The year in full AN ENDURING VISION Fletcher Building Annual Report 2011 An enduring vision TO GROW Crane – An Australian advantage The acquisition of Crane signals our commitment to continue to diversify and strengthen our market position in Australia. Iplex Factory, Adelaide, Australia. More about Crane on Page 18 An enduring vision TO REBUILD Christchurch – Rebuilding a loved cityscape. In the Fletcher tradition, we’re strengthening heritage buildings and rebuilding homes and businesses. Dawn over Christchurch, New Zealand. More online at fl etcherbuilding.com/canterbury Highlights. Page 5 Chairman’s review. Page 6 AN Chief Executive’s review. Page 8 Board of Directors. ENDURING Page 10 Management team. Page 12 VISION Divisional overviews. Page 16 Building Products. Page 17 Crane. In March 2001, Fletcher Building was formed to manage the Page 18 businesses at the heart of the Fletcher Building tradition. Distribution. Our vision was to build a company that would deliver superior Page 19 shareholder value by providing customers with building products, Infrastructure. Page 20 construction materials and services that would enhance built Laminates & Panels. environments and improve quality of life. Laminex Page 22 Formica Page 23 Ten years on, that vision is a reality. Fletcher Building is a Steel. successful international company with businesses that hold leading Page 24 market positions around the world. Year by year, we deliver for People. shareholders. Investors who bought Fletcher Building shares in Page 26 2001 have had a return on their money that equates to 19 percent Health & Safety. compound annual growth rate. Page 27 Today, our vision endures as our scale and reputation bring new Environment. challenges to us. Over the past year, our acquisition of Crane has Page 28 signalled our commitment to continue to diversify and strengthen Corporate governance. our position in our major markets. In the year ahead, we will continue Page 30 our legacy of contribution to the New Zealand built environment as Remuneration report. participants in the rebuilding of Canterbury. Page 33 We look forward to another decade of achievement for our Financial review. customers, staff, and shareholders. Page 38 Financial statements. You can obtain an electronic copy of the Annual Report by going to the following website address: Page 40 fl etcherbuilding.com/reports/11 Independent auditor’s report. Annual shareholders’ meeting Page 88 The Fletcher Building 2011 annual shareholders’ meeting is to be held at 10.30 am on Wednesday 16 November 2011 at the SKYCITY Auckland Convention Centre, 88 Federal Street, Auckland, Trend statement. New Zealand. The notice of meeting, voting form and RSVP card will be mailed to shareholders Page 89 closer to that time. Regulatory disclosures. Page 90 This report is dated 20 September 2011 and is signed on behalf of the board of Fletcher Building Limited. Investor information. Page 100 Directory. Ralph Waters Jonathan Ling Page 101 Chairman of Directors Managing Director Fletcher Building Annual Report 2011 4–5 Highlights. 33cper share DIVIDEND for the 2011 financial year, with a final dividend $283m of 17 cents per share. NET EARNINGS after tax. Net earnings before unusual items were $359 million, up 19 percent on the prior year. $596m OPERATING EARNINGS (earnings before interest and tax) before unusual items, compared with $521 million in the previous year. REDUCTIon in Total Recordable 25%Injury Frequency Rate for employees and contractors per million hours (TRIFR) which this year was 10.57 compared with 14.09 in 2010. Lost time injury frequency rate (LTIFR) was 4.11 compared with 5.04 in 2010. Chairman’s review. commercial market stabilised but at low levels. Shareholder returns Government infrastructure spending helped Earnings per share excluding unusual items to underpin the market. In Australia, the new were 57.1 cents, an increase of 15 percent on the housing market cooled in the second half of 49.7 cents in the previous year. Total returns the year, and as in New Zealand, commercial to shareholders were 14 percent, compared construction activity remained subdued. There with 24 percent in the prior year. This was a is evidence in both countries of households combination of dividend yield and share price reducing their debt levels, and this has had a appreciation, and in the context of difficult flow-on effect in the new housing market. trading conditions was a good outcome. In the US and Europe, conditions remained difficult and no recovery was seen in these markets. Asia, however, has continued to Unusual items perform strongly. Unusual items after tax totalling $76 million were incurred during the year. These relate Operating performance to costs associated with the acquisition and restructuring of Crane, inventory, equipment Given difficult conditions in our Australasian Ralph Waters and goodwill write-downs in the Australian home markets, I am pleased to be able to Chairman and New Zealand insulation businesses, and report net earnings before unusual items adjustments to the carrying value of O’Brien’s, of $359 million for the year ended 30 June the residential bench-top business. The past year has been one of significant 2011. The result compares with $301 million The inventory, equipment and goodwill challenges in New Zealand and Australia. recorded in the previous year. write-offs in the Australian insulation business Operating earnings (earnings before are due to the significant disruption in the The Canterbury earthquakes, which devastated interest and tax) before unusual items were market since the Australian government’s Christchurch, have had a significant impact $596 million, up 14 percent on the $521 million insulation retrofit scheme was terminated in on our people and businesses in the region and achieved in the previous year. These results February 2010. In New Zealand, the DVS home further afield. All of New Zealand has been include three months of operating earnings heating business which is part of the insulation affected by the terrible loss of life and damage from Crane. Consistent with the announcement group, and O’Brien’s, have been adversely sustained in New Zealand’s second largest city. in March net earnings were approximately impacted by the slowdown in new residential In Australia, Queensland, New South Wales $20 million lower than earlier market guidance house building activity. and Victoria were hit by some of the most severe than they might otherwise have been, due flooding seen in a generation. The widespread to the disruption caused by the earthquakes damage caused significant disruption to in Canterbury. Dividend communities across the east coast of Australia. Unusual items after tax totalling The board has approved a final dividend of Economic conditions have also been $76 million were incurred during the year. 17.0 cents per share. With the interim dividend challenging, demanding a high level of focus on These relate to costs associated with the of 16.0 cents, this brings the total dividend for operational performance across our divisions. acquisition and restructuring of Crane, the year to 33.0 cents per share, up from 29.0 A significant development was the inventory and goodwill write-downs in the cents in the previous year. The final dividend acquisition of Crane Group Limited (“Crane”), Australian insulation business, and adjustments will be paid on 19 October 2011. which we completed in May of this year. to the carrying value of other assets. In February, we announced a revised With the addition of the Crane businesses, Net earnings were $283 million compared dividend policy. Under the new approach, Fletcher Building now has annualised revenues with $272 million in the previous year. we intend to alternately frank and impute of approximately NZ$10 billion and employees The result was driven by strong successive dividends to the maximum extent in excess of 20,000. The integration of performances in our Infrastructure, and possible. In practice, this means that all interim Crane has gone very well, and we have been Laminates & Panels divisions, together with the dividends will be fully franked with Australian delighted with the positive response of the initial contribution from Crane. Most divisions tax credits, or franked to the maximum extent Crane employees to being part of the larger reported stronger trading performances from possible; and all final dividends will be fully Fletcher Building Group. their Australian operations. Formica also imputed with New Zealand tax credits, or The effects of the global financial crisis reported good growth from its Asia operations imputed to the maximum extent possible. continued to be felt in the current year and and a strong improvement in North American If any surplus Australian or New Zealand we have had to manage the impacts of the earnings despite flat volumes in that market. tax credits are still available after fully major natural catastrophes and the acquisition Businesses exposed to the New Zealand franking the interim dividend or fully of Crane in an environment of continued market generally reported flat or lower imputing the final dividend for that year, economic uncertainty. In New Zealand, an earnings, as a consequence of the slowdown in these will also be distributed to shareholders increase in housing consents early in the year construction activity seen during the course of as circumstances permit. ebbed away. By the end of the year the rate the year and also as a result of the significant of consents was at near historic lows. The disruption from the earthquakes in Canterbury. Fletcher Building Annual Report 2011 6–7 The new approach will improve the tax eff ectiveness of the company’s dividend, and help to minimise the wastage of tax credits for shareholders. It will also provide shareholders with greater certainty in relation to the company’s tax crediting. In line with this new tax crediting policy, the fi nal dividend will carry full New Zealand imputation credits.