CREATING OPPORTUNITIES IN CHALLENGING TIMES - A Perspective

Paul Zuckerman Fletcher Building - Steel Division

FBL Steel Division – September 2008 1 Disclaimer

This presentation contains not only a review of operations, but also some forward looking statements about Fletcher Building and the environment in which the company operates. Because these statements are forward looking, Fletcher Building’s actual results could differ materially. Media releases, management commentary and analysts presentations, including those relating to the June 2008 full year results, are all available on the company’s website and contain additional information about matters which could cause Fletcher Building’s performance to differ from any forward looking statements in this presentation. Please read this presentation in the wider context of material previously published by Fletcher Building.

FBL Steel Division – September 2008 Can we apply learnings from NZ across into Australia?

FBL Steel Division – September 2008 Key Topics to be Discussed

• New Zealand is already in a recession and facing a downturn in traditional steel consuming markets. Where is Australia heading?

• Opportunities exist for building suppliers to shift their focus to segments where investment remains strong.

• A number of market factors are in flux, creating challenges and opportunities.

FBL Steel Division – September 2008 3 NZ steel consumption has risen steadily

MAIN SEGMENTS

1,200,000 20,000 • Residential Construction

18,000 1,000,000 • Commercial/Industrial

16,000

800,000 • Manufacturing Sector 14,000 • Heavy Buildings 600,000 12,000 (GFCF $m) (GFCF

Consumption (tonnes) Consumption • Infrastructure and 10,000 400,000 Engineering

8,000 • Rural and Specialty 200,000 6,000

0 4,000 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

NZ Consumption (tonnes) Total Real Gross Fixed Capital Formation (annual running total $m)

FBL Steel Division – September 2008 4 A brief history of steelmaking in New Zealand

Pacific Steel Group, - EAF New Zealand Steel, Glenbrook – Integrated Steelworks • Ingot casting started in 1962. 3 strand ROKOP concaster installed 1979 • Commenced in 1968 processing imported coil on a galvanising line • Wire mill operations also commenced in 1962 as GKN • Pioneering ironsand based steel making facilities • 2nd hand Lamberton cross-country rolling mill installed added in the 1970’s 1962 • Owned by the NZ government in 1980’s • New Krupp 50 tonne EAF installed 1972 • 110MW cogeneration capacity added in 1998 • Price control removed 1985, but briefly continued for NZS • In the 1990’s, BHP takes control of the facility

• 42% owned by NZ Steel in 1986, who then supplied some • Now positioned to realise its competitive advantage billet based on its unique process under BSL ownership.

• Sims scrap JV commenced December 1992 on adjacent site with the existing Fletcher shredder

• New Danieli rod & bar mill installed 1997

Fletcher Steel Engineering Company , , 1965. View looking west toward airport and city. Quarantine facility is on Somes Island in centre

FBL Steel Division – September 2008 5 The NZ residential market is roughly the size of WA

• Housing activity is currently depressed (around 20,000 starts) with modest price declines

Other 12% • Pressed and stone coated steel tiles service 1/4 of the roofing market Longrun Steel 39% Concrete 24% • Sector revenue is estimated at ~NZ$180m

• Estimated 30,000 steel tonnes

Tile Steel • Many rollformers, 3 with national presence 25% • Concrete tiles are a less significant roofing product in New Zealand than in Australia.

FBL Steel Division – September 2008 6 A forecast drop in residential activity is becoming reality

35,000 30

Forecast 25 30,000

Consents (LH scale) 20 25,000

15

20,000 New Zealand’s first State House at Miramar in Wellington. Built by the Fletcher Construction 10 Company in 1937.

15,000

5

10,000 0

5,000 Nominal House Price % Change (RH scale) -5

0 -10 F83 F84 F85 F86 F87 F88 F89 F90 F91 F92 F93 F94 F95 F96 F97 F98 F99 F00 F01 F02 F03 F04 F05 F06 F07 F08 F09 F10 F11 F12 F13

New house built by Fletcher Residential in Auckland, 2007

Source: Infometrics

FBL Steel Division – September 2008 7 The NZ commercial & industrial building market

• Very strong steel share

• Membranes are more significant than in the residential sector Delegat's winery, Blenheim

• Sector revenue is estimated at ~NZ$220m

• Estimated 75,000 steel tonnes

Other 12% Concrete 4% Tile Steel 4%

Longrun Steel Roofing 80%

FBL Steel Division – September 2008 8 Commercial building activity is forecast to soften as well

Non-residential activity at 1995 - 96 prices. Gross fixed capital formation ($m)

5,000 Forecast

4,500

4,000

3,500 Installing steel plant cladding at Pacific Steel in 1962. This building housed ingot casting until 1979. 3,000

2,500

2,000 Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec 00 01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Infometrics 88 metre long Dimond sheets, 2008.

FBL Steel Division – September 2008 9 Manufacturing has moved off shore and spending is down

7% 0.90

Forecast 6% 0.80 • GDP and FX rate are fundamental drivers. 5% 0.70

4% 0.60 • Circa 300,000 tonnes are

3% 0.50 consumed: flat, merchant, special

US$ FX steels, etc Percent 2% 0.40

1% 0.30 • There has been some migration of

0% 0.20 manufacturing to non-OECD 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 countries. An example is Fisher and -1% 0.10 Paykel to Thailand -2% 0.00

Real GDP Change March Year (precent) US$:NZ$ Exchange Rate • A slump in profitability heralds a potential sharp pull-back in capex

Source: Infometrics

FBL Steel Division – September 2008 10 Heavy construction projects continue to hold up the market

Activity at 1995-1996 prices. Gross fixed capital formation ($m)

5,000 Forecast • GDP growth went into negative territory 4,500 in Q1 2008, but genuine recession likely began in Q2 4,000 • Circa 300,000 tonnes consumption p.a., 3,500 Non Residential principally reinforcing, merchant bar,

3,000 structural sections, and beams

All Other Non Residential 2,500 • Stadia: Rugby World Cup in 2011: , AMI , Carisbrook 2,000 Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Sep Dec Sep Dec Sep Dec Sep Dec Sep Dec Sep Dec Sep Dec Sep Dec Sep Dec Sep Dec Sep Dec Sep Dec Sep Dec 00 01 02 03 04 05 06 07 08 09 10 11 12 13 • Solid backlog of private and Government work - hospitals, education, prisons, etc.

Auckland Hospital extension Wellington Hospital

FBL Steel Division – September 2008 11 Large scale infrastructure and engineering projects continue

• Fueled by government spending

• Significant participants are Downer, Fletchers, Mainzeal, and Multiplex

• Serviced by large regional fabricators

• Steel usage of 150,000+ tonnes per annum

• Upgrades to Transportation - Manukau harbour crossing, New Lynn railway, Waterview trench, Tauranga Harbour link, Victoria Park

• Development of Power Generation – Windfarms and geothermal

• Resource Movement – Water, Oil and Natural Gas infrastructure

FBL Steel Division – September 2008 Investment in power generation is forecast to be strong

• 3% of NZ’s electricity is from wind but its share is growing fast

• 20% effective capacity share in Denmark, which is less windy

• Medium term expectation for wind is for vicinity 1200 MW, which would consume about 25,000 tonnes of steel just in the foundations

• Makara farm is 62 turbines for total 140 MW

• Typically EU-made blades, gears and generator. Rolled tower sections are 12mm to 30mm G300 plate.

• Current max scale is 100m rotor with 5MW generator

48 tonnes of steel in each 15m base of the 112m high Makara turbines

FBL Steel Division – September 2008 13 Commodity prices have risen sharply, generating wealth

240

Average NZ commodity price converted to NZD 220 Average world price of NZ commodities

World prices Last 12 mths, Total +11.6% yoy 200 (Aluminium 11%, Meat/Skins +19%, Dairy +2%, Horticulture 4%, Forestry -12%, Seafood +25%)

180

160

140

120

100

80

0 4 -86 88 00 02 n-87 n-97 n-99 n-01 an a an- an-9 a J J J Jan-89 J Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 J Jan-98 Ja Jan- Ja Jan- Jan-03 Jan-0 Jan-05 Jan-06 Jan-07 Jan-08

FBL Steel Division – September 2008 14 Dairy farming and exports have “milked” large profits

800

700 • Sound fundamentals in rural commodities 600 over the last few years with a strong

500 outlook. NZ has comparative advantage in

400 rural, and declining NZD is an added boost

300 • Significant investment in dairy production. It 200 contributes NZ$10b in export receipts.

100

0 • In Southland, dairy farm profit before tax 4 8 9 0 4 9 0 1 3 4 5 9 0 1 8 8 8 9 9 9 0 0 0 0 0 0 1 1 9 9 9 9 993 9 9 0 0 002 0 0 0 0 0 0 1 1985 1986 1987 1 1 1 1991 1992 1 1 1995 1996 1997 1998 1 2 2 2 2 2 2 2006 2007 2008 2 2 2 2012 increased six-fold in 2007/08. Milk Solid Price (c/kg) - May years (MAF forecast) Manufactured Cow Price (c/kg) - June years (MAF forecast)

• Average farm has $1.5m gross income and $460k surplus from 195k kg of solids.

Source: Infometrics

FBL Steel Division – September 2008 15 New Zealand’s ETS is likely to become reality

• NZ ratified the Kyoto Protocol in Dec 2002. Its emissions in 2008 to 2012 to be no more than five times its 1990 emission level

• NZ is 73 mt of CO2 equivalents for 0.2% of world. (Australia is 491 mt for 1.5%). New Zealand will need to purchase between 20 and 40 mt to meet its Protocol commitments.

• A disproportionately large share of emissions relate to agriculture (50% compared to 7% on average internationally)

• Corollary is a disproportionately small amount of emissions coming from energy (23% relative to 63% internationally)

• Target for Pacific Steel to match 2005 baseline emissions by 2011

• Measures may change with government, helping or hurting NZ based suppliers

FBL Steel Division – September 2008 16 Green Star New Zealand

• Star ratings similar to those in Australia are gaining a foot-hold, but are not formally part of the new Building Code.

• While only 8 of the 130 credits relate to steel, there needs to be focus on steel if one seeks 5 or 6 star ratings.

• Rather than telling people exactly how to build or construct, the New Zealand Building Code is performance-based, and sets out objectives to be achieved. Club Tower - 5 Star Green Star Rated Building currently being built in Christchurch by Hawkins Construction on the site adjoining the Canterbury Club on Worcester Boulevard. • Ratings will impact rental rates and building value to current and future owners.

• Emerging awareness in central government of the good sense in making steel locally for local consumption – carbon footprint, transport inefficiencies, standards, back-up

• But we may expect an impact on the way we package and label steel to identify mill origin (i.e. distance travelled) and production route (i.e. the embodied energy level).

FBL Steel Division – September 2008 17 Beyond our control but must be monitored…

• Kiwi/USD and AUD/USD exchange rates NZD USD Exchange Rate 1991-2008

0.9 • Banking/credit crisis

0.8 • Change in government policy toward spending 0.7

0.6

• Global steel demand as US and EU NZ$:US$ consume less 0.5 • Iron ore/scrap costs and output pricing 0.4

• Ocean freight rates 0.3 Jul-91 Jul-92 Jul-93 Jul-94 Jul-95 Jul-96 Jul-97 Jul-98 Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

FBL Steel Division – September 2008 18 There will always be challenges and change

• While steel consumption has generally risen, the mix changes over time

• Tight global supply has proven the value of local service

• Traditional residential and commercial markets are at risk

• Economic conditions and policy change will shift the market

• Scan the horizon to locate pockets of liquidity and spending

FBL Steel Division – September 2008