Good morning, ladies and gentlemen. My name is Stuart Crosby. As Chair of Directors, I welcome all shareholders and guests to the 2021 annual general meeting of Reliance Worldwide Corporation Limited. As was the case last year, and for reasons I'm sure everyone understands, we are meeting virtually. Thank you for joining us. I am on the lands of the Wurundjeri people of the Kulin Nation, and we have people participating from a broad range of other places, not just in Australia, but around the world. I acknowledge the traditional owners of all the lands on which we meet, and pay my respects to their elders. I would like to introduce my fellow directors who have all joined online from various locations. Heath Sharp, our Group Chief Executive Officer, Christine Bartlett, Russell Chenu, Darlene Knight, Sharon McCrohan, and Ian Rowden.
Present from RWC are Andrew Johnson, our Chief Financial Officer, Sandra Hall-Mulrain, our General Counsel, David Neufeld, our Company Secretary, and Phil King, our Head of Investor Relations. Tony Romeo from KPMG, the company's auditor, is also with us online and available to answer questions about the conduct of the audit, the content of the auditor's report, accounting policies adopted by the company and auditor independence. The notice calling this meeting was released on the 23rd of September 2021. The company secretary has confirmed there is a quorum present, and I declare the meeting open. Some housekeeping and procedural matters to begin with. There may be a slight delay in transmission of this meeting on the platform, depending on your internet connection. I apologize if this causes any inconvenience. Voting on each resolution will be conducted by poll.
Details on voting eligibility criteria are set out in the notice of meeting. I will shortly open the poll so that shareholders or their representatives can vote at any time until I declare the poll closed. If you're eligible to vote at this meeting, a new voting tab will shortly appear. Selecting this tab will bring up a list of resolutions and present you with voting options. To cast your vote, simply select one of the options. There is no need to hit the Submit or Enter button, as your vote is automatically recorded. You do have the ability to change your vote up until the time I declare voting closed. Sorry, two pages stuck together. I now declare voting open on all items of business. The voting tab will soon appear. Please submit your votes at any time.
I will give you a warning before I move to close voting. There is a user guide on the AGM page of our website if you require any assistance. Details of voting exclusions are set out in the notice of meeting. I remind shareholders that any valid undirected proxies that I've received as chairman will be voted in favor of all resolutions. Representatives from Computershare, the company's share registrar, will supervise the poll. Details of proxy votes lodged in relation to each motion will be shown during the formal items of business. Now talking about questions. Written questions can be submitted at any time. You do not need to wait until the relevant item of business, and we encourage you to start submitting questions now. To ask a question, select the Messaging tab at the top of the Lumi platform.
At the top of that tab, there is a section for you to type your question. Once you have finished typing, please hit the arrow symbol to send. There will also be opportunities during the meeting to ask questions verbally. To use this service, please pause the broadcast on the Lumi platform and then click on the link under Asking Audio Questions. A new page will open where you will be prompted to enter your name and the topic of your question before being connected. Talking about questions. Written questions can be submitted at any time. You do not need to wait until the relevant item of business, and we encourage you to start submitting your questions now. To ask a question, select the Messaging tab at the top of the Lumi platform.
At the top of that tab, there is a section for you to type your question. Once you've finished typing, please hit the arrow symbol to send. There will be opportunities during the meeting to ask questions verbally. To use this service, please pause the broadcast on the Lumi platform and then click on the link Asking Audio Questions. A new page will open where you will be prompted to enter your name and the topic of your question before being connected. You will listen to the meeting on this page while waiting to ask your question. If you have any issues using this system, please return to the Lumi platform. Please also refer to the user guide on the AGM page of our website if you require any assistance. I will advise when questions can be asked.
We will seek to address your questions during the discussion of the appropriate item of business. We'll endeavor to answer as many questions from shareholders as we can. Please also note that written questions may be moderated to avoid repetition, and if questions are particularly lengthy, we may need to summarize them in the interest of time. Moving on from housekeeping and administrative matters. Shareholders will, I hope, have seen two significant announcements in recent days relating to the acquisition of EZ-FLO International and our trading update for the first quarter of the current financial year. Heath will talk about these matters further shortly but let me first talk a little about last year. The 2021 financial year was simply extraordinary. We encountered significantly and initially, at least unexpectedly, elevated demand levels while managing our way through COVID.
Delivering on the increased demand and meeting the expectations of our customers placed huge burdens on our people. They had to manage disrupted supply chains and deal with the array of complexities and restrictions made necessary by the global pandemic. As a result of the extraordinary efforts of RWC people, we were able to deliver exceptionally strong revenue and earnings growth. Consequently, we achieved a record result for the company. Reported sales were 15% higher than in 2020, but when adjusted for exchange rate movements, sales were up 25% on the prior year in constant dollar terms. Reported net profit after tax was AUD 188 million for the year ended 30th June 2021, which is a hundred and 111% higher. Let me say that again. One hundred and 111% higher than the prior year.
NPAT, after adjustment for one-off restructuring costs and certain tax accounting treatments, was AUD 211.9 million, an increase of over 60% on the same measure in the prior year. This exceptionally strong result was driven primarily by growth in sales in each of our regions, coupled with tight cost control and quite remarkable execution. On behalf of the board, I congratulate the management team and everyone across the company for delivering such an outstanding result. Meeting the significant increase in demand for our products while also delivering operational improvements during a global pandemic is an extraordinary achievement. A key feature of the result was our strong cash performance, with cash flow from operations up 20% to AUD 334 million.
This enabled a further reduction of $128.3 million in borrowings and a decrease in the ratio of net debt to EBITDA from 1.39x to 0.51x . We finished the year in a particularly strong financial position, including headroom within our borrowing facilities of $538 million. $583 million, I apologize. This strong financial position will enable us to fund the acquisition of EZ-FLO International with debt, utilizing headroom within RWC's existing syndicated facility agreement. Our pro forma leverage, net debt to pro forma EBITDA, following completion of the EZ-FLO acquisition, is forecast to be 1.78x . Still comfortably within our target range.
We have increased the syndicated debt facility by $100 million to $850 million, with the additional tranche having a maturity date of 30th September 2023. As a result, we expect to have approximately $127 million in undrawn commitment, committed borrowing facilities on completion of the EZ-FLO acquisition. During the year, we finalized a formal capital management program which sets out our investment priorities and our approach to funding and cash distributions. Our first priority is to deliver strong financial returns, including margin expansion through continuous improvement activities, whether that be procurement or manufacturing efficiencies. This is coupled with ensuring operating earnings are converted into cash flow and continuing to improve our returns on investors' capital. Our second focus is on value creation and supporting organic and inorganic growth opportunities.
This includes ongoing investment in our manufacturing capabilities and selective expansion of capability where this makes sense, as well as continuing to seek M&A opportunities such as EZ-FLO. We aim to have a prudent level of gearing. We've settled on a target ratio of net debt to EBITDA in the range of 1.5x-2.5x . As a reminder, that ratio was 0.51x at the end of June, below the bottom of our target range. The EZ-FLO acquisition moves the ratio back within the target range. Dividends are our primary source of cash distribution to shareholders, and we have maintained a target payout ratio of between 40% and 60%.
Beyond dividends, we will look at on-market share buybacks as a means of returning excess cash to shareholders to the extent that we have balance sheet capacity beyond funding our organic growth and any acquisitions we might have in our sights. Heath will discuss the EZ-FLO International acquisition in more detail shortly. Importantly, the acquisition sits comfortably within our strategic and capital management frameworks. It has strong strategic linkages to our existing North American business activities and will expand our product range and end customer base. From a financial perspective, we expect the investment in EZ-FLO to yield returns that exceed our cost of capital in our first year of ownership. We also expect EZ-FLO to deliver increasing returns on our investment as we realize revenue growth opportunities and cost synergies over the next several years.
Consistent with the capital management framework, we declared total dividends for the year of AUD 0.13 a share, representing an earnings payout ratio of approximately 54% of reported NPAT. With the strong earnings performance recorded in financial year 2021, we were able to substantially increase the dividend paid from last year, which was AUD 0.07 a share, and also substantially higher than the AUD 0.09 a share dividend declared in respect of the 2019 financial year. We have a standing policy of regularly reviewing the composition of the board with the aim of strengthening our capacity by adding members with relevant skills and experience. We were pleased to welcome Darlene Knight to the board in April as an independent director. Darlene's background has been with global manufacturing sector organizations, where she held strategic and operations roles, including senior leadership roles in the U.S. and China.
With her experience in engineering, global manufacturing, and quality, Darlene's appointment has further strengthened the board's capacity. Concurrent with Darlene's appointment, Ross Dobinson retired from the board after five years as a director, and I'd like to repeat here the board's thanks to Ross for his contribution to the company over that time. Darlene, along with Sharon McCrohan, is standing for election as director, and they will each address you shortly in that regard. During the year, we completed a review of RWC's remuneration framework, the outcome of which is summarized in the remuneration report. Christine Bartlett, who chairs the Nomination and Remuneration Committee, will talk to this a little later in the meeting when we get to that specific agenda item. Before that, however, I did want to provide some context around the reasons for the review and the outcome.
The main purpose of the review was to enable us to implement a remuneration framework that is more closely aligned with current practices in the markets in which we compete for employees. We engaged external consultants to assist with the benchmarking analysis and design of the framework. The final design is largely U.S.-referenced, reflecting the fact that well over half of RWC's executives are based in the U.S. Importantly, the framework is performance-based with incentive pay linked to operational performance and shareholder value creation. The revised framework has now been implemented across all those in leadership roles for the financial year 2022, including approximately 216 people. We strongly believe that the framework will position us to compete, to attract and retain the best talent for RWC, and that it is aligned with shareholder expectations and clearly linked to shareholder returns.
Proxy voting data shows that our shareholders strongly endorse the new framework, with over 99% of proxy votes being directed to approve the remuneration report, in which the new structure is explained. This is very gratifying and reflects the quality of the work undertaken. During the year, we released our second social impact report. We reported particular progress in two areas. These were the development of a diversity and inclusion framework across the company, and the development of a work plan with short and long-term goals to address modern slavery. The latter was covered in our first modern slavery report, which we released at the end of 2020. Looking forward, a key priority this year is completing an analysis of our greenhouse gas emissions and to establish emissions reductions targets and an action plan to achieve them.
We have engaged expert external assistance to help us complete this exercise and to develop strategies to enable us to meet the targets we set. We are very conscious of the need to meet the expectations of investors and other stakeholders in reporting on a range of sustainability topics. We have made substantial progress over the last two years with increased disclosures and reporting, and the board and management continue to be actively engaged in working through our sustainability priorities. We know that there is more work to be done, but at the same time, we want to ensure that we focus on those areas of greatest relevance to the company and that appropriate level of resource is applied. Before I hand over to Heath, I wanted to pause and reflect on RWC's first five years as a listed entity.
The company was listed on the ASX in April 2016, so this latest year represents our fifth full year. From the end of our first full year, 2017, until the end of last financial year, through a combination of organic growth and the acquisitions of HoldRite and John Guest, we achieved a 22% compound annual growth rate in sales. Through strong execution, we turned this into a 30% operating earnings growth rate and a 34% compounded growth rate in net earnings. EBITDA margin expanded from 20% to 26%. Reflecting the expanded capital base following the share issue to fund the John Guest acquisition, earnings per share growth was lower than absolute earnings measures, but still a very strong 21% compounded.
We're certainly pleased to have been able to more than double our annual net sales and triple our operating earnings and net earnings over this initial period. Maybe even more importantly, though, as well as being larger, our business today is significantly more robust and diversified. The platforms we have now in our key markets provide us with even greater opportunities for further growth and expansion. The investments we continue to make in people, systems, and capacities give us confidence to pursue those opportunities. Ladies and gentlemen, thank you for your attention. Let me now hand you over to our Group CEO, Heath Sharp.
Thank you, Stuart. Good morning, everyone, and greetings from RWC's head office here in Atlanta. This has been a record year for RWC. We have manufactured, sold more products to more customers than ever before in our history. We have achieved this while managing our way through a global pandemic. There is no doubt that COVID has helped to boost sales in most of our key markets as homeowners have invested more into their houses. While COVID has driven demand for our products, it has caused significant challenges. We have had to deal with the disruption at many of our manufacturing and distribution facilities around the world. In addition, we have seen our supply chain disrupted, and this has added to the pressure we have all felt.
At this point, I'd like to acknowledge the entire team at RWC for their extraordinary efforts over the past year that have contributed to our record performance. Today, I will briefly discuss our performance for the 2021 financial year. I will also provide an update on trading in the first quarter of the current financial year. After that, I'll touch on our strategy and discuss in more detail the acquisition of EZ-FLO, which we announced earlier this week. Turning firstly to our performance for the year ended June 30, 2021. Total sales in 2021 were up 15% on a reported basis to AUD 1.34 billion. When we adjusted for movements in foreign currency translation, underlying net sales for the group were up 25%.
What was really pleasing was that we experienced strong sales growth in each of our three regions. In the Americas, sales in constant currency were up 27% for the year and up 31% in the second half. This is a very strong result, driven by the strength of the home repair and remodel market, in particular. Growth accelerated in the second half as a result of the winter freeze in Texas and other southern states of the U.S. Meeting this very sudden increase in demand required a coordinated effort across the whole of RWC on a global basis. I'm incredibly proud of how we responded to the urgent needs of our customers. Asia Pacific also recorded very strong sales growth, with sales up 18% in constant currency terms. The Australian market showed positive momentum, driven by increased new home building and repair and remodel activity.
Asia Pac also benefited from stronger intercompany sales to the Americas, which were up 29% for the year in constant currency. In EMEA, we recorded 25% sales growth in constant currency terms. The strong growth in volumes was driven firstly by the recovery in the U.K. following the COVID lockdowns experienced in the prior year. We saw a rapid rebound in demand from the start of 2021 as the U.K. came out of lockdown, with strong activity levels driven by residential repair and remodel activity and new home construction. The recovery in Continental Europe lagged the U.K., but we experienced a strong improvement in sales from Europe over the course of the year. Pleasingly, the 25% growth in net sales translated into higher operating earnings.
Earnings before interest, tax, depreciation, and amortization, EBITDA, was up 56% on a reported basis to AUD 341 million. Adjusted for a number of one-off items in both 2021 and 2020, EBITDA was AUD 349 million, which was up 39% on the prior year. In fact, all three regions achieved higher operating earnings growth. In addition to the robust sales growth, a combination of volume growth and cost savings were the main contributors to that strong uplift in operating earnings. Higher production volumes led to better efficiencies and therefore higher margins. On top of that, we undertook a number of cost out initiatives throughout the year, which generated cost savings of AUD 22 million.
As Stuart has already referenced, this increase in operating earnings drove a 111% increase in our reported net profit after tax to AUD 188 million. Adjusting for the one-off items, our net profit after tax for the year was AUD 212 million, which was up 63% on the comparable figure for the prior year. Another highlight of FY 2021 was the strength of our operational execution. This has recently been externally recognized for the second year in a row here in the U.S. Earlier this month, we were again awarded Vendor Partner of the Year for Rough Plumbing by Lowe's Companies, Inc., one of our largest retail channel partners in North America. This is just a huge accolade, and it is validation of our achievements in customer service excellence and operational execution that we have built over many years.
Earlier this week, we released a trading update for the first quarter of the year to September 30, 2021. We experienced sales growth over the prior corresponding period, PCP, in all three regions, with reported net sales up 8% overall. Operating earnings were 5% higher over PCP and up 4% on an adjusted basis. Compared with the same period two years ago, operating earnings were 28% higher. Underlying demand remains strong in all three regions, reflecting the ongoing consumer investment in home improvement that has driven repair and remodel activity. Supply chain constraints, including shipping and freight delays, material shortages, and delays elsewhere in the construction sector, were in fact a constraint on top line growth rates in the first quarter. As we expected, operating margins were lower.
Price rises that were introduced to cover input cost inflation, particularly copper, resins, and steel, were dilutive to margins overall. Other cost pressures, including shipping, freight, and energy costs, also negatively impacted margins. Turning now to our expectations for each of the three regions, and starting first with the Americas. We are becoming increasingly confident that the step change last year in repair and remodel activity will persist through FY 2022. While this means sales growth rates will moderate significantly from the rates seen in FY 2021, the overall growth achieved on a two-year basis will leave us in a very good position to continue our long-term growth journey. As always, for FY 2022, we expect growth in the Americas will be augmented by product and customer initiatives as well as price increases.
In Asia Pacific, we are expecting to see continued volume growth from ongoing repair and remodel activity, as well as a robust new housing market. In the U.K., underlying demand drivers are positive, but supply chain constraints continue to challenge the construction sector. This is leading to the postponement of some residential construction activity, including remodeling. At this point, I think it is prudent to note that we continue to face supply chain challenges in all regions, as is everyone in our industry. This continues to consume resources to manage, but our teams are doing well, really quite well. We are confident that we are handling these demands as well or better than our peers. Nonetheless, we do expect disruptions through most of the year. While we expect demand to remain very strong, meeting the demand in full will be an ongoing battle.
Now I'd like to pivot and briefly discuss RWC's strategy and then move on to the acquisition of EZ-FLO, which we announced earlier this week. Our strategy remains focused on driving growth in our core markets and in markets immediately adjacent to those. The professional plumber is at the heart of our business, and our products and solutions are all about making their lives easier and improving their productivity. Maintaining strong relationships with our retail channel partners is incredibly important. Ensuring that we are helping them to grow their business over time is a priority for us. As we have proven over the last year, running our operations efficiently and maintaining high customer service levels is absolutely critical. We executed well for our channel partners and for our end users during the heightened demand from both COVID-19 and the U.S. freeze.
This enhances our relationships and positions us well going forward. Our culture and our people have been integral to our performance over many years, and our culture is underpinned by our values. Earlier this week, we announced the acquisition of EZ-FLO International for $325 million. EZ-FLO is a leading manufacturer and distributor of plumbing products, including appliance supply lines, plumbing specialty products, flexible water connectors, gas connectors, stop valves, and other accessories. EZ-FLO was first established in 1980 and has grown rapidly by continuously expanding its product range. In 2000, the Eastman brand was acquired, which is the leading brand in large appliance connectors in the U.S. With the Eastman brand, RWC is now positioned as the leader in supporting those contractors who undertake major appliance installation and service.
Eastman Appliance Connectors represent approximately half of EZ-FLO's revenue, and a further 20% of sales are generated by Eastman installation products. The balance of sales revenues are derived from a wide range of plumbing repair and replacement products. While sales are predominantly in the U.S., approximately 11% are generated outside of the U.S., in Canada, Central and South America, and the Caribbean. In terms of its manufacturing footprint, approximately half of EZ-FLO's revenue is generated from products made at its plant in the Ningbo Free Trade Zone in China. A further 20% is sourced exclusively from third-party manufacturers in China. EZ-FLO has a network of seven distribution centers from which its extensive product range is distributed through 5,000 channel partner outlets. With this distribution network, EZ-FLO is able to ensure next day delivery to 80% of the U.S. population.
We really are very excited to have secured EZ-FLO and believe that the business is a sound strategic fit that will deliver strong returns. There are many aspects to the EZ-FLO business that make it highly attractive for RWC. These include the product portfolio, the manufacturing and sourcing capabilities, the distribution footprint that I mentioned, customer service, their proven track record, and especially the future growth prospects. We will be seeking to leverage our extensive channel partner network in North America to expand the distribution footprint for EZ-FLO. At the same time, we will benefit from EZ-FLO's strong channel partner relationships. Consequently, we believe EZ-FLO has strong revenue growth prospects. We are targeting to deliver EZ-FLO revenue growth of 10% per annum over the next several years.
We have also identified cost reductions totaling AUD 10 million per annum on an annualized basis by the end of year three. Combined, these revenue and cost synergies will ensure the acquisition delivers strong returns on our investment. We expect the acquisition to be EPS accretive in its first year, and that the return on our investment will exceed our cost of capital in the first year and will rise thereafter. Now, turning to our priorities for the new financial year. A key objective for the business remains delivering top-line growth above that of the market in each of our regions. As was the case in FY 2021, this will be delivered by our ongoing focus on execution. We will also strive to further refine our operations with a view to improving efficiencies and optimizing margins.
Capital expenditure will rise this year as we will be investing to increase our manufacturing capacity in each region and also investing in new products. We will also be realigning our warehousing and distribution footprints in both the U.S. and the U.K., which is an important step to enable further volume growth. In AsiaPac, integrating the recently acquired LCL business will be a priority for the team in Australia. Globally, of course, completing the EZ-FLO acquisition and combining its operations with our America's business will be a key deliverable for FY 2022. In conclusion, 2021 was a record year for RWC. But beyond the very strong financial results is the fact that the business has ended the year bigger and stronger than ever. We are very well positioned to continue growing this business as we have over the past several years.
Our platforms in each of our major markets provide the foundation upon which to execute our strategy and to continue creating value. Thank you. Now let me hand back to Stuart.
Thank you, Heath. We are happy to respond to any general questions at this time, if there are any. Please follow the prompts on the online platform to ask a question. It seems as though there are no oral questions. I will now ask Phil to read any written general questions to the meeting.
Mr. Chair, there are no written questions for general business.
Thank you, Phil. We will then consider the formal items of business. The notice of meeting has details of any voting exclusions which apply to the motions being considered. As stated in the notice of meeting, the undirected proxies I received as chairman for the purpose of these motions will be voted in favor of the proposals. Directors' recommendations on how to vote on each resolution are set out in the explanatory memorandum attached to the notice of meeting. Each director, other than where they have an interest in a resolution, has recommended that shareholders vote in favor of all resolutions. Details of each resolution and proxy votes cast are now shown on the screen. I remind you that the voting platform is open and shareholders can vote at any time.
The first item of business is to receive and consider the financial report of the company and the reports from the directors and the auditor for the financial year ended 30 June 2021. There is no requirement for a formal resolution to be considered on this matter. I remind you that Tony Romeo from KPMG, the company's auditor, is online and available to answer questions about the conduct of the audit, the content of the auditor's report, accounting policies adopted by the company and auditor independence. I advise that no written questions for the auditor were received ahead of the meeting. I now invite questions on this item. Please follow the prompts on the online platform to ask an oral question on this item. It seems that there are no oral questions on this item.
I will now ask Phil King to read written questions that we have received on this item to the meeting. Please note that we will respond to specific questions on the remuneration report later in the meeting.
Chairman, there are no questions in respect to this item.
Thank you, Phil. The second item is the election and reelection of directors as shown on the screen. Prior to responding to questions, I will ask each director seeking reelection or election or reelection to make some brief remarks. First of all, Darlene Knight. Darlene.
Thank you, Stuart. Good morning, everyone. I'm Darlene Knight, and I'm seeking your support for election to the RWC Board of Directors. I feel my deep expertise in areas like health and safety, quality, lean manufacturing, and product launch provide me with a unique perspective that will allow me to have a meaningful contribution on the RWC Board. My strategic experience, including capacity planning, manufacturing footprint, and sourcing strategy, are all applicable to the types of decisions that face RWC. Finally, my background includes a broad global perspective, which aligns with the global nature of RWC's business. I have lived and worked in multiple countries, including China and of course, extensively in the U.S.
It has been my pleasure to work with the team since mid-April following my appointment to the board. I have found my esteemed colleagues to be open and encouraging, and I look forward to contributing to the continued success of RWC for many years to come. Thank you.
Thanks, Darlene. Good morning, everybody. Can I begin by thanking my fellow directors for supporting my re-election and for continuing to embrace diversity, not just of gender, but of the mix of skills and experience that a high-functioning board requires. It was the diversity of my background and skill set that actually led the board to approach me to join in 2018. Having spent my career as a journalist, political advisor to prime ministers and other state and federal leaders and consultant to many boards, statutory authorities and government agencies, my background was indeed vastly different to that of my fellow directors. I believed then, as I do now, that if I could bring to the table my experience in issues management, communications, governance and environmental and social policy then I could bring a unique perspective which added value.
These are skills that I've applied to my other directorships at the Transport Accident Commission, Racing Victoria and the Ovarian Cancer Research Foundation. There are really two key factors that drove me to accept the RWC directorship back in 2018. The first was that Reliance is a manufacturing company. As a political advisor, I'd seen the demise of the Australian manufacturing sector up closely. The fact that our company has grown into a major global player and is a global product leader was and still is a strong motivator for me. The second was about values and culture. The integrity, passion and drive of our management team led so capably by Heath and the commitment to our people and their safety is outstanding.
That culture has underpinned the exceptional performance of the company, particularly over the last few years as we embarked not only on a major acquisition and integration, but stared down the massive challenge of a global pandemic and its impact on our workforce, supply chains and distribution channels, and emerged in an even stronger position. With your support, I look forward to continuing to contribute to that ongoing success as we rise to meet the challenges that await us. Thank you.
Thank you, Darlene and Sharon. I now invite questions on these items. Please follow the prompts on the online platform to ask an oral question on either of these election or re-election proposals. It seems that there are no oral questions. I will now ask Phil King to read out questions we have received on these items for the meeting.
Chairman, there is one written question. It comes from Peter Aird of the Australian Shareholders' Association, and the question is as follows: As Ms. McCrohan's skills and experience are primarily in media and strategic communications from a non-corporate background, would she clarify how she adds value to the board of an international manufacturing business?
I think that Sharon actually did that fairly comprehensively in her response. Sharon, is there anything you would add to what you've said already in answering Peter's question?
Look, I don't think so, Stuart. I think I probably would hope that I had covered that. I think the point, that I was making is that diversity is also about skills and background, and having seven directors with the exact same background and skill set is probably not conducive to a high functioning board.
I think while media and communications might sound like it's a narrow field, I think as I explained, my background is much broader than that, and particularly around senior political roles where, you know, and having involvement in policymaking, and a deep understanding of some of the ESG issues that boards are facing, as well as working very closely with a lot of boards in my role as a consultant outside the political space, dealing with issues management, workforce issues, strategic planning, all of those skills. I would hope that I have addressed the question earlier, and that that has satisfied the asker. Thank you.
Thank you. Thank you, Sharon McCrohan. If there are no other questions and I understand that there are, then we will move on to the third item of business, the remuneration report. The resolution is for the adoption of the 2021 remuneration report. This year, the report contains details of 2021 remuneration outcomes and provides key details of the revised remuneration framework, which applies from July 1, 2021. I will ask Christine Bartlett, Chair of the Nomination and Remuneration Committee, to make some remarks on the report and the revised remuneration framework. Christine.
Thank you, Stuart. I'm pleased to make some brief remarks on the 2021 remuneration report. The report contains details of remuneration outcomes for KMP for the 2021 financial year and key details of the revised remuneration framework which applies from July 1, 2021. There are two items I would like to comment on. The first is STI awards to our CEO and CFO for FY 2021. The board did not approve a budget for FY 2021 owing to the uncertainties created by COVID-19, with no approved budget. The board elected to exercise its discretion in determining STI awards for FY 2021 for the CEO and CFO. We did this by considering financial performance against rolling forecasts, which were presented to the board for review throughout the year, and also by comparing results against analyst consensus for EBITDA published throughout the financial year.
On every metric, it was clear to the board that the group's financial performance exceeded expectations, and that both the CEO and CFO were deserving of their maximum entitlement for the group's financial performance. The second item is the revised remuneration framework, which applies from July 1, 2021. We undertook an extensive review of the remuneration framework with the assistance of external consultants. I would like to acknowledge the support we received from Heath and other senior management during the process. I don't believe the NominRem committee would have achieved the desired outcomes without their buy-in. The main purpose of the review was to introduce a performance-based remuneration framework capable of being implemented consistently across the group and which is structured to be equitable and align with the long-term interests of the company and shareholders.
A further consideration was that the framework be reflective of current practice in the U.S. market, as over 50% of our executives are based in the U.S.A. This style of framework includes STI awards being 100% cash based and there being a focus on target variable remuneration and maximum incentive values at 200% of target for both STI and LTI outcomes. Award outcomes will be based on achievement against operational performance conditions for both STI and LTI. There are also personal KPIs attaching to the STI awards. Having 100% cash STI awards is consistent with U.S. practice. It does represent a change to the current STI plan for the CFO and CEO, where 50% of STI awards were deferred in shares.
We believe this change is acceptable in the overall context of the revised remuneration framework and the required transition to the revised framework, which includes some downward adjustment of fixed annual pay by approximately 20% over the next three years for the CEO. As Stuart mentioned earlier, there are approximately 215 people initially participating, which is less than 10% of the total workforce. I believe the remuneration framework is a good outcome for the company and shareholders, and I commend it to you. Thank you. I'll hand you back to Stuart.
Thank you, Christine. I now invite questions on this item. Please follow the prompts on the online platform to ask an oral question on this item. It seems that there are no oral questions on this item. Phil, are there any written questions on this item?
Chairman, there is one written question. Again, it comes from Peter Aird of the Australian Shareholders' Association. It starts with a statement and then a question, so I'll read it. The decision to provide 100% of any STI as cash seems excessively generous. Looking at the information in the notice of meeting, while you have reduced the CEO's fixed pay in FY 2022 by 7% based on achieving target objectives in FY 2022, he would receive about $0.5 million more cash than a similar performance in 2021. How do you justify such a change?
Christine, do you want to respond to that?
Thanks, Stuart. Well, I think the analysis we did showed us that in the U.S., STI is typically paid as 100% cash, so we were comfortable with making the move to that structure. I think the other element to this is we are now moving to annual allocation of LTI grants as part of our remuneration framework. We felt comfortable that we would have that long-term, three-year retention through equity in those LTIs, along with addressing the issue where we had very high base salaries. It gave us a good way of transitioning from an ad hoc approach to remuneration that we've had previously to a much more streamlined framework. We will have consistent approach year-on-year in every region that Reliance operates.
Thanks, Christine. Phil, are there any other questions on the remuneration report?
Well, no. Actually, the next one refers to the LTI grant size in four, so none on the Remuneration Report.
Okay. The fourth item is to approve the LTI grant for 2022 to Heath Sharp, our Group CEO. Key details of the proposed grant, including performance, investing conditions, and the issue of any shares upon vesting of the performance rights are set out in the explanatory memorandum to the notice of meeting. ASX listing rules require the approval of shareholders to be obtained before performance rights can be granted to Heath as a director of the company. I now invite questions on this item. Please follow the prompts on the online platform to ask an oral question on this item. It seems that there are no oral questions. I will now ask Phil to read questions, written questions we've received on this item.
Chairman, just the one I referred to just before. It again comes from Peter Aird of the Australian Shareholders' Association and it is as follows: You have decided to use fair value to determine the cost of LTI rights. This appears unnecessarily complex and lacks visibility. Indeed, you indicate that the TSR and EPS rights have different values. Many companies use the simple and visible weighted average value of shares traded over a defined period, for example, the month before the end of financial year. Why are you using fair value to establish the cost of LTI rights?
I might take this one as I've been fairly heavily involved in it. The restructure of Heath's compensation involved, as was mentioned earlier, him giving up over three years a very significant amount of base salary. If you use simply the current value of the security that is the subject of a performance right, you are overvaluing that right if there are any meaningful performance conditions attached to it. A short of the dollar isn't worth a dollar. The fair value calculation is a way of calculating using the best financial mathematics available, which is not necessarily beyond dispute in relation to the outcomes in detail, but I think is generally accepted as being as good a way of valuing instruments like that as there is, so that we are actually.
When we say we are giving Heath $100 worth of value, we are actually giving him today $100 worth of value today. Whether that is worth $5,000 or nothing in three years' time is, of course, subject to forces that we don't know and can't see. But the reason for using fair value is that we think it is the best reflection of the value of the instrument that we are granting at the time we are granting it. I think that finishes discussion on Heath, on the grant to Heath. Phil, are there any other questions on that?
No, Chairman. No further questions.
Very good. The fifth and final item is to approve the renewal of the proportional takeover provisions contained in the company's constitution. Rule six of the Constitution contains provisions dealing with proportional takeover bids for shares in the company. The provisions are designed to assist shareholders to receive proper value for their shares if a proportional takeover is made for the company. Under the Corporations Act and clause 6.4 of the company's constitution, these provisions must be renewed every three years or they will cease to have effect. The current provisions will automatically cease to have effect after 30 October 2021, unless renewed by the proposed special resolution. These provisions must be renewed at this general meeting in order to apply to proportional takeover bids made after 30 October 2021.
If approved by shareholders, the proportional takeover provisions will be in exactly the same terms and will have effect for three years. I now invite questions on this item. Please follow the prompts on the online platform to ask an oral question on this item. It seems there are no oral questions. Phil, are there any written questions on this item?
There are no written questions on this item, Chairman.
Ladies and gentlemen, that concludes our discussion of the items of business. I will close the voting system in a couple of minutes. Please ensure you have cast your vote on all resolutions. I will now pause to allow you time to finalize your votes. Ladies and gentlemen, I now declare the poll closed. The results of the poll will be announced to the ASX as soon as possible. Thank you all very much for your attendance. The meeting is now closed.