Fletcher Building Annual Review 2010 – The year in brief STRENGTH THROUGH DIVERSITY

Strength through diversity

Chairman’s review Page 3

Fletcher Building’s strength lies in Chief Executive’s review Page 5 its diversity. Divisional reviews Page 8

Through a vertically integrated value Building Products chain, our 40 businesses deliver a Distribution diverse range of building products and Infrastructure construction materials. Laminates & Panels Laminex From our strong Australasian base, we Formica operate in a diverse range of geographies Steel Environment and Society – Asia, the Americas, Europe, and the Page 18

Financial summary South Pacific. Page 24

Directory We harness the skills and experience of a Page 28 diverse international workforce of 16,000, drawing them together through a culture that encourages people to help each other succeed, and achieve excellence. Our diversity has allowed us to find opportunities despite the subdued global economic climate. In a world of continuing uncertainty, that diversity means we are well placed to respond to emerging areas of growth.

This Annual Review summarises the group’s Annual shareholders’ meeting operational and financial activities for the year The Fletcher Building 2010 annual shareholders’ ended 30 June 2010. This is not an Annual Report meeting is to be held at 10.30 am on Wednesday or a Concise Annual Report as provided for in the 17 November 2010 at Eden Park, Mt Eden, Companies Act 1993. Auckland, New Zealand. The notice of meeting, You can obtain an electronic copy of the Annual voting form and RSVP card will be mailed to Report by going to the following website address: shareholders closer to that time. fletcherbuilding.com/reports/10

1 Looking at 2010 Highlights $301m Net earnings after tax before unusual items, on revenues of $6.8 billion. Operating earnings (earnings before interest and tax) before unusual items were $521 million compared with $558 million in the previous year. $522m Cashflow from operations. Ongoing focus on tight working capital management and a reduction in capital expenditure resulted in strong operating cashflow from operations. 53% Reduction in Total Recordable Injury Frequency Rate per million hours (TRIFR) which this year was 11.24 compared with 23.79 in 2009. Lost time injury frequency rate (LTIFR) was 3.42, compared with 5.81 in 2009. 29c per share Dividend for the 2010 financial year, with a final dividend of 15 cents per share. Chairman’s review Looking forward

The past year has been a challenging one because of the impacts of the global financial crisis on most of our major markets. Yet Fletcher Building has performed well in these conditions. Ralph Waters Part of this stems from the geographic and business Unusual items Chairman diversification that has been a strategic priority since As indicated in June, an unusual tax expense of 2001. It is also due to the restructuring initiatives that NZ$29 million was incurred in the financial results we undertook in 2009. As a result, we have come for the year ended 30 June 2010. The unusual through the economic downturn with our businesses expense arises from the significant taxation changes View the Chairman’s review online: leaner and more efficient, and poised to capitalise fletcherbuilding.com/10/chairman announced by the New Zealand Government in its on improving market conditions when they return. budget in May 2010. These include the elimination Operating performance of depreciation on buildings for tax purposes, and a reduction in the corporate taxation rate from For the year ended 30 June 2010, the group 30 percent to 28 percent, both with effect from Read further: recorded net earnings before unusual items of 1 July 2011. Financial summary $301 million. The result compares with $314 million pages 24-27 Based on a review of our future tax obligations recorded in the previous year. in the light of these changes, we have determined Operating earnings (earnings before interest that we need to increase the provision for deferred and tax) before unusual items were $521 million tax by NZ$29 million. The increased provision is a compared with $558 million in the previous year. one-off accounting entry that is non-cash in nature Cashflow from operations was $522 million compared and it has not affected underlying profitability or the with $533 million in 2009. dividend payout in respect of the 2010 financial year. The result was driven by improved performances Whilst the recognition of the deferred tax liability within a number of business units as a result of the is non-cash in nature, the elimination of the tax cost reduction initiatives implemented during the year, deductibility on buildings will result in a small increase and improved trading conditions in the New Zealand in future income tax payments. and Australian residential housing markets. Operating earnings in the Laminates & Panels division almost Dividend doubled to $141 million. The Steel division had lower A final dividend of 15.0 cents per share will be operating earnings following a record earnings result paid on 20 October 2010, bringing the total dividend in the prior year, and reduced concrete product for the year to 29 cents per share. It remains the volumes adversely impacted the Infrastructure board’s intention to maintain a steady and ever division’s earnings. increasing dividend, in line with the group’s earnings While the underlying earnings figure is in line performance. with last year’s, the composition is quite different, For New Zealand resident shareholders, the reflecting the significant changes we have seen in dividend has been imputed at a 30 percent tax rate our markets in the past year. Residential markets to the extent of 3.2143 cents per share. The final in Australia and New Zealand have shown modest dividend is not franked for Australian tax purposes. recovery, but they remained weak in Europe and To maximise the value of available franking credits North America. Government funded infrastructure the group’s policy is to accumulate them and attach spending in New Zealand and Australia has continued these to dividends only when the franking percentage to underpin results, but commercial construction is at or near to 100 percent, rather than spreading activity in most of our key markets remained them over every dividend. subdued. The result is therefore a strong one in In view of the group’s strong balance sheet the context of these mixed market conditions. and low level of gearing at present, the dividend You will find details of the performance of each reinvestment plan will not be operative for this of the businesses in the divisional reviews on the dividend payment. following pages. Balance sheet Shareholder returns We have continued to maintain the prudent balance Earnings per share excluding unusual items were sheet parameters that we established last year with 49.7 cents, compared with 59.7 cents in the the equity raising. As such, our gearing, net debt previous year. as a percentage of net debt plus equity, was Total returns to shareholders were 24.5 percent, 26.8 percent. This is well below our target range compared with 14.1 percent in the prior year, with of 40 to 50 percent. The board feels that is prudent strong share price appreciation during that period. to maintain a low gearing level while there continues Return on funds employed improved to 12.7 percent to be uncertainty in the international banking from 11.9 percent in the prior year, excluding environment and where the availability of funds unusual items. at reasonable cost cannot be wholly assured.

3 Chairman’s review

People Outlook Our people have worked exceptionally hard in the Caution is required in formulating an outlook for the past year in the face of a difficult and demanding current year. With the effects of the global financial economic climate. The fact that the group has crisis still being felt around the world, there continues survived the economic downturn in such good shape to be uncertainty around the timing and pace of a has been due in no small measure to the efforts and recovery in economic activity. focus of our people. In New Zealand, the residential market is Last year saw significant restructuring undertaken expected to continue a slow and gradual recovery across the business, with significant reductions in our in new building activity, albeit remaining below mid- total employee numbers. As economic conditions cycle levels. Removal of the present monetary policy have improved we have seen staff numbers stimulus is expected to constrain the rate of growth in stabilise. Against this difficult backdrop, it has been new housing starts. Commercial construction activity especially pleasing to witness the dedication and is expected to remain at very low levels throughout resourcefulness of our people and their commitment 2011. to helping the group meet or exceed its financial and The volume of government funded infrastructure operation goals. projects is expected to reduce in 2011, with a Also pleasing has been the progress we have number of large projects scheduled for completion made in further developing our senior managers. later in the current calendar year. A rebound is This has been part of an ongoing programme anticipated in the 2012 year with several significant designed to ensure that Fletcher Building has the new projects scheduled to commence. appropriate talent pool within its ranks to succeed In Australia, the rebound in residential activity and lead in the future. seen in 2010 is expected to continue in the current year. Government infrastructure spending should Board changes remain strong, but this will only partially offset At the end of March, Roderick Deane retired as weakness in the commercial construction sector. Chairman of Fletcher Building. Roderick was the The Australian insulation business will need to work inaugural chairman of Fletcher Building and made through high inventory levels following the abrupt a significant contribution to the growth of the termination of the Australian government insulation company. Roderick, who joined the board of scheme, but with improved manufacturing efficiency Fletcher Challenge in 1994, successfully steered the it is strongly positioned once that process has been Fletcher group of companies through the restructuring completed. a decade ago, and was instrumental in the creation Trading conditions in both North America and of Fletcher Building. Under Roderick‘s leadership Europe continue to remain uncertain and no recovery Fletcher Building has grown to become the largest of significance is expected in these markets in the building materials company in Australasia. On behalf near term. Markets in China, South-East Asia and of the board I would like to extend here our sincerest Taiwan are exhibiting growth which is expected to appreciation and best wishes to Roderick for the continue throughout the current year. enormous contribution he made to Fletcher Building Despite these mixed market conditions, and in his long association with the company. the risk of further economic deterioration in some Further changes were announced during parts of the world, the group is focused on growing the year to the composition of the board, in earnings and continuing to generate strong returns accordance with the company’s succession to shareholders. With our robust balance sheet and arrangements for directors. excellent portfolio of businesses, the group is very Mr Tony Carter was appointed to the board as well placed to deliver on this. an independent director with effect from 1 September 2010. Tony will bring an important perspective to the board with his extensive background in distribution and retailing and his familiarity with the broader New Zealand business environment, and we look forward to working with him. Also during the year, we announced that Sir Dryden Spring will retire from the board with effect from 30 September 2010. I would like to record here the board’s thanks to Sir Dryden for his involvement with the board of Fletcher Building. Sir Dryden first joined the board of Fletcher Challenge in 1999, and helped to oversee the evolution of Fletcher Building. He has made a significant contribution as a director to the growth of Fletcher Building through the quality of his strategic insights and operational experience, and as Chairman of the Remuneration Committee. Chief Executive’s review The benefits of diversity

This year’s result again demonstrates the benefit of the Fletcher Building group’s diversity. While conditions in our markets have varied widely, and the effects of the global financial crisis have been felt around the world, we have been able to deliver a strong result. Jonathan Ling Chief Executive Volumes in most of our businesses have been lower up on last year. Operating earnings declined by but we have seen excellent outcomes from the cost $39 million to $164 million as market activity reduction initiatives we have undertaken. This has weakened. In New Zealand, the significant decline ensured that we are appropriately scaled in terms of in commercial construction activity and recent View the Chief Executive’s results our manufacturing capacity to optimise earnings with completion of a number of large infrastructure presentation online: lower activity levels. This, coupled with our strong projects were only partially mitigated by an increase fletcherbuilding.com/10/chiefexecutive balance sheet, positions us well for the future, and in residential construction activity. Operating earnings will allow us to pursue further growth opportunities. at Golden Bay Cement were down 40 percent due to reduced volumes. In Australia, the pipeline products A summary of the business experienced weaker demand for most products while the quarry business recorded a solid performance of each result despite a noticeable slowdown in building activity. The backlog of construction work is currently of our business divisions $930 million, with approximately $450 million worth is set out below. Unless of further work where the group is either the preferred bidder or in final contractual negotiations. The otherwise stated, the backlog at the same period last year was $1.1 billion, divisional commentaries and the decline is due to the completion of several large projects and fewer major contracts secured exclude unusual items from during the year. Government funded work remains the prior year’s results. strong, however, and currently accounts for most of our construction backlog. Building Products recorded eight percent Earnings from Fletcher Residential increased by growth in operating earnings to $114 million. Key $6 million to $18 million with higher average margins factors affecting earnings were the benefits of cost due to a favourable sales mix and stronger demand rationalisation and restructuring, a strengthening for houses in Auckland. of residential construction markets, the impact of Laminex’s operating earnings were $107 million the New Zealand government insulation scheme, for the year which included $16 million of one-off and reduced raw material prices in the roof tiles gains from the closure and sale of the Welshpool business. These were partially offset by the impact and Kumeu sites. Australian domestic revenues of the termination of the Australian insulation scheme, were marginally higher, driven by improvements and weakness in the New Zealand non-residential in the new housing and alterations and additions construction sector. sectors, while conditions in the commercial sector PlaceMakers’ sales were in line with the prior remained constrained. Partly offsetting this was a year, but with a noticeable increase in residential decline in Australian export sales due to the closure building activity in New Zealand emerging in the latter of the medium density fibreboard facility in Western part of the year. Operating earnings were 28 percent Australia, and tight conditions in the commercial higher at $38 million driven by reduced costs and market. New Zealand revenues were below the steady margins. prior year due to the continued slowdown in the commercial sector. Formica’s operating performance for the current A 13 percent increase in year improved substantially over the previous year. New Zealand residential Operating earnings were $34 million, compared with $18 million in the prior year, including $7 million of building consents from 2009 redundancy costs. Volumes in North America were assisted the results. down by a further five percent on the prior year, and while activity in the new housing sector showed The building materials market has, however, some recovery in the USA, this was from a low base. continued to be impacted by the low level of Commercial markets in North America continued residential building consents and the decline in to contract during the year. The main markets in non-residential consents. Northern Europe showed some improvement, Total sales for Infrastructure were down two Central Europe and the UK remained relatively flat, percent with lower sales for most construction but Southern Europe including Spain was lower. materials products in New Zealand and Australia; Markets in Asia have remained solid with volumes however, billings in the construction business were up by six percent on last year. A moderate pick up

5 Chief Executive’s review

in volumes in China and Thailand was achieved after deliver value to our shareholders, customers and last year’s slowing in activity levels, while conditions in communities and are the foundation of the group’s Taiwan and other Asian markets have also been firm. future success. Read further: Steel’s operating earnings for the year were Environment, People and $82 million, which was 47 percent lower than the Health and safety Health & Safety pages 18-23 prior year’s record levels. Prior year earnings were We have a strong commitment to health and driven by historically high steel prices and very strong safety. This commitment starts at the top, with an demand in the first half of the year. The global financial executive-led Health and Safety Council and senior crisis subsequently resulted in the steel industry management participation in safety education and reducing global inventories in response to lower training programmes. The group has a vision of zero demand. Accordingly, 2010 was a difficult operating harm based on the principle that all accidents are environment characterised by uncertain demand and preventable. declining prices. As a result, significant progress has been made in the last year. The group’s primary performance Financial position indicator for safety, Total Recordable Injury Frequency The balance sheet continued to be strengthened Rate per million hours (TRIFR) defines recordable during the year with positive operating cashflows used injuries as both lost time and medical treatment to further reduce debt levels. Our gearing continued injuries. In the last year, this rate has dropped to to reduce, down from 31 percent to 27 percent. 11.24, from 23.79 in 2009. Its Lost Time Injury The group had total available funding of Frequency Rate (LTIFR) was 3.42, compared to $2,349 million as at 30 June 2010, of which 5.81 the year prior. $1,130 million was undrawn. Debt requiring This year, we have also introduced a wellbeing refinancing within the next 12 months is very low programme to streamline initiatives across the group at approximately $116 million. and ensure it is an important part of each business Interest coverage for the year was 4.9 times unit’s health and safety plan. and represents a further improvement on the Despite our progress, fatalities and injuries 4.0 times for the prior year. still occur. An employee of Fletcher Construction (South Pacific) lost his life in the last year at a Cashflow construction site in Apia, Samoa and is a tragic Cashflow from operations was $522 million compared reminder that we must remain proactive in our with $533 million in the prior year. The continued quest for zero harm. strong positive cashflow was driven by our ongoing focus on tight working capital management and Environmental sustainability and a reduction in capital expenditure. We expect that climate change cashflow from operations will be negatively impacted The New Zealand government introduced its by increasing inventory and debtor levels as sustained Emissions Trading Scheme on 1 July 2010 and as market growth emerges. the group’s cement and steel manufacturing Capital expenditure for the year was $191 million operations emit process CO2 they are directly compared with $289 million in the prior year. Of this, affected. These operations are emissions-intensive, $137 million related to ‘stay-in-business’ capital trade-exposed industries and will receive free expenditure, and $54 million to new growth initiatives. allocation of emission units to offset these increased Significant projects included completion of Golden Bay costs. Fletcher Building’s initiatives to reduce Cement’s new cement storage facility in Auckland; the emissions and improve energy efficiency will also upgrading of the Laminex MDF plant in Queensland, ensure the costs are further reduced. and the Fletcher Insulation plant investment in Victoria. Divestments for the year totalled $38 million compared with $52 million in the prior year. Fletcher Building is People committed to ensuring its As at 30 June 2010, Fletcher Building employed use of natural resources, some 16,000 people in business units worldwide. This number was similar to that recorded at the including the emissions December half year, and is indicative of the fact of CO2 from operations, that most of the restructuring work has now been completed and the workforce stabilised. Regrettably, products and services, redundancies were necessary in Fletcher Insulation are reduced. following the sudden termination of the Australian

Government’s insulation scheme in February 2010. The group has set a target to reduce its CO2 Despite the difficult economic conditions of the emissions in 2012 to five percent below the 2008 past year, all learning and development programmes level on a normalised basis. By 31 December 2009, were maintained. Through their capability, performance the group was two years into the five-year policy and and diversity our employees differentiate our group, had decreased its absolute emissions by 18 percent. Chief Executive’s review

Strategy The strategy for the Fletcher Building group is centred on improving the reliability of our earnings through geographic and industry expansion to counter the effects of industry cycles. In addition, we seek to maintain and improve our internal capabilities through business transformation initiatives and growth-oriented capital expenditure, and to pursue any acquisition opportunities which meet our investment criteria. The past two years have seen us focus on conserving cash and strengthening the group’s financial position. However, in the year ahead capital expenditure is expected to increase as we look to strongly position our businesses to capture the benefits from improved economic conditions. Beyond stay-in-business investment, we will pursue opportunities to invest in areas of organic growth and potential acquisition opportunities where appropriate. Australasia continues to be the principal area of focus for further expansion. The strategic priorities for each of our divisions can be summarised as follows: For Building Products, increased focus is being given to innovation and new product development, with the goal of achieving sustained organic growth and expansion into adjacent product and service areas. Distribution’s strategy is focused on growing market share by better servicing of the trade builder segment, and leveraging the strength of the joint- venture partner network. Infrastructure will continue to develop organic growth opportunities where high returns are achievable in existing or adjacent product areas. Laminates & Panels will maintain a focus on further improvements in operational performance and capability, emphasising service and product innovation especially in mature markets. Growth opportunities in Asia and other developing markets will be actively pursued. Steel will continue to explore high-return growth opportunities. Improving the resilience of the business for the longer term remains an overarching objective.

7

Divisional reviews Case study

From the ground up Building Products in Africa

Building Products provides building product The business also consolidated its strategic focus solutions, from foundation to roof. The with the divestment of the Hong Kong based division’s core plasterboard, insulation and commercial interiors operation at 30 June. metal roof tile business streams have leading Operating earnings for the insulation business market positions and respected brands. were down ten percent due to the termination in February of the Australian government’s home Building Products’ businesses include: insulation scheme. This resulted in the suspension • Winstone Wallboards, the sole New Zealand of operations at the Sydney glasswool manufacturing manufacturer of plasterboard. plant and significant restructuring at the Melbourne • Fletcher Insulation in Australia, and Tasman plant. Consequently, restructuring charges of Insulation in New Zealand. These businesses lead $18 million were incurred in the second half of the Fletcher Building’s Roof Tile Group the Australasian market in glasswool insulation, year. New Zealand glasswool volumes were stronger, has established its brands in sub- Saharan Africa over the last ten years, and own four of the six glasswool manufacturing driven by the New Zealand government’s insulation plants in the region. as emerging middle classes and fast scheme. The year also saw the consolidation of growing commercial sectors have • Forman Group, the leader in commercial and various New Zealand home performance initiatives fuelled building activity. The quality industrial insulation and commercial ceiling and under the Healthy Home Group banner. The of Decra® and Gerard® roofing wall systems in New Zealand, and Tasman commercial insulation, and ceiling and wall systems products has been promoted, and Access Floors, a leading provider of access the brands have been positioned for businesses were affected by further weakening the long term with the development flooring systems in Australia. of conditions in the New Zealand non-residential of strong distribution channels and • Roof Tile Group comprising AHI Roofing, with construction sector. community relationships. manufacturing plants in New Zealand, Malaysia Operating earnings for the roof tiles business That decade of investment gave and Hungary, and Decra Roofing Systems in the the Roof Tile Group a strong foundation were up 59 percent due to improved raw material from which to respond when economic USA, make Fletcher Building the leading global prices, strong volumes into Africa, improved volumes growth slowed as African economies supplier of stone chip coated metal roof tiles. in New Zealand and the receipt of final insurance were hit by the global financial crisis. • DVS Healthy Homes dedicated to improving proceeds from the fire at the United States plant in The Roof Tile Group responded to shaky markets with competitively home health and comfort for New Zealanders the previous year. These were partially offset by the through offering a complete range of insulation packaged offers enabling property impact of a strong New Zealand dollar on export developers to progress approved projects and building solutions through group businesses returns and weak volumes in Europe and Japan. and win new business. It encouraged DVS, PinkFit, and Home&Dry Group. The new Hungarian plant continues to operate to developers and home owners alike to see investment in quality branded expectations, although weaker European volumes Complementary businesses in the division include roofing products as a way of adding Tasman Sinkware in Australia which manufactures reduced manufacturing efficiencies. The business value to their buildings, increasing the high-end sinkware, and Fletcher Aluminium which undertook significant global restructuring and overall saleability of properties at a time of increased business risk. designs and manufactures aluminium window and consolidation during the period. The strategy paid off. Sales of Roof door systems. Looking ahead Tile Group’s brands in its African markets increased by more than 40 percent over Performance overview Significant cost rationalisation across the division the year. Building Products recorded eight percent growth as markets turned down, together with the major While economic growth in sub- upgrade undertaken at the Melbourne glasswool Saharan economies slowed during in operating earnings to $114 million, up from the global financial crisis from around $106 million in the previous year, while sales manufacturing plant during the period, has left the five percent per annum to just two increased four percent to $798 million. Key factors division with strong operating leverage. This was an percent, growth of six to seven percent affecting earnings were the benefits of cost advantage as economic activity started to improve is predicted for the next two years. during the year. This strong base is supported with The Roof Tile Group is ready for growth, rationalisation and restructuring, a strengthening established as a respected company a sharpened strategic focus and an emphasis on of residential construction markets, the impact of that delivers for its customers whatever the New Zealand government insulation scheme, new product development. The combination of the economic weather. and strong sales in the roof tiles business. These these factors has positioned the division to achieve benefits were partially offset by the termination of the further improvement as key residential markets Australian insulation scheme, and weakness in the continue to turn up. New Zealand non-residential construction sector. A key focus of the New Zealand insulation More online: businesses will be to continue to work with fletcherbuilding.com/divisions/ building-products New Zealand’s Energy Efficiency and Conservation Cashflow benefited from Authority, EECA, and respond to the opportunity strong control of capital presented by the New Zealand government insulation scheme, and to public interest in sustainability and expenditure and working energy efficiency through the DVS Healthy Home capital. Group. Over the course of the coming year the Australian insulation business will need to work Operating earnings for the plasterboard business through a large inventory of batts left over from the were up three percent despite lower sales. This was termination of the Australian government insulation due to cost rationalisation undertaken in the previous scheme, but with an improved manufacturing Chris Ellis period, and a strengthening of the New Zealand footprint it is strongly positioned once that process Chief Executive, Building Products residential construction market in the second half. has been completed.

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Divisional reviews Case study

Know How for the DIY Distribution market

Fletcher Building’s distribution business, This helped Distribution achieve an annualised return PlaceMakers, is the premier supplier of building of 27 percent on funds employed. materials to New Zealand’s commercial and Enhancements to delivery management improved residential construction markets. freight cost recovery. Productivity gains were achieved in frame and truss manufacturing, a core trade PlaceMakers leads the market in its core trade product, through improvements to the plant network, segments and provides an important distribution production scheduling, quality control and plant channel for Fletcher Building products. There are layout. Capital expenditure was limited during the year 62 stores, most of which are operated in partnership principally to store maintenance and high pay back with local owners. Frame and truss manufacturing projects. Planning for redevelopment and relocation is a key feature of the division’s offering. of existing stores is underway and an increase in DIY is an important complementary PlaceMakers works closely with joint venture activity is planned for 2011 with a number of store market to PlaceMaker’s core building operators and key suppliers to deliver value to refits and relocations. This will extend our lead in trade business. In recognition of this, PlaceMakers launched its Know How customers through credible trade products, and Trade and serious DIY markets. great services through the quality of its employees loyalty card in 2005, which offered The transition to a new leadership team is DIY customers bonus vouchers to and its customer relationships. These are key complete. Key appointments from within the wider encourage repeat store visits. The points of difference underpinning PlaceMakers industry have been made, including the CEO, National card, and ‘Know How, Can Do’ competitive success. Sales, HR, Supply Chain and IT general managers. advertising, has helped position PlaceMakers as a household brand. Twelve new branch operators have been appointed Performance overview PlaceMakers’ commitment to who will also help drive performance and growth. DIYers has paid off. While trade sales PlaceMakers sales were in line with the prior year, Health and safety remains a lead engagement softened over 2008 and 2009, sales but with increased residential building activity in strategy with a 39 percent reduction in the TRIFR to Know How Card members remained New Zealand emerging in the latter part of the rate in the 2010 year. New training, auditing and at similar levels to previous years. year. Operating earnings were 27 percent higher But PlaceMakers is not taking its DIY performance management will support this strategy customers for granted. Competition at $38 million driven by reduced costs and in the year ahead. Renewed focus is also being for the DIY dollar is strong, and steady margins. given to staff development and talent management customers need to be engaged online A 13 percent increase in New Zealand residential as we move into thinking about growth and how as well as in-store. building consents from 2009 assisted the results. The to best capture the benefits of improving market A review of the Know How building materials market has, however, continued Card loyalty programme has seen conditions. New talent and performance management it relaunched with added features to be affected by the low level of residential building frameworks have been established. and benefits. Members now have consents, and the decline in non-residential consents. options such as bonus vouchers Forward indicators for commercial building materials Looking ahead being delivered by email. Higher value customers are being recognised markets have been slowing, while those for residential Improved trade customer services to grow market have improved in metropolitan areas but remain weak through the addition of two premium share will be driven off PlaceMakers strong base tiers to the programme, DIY PLUS in rural and coastal areas. of trade relationship skills, and product and and DIY PRO. These customers industry knowledge. Training and development will receive exclusive offers and invitations be expanded via our ‘Know How’ Academy and to branch events designed specifically The competitive landscape for them. Competitive advantage for related programmes. Strategies will be focused on PlaceMakers over other DIY retailers is has seen most industry partnership and growth. The existing collaboration supported with a platform of tools for participants continuing with Joint Venture partners on strategy development powerful and effective direct marketing. and execution will be expanded. The Know How Card relaunch is to compete aggressively DIY customers will be advantaged by the a ‘can do’ response to securing an important market at a challenging time. relaunched Know How loyalty card and major on price and margin to promotional programmes. Value-added initiatives for retain share. trade customers around installation solutions, and project and job planning, will significantly improve the More online: Pressure on the trade segment continues, but overall attractiveness of PlaceMakers to this market. fletcherbuilding.com/divisions/ PlaceMakers’ market share has been maintained Improvements to supply chain and logistics distribution with the joint-venture ownership model proving effectiveness are also a priority. resilient. An active margin management programme also mitigated pricing pressure. The trade and serious DIY segments remain the core business. Successful marketing and promotional campaigns have brought a fresh focus and added customer appeal to our ‘Know How Can Do’ brand. The growth in operating earnings was attributable in part to a five percent reduction in employee and facility costs, and improved freight cost recovery. Working capital increased by three percent mainly as a result of inventory price increases, but free John Beveridge Chief Executive, cashflow was 43 percent higher than the prior years. Distribution Cashflow management remained a primary focus.

11

Divisional reviews Case study Infrastructure A record of delivery

The Infrastructure division is a vertically 27 percent below last year. Concrete product sales integrated business supplying aggregates, volumes (pipe and precast products) declined by cement, readymix concrete and a range ten percent in the year. Overall margins were lower, of concrete products in New Zealand; and due to mix, competitive pricing and slightly higher concrete pipeline products and a range of input costs. Some recovery was seen in the latter aggregate sands throughout Australia. It part of the year, and forward orders are seven percent higher than last year although overall margins is the largest construction contractor and are lower. residential builder in New Zealand. In Australia, the pipeline and quarry businesses Performance overview performed well, in the economic environment, with combined operating earnings of $52 million Total sales for Infrastructure were down two percent When private sector construction compared with $64 million in 2009. The pipeline around the world dried up with the with lower sales for most construction materials products business experienced weaker demand global financial crisis, new opportunities products in New Zealand and Australia; however, emerged as governments increased for most products, with operating conditions being billings in the construction business were up on last investment in infrastructure to provide the most difficult since the business was acquired year. Operating earnings declined by $39 million economic stimulus. In New Zealand, in 2005. Orders on hand are 16 percent lower than Fletcher Construction’s reputation to $164 million as market activity weakened. In at the same time last year. The quarry business has helped the company secure New Zealand, the significant decline in private recorded a solid result despite a noticeable slowdown involvement in many of the country’s commercial construction activity and recent recent infrastructure developments. in building activity and particularly weak demand completion of a number of large infrastructure Through a range of different contractual in New South Wales. projects were only partially mitigated by an increase models, Fletcher is involved in Construction’s operating earnings were construction of the Manukau Harbour in residential construction activity. $39 million compared to $43 million in the previous crossing, Auckland’s Victoria Park Operating earnings from the New Zealand year. The backlog of construction work is currently tunnel, the McKay’s Crossing to Peka and Australian concrete businesses declined by Peka expressway north of Wellington, $930 million. The group is either the preferred bidder $37 million to $105 million. Sales volumes of most the redevelopment of Eden Park for the or in final contractual negotiations for approximately Rugby World Cup, and new facilities at products in New Zealand were significantly below $450 million worth of further work. The backlog at Mt Eden prison. last year. Cost savings could not mitigate the the same period last year was $1.1 billion, and the The scale and significance of such impact of the substantial declines in volumes and decline is due to the completion of several large investment is increasingly encouraging an increasingly competitive environment. In Australia, contractor-selection based on non- projects and fewer major contracts secured during price attributes. While many companies concrete sleeper and pipe related volumes were the year. Government commitment to infrastructure compete for these contracts, Fletcher down, and the market for sand in New South Wales investment should provide opportunities across the Construction’s bids are backed with was more difficult than anticipated. Construction New Zealand-based operations but the lead time a strong balance sheet and a record of delivery of some of the country’s activity remained strong but earnings declined by is such that conditions in the construction market $4 million while property and residential operations largest and most complex structures, will remain challenging in the short term. on time and on budget. Government improved by $2 million. Earnings from property related activities include and delivery partners are also attracted Operating earnings from the cement business those from quarry end use and the residential by the company’s stable experienced were $12 million lower primarily due to reduced business. Earnings from Fletcher Residential increased management, its investment in areas volumes. In New Zealand, volumes were nine percent such as health and safety, and its ‘pride by $6 million to $18 million with higher average margins of place’ culture anchored in 100 years lower and, while export sales volumes and prices due to a favourable sales mix and stronger demand in of tradition. These attributes build increased, export margins remained low. Domestic Auckland. Property sales earned $2 million compared confidence that the billions of dollars prices were flat while production and distribution to $6 million last year and market conditions are not of public money being invested are unit costs increased. Manufacturing performance expected to improve materially in 2011. in safe hands. was excellent with the best continuous run time since the upgrade was completed. The new cement Looking ahead storage facilities on the Auckland waterfront were The division continues to experience very weak commissioned in December 2009. demand in New Zealand and the economic outlook More online: fletcherbuilding.com/divisions/ Aggregates sales volumes were 16 percent is uncertain in the short term. The Australian infrastructure lower than last year and 31 percent below peak businesses expect underlying demand to remain cycle volumes. The business continued to make stable. There has been significant cost rationalisation significant progress in lowering its costs as the market over the last two years and further business deteriorated but earnings declined by $5 million. A improvement initiatives will be implemented this year. new construction and demolition waste recycling facility These will mitigate, to some extent, the impact of any in Auckland will be commissioned in October 2010. further downturn in activity should that eventuate. Readymix and masonry operating earnings were The division has significant operating leverage 26 percent lower. Sales volumes of concrete dropped which places it in a very good position when market by ten percent as a number of large infrastructure conditions improve. jobs were completed in the year. Masonry sales In the meantime the division will also continue volumes were similar to the previous year due to to explore high-returning organic growth initiatives. the increased volumes as a result of the Stevenson In August, Australian Construction Products was masonry business acquisition in March 2009. acquired, which is a market leader in the supply Mark Binns The concrete pipe and precast markets softened of road barriers and associated roading products Chief Executive, Infrastructure throughout the year resulting in overall earnings in Australia.

13 Divisional reviews Case study

Fundamental rethink, Laminates & Panels exponential profit growth

Laminex entered the financial year planning to grow profit exponentially after three external shocks had wiped over $55 million off the bottom line in the previous year. Disruption to the company’s energy supplies from the Varanus Island fire was a one-off event, The Laminates & Panels division comprises the Laminex Group and but the global financial crisis, and sharp increases in commodity prices required Formica Group which manufacture, market and distribute a range a fundamental rethink of the business. Laminex’s business revitalisation of decorative and durable laminates and panels. These businesses programme, Reset, was created to have strong international brand profiles and leading market positions. position Laminex to make money even if the reduction in market demand Operating earnings for Laminates & Panels were $141 million, compared lasted for years, while maintaining the company’s capacity to respond quickly with $74 million in the previous year. Sales were 7 percent lower at when markets recovered. $1,930 million. Reset enabled important strategic and operational choices to be made. Laminex the impact of the lower revenue and pricing pressure. A decision was made to focus on The closures of the plant in Welshpool, and the valuable, strategically important domestic markets rather than low particleboard facility at Kumeu in Auckland have The Laminex Group is the leading margin export markets. Customer Australasian manufacturer, marketer and rationalised the manufacturing footprint, reducing profitability reviews saw Laminex distributor of decorative surface laminates, costs and better aligning capacity with domestic take some simple steps to increase component products, particleboard and demand. Laminex is now well placed to maintain profitability, such as simplifying and grow market share in an upturn. deliveries. Laminex reduced the number medium density fibreboard (MDF). of transport companies it used, and Manufacturing facilities performed very well achieved more competitive pricing Performance overview during the year. All sites are now running at or from the remaining suppliers. A similar Laminex’s operating earnings were $107 million around full capacity with the exception of the high approach to input commodity suppliers for the year which included $16 million of one-off pressure laminate (HPL) facility in Melbourne. saw reductions in costs, such as paper A new short cycle laminating line is to be installed, and resin. gains from the closure and sale of the Welshpool The impact was substantial. Margin and Kumeu sites. Operating earnings excluding and warehousing and logistics capability improved optimisation activities alone delivered these one-off items were $91 million, up 63 percent at the MDF facility in Queensland, with commissioning around $10 million to the bottom line, compared with the prior year. due late 2011. and procurement initiatives saw the Australian domestic revenues were marginally Laminex continued to undertake new product cost of raw materials reduce $22 million. initiatives during the year with 25 new product In total, Reset initiatives delivered a higher, driven by improvements in the new $44 million benefit. housing, and alterations and additions sectors, launches and range updates. while conditions in the commercial sector remained Laminex is also continuing to expand the breadth constrained. Australian export sales declined year on of its Formica range in Australia and New Zealand, which includes releasing 15 new decors and year as a result of the closure of the Welshpool MDF More online: facility in Western Australia, which more than offset introducing Formica Colourcore and Tightform products fletcherbuilding.com/divisions/ the increase in domestic sales. The tight conditions into the market. Laminex has also released a new gloss laminates in the commercial market saw a higher proportion low pressure melamine (LPM) Formica and Laminex of commodity products sold into the general market. range and relaunched its EssaStone range. New Zealand revenues were below the prior year Looking ahead due to low demand continuing in the commercial sector. Tighter conditions in Australia and the The business continues to see weak demand in contraction in the New Zealand commercial market New Zealand with continued price and margin lead to intensified competition, with prices either pressures. In Australia, the housing and alterations flat or slightly lower. Programmes addressing and additions sectors are forecast to improve modestly customer cost-to-serve and product profitability but the commercial sector is continuing to decline. were undertaken during the year. These and other David Worley cost saving initiatives have resulted in a reduction Chief Executive, Laminates & Panels in employee numbers and, combined with a – Laminex reduction in resin costs, have more than offset Divisional reviews Case study

A luxury look at a fraction of the price

Formica Initiatives to consolidate logistics and freight providers were also undertaken. Formica Corporation manufactures, and Operations at the main manufacturing and distributes high pressure decorative surface distribution facilities, particularly in North America, laminates, in three major regions, namely continued to improve. Further reductions in North America, Europe and Asia. Its main manufacturing scrap rates, increased machine geographic markets within those regions utilisation, and reductions in fixed factory operating are the USA, Canada and Mexico in North costs were achieved. America, the UK, Spain, France, the Nordic Service levels generally improved across all regions and as a result Formica was able to increase regions and the Benelux countries in Europe, market shares in some of its larger markets while and Taiwan, China and Thailand in Asia. Commercial and residential building maintaining share in all other significant markets. activity in North America is at its A significant proportion of sales are through the Product prices were subject to competitive lowest level in decades but Formica is achieving results through outstanding commercial sector, including retail and office fit outs, pressure, but initiatives aimed at improving service, design, use of new printing technology schools, hospitals and other developments. Formica and new product innovations, enabled Formica to and smart marketing. Its new collection also has a high exposure to both new housing and improve both pricing and margins in some areas. of laminates, marketed under the renovations. The brand is recognised and respected Input costs for major materials such as resins and 180fx™ brand name, is created for globally and in countries in which it has manufacturing papers generally remained stable throughout the year. a residential market looking for quality products that won’t break the bank. facilities Formica either leads the market or holds the Capital expenditure focused on major upgrades 180fx™ replicates the look and second largest share. and replacements of key pieces of machinery, scale of exotic natural granite slabs. especially at the largest sites in North America and Unlike conventional laminates, the Performance overview the United Kingdom. 180fx patterns don’t continually repeat Formica’s operating performance for the current year across the width of a 5-foot (1.524m) sheet. Each sheet displays the rich improved substantially over last year largely as a result During FY10 Formica Group colour variations and veining that would of continuing operational improvements and efficiency be found in a similar sheet of real gains in all key areas of the business. launched a major new granite. That means home builders Operating earnings were $34 million, compared and renovators can enjoy the practical with $18 million in the prior year. The result included product, true scale granite. advantages of a laminate product while getting the luxury look of stone $7 million of redundancy costs. Sales were 13 percent The product, released in North America in at a fraction of the price. lower, although this was due to the relative changes August 2009, has been highly successful with over While 180fx™ costs much less in the value of the New Zealand dollar versus trading US$10 million of revenue. This product is planned than granite, the quality and range of currencies. In local currencies sales were down by designs and finishes still allows Formica to be released in Europe in FY11. to sell the product at a premium price only three percent on last year. Europe introduced its new Specification Collection relative to other laminates. The use of Market conditions however varied significantly into the commercial market, including the Rigato finish Formica’s premiumfx™ finishes on the across the world. Volumes in North America were which has already had great success in Asia. 180fx™ product further supports a down by five percent on the prior year with continued premium price positioning. depressed levels of demand. While activity in the Looking ahead 180fx™ has been the right response to the market, at the right new housing sector has shown some recovery in Trading conditions in both North America and Europe time, delivering ‘affordable luxury on the USA, this was from a low base and had minimal continue to remain uncertain and no recovery of a luxurious scale’. Sales and revenue impact on the business. Commercial markets in North significance is expected in these markets in the in North America are five times higher than predicted. America, and to a lesser extent Europe, continued near term. Continuing growth is expected to occur to contract during the year and in both these regions in China, Taiwan and Asean markets. The Group the business has a higher dependency on commercial will continue to focus on improving its operational than residential activity. performance, and capability. Service and innovation More online: Conditions in Europe have been less variable will be emphasised, especially in developed markets, declining by a further two percent over last year. fletcherbuilding.com/divisions/ and growth opportunities will be pursued in Asia and laminates The main markets in Northern Europe showed some other developing markets. improvement, Central Europe and the UK remained relatively flat. Southern Europe, including Spain, was lower. Markets in Asia have remained solid with volumes up by six percent on last year. A moderate pick up in volumes in China and Thailand was achieved after last year’s slowing in activity levels, while conditions in Taiwan and other Asian markets have also been firm. During the year Formica undertook an extensive rationalisation of its product range. Low volume and low margin products were eliminated, and the product range was consolidated across the three Mark Adamson regions. This enabled the business to better leverage Chief Executive, Laminates & Panels its scale in purchasing, with larger tonnages of raw – Formica material paper able to be procured at lower prices.

15

Divisional reviews Case study

Adding value, Steel at a profit

The Steel division operates a diversified with an increase in export volumes offsetting lower portfolio of steel businesses across three demand within New Zealand. Although earnings broad business lines, primarily in Australia were significantly lower than the prior year the result and New Zealand. Each of the division’s demonstrates that Pacific Steel can be profitable businesses has a leading market position throughout the economic cycle. and widely recognised brands. The consistency of Pacific Steel’s earnings has been achieved through a focus on improved • The rollforming and coatings businesses customer service, including investment to reduce comprise Stramit, Dimond and Pacific Coil plant shut-down risk, improve delivery time reliability Coaters (PCC). and an expanded product offering. • Long Steel businesses consist of Pacific Steel, Earnings in the distribution and services business Stramit Building Products’ sales staff are adding value for customers without Pacific Wire, Fletcher Pacific Steel (Fiji) and a declined by 63 percent. The primary driver of this decline was the Easysteel distribution business. compromising profitability. 50 percent interest in Sims-Pacific Metals Stramit manufactures roll-formed Easysteel’s operating earnings were well down on steel building products and delivers • The distribution and services businesses the prior year due to a combination of contracting these across Australia from its network include the EasySteel steel merchandising margins and low volumes. Easysteel’s margins of manufacturing and distribution business, the CSP hot-dip galvanising business contracted as lower selling prices caused the value centres. In the past, the Stramit sales and Fletcher Reinforcing. of existing inventories to reduce. team lacked robust information on the profitability of various products, and Performance overview Looking ahead the cost of delivering those products to customer sites. That meant that Steel’s operating earnings for the year were Although 2010 has been a very difficult year the while the team could increase sales $82 million, 47 percent lower than the prior year’s businesses within the Steel division have focused volumes, they would not know if they record levels. Prior year earnings were driven by on reducing costs and maximizing cashflow and were doing so at a profit. To enable sustainable growth, a comprehensive historically high steel prices and very strong demand seeking out new profitable customers. analysis of product and logistics costs in the first half of the year. Since the global financial With the existing base businesses well positioned was completed last year and shared crisis, the steel industry has been in a consolidation to participate in any economic recovery the focus is with the team. phase whilst global inventories re-aligned to the on exploring high return growth opportunities and Today, each salesperson can see reduced demand environment. Accordingly, 2010 improving the resilience of our businesses for the the total costs – and potential profit – for each order. They know that the was a difficult operating environment characterised longer term. The Steel division is assessing a number cost of delivering a single roller door by uncertain demand and declining prices. of organic growth opportunities and continues to to a building project may be similar to Sales for the year declined by 11 percent to explore potential acquisitions. the cost of delivering a whole ‘basket’ $1,172 million, continuing the trend seen in the of products. That allows them to talk second half of the prior year. to customers about supplying all the items required for a project at a price that is competitive to the customer, Capacity reduction initiatives and profitable to Stramit. The strategy is working. Over the last three months implemented in the prior the value of the average order in target segments has increased by year meant that businesses four percent. were well positioned for a sustained downturn, More online: and as such only modest fletcherbuilding.com/divisions/steel restructuring was required in 2010.

The rollforming and coated steel businesses in both Australia and New Zealand experienced volume declines over the prior year. Rollforming volumes in the residential and light commercial markets continued to be weak in 2010, although Australian government stimulus spending in schools and other areas boosted sales. Competition in rollforming was intense, reducing margins, particularly in the New Zealand market. Operating earnings declined by 14 percent. Operating earnings in the long steel businesses declined by 63 percent with a reversal in the record steel prices seen in 2009. In Pacific Steel, average selling prices reduced by 30 percent from Paul Zuckerman Chief Executive, Steel the prior year. Volumes were four percent higher

17

Environment and Society Case study Environment Reduce, reuse, recycle

The efficient use of natural resources is major manufacturing plants for laminates and panels one of the biggest challenges facing our emitted a total of 363,619 tonnes and the Pacific generation; a challenge which Fletcher Steel and Wire plants emitted 64,524 tonnes. Building takes very seriously. Emissions reduction We are committed to ensuring that the use of natural By 31 December 2009, two years into our five year resources, including the emission of CO from our 2 CO emissions reduction programme, our emissions operations, products and services are reduced. 2 were analysed to assess our progress. Absolute New Zealand’s emissions trading scheme emissions had decreased from 1,526,854 tonnes (ETS) extended coverage to industrial and transport for 2007 to 1,248,475 tonnes CO , a decline of emissions on 1 July 2010. The ETS has been 2 18 percent. Production levels in 2009 were less than Waste reduction is central to designed so that energy suppliers rather than 2007, and when emissions were normalised for New Zealand’s national sustainability energy users have to buy emissions units (or carbon revenue and production levels, it was concluded that strategy but few facilities exist for credits) and surrender these to the Government. Our business recycling. In the Auckland there has been very little change in emissions intensity. operations that emit CO from fossil fuel combustion region, less than one per cent of 2 The manufacture of cement in 2007 resulted in do not directly participate in the ETS. Instead, they industrial, demolition, and construction the emission of 0.795 tonnes of CO per tonne in waste – timber, gib board, steel, are subject to higher energy costs, as these are 2 2007 and 0.794 tonnes of CO per tonne in 2009. cardboard and plastics – is recycled. passed down by energy suppliers. 2 In 2009 CO emissions intensity improved slightly Winstone Aggregates, and joint Our cement and steel manufacturing operations, 2 venture partner Kalista, are developing through the increase in biomass fuel substitution from however, emit process CO , and our cement a resource recovery centre at the 2 11 percent (2007) to 20 percent of thermal energy. former Laminex particleboard factory plant uses imported coal. This means that these However, this was offset by reduced energy efficiency at Kumeu. The CIDRR plant operations are direct participants in the ETS. resulting from reduced production and consequent (commercial, construction, industrial Cement and steel manufacturing also meet the difficulty in optimising the thermal efficiency of the kiln. and demolition resource recovery) threshold texts for offsetting the costs of the ETS will divert up to 150,000 tonnes of Of the group’s other emissions-intensive on emissions-intensive, trade-exposed industries. waste from regional landfills each year. products, fibre-glass insulation recorded a significant Companies will be able to dispose of Both will receive a free allocation of emission units improvement in emissions efficiency. This results waste responsibly, at a competitive rate, to partly offset their increased costs. from the significant reduction in the Auckland plant, with construction projects getting the The ETS will impose additional costs on our where the conversion from a gas-fired furnace to added benefit of earning real Green Star points. Resources recovered will be New Zealand operations, but with the free allocation an electric fired furnace reduced emissions intensity available to cement and steel these costs will not be processed and sold. Bulk commodity per tonne by 50 percent. The electric furnace is markets for recovered steel and wood material. Our efforts to continually reduce emissions more energy-efficient and also benefits from the use already exist, while new product and improve energy efficiency will ensure that these of New Zealand’s electricity with its comparatively markets for material such as gypsum costs are further reduced. are being developed. low emissions factor. The use of the Laminex site is an Climate change and environmental In order to achieve our target over the next three example of ‘reduce, reuse, recycle’ years, we will require further projects in our energy- in action, with the existing 10,000m2 sustainability intensive plants and a focus on energy efficiency in building and some existing processing Fletcher Building has an executive Climate Change our other operations. plant being adapted for resource and Environmental Sustainability Council which is recovery. The plant will ultimately Fletcher Building participated in the Carbon process around 500 tonnes of waste chaired by the chief executive. Established in 2008, Disclosure Project for the fifth time this year. This a day, and employ 20 people directly it directs company-wide programmes of work in and up to 100 indirectly. required a complete inventory of all our 2009 CO2 carbon accounting and emissions trading, internal emissions and a report describing how the company efficiency programmes, employee engagement, manages the risks and opportunities from future and external communications. climate change. All NZX50 and ASX100 companies Much of the Council’s efforts in the last year are asked to participate. More online: have been directed at emissions trading and carbon fletcherbuilding.com/environment reporting, with the introduction of the ETS in Other achievements New Zealand, and the energy and carbon reporting We currently participate in a number of organisations requirements in Australia. There has been a focus on that are leading sustainability practices and policies. identifying energy efficiency opportunities, to enable In New Zealand, this includes an industry joint us to achieve our commitment to reducing our CO2 venture to develop a single residential rating tool. emissions by 5 percent between 2008 and 2012. We have also contributed to a number of important Internally, we are developing tools to assist waste Green Star-rated buildings across Australia and reporting and reduction initiatives. New Zealand, either through being a construction

Our energy and CO2 inventory is updated every contractor or a supplier of accredited materials. six months, and provisional figures for this financial We have recently completed a resource recovery year shows total CO2 emissions of 1,218,793 tonnes. facility in Kumeu, north of Auckland, which sorts

This includes the CO2 emitted during the generation and, where possible, recycles construction and of electricity used by Fletcher Building. New Zealand’s demolition waste. The facility utilises the buildings emissions totalled 708,319 tonnes, while Australia and some of the process equipment of our recently- emitted 351,329 tonnes. Of those business units with closed particleboard plant, an efficient use of a a high CO2 output, the largest single emitter was the substantial existing investment in an emerging area Golden Bay Cement plant with 528,440 tonnes. The of business opportunity.

19 Environment and Society People

At 30 June 2010 Fletcher Building employed Leadership and management some 16,000 people in its business units development across New Zealand, Australasia, Asia, More online: The group recognises that as its business grows and fletcherbuilding.com/about/our-people Europe, North America and the South Pacific. diversifies, excellent leaders are needed to run its substantial businesses and functions, many of which trade internationally. Several of our businesses Australia 3,800 would rank as major enterprises in their own right. The development of an internationally focused Asia 1,100 high-performing leadership team is thus a key strategic priority. Our top talent pool has considerable experience Europe 1,300 and depth. Over 43 percent of the 350 most senior executives have more than 10 years’ service with USA 1,100 the group, while 28 percent have more than 15 years’ service. We now have 71 executives at general South Pacific1,000 manager or more senior levels in our business. Of these, 30 percent lead our offshore operations. With the growth of our international business, we are New Zealand 7,700 building a leadership group with global perspective; over 25 percent of this executive group have at least Through their capability, performance and diversity one year of experience working in a business outside our employees differentiate our group, deliver value to their home country. our shareholders, customers and communities and A comprehensive leadership assessment and reinforce our foundation for sustainable success. An development programme is in place for Fletcher engaged workforce aligned in a high performance Building’s 300 most senior executives. The culture is key to the delivery of our business strategy programme offers a mix of in-house development and we strive to foster inclusive workplaces of choice programmes, challenging work assignments under that engage and enable talented high calibre people experienced mentors, and external executive of all backgrounds to fulfil their potential. education programmes at leading business schools Our workplaces are shaped by our values in New Zealand, Australia, the USA and the UK. which promote individual and team creativity, mutual Since our diverse and geographically-dispersed respect, commitment, and a focus on achieving operations differ significantly, each business is results. These values underpin our code of behaviour, encouraged to source and deliver in-house training the Fletcher Building Way. This builds on our heritage programmes specific to its needs. of constructive, enduring relationships within These are supplemented by an integrated range Fletcher Building, and with our stakeholders. of centrally co-ordinated regional programmes, All Fletcher Building leaders are required to promote designed to drive the high performance leadership and model the Fletcher Building Way. and culture that is central to the group’s business Our values-based, structured approach to strategy. Our regional programmes deliver economies people management is managed regionally within and efficiencies of scale, help build internal networks, a framework of group policies and practices. These promote common processes and business tools, are framed to enhance the appeal of our employment and foster the Fletcher Building Way. brand – a powerful sustainable resource, that delivers The company believes that it is essential significant intangible value to our stakeholders. to invest in future talent, even in difficult times. For this reason, all learning and development Talent identification, attraction programmes in the last year were maintained. and recruitment These programmes were supported in Australia Fletcher Building is committed to the development and New Zealand by the Fletcher Building Employee and advancement of employees from within the Educational Fund which paid out grants of over group, supplemented by high calibre new hires when $4 million in support of group, employee, and appropriate. The group adopts an active approach employee dependant training. to the attraction of talented new employees through online and print communications and by fostering Reward and recognition links with a range of external sources including The group strives to offer market-competitive recruitment professionals, academic institutions and pay and benefits in each country of operation. professional associations. The group’s Australasian Our general policy is to benchmark total in-house recruitment centre is a further key conduit remuneration at the third quartile, with appropriate of good people; in the last year over 350 people regard to individual and business performance, Peter Merry were hired through this source, delivering savings market conditions, employees’ priorities, needs and Executive General Manager, HR of over $2.5 million. lifestyles, and reward practice in each location. Environment and Society

Labour relations Equal opportunity and diversity Fletcher Building enjoys a history of constructive A workplace that welcomes and supports all relationships based on partnership and mutual employees is central to the group’s values. We aim for respect with the many labour unions active within an inclusive workplace in which our people are able its business. to rise to their full potential regardless of gender, age, Some 32 percent of the group’s employees ethnicity, disability, creed, or caring responsibilities. belong to labour unions. There are more than 130 Currently some 35 percent of the group’s negotiated workplace agreements in place across workforce is aged over 50 and 62 percent is the company. aged over 40 years. Women comprise around 19 percent of the group’s workforce overall, although Employee share ownership representation is higher in some countries, reflecting Fletcher Building wants its employees to feel directly national trends. A measure of the ethnic diversity involved in the performance of the business and so of our global workforce is that from time to time we encourages and supports employee share ownership. produce corporate communications in nine languages. Certain senior managers are required to acquire Recognising the diversity of backgrounds and and hold shares in the company in their own names needs of our increasingly multi-cultural workforce, as a condition of employment. A broader group is we offer a range of adult learning and re-skilling eligible to participate in a long-term cash incentive opportunities including literacy training and access requiring investment in the company’s shares. Details to occupational programmes leading to nationally can be found in the Remuneration Report section accredited qualifications awarded by third parties. of the annual report. These initiatives help to offset educational and language barriers to advancement and promote our Communicating with our people high performance ethic. Keeping our people informed about what is We continue to look for opportunities to happening in Fletcher Building, and monitoring advance more leaders who are women, and employee views and perspectives of the group, members of minorities. is important to the group. We deliver information and Within the community, we are proud co-sponsors encourage employees to provide feedback through of the New Zealand Employers’ Disability Network a variety of channels including online webcasts, web and the New Zealand Equal Employment Opportunity seminars, web chats and email bulletins, and face- Trust, and strongly endorse their efforts to advance to-face briefing sessions, conferences and employee the representation of minorities in the workforce. reviews. The group also sponsors the First Foundation ‘Faircall’ and ‘Safe2Say’ are free, independently- which assists academically talented, financially administered, international 24 hour confidential disadvantaged young New Zealand students to telephone hotlines for employees to raise ethical reach their full potential. issues and report grievances. All calls are logged and investigated by the appropriate function and Work-life balance are subject to regular Audit Committee review. People have different needs and work preferences All matters are brought to the attention of the at various stages in their careers. Fletcher Building CEO and the board. recognises this through providing options such as alternative work arrangements – including We regularly survey our flexible work, telecommuting and job-sharing to help employees balance their personal and employees at group and at professional commitments. Employees who require support with personal business unit levels to gather or work-related problems have free access to a their opinions. confidential counselling service through specialist providers. In the last year, the group’s international New Zealand employees who experience leadership group was surveyed through a confidential personal hardship through unexpected misfortune questionnaire available in five languages. An may apply to the independent Fletcher Building 82 percent response rate was achieved. Despite Employee Welfare Fund for financial assistance. the workplace pressures of the global financial crisis, we were pleased that participants awarded the group a higher overall rating than in the previous survey, conducted in 2007. Amongst the highest scoring items were statements of commitment to the group (81 percent); pride in the group (80 percent); and acknowledgement of the group’s progress on workplace safety.

21

Environment and Society Health and Safety

Fletcher Building’s decentralised structure in their health and safety plans relating to the places operational responsibility for health wellbeing of employees, Fletcher Building created and safety with each business unit. However, its own support programme, LifeTime. This safety is not just an operational issue. The provides policy direction and acts as a central maintenance of safe workplaces is also a resource to streamline wellbeing in the group while strategic issue because of the correlation complementing existing programmes already between productivity and improved health established elsewhere in the business. and safety, and because of the high human Health and safety achievements across the group are recognised through the annual cost of injuries and fatalities. That means Fletcher Building Health and Safety Awards. This we seek to balance the strategic importance was the third year in which these awards were held. of safe work places with the benefits The effect of all these initiatives has been of operational control by business units. significant progress in reducing injury rates. Our Health and safety vision, policy and standards for primary injury rate measure is the 12 month rolling Fletcher Building are established by an executive-led average Total Recordable Injury Frequency Rate per Health and Safety Council chaired by the chief executive. million hours (TRIFR), with total injuries being the sum More online: Each year, the Council produces a safety plan which of lost-time and medical treatment injuries. In the last fletcherbuilding.com/society/ details priorities, requirements, and programmes for year, this rate has dropped from 23.79 to 11.24. health-and-safety the whole group. Performance targets are cascaded (In June 2006, this rate was 59.63). Our lost time down to divisions and business units. injury frequency rate has dropped from 5.81 to 3.42. To support divisional and business unit health (In June 2006, this rate was 9.84). and safety activities, high quality health and safety Despite our progress, however, we are far from resources have been progressively developed by satisfied with this level of performance. Fatalities the group over recent years. These include tools and injuries still occur. Tragically, an employee of to ensure that variability in basic safety standards Fletcher Construction (South Pacific), died in Apia, is reduced, a common health and safety electronic Samoa after falling from a height within the Ministry reporting system, and a health and safety Intranet of Education, Sports and Culture Headquarters site. Guidelines and resources have been produced building project on 15 June. to ensure that common hazards are managed in Fletcher Building understands that a further a more consistent manner. reduction in total injuries must occur to reduce the risk of serious injuries and fatalities. Our health and Currently, the group is safety vision of zero harm is based on the principle that all accidents are preventable. The participation investigating the various of senior management in our programmes, and the techniques and tools investment of significant resources in safety education and training, continues to demonstrate the group’s available internationally strong commitment to health and safety. In New Zealand, Fletcher Building retained that we can use to better primary-level membership of the Accident understand and improve Compensation Corporation Partnership Programme following an external audit in November 2009. the safety culture across Australian manufacturing sites are subject to our sites. differing injury management requirements, based on state regulation and the range of schemes An executive-led initiative each year reinforces available. Self-insurance is usually the preferred our commitment to safety in the workplace. In this option and additional operations are moving into last year, ‘The Ripple Effect’ DVD was produced self-insurance schemes. which described the effects of serious injuries and fatalities on the families and friends of accident victims. The DVD and its accompanying workshop had a profound effect at every level of the business. This initiative was selected as a finalist in the 2010 Safeguard New Zealand Workplace Health and Safety Awards. Our business units have also been externally recognised. A safety video created by Firth won first place in the 31st Annual Telly Awards held in New York, and in the same awards, a safety video created by Fletcher Aluminium was awarded second place. This year, our health and safety focus extended to improving employee wellbeing. While some business units already had specific objectives

23 Financial summary The year in review

Summary earnings statement Statement of comprehensive income For the year ended 30 June 2010 For the year ended 30 June 2010 Fletcher Building Group Fletcher Building Group

Year ended Year ended Year ended Year ended June 2010 June 2009 June 2010 June 2009 NZ$M NZ$M NZ$M NZ$M

Sales 6,799 7,103 Net earnings - parent interest 272 (46) Cost of goods sold (5,141) (5,442) Net earnings - minority interest 10 8 Gross margin 1,658 1,661 Net earnings 282 (38) Operating expenses (1,165) (1,129) Movement in cashflow hedge reserve 4 (25) Share of profits of associates 26 24 Movement in currency translation reserve (88) 28 Other investment income 2 2 Income and expenses recognised Unusual items - restructurings and (84) 3 (399) directly in equity impairments Operating earnings (EBIT) 521 159 Total comprehensive income for the year 198 (35) Funding costs (107) (140) Earnings before taxation 414 19 Taxation expense (132) (57) Statement of movements in equity Earnings/(loss) after taxation 282 (38) For the year ended 30 June 2010 Fletcher Building Group Earnings attributable to minority interests (10) (8) Net earnings/(loss) attributable to the Year ended Year ended 272 (46) shareholders June 2010 June 2009 NZ$M NZ$M Net earnings per share (cents) Basic 44.9 (8.7) Total equity At the beginning of the year Basic (excluding unusuals) 49.7 59.7 2,990 2,756 as previously published Diluted 44.7 (8.7) Change in accounting policy (6) (6) At the beginning of the year as restated 2,984 2,750 The accompanying notes form part of and are to be read in conjunction Total comprehensive income for the year 198 (35) with these financial statements. Movement in minority equity (8) (17) On behalf of the Board, 18 August 2010 Movement in reported capital 20 535 Dividends (169) (245) Movement in share option reserve 1 Less movement in shares held under the (3) (4) treasury stock method Ralph Waters Jonathan Ling Total equity 3,023 2,984 Chairman of Directors Managing Director

Gearing Interest cover Return on funds percentage times percentage 44.4 8.0 8.0 29.3 43.1 7.7 40.1 7.1 26.1 37.1 24.7 24.8 31.1 5.6 19.0 4.9 26.8 4.0 22.2 12.7 3.4

04 05 06 07 08 09 10 04 05 06 07 08 09 10 04 05 06 07 08 09 10 Summary balance sheet Summary statement of cashflows As at 30 June 2010 For the year ended June 2010 Fletcher Building Group Fletcher Building Group

June 2010 June 2009 Year ended Year ended NZ$M NZ$M June 2010 June 2009 NZ$M NZ$M Assets Current assets: Cashflow from operating activities Debtors 1,114 1,112 Total received 6,820 7,323 Stocks 1,091 1,044 Total applied (6,298) (6,790) Cash and liquid deposits 112 99 Net cash from operating activities 522 533 Total current assets 2,317 2,255 Cashflow from investing activities Non current assets: Total received 38 52 Fixed assets 1,909 2,014 Total applied (191) (292) Goodwill & intangibles 1,229 1,267 Net cash from investing activities (153) (240) Other 259 269 Total non current assets 3,397 3,550 Cashflow from financing activities Total assets 5,714 5,805 Total received 2 700 Total applied (356) (1,007) Liabilities Net cash from financing activities (354) (307) Current liabilities: Creditors, accruals & provisions 1,177 1,092 Net movement in cash held 15 (14) Current tax liability 25 27 Add opening cash and liquid deposits 99 111 Contracts 96 91 Effect of exchange rate changes on net cash (2) 2 Borrowings 86 103 Closing cash and liquid deposits 112 99 Total current liabilities 1,384 1,313 Non current liabilities: Creditors, accruals & provisions 81 86 Deferred taxation liability 49 14 Other 44 56 Borrowings 1,133 1,352 Total non current liabilities 1,307 1,508 Total liabilities 2,691 2,821

Equity Reported capital 1,912 1,895 Revenue reserves 999 896 Other reserves 78 161 Shareholders' funds 2,989 2,952 Minority equity 34 32 Total equity 3,023 2,984 Total liabilities and equity 5,714 5,805

Return on equity Operating cashflow Total shareholder return percentage $million percentage 29.5 560 533 522 26.0 483 479 24.6 24.3 434 424 19.0 61.4 42.0 40.2 9.1 32.5 24.5

14.1 Bill Roest -1.6

-42.9 Chief Financial Officer

04 05 06 07 08 09 10 04 05 06 07 08 09 10 04 05 06 07 08 09 10

25 Financial summary

Notes to the summary financial statements

1. Basis of presentation The summary financial statements presented are those of Fletcher Building Limited and its subsidiaries (the ‘group’). The Fletcher Building group is a profit orientated entity. These summary financial statements have been prepared in accordance with the New Zealand financial reporting standard No. 43 – Summary financial statements. The summary financial statements have been extracted from full financial statements that have been prepared in accordance with New Zealand standards that comply with International Financial Reporting Standards. The full financial statements also comply with International Financial Reporting Standards. The full financial statements, signed on 18 August 2010, have been audited by KPMG and given an unqualified opinion. The summary financial statements cannot be expected to provide as complete an understanding of the financial affairs of the group as the full financial statements, which can be found onfletcherbuilding.com/reports/10

2. Changes in accounting policies During the year, the group complied with amendments to NZ IAS 38, Intangible Assets. This standard requires the group to expense marketing stock, previously capitalised. A charge of $6 million has been recorded against opening equity to reflect this change.

3. Unusual items 4. Taxation expense

Fletcher Building Group Fletcher Building Group

Year ended Year ended Year ended Year ended June 2010 June 2009 June 2010 June 2009 Nz$m Nz$m Nz$m Nz$m

Restructuring and redundancy 117 Earnings before taxation 414 19 Goodwill impairment 61 Taxation at 30 cents per dollar 124 6 Fixed asset impairment 166 Adjusted for: Write-off of stock 47 Benefit of lower tax rate in (1) 2 Write-off of investments 8 overseas jurisdictions Total unusual items - EBIT 399 Tax benefit arising from the conversion Write-off of tax losses 60 of branch equivalent tax account debit (31) Tax benefit (99) balance Tax expense - recognition of deferred tax 29 Non assessable income (6) (6) liability on buildings (NZ) Non deductible expenses 4 28 Total unusual cost - net earnings 29 360 Write-off of tax losses 60 Tax losses not recognised 7 Benefit of tax losses not recognised (3) For the year ended 30 June 2010 the group incurred an unusual tax Tax in respect of prior years (8) 1 expense of $29 million. This arises from the significant tax changes announced by the New Zealand Government in its budget in May 2010, Valuation allowance 29 Recognition of deferred tax liability which includes the elimination of depreciation on buildings for tax purposes, 29 and a reduction in the corporate tax rate. This has resulted in an increase on buildings (NZ) in the provision for deferred tax of $29 million. During the year ended Other permanent differences (15) (31) 30 June 2009 the group incurred $360 million of unusual items. Refer 132 57 to the Fletcher Building 2009 annual report for further details. Tax on operating profits pre unusual items 103 96 Tax benefit of unusual items (99) Unusual tax expense - recognition of 29 deferred tax liability on buildings (NZ) Unusual tax expense - write-off of tax losses 60 132 57 5. Proforma earnings

Fletcher Building Group

Year ended Year ended June 2010 June 2009 Nz$m Nz$m

Operating earnings before unusuals 521 558 Funding costs (107) (140) Taxation expense on ordinary activities (103) (96) Earnings attributable to minority interests (10) (8) Net earnings before unusual items 301 314 Net unusual items (29) (360) Net earnings 272 (46)

6. Segmental information

Fletcher Building Group

Building Laminates Total Products Steel Distribution Infrastructure & Panels Other Group NZ$M NZ$M NZ$M NZ$M NZ$M NZ$M NZ$M

Year ended 30 June 2010

Operating earnings (EBIT) 114 82 38 164 141 (18) 521

Year ended 30 June 2009

Operating earnings (EBIT) 90 147 (9) 199 (252) (16) 159

Unusual items included in operating earnings (16) (7) (39) (4) (326) (7) (399)

Substantial security holders According to notices given to the company under the Securities Markets Act 1988, as at 31 July 2010, the substantial security holders in the company and their relevant interests are noted below. The total number of issued voting securities of Fletcher Building Limited as at that date was 606,946,993.

Number of voting Substantial Security Holders Date of notice securities

Perennial Value Management 34,327,434 9/07/07 The Capital Group Companies, Inc 36,750,610 29/01/09 IOOF Holdings 30,400,783 10/06/10 Perpetual Trustees Australia 71,769,287 13/07/10

27 Directory Board of Directors

From left to right: Ralph Waters Tony Carter Hugh Fletcher Alan Jackson John Judge Jonathan Ling Sir Dryden Spring Gene Tilbrook Kerrin Vautier

For Director bios visit: fletcherbuilding.com/10/ boardofdirectors

Executive committee Registered offices Shareholder enquiries Jonathan Ling New Zealand Changes of address, payment instructions Chief Executive Officer Fletcher Building Limited and investment portfolios can be viewed and Managing Director Private Bag 92114 and updated online: Mark Adamson Victoria St West, Auckland 1142 fletcherbuilding.com/registry Chief Executive, Laminates & Panels – New Zealand Enquiries may be addressed to the Share Formica Group Fletcher House Registrar, Computershare Investor Services: John Beveridge 810 Great South Road New Zealand Chief Executive, Distribution Penrose, Auckland 1061 Private Bag 92119 Martin Farrell New Zealand Victoria St West, Auckland 1142 Mark Binns T. +64 9 525 9000 Company Secretary Chief Executive, Infrastructure T. +64 9 488 8777 and General Counsel Australia F. +64 9 488 8787 Chris Ellis Fletcher Building Australia E. [email protected] Chief Executive, Building Products Locked Bag 7013, Chatswood Australia Martin Farrell DC 2067, NSW 2067, Australia GPO Box 242, Melbourne Company Secretary and Level 11 Tower B, Zenith Centre VIC 3001 General Counsel For Executive team 821 Pacific Highway, Chatswood T. 1800 501 366 (within Australia), bios visit: Peter Merry NSW 2067, Australia T. +61 3 9415 4083 fletcherbuilding.com/ Executive General Manager, T. +61 2 8986 0900 (outside Australia) 10/executiveteam Human Resources ARBN 096 046 936 F. +61 3 9473 2009 Bill Roest Other investor enquiries Chief Financial Officer Fletcher Building Limited David Worley Private Bag 92114, Chief Executive, Laminates & Panels – Victoria St West, Auckland 1142 Laminex Group New Zealand T. +64 9 525 9000 Paul Zuckerman F. +64 9 525 9032 Chief Executive, Steel E. [email protected] Other information fletcherbuilding.com Philip King General Manager Investor Relations

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