Macquarie Australia Conference - Fletcher Building · Australian manufacturing businesses Key sector exposures Concrete Products Plastic Pipes Roofing Sheds + Commercial structures

Macquarie Australia ConferenceMay 2014

Nick Olson – Chief Financial Officer

Fletcher Building Macquarie Conference | © May 2014

Disclaimer

This presentation contains not only a review of operations, but also some forward looking statements about Fletcher Building and the environment in which the company operates. Because these statements are forward looking, Fletcher Building’s actual results could differ materially. Media releases, management commentary and analysts presentations, including those relating to the 2014 Half Year Results announcement, are all available on the company’s website and contain additional information about matters which could cause Fletcher Building’s performance to differ from any forward looking statements in this presentation. Please read this presentation in the wider context of material previously published by Fletcher Building.

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Fletcher Building at a glanceMarkets Overview/Sector exposureUpdate on key issues FBUnite Canterbury Rebuild Residential StrategyFinancial Management setting Capex and working capital Dividends and Capital ManagementStrategyOutlook

Presentation outline

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Fletcher Building at a glance

Revenue – 12 months to 30 June 2013: NZ$8,517mMarket Capitalisation¹: NZ$6.7BnEmployees: 18,800

59%28%

13%

New Zealand AustraliaRest of World

• Shareholders Revenues EBIT(as at Dec 2013) (6 months to Dec 2013) (6 months to Dec 2013)

47%

40%

13%

New Zealand AustraliaRest of World

44%

30%

14%

8%4%

New Zealand AustraliaNorth America UKAsia

1. Market Capitalisation as at 1 May 2014

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Fletcher Building Overview

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Construction

General construction InfrastructureprojectsResidential house

development

Building Materials Manufacture

Plasterboard Insulation Roof tiles Coated steel Aluminium windows

& doorsSinkware

BuildingProducts Distribution

Laminex

MDF Particleboard LPM HPL

Formica HPL

Laminex

MDF Particleboard LPM HPL

Formica HPL

Infrastructure Products

Laminates& Panels

Cement Readymix Aggregates

ConcreteProducts Concrete pipes Quarries

Reinforcing bar,mesh and wire

Iplex pipelines Copper tube

New Zealand 57 PlaceMakers

branches 12 PlaceMakers

frame and truss sites 63 Mico branches

Australia 223 Tradelink

branches 17 Hudson Building

Supplies branches 12 Northern’s

Plumbing Suppliesbranches

Fletcher Building is an integrated manufacturer and distributor of infrastructure and building products, as well as a construction company


Sectoral exposure

Residential (New/A&A)*

Commercial & Government

Infrastructure(Rural/Mining)

Geographical Exposure by Sector¹

New Zealand 46% 38% 16%Australia 52% 27% 21%Rest of World 40% 59% 1%

Total 47% 39% 14%

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1. Excludes NZ and Australian Distribution businesses* A&A – Additions and Alterations

Exposures based on revenues


New Zealand residential consents up 29% while net migration is at a 10 year high

13,000

14,000

15,000

16,000

17,000

18,000

19,000

20,000

21,000

22,000

23,000

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Total residential consents 12 month rolling – New Zealand

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Long term average (2001-2013)

-10,000

-5,000

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

Mar

-14

Net Migration 12 month rolling -New Zealand

Note: 12 months to March 2014Source: Statistics NZ Source: Statistics NZ


Australian residential consents continue to be driven by increases in multi-unit dwellings

Total residential consents 12 month rolling – Australia

8

0

40,000

80,000

120,000

160,000

200,000

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Housing approvals – by state

-

5,000

10,000

15,000

20,000

25,000

30,000

NSW VIC QLD WA

2013 Houses 2014 Houses

2013 Dwellings excl houses 2014 Dwellings excl houses

Source: Australian Bureau of Statistics Source: Australian Bureau of Statistics


Australian manufacturing businessesKey sector exposures

Concrete Products Plastic PipesRoofing Sheds + Commercial structures

GlasswoolInsulation

MDF + ParticleboardHigh pressure Laminate

Rail, roads and highways

New residential (single dwelling)

Electrical/Telco Mining

New residential (stand-alone + multi-unit)

Residential repair and remodel

Commercial Electrical Telco Rural Mining Coal Seam Gas

New residential (stand-alone)

Residential garages/doors/ sheds

Commercial/ Industrial

Rural Mining

New residential (stand-alone)

Residentialretrofit

Commercial/ Industrial

New residential Residential repair

and remodel Commercial

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Update on Key Issues

CSP Pacific streetlight columns, Auckland


FBUnite: Business Transformation Programme

Total benefits arising from FBUnite expected to be approximately $100m p.a.

Benefits should become evident in FY15 Capital and operating expenditure will be incurred in FY14

which will offset early benefits FBUnite is a multi-year programme and the full quantum of

benefit will take several years to be fully realised

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FBUnite Update:Procurement & Financial Shared Services

Procurement Full team in place Focus has been on indirect cost items – key categories addressed so far

include:− Temporary labour− Transport – fleet and mobile plant− IT− Corporate Services− Raw Materials

Financial Shared Services Shared services pilot went live on 7 March with accounts payable

processing for steel businesses Scope of activities will be ramped up over coming months to include

accounts receivable, accounts payable, payroll, credit management Business units will transfer as ERP issues are addressed

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FBUnite Update:Property

Centralised property team in place

Global database of all owned & leased properties completed

Profile of forthcoming lease renewals helping in planning

Working with business units to determine ongoing premises requirements

A number of lease renewals & property consolidations already completed

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FBUnite Update:Operations Excellence

Programme has been structured around 2 key steams of work:Manufacturing Excellence

Focus on key manufacturing sites & processes “Model lines” identified across NZ & Australia Rollout of 10 Pillar methodology underway to all manufacturing

teams 8 sites piloting the programme, other sites assessing their

processes

Supply Chain Excellence

Focus is on network optimisation (warehousing) Development of 10 pillar programme currently underway Transport and logistics analysis will be additional work streams

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FBUnite Update: Devolved IT Operations had lead to diverse systems and processes

DIVISIONS WITH MULTIPLE BUSINESS UNITS5

CRM SYSTEMS16

No Group IT function

No over-arching IT direction or strategy

Inconsistency with regard to technology standards

No leveraging of scale

No leveraging of capability

Limited integration or sharing of customers, projects, products or insights

Multiple platforms and diversity

IT ORGANISATIONS26

ERP SYSTEMS71

PAYROLL SYSTEMS21

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FBUnite Update:IT Strategy

Group CIO, Carl Powell, commenced in December 2013 Review of IT systems completed, together with future state

roadmap Go forward strategy focused on 3 key areas:

GET DIGITAL

Employing emerging technologies to deliver value

INTEGRATING THE ENTERPRISE

Consolidating technology platforms to align Group-wide

IT OPERATING MODEL

Restructuring IT Organisations across the Group

ORGANISATIONAL EXCELLENCE

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Canterbury update

Fletcher EQR 54,000 full scope home repairs completed out of estimated 70,000 $1.8 billion of work completed Canterbury Home Repair Programme to be completed by December 2014

Horizontal Infrastructure Repairs Fletcher Building is one of 5 contractors rebuilding Christchurch’s horizontal

infrastructure Total programme has 650 projects to be completed by the end of 2016 and is

over 40% completed

Construction Commercial rebuild gaining momentum with Government anchor projects

now starting Several key commercial & government projects contracted to start this year Fletcher Residential: new housing opportunities identified & in planning

phase

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Residential strategy update

Stonefield development will be largely built out by end of FY15

Three Kings – former quarry in Auckland – is expected to come on stream late FY16 and FY17

Land acquisition has increased in Auckland for future development

New sites also contracted in Canterbury

Increased focus on apartment development alongside single dwelling units

Margins will be lower in the future with land acquired at current market prices

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Capital Expenditure and Working Capital update

Capital expenditure Previous guidance was around $250m for FY14 Likely to underspend due to timing of projects Strong NZ$ relative to A$ impacting favourably on capex and

depreciation Beyond FY14, some uplift in capex likely due to IT upgrade investment

requirements of c. $50m p.a. Property rationalisation will involve both capex and property disposals,

but disposals do not show as a capex offset

Working Capital Control of inventory levels a continued area of focus Operations excellence programme to deliver inventory reduction

benefits over time However, increased land investment for residential development in NZ

will impact working capital− Land held for development & resale is included in working capital

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Capital management

Fletcher Building continues to target strong ‘BBB’ credit characteristicsGearing

Target of Net Debt to Net Debt + Equity (including Capital Notes) of 30-40%

Leverage Target Net Debt to EBITDA of 2.0 to 2.5 times

It is intended that the group will not be materially outside target Gearing and Leverage ranges on a long run basisDividend Policy

Fletcher Building seeks to maintain dividends through economic cycles, and to progressively grow the dividend over the medium term

Target dividend pay-out ratio is 50% to 75% of net earnings Dividends will be imputed or franked where possible

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Strategy summary

Value-creation through margin improvement, disciplined capital allocation, and active portfolio management

Most businesses in the portfolio have potential for continued organic growth and delivery of positive returns. Focus for these businesses will be improved margins through Sales & Marketing and Operations Excellence and disciplined capital allocation.

A number of small non core businesses will be positioned for divestment over the next 3-5 years

Growth capital will be focused on areas in which we are best-placed to create value

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Outlook

Formica DecoMetal® laminate, Heathrow Airport


Outlook FY14

New Zealand Level of house building activity expected to continue to underpin trading results Repair of houses and infrastructure in Canterbury will also boost activity levels Improved outlook for commercial construction nationally, particularly in

Christchurch Demand for civil infrastructure expected to benefit from Government

commitments around major projects in Auckland, Wellington and CanterburyAustralia Outlook remains uncertain; variation in activity levels continues across each of

the states Mix of stand-alone versus multi-unit housing construction is impacting demand Outlook for commercial construction remains subdued Declining investment in mining and resources sectors and reduced State

Government expenditure on infrastructure projects likely to adversely impact activity levels

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Outlook FY14

Asia Commissioning of new Formica plant in China will impact operational results

for FY14, despite increased volumes Mixed operating conditions across Asia

North America Increases in new housing construction expected to benefit Formica Key commercial market yet to improve

Europe Restructuring initiatives expected to drive improved performance Overall volumes likely to remain mixed

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Strength of NZ$ to A$ and US$ has continued to impact earnings

4380

4174

4273

(206)

99

Dec

embe

r20

12 R

epor

ted

FX

Dec

embe

r20

12 A

djus

ted

Und

erly

ing

Gro

wth

Dec

embe

r20

13 R

epor

ted

Revenue (6 months ended 31 Dec)

262239

281

(13)(10)

42

Dec

embe

r 20

12Re

port

ed

FX

One

-off

s (i.

e.O

ther

Gai

ns/L

osse

s)

Dec

embe

r 20

12A

djus

ted

Und

erly

ing

Gro

wth

Dec

embe

r 20

13Re

port

ed

EBIT (6 months ended 31 Dec)

NZ$

mill

ion

Fore

ign

curr

ency

tr

ansl

atio

ns

Fore

ign

curr

ency

tr

ansl

atio

ns

2%18%

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First half operating earnings were up 18% when currency impacts are excluded


Financial outlook

For FY14: No change to guidance given at Half Year results in February 2014

Operating earnings before significant items expected to be in the range of $610-$650m

Assuming completion of the sale of Pacific Steel by 30 June 2014, a significant expense item of up to $19m will be recorded

− Reflects the gain on sale of assets, offset by transaction costs and adjustments to remaining asset carrying values

For FY15:Results will be impacted by:

Completion of Canterbury Home Repair Programme in December 2014

Sale of Pacific Steel (Long Steel) business to Bluescope in June 2014

Completion of Stonefields (Auckland) subdivision by end of FY15

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Fletcher Building – key listing information

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Listed on the New Zealand and Australian stock exchanges

New Zealand• Largest listed company by market capitalisation on the NZX¹

Australia• Ranked #46 on the ASX¹• Fletcher Building gained inclusion in the S&P/ASX 200 index in March 2011US• Level I sponsored American Depository Receipt (ADR) programme launched

December 2010• Citi act as depository bank• Ticker:FCREY CUSIP: 339305302

1. Ranking as at 1 May 2014

Documents

Macquarie Australia Conference - Fletcher Building · Australian manufacturing businesses Key sector exposures Concrete Products Plastic Pipes Roofing Sheds + Commercial structures