James Hardie Industries plc (JHX) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the James Hardie Industries conference call. [Operator Instructions] I would now like to turn the conference over to Mr. Mike Hammes, Executive Chairman. Please go ahead.

Thank you very much, and thank all of you for your attendance, particularly for joining in such short notice. I'm here today with my fellow Board member Harold Wiens, who, beginning today, is stepping into the role of interim CEO of James Hardie. Also joining Harry -- Harold and myself on the call are 2 of our top executives whom I believe most of you know well and who bring over 30 years of combined James Hardie experience to the table: Chief Financial Officer, Jason Miele; and newly appointed North American President, Sean Gadd. You have likely read our important media release issued just an hour ago. Before I elaborate on the Board's decision to make such a change in our leadership, I want to take a minute to reflect on the very impressive 3-year strategic formation of -- transformation of our business. This transformation is real and it's going to continue. In 2016 and '17, the Board and senior management -- key senior management identified the need, as you know, for a strategic transformation to ensure the future growth and profitability of the company. As we all know, we had a spectacular growth and performance up to that point but had reached a bit of a stall, especially here in North America. Since 2018 and '19, the entire team at Hardie, from the floor up through senior management team, including such key leaders as Sean and Jason, have successfully transformed the company into a new and totally revitalized James Hardie, driven by the new strategy and outstanding execution. Our strategy is now embedded deep into the organization, as I said, from the line employees in our plants all the way up through the very, very deep and strong executive team, and we are all incredibly proud of that and very confident in that strategy. The strength of our business transformation was demonstrated again in today's profit upgrade, reflecting our team's operational excellence and the continued strong market conditions. In my view, the transformation that has occurred over the past 3 years and the base created for continuing this progress and results to the future is truly reliable, really remarkable. And I want to thank all of the James Hardie employees worldwide for that role they played in that transformation. I'd also like to thank Jason and Sean for their critical roles as executive leaders in helping drive the transformation and for their continued leadership moving forward. Now moving on to the news of today. Today, the Board made a very difficult, from both a professional, and frankly, personal point of view, a very difficult but necessary decision. We terminated Jack Truong as the CEO of James Hardie. The termination of employment is immediate with immediate effect. After extensive due diligence, the Board determined that Jack's management style was inconsistent with the James Hardie Global Code of Conduct and the Board took the necessary action of termination. A little background for all. Multiple employees in the company raised concerns about Jack's work-related interactions over the past several months. The concerns were raised in a variety of manners, including our hotline as well as concerns voiced expressly to Board members, including myself. The Board immediately took -- undertook extensive due diligence including, but not limited to, the use of an expert, independent consulting firm with many years of experience in this and outside counsel. On its initial feedback, the first independent review, the Board had discussions with Jack, I personally and the Board had discussions with Jack. We provided him support for behavior change and continued to monitor the situation very closely. The Board provided opportunities for this sincere change. We're looking for a sincere change, to occur. But based upon additional employee concerns raised and further extensive due diligence over these last few months, it was clear that sincere change did not occur and Jack's behavior remained inconsistent with the James Hardie Code of Conduct. While not discriminatory, and I urge that -- I emphasize that, it was not discriminatory behavior, jack's behavior was cited by the management survey of these 30 or 40 people as intimidating, threatening and not respectful of the individual. And frankly, the report back to us through this independent, very confidential survey was the work environment has become overtly hostile as a result. In addition, several executives notified us directly that they intend to resign or were actively considering doing so as a result -- as a direct result of Mr. Truong's actions. Ultimately, and after a lot of thought, professionally and personally, after this extensive due diligence, the Board today determined that Jack's management style was inconsistent with the James Hardie Global Code of Conduct and the Board then took today the necessary action of termination. I want to emphasize something. This is not the case of a CEO just being demanding, hard-driving, tough, goal-oriented. Frankly, that's the culture at Hardie that's always been here. That was not the issue. It's something much more basic than that, as I pointed out. The extensive due diligence we have described included, but was not limited to, independent interviews with over 30 global leaders, twice independent interviews to make sure we knew what was happening across a variety of functions whom had high levels of work-related interactions with Jack. This was 30, 40, 50 people that inter-reacted with Jack daily. Those are the people that were expressing these serious concerns. This independent review process was conducted several times during the Board's due diligence. At James Hardie, we have over 5,000 committed and talented team members working together globally every day. As a Board, it's our authority and responsibility to ensure that all team members feel like they are working in an environment of respect and where the Code of Conduct really, truly matters for every one: Chairman, CEO, no matter who. The Board must ensure our executive leadership team upholds our Code of Conduct and our core values while providing all employees and contractors a safe workplace. As a Board, we took great care professionally and personally in arriving at this decision. As I mentioned, there was an opportunity -- several opportunities for change provided over these last several months and extensive due diligence performed over these several months. And we utilized expert, independent consultants and outside counsel. Ultimately, we took the action to: number one, uphold the company's Code of Conduct and core values, including the core one, Operating with Respect; two, we want to avoid a strategic implementation risk without treating people with respect and keep the team together to implement a proper life that we have been; three, to maintain continuity and depth of the leadership team that has been instrumental in the successful implementation of our strategy and our transformation. We will, of course, begin immediately -- begin the process to identify a permanent successor as CEO, both inside the company or from outside of the company, whomever he or she may be. I believe the future for Hardie is very bright. As I mentioned earlier, we have a great strategy. It's really deeply embedded throughout the organization and not only an excellent and talented leadership team, but an overall strong team of over 5,000 employees who have been contributing. And we have a real proven track record of delivering strong, strong results, and it's going to continue. I'll pass it over now to Harold Wiens in a moment. But before I do, I want to share a few points about Harold Wiens that I've learned over the last 2 years. Harold is extremely well placed to step into the role of interim CEO. And he wants to -- he is eager to lead James Hardie as the Board conducts a global search for a permanent CEO. Harold is an individual of outstanding integrity, who demonstrates not only great passion for our company, most importantly, is totally people-oriented and oriented toward our core values. He is very wise and -- he has been very wise to me personally and to the Board, a very wise and insightful colleague since he joined the Board about 2 years ago, reflecting his extensive tenure as a senior international executive. His contributions have included matters pertaining to our strategy being implemented with great success. We're very fortunate, I feel very fortunate personally, that he is able to take on the CEO responsibilities and be the leader in driving what I think will be a seamless transition. With that, Harold, over to you.

Thanks, Mike. And thank you to everyone joining today. I'm not going to bore you with an introduction to me, my background or my qualifications because you can read all of that in the press release. I will quickly say that all the businesses that I've led in my career, from the smallest to the largest, have delivered accelerated growth beyond the market and have also brought innovative new products to our customers. I totally expect that to be the same here at James Hardie. What I want to spend time discussing is what I believe is a very bright future of James Hardie and what I believe will be a seamless transition. First of all, and I say this with the background of 38 wonderful years in a great company like 3M, I'll tell you that James Hardie is a world-class company with world-class products, an incredible amount of talent and passion among our teams. Second, we have the right strategy to deliver continued growth above market with strong returns. And that strategy is deeply embedded across all of our 5,000-plus employees. Regarding our strategy, it remains unchanged and unwavering. We will continue to execute on our foundational initiatives that help forge our transformation. First, lean manufacturing; second, customer engagement; and third, supply chain integration. And we'll drive profitable growth into the future, leveraging the 3 strategic initiatives that we introduced in May 2021. First of all, we're going to market directly to the homeowner to create demand; second, to penetrate and drive profitable growth in existing and new segments; and thirdly, to commercialize global innovations. Based on the strategy and the team in place, I envision a seamless transition. Our strategy, along with the world-class leadership team at every single one of our 5,000-strong hard-working employee base will drive us to meet our mission of being a high-performance, global company that delivers organic growth above market with strong returns. As Mike mentioned, alongside us here in Chicago are Sean Gadd and Jason Miele. Today, I promoted Sean to the role of President of North America. Sean has been the key leader within our North America business driving our transformation over these past 3 years. His deep involvement in developing our strategy, his strong relationships with our customers and his proven track record of execution make him the right leader to drive our North American business forward. Also with us is our CFO, Jason Miele. And as you know, Jason has been our CEO through our transformation to a new James Hardie. His leadership has been also critical to our success during this period. I will lean on Jason to ensure the corporate functions and responsibilities are running smoothly. His oversight and leadership in this regard will allow me to have a primary focus on driving the operational business globally. I am most pleased to join these 2 key leaders and the rest of the James Hardie leadership team. And as I've mentioned, I'm absolutely confident in our ability to have a seamless transition, and we will continue to deliver organic growth above market with strong returns. Now to further discuss the strong financial returns, there's nobody better to do this than our CFO, Jason Miele, to discuss today's profit upgrade.

Thank you, Harold. Good morning and good afternoon, everyone. As you would have read in our announcement earlier today, we have increased our guidance range for fiscal year 2022 net income. The range we provided on November 9 is for full year adjusted net income of between USD 580 million and USD 600 million. Today, we have now raised that range to be between USD 605 million and USD 625 million. The increased guidance is supported by continued strong execution of our strategy, partially offset by significant hyperinflation of energy costs in Europe. All 3 regions continue to do an excellent job of driving high-value product penetration with our customers, which is evidenced by our strong price/mix growth. Specifically, for the third quarter fiscal year 2022, we expect North America net sales growth of 24%. In Asia Pacific, we expect net sales growth of 20%. And in Europe, we expect net sales growth of 14%. All are comparisons to the prior third quarter. This outstanding top line growth continues to be paired with lean improvements in our plants globally, resulting in strong adjusted net income growth. I will briefly hand the call over to Sean Gadd to provide some color on our North American business as he takes on the role of North American President.

Thank you, Jason. As Jason mentioned, in North America, we expect Q3 net sales growth of 24% and we expect to continue that momentum in Q4. We are estimating net sales growth to be between 23% and 26%. The North American team is doing an excellent job delivering our strategy. We can continue the strong execution and continuous improvement on LEAN, and our sales organization has never been closer to our customers as they continue to cultivate those relationships as we drive growth together. Our marketing team is really starting to gain traction in understanding how to effectively market directly to the homeowner. Finally, we expect to be in a position to announce a partnership with a significant social influencer in the coming months. On a personal note, I'm really energized taking on this newly created role as President of North America. I think the timing is perfect. We have spent the last 3 years implementing the foundational aspects of our strategy: LEAN, push/pull and supply chain integration. As we enter our next period of growth, having a single leader of the North American business will help ensure we move together as an integrated team to deliver on the objectives of growth above the market and strong returns.

Thanks, Sean. I'm sure everyone on the call appreciates the extra color regarding our largest segment, which is North America. Two items that Sean did not discuss, which I want to touch on briefly are innovation and capacity expansion. Our R&D team remains focused on delivering new innovations that will continue to help us change the way the world builds. We are excited about the innovations we have in our pipeline and we are looking forward to showcasing 2 new products at the International Builders' Show in Orlando, which takes place February 8 through February 10 of this year. In regards to capacity expansion, our ramp-ups in Prattville, Alabama and Summerville, South Carolina remain on track. The team in both locations are doing a truly exceptional job. In November, we announced brownfield and greenfield expansions in all 3 of our regions. The planning and execution of these expansions remain on track, and we expect to be announcing key land purchases in the coming months. To reiterate the guidance we provided today, we have now raised our fiscal year 2022 adjusted net income guidance to a range between USD 605 million and USD 625 million with a midpoint of USD 615 million. That compares to the prior year adjusted net income of $458 million, a 34% increase if referencing the midpoint of our guidance. We are currently finalizing our annual planning process and expect continued momentum into fiscal year 2023. We plan to introduce guidance for fiscal year 2023 at our third quarter earnings release call on February 8, which is about 4.5 weeks from now. I will now hand the call back over to Mike.

Thank you, Harold, Jason and Sean. Frankly and I'm going to tell you honestly, hearing the 3 of you speak I'm even more confident that this company is in very good hands -- in your hands. We're not going to miss a beat during this transition and going into that future. I'm going to close the meeting with a few additional Board announcements. First, as you all have read, to support Harold and the broader leadership team, I'm taking on the additional responsibilities in this interim time period as Executive Chairman. And then reflecting good corporate governance and due to the new non-independent responsibilities Harold and I are taking on, Anne Lloyd is assuming the role as Lead Independent Director. While today's news, I'm sure, is surprising to many of you, speaking on behalf of the Board, I want to close by stating we, the Board, believe that today's decision by us was necessary, appropriate and in the best interest of our stakeholders including our employees and including yourselves, our shareholders. But I'll now pass it back to the operator to open up the call to any questions you have. Operator?

[Operator Instructions] Your first question comes from Keith Chau with MST Marquee.

Obviously, a bit of a shock announcement this morning. But Michael, I just wanted to ask you a question around the strategy that's been put in place. You and the team seem very confident that things are well embedded, particularly in the operations of the business and the customer relationships. Can you confirm that is the case? It sounds like it certainly is. And then obviously, the shift to making Hardie as a consumer brand, do you think you've got the team in place to be able to carry on with that strategy that's, I guess, more in its infancy?

I'm going to ask Harold and Sean to answer that when they get through that, a very important question, guys. I'm going to ask Harold and Sean to answer that, I want to add my own color at the end.

Yes, I'll take a shot at that. Obviously, being heavily involved in thinking through how we get to the consumer, how we engage Christine and how we get her to move through a part of purchase. We set up a team to go and get that work done. We've got what we call integration across products, marketing segments and all the way through to sales. And that work has been embedded really for the last 9 months. And I say embedded, we're still learning. But I would tell you that the learning is accelerating. We're understanding who Christine is, we're segmenting who she is and we're getting way more targeted with our digital assets and our marketing assets to go and give her a longer pipeline. And I will tell you that from a color perspective, which is where we're driving this message, we've seen continuous growth month-over-month, quarter-over-quarter. So we feel good about what's happening. And we're really -- we have a clear path on what we need to do going forward. And so I don't think there's anything that we can -- that we're not thinking about that can't be executed over the coming months, years -- months, quarters or years that will help us accelerate actually even further. But we are still in its infancy. But like all things we're learning and we're getting better at it every day.

Let me add a little color, it's such an important point. It has become part of our DNA, as deep as that. Well, how the heck did that happen? Very simple. Back in 2016, '17, we knew we had to get after that R&R market, that retail customer, the Christine , we can call her Christine. We knew we had to. Waiting for us to become the standard in the new home construction and having it flow down at R&R, that was going to take longer than any of us had. We had to find a way to get up. The digital marketing wasn't there 5 or 6 years ago, it's there now. And with that attitude, we've got a get at it, how do we do it? That's why, frankly, we made a change in the CEO. We had to bring in a CEO that understood that, that had experience there, et cetera. He helped us get there. It has now become part of our DNA. There isn't a [ swing in ] person in this company that doesn't believe in that deeply and personally. So then you say, well, are you really ready to execute it? We're already in the process of executing it with deals . We're going to go further. We've got lots still ahead of us. But yes, we have a team that can think that through. And Harold, you are going to have one fun time doing that for the next 6 to 8 months.

I'm looking forward to it.

I'm sorry, just a follow-up. Michael, you said that there were several executives who were either considering or in the process of resigning over the last several months. Given the change today, do you feel confident that those resignations are no longer on the table? Or is there some risk that some of those executives may still leave given some of the intimidation that they've been subjected to over the last several months?

I'm going to turn that over to the new boss. Harold?

Yes. I can assure you that they will be staying. Period.

And I'll tell you one reason they're staying, Harold went to them and talked to them, man to man. His strength is people strength. And that's what this place needed. He has a great strategy. He knows how to input -- it needed people strength, and that's what Harold's strength is. He did it. That wasn't Mike Hammes, that was Harold.

Your next question comes from Brook Campbell-Crawford with Barrenjoey.

Just first one, maybe for Jason. On North America guidance for FY '22, can you confirm if it's still price/mix to be up 8% to 9% or perhaps you're doing better than that?

Yes. Brook, there's no change. We're obviously very confident in our North American results. We've signaled today Q3 net sales would be up 24%. And as Sean mentioned, Q4, 23% to 26%. And we'll deliver that mix, if not better. But we'll give you more details on February 8 on the Q3 call. But our strategy is going well. The partnership with our customers driving that mix is outstanding. And we'll be at the top end, if not above that.

Great. And my follow-up just on -- sort of actually for Mike Hammes. If you could provide a bit of context on what you're looking for in the new CEO. Maybe what 3 criteria you're most focused on in that appointment?

#1 criteria is to pick the best person available out there. And I think we have a wonderful company to sell, and frankly, a very attractive -- and we've been beaten up a bit on that by you guys, a very attractive compensation package. But we think we've got the opportunity to bring in one outstanding CEO. What kind of CEO are we looking for? He or she needs to be somebody that understands where we're going, where our strength is and where we're going. They have to understand that retail market. They have to understand it, like you just said, very important price/mix. They have to understand how it all fits together and have the experience in pulling that together. So we needed a CEO that not only has that vision but has the experience of having done it, okay? So that's really what we're looking for. It's a combination of somebody that has the people skills, a la what Harold has, has a strategic understanding skills that we have now that frankly that Jack had, he's a good strategist, okay? And somebody that also knows how to execute. You put them all together, and that's what we're looking for as the CEO. What do I think? The odds are finding one are very high and I don't think it's going to take a year. I don't know how long it's going to take, these things always tend to take a little longer than we think. I think, Harold, I think the Board feels and I feel that some time in the next 6 months we should be in a good position. Now it might take longer, might not. But we're ready to -- I think it'll be taking something in that line. So that's what we're looking for. And my personal view is having done many CEO searches over the years, various companies, I think we have an outstanding opportunity to present the people and we're going to have a lot of great candidates to look at.

Your next question comes from Lisa Huynh with JPMorgan.

I just had a question around the timing of the announcement. I mean Jack has been with the company for some time now and presumably works with these executives over multiple years as CEO. So was just wondering whether there was a specific catalyst in the last few months that drove the complaints that you saw and whether the strategy shift towards ASP played any role in this?

That's an excellent question and one that we thought a lot about, in all honesty. The answer goes this way: this is something that has been occurring over the last several months, not weeks and not years. It's over the last several months, not 1 or 2 months, over the last several months. And you sit there and scratch your head and say, why? Is it -- are we convinced that he really understands and isn't able or willing to change? Unfortunately, yes. And it took a lot of personal offer on my part, other Board members' part like Harold, bringing in outside consultants, getting a coaching service in there, multiple surveys and -- from various people on all the levels of the company. And we unfortunately came to the conclusion he was not either able or willing to change or accept that he has those issues. What caused that issue in the first place? I don't know. I'm not a psychologist. I can't answer that question. But in all honesty, it is perplexing what he did not. Frankly, when he was at 3M, he didn't show this kind of an attitude. Very tough, very demanding, not necessarily the most fun guy to work with, but a very good, tough, demanding, driven kind of executive. That's fine. That's the culture at Hardie. But he went beyond that between -- over the last several months, not treating people with respect and it was a repetitive thing. It wasn't bad one-day meeting or something like that. And it was -- of the 30, 40 people that we had surveys done, independent surveys done by a very professional group, a very professional guy, this was 80% of the people saying it. And we just finally had to come to a conclusion he wasn't going to change and we could not allow this to continue. I cannot answer the question why over the last several months did it become such a serious issue arose? I don't know. I thought about that a lot myself. I don't know the answer to that question.

Okay. Sure. And then I guess my second question is around the succession plans internally I guess. Can you just make comments around the current depth of the team as it currently stands, and whether there's a preference for an external or internal candidate in your view?

From the Board perspective, I think we're just plain open, okay? We're looking for the best CEO, period, that is available out there and frankly we're convinced somebody will come. I don't think we -- we've not excluded anybody in the inside. We've not excluded certainly people from the outside. So we don't have a narrow definition of an industry to choose from. But we're looking for somebody, as I said, that is a visionary, understands strategy, understands the strategy we are on, he knows -- he or she knows how to implement, et cetera, and we'll pick the best person inside or outside. I don't really want to get any more specific than that. We have not yet started that. We will start that immediately. We'll be further going through the step of picking the right search firm. We'll pick that within days or a week or so. And then we're going to start that process. And hopefully, it will not take very long, but we'll find out. Thanks, Lisa.

Your next question comes from Simon Thackray with Jefferies.

Mike, I want to explore this perplexing behavior that you referred to from Jack over the last several months in the context of some of the management appointments that he himself made in sales and elsewhere within the organization. So there's 2 parts to the question, and it will involve Sean as well. Were any of these appointed executives part of the 30 to 50 survey respondents that had a problem with Jack? In other words, his own appointees were a problem? And secondly...

The answer to that question is absolutely.

Yes. So even the people he appointed had the issue with the way he was conducting himself.

Very straightforward answer, correct. Go ahead.

That's great. And then, Sean, just congratulations, obviously, on your appointment to President of the Americas. Should we expect any management changes or structural change to management under the new North American leadership now?

Thanks, Jefferies (sic) [ Simon ]. Yes, I think, certainly, as we continue to build our strategy out and start to execute where we want to execute it, there will be some small changes most likely. A lot of the people we've brought in there and a lot of people we've got now focused are on the right things. So we've got to continue to get that learning, but we will get outside help as we gain understanding and need expertise. So I'm not going to say there'll be no changes, but I think we're very clear on what we need to do to get it done. We've got a great team currently, and we'll probably get some help as bring people in.

I wonder if I might ask Harold a question. Harold, as you announced to the whole group now that Sean's becoming the President of North America, what was the reaction of people in the company?

Well, that was -- that was kind of fun. About 2 seconds after I finished my announcement, about 100% of the room started cheering and clapping. I think they like the guy and I think they have great confidence and the leadership he is going to deliver. And then after, as I've gotten to know him over the last 2 years, I'm right with them.

The only thing that bothers me a little bit is he says, will you mind calling Mr. Gadd from now on? Go ahead. I'm sorry.

No. That's all right. I probably won't be calling Mr. Gadd because I've known him for several years. Congratulations.

Your next question comes from Peter Wilson with Credit Suisse.

Just on the CEO termination, I just want to better understand the, I guess, the root cause of the angst that then led to these unfavorable interactions, i.e., when a business is doing well, reporting good results like you had again done today, usually employees are somewhat content. And so I guess my question is can you just confirm that there was no, I guess, disagreement about the strategic direction the business was taking? No disagreement about, I guess, the message of the business internally, externally? So i.e., was it a difference of opinion? Or a difference of or a clash of personalities effectively?

Well, I'll answer that very directly. As you know, I stayed quite close to the business, you've just got to be. And there was a 100% belief and acceptance in the strategy laid out and how it's tied together and we're on the right course. And there was almost no disagreement with that, I'll say it right up-front. And I'm talking at all levels and layers in the company, starting from the plant floor all the way up through the executive teams and across Europe and Asia Pacific and North America. There was real belief in that. There's real belief not only where we have the right strategy, but it's working, and we're doing it and it's going to continue. So that was not the root cause. It was not the root cause, hey, that's great, but this guy is too demanding. He expects too much from it. He's too unrelenting. He's just too demanding. He's to -- oh God, no. That was not -- Hardie is used to that kind of management. Sean, you can speak to that. That is the Hardie nature. He started treating, as I said, over the last few months, people with deep lack of respect, intimidation, fear, humiliation publicly and privately. And it wasn't a one-meeting problem. It was something more endemic than that. Why? I can't answer that question. But it was there. And multiple times of coaching and training and surveys and all that, he just either wouldn't accept it or couldn't agree to change. And so we made a very difficult professional and personal decision, honestly, guys, that he had to be terminated. No one at Hardie has the right to ignore our Code of Business Conduct. It's basic and its sacred. And we had to do what we did. It was not any disagreement at all in any nature of, well, wait a minute, why don't we talk about this retail stuff for? Let's just go back to converting new home construction, that's what we're good at, we'll keep doing that. It was none of that. There was absolute agreement on it. And I think, Sean, you were there. I think you would agree with -- I don't want to force your answer.

No. I mean there's no doubt. I worked -- so we've been working on the last 3 years and getting closer to our customers, has been a specific focus on repair and remodel. And we've got a good traction there, and that's what we want to continue. Certainly, that's where the largest opportunities still exist and that's where we're going to end up winning in. And to do that, we have to get to the consumer.

I'd like Harold to talk about a very important aspect of the need for the change, why -- one of the reasons we had to change.

Thanks, Mike. And you have to ask yourself why in your report. And the Board is there partially to guarantee the sustainability of the enterprise for years to come. This situation was threatening the sustainability and we took action. And you've heard every one of us say we're very confident in our ability to execute the strategy in not only short term, but medium term and long term because we will keep the talent that we need.

And frankly, attract new talent, too, which if you get a bad reputation, you can't do that, right? It doesn't work. The dog doesn't hunt.

Okay. Can I ask the discontent, was it quarantined to the executive team? Or did it percolate out into the broader operational business?

It was certainly not quarantined to the executive team. But as I said, the people that felt the full brunt of this were those 40, 50 people that had daily inter-reaction with Jack. Jack was a very hands-on manager, as we all know, which is fine. And those 30, 40, 50 people that had day-to-day interrelationships with them, they felt this. And 80% of them all said the same thing. And the people that worked for them saw it and got frankly embarrassed and it just didn't feel right. So it was a much broader team than just the executive team. And so those 40 or 50 people plus the people that worked for them, that was the group. There was very good communication with the people on the plant floor and the general body politic, but the people that were closely associated with that and the people that are part of their team, it just became, frankly, an untenable situation.

Your next question comes from Andrew Scott with Morgan Stanley.

Can I just ask a really quick direct one and then have a more general one, if that's okay. So maybe if I could start, how -- do you have any intentions with pursuing the full-time CEO role after the -- putting your hand up for the process? And Mike, could you just talk about your intentions? I think you've been on record saying you're probably thinking about coming to an end of your tenure as chairmanship. What does this do to that and your intentions around that?

Harold is going to handle the first one.

No. No, I didn't mean to be flip on that at all, but, no, I have no intention of doing that. I'm looking forward to this experience, but James already needs to bring in the right person, the best person in the world to do this job.

The second one is also very straightforward. I got elected for a 3-year term this last August. And I told the analysts, I told the proxy firms, I told the investors I do not intend to serve for 3 years. At my age and tenure at the company, my time is up. I said I want to see this thing through. And so I will stay around until probably next August, meaning this coming August, et cetera, and then I'll probably retire at that point in time. With this occurrence, my commitment to the Board and to Harold is this: that I will stay around as long as it takes to get the new CEO in place. And if the Board wants me to stay around, let's assume it's July, I'm not predicting July, let's assume it's July or August, and I'll stay around for any handover time period after that, that's reasonable, up to, say, a max of 6 months. But then, guys, it's time for the new team, time for a new Chairman to come in, time for a new CEO, et cetera. So that's how I've been publicly saying it. I don't think that's really changed except that if we bring in a new CEO, say, in July and if the Board felt they wanted some handover time period for the new Chairman to come in, I'll be happy to serve with that if the Board wants me to. But it's something that has an endpoint, guys, and that should be right around the -- at the latest, the end of this calendar year.

Thank you, guys, for your candor. Yes, appreciate the candor. Just more broadly, Mike, and Harold, please feel free to jump in. Can you just talk about how you view the culture? And I know we're talking about an isolated incident and it seems to be pretty isolated in time as well as individuals. But Hardie's has prided itself on having a pretty aggressive up-front culture. Do you think there's a need across the organization to reset that and to maybe soften that a little?

No. I think Hardie is a very much in-your-face kind of culture. Always has been. I think it's one of the strengths of Hardie. It's a very honest to itself culture. Hey, we screwed up guys and here's what we got to do. So no, I don't think that culture should change or will change. That's deep in Hardie. And it drives itself. Hardie loves that it has set tough goals and see if they can make them, and they're very honest with themselves that if, hey, I didn't make it, here is where I screwed up. So that culture, I think, won't change and shouldn't change, okay? Now it needs to be managed with understanding and respect for people, and that's what will change. But no, I don't think the Hardie culture will change. This was not a chemistry problem between Jack and his senior team or Jack and -- it was not a chemistry problem. It was something much more fundamental than that, guys. We have -- our Code of Conduct is we treat people with respect in all cases, period, full stop. That wasn't happening. We made the adjustments and we moved on. But the culture change in Hardie, Hardie is what Hardie is and will remain what Hardie is in my opinion. Sean, you've been around Hardie a few years.

Yes, and I have -- yes, for sure. And I'll tell you that our culture to its core hasn't changed even between transitions over the last year. I mean we are generally a company that wants to get things done. We want to try to set records, and we want to try to do things that we don't think initially is possible. That won't go away. I think one of the things we will do and continue to do is do it respectfully. And I think that doesn't change the fact that we want to go into -- to drive it into our group goals.

[Operator Instructions] Your next question comes from Daniel Kang with CLSA Australia.

Mike, really sorry to hear about the news about Jack's termination today and to the rest of the team as well. Just wanted to explore a few other points that have already been discussed. I find it coincidental that Jack's behavioral change coincided with the shift of the company's more aggressive strategic targets. Are you comfortable to hold these 2024 targets -- or this come under review?

I won't answer that question. I'd like Jason to answer it. Harold and I have talked a lot with Jason and we can add some color at the end. But Jason, you know how you feel. You know how we feel, the Board.

Yes. Daniel, there's no change to our strategy and the targets that we've laid out in the past associated with that strategy remain unchanged. So increasing EBIT margin target, as an example, to 25% to 30%, we're very comfortable with that. That will not change. There's nothing to change there. In February, we'll deliver fiscal year 2023 net income guidance that will reflect the continued momentum that we've built this year. So no, there's not going to be any backing away from any of the targets we've set out. The team is well positioned to deliver on them.

Harold?

I would agree totally with Jason, and I will say this, is that we are entering this period leaning into it. We're not going to be even thinking about treading water. We are totally committed to the goals that we have been committed to in the past. And I think I expect really good things out of this team in terms of accomplishments. Not just intentions but accomplishments.

I think that holds true. Those answers I fully support and I do know all the details. And I think that holds true not only for North America but for Europe and for Asia Pacific as well, guys.

Absolutely.

Yes. That's -- if I could just add something, having a led the subsidiary in Japan and worked in Europe for 5 years, I have a great admiration for our European success as of recent -- last couple of years. And Asia Pacific, we will see what happens, but we certainly have opportunities there. So there -- all that to say that we feel aggressive. We will give it our very best efforts and we're committed to the goals that we established.

Just a follow-up question on your comment that your confidence of retaining the leadership team. Are you able to confirm whether retention payments were made?

Made from team to Jack?

No. This team. I will say we have an opportunity to improve our retention situation and we're going to do that. I'm not going to go into any more detail than that right now.

Your next question comes from Lee Power with UBS.

One for you, Mike. I mean how do you think the Board's approach changes to the new CEO search because I mean you've talked to 6 months. Obviously, with Jack, you had this kind of testing period as the President of International. He was really there for a couple of years before he was actually appointed CEO. How do you manage that finding the right person in such a short time frame? Or is it going to be a similar strategy where you might bring someone in, test them out a little bit and then go from there?

Well, first of all, don't bury me, guys, for 6 months. That's what I'm hoping to accomplish, the Board is hoping to accomplish. It might take longer. But in all honesty, we've got a really strong team now, guys. We've got a strong team in Europe. We've got a strong team in North America. And we continue to have a very strong team in Asia Pacific. With that strong team, we don't need to -- if we go on the outside, we don't need to bring somebody in on a trial basis, for crying out loud. We're going to bring somebody in that is a proven deliverer and performer, okay? Again, on a strategic basis, on an implementation basis and on a people basis. Innovation is driving us. [indiscernible] is driving us. Somebody mentioned the price/mix is driving us. Europe will start driving us. We need somebody that understands all those pieces, have done it and has got a proven track record. And I think we will be able to attract somebody like that. But with the strong team that's existing today, we don't need to come in and try to develop the person and kind of let him -- so when we go inside or outside, he will be a straight shot in as the CEO, in my opinion.

And then, Harold, is there anything specific that you think you'll lose with Jack's departure and how you plan on kind of focusing on that during this transition period?

I think we retain the best of what he did, which was the strategic plan. We're going to add to that a much more engaged, aggressive and committed senior leadership team, had a very -- that's going to keep a very high talent level. So I think we are in a good place of being able to leverage what was done well. And add to that, there's a team of people whose potential is yet to be realized.

Just adding to what Harold just said, and I'll say it in my way, and I'm not going to ask you to respond, Sean, but it wasn't a real pleasant of experience for that group of 40, 50 people over the last few months as this was occurring. With under Harold with even the same strategy and all that, it's just got to be a much more contributory involvement and that's what you're really seeing.

Absolutely.

Your next question comes from Paul Quinn with RBC.

Sorry to hear the difficult news. Mike, I appreciate your comments for Jack's behavior. I just wanted to get some comments from Jason and Sean as to what Jack has -- their interactions over the last couple of months, just to give us some more color around it.

Obviously, we're talking about a very personal situation. I think it's better not to go overly in detail. And frankly, I don't want to pin Jason and Sean now. I just want to say that group of 30, 40, 50 people that had several independent confidential surveys made, it was overwhelming and the same answer coming from everybody. And I don't think it's quite appropriate to directly ask at this point in time Sean and Jason, I'm sorry.

Your next question is a follow-up from Simon Thackray with Jefferies.

Just quickly, I think let's get to the number of what people are going to ask or be concerned about. Things are going well. You're going to give early guidance for FY '23. You've discussed sales momentum. You've given the upgrade that I think most people were expecting. What is the -- what's the root cause of Jack's behavior over the last several months for him to become so intolerable if it's not some departure from strategy or target or something that's caused it? I think that's what everyone really wants to try to understand: what do you think the root cause of his behavior was for him to become so intolerable?

Give you as detailed an answer as I can. We don't know. We do know it was there. It was not just a month or 2. It was over several months. It was widespread across all functions in all geographies and it was basic and deep. And I do -- we do know and I can personally attest, Jack, you can't act this way, you've got to change. These are the facts. No, those aren't. Yes, they are the facts. And at various points in time, as Harold knows, too, he did commit to do certain things and then didn't do it, okay? And it's just -- I cannot -- as I said before, I wish I could tell you, I wish I was a psychologist or psychiatrist, I don't know. All I know is that it was extensive, over a long period of time. By long, I don't mean years. It was real and deep. And either change, what we gave him or didn't -- if he didn't change, we had to make this movement. That's what happened. Now why this was happening over the last several, I don't know.

Right. So it could have been something external that was happening to Jack that he was bringing to the workplace potentially?

I do not know. That's all.

Thank you. There are no further questions at this time, and that does conclude our conference for today. Thank you for participating. You may now disconnect.