FBU Updated FY2017 Earnings Guidance

Auckland, March 20, 2017 – Fletcher Building has today provided an update on earnings guidance for the 2017
financial year.
The company now expects operating earnings before interest, tax and significant items (“EBIT”) to be between
$610 million to $650 million for the year ending 30 June 2017. This compares with the previous EBIT guidance
range of $720 million to $760 million.
The revised guidance is due to the identification of additional estimated losses and downside risk in the
Buildings and Interiors (“B+I”) business unit of the Construction division.
A thorough review of the B+I business and projects began in late calendar year 2016 and led to new
management and governance processes. A significant loss was recorded for B+I in the half-year results based
on the best estimate available at the time. However, management has now identified an increase in the
estimated loss on the major construction project which was referenced at the time of the announcement of the
H1 17 results, and the identification of downside risk on other B+I projects, with the majority being a provision
for expected losses on one other major project.
Chief Executive Mark Adamson stated that it was extremely regrettable that expected profitability for FY17 in
the Construction division has worsened since comments made at the time the H1 17 results were reported.
“It is very disappointing that the review of the B+I business unit has found weaker performance than we had
previously understood.”
All other business units within the Construction division have continued their strong trading performance.
However, taking into account the new estimates of profitability for the commercial construction projects, it is
now expected that the Construction division as a whole will report a loss at the EBIT level for FY2017.
Trading for Fletcher Building’s other divisions remains in line with expectations previously discussed in the first
half earnings commentary.






NEWS RELEASE
UPDATED FY2017 EARNINGS GUIDANCE

Questions and Answers
The FY17 EBIT guidance range has been reduced by approximately $110m compared to the previous
range – what are the key drivers of this reduction?
The reduction in EBIT guidance relates to the Building and Interiors business unit (“B&I”). The reduction has
two components:
1) There has been an increase in the estimated loss on the major construction project which we
referenced at the time of the half-year results announcement. This additional estimated loss represents
approximately half of the reduction in guidance announced today.
2) The remaining portion of the reduction is due to the identification of downside risk on other B+I projects,
with the majority being a provision for losses on one other major project, and a smaller amount due to
increased costs elsewhere in the B&I business unit.
Which are the two key projects and when will they be completed?
For reasons of client confidentiality, we will not name the projects.
We expect one of the projects to complete within the next few months, and the other is targeting completion in
FY19.

Has there also been deterioration in other areas of the business since the half-year results
announcement?
Trading within businesses outside of B&I remains in line with guidance given at the time of the half-year results.
This includes the other Construction business units – Higgins, Infrastructure, Fletcher EQR and South Pacific –
all of which are trading in line with our expectations.

Why is this update coming so soon after the half-year results announcement?
A thorough review of the B+I business and projects began in late calendar year 2016 and led to the introduction
of new management and governance processes. A significant loss was recorded for B+I in the half-year results
based on the best estimate available at the time. However, as the new governance processes have been
further bedded in, management has found that the expected losses are greater than previously
estimated. Consequently, an update to FY17 earnings guidance for the Group has become necessary. It is
important to note that under accounting rules, profit on a construction contract is recognised progressively
through the life of the project, whereas when it is probable that a contract will incur a loss, the expected loss
must be recognised immediately as an expense.

What has been learned since the half-year results to cause the revision in estimated losses within B+I?
The major projects involved are large and highly complex. Project reports and reviews received since the half-
year results announcement have indicated significantly higher costs to complete the projects, and have also
enabled improved quantification of remaining risks. In addition, the detailed review by new management has
led to downward revisions in expected profits on a number of smaller projects.

What have been the main issues in the construction projects concerned?
The most significant issues relate to complexity in design, subcontractor management and building program
delivery on key projects. This has led to an extension of project timelines and increase in project resource
requirements and costs, relative to original budgets. The extent of this has become more apparent since the
half year announcement as new management and processes have bedded in.

What is being done to make sure this doesn’t happen again?
We have made, and are continuing to make, changes to Construction governance processes and personnel
which is enabling us to clearly identify and address project performance issues. We have appointed a Chief
Operating Officer for the Construction division, a new head of Risk and Governance in the Construction
division, and a new General Manager of the B&I business unit will start shortly. We have new finance
leadership and processes along with the recent implementation of a new financial management reporting
system (JDE). The criteria for bidding major construction projects have been made more stringent, and internal
review processes for proposed and existing projects have been strengthened. We believe these changes will
drive improvement in future periods.

Does the update also impact the outlook for FY18?
Fletcher Building does not provide guidance beyond the current financial year, however we have tried to be
conservative in estimating the losses in the current construction book, and trading in our other divisions
remains in line with our expectations. The one commercial construction project that is expected to be finished in
FY19 and on which we have now taken a provision for estimated losses, was previously expected to make an
EBIT contribution of approximately $10 million to FY18 earnings.

Will you pursue claims related to major project losses?
We do not discuss matters related to claims publicly. Whenever we have issues on a construction project, we
endeavour to work constructively with our clients and other relevant parties to resolve them. Where we have a
robust basis for a claim we will consider our position carefully.

Do these issues point to a systemic issue in your construction book?
We don’t think these issues are systemic because they are primarily related to program and design challenges
on a small number of major projects. We are very cognisant of pressure on labour and sub-contractor resource
in the New Zealand construction industry at present, and need to ensure we manage this effectively in current
projects and future bids. We believe that the changes we are making to strengthen our governance,
management processes, and bidding criteria and review and approval processes will enable improved
performance in the future.

What proportion of the contracts in the construction book are fixed price?
Our current construction backlog is approximately $2.7bn. Of this, approximately $1.5bn is in the B&I business.
All but one of our major projects underway in B&I is either a “fixed price lump sum” or “guaranteed maximum
price” contract. This is standard in the commercial construction industry. We do not believe the issues we
have uncovered relate to contract type, but rather challenges related to program and design complexity in key
projects.

Has the growth in the B&I business been driven by a deliberate strategy to boost volume growth for the
Building Products division?
Building Products operates as an independent division to Construction and supplies product to the Construction
division’s projects on arm’s length terms. We estimate that sales from Building Products businesses to B&I
make up less than 5% of total Building Products revenue.

Does this downgrade to earnings guidance pose a risk to your banking or debt covenants?
Despite the reduction in forecast cash-flows from the construction division in FY17, the Company remains
comfortably within its banking covenants and target debt metrics and expects to continue to do so. Based on
the updated guidance range, we expect the ratio of Net Debt to Net Debt plus Equity to be around 34% at the
end of FY2017, and the ratio of Net Debt to EBITDA to be approximately 2.4 times.


Teleconference
Fletcher Building management will host a teleconference call for institutional investors, fund managers and
analysts at 11.00am NZ time today (9.00am Australian Eastern time) to provide some more detail on this
announcement. Dial in details are set out below.

Passcode: 914668
Dial in details are as follows:
Australia Toll Free: 1 800 558 698
Japan: 0053 116 1281
Australia Toll Free: 1 800 809 971 Malaysia: 1800 816 294
Australia Local: 02 9007 3187 Netherlands: 0800 020 0715
New Zealand Toll Free: 0800 453 055
Norway: 800 69 950
NZ Local (Auckland): 09 929 1687 Philippines: 1800 1110 1462
NZ Local (Wellington): 04 974 7738 Singapore: 800 101 2785
NZ Local (Christchurch): 03 974 2632 South Korea: 00 798 142 063 275
China Wide: 4001 200 659 Sweden: 020 791 959
Belgium: 0800 72 111 South Africa: 0800 999 976
Canada: 1855 8811 339 Switzerland: 0800 820 030
France: 0800 913 848 Taiwan: 008 0112 7397
Germany: 0800 182 7617 Thailand: 001800 156 206 3275
Hong Kong: 800 966 806 UAE: 8000 3570 2705
India: 0008 0010 08443 United Kingdom: 0800 051 8245
Indonesia: 001 803 019 3275 United States: (855) 881 1339
Ireland: 1800 948 625 US Local (NY): (914) 202 3258
Italy: 800 793 500 US Local (LA): (909) 235 4020


ENDS
For further information please contact:
Rodney Deacon Shannon Huse-Caldwell
Head of Investor Relations External Media Manager
Phone: +64 9 525 9043 Phone: +64 9 525 9085
Mobile: +64 21 631 074 Mobile: +64 27 807 2933