cost outcomes. It's important to note that the Asia Pacific EBIT margin benefited from a favorable country mix during the second quarter, but this may change as the Philippines returns to normal operations. Long-term improvements in the Asia Pacific business stem from production shifts, exiting unprofitable segments, and lean manufacturing enhancements. In the first six months, both adjusted EBIT and adjusted EBIT margin benefited from reduced SG&A expenses, and we will invest in profitable growth in Asia Pacific starting in the second half of the fiscal year. Shifting to discuss the other segments, we observed a notable increase in general corporate costs in the second quarter compared to the previous year, mainly due to higher stock compensation and legal expenses. Despite R&D expenditures remaining stable year-on-year, product development expenses, recorded within business unit segments, rose by 14% in the second quarter. The global innovation team remains focused on market-driven innovation in preparation for upcoming product launches. In summary, our second-quarter worldwide results reflect strong growth in adjusted net operating profits, driven by strong segment performances, even amidst rising corporate costs and a higher effective tax rate. Record highs for both adjusted EBIT and adjusted net operating profit were achieved this quarter. For the first half, adjusted net operating profit increased by 11% to USD 209.8 million, supported by strong performance in North America and Asia Pacific. This performance was somewhat offset by higher corporate costs and a higher effective tax rate, although adjusted net interest expense decreased by 11% due to a lower average revolving credit facility balance, resulting from our strong cash flow. These solid results position us well as we enter the second half of the fiscal year and prepare for strategic investments in growth. As we discuss cash flows and capital expenditures, our operating cash flow rose significantly, driven by strong customer engagement and lean manufacturing improvements. Notably, we reduced inventory during the first half and achieved 92% of last year's full fiscal year operating cash flow in just six months. Our capital expenditures amounted to $44.7 million, which is lower than the previous year due to reduced capacity expansion. However, this reduction allowed us to manage costs effectively. Our strong integration with customers and growth plans in North America will see us commissioning new sheet machines to meet demand. We anticipate total capital expenditures for the fiscal year to be around USD 120 million. In terms of our liquidity profile, our debt structure remains unchanged, with improved liquidity and leverage driven by strong cash flows. Our liquidity position ended the first half at $885.9 million, marking a significant improvement. We are committed to reducing gross debt and reinstating dividends, allowing us the financial flexibility to support our growth strategy. Finally, we are reaffirming the adjusted net operating profit guidance range of $380 million to $420 million for the full fiscal year.

Operator, Operator

The first question comes from Brook Campbell-Crawford from JPMorgan.

Brook Campbell-Crawford, Analyst

First one, Jason, actually just for you on that with America freight. It looks like the freight cost picked up quite significantly actually in the quarter. And are you able to quantify the dollar increase or the percentage increase? It just seems like a very big number to offset benefit sales for pulp and lean cost side, et cetera?

Jason Miele, CFO

Yes, Brook, thanks for that. Specifically drilling into every metric and providing that data. But certainly, there's market data out there, as the housing market has been robust, flatbed truck demand is also high, which is driving that increase in freight pricing for us. But it was fairly significant. With the continuation of our lean progress, then the lower pulp costs, we were able to still drive a higher EBIT margin outcome.

Brook Campbell-Crawford, Analyst

Okay. And then for Jack, just on the new global platforms. Are you able to provide any sort of further color? You mentioned adjacent markets, which sounds very interesting. Anything at this stage that you can provide us on potentially what to expect from that later on or next calendar year, actually?

Jack Truong, CEO

Yes, Brook, what we're looking at here is really about entering new adjacent categories. I mean, so it means that it's not just only about the wood look or the vinyl look that we would combine our sights on. One of our core 4 strategies that we announced to the market back in February 2019 is that we would like to expand our exterior business. And the exterior business means that the market opportunity for us is really by all the potentially all the exterior markets. And that is what we are driving for with innovations.

Operator, Operator

Your next question comes from Peter Steyn from Macquarie.

Peter Steyn, Analyst

Just maybe a quick one on Prattville. Interesting to see your intention to step your commissioning. Is that in response to a pretty tight supply environment? If you could just typify for us what your thoughts are there, the supply demand and how Prattville plays into that.

Jack Truong, CEO

Yes. Peter, what we see is that as we continue to execute our global strategy, not only that we are continuing to gain share in the marketplace but we also have increased demand. And third is that with the innovation that we plan to come out in the next fiscal year. So when you add all those together, it shows that our demand going forward will really increase, and that will give us the confidence to really pull forward the Prattville process, as well as knowing that we continue to drive lean execution. So as we continue to do that, we will continue to unlock more existing capacity.

Operator, Operator

Your next question comes from Sophie Spartalis from Bank of America.

Sophie Spartalis, Analyst

Just a quick one from me. Just in terms of the lean savings and production capacity you're getting, I guess, interested to hear how much more production capacity you think that there is to be unlocked across the North American network?

Jack Truong, CEO

Yes. So Sophie, what - so right now comparing to 18 months ago, we have unlocked about 12% more capacity on what will the total capacity in North America when we started this journey 18 months ago. And as what lean continuous improvement is, is that we will continue to improve our execution of lean, and that means that we will continue to unlock more. And also equally important, Sophie, is that by executing lean and continuing to do it better, we will reduce the variability in our production output. So that would drive more predictability on what we make and how much we make and where we make them. And that is one of the key factors that will allow us to be able to work with our customers, to flow products to the marketplace more fluidly.

Sophie Spartalis, Analyst

Okay. And so just a follow-up then. We've seen over the last 12 months, a reduction in your SKUs, reduction in your, call it, offerings to try and streamline your production output. I guess, next year, we'll see the introduction of new innovative products. Can you just talk through how that marries in with your hope to be very streamlined on the manufacturing side of things?

Jack Truong, CEO

Yes. Good question, Sophie. As part of the lean approach is really about understanding what is the true demand in the marketplace. And then based on the true demand, we want to make sure that we offer the right product portfolio. And then based on that product portfolio that the market really needs and wants, and that would drive our production plan. And so it's a continuous process that we always evaluate. What type of product and SKUs and portfolio will continue to resonate with the market and what don't. And what doesn't resonate or the ones that now that we have the process to be able to eliminate them sooner because that makes room for the new products that we plan to launch, not only within our warehouse or our production but also for our customers to have more resource capability to carry our innovative products.

Operator, Operator

Your next question comes from Peter Wilson from Crédit Suisse.

Peter Wilson, Analyst

Just a couple on the cost base. So Slide 7, the North America lean savings. So it does appear that you're on track to me to exceed the USD 100 million target, which is a great result. But the green bars tend to suggest that the rate of improvement versus an FY '19 baseline have stalled. I'm just wondering what that means in terms of getting additional savings in FY '22 versus that '19 cost base.

Jack Truong, CEO

Yes. Peter, I think we had this discussion. It is really - in lean, it's really about every quarter or every month ensuring that what are the savings we are able to gain, say, last month, the last quarter. The following months, we began to make sure that we keep that gain and then improve on it. Because by keeping that gain, it is already a saving. So the way to read this, this chart is that essentially that $46 million of cumulative savings since the beginning of Q1 of FY '20, is that we have to make sure that, going forward, we continue not only to improve but keep that gain. And that gain will - if we keep that gain going forward for the next 6 quarters, then just to keep that gain, that's already another $46 million. So anything else on top of that will be the additional savings. What lean savings is really about is to ensure that whatever the improvement we made from what of the baseline that we started, that is still locked in. That is one of the key factors in driving the consistency in the gross margin or EBIT margin of a business. So the key is that sustained gain is already very, very important and then add on top.

Peter Wilson, Analyst

Got it. Okay. And if I could reprise another question, I've asked you before. Just in terms of Prattville, the margin impact you expected in the early quarters there, both gross margin and D&A, will that come through?

Jason Miele, CFO

Yes, Peter, thanks for that question. I think you can look back at historical results to try to model that as well. So we would have brought on Tacoma recently. Obviously not the same size facility, but still a significant amount of capital expenditure that as we brought that on would have started having the depreciation. And obviously, selling product from that plant. And you could see in the prior year, 26% EBIT margin and in the current year, 28.9% margins. So certainly, as you bring on the new facilities, especially one sheet machine across a large facility, there'll be some incremental depreciation there. But if we're selling products in that facility, which obviously we will be, it also has a high gross margin.

Operator, Operator

The next question comes from Lisa Huynh from Citi.

Lisa Huynh, Analyst

Sure. I just have a question on SG&A. I guess, you've done a good job reducing SG&A during the period, which is helping the strong margin result. Some of these costs will naturally be added back in. But as you mentioned, you've made some structural changes to the cost base. Can you just give us a sense of what the cost savings you delivered from these initiatives were? And to what extent we should expect SG&A to step back up, particularly in Asia Pacific, where we're seeing a strong EBIT margin result?

Jack Truong, CEO

So it’s roughly between 200 and 300 basis points for both North America and Asia Pacific, primarily in Australia. And so structurally, what happened during the pandemic was that we had this cost rationalization to make a structure more lean. As we go through this pandemic, we essentially had just a different way of driving growth in the marketplace. So it's also an opportunity for us now to really look at the critical few that will move the needle in terms of driving demand. As we go forward, what you're going to see more is that the 200 to 300 basis points of SG&A will come back to our business so that we can really drive accelerated profitable growth in the mid to long term.

Lisa Huynh, Analyst

Okay. Sure. Got it. And I guess, just the extension of that question, then would you expect your Asia Pacific EBIT margins to continue to run ahead of your North American margins over the next 6 to 12 months in that respect?

Jack Truong, CEO

No, no, it should be moderated lower than what you see in this quarter that we just reported. I think Jason had mentioned what you saw with a really good EBIT margin for APAC on this past quarter, really 4 factors, right? I mean the first one is that the New Zealand business really had a great quarter due to the pent-up demand, as well as the more efficient cost structure of product coming from now the plant in Australia. And now and also our more efficient plant in Australia and more volume coming in from New Zealand, that's not a lower product cost structure. And then third is really about this past quarter, the Philippines really didn't have a lot of growth. But now we see growth coming back in the Philippines in a very good way this quarter. So when you look at the EBIT margin, that's really the combination of EBIT dollars and net sales dollars. So you should expect that to really not be at the level that you see, it should be lower.

Operator, Operator

Your next question comes from Andrew Scott from Morgan Stanley.

Andrew Scott, Analyst

Just first question from me, maybe for Jason. With the shifting of the timing of the price increase, can you talk to us about how you now think about the sort of the cadence or seasonality of the quarters? Usually, third quarter is the softest, presumably, you see some buying ahead of the price increase. How would you sort of expect to see that view pan out now?

Jason Miele, CFO

Yes. Certainly it steadies that out, the seasonality aspect a bit there, Andrew. And then I think you also have to remember this year is also a different year than any other year. But going forward, yes, Q3 is historically the lowest volume quarter. And yes, historically, you get a pull forward from a price increase. So as you look out into future years, that will help moderate that and drive some consistency throughout the four quarters.

Andrew Scott, Analyst

Okay. And Jack, just a question to you, a variant on Brook's question. You spoke about the global growth expansion. Just wanted to inquire, does global mean anything outside of your existing footprint at the moment? Do you have further aspirations there? Or is it really - are you trying to tell us just across the platforms that you're in at the moment?

Jack Truong, CEO

Yes. So it's really - one of the key global growth platforms for us, really, it's also Europe. I think we have discussed this annual investors tour last year is that for us to really drive the accelerated profitable growth in Europe for the 10-year ambition is really about having true innovations that are fiber cement that would cater to the needs of homeowners in Western Europe specifically. A key part of our innovation approach that we have been working on during the past 12 months is really - and that will lead to allow us to create new growth in North America and Asia Pacific, but also fuel the growth for Europe. That is all about making sure that we can develop and commercialize the right products that meet the European homeowners' requirements.

Andrew Scott, Analyst

Jack, if I can just jump in. I know '22, but just to clarify and be more direct, no broader Asian plans within that?

Jack Truong, CEO

Not in the short or midterm end run. So it's really about making sure that we drive - making sure that we can drive our value creation in Europe, where we just made a very transformative acquisition.

Operator, Operator

The next question comes from Abraham Akra from Jefferies.

Abraham Akra, Analyst

My first question relates to capacity utilization. It appears to be plus 19% in FY '23, assuming that volume continues to grow by double digits year-on-year. There was a 12% incremental capacity being unlocked by Alabama coming online. What level of capacity utilization do you foresee that would warrant the construction of a new plant or an expansion of an existing one?

Jack Truong, CEO

Yes. Abraham, we don't disclose our utilization of our plant. But I think what you can see is that our business continues to grow. I think we're doing it in the last 6 quarters here in North America. And we continue to have really, really good growth potential, at least in the near term that we can supply the market. And then with Prattville coming online, it should drive a lot of the more capacity to first assume the market.

Abraham Akra, Analyst

Sure. That's understandable. And last week...

Jason Miele, CFO

I'm sorry, just real quick, just to add. You were also talking about deeper into the future. It's a little hard to hear you, but I think you're talking about FY '23, FY '24. Remember, the way we built Prattville, it can fit 4 sheet machines over the long term. So we've announced when we're going to start sheet machine one. And today, we announced when we plan to start sheet machine two. There's still brownfield capacity at that site.

Abraham Akra, Analyst

Okay. Got it. And lastly, can you give some color on a trading update in terms of how you're performing in terms of volume across all regions?

Jack Truong, CEO

Yes. So I would - right now in North America, quarter-to-date, our business is really at about upper, mid- to up teens growth. And then in Europe, this is on - so at the double-digit growth. And in Asia Pacific probably around mid- to upper single-digit growth total, as a total Asia Pacific.

Operator, Operator

Your next question comes from Paul Quinn from RBC Capital Markets.

Paul Quinn, Analyst

Jack and Jason, just like other building material producers, Hardie's benefited from some of the COVID lockdowns and people fixing up their houses. Today's announcement by Pfizer on the vaccine, what do you expect the implication on your growth going forward?

Jack Truong, CEO

Paul, I would say, I think it's too early to tell regarding the vaccine from Pfizer. But we're certainly - what we see in the marketplace is that there is going to be an increased focus in remote modeling. Certainly, more and more people will be working from home, and there are going to be more opportunities for remodeling. For us, as we look at remodeling, it's really more about residing. There are still a lot of homes, very large percent of homes in North America that are between 30 to 40 years old. Those are prime targets for residing. So irrespective of what the vaccines turn out to be, I think we still see a lot of growth opportunity for us in particularly in North America, due to the structural nature of the housing market here when it comes to residing and remodeling.

Operator, Operator

Next question comes from Keith Chau from MST Marquee.

Keith Chau, Analyst

Just a follow-up question on your trading comments. I just want to confirm that the numbers that you've just provided to North America, up to mid-teens, Europe double digits and APAC, mid- to upper single digits, is that volume growth? And just to confirm that, that is the period to date for the third quarter, please?

Jack Truong, CEO

Yes. So please, for quarter-to-date - yes, for quarter-to-date, for North America, that's volume growth. That's really mid-teen to upper mid-teens. For Europe, that will be revenue growth in the double digits. And then for Asia Pacific, it is volume growth, and that will be in the mid- to upper-single digits. And again, this is quarter to date. And then for Asia Pacific, that's volume.

Keith Chau, Analyst

Volumes. Okay. Got it. The other one, I just want to go back to the net price increase, Jason, that you mentioned. The expectation for FY '22 is plus 3%, which I think ultimately assumes that there are some rebates flowing through as well. Just wondering if you can give us a sense on the expectation on mix going forward, whether that's going to be a tailwind or a headwind in FY '22? And as an extension of that question, whether there are commercialization of new products coming through in FY '22 that should - that may move the dial on price or volume?

Jason Miele, CFO

Yes, Keith, as you know with the strategy, we're certainly focused on, Jack mentioned, innovation platforms. We're obviously driving color penetration and high-margin products. But certainly, in a year like this year, the mix - we achieved price everywhere we wanted to and the mix is kind of what it is, where the south is doing very strong and single-family new construction is doing better than other segments. And so that's just - that's fine, as long as we're executing our price increase and getting the price where we want. The mix is just kind of an outcome. The 3% we talked about is what we achieve - we believe what we will achieve in the financial statements next year. So that's inclusive of the mix. But obviously, if there's something - shock to the market that changes it like this year, then the mix impact can change. But 3, 3% is our estimate today of what we believe we'll achieve.

Operator, Operator

And your final question comes from Lee Power from CLSA.

Lee Power, Analyst

So if I take the $46 million LEAN in the U.S. If you assume you do like just a current - like what you're currently doing now so like 8.4 for the next two quarters kind of get to $63 million, which is obviously above the range that you have for '21. Do you want to just chat a little bit about is that still just coming through faster? Are you unlocking more than you thought you would unlock? And maybe how we should think about the longer-term targets.

Jack Truong, CEO

Yes, Lee. If you look at the - let's focus on North America number here. Right now, what we're seeing here, where we are now with this at the beginning of FY '20 is that with our cost structure, it's about $46 million in terms of more efficient than 6 quarters ago. That means that to - if we continue to perform the same level as we do now, and that means, for the next 6 quarters, that will gain that $46 million additional just to keep at the same level of performance now, which is a very hard thing to do. So if we do that, then that will be the equivalent of essentially $94 million of savings out of the $100 million that we said, beginning of fiscal year '20 when we introduced LEAN. We expect that the continuous improvement will continue, which is where that additional will push us to above, at or above $100 million. But recognizing that each month going forward will be tougher and tougher to keep the gains that we have, or we've got to also add on top of that. From here going forward, every inch is, again, tougher and tougher. A lot of the work will go in, in terms of how we can lock in those gains for good, through a lot more of the process and engineering, a lot more manufacturing technology that we need to introduce into our manufacturing processes, to really fundamentally and mechanically lock in those things.

Lee Power, Analyst

Okay. So when you say at or above $100 million, should we think of the $100 million as like a worst-case scenario, assuming that?

Jack Truong, CEO

I mean assuming when we set out on this journey, $100 million - yes, 6 quarters ago, $100 million seemed like a very - was a very big number. Of course, we worked hard and galvanized the whole company toward delivering that every day. As we stand right now, I would say that we are ahead of that path. But recognizing that every month going forward, it will be tougher and tougher. Just not to keep the gain that we have. I wouldn't say $100 million is the worst case. Certainly, now halfway through that 3-year plan, it looks a lot more tenable than it was 6 quarters ago. But certainly, we take your words as a challenge, Lee.

Operator, Operator

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

Jack Truong, CEO

Thank you all very much for joining our call. We are in the middle of continuing to execute our global strategy as one global company, to continue to deliver growth above markets as a global company. It's really great to see the progress that we have made so far. And I'd just like to take the opportunity to thank nearly 5,000 employees of James Hardie around the world who have worked very hard every day, despite the pandemic, to rebuild our business and make our business stronger as a result of it. We're confident about what the future holds, despite all the uncertainties, but we see the growth opportunity ahead for us, not only with the buoyancy in the housing market that we see right now, but also with the share gain that we are continuing to have and to earn, as well as the excitement that we have within our company and the innovations that we plan to roll out in fiscal year 2022. Again, thank you all very much, and have a great day.