Fletcher Building Limited
Annual Report 2018 WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 Building a stronger, more focussed Fletcher Building. WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 Fletcher Building is currently one of the most diversified building materials companies in the world. In FY18 we announced a new strategy to improve our performance by focussing and simplifying our business. WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 01 Fletcher Building Limited Annual Report 2018 New strategic focus
Our vision is to be the undisputed leader in New Zealand and Australian building solutions with products and distribution at our core.
1. Refocus on the core
2. Stabilise Construction
3. Strengthen Australia
4. Exit non-core businesses WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 02 Fletcher Building Limited Annual Report 2018 Enabled and driven by:
• Highly engaged and capable people who deliver results for our customers. • A simpler and leaner decentralised operating model. • An increased focus on innovation, to achieve continuous improvement and take advantage of global trends. • Disciplined performance improvements in safety, sustainability, procurement and operations. • Capital directed behind strategically important, high-return businesses that align with our vision. • Targeted acquisitions and organic growth to fill gaps in our supply chain or move into adjacent categories. WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 03 Fletcher Building Limited Annual Report 2018 Contents
Results at a Glance 05 The directors are responsible for preparing Chairman’s Report 06 the annual report, including the financial statements and ensuring that the financial statements comply with generally accepted CEO’s Report 08 accounting practices. The directors believe that proper accounting records have been Strategy 10 kept in accordance with the requirements of the Financial Markets Conduct Act 2013, Our Board 12 and these accounting records enable Fletcher Building to ensure that the Company’s financial statements comply Executive Team 14 with the requirements of the Companies Act 1993 and the Financial Markets Conduct Group Performance 18 Act 2013. The financial statements have been independently audited, and EY Divisions 20 has issued an unqualified audit report. When used in this annual report, references Building Products 22 to the ‘Company’ are references to Fletcher Building Limited. References to ‘Fletcher Distribution 24 Building’ or the ‘Group’ are to Fletcher Building Limited, together with its subsidiaries and its interests in associates and joint ventures. Steel 26 All references to financial years (e.g. FY17 and FY18) in this annual report are to the financial Concrete 28 year ended 30 June. References to $ and NZ$ are to New Zealand dollars unless Residential and Development 30 otherwise stated. In certain sections of this report the Group Construction 32 has chosen to present certain financial information exclusive of the impact of Significant Items and / or the results of Australia 34 the Building + Interiors (B+I) business unit, consistent with previous market guidance. Formica and Roof Tile Group 36 Where such information is presented, it is clearly described and marked with an Business Sustainability 38 appropriate footnote. This allows the readers of this report to better understand the underlying operations and performance Our People 38 of the Group. Our Communities 42 Any reference to documents and information included on external websites, including Fletcher Building’s website, are provided Health and Safety 43 for convenience alone and none of the documents or other information on those Environment 46 websites is incorporated by reference in this annual report.
Contribution to the NZ Economy 49 An electronic copy of this annual report is available to view on our website Innovation 50 www.fletcherbuilding.com The Annual Report is dated 22 August 2018 Trend Statement 52 and is signed on behalf of the board by: Financial Statements 53 Independent Auditor’s Report 101
Remuneration Report 105 Sir Ralph Norris Chairman Governance 110 Statutory Disclosures 117
Corporate Directory 126 Bruce Hassall Director WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 04 Fletcher Building Limited Annual Report 2018
Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Results at a Glance Chairman's Report CEO's Report
Results at a Glance
Revenue Net earnings/(loss) – reported $9,471m $(190)m
2017 $9,399m ▲ 1% 2017 $94m
EBIT – reported EBIT (excluding B+I) before significant items1 $(118)m $710m
2017 $273m 2017 $817m ▼ 13%
Trading cash (excluding B+I)1 EBIT % (excluding B+I) before significant items1 $924m 7.5%
2017 $635m ▲ 46% 2017 8.7% ▼ 1 ppts
ROFE (excluding B+I)1 Capital expenditure 12.6% $304m
2017 14.6% ▼ 2 ppts 2017 $319m ▼ 5%
Safety TRIFR2 Employee engagement Customer NPS3 5.1 70% 33 2017 6.9 ▼ 26% 2017 67% ▲ 3 ppts 2017 26 ▲ 7 ppts
1 Measures (excluding B+I) before significant items are non-GAAP measures used by 2 Total recordable injury frequency rate. Measured by the total number of recordable management to assess the performance of the business and have been derived from injuries per million hours worked. Fletcher Building Limited’s financial statements for the year ended 30 June 2018. 3 Net Promoter Score is a measure of how satisfied our customers are with our business. WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 05 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Results at a Glance Chairman's Report CEO's Report
Chairman’s Report
Dear Shareholders, FY18 was a very challenging year for Fletcher Building, characterised by the deteriorating performance of the Building + Interiors (B+I) business of our Construction division. As I described at our last annual shareholders’ meeting (ASM), we had taken on too many large-scale and complex projects too quickly, in a hot market, and experienced failings within the core capabilities of the business across a range of projects. At the same meeting I announced the appointment of Ross Taylor as chief executive officer (CEO), who then started with the business in November 2017. Ross is a proven performer who has led business turnarounds and improved performance and shareholder returns for businesses that operate in Fletcher Building’s core sectors – including housing, manufacturing and construction.
Sir Ralph Norris CHAIRMAN Since his appointment Ross has embedded himself in the business quickly, undertaking further reviews of the B+I business and implementing a comprehensive review of the Group strategy. The theme of this year’s annual report The B+I review resulted in an additional large provision for losses announced on is focus. This is fitting for a year that 14 February 2018. Understanding that shareholders expect accountability from was completed with the launch of the board for all aspects of the Company’s performance, I thought it was appropriate a new, focussed strategy and the to announce that I would stand down as announcement of a refreshed board, chairman no later than the 2018 ASM. This would allow me to first ensure ready to support Fletcher Building I supported Ross as he led the finalisation of a new strategy for the Company, as the new strategy is implemented. while also providing an orderly transition of the board. As the Group strategy was progressed, the board and executive undertook a full review of our capital structure, which resulted in the decision to undertake an equity raising. The $750 million entitlement offer was successfully completed in May 2018, and served to strengthen our financial position and allow us to more effectively execute our new Group strategy. On 21 June 2018 a new Group strategy was announced to the market, which focusses Fletcher Building’s operations on the New Zealand and Australian markets, and in particular, its core operations of building products and distribution. WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 06 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Results at a Glance Chairman's Report CEO's Report
With this new focus, divestment TOTAL SHAREHOLDER RETURNS processes have commenced for In the last 12 months total shareholder Formica and Roof Tile Group. returns for Fletcher Building have been It has been a privilege The new strategy sets a very clear path for disappointing, reflecting the market’s the business, leveraging our strengths to reaction to the downgrades made to serve as chairman of the deliver more value for our customers and through the year, and the curtailment Fletcher Building board improved returns for our shareholders. of dividend payments Encouragingly, in the last three months and in departing I offer BOARD APPOINTMENTS of the financial year the Fletcher Building On 22 June 2018 I announced Bruce my sincere thanks to our share price increased 20%, as the market Hassall as my successor and the reacted positively to our equity raising, appointment of four new directors, shareholders for their debt restructure and the announcement effective 1 September 2018. of our new strategy. We believe these support during my tenure. Barbara Chapman, Rob McDonald, initiatives will hold the Company in good Doug McKay and Cathy Quinn are high stead and, as the new strategy is Sir Ralph Norris calibre individuals, who bring a mix of executed, our improved performance commercial, operational and governance will be reflected in returns to shareholders. expertise, which will greatly enhance the It has been a privilege to serve as experience and diversity of the board. chairman of the Fletcher Building board Dr Alan Jackson will retire at the and in departing I offer my sincere thanks conclusion of the 2018 annual to our shareholders for their support shareholders’ meeting, following nine during my tenure. While the last financial years of service. In addition, Cecilia year has been a difficult one for the Tarrant made the decision to resign from Company, the underlying performance the board effective 1 September 2018, of the business remains strong and with following seven years’ service. new leadership and a clear strategy, I am I would like to thank Alan and Cecilia confident Fletcher Building will reach for their considerable contributions its full potential and deliver the returns to Fletcher Building and wish them our shareholders deserve. every success in the future. Thank you for your support and my To finalise the board refresh it is expected best wishes to you, the Company and that another director from Australia will be its people. appointed in the near term.
DIVIDEND Fletcher Building’s dividend policy is to pay dividends in the range of 50%–75% of net earnings before significant items, with consideration of available cash flow Sir Ralph Norris in the same period. Given the financial Chairman performance of the Company in FY18, and in line with this policy, the board has resolved not to declare a final dividend. The board expects, subject to satisfactory trading performance, to be in a position to resume dividends in respect of FY19. WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 07 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Results at a Glance Chairman's Report CEO's Report
CEO’s Report
We have strengthened the business by refocussing our Construction division on project completion, undertaking a capital raising that has significantly strengthened our balance sheet, and launching a new Group strategy. As a result, we have started FY19 on strong foundations and with clear priorities. • Refocussing the Construction division A detailed analysis of all B+I projects in February this year resulted in a $486 million increase in our provisioning and ultimately, a total B+I loss of $660 million in FY18. Subsequently we decided to cease bidding in the vertical construction sector to reduce future risk to the business from the current market dynamics. While it was not an easy decision to make, we believe that it was the Ross Taylor CEO right course of action to provide more certainty for our shareholders and the business as a whole. We have committed to completing our remaining B+I projects within I was delighted to join Fletcher these new provisions, while refocussing our bidding on lower- Building as CEO in November 2017. risk, higher-margin sectors such as infrastructure and roading. While the year has not been without • Review of capital structure and equity raising its challenges, we have completed The increase in B+I provisioning resulted in breaches of our debt FY18 meeting our earnings guidance, covenants and triggered a full while containing our B+I losses within review of our capital structure. On 17 April 2018 we announced a the provisions we announced to the 1 for 4.46 accelerated entitlement offer to both institutional and retail investors market in February 2018. for $750 million, and a new standby loan facility with three of the banks in our commercial lending syndicate. The offer was very well received by investors, with a 98% acceptance of entitlements by institutional shareholders and a 56% acceptance by retail shareholders. In both cases shareholders who did not take up their entitlements, or were not eligible to do so, received a significant premium to the offer price for the shares sold on their behalf – ensuring all shareholders were treated equitably. WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 08 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Results at a Glance Chairman's Report CEO's Report
As a result of the equity raising, our In FY18 we reported total revenues of ongoing implementation of our Protect balance sheet has been strengthened; $9,471 million, a 1% increase on FY17. safety programme and the introduction we have agreed a permanent solution Group operating earnings before interest of a new real-time risk and incident with our banking syndicate in relation and tax (EBIT) excluding B+I and significant management tool, RADAR. to the breaches of the covenants; items was $710 million, in the top half of People engagement and we confirmed our US private our guidance range of $680 million to In FY18 we were pleased to see an placement (USPP) debt facilities $720 million. B+I losses were contained increase in our people engagement in line with our target terms, with to the projected $660 million announced score from 67% to 70%, which is on-par no redemption required. in February 2018. with our peer group. In future years we • Launch of new Group strategy In New Zealand our Residential and will seek to drive engagement above 80%, We announced a new Group strategy Development division performed strongly, which will put us in the upper quartile of to the market on 21 June 2018. growing revenue and earnings and our industry. significantly increasing the volume of Our vision is for Fletcher Building to be units sold. We also realised revenue Customer satisfaction the undisputed leader in New Zealand gains in Distribution, Building Products, It was pleasing to see an increase in our and Australian building solutions – with Concrete and Steel; however, this was Net Promoter Score (NPS) over the last products and distribution at our core. offset in certain areas by input cost year, which is a measure of how satisfied In New Zealand we will grow our pressures and the need to invest in our our customers are with our business, building products and distribution supply chain ahead of planned timelines from 26 in 2017 to 33 in 2018. Our aim for businesses and leverage our strong to meet increased market demand. future years is to drive to a best-in-class positions in the concrete value chain In Construction, outside B+I, while we NPS of greater than 55. and residential construction. Alongside saw continued strong earnings growth Sustainability and Innovation this we will return Construction to in Higgins, the timing of major projects We see sustainability and innovation as sound operating performance by in the Infrastructure and South Pacific critical drivers of our performance and completing the remaining B+I projects businesses reduced earnings across through the next financial year we will within provisions and profitably the division. refine our strategies and targets in both growing our infrastructure and In Australia market conditions were mixed. areas, to provide more detailed reporting roading businesses. The residential market softened, while the on our year-on-year progress in the future. In Australia our focus is on improving Eastern Seaboard infrastructure pipeline OUTLOOK the operating and financial performance grew. While many of our Australian As we outlined at the launch of our new of our current businesses. In time, businesses made progress against their strategy in June 2018, we expect Group we will seek to grow our market turnaround strategies, particularly Iplex earnings to be stable in FY19 and then share and expand our portfolio as we Australia and Tradelink, earnings across growing from FY20. have done in New Zealand through the division were impacted by increased targeted acquisitions. input costs, particularly in energy In FY19 we will remain focussed on our building materials and distribution As a result of our decision to focus and resins. businesses; divesting Formica and Roof on the New Zealand and Australian Internationally, a positive performance Tile Group; stabilising the Construction markets, it was logical to then begin by Formica in North America and Asia division, by progressively closing out a process to divest our international was offset by difficult trading conditions our remaining B+I projects; and businesses, Formica and Roof Tile in Formica Europe and a number of our embedding our new strategy and Group. We expect to complete both Roof Tile Group export markets. structure in Australia, while continuing of these transactions during FY19. OUR BALANCED SCORECARD our turnaround momentum. With our strategy decided we then Beyond our financial performance We expect to provide detailed implemented a new operating model, we remain focussed on continuous FY19 guidance at the 2018 annual which has reduced corporate costs improvement across our balanced shareholders’ meeting. by $30 million per annum. The new scorecard. operating model included a new I thank our shareholders, people, divisional structure and the Safety customers and suppliers for their reorganisation of our individual The health and safety of our people is continued support of Fletcher Building businesses into seven divisions. paramount, so it was pleasing to see that and I look forward to updating you on It went live on 1 July 2018. our total recordable injury frequency rate our progress during FY19 and beyond. (TRIFR) reduced from 6.9 in FY17 to 5.1 FY18 PERFORMANCE in FY18 and serious incidents reduced During a year of significant change, from 33 in FY17 to 21 in FY18. This is an our divisions and businesses remained encouraging trend but still too high. focussed on delivering on their We remain focussed on driving TRIFR commitments. below five across all our businesses and Ross Taylor we have made good headway, with the CEO WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 09 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Strategy 1. FOCUS Refocus on the core To support the strategy we have also made changes to how we work and Our new vision is to be the undisputed are now very clear on the enablers leader in New Zealand and Australian of successful execution. building solutions with products and There are six key enablers of distribution at our core. our strategy: We will defend and grow our New Zealand building products and distribution businesses and leverage our positions in concrete and residential, which are complementary to our core and strong performers in their own right. With only a 15% share of the New Zealand market,1 there is plenty of opportunity to deliver more from our existing operations, On 21 June 2018 we announced and grow into adjacent sectors. a new strategy and operating model to our shareholders. 2. Stabilise Construction 1. We will continue to Fletcher Building is one of the most 6 diversified building materials companies We will stabilise the Construction division increase the engagement globally, with operations across multiple by closing out our remaining B+I projects and capability of our geographies, sectors, value chains and within our provisions and then growing people to deliver results product lines. While our performance in our infrastructure and roading businesses. for our customers. New Zealand has been strong across our We have already made progress here, core building products and distribution with seven of our 16 key loss making 2. We have introduced businesses, this has been offset by recent B+I projects now completed. a simpler and leaner losses in the B+I business unit of our decentralised Construction division. Improving the 3. performance of Formica has been operating model. slow and capital intensive, while our Strengthen Australia performance in Australia and the progress 3. We will increase our focus of our turnaround strategies have been In Australia, we are targeting a significant on innovation, to achieve mixed. This has led to share price improvement in the operating and continuous improvement underperformance versus our peers, financial performance of our existing and take advantage of 1 which is something other highly businesses. We have just a 1% share of global trends. diversified companies around the the Australian market and the majority of world have experienced. our businesses hold number one or two 4. We will seek disciplined market positions – therefore we have a It was clear that continuing to manage performance improvements strong base to build from and we do not multiple platforms across multiple believe there are any structural reasons in safety, sustainability, geographies from both a capital and that will prevent us from getting our procurement and capability perspective was unlikely portfolio performing. In time, we will to be successful. This is why we have our operations. seek to expand our portfolio as we introduced a more focussed strategy, have done in New Zealand through 5. We will direct our capital which will help Fletcher Building reach targeted acquisitions. its full potential. into strategically important, high-returning businesses The first strategic decision we made was to refocus the business on our core 4. that align with our vision and what we’re trying markets of New Zealand and Australia Exit non-core businesses and divest Formica and Roof Tile Group. to achieve. With this decided, our strategy is then With a new vision and focus, we will exit defined by four key principles: non-core businesses and divest Formica 6. We will fill gaps in our and Roof Tile Group. portfolio or move into adjacent categories both organically and 1 Sources: FBU Management estimates, Infometrics through acquisition. WPIP, BIS Oxford Economics (Residential, Non- Residential Work Done), ABS (Value of Engineering Work Commenced). WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 10 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Our new operating model was announced Our continuous improvement activities In safety, we will drive TRIFR2 below five on 21 June and has been effective since will be moved closer to the businesses to across all businesses and pivot our focus 1 July 2018. It will reduce overheads across improve accountability, drive manufacturing onto managing and removing serious the Group by $30 million per annum, excellence, reduce procurement costs, and high-potential incidents from our empower businesses at the frontline enhance customer service and support day to day activities. and the new divisional structure aligns a culture of innovation. We want to lead in sustainability and businesses to our new strategy. Right across our portfolio we will be will look to embed sustainability This new structure includes seven looking at how our business can respond measures and outcomes into our divisions, each with its own chief to, and lead, global trends in our local products and practices. executive who reports to our CEO markets. Some key trends currently We want our employees to remain Ross Taylor. This structure reflects a influencing our industries are product engaged and we will aim to get all logical grouping of our businesses innovation (particularly around the businesses performing in the top quartile. in New Zealand and establishes a sustainability of our products), service We continue to head in the right direction, new stand-alone division in Australia. and channel innovation (which speaks with our FY18 people engagement score The Australian division groups all our to how we serve our customers), labour for the total business increasing to 70%. Australian businesses together for the productivity and the global shift to offsite first time, under one chief executive manufacturing, and global supply chains, Finally, we will assess everything we do Dean Fradgley who will be based in the including lower-cost country sourcing for through a customer lens, ensuring country. This will provide more focus, certain inputs. our businesses embed transparent and integration and capability sharing, measurable customer service promises The strategy will be delivered over three better positioning us to achieve our that differentiate us from the competition broad stages. In FY19 the focus is on turnarounds, identify and pursue and drive high levels of customer stabilising the go-forward businesses and cost-efficiencies and take advantage satisfaction. exiting non-core businesses. Done well of customer and market opportunities. this should set us up for a solid FY20, with We believe the new Fletcher Building Formica and Roof Tile Group will continue momentum building so that in FY21 and strategy is focussed, clear and to operate as a separate division, under beyond we achieve above market growth. uncomplicated and will ultimately the leadership of chief executive better enable us to deliver more value With clear strategic focus areas in place, Francisco Irazusta, as the assets are for our shareholders. and a new operating model to support prepared for divestment. our aspirations, we are in a stronger In terms of innovation, we will have a position to grow in the coming years. dual focus on continuous improvement, But no business can grow without which is in line with our Fletcher Building strong foundations in safety, people value of ‘better every day’, and taking engagement, sustainability and customer advantage of global trends influencing engagement – and we will remain our markets. focussed on growing our performance across these fundamentals.
STAGE 1 | FY19 STAGE 2 | FY20 STAGE 3 | FY21 – 23
Turnaround / Exit Solid Performance Growth
Ongoing refinement of operating model and governance
Innovating to achieve continuous improvement and take advantage of key macro trends
New Zealand businesses strong and growing NZ Construction returned to profit Construction turnaround complete
Australia turnaround underway Performance improvement advancing strongly AU Profitable market share gains in Australia
Formica and Roof Tile Group sold $ Fill network gaps and enter new adjacencies with M+A3
2 Total recordable injury frequency rate. Measured by 3 Mergers and acquisitions. the total number of recordable injuries per million hours worked. WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 11 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Our Board Executive Team
Our Board
SIR RALPH NORRIS ANTONY CARTER BRUCE HASSALL FNZIM, HFIITP, KNZM, Hon.DBus BE (Hons), ME, MPhil (Loughborough) BCom, FCA (CAANZ) (University of New South Wales) Chairman and Independent Independent Non-Executive Director Independent Non-Executive Director Non-Executive Director Term of office Term of office Term of office Appointed director 1 September 2010, Appointed director 1 March 2017, Appointed director 1 April 2014, last re-elected 2016 annual meeting last elected 2017 annual meeting last re-elected 2016 annual meeting Board committees Board committees Board committees Member of the Audit and Risk Committee, Chairman of the Audit and Risk Committee Chairman of the Nominations Committee Member of the Nominations Committee and and Member of the Nominations Committee Member of the Remuneration Committee Sir Ralph Norris has over 40 years’ Bruce Hassall has had a distinguished business and banking experience, Tony Carter has extensive experience career with broad and deep commercial having led large organisations through in retail management having served and strategic experience and connections transformational changes in both as managing director of Foodstuffs across the New Zealand economy, New Zealand and Australia. During his (Auckland) and Foodstuffs (New Zealand), including in the small medium enterprise career, he has held a number of senior New Zealand’s largest retail organisation. (SME), commercial, government and executive roles, including managing Prior to this he owned and operated export sectors. As former senior partner and chief executive officer of PwC director and chief executive officer of several Mitre 10 hardware stores, later Commonwealth Bank of Australia and New Zealand he has extensive advisory serving as a director and chairman of chief executive officer of Air New Zealand background and knowledge of the Mitre 10 New Zealand Limited. Tony is Limited and ASB Bank. Sir Ralph is the corporate environment. Bruce is the the chairman of Air New Zealand Limited chairman of Contact Energy Limited and chairman of The Farmers’ Trading a director of RANQX Holdings Limited. and Fisher & Paykel Healthcare Corporation Company Limited and Prolife Foods Limited, a director of ANZ Bank Limited and is a director of Bank of As previously announced, Sir Ralph Norris New Zealand Limited and Avonhead New Zealand and Fonterra Co-operative will step down from the board effective Mall Limited and a trustee of the Group Limited. 1 September 2018. Maurice Carter Charitable Trust. Bruce Hassall assumes the role of chairman of Fletcher Building Limited effective 1 September 2018.
NEW BOARD MEMBERS EFFECTIVE 1 SEPTEMBER 2018
BARBARA CHAPMAN, BCom ROBERT McDONALD, BCom, FCA DOUGLAS McKAY, BA, ONZM, CMinstD Barbara Chapman has had an impressive Rob McDonald has a strong track record in Doug McKay has considerable business executive career, serving most recently financial and risk management, developed leadership and commercial experience, as as managing director and chief executive over two decades with Air New Zealand the former chief executive of major officer of ASB Bank for seven years and Limited and most recently as the airline’s manufacturing and distribution businesses previously as group executive Human chief financial officer. Rob currently serves in New Zealand and Australia, such as Lion Resources and group services for the as an independent director of Contact Nathan Limited, Carter Holt Harvey Limited, Commonwealth Bank of Australia. Energy Limited, taking up the role of Goodman Fielder Limited, Sealord and Barbara recently joined the boards chairman on 1 September 2018, and is a Independent Liquor. As chief executive of of Genesis Energy and NZME as an director of the Chartered Accountants of Auckland Council, he led the amalgamation independent director. Australia and New Zealand. Rob will assume of eight territorial authorities into the one the role of chairman of the audit and risk committee upon appointment as a director of Fletcher Building. WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 12 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Our Board Executive Team
DR ALAN JACKSON CECILIA TARRANT STEVE VAMOS BEng (Hons), PhD (Auckland), BA, LLB (Hons), LLM (Berkeley) BE (Hons) MBA (IMD Management Institute), F Eng NZ Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Term of office Term of office Term of office Appointed director 1 September 2009, Appointed director 10 October 2011, Appointed director 6 July 2015, last re-elected 2016 annual meeting last re-elected 2017 annual meeting last elected 2015 annual meeting Board committees Board committees Board committees Chairman of the Remuneration Committee, Chairman of the Safety, Health, Environment Member of the Audit and Risk Committee, Member of the Nominations Committee and and Sustainability Committee, Member of the Member of the Nominations Committee and Member of the Safety, Health, Environment Audit and Risk Committee and Member of the Member of the Remuneration Committee and Sustainability Committee Nominations Committee Steve Vamos has more than 30 years’ Dr Alan Jackson has over 35 years’ Cecilia Tarrant is a professional company experience in the information international business experience across a director. She has over 20 years’ experience technology, internet and online wide spectrum of industries and disciplines. in international banking and finance, media industries. He is the chief He has worked across a range of industries, having worked as a lawyer and an executive officer of Xero Limited, including the resources, diversified investment banker in the USA and a global online platform providing industrials, building products and Europe. Cecilia is the chairman of the accounting software for businesses construction sectors. Alan is the chairman Government Superannuation Fund and their advisors. Steve is a member of of New Zealand Thoroughbred Racing Inc. Authority, a director of Annuitas the Advisory Board of the University of and a director of Delegat Group Limited Management Limited, Payments NZ Technology Sydney Business School, as and Aurora Vineyard Limited. He has Limited and Seeka Limited and a trustee well as a director of Telstra Corporation served as managing partner and of The University of Auckland Foundation. Limited (although will retire from the subsequently chairman of The Boston She previously held a number of senior Telstra board on 16 October 2018). He Consulting Group Australasia and on the management positions with Credit Suisse has held senior management roles at global executive committee of The Boston First Boston and Morgan Stanley in IBM, Apple Computers, ninemsn in Consulting Group and has also chaired New York and London. Australia and Microsoft Corporation in Housing Corporation of New Zealand. Cecilia Tarrant resigns from the board Australia and the USA. Dr Alan Jackson retires at the conclusion effective 1 September 2018 following of the 2018 annual shareholders’ meeting seven years’ service. following nine years’ service.
‘super city’ it is today. He is the chair of CATHY QUINN, LLB, ONZM the Bank of New Zealand and Eden Park Cathy Quinn is one of New Zealand’s Trust and serves as an independent foremost commercial and corporate lawyers. director on the boards of Genesis Energy, She leads the mergers and acquisitions IAG New Zealand and National Australia Bank. and private equity teams and the China practice at MinterEllisonRuddWatts, and served as chairman of the firm for eight years. Cathy is currently a director of Tourism Holdings Limited, and a board member of New Zealand Treasury and the New Zealand China Council. WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 13 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Our Board Executive Team
Executive Team
ROSS TAYLOR
Chief Executive Officer
Ross Taylor joined Fletcher Building as CEO on 22 November 2017. Previously, Ross was CEO of UGL, an international engineering, services, construction and product manufacturing business, operating across the rail, transport and technology systems, power, resources, water and defence sectors, and headquartered in Australia. Prior to this he was managing director and CEO of Tenix, a privately held engineering and construction services company and held senior leadership roles at Lendlease across a 23-year period. Ross has proven experience leading business turnarounds and improving FOCUS performance and shareholder returns and has direct experience across a range of Fletcher Building’s core sectors, A simpler, leaner decentralised operating including housing, manufacturing model was introduced on 1 July 2018. and construction. This included a new divisional structure Ross holds a Bachelor of Engineering from the University of Queensland. that aligned our individual businesses to our new strategic priorities.
These changes resulted in a number of new appointments to the Fletcher Building BEVAN executive team, which were also effective MCKENZIE
from 1 July 2018. The executive team is Chief Financial Officer comprised of proven performers with deep experience in their industries and functional Bevan McKenzie was appointed chief disciplines and will provide strong leadership financial officer in November 2016, having joined Fletcher Building as general manager as we progress our new strategy. of Group Strategy in January 2014. Bevan has led several significant portfolio changes, including completion of the Higgins acquisition. Prior to this, he worked for the Boston Consulting Group Our plan is clear, it has in Australia and New Zealand and for Roquette Frères in France. At Roquette improved our focus as Frères, Bevan’s roles included head of a business, and we are mergers and acquisitions and responsibility for the rest-of-world now putting it into action. commercial team. Bevan holds a Masters of Business Ross Taylor Administration from the International Institute for Management Development in Lausanne, Switzerland and a Master of Arts (Hons) in Political Science from the University of Auckland. WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 14 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Our Board Executive Team
CLAIRE CHARLES DAVID CARROLL BOLT THOMAS
Chief People and Group General Counsel and Chief Executive Building Products Communications Officer Company Secretary
Claire Carroll was appointed chief people Charles Bolt was appointed to his current David Thomas was appointed the interim and communications officer in July 2018. role in October 2013, having joined chief executive of the Building Products Claire joined Fletcher Building in 2013 as Fletcher Building as corporate legal division in 2017. the general manager of Human Resources counsel in 2002. He has been closely He has over 40 years’ experience in (HR) for the Construction division and was involved in the Company’s corporate the building industry and has led several general manager People and Performance initiatives in that time, in particular major key business units within Fletcher Building. for the Building Products division between acquisitions and divestments, and the Most recently he was general manager 2015 and 2017. She has previously held establishment of the global employee of Winstone Wallboards, a position he head of HR positions for the Product and share schemes. He was also instrumental held for 17 years, where he consistently Technology and Wholesale divisions of in the establishment of the Fletcher delivered strong business results and Spark New Zealand, the National Bank Building Legal and Fletcher Building maintained high levels of engagement of New Zealand and Deutsche Bank and Property teams. Prior to this, he spent with his people and customers. NatWest Markets in the United Kingdom. eight years at Bell Gully working on David is currently on the board of mergers and acquisitions, capital markets Claire holds a Bachelor of Commerce directors of Watercare, is a director and managed funds matters. from The University of Auckland. of Altus New Zealand Limited and Charles holds a Bachelor of Laws from chairman of Ngati Whakaue Tribal Victoria University of Wellington and has Lands Incorporated. completed the Senior Executive As announced on 16 July 2018, Programme at Columbia University David will return to his role as general in New York. manager Winstone Wallboards effective November 2018.
JOHN WENDI BRUCE BELL CROFT McEWEN
Chief Information Officer Global Head Chief Executive Distribution Environment Health and Safety (EHS)
John Bell joined Fletcher Building as Wendi Croft was appointed the interim Bruce McEwen was appointed to chief chief information officer in 2015. John has Global Head Environment Health and executive of the Distribution division more than 30 years’ business consulting Safety in July 2018, having joined Fletcher in July 2018. He joined the Company in experience and has held a variety of Building at the beginning of 2018 as 2014 as general manager of Strategy leadership roles and worked in Canada, EHS global programmes and governance and Commercial Distribution and was Southeast Asia, Australia and New Zealand manager. Wendi has nearly 20 years’ part of the team that established the across both the private and public sectors, experience in EHS across a variety of former Distribution division. He became including leading the Technology Advisory industries, including manufacturing, general manager of PlaceMakers in practice at Deloitte Consulting in Auckland. transport, construction and utilities. 2015. Between 2009 and 2013, he was Since joining Fletcher Building, John has Prior to Fletcher Building, Wendi held the chief financial officer of Coca-Cola driven significant transformation of Group director and global general manager-level Amatil New Zealand responsible for Technology bringing together 20 teams roles for Compac and Massey University, New Zealand and Fiji; and prior to this the into a shared service and improving in addition to 15 years with AECOM in chief operating officer for Bendon, during service delivery across 900 locations. North America and Asia Pacific. which time he transformed the domestic business into a global export brand. John holds a Bachelor in Business Studies Wendi holds a Bachelor of Science from He has also worked for Compaq, Hewlett and Information Systems and a Diploma the University of British Columbia and Packard and Unisys. of Business Administration, both from is a Certified Member of the Board of Massey University. He is a Chartered Canadian Registered Safety Professionals. Bruce holds a Bachelor of Commerce Accountant and a member of both from the University of Canterbury, Chartered Accountants ANZ and the is a Chartered Accountant and has Institute of Management Consultants. completed an Advanced Management Course at Babson College in the USA. WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 15 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Our Board Executive Team
Executive Team continued
HAMISH IAN STEVE McBEATH JONES EVANS
Chief Executive Steel Chief Executive Concrete Chief Executive Residential and Development
Hamish Mcbeath was appointed chief Ian Jones was appointed chief executive Steve Evans joined Fletcher Building executive of the Steel division in July 2018. of the Concrete division in July 2018. in 2013 as the chief operating officer for He joined Fletcher Building in May 2002, His experience within the Company housing in the Construction division and rising from shift manager to general totals 27 years, including roles as general was appointed chief executive Residential manager of Pacific Coilcoaters in manager of Golden Bay Cement (GBC) and Land Development in 2015. November 2010. He has held several and Winstone Aggregates and general Prior to Fletcher Building, Steve spent senior roles within the Company since manager and manufacturing manager more than 12 years in director roles in then and was chairman of Sims Pacific for Pacific Steel. the development industry for Heron Metals, a joint venture between Fletcher His accomplishments include resetting International and First Base. He has Building and Sims Metal Management GBC’s distribution model (including a worked on landmark projects, including Group sold in June 2018. Hamish has $90 million investment in shipping, Heron Tower and the Heron, Stratford driven significant growth for Fletcher storage and South Island distribution), Olympic Village, East Greenwich Hospital Steel, with the group almost doubling integrating Higgins quarries into Winstone and Old London Park Hotel. His earlier in size in the past four years. Aggregates, and successfully divesting career with Lendlease spanned Australia, Hamish holds a Master of Business Pacific Steel to enable the development Singapore, Taiwan, China and the UK, Administration and a Post Graduate of James Fletcher Drive. where he worked on the construction Diploma of Operations Management Ian has Diplomas in Business of major residential and commercial from the University of Auckland and has Management and Operations developments. completed the Mount Eliza Advanced Management from the University Steve was one of the founding directors Mergers and Acquisitions Programme. of Auckland. of an urban regeneration business in London that worked with Government to address affordable, state and key worker housing needs and is leading the development of a new high-tech, fast house-building panelisation factory in Auckland.
New Organisational Structure
CEO – Ross Taylor
Building Residential and Products Distribution Steel Concrete Development Construction Australia David Thomas1 Bruce McEwen Hamish Ian Steve Michele Dean Mcbeath Jones Evans Kernahan Fradgley
Winstone PlaceMakers Pacific Winstone Residential Building + Laminex AU Wallboards Coilcoaters Aggregates Interiors Mico Land Iplex AU Laminex NZ Easysteel Golden Bay Development Infrastructure Fletcher Forman Cement Tasman Building Dimond Property Brian Perry Civil Insulation Insulation Systems Roofing and Firth Innovation Higgins Tradelink Dimond Humes Snappy Structural Panelisation South Pacific Tasman Iplex NZ Sinkware Fletcher CSP Pacific Reinforcing Stramit Altus (JV) Fletcher Wire Rocla Products WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 16 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Our Board Executive Team
MICHELE DEAN FRANCISCO KERNAHAN FRADGLEY IRAZUSTA
Chief Executive Construction Chief Executive Australia Chief Executive Formica and Roof Tile Group
Michele Kernahan joined Fletcher Building Dean Fradgley was appointed chief Francisco Irazusta joined Fletcher Building in 1998 and was appointed chief executive executive of the Australian division in in March 2015 as the chief executive of of the Construction division in 2017. July 2018. He joined Fletcher Building the Light Building Products division and Michele has previously held several in 2013 as chief executive New Zealand became chief executive of the International general management roles in Fletcher Distribution and became chief executive division in March 2016. He was Fletcher Building, including Laminex Australia, of the Trans Tasman Distribution division Building interim chief executive officer GBC and Fletcher Earthquake Recovery in 2015. from July to November 2017. (EQR), where she led the team managing Prior to joining Fletcher Building, he Francisco has an impressive background, the rebuild efforts in Christchurch. worked for Wolseley UK in several senior bringing together broad experience Michele has a Master of Business positions, including managing director across manufacturing, supply chain Administration from the University of of its commercial and industrial division and sales and marketing, gained from Canterbury and has graduated from and prior to that as commercial director. a range of senior leadership roles for leadership and management programmes Dean has also worked with a number global building products companies in at the Wharton Business School, Stanford of blue chip companies, including North America, Asia, Africa, Middle East University Graduate School of Business J Sainsbury, Kingfisher and as Head and Europe. and Harvard Business School. of Trade for B&Q. Francisco holds a Master of Science, As announced on 16 July 2018, Dean has completed studies in Business Industrial Engineering and Innovation Peter Reidy has been appointed Management and Strategy through IMD and a Bachelor of Science in Ceramic chief executive Construction and in Switzerland. Engineering, both from the State Michele Kernahan will move into University of New York. the role of chief executive Building Products, effective November 2018.
Formica and Roof Tile Group Finance People Technology EHS Legal Francisco Bevan Claire John Wendi Charles Irazusta McKenzie Carroll Bell Croft1 Bolt
Formica NA Formica Asia Formica EU Operating Divisions Homapal Roof Tile Group Exits
Supporting Functions
1 Interim position WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 17 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Building Products Distribution Steel Concrete Residential and Development Construction Australia Formica and Roof Tile Group
Divisions
Group Performance
Fletcher Building posted underlying operating earnings of $710 million1
Year ended Year ended 30 June 2018 30 June 2017 Change Reported results NZ$m NZ$m % Total revenue 9,471 9,399 1% Operating earnings before significant items1 50 525 (90%) Significant items (168) (252) (33%) Operating earnings (EBIT) (118) 273 NM Funding costs (157) (111) 41% Earnings/(loss) before tax (275) 162 NM Tax benefit/(expense) 96 (57) NM Earnings/(loss) after tax (179) 105 NM Non-controlling interests (11) (11) 0% Net earnings/(loss) (190) 94 NM Net earnings/(loss) before significant items1 (60) 321 NM
Basic earnings/(loss) per share (cents) (25.5) 13.5 NM Dividends declared per share (cents) 0.0 39.0 NM Cash flows from operating activities 396 243 63% Capital expenditure 304 319 (5%)
Operating earnings before significant items1 50 525 (90%) B+I (660) (292) NM Operating earnings (excluding B+I) before significant items1 710 817 (13%)
1 Measures (excluding B+I) before significant items are non-GAAP measures used by management to assess the performance of the business and have been derived from Fletcher Building Limited’s financial statements for the year ended 30 June 2018.
Revenue Year ended Year ended 30 June 2018 30 June 2017 Change NZ$m NZ$m % Building Products 764 745 3% Distribution 1,530 1,519 1% Steel 532 491 8% Concrete 812 781 4% Residential and Development 575 420 37% Construction 1,685 2,246 (25%) Australia 3,076 2,858 8% Formica and Roof Tile Group 1,177 1,120 5% Divested businesses 108 78 38% Other 8 9 (11%) Gross revenue 10,267 10,267 0% Less intercompany sales (796) (868) (9%) Group external revenue 9,471 9,399 1% WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 18 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Building Products Distribution Steel Concrete Residential and Development Construction Australia Formica and Roof Tile Group
Building Products Distribution Steel Concrete EBIT 2018 EBIT* 2018 EBIT* 2018 EBIT* 2018 $132m $104m $49m $90m 2017 $152m ▼ 13% 2017 $104m 2017 $54m ▼ 9% 2017 $113m ▼ 20%
Residential and Construction Australia Formica and Development EBIT+ 2018 EBIT* 2018 Roof Tile Group EBIT 2018 EBIT* 2018 $136m $52m $114m $65m 2017 $130m ▲ 5% 2017 $88m ▼ 41% 2017 $119m ▼ 4% 2017 $79m ▼ 18%
* EBIT before significant items + EBIT (excluding B+I) before significant items
Reported Operating earnings (excluding B+I) operating earnings before significant items1
Year ended Year ended Year ended Year ended 30 June 2018 30 June 2017 Change 30 June 2018 30 June 2017 Change NZ$m NZ$m % NZ$m NZ$m % Building Products 132 152 (13%) 132 152 (13%) Distribution 101 104 (3%) 104 104 0% Steel 41 54 (24%) 49 54 (9%) Concrete 73 113 (35%) 90 113 (20%) Residential and Development 136 130 5% 136 130 5% Construction (613) (204) NM 52 88 (41%) Australia 65 (132) NM 114 119 (4%) Formica and Roof Tile Group 8 79 (90%) 65 79 (18%) Corporate (111) (31) NM (45) (30) 50% Divested businesses 50 8 NM 13 8 63% Total (118) 273 NM 710 817 (13%) Funding costs (157) (111) 41% (157) (111) 41% Earnings/(loss) before tax (275) 162 NM 553 706 (22%) Tax benefit/(expense) 96 (57) NM (127) (164) (23%) Earnings/(loss) after tax (179) 105 NM 426 542 (21%) Non-controlling interests (11) (11) 0% (11) (11) 0% Net earnings/(loss) (190) 94 NM 415 531 (22%)
1 Measures (excluding B+I) before significant items are non-GAAP measures used by management to assess the performance of the business and has been derived from Fletcher Building Limited’s financial statements for the year ended 30 June 2018. WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 19 Fletcher Building Limited Annual Report 2018 Divisions 20 Building Products Our Year inReview Fletcher Building LimitedAnnual Report 2018 Residential Building and Development Products Distribution Strategy Steel Our Leadership Concrete Divisions Residential and Development Business Sustainability Business
Construction Distribution Construction Financials andGovernance Australia Formica andRoof Tile Group BACK HOME
WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 Building Products Our Year inReview
21 Australia Steel Fletcher Building LimitedAnnual Report 2018 Distribution Strategy Steel Our Leadership Concrete Divisions Residential and Development Business Sustainability Business Formica and Concrete Roof Tile Group Construction Financials andGovernance Australia Formica andRoof Tile Group BACK HOME
WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Building Products Distribution Steel Concrete Residential and Development Construction Australia Formica and Roof Tile Group
Divisions Gross Revenue $764m 2017 $745m ▲ 3%
EBIT $132m Building 2017 $152m ▼ 13% EBIT % Products 17% 1,400+ 7 2017 20% ▼ 3ppts
and modest volume growth and market majority of Building Products business The Building Products division share increases for Iplex New Zealand. during the year. Demand was consistent across all brings together Fletcher Several new products were launched, sectors of the market, however, regional Building’s manufacturing including Winstone Wallboards’ new GIB® performance was mixed as the rate of businesses, which supply into Barrierline® intertenancy wallboard solution, growth in Auckland slowed and demand the building and construction which is cost effective, lightweight, robust in Christchurch continued to rebase sector in New Zealand. and fast to install with high noise control following higher activity levels during and fire performance, and Laminex New the earthquake rebuild period. • Winstone Wallboards is Zealand’s roll out of new and refreshed New Zealand’s largest While revenues increased, operating product ranges, such as Melteca Acrylic manufacturer and distributor earnings before significant items soft touch panels and additional colours of plasterboard and drywall decreased 13% to $132 million due to in the melamine portfolio. systems under the well-known the highly competitive market, increasing GIB® brand. The New Zealand Government’s revisions input costs, one-off costs due to natural of the Residential Tenancy Act 1986 • Laminex New Zealand events, provisions for obsolete stock is a manufacturer and on retrofit insulation also continued and historical claims and the need for distributor of particle board to stimulate demand for Tasman businesses to invest in their supply chains and laminate surfaces. Insulation’s products and its network ahead of planned timelines to meet of insulation installers. • Tasman Insulation manufactures higher than expected demand. and distributes the renowned FUTURE FOCUS Energy and raw material cost increases Pink® Batts® brand. The division remains focussed on were experienced most acutely in Iplex • Humes manufactures and delivering customer-leading products New Zealand and Winstone Wallboards, distributes concrete pipes and and solutions, increasing customer while supply chain investments included other drainage products and engagement and improving cost a new Winstone Wallboards freight solutions. efficiency, operational excellence and initiative to relieve capacity constraints. • Iplex New Zealand is the largest resilience in the supply chain to support During the year a number of businesses manufacturer of plastic pipes increasing market demand. also experienced one-off costs including in the country, offering a broad $2 million of repairs and raw material A significant capital investment project range of products and solutions. delay at the Winstone Wallboards is planned for Winstone Wallboards, • CSP Pacific supplies metal lamp manufacturing facility and $3 million with a new state-of-the-art manufacturing posts and barrier solutions. following a fire at the Humes Penrose site. facility to be built to meet future capacity • Altus is a joint venture that requirements and improve efficiencies The division spent $19 million of capital develops and manufactures by bringing manufacturing and four expenditure during the year, continuing to premium aluminium extrusions distribution sites together into one invest in its key operations to improve for an extensive range Auckland location. of industries. performance and realise cost-efficiencies. This included new extruder and pipe Operating efficiencies will also be coilers, along with digital enhancements, pursued in Humes, including relocating at Iplex New Zealand; deployment of a manufacturing to meet demand in DIVISIONAL PERFORMANCE OVERVIEW new Enterprise Resource Planning (ERP) high-growth regions and improving The Building Products division reported system at Humes; new plant robotics at supply chain efficiencies. gross revenue of $764 million, an increase Winstone Wallboards; a new packaging of 3% from FY17, as the majority of plant for Tasman Insulation; and the businesses achieved price increases relocation of a treater at Laminex and benefited from elevated demand. New Zealand’s Hamilton factory. During FY18 Winstone Wallboards was the This was led by Winstone Wallboards, The division also continued its focus on recipient of ‘The Global Gypsum Company of the Year 2017’ award from the 17th Global which experienced a volume increase customer satisfaction and innovation. Gypsum conference. of 2% in its value added plasterboard, Customer satisfaction improved in the WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 22 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Building Products Distribution Steel Concrete Residential and Development Construction Australia Formica and Roof Tile Group
Building Products Building Products Financial Summary FY18 Revenue Weighted Sector Exposure
Year ended 30 June 2018 2017 Change Change NZ$m NZ$m NZ$m % 21% Gross revenue 764 745 19 3%
External revenue 613 589 24 4%
EBIT 132 152 (20) (13%) 55% Funds 494 489 5 1% 24% Trading cashflow 142 143 (1) (1%)
Residential Non-residential Infrastructure/other
We deliver results because we meet our customers’ needs, in a cost-effective manner, better than anyone else.
David Thomas Chief Executive Building Products
Recycled glass is melted down at Tasman Insulation to make Pink® Batts® WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 23 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Building Products Distribution Steel Concrete Residential and Development Construction Australia Formica and Roof Tile Group
Divisions Gross Revenue $1,530m 2017 $1,519m ▲ 1%
EBIT before significant items $104m 2017 $104m
EBIT % Distribution 7% 3,000+ 4 2017 7%
We can’t be complacent – we must continue to evolve the business, raising the bar to deliver ever-increasing levels of service and solutions for our customers.
Bruce McEwen Chief Executive Distribution
PlaceMakers Mt Wellington WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 24 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Building Products Distribution Steel Concrete Residential and Development Construction Australia Formica and Roof Tile Group
Distribution Distribution Financial Summary FY18 Revenue Weighted Sector Exposure
Year ended 30 June 2018 2017 Change Change NZ$m NZ$m NZ$m % 21% Gross revenue 1,530 1,519 11 1%
External revenue 1,490 1,470 20 1%
EBIT before significant items1 104 104 0 0% 9%
Funds 264 256 8 3% 70% Trading cashflow 112 93 19 20%
1 EBIT before significant items is a non-GAAP measure used by management to assess the performance of the business and has been derived from Fletcher Building Limited’s financial statements for the year ended 30 June 2018. Residential Non-residential Infrastructure/other
DIVISIONAL PERFORMANCE OVERVIEW investment in Snappy was $2 million The Distribution division employs The Distribution division reported gross and initial trading shows encouraging over 3,000 people throughout revenue of $1,530 million, an increase margins and low operating costs. New Zealand who work across of 1% from FY17, as it benefited from PlaceMakers automated a number its retail trade stores and supply increased housing investment across of manual processes during the year, building, plumbing and bathroom the country and market share gains in the including the development of a products to the market. small-medium enterprise (SME) sector. new general ledger system that PlaceMakers experienced growth in will be live in the first half of FY19. • PlaceMakers has served all specialty timber, fastenings and power parts of the building industry in Across the division investments in the tools, as well as its installed solutions New Zealand for over 35 years. branch network continued, with 14 business, which provides custom-made It operates as New Zealand’s PlaceMakers branches refurbished, kitchens, bathrooms, foundations, roofs largest trade supplier of building one new greenfield PlaceMakers materials and hardware, selling and windows. Mico achieved greater branch opened and two new Mico over 100,000 product lines, from penetration of its owned bathroom range branches opened. concrete to paint and brands Raymor and Adesso and sustained FUTURE FOCUS plasterboard. PlaceMakers has a growth in back-of-wall product categories. branch network with 62 locations Both businesses experienced the strongest The division will continue to digitally nationwide, a frame and truss growth in the regions, particularly Central enhance the customer experience, and business that produces over Otago, while Auckland and Christchurch further improve customer satisfaction, 7,000 house lots across eight slowed; with the latter continuing to through continual improvement initiatives sites every year and a supply, rebase following the earthquake rebuild. in PlaceMakers and Mico and by increasing fix and install team delivering sales through the new e-commerce Operating earnings before significant customer solutions. platform Snappy. items were consistent year-on-year at • Mico has 70 years of experience $104 million. This result included earnings Innovation through category expansion in providing plumbing and growth of 1% in PlaceMakers and 11% in will also remain a focus, with a particular bathroom products throughout Mico, as both businesses benefited from emphasis on high-margin categories, New Zealand, with 65 stores purchasing synergies and a mix shift to owned-brands and product ranges nationwide including nine sites higher-margin categories. and solutions in core building and co-located with PlaceMakers. plumbing materials. • Forman Building Systems During the year the division continued distributes ceilings and interior its longer-term focus on customer and wall systems, thermal and employee engagement, maintaining acoustic insulation and passive high performance across both measures. fire protection products. During the year the division spent $20 • Snappy was launched during million of capital expenditure, increasing FY18 and is an online-only its investment in digital, to take advantage hardware seller aimed at of emerging customer purchasing trends tradespeople and industrious and improve competitiveness. This DIYers. Snappy uses smart, included the launch of a new e-commerce simple technology to help platform, Snappy, an online-only hardware customers find what they seller aimed at tradespeople and DIY PlaceMakers want and deliver it in as little enthusiasts. The start-up operating cost as two hours. WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 25 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Building Products Distribution Steel Concrete Residential and Development Construction Australia Formica and Roof Tile Group
Divisions Gross Revenue $532m 2017 $491m ▲ 8%
EBIT before significant items $49m 2017 $54m ▼ 9%
EBIT % Steel 9% 750+ 6 2017 11% ▼ 2ppts
DIVISIONAL PERFORMANCE OVERVIEW The division also maintained its focus Under the umbrella of Fletcher The Steel division reported gross on customer satisfaction, with Easysteel Steel, the Steel division operates revenue of $532 million, an increase launching a new customer service through six brands, with more of 8% from FY17, as it benefited from promise that includes a commitment than 750 people working strong demand within the construction to steel-origin traceability – a first-of-its- across operations that span and infrastructure markets. kind initiative in New Zealand, which will enhance competitiveness in light of New Zealand. Easysteel achieved revenue growth recent challenges within the broader of 15%, due to the full-year impact of • Easysteel is a steel products industry regarding imported steel quality. the acquisition of the Calder Stewart distributor and provider of Roofing business and a 3% increase in FUTURE FOCUS related services. core structural steel volumes. Pacific The division will remain focussed on • Pacific Coilcoaters operates Coilcoaters and Fletcher Reinforcing improving the efficiency of its site a paint line that distributes maintained stable revenues, with plants footprint, to reduce overheads as pre-painted steel and aluminium operating at high capacity levels to a percentage of sales and support for roofing and cladding. meet strong demand. future earnings growth. It sells products through the ColorCote® brand. Operating earnings before significant items Following the successful integration • Dimond Roofing and Dimond were down 9% to $49 million, primarily of Calder Stewart Roofing into Dimond, Structural are roofing, driven by global steel prices and margin and the rebranding of the combined cladding, structural and contraction in Fletcher Reinforcing. business to Dimond Roofing, the division rainwater specialists. Steel prices have continued an upward will continue to focus on growing its • Fletcher Reinforcing supplies trend year-on-year and are 220% up roofing revenue, while embedding the construction sector with from the most recent low in 2016 of customer service promises across all reinforcing-related products US$280 per tonne. businesses, to support higher levels of and also manages the onsite customer engagement. In addition, during the year $8 million installation of reinforcing. of significant items were incurred including • Fletcher Wire Products provides $7 million relating to the integration of fencing wire and finished fencing the Calder Stewart Roofing business products (Cyclone Wire, NZ Wire into the division, site consolidations and Eclipse) to rural merchants. and co-locations across the country. Our focus is on During the year the division invested delivering superior $14 million in its distribution and quality project and manufacturing operations and systems Dimond Structural to improve cost-efficiencies and enable service innovation future growth. This included new so we remain the state-of-the-art facilities in Dunedin, that brings Fletcher Reinforcing, Easysteel preferred choice for and Dimond under one roof, and a new our customers. Enterprise Resource Planning (ERP) system for Fletcher Reinforcing, which Hamish Mcbeath went live in the last quarter of the financial Chief Executive year and delivered immediate Steel improvements in inventory, operating efficiencies and pricing. WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 26 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Building Products Distribution Steel Concrete Residential and Development Construction Australia Formica and Roof Tile Group
Steel Steel Financial Summary FY18 Revenue Weighted Sector Exposure
Year ended 30 June 2018 2017 Change Change NZ$m NZ$m NZ$m % Gross revenue 532 491 41 8% 26% External revenue 411 378 33 9% 37% EBIT before significant items1 49 54 (5) (9%)
Funds 184 184 0 0%
Trading cashflow 55 35 20 57% 37% 1 EBIT before significant items is a non-GAAP measure used by management to assess the performance of the business and has been derived from Fletcher Building Limited’s financial statements for the year ended 30 June 2018. Residential Non-residential Infrastructure/other
Easysteel
Fletcher Reinforcing Fletcher Reinforcing WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 27 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Building Products Distribution Steel Concrete Residential and Development Construction Australia Formica and Roof Tile Group
Divisions Gross Revenue $812m 2017 $781m ▲ 4%
EBIT before significant items $90m 2017 $113m ▼ 20%
EBIT % Concrete 11% 1,300+ 3 2017 14% ▼ 3ppts
Our focus is on reinvesting for growth, delivering best-in-class operational performance and continuing to build a highly engaged workforce, with people who go the extra mile to deliver for our customers.
Ian Jones Chief Executive Concrete
Winstone Aggregates WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 28 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Building Products Distribution Steel Concrete Residential and Development Construction Australia Formica and Roof Tile Group
Concrete Concrete Financial Summary FY18 Revenue Weighted Sector Exposure
Year ended 30 June 2018 2017 Change Change NZ$m NZ$m NZ$m %
Gross revenue 812 781 31 4% 32% External revenue 545 507 38 7% 42% EBIT before significant items1 90 113 (23) (20%)
Funds 628 621 7 1%
Trading cashflow 128 142 (14) (10%) 26% 1 EBIT before significant items is a non-GAAP measure used by management to assess the performance of the business and has been derived from Fletcher Building Limited’s financial statements for the year ended 30 June 2018. Residential Non-residential Infrastructure/other
DIVISIONAL PERFORMANCE OVERVIEW an impairment of a previously The Concrete division reported gross mothballed quarry. The Concrete division comprises revenue of $812 million compared with During the year the division invested Fletcher Building’s aggregate, $781 million in the prior year. The 4% cement and concrete businesses. $62 million across its businesses. This increase has resulted from improved sales included investment to improve customer These businesses have a proud volumes across all business units. history of serving the New Zealand service and competitiveness, including construction and infrastructure Aggregates revenue grew through a mix the launch of new digital applications for markets, some for more than of pricing and volume growth, albeit order tracking in Firth, the opening of a 100 years. weighted towards a lower margin product new $30 million Firth masonry plant in mix. Investment continued to develop the Auckland, a new Firth ready-mix plant • Winstone Aggregates has existing quarry footprint to meet current in Manukau and substantial quarry over 150 years’ experience in and future demand. development projects, including further manufacturing and supplying development of the Hunua quarry, south Cement revenue was consistent aggregates, and operates 18 of Auckland. with the prior year driven by domestic quarries nationally. This includes a mixture of hard rock, alluvial sales where volumes grew 4% on the prior FUTURE FOCUS (a mixture of sand, gravel and year. This was supported by a 3% increase The division remains focussed on sediments) and sand quarries in manufacturing volumes to set a new investing in its core assets and customer supplying nearly eight million production record, and market share engagement to position its businesses tonnes into the ready-mix, roading continued to be strong. to meet increasing demand for and general contracting markets. While the ready-mix market was flat aggregates and cement off the back • Golden Bay Cement (GBC) is over during the year, revenue increased by 6% of sustained infrastructure investment 100 years old and is New Zealand’s on FY17, driven by a 2% increase in sales across the country. only manufacturer of clinker and volumes and pricing gains. Ready-mix The division will also pursue improvements cement. With national distribution market share is estimated to have grown in the sustainability and efficiency of capabilities, GBC supplies over 1% in the period. its operations. GBC is progressing an 900,000 tonnes per year for alternative fuels strategy, and planning a domestic and export markets. Operating earnings before significant new project that is jointly funded by the A short supply chain provides full items were $90 million, down 20% from Ministry for the Environment, aimed at control of the end-to-end process, FY17. When excluding the prior year substituting a further 20% of GBC’s coal from the cement rock quarries, gain of $12 million on the sale of a Firth requirement through the use of end-of-life manufacturing and multi-modal property, divisional earnings reduced by distribution into customer silos. 11%, which was driven by a contraction tyres. If successful, this project will help to address a major waste problem in • Firth Industries is comprised of in gross margin. New Zealand, while improving the three major businesses: Certified The contraction in gross margin was sustainability of GBC's energy sources. Concrete (readymix), masonry caused by increased energy and (concrete blocks and pavers) supply chain costs across all businesses, As part of the project GBC would reuse and Dricon (bagged dry concrete). particularly in GBC and Firth. Strong price up to 3.1 million disposed tyres per annum, It operates 70 concrete plants, competition prevented these cost which is up to half of New Zealand’s annual eight masonry plants and two increases from being fully passed on. tyre waste, excluding stockpile. dry bagged product plants. Costs associated with commissioning the This comprehensive nationwide new Firth ready-mix and masonry plants network allows Firth to supply and higher-than-anticipated demand its products into all segments of for aggregates led to additional costs the construction industry. incurred to alleviate capacity constraints and support the increased volumes. The division recognised a $17 million charge to significant items during the year, as a strategic review identified Firth WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 29 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Building Products Distribution Steel Concrete Residential and Development Construction Australia Formica and Roof Tile Group
Divisions Gross Revenue $575m 2017 $420m ▲ 37%
EBIT $136m Residential and 2017 $130m ▲ 5% EBIT % Development 24% 175+ 5 2017 31% ▼ 7ppts
DIVISIONAL PERFORMANCE OVERVIEW During the year the division recognised Residential and Development The Residential and Development division a $12 million provision for a forecast loss undertakes both residential and reported gross revenue of $575 million, on the Christchurch Atlas Quarter project. commercial land developments for an increase of 37% from FY17, driven This reflects anticipated lower selling on-sale and is responsible for Group by higher unit sales in Auckland and prices and cost escalations, mainly due Innovation projects including Christchurch and several significant to seismic requirements and higher than panelisation. land sales. This translated to operating forecast construction market rates. earnings of $136 million, an increase of Excluding the impact of this provision, • Residential (trading as Fletcher 5% from FY17. Residential earnings were up 28% Living) specialises in building from FY17. Funds employed in the division increased master-planned residential to $604 million in FY18, from $547 million Land Development operating earnings communities in Auckland and at 30 June 2017, reflecting an increase in were $51 million. The most significant sale Christchurch, encompassing in FY18 was a 10 hectare site at the Wiri design through to sales. work-in-progress in both the Residential and Land Development businesses. North development. It is anticipated that • Land Development sells brownfield Land Development will earn at least $25 sites transferred from elsewhere in Residential operating earnings were million per annum over the next five years, the Fletcher Building portfolio to $85 million, an increase of 12% from while recognising that Land Development commercial customers. FY17. This was driven by an increase in earnings will be irregular in nature. • Property manages Fletcher completed homes sold, from 499 in FY17 Building‘s property portfolio. to 714 in FY18. Unit sales came from both The Innovation business completed the established subdivisions of Swanson, testing of a rigid air barrier product for • Innovation is a central hub that Whenuapai and Red Beach, which are Winstone Wallboards and finalised trials partners with Fletcher Building of panelised homes for Fletcher Living, to businesses to develop and now operating at sustainable levels, commercialise innovation. and new subdivisions, including Waiata prove the concept for commercialisation. Shores, Kowhai Ridge and Totara The panelisation solution reduces duplex • Panelisation will be an offsite Heights in Auckland and Atlas Quarter construction time from 22 weeks to manufacturer of house panels in Christchurch. nine weeks. These innovations will be that will supply Fletcher Living introduced to the market in FY19 and FY20. and potentially third parties in In Auckland demand was strongest for the future. homes priced between $600,000 and $900,000, while demand softened for large standalone homes priced at $1,000,000 or greater. In Christchurch, after significant preparatory work and resource Homes delivered in FY18 consenting, work commenced on 112 units at One Central, formerly known as East Frame. The next anticipated stage 714 will include a further 59 terrace homes. WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 30 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Building Products Distribution Steel Concrete Residential and Development Construction Australia Formica and Roof Tile Group
Residential and Development Residential and Development Financial Summary FY18 Revenue Weighted Sector Exposure
Year ended 30 June 2018 2017 Change Change NZ$m NZ$m NZ$m % 19% Gross revenue 575 420 155 37%
External revenue 575 420 155 37%
EBIT 136 130 6 5%
Funds 604 547 57 10%
Trading cashflow 109 (49) 158 NM 81%
Residential Infrastructure/other
FUTURE FOCUS The division’s vertically integrated model continues to enable it to effectively source and develop land in desirable We will leverage our end-to-end relationship with locations, providing a good pipeline of developments to bring to market. other Fletcher Building businesses, our proven Its aim is to deliver 1,000 dwellings ability to innovate and our unique position as a year, subject to market conditions. both a residential and land developer to deliver Residential continues to see strong demand for quality homes, at the right housing and community solutions that set us price point, and has 3,707 units on its apart from our competitors. balance sheet, with a further 1,272 units under unconditional agreements, to be delivered over the next five years. Steve Evans Chief Executive As one of the largest home builders Residential and Development in New Zealand, the division can make a significant contribution to the Government's KiwiBuild programme and will continue to engage with Government on opportunities to support implementation during FY19. Following successful trials in FY18, a new panelisation plant in Auckland will be commissioned, which will allow Fletcher Living to deliver homes more efficiently in a supply constrained market. It is anticipated that the new plant will initially deliver an additional 300 homes per year to support Fletcher Living’s pipeline, with the opportunity to then extend supply to Government agencies and other group home builders.
Fletcher Living Whenuapai WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 31 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Building Products Distribution Steel Concrete Residential and Development Construction Australia Formica and Roof Tile Group
Divisions Gross Revenue (including B+I) $1,685m 2017 $2,246m ▼ 25%
EBIT before significant items $(608)m 2017 $(204)m
EBIT (excluding B+I) before significant items Construction $52m 3,500+ 5 2017 $88m ▼ 41%
DIVISIONAL PERFORMANCE OVERVIEW The Construction division is The division reported gross revenue of a leading general contractor $1,685 million, down 25% on the previous operating throughout New Zealand year. FY18 has followed a year of high The key to achieving any and the South Pacific. Every day activity in which a number of major strategy starts and ends thousands of New Zealanders use projects have come to completion. roads and infrastructure the division with people. We need to has built, and live or work in buildings Operating earnings before significant it has constructed. The division items were a loss of $608 million, continue to recruit and comprises five business units: compared with a loss of $204 million in retain the best talent and FY17. This includes a loss in B+I of $660 • Fletcher Infrastructure delivers create an environment transport and infrastructure million, which reflects provisions taken projects within New Zealand on a number of major projects during where they can achieve including regional and national the year, offset by the earnings for the roads, bridges, wharves, railway rest of the division. and thrive. and bus connection stations, water Excluding B+I, operating earnings before and wastewater services plants, Michele Kernahan significant items were $52 million, down industrial plants and upgrades. Chief Executive 41% from FY17 largely reflecting the timing • Higgins designs, builds and Construction of major contracts completed in the prior maintains roads and manufactures year and the early stage of current roading products with a team of more than 1,600 people across multi-year contracts. New Zealand and Fiji. As a specialist A strong performer has been Higgins The addressable pipeline for both South roading company Higgins has the with operating earnings increasing 8% Pacific and Infrastructure is robust. For expertise and resources to deliver from FY17. During the year Higgins was Infrastructure, work underway through a fully integrated range of services. awarded several new maintenance FY21 includes the Pūhoi to Warkworth • South Pacific is a full service contracts including its first in the South motorway, the Hamilton section of the contractor providing vertical and Island with the Christchurch City Council, Waikato expressway and Peka Peka to horizontal infrastructure, with bases a maintenance contract for the Kapiti in seven island nations and its head Ōtaki expressway. District Council and another covering 530 office in Auckland. kilometres of highways in the Hauraki Risks and forecast cost increases have • Brian Perry Civil (BPC) is a Plains and Coromandel Peninsula. been identified on Pūhoi to Warkworth, specialist contractor in foundation associated principally with earthworks and Higgins also benefits from participation and groundworks, complex civil, aggregate supply. The project is a joint three waters and marine projects. in the North Canterbury Transport venture between Fletcher Construction The business includes Piletech, Infrastructure Recovery Alliance and and Acciona, and the partners are working PipeWorks and Seovic. the ongoing response to the Kaikōura on a range of options to mitigate the risks. • Building and Interiors (B+I) remains earthquakes. In Fiji, Higgins successfully The division is reporting a nil margin for a national contractor completing completed the Nadi2 capital roading project. the project currently as these options are commercial, retail, health, education and other buildings. South Pacific and Infrastructure reported worked through. reduced earnings from FY17 as a number B+I, including Forman Commercial of major projects had completed in the Interiors, has had a primary focus on prior period including the Waterview project delivery and completion since Connection in Auckland; the Mackays February 2018 when the business unit to Peka Peka expressway and significant ceased bidding for new projects projects in Fiji and Papua New Guinea. due to unfavourable market conditions in the sector. WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 32 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Building Products Distribution Steel Concrete Residential and Development Construction Australia Formica and Roof Tile Group
Construction Financial Summary
As reported Excluding B+I
2018 2017 Change Change 2018 2017 Change Change NZ$m NZ$m NZ$m % NZ$m NZ$m NZ$m %
Gross revenue 1,685 2,246 (561) (25%) 1,053 1,196 (143) (12%) External revenue 1,605 2,085 (480) (23%) 1,000 1,103 (103) (9%) EBIT before significant items1 (608) (204) (404) NM 52 88 (36) (41%) Funds (238) 174 (412) NM 274 306 (32) (10%) Trading cashflow (172) (103) (69) 67% 113 65 48 74%
1 EBIT before significant items is a non-GAAP measure used by management to assess the performance of the business and has been derived from Fletcher Building Limited’s financial statements for the year ended 30 June 2018.
Of the 16 key loss-making B+I projects ongoing at the start of FY18, seven were completed as at 30 June 2018, including the Justice and Emergency Services Precinct in Christchurch, Auckland University’s Engineering, Design and Technology building, Victoria University’s Gateway Building and Auckland East Prison. A further three projects are forecast for completion by 31 December 2018. At year end, contracted work underway for the division was valued at $1,784 million.
FUTURE FOCUS As outlined in Fletcher Building’s strategy, the division will focus on stabilising its performance by completing B+I projects and refocussing the division on more profitable sectors such as infrastructure and roading. The New Zealand Government is planning significant investment in infrastructure in the coming years, which will support these plans. Brian Perry Civil, including Piletech, PipeWorks and Seovic, became a standalone business unit from 1 July 2018 – separated from the broader Infrastructure business unit to capitalise on future growth opportunities in groundwork, three waters and marine projects. During FY19 the division will re-invest to sustain future growth, with new piling equipment for Brian Perry Civil and two new asphalt plants to be commissioned to grow Higgins’ Auckland business. A central Project Management Office was established in March 2018, which will continue to build capability and help ensure consistent best practice across all the Construction businesses. WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 33 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Building Products Distribution Steel Concrete Residential and Development Construction Australia Formica and Roof Tile Group
Divisions Gross Revenue $3,076m 2017 $2,858 ▲ 8%
EBIT before significant items $114m 2017 $119m ▼ 4%
EBIT % Australia 4% 5,600+ 7 2017 4%
The Australian division brings together the Group’s interests in the manufacture and distribution of building materials across Australia which are grouped into the following segments:
• Building Products Australia comprises: –– Laminex Australia is a manufacturer and distributor of decorative wood panels and laminate, particle board, fibreboard and other products. –– Iplex Australia is a manufacturer and supplier of pipeline systems servicing the water infrastructure, irrigation, telecommunications, plumbing, electrical, gas and civil construction sectors. –– Rocla manufactures concrete infrastructure products for civil contractors, developers, local governments, water and other authorities. –– Fletcher Insulation is an insulation manufacturer, with facilities in Melbourne and Sydney supplying Pink® Batts® insulation, Sisalation® foil and Permastop® building blanket to residential, commercial and industrial markets. • Distribution Australia comprises: –– Tradelink is a plumbing merchant with over 230 stores nationwide, and specialises in the supply of products to the residential and commercial sectors. –– Tasman Sinkware, manufacturer of the Oliveri brand, is an Adelaide-based sink manufacturer and master distributor. • Steel Australia comprises: –– Stramit supplies steel roof and wall cladding, guttering, fascia, purlins, flooring, structural formwork, insulated panels and sheds to the residential and commercial building markets.
Tradelink WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 34 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Building Products Distribution Steel Concrete Residential and Development Construction Australia Formica and Roof Tile Group
Australia Australia Financial Summary FY18 Revenue Weighted Sector Exposure
Year ended 30 June 2018 2017 Change Change NZ$m NZ$m NZ$m %
Gross revenue 3,076 2,858 218 8% 25%
External revenue 2,973 2,771 202 7% 34% 41% EBIT before significant items1 114 119 (5) (4%) 44%
Funds 1,804 1,778 26 1%
Trading cashflow 146 143 3 2% 34% 22% 1 EBIT before significant items is a non-GAAP measure used by management to assess the performance of the business and has been derived from Fletcher Building Limited’s financial statements for the year ended 30 June 2018. Residential Non-residential Infrastructure/other
DIVISIONAL PERFORMANCE OVERVIEW on procurement strategies and controlled The Australian division reported gross operating costs. revenue of $3,076 million, an increase With a strong focus on delivering of 8% from FY17. All businesses achieved consistently high customer service levels, We need to make positive sales growth, while the turnaround Steel Australia reported gross revenue Fletcher Building of Iplex Australia and Tradelink gathered increases of 3% from FY17, while operating Australia greater than momentum, with both businesses earnings before significant items were experiencing market share gains. stable year-on-year. the sum of its parts, Operating earnings before significant items were $114 million, a decrease of Significant items of $49 million primarily build a customer-leading 4% on the prior year and largely driven comprised an impairment charge against obsession, innovate, by increased input costs. the carrying value of the Rocla business, following a revision of expected medium- take number one Building Products Australia delivered term earnings. gross revenue growth of 9% from FY17, positions and deliver driven by strong performances from The division invested $79 million during above market growth. Laminex Australia, Iplex Australia and the year including $8 million on Tradelink Fletcher Insulation. Rocla continued to stores and showrooms, Laminex Press Refurbishment ($8 million) and a new Dean Fradgley underperform owing to operational issues. Chief Executive Laminex digital platform ($5 million). The forecast for industry demand in the Australia pipe and precast segment is strong and In addition, there were a very large the recent merger of the Iplex Australia number of other capital expenditure and Rocla businesses is expected to projects of less than $5 million during accelerate the turnaround of Rocla. the year. Despite this positive sales growth, Building FUTURE FOCUS Products Australia’s operating earnings While the majority of the Australian before significant items decreased by businesses expect to be trading in flat 10%. Laminex Australia and Iplex Australia or slightly declining markets, the newly experienced sizeable increases in energy formed division will focus on accelerating and raw material input costs, which we individual business unit strategies to were not able to fully recover, while deliver manufacturing, distribution and Fletcher Insulation incurred a $5 million overhead efficiencies and increase its charge as a result of its structural share of the Australian residential and reorganisation and associated commercial markets. Stramit redundancy payments. To position the division for increased Distribution Australia recorded gross growth, a number of site network revenue growth of 8% from FY17, with investments will be made or finalised in Tradelink growing sales in a declining FY19. Iplex Australia opened a dedicated market through 19 new store openings civil service centre in Melbourne in May, and relocations, and positive growth in and will open service centres in Sydney the small to medium network customer and Brisbane in the first half of FY19. market segment. Tasman Sinkware also Tradelink plans to open a further 15 grew revenue as it made a strategic shift branches in FY19, while a site to become both a manufacturer and consolidation programme completed master distributor of products. within Stramit in late FY18 will reduce property costs in both Victoria and Distribution Australia’s operating earnings Queensland and deliver further efficiency before significant items grew 30% from gains in the coming years. FY17, as Tradelink successfully delivered WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 35 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Building Products Distribution Steel Concrete Residential and Development Construction Australia Formica and Roof Tile Group
Divisions Gross Revenue $1,177m 2017 $1,120m ▲ 5%
EBIT before significant items $65m Formica and 2017 $79m ▼ 18% EBIT % Roof Tile Group 6% 3,800+ 5 2017 7% ▼ 1ppts
DIVISIONAL PERFORMANCE OVERVIEW economic conditions continued to The Formica and Roof Tile Group The Formica and Roof Tile Group division improve. These benefits were offset by division employs over 3,800 reported gross revenue of $1,177 million, Benelux and France, which were down by people, designing, manufacturing an increase of 5% from FY17, which was 6% and 5% respectively as activity slowed and supplying laminates and other driven by positive performances from in these markets. Operating earnings decorative surfaces and supplying Formica in North America and Asia. excluding significant items were lower pressed metal roof tiles. This was offset by difficult trading than the prior year and attributable to conditions in Formica Europe and a adverse mix, market conditions and • Formica North America is based number of Roof Tile Group export increased investment in sales capability. in the USA, Canada and Mexico markets, with operating earnings before Homapal continued to grow from FY17, and has two manufacturing sites significant items down 18% from FY17 especially in Asia and North America. and seven distribution centres. to $65 million. Roof Tile Group’s gross revenue in local • Formica Asia is based in China, Formica achieved gross revenue of currencies decreased by 15% compared Taiwan and Thailand and sells high $1,030 million, an increase of 8% from with FY17. This was due to continued soft pressure laminate and Compact FY17, which translates to an increase of economic conditions in Africa, volume through four manufacturing sites declines in Japan, as a key customer and two distribution centres and 4% in domestic currencies. Formica’s 13 branches. operating earnings before significant moved to dual supply, poor weather, items were up by 1% to $75 million. resulting in reduced activity in the USA, • Formica Europe has an extensive and softening demand in New Zealand. presence across the region through Formica North America grew revenue in five manufacturing sites and two local currencies by 3% from FY17 through The division incurred $52 million of distribution centres and a pan- successful new product development, significant items related to the impairment European sales team supported including the launch of anti-finger print of the carrying value of Roof Tile Group, by a local office network. laminate. Operating earnings excluding following a review of the recoverable • Homapal is based in Germany significant items were also up 3%, driven value as part of the divestment process. and provides metallic and by continued improvements in The division invested $61 million including decorative laminates used in operational efficiencies. $21 million in Formica Europe for the UK furniture and public settings, In Formica Asia gross revenue in local Redevelopment programme. such as hotels and showrooms. currencies was up 8% from FY17, driven by FUTURE FOCUS It supplies Germany, Austria strong growth in China, with the business In line with the new Fletcher Building and Switzerland directly; benefiting from a focus on customer strategy, we expect to divest Formica Formica and Laminex globally service, reliability and new product and also operates through a and Roof Tile Group during FY19. In the development. Revenue in the Association network of independent third meantime, both businesses continue of Southeast Asian Nations (ASEAN) and party distributors. to operate under the leadership of Taiwan was flat year-on-year. Operating chief executive Francisco Irazusta. • Roof Tile Group is a supplier of earnings excluding significant items pressed metal roof tiles in North increased by 24%, driven by revenue Formica will continue to deliver cost- America, Europe, New Zealand, growth and improved manufacturing efficiency initiatives, particularly in Africa and Asia. efficiencies, especially at the two Europe, as the investment in the UK manufacturing facilities in China. redevelopment programme is completed in FY19. Formica (including Homapal) In Formica Europe, gross revenue in will also continue to focus on delivering domestic currency was up by 1% from profitable growth through innovation FY17, with Germany up 18% as the and new product development. business continued to expand in the local market. Gross revenue in the UK was up Roof Tile Group will focus on improving by 4% as the business grew market share its earnings by driving higher volume in the face of a declining construction through its operating assets. market, while Spain grew by 6% as WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 36 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Building Products Distribution Steel Concrete Residential and Development Construction Australia Formica and Roof Tile Group
Formica and Roof Tile Group Formica and Roof Tile Group Financial Summary FY18 Revenue Weighted Sector Exposure
Year ended 30 June 2018 2017 Change Change NZ$m NZ$m NZ$m %
Gross revenue 1,177 1,120 57 5% 31% External revenue 1,151 1,101 50 5%
1 EBIT before significant items 65 79 (14) (18%) 60% Funds 1,244 1,174 70 6% 9% Trading cashflow 110 90 20 22%
1 EBIT before significant items is a non-GAAP measure used by management to assess the performance of the business and has been derived from Fletcher Building Limited’s financial statements for the year ended 30 June 2018. Residential Non-residential Infrastructure/other
We are focussed on driving our growth plans and maximising value for Fletcher Building and Formica. Formica created its categories – innovation is in our DNA, and will continue to be key to our success.
Francisco Irazusta Chief Executive Formica and Roof Tile Group
Formica 180fx Carerra Marble WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 37 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Our People Our Communities Health and Safety Environment Contribution to NZ Economy Innovation
Business Sustainability
Our People
Firth – Auckland
OUR PEOPLE STRATEGY FLETCHER BUILDING’S VALUES Be Bold Our values guide our people’s behaviour At Fletcher Building We innovate and take calculated risks and shape our culture, but this past year to drive business for our shareholders, our people are the has brought a lot of change. We wanted customers, communities and employees. reason we are able to to take stock, so as part of the broader Play Fair do what we do – from strategy development process, we reviewed our four values – Be Bold, Play We are honest and respectful in our delivering roads, bridges, Fair, Better Every Day and Customer relationships with fellow employees, buildings and houses to Leading. In doing so we found that they customers and the community. making and distributing continue to bring our people together and reflect a culture our people want to Better Every Day insulation, pipes, concrete, be part of. But we also found something We seize opportunities to improve plasterboard and many was missing – and that was a value that regardless of how big or small they other building products. spoke to how we can achieve more may seem. together, as Fletcher Building, than we Customer Leading can as individual businesses. A value We need good people to do this well, that spoke to our commitment to work Without customers and clients, we don’t and enabling our people to be their together as a team. For this reason, have a business – it’s as simple as that. best is what our people strategy is all we decided to add a fifth value – Customer leading is about being ahead about. Our strategy is focussed on Better Together. of the game for our customers, every creating a culture that encourages single day. teamwork and innovation and places the utmost importance on safety. Better Together We harness our diversity, collaborate and share. We think and act as Fletcher Building teams. WorldReginfo - 4bac60fc-5f64-4131-afd8-fa4549f01925 38 Fletcher Building Limited Annual Report 2018 Our Year in Review Strategy Our Leadership Divisions Business Sustainability Financials and Governance BACK HOME
Our People Our Communities Health and Safety Environment Contribution to NZ Economy Innovation
FBuSay Employee Engagement EMPLOYEE EDUCATION AND WELFARE FUNDS Fletcher Building employees have access to financial support through