James Hardie CEO Dismissed On Grounds Of Breaching Company Values

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James Hardie CEO Dismissed On Grounds Of Breaching Core Company Values

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  • Non-executive director Harold Weins appointed interim CEO
  • Mr Truong successfully led James Hardie transformation in line with board strategic direction over past three years
  • Earnings upgrade for year to March 2022 in range of US$605 to US$625 million, compared to US$458 million FY21
  • Earnings growth driven by higher USA organic sales from residential and market growth, on increasing margins.

Background and Business Strategy

James Hardy Industries Plc (‘JHX’ or the ‘Company’) is the largest global manufacturer of fibre cement external cladding and internal lining products in North America and Asia-Pacific. Listed on the Australian and New York Stock Exchanges, the Company is headquartered in Ireland. The Company’s fibre cement products are water resistant, low maintenance and fire resistant. Importantly, in a carbon emission focused environment, these products are also lightweight. The products are predominantly used in residential construction, manufactured housing, repair and re-modelling and a variety of commercial and industrial applications.

North America is the Company’s largest and most strategically important market. JHX today has a 20 percent share of the fibre cement exterior cladding market in the US and this market share is growing steadily. The strategic importance of the North American market is that apart from being the largest in the world, housing stock in the US is ageing, in that 40 million homes are more than 40 years old. This supports consistent growth in the repair & remodel market as it takes market share from brick and timber products.

Another key driver of demand for the Company’s building products is the light-weight nature of fibre cement. This implies that it is likely to benefit from the ongoing introduction of carbon-reducing policies imposed on the building environment. This is in contrast to clay bricks, for example, which are susceptible to the negative impact of carbon-reducing policies that may restrict future demand, as the trend to lower carbon emissions gathers momentum.

Surprise departure of CEO

In a surprise announcement CEO Jack Truong has been replaced by non-executive director Harold Weins. The sudden departure of the former CEO follows employee complaints to the board regarding Mr Truong’s work-related interactions with the leadership group. According to the board, Mr Truong’s behaviour was inconsistent with the James Hardie Code of Conduct.  Specifically, the board pointed to breach of the Company’s core values, including Operating with Respect, as the key reason for the management change. Reference has been made to Mr Truong’s ‘threatening and  intimidating‘  behaviour by the board when commenting on their decision. Mr Truong will not be entitled to unvested Long Term Incentive payments and will only receive statutory entitlements.

Mr Truong was appointed to the CEO role on 1 February 2019, after the board identified the need for a CEO succession plan to lead the strategic transformation into a ‘New James Hardie‘. The board decision to terminate Mr Truong’s employment after nearly three years in the role is more surprising given the recent comments by Chairman Mike Hammes.  On 7 January 2022, the chairman observed that, ‘The transformation that has occurred over the past three years is truly remarkable. The Company now has a clear, correct and very well-defined strategy that is aligned with what the board and management identified as necessary in 2017’. This statement implies that Mr Truong’s strategic leadership capabilities were strong, and it was his ‘threatening and intimidating‘ behaviour that was the basis of his dismissal.

Higher FY22 Earnings Guidance

It is a notable coincidence that in announcing Mr Truong’s sudden departure, the board has also upgraded the Company’s earnings guidance for the financial year ending 31 March 2022. In its third earnings upgrade within a year, James Hardie expects to earn between US$605 million and USS$625 million. This compares to US$458 million for fiscal year 2021.

This earnings growth is driven by higher sales from ongoing residential and market growth in the USA , on increasing margins, supported by continuous product innovation.

In spite of his ‘threatening and intimidating’ behaviour toward senior staff, Mr Truong has left James Hardie in a strong market position with higher than anticipated earnings growth prospects.

Louis Mosmann

Louis Mosmann is a Private Wealth Client and Research Assistant at KOSEC- Kodari Securities. Louis covers macroeconomic events, global markets and ASX300 company announcements, allowing clients to make more informed investment decisions. Email Louis at l.mosmann@kosec.com.au.

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