James Hardie Industries plc — FY2021 Form 20-F
Period: Fiscal year ended 31 March 2021; comparisons are with FY2020 unless stated otherwise. Although the request metadata says “2020 Q4,” this filing is an annual report for FY2021, not a quarterly filing. Financial statements are prepared under US GAAP and amounts below are in US dollars unless noted.
Business context and reporting period
James Hardie manufactures fiber-cement building products and, in Europe, fiber-gypsum and cement-bonded boards. Its three operating segments are North America Fiber Cement, Asia Pacific Fiber Cement and Europe Building Products. North America is the largest business.
Financial and operating performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Volume | 4,131.4 million square feet | 3,841.7 million square feet | +8% |
| Net sales | $2,908.7 million | $2,606.8 million | +12% |
| Gross profit | $1,051.7 million | $933.7 million | +13% |
| Gross margin | 36.2% | 35.8% | +0.4 percentage points |
| Operating income | $472.8 million | $342.5 million | +38% |
| Net income | $262.8 million | $241.5 million | +9% |
| Diluted EPS | $0.59 | $0.54 | — |
| Adjusted EBIT | $629.0 million | $486.8 million | +29% |
| Adjusted net income | $458.0 million | $352.8 million | +30% |
| Adjusted diluted EPS | $1.03 | $0.79 | — |
| Net cash from operating activities | $786.9 million | $451.2 million | +74% |
| Capital expenditures | $110.7 million | $193.8 million | −43% |
Operating margin was approximately 16.3%, versus 13.1% in FY2020. Adjusted results exclude specified items, including asbestos adjustments and restructuring costs; they are non-GAAP measures and should be considered alongside GAAP results.
- Segments: North America sales rose 12% to $2,040.2 million, with operating income of $585.5 million. Asia Pacific sales rose 10% to $458.2 million and operating income was $124.8 million. Europe sales rose 10% to $410.3 million and operating income was $37.6 million.
- Cash and liquidity: Cash and cash equivalents were $208.5 million at 31 March 2021, up from $144.4 million. The company had no borrowings drawn on its $500 million revolving facility at year-end and reported $495.3 million of available capacity after letters of credit and guarantees.
- Debt: Long-term debt was $858.6 million, down from $1,354.6 million. The company redeemed $400 million of 2025 notes and repaid the $130 million revolving-facility balance. Weighted-average interest rate on long-term debt was 4.3%.
- Margins and costs: North America operating margin was 28.7% (28.8% excluding restructuring), Asia Pacific 27.2%, and Europe 9.2%. Higher freight and Prattville start-up costs weighed on North American gross margin; European gross margin was affected by COVID-related shutdowns and lower-volume cost absorption.
Material changes versus FY2020
- Sales growth reflected higher volumes and average selling prices across all operating segments. Strong US residential demand and strategic pricing supported results.
- Operating income improved as lower restructuring charges and reduced SG&A offset higher asbestos adjustments. FY2020 restructuring included significant plant and asset impairments; FY2021 restructuring was primarily severance.
- FY2021 net income included a $143.9 million asbestos adjustment, principally a $123.0 million unfavorable foreign-exchange impact and an unfavorable actuarial movement. The effective tax rate rose to 36.2% from 16.1%, mainly due to asbestos and tax adjustments and geographic earnings mix.
- Operating cash flow increased substantially, supported by stronger profitability, lower inventory, improved receivables/payables and a $64.8 million US CARES Act tax refund.
- Capacity utilization rose in North America to 83% from 79% and in Europe to 79% from 77%; Asia Pacific declined to 84% from 90%. The first Prattville, Alabama production line was commissioned in Q4 FY2021.
Outlook, risks and unusual items
- Management expected US residential end markets to continue growing into FY2022, Australian addressable markets to expand, and Europe to deliver year-over-year sales and operating-margin growth. The filing does not provide clear consolidated revenue or earnings guidance.
- Management identified three strategic priorities: commercialize global product innovation, expand penetration in existing and new markets, and broaden the James Hardie brand from a premium professional brand toward a leading consumer brand.
- Capital expenditures are expected to be approximately $250 million annually for the next three fiscal years. The company targets leverage of 1–2x, reported a special dividend of approximately $309.6 million paid on 30 April 2021, and planned to reinstate ordinary dividends in FY2022, beginning with a half-year dividend to be declared in November 2021.
- FY2022 AICF contributions were estimated at $252.6 million, equivalent to 35% of FY2021 free cash flow as defined by the funding agreement. FY2021 contributions were $153.3 million.
- Asbestos exposure: The gross asbestos liability was $1,135.8 million at year-end; the net unfunded AFFA liability, net of tax, was $554.1 million. The estimate depends on long-term actuarial assumptions through 2073. Management disclosed that shifting the estimated mesothelioma claims peak by two years could increase the discounted central estimate by about 21%.
- Other contingencies and risks: New Zealand weathertightness litigation remained pending; no reserves were recorded for the cited Cridge, White or Waitakere matters because loss was not considered probable or reasonably estimable. Other key risks include COVID-19 disruption, housing-market dependence, raw-material and freight costs, customer concentration, foreign exchange, warranty claims, silica and environmental regulation, and tax audits.
- COVID-19 caused temporary plant closures in parts of Europe and Asia Pacific earlier in the year; all facilities were reported fully operational as of the filing date. The continuing pandemic’s effect remained uncertain.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. The asbestos liability valuation was identified as a critical audit matter.
Important facts for investors to verify
- Reconcile GAAP net income growth of 9% with adjusted net income growth of 30%, including the adjustments and tax effects.
- Review the assumptions, sensitivity ranges and foreign-exchange exposure underlying the $1.14 billion gross asbestos liability and future AICF payments.
- Confirm the post-year-end special-dividend funding, including the subsequent $110 million revolving-facility draw, and the effect on leverage and liquidity.
- Track execution, commissioning and utilization of the Prattville expansion, alongside the planned increase in capital spending.
- Monitor US housing demand, input and freight inflation, the concentrated customer representing 12% of FY2021 sales, and the outcomes of New Zealand litigation.