Fletcher Building – 2020 Half Year Results
Fletcher Building Limited, Private Bag 92114, Auckland 1142, 810 Great South Road, Penrose, Auckland 1061, New Zealand
Fletcher Building announces FY20 half year results and dividend
Auckland, 19 February 2020: Fletcher Building today announced its results for the first half of
FY20.
Summary:
Revenue of $3,961 million, in line with market conditions
EBIT before significant items of $219 million, compared to $248 million in HY19
1
Net Profit After Tax of $82 million, compared to $89 million in HY19
Balance sheet remains strong, with improved cash flow
Interim dividend of 11 cents per share declared, to be paid on 9 April 2020
FY20 Group earnings guidance in the range of $515 million to $565 million reconfirmed
Fletcher Building Chief executive Ross Taylor said: “HY20 results are in line with our expectations
and those set out at our Annual Shareholders’ Meeting in November 2019. Our business is now
stabilised and focused, providing the foundation to drive consistent performance and growth into
the future.”
Group revenue was $3,961 million, 5% down on HY19 as anticipated, owing to reduced revenue
on legacy construction projects and tougher market conditions in Australia. EBIT before
significant items was $219 million. Trading cashflow from continuing operations (excluding
legacy projects) increased to $88 million from $36 million in HY19 due to ongoing improvements
in working capital.
“Our New Zealand core businesses outside of Steel delivered a solid performance, with earnings
in line with last year and improved operating margins in several areas. In Steel, trading conditions
remain challenging, though we have seen volumes and margins improving as we enter the
second half.
“Residential house sales are benefiting from strong demand, with a large volume of committed
sales due for settlement in the second half. Construction has secured new work in target areas,
and there is no change to the legacy project provisions. Insurance will respond to loss and
damage to the NZ International Convention Centre caused by the October 2019 fire, and an
extensive work programme to determine the rebuild plan, timeframes and cost is now underway.
1
HY19 EBIT from continuing operations
Page | 2
“In the context of a challenging Australian market, we are seeing the benefits of the cost out
programme, as well as our investments in digital and product innovation flowing through. With
the reset well advanced, we have assessed our portfolio and decided to divest the Rocla business
and are now focused on driving growth and operational performance in our other Australian
businesses. The sale process is expected to be completed through calendar 2020.
“We continue to make investments in innovation and local manufacturing to drive long-term,
sustainable growth for our shareholders.
“An example of this is the new state-of -the-art plasterboard facility we are building in Tauranga,
Bay of Plenty, which we also announced today. The facility is a firm commitment to local
manufacturing, which will enable us to meet customer demand for the long term. It will also
create around 100 permanent regional jobs and supports our goal of reducing carbon emissions
by 30% by 2030.
“Our balance sheet remains strong, with our leverage ratio below the bottom end of our target
range.
“In September 2019 we commenced an on-market share buyback of up to NZ$300 million to
deliver value to shareholders. We continue to make good progress and have acquired 27.9
million shares for $141 million, representing 3.3% of issued capital.
“The Board has declared an interim dividend of 11 cents per share. This will reflect a more normal
first-half, second-half weighting for FY20 and will be paid to shareholders on 9 April 2020.
“As reported at the Annual Shareholders’ Meeting, Group EBIT (excluding significant items) for
FY20 is expected to be in the range of $515 million to $565 million with earnings weighted to the
second half owing to the Australian cost out programme benefit, residential settlements and
improved steel performance flowing through,” concluded Mr Taylor.
#Ends
For further information please contact:
MEDIA
Christian May
General Manager – Corporate Affairs
+64 21 305 398
Christian.May@fbu.com
INVESTORS AND ANALYSTS
Aleida White
Head of Investor Relations
+64 21 155 8837
Aleida.White@fbu.com
FOCUS
Fletcher Building
Half Year Results to
31 December 2019
Media presentation
ROSS TAYLOR
—Chief Executive Officer
19 February 2020
Important Information
2
This presentation has been prepared by Fletcher Building Limited and its group of companies (“Fletcher Building”) for informational purposes.This disclaimer
applies to this document and the verbal or written comments of any person presenting it.
This presentation provides additional comment on the Interim Financial Results 2020 dated 19 February 2020.As such, it should be read in conjunction with
and subject to the explanations and views given in that document. Unless otherwise specified, all information is for the halfyear ended 31 December 2019.
In certain sections of this presentation, Fletcher Building has chosen to present certain financial information exclusive of theimpact of significant items and/or
the results of the businesses divested in the year ended 30 June 2019. For the six months ended 31 December 2019, the Group’s financial statements are
prepared in accordance with the new lease accounting standard NZ IFRS 16, adopted from 1 July 2019. In prior periods, lease costs were fully reported in EBIT.
Under NZ IFRS 16, the two components of lease costs are reported separately: (1) the depreciation of right-of-use assets is reported in EBIT and (2) the
deemed interest portion of the lease liability is reported in net interest expense. Financial tables in this presentation (where indicated) show both the reported
result for the prior period, as well as a pro forma restatement of the prior period to illustrate the impact of NZ IFRS 16 had it been applied and to allow for a
like-for-like comparison. A number of non-GAAP financial measures are used in this presentation which are used by management to assess the performance of
the business and have been derived from Fletcher Building’s financial statements for the six months ended 31 December 2019. You should not consider any of
these statements in isolation from, or as a substitute for the information provided in the Interim Financial Statements for the six months ended 31 December
2019, which are available at
www.fletcherbuilding.com.
The information in this presentation has been prepared by Fletcher Building with due care and attention, however, neither Fletcher Building nor any of its
directors, employees, shareholders nor any other person given any representations or warranties (either express or implied) as to the accuracy or
completeness of the information and to the maximum extent permitted by law, no such person shall have any liability whatsoever to any person for any loss
(including, without limitation, arising from any fault or negligence) arising from this presentation or any information suppliedin connection with it.
This presentation may contain forward looking statements, that is statements related to future, not past, events or other matters. Forward looking statements
may include statements regarding our intent, belief or current expectations in connection with our future operating or financialperformance, or market
conditions. Such forward looking statements are based on current expectations, estimates and assumptions and are subject to anumber of risks and
uncertainties, including material adverse events, significant one-off expenses and other unforeseeable circumstances. There is no assurance that results
contemplated in any of these projections and forward looking statements will be realised.Actual results may differ materially from those projected. Except as
required by law, or the rules of any relevant stock exchange or listing authority, no person is under any obligation to update this presentation at any time after
its release or to provide further information about Fletcher Building.
The information in this presentation does not constitute financial product, legal, financial, investment, tax or any other advice or a recommendation.
Fletcher Building Half Year Results Presentation | © February 2020
Revenue in line with expectations, full year earnings guidance
reconfirmed
3
Fletcher Building Half Year Results Presentation | © February 2020
Revenue
•NZ core revenue steady
•Construction revenue lower as legacy projects
complete
•Australia lower from residential and infrastructure
market decline
2.7
2.6
1.5
1.4
HY19HY20
Revenue ($bn)
NZAustralia
4.2
4.0
EBIT
1
($m)
248
219
HY19HY20
EBIT – First Half
•NZ core earnings solid, except Steel
•Timing of Residential and Development sales second
half weighted
•AU cost-out benefits flow more fully in second half
EBIT – Full year guidance of $515-565m reconfirmed
•Earnings weighted to 2H20 on Steel improvement,
Residential sales timing, Australia turnaround
Note: All metrics are for continuing operations unless stated otherwise. RTG and Formica were sold during the prior year
1
Measures before significant items are non-GAAP measures used by management to assess the performance of the business and
have been derived from Fletcher Building’s financial statements for the six months ended 31 December 2019. Details of significant
items can be found in note 2A of the financial statements
Reported net earnings in line with expectations, and interim
dividend of 11 cents per share declared
4
Fletcher Building Half Year Results Presentation | © February 2020
89
82
HY19HY20
Reported Net Earnings $m
1
$142m for continuing operations
1
4
Interim Dividend
•Interim dividend payment to be made on 9 April
2020
•Return to normal split between interim and final
dividends
Net Earnings
•Incorporates changes to operations and accounting
changes
•HY20 includes $35m sig items associated with the
Australian cost-out programme
Interim Dividend (cps)
8.0
11.0
HY19HY20
Strong focus on ‘Protect’ reset, Science Based Targets verified
Safety
Total Recordable Injury Frequency Rate
1
6.7
6.9
5.1
5.0
5.15
FY16FY17FY18FY19HY20
Sustainability
FY16FY17FY18FY19
143
141
149
Carbon Emission Intensity
2
139
5
Fletcher Building Half Year Results Presentation | © February 2020
Safety
•Major safety program ‘Protect’ reset launched across
all businesses
•Our aim is to be injury free as a business
•Focus is on culture, mindsets, skills and the
identification and effective management of critical
risks
•Success will see TRIFR fall to well under 5.0 in the
coming years
Sustainability
•Committed to reduce carbon emissions by 30% by
2030
•Aligns with aims to limit global warming to below 2
o
C
•First building materials and construction company in
NZ or Australia to have accredited Science-Based
Targets for carbon reduction
1
TRIFR = Total no. of recorded injuries per million man hours worked.
2
Carbon Emission Intensity = FBU Co2 Tonnes for every $1m of revenue. ISO 14064-1
FOCUS
Fletcher Building
Half Year Results Presentation 2020
Market Overview and
Divisional
Performance
29%
16%
22%
New Zealand market steady year on year, outlook remains positive
NZ
Residential
NZ
Commercial
NZ
Infrastructure
FBU Revenue by Market (%)
7
Fletcher Building Half Year Results Presentation | © February 2020
Residential
•Activity levels steady year on year:
‒Consents growth weighted to multi-unit dwellings
(smaller floor area, typology mix change)
‒Standalone housing flat on total floor area basis
‒New subdivision trending slightly lower
Commercial
•Activity levels trending slightly lower
Infrastructure
•Softer activity in 1H20 on project timing and wet first
quarter
•Strong long term outlook supported by $12b
government infrastructure package
Source: Statistics NZ, Infometrics
Australia sharp decline in residential sector but looks to be
turning; expect improvements in all sectors from FY21
8
Fletcher Building Half Year Results Presentation | © February 2020
Residential
•Material contraction in line with expectations
•Expect c150-160k approvals in FY20, down 20%
year on year
•Signs of market stabilising, recovery from FY21
Commercial
•Steady activity levels. Approvals looking positive
Infrastructure
•Activity remains weak in key sectors, especially
water and roading
•Government commitment of $100b spend over
next 10 years
18%
9%
6%
AU
Residential
AU Commercial
AU Infrastructure
FBU Australia Revenue by Market
Source: BIS Oxford Economics (financial years)
•Revenue held relative to declining market
•Turnaround momentum in Laminex and
Insulation
•Full run-rate of cost-out benefit to flow in H2
Fletcher Building Full Year Results Presentation | © August 2019
9
$403m
HY19 $404m
$824m
HY19: $809m
$645m
HY19: $672m
$1,453m
HY19: $1,557m
$774m
HY19: $866m
$224m
HY19: $251m
Distribution
Building Products
Revenue
EBIT
1
Residential and
Development
Concrete
Australia
Construction
$49m
HY19: $44m
$50m
HY19: $55m
$66m
HY19: $91m
$35m
HY19: $43m
$14m
HY19: $17m
$35m
HY19: $43m
•Revenue in line with market
•Competitive Auckland market
•Strategic investment in digital and
automation
•Good performance in plasterboard,
insulation and laminates
•Steel remains challenging
•Market demand strong and prices
supportive
•Settlements weighted to H2
•Market share gains
•Volumes slightly down; price gains in
aggregates and ready-mix
•Investments in lower carbon cement
•Revenue ex-legacy up 3%
•Winning new work in target areas
•EBIT weighted to H2
Division performance summary
1HY19 6 months Proforma is HY19 6 months reported adjusted for IFRS16
Measures before significant items are non-GAAP measures used by management to assess the performance of the business and has been derived from
Fletcher Building’s financial statements for the six months ended 31 December 2019. Details of significant items can be foundinnote 2 of the financial
statements
Share buyback tracking to plan
10
Share buyback
•On-market share buyback programme of up to NZ$300m
•This form of shareholder distribution takes into account tax effectiveness for all shareholders and earnings
per share accretion
•Commenced on 9 September 2019
•27.9m shares purchased on NZX and ASX exchanges to date for NZ$141m (3.3% issued capital)
1
Available cash flow = Free cash flow less cash interest
Fletcher Building Half Year Results Presentation | © February 2020
FY20 focus on driving consistent performance
11
1. Strengthen
and grow the
NZ core
3. Stabilise
Construction
4. Turnaround
and grow
Australia
FY2020
PERFORMANCE
FY2021–23
GROWTH
Fletcher Building Full Year Results Presentation | © August 2019
Business fix complete
Legacy projects complete
Performance and growth
Predictable performance and growth
Reset complete
Portfolio rationalised
2. Profitable
growth in
Residential and
Development
Growth across low and medium density housing
Performance focus
5. Lift
performance
across all key
enablers
Good focus and cadence across all enablers
Major investment in safety and
innovation
Continue strong performance
Performance and growth
FY20 market outlook
Expect market activity in H2 to be broadly in line with H1
12
Fletcher Building Half Year Results Presentation | © February 2020
•AU residential approvals stabilising
and returning to growth in FY21
•Non-residential broadly flat
•Infrastructure project activity to
remain lumpy
Australia Market FY20 Outlook
•NZ residential expected to be similar
to first half. With ongoing trends to
smaller and attached dwelling units
•Civil expected to trend slightly lower
•Infrastructure slightly softer until the
renewed infrastructure activity comes
onstream from FY21 and beyond
New Zealand Market FY20 Outlook
Market outlook assumes no material economic impact on coronavirus
Second half outlook
FY20 EBIT guidance of $515m - $565m reconfirmed
13
Fletcher Building Half Year Results Presentation | © February 2020
Earnings weighted to second half, but more marked than usual owing to:
•Improved performance from Steel
•Stronger pipeline of Residential house sales due for settlement
•Construction pavement season weighted to H2, benefiting Higgins
•Benefits of AU cost-out programme nearing full run-rate
Winstone Wallboards new manufacturing and distribution facility
in Tauranga
14
Fletcher Building Half Year Results Presentation | © February 2020
•To build new plasterboard facility in Tauriko industrial park, Tauranga
•C$400 million investment (50% land and buildings, 50% equipment), which consolidates
manufacturing and distribution and enables capacity growth in future
•This is a firm commitment to local manufacturing, which will enable us to meet customer
demand over the long term
•The new facility will bring significant economic benefit to the region. It will create around 100
new permanent jobs in Tauranga and at peak construction there will be around 300 people
working on site.
•Larger, more efficient facility with greater ability to recycle used plasterboard and 10%
reduction in carbon emissions initially, increasing to 30% over 10 years
•Planned to be opened in 2023
NZICC Update
15
Fletcher Building Half Year Results Presentation | © February 2020
•Major construction work on NZICC to begin mid-year
•The damage we found inside the building was significant. The fire has
affected secondary steel that supports the roof and holds up key
elements of equipment. Areas of the façade adjacent to the roof will
likely need to be replaced. And there is significant water damage to both
equipment and finishes.
•Completion by APEC highly unlikely based on the fire and water damage
we found
•We continue to commit significant resources to the project and have a
team of around 200 people on site as the recovery progresses
•We are working closely with SkyCity to deliver a world-class venue for
New Zealand
•Contract Works and Third Party Liability insurances will respond to loss
and damage
Two hundred workers a day are back on-site at the NZICC in February as the recovery
and rebuild process continues.
Ihumātao
16
Fletcher Building Half Year Results Presentation | © February 2020
•The situation at Ihumātao has been complex and challenging for all parties involved.
•Over the last five years, we have taken time to listen to a variety of stakeholders including iwi who have mana whenua over the
land, and also to gain all the right council and government approvals for the development to go ahead.
•We acknowledge the cultural and historical significance of the surrounding area, and that’s why we have worked closely with
local iwi to design a scheme which gives over a third of our land to the historic reserve adjacent.
•In July last year, the Prime Minister requested that we pause our development on the land we legally own to provide more time
to explore alternative solutions before they came back to us. We have respected this process and stood back as requested while
the parties discussed an outcome.
•Our most recent view as we continue to work with senior levels of Government is that the situation is close to resolution andwe
can hopefully come to an agreement in the short term.
•While this is encouraging, the reality is that we are the legal owners of a piece of land which is fully consented, that is
empathetic to iwi considerations and the adjacent stonefields site, and which we are entitled to develop. Fletcher Building has
done our very best to allow for the parties to reach an agreement over an extended period, but we are not in a position to hold
off development indefinitely. However, we remain hopeful of a resolution in the near future which all parties can be comfortable
with.
FOCUS
Fletcher Building
Half Year Results Presentation 2020
---
Results Announcement
(for Equity Security issuer/Equity and Debt Security issuer)
Results for announcement to the market
Name of issuer Fletcher Building Limited
Reporting Period 6 months to 31 December 2019
Previous Reporting Period 6 months to 31 December 2018
Currency NZD
Amount (000s) Percentage change
Revenue from continuing
operations
$4,328,000 (5%)
Total Revenue $3,961,000 (5%)
Net profit/(loss) from
continuing operations
$82,000 (8%)
Total net profit/(loss) $82,000 (8%)
Interim Dividend
Amount per Quoted Equity
Security
$0.11
Imputed amount per Quoted
Equity Security
N/A
Record Date 20 March 2020
Dividend Payment Date 9 April 2020
Current period Prior comparable period
Net tangible assets per
Quoted Equity Security
$3.19 $2.95
A brief explanation of any of
the figures above necessary
to enable the figures to be
understood
Difference between Revenue from continuing operations and Total
Revenue is attributed to intercompany sales where Total Revenue
excludes the intercompany amounts.
Authority for this announcement
Name of person authorised to
make this announcement
Shehnaz Hajati, Deputy Company Secretary
Contact person for this
announcement
Aleida White, Head of Investor Relations
Contact phone number +64 21 155 8837
Contact email address investor.relations@fbu.com
Date of release through MAP 19/02/2020
Unaudited financial statements accompany this announcement.
---
Fletcher Building Limited
2020 Interim Financial Results
When used in these Interim Financial Results, references to the ‘Company’ are references
to Fletcher Building Limited. References to ‘Fletcher Building’ or the ‘Group’ are to Fletcher
Building Limited, together with its subsidiaries and its interests in associates and joint
ventures. References to $ and NZ$ are to New Zealand dollars unless otherwise stated.
Contents
Fletcher Building Limited 2020 Interim Financial Results1
Chair and
CEO's Review
In FY20, Fletcher Building has remained
focused on executing our strategy to ensure
we see consistent performance across all our
businesses to deliver long-term growth for our
shareholders. We are making good progress on
both these fronts.
Performance in the first half was generally in line
with expectations, reflecting market conditions,
our progress on getting more of our businesses
operating effectively, and investments to drive
ongoing improvements and growth.
HY20 RESULTS
Group revenue was $3,961 million, 5% down on HY19, owing
principally to reduced revenue as we finish the legacy Construction
projects and the tough market conditions in Australia. EBIT before
significant items on continuing operations was $219 million, and
Net Earnings was $82 million. Both these metrics declined relative
to the prior half, partly due to the market and partly due to a more
significant first half/second half skew in our expected profits
for FY20.
In New Zealand, market activity levels remained steady year-on-year
in terms of volumes. While headline residential consents increased,
the mix of these continued to move to multi-unit, higher density
dwellings. Infrastructure volumes were generally affected by a wet
first quarter. However, the outlook remains strong, supported by the
$12 billion infrastructure package announced by the Government in
January 2020.
In Building Products, we have seen strong volume growth and
improved operating performance across plasterboard, insulation
and laminates. Conversely, the Steel business has faced challenging
trading conditions through the first half that have materially impacted
volumes and margins. While operating margins have tracked higher
across Building Products, there has been a half-on-half reduction in
profit, predominantly due to the performance of Steel.
In Distribution, revenue increased in line with market activity over
the half. This occurred against the background of highly competitive
market conditions in the key Auckland market which, along with
higher wage, property and freight costs, impacted earnings. At the
same time, we have remained firmly focused on investment in the
digital transformation of our Distribution business. We have now
completed our branch digitisation project, in-sourced our transport
management system and embedded technology to enable real-time
tracking of deliveries. This is leading to better in-store customer
experiences and improved operational efficiencies. We will continue
to make significant investments in this area as we build out our
ecommerce channels to market, a customer job management
ecosystem, and our own data analytics to support this.
Within New Zealand’s residential market, we continue to see
strong demand for housing particularly in the mid-price category
of $600k-$900k. Residential EBIT was lower half-on-half due to
the timing of settlements, with a large volume of sales scheduled
to settle in the second half. Clever Core, our new offsite house
manufacturing facility which opened in October 2019, has delivered
its first houses to our Fletcher Living developments.
Revenue in the Construction division, excluding legacy projects,
grew by 3% year-on-year as the flow of new work increases. The
division has been successfully stabilised and is now securing new
work with a more balanced risk profile. All legacy projects, excluding
the New Zealand International Convention Centre (NZICC), are
due for completion by June 2020. We continue to forecast the
completion of all the legacy projects within the provisions announced
in February 2018.
In Australia the market has remained challenging, with residential
consents contracting as expected to around 150k to 160k approvals
per annum, commercial activity remaining steady, and infrastructure
activity being weaker than expected particularly in water and roading.
Despite this, revenue held up pretty well across the division only
falling by around 7% to $1.45 billion. Encouragingly, the sharp fall
in residential consents appears to be turning and there are signs of
the market stabilising. Meanwhile, our $100 million gross annual
cost-out programme is well advanced and is having a positive impact
and will hit its full run-rate in the second half of FY20. Our Laminex
and Fletcher Insulation businesses are showing good signs of
recovery with both experiencing strong momentum. Our Distribution
and Steel businesses have experienced tougher market conditions
supressing their performance somewhat, but we remain confident
on their medium-term outlook.
Fletcher Building Limited 2020 Interim Financial Results2
With the reset well advanced, we have assessed our portfolio
and decided to divest the Rocla business and are now focused on
driving growth and operational performance in our other Australian
businesses. The sale process is expected to be completed through
calendar 2020.
CASH FLOW AND DEBT
Pleasingly, trading cash flow from continuing operations excluding
legacy projects increased from $36 million to $88 million during the
first half of FY20. This was due to our continued focus and drive on
improving working capital. At the half year end, we had a strong cash
position with undrawn credit of $925 million and cash on hand of
$570 million.
As expected, our net debt increased in the half year mainly as a
result of the share buyback, and legacy project cash outflows.
Funding costs reduced significantly on the prior period.
NZICC FIRE
Following the fire at the NZICC construction site, we have
undertaken an extensive work programme to understand the scale
of damage, and the work that will be required to recover and rebuild
the project. We are working closely with our client SkyCity on the
rebuild programme and have commenced the clean-up of debris
and damage. We are, however, still a couple of months away from
agreeing the full rebuild scope and timelines with the insurers. We
remain confident that insurance will respond to loss and damage
resulting from the fire based on their assessment to date.
HEALTH AND SAFETY
We are now well underway with a multi-year reset of our approach
and culture towards safety through both our own employees and the
contractors we work with. This programme of work is the highest
priority and has the backing and oversight of the Board and Executive
team. While each division is tailoring the programme to suit their
particular business needs, the key focus areas are leadership
behaviour and skills, front line skills and training, critical risk
identification and management, properly aligning our subcontractors
with us, and ensuring our systems are configured to support and
drive this. Our target is to be at industry best practice in safety
within the next three years.
SUSTAINABILITY
At our Annual Shareholder Meeting (ASM) in November 2019, we
introduced our sustainability strategy as a critical driver of how we
will deliver long-term, sustainable growth to our shareholders.
Climate change is an urgent global priority, and business must
do its part to achieve meaningful change. In December 2019, we
were proud to become the first building materials and construction
company in New Zealand or Australia to have its target to reduce
carbon emissions verified by the Science Based Targets initiative.
We have committed to reducing our direct and indirect carbon
emissions by 30% by 2030, which is in line with limiting global
warming to well below 2ºC. This target is also a commitment to
transparent reporting on emissions and will be a driver of innovation
within our business.
BOARD COMPOSITION AND GOVERNANCE
Peter Crowley was successfully elected to the Board at the ASM.
He brings a wealth of leadership, commercial and operational
experience from leading Australian building product companies. He
also adds deep experience of the Australian market.
During the half year, the Board adopted the new NZX listing rules
and implemented a new constitution to align with these rules. The
Board has continued to build constructive relationships with our
stakeholders – including industry, government, financial markets
participants and customers – which are critical to our success.
DIVIDEND AND SHARE BUYBACK
In September 2019, we commenced an on-market share buyback of
up to $300 million to deliver value to shareholders. We have made
good progress in the programme and as at 31 December 2019,
acquired 27.9 million shares valued at $141 million, representing
3.3% of issued capital.
The Board is pleased to approve an interim dividend for the six
months ended 31 December 2019. The interim dividend will be
11.0 cents per share and will be paid on 9 April 2020. The dividend
reinvestment plan will not be operative for this dividend payment.
There are no New Zealand imputation credits or Australian franking
credits attached to the interim dividend.
GUIDANCE
We are pleased to reconfirm our guidance given at the ASM in
November 2019. Group EBIT (excluding significant items) for FY20 is
expected to be in the range of $515 million to $565 million.
We note that earnings are weighted to the second half slightly
more than usual in FY20 as a result of the expected timing of our
Residential and Development sales, the committed strong road
paving season for Higgins, the Australian cost-out programmes
delivering full run-rate benefits in the second half, and an expected
improved performance from our New Zealand Steel business.
We look forward to the second half of the year and to sharing the full
year results in August.
Chair and CEO's Review (Continued)
Fletcher Building Limited 2020 Interim Financial Results3
Group Performance
Six months ended 31 December
ReportedReportedReported
Reported results
2019
NZ$M
2018
NZ$M
Change
%
Total revenue3,961 4,185(5%)
Operating earnings before significant items
1
from
continuing operations
219 248 (12%)
Significant items
1
(35)NM
Operating earnings (EBIT) from continuing operations184248(26%)
Net interest expense(70)(62)(13%)
Earnings before tax from continuing operations11 4186(39%)
Tax expense(28)(39)28%
Earnings after tax from continuing operations86147(41%)
Non-controlling interests(4)(5)20%
Net earnings from discontinued operations net of tax (53)NM
Net earnings8289(8%)
Net earnings before significant items107160(33%)
Basic earnings per share (cents)9.810.4(6%)
Basic earnings per share from continuing operations (cents)9.816.6(41%)
Basic earnings per share from continuing operations before
significant items (cents)
12.816.6(23%)
Dividends declared per share (cents)11. 08.040%
Cash flows from operating activities(5)(114)96%
Capital expenditure from continuing operations 119 100(19%)
(1)
Operating earnings before significant items is a non-GAAP measure used by management to assess the performance of the business and has been derived from Fletcher Building Limited’s
interim financial statements for the period ended 31 December 2019. Details of significant items can be found in note 2A of the interim financial statements.
Fletcher Building Limited 2020 Interim Financial Results4
Six months ended 31 December
ReportedReportedReported
Revenue
2019
NZ$M
2018
NZ$M
Change
%
Building Products645672(4%)
Distribution8248092%
Concrete403404(0%)
Residential and Development224251(11%)
Construction7 74866(11%)
Australia1,4531,557(7%)
Other56(17%)
Continuing operations4,328 4,565(5%)
Less: intercompany revenue(367)(380)(3%)
External revenue from continuing operations3,961 4,185(5%)
Reported EBIT EBIT before significant items
1
ReportedReportedReportedPro formaReported19R v 18P
2019
NZ$M
2018
NZ$M
Change
%
2019
NZ$M
2018
2
NZ$M
2018
NZ$M
Change
%
Building Products66 87(24%)66 91 87(27%)
Distribution50 500%50 55 50(9%)
Concrete49 4217%49 44 4211 %
Residential and Development35 43(19%)35 43 43(19%)
Construction14 15(7%)14 17 15(18%)
Australia 033NM35 43 33(19%)
Corporate(30)(22)(36%)(30)(21)(22)(43%)
Continuing operations184 248 (26%)219 272 248 (19%)
Divested businesses
1
(31)NM 37 37NM
Total184 217 (15%)219 309 285 (29%)
Lease interest expense(35)NM(35)(32)(9%)
Funding costs(35)(62)44%(35)(62)(62)44%
Earnings before tax114 155(27%)149 215 223(31%)
Tax expense(28)(61)54%(38)(58)(58)34%
Earnings after tax86 94(9%)111 157 165(29%)
Non-controlling interests(4)(5)20%(4)(5)(5)20%
Net earnings82 89 (8%)107 152 160(30%)
(1)
Operating earnings 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
interim financial statements for the period ended 31 December 2019. Details of significant items can be found in note 2A of the interim financial statements.
(2)
The pro forma figures for the period ended 31 December 2018 have been restated for comparative purposes to include the impact from NZ IFRS 16.
Group Performance (Continued)
Fletcher Building Limited 2020 Interim Financial Results5
Group Overview
Reported external revenue from continuing
operations of $3,961 million was $224 million or
5% lower than the prior period mainly as a result
of the lower Buildings and Interiors (B+I) revenue
in Construction. Reported EBIT before significant
items from continuing operations was $219
million, which compares to $248 million reported
in the prior period. Group net earnings were $82
million, compared to the $89 million reported in
the prior period.
For the six months ended 31 December 2019, the Group’s financial
statements are prepared in accordance with the new lease
accounting standard NZ IFRS 16, adopted from 1 July 2019. In prior
periods, lease costs were fully reported in EBIT. Under NZ IFRS
16, the two components of lease costs are reported separately: (1)
the depreciation of right-of-use assets is reported in EBIT and (2)
the deemed interest portion of the lease liability is reported in net
interest expense. The effect of NZ IFRS 16 in the prior period was
a $24 million favourable impact on EBIT and an $8 million adverse
impact on net earnings. Financial tables in these Interim Financial
Results (where indicated) show both the reported result for the prior
period, as well as a pro forma restatement of the prior period to
illustrate the impact of NZ IFRS 16 had it been applied and to allow
for a like-for-like comparison. Commentary on the divisional operating
performance compares principally with the pro forma results for the
prior period.
In New Zealand, market conditions for the core materials and
distribution divisions (Building Products, Distribution and Concrete)
were mixed. The residential building sector remained supportive for
finishing trade work, resulting in good performance in plasterboard,
insulation and laminates. Civil, infrastructure, and early trade work
trended slightly lower, leading to a slight easing in demand for
concrete and pipes. Trading conditions in the steel market remained
challenging, leading to a reduction in both volumes and margins.
Gross revenue for the New Zealand core divisions was 1% lower
than the prior period, in line with market activity. Overall EBIT for
these divisions declined by $25 million compared to the prior period,
primarily due to challenging trading conditions in the Steel business,
where EBIT declined by $21 million. Margins elsewhere in the
Building Products division improved on the prior period, driven by
price gains and positive operating leverage. In Distribution, earnings
were $5 million lower than the prior period as competitive intensity
in both the residential and commercial sectors remained high, and
wage, property and freight costs trended higher. Concrete earnings
improved by $5 million on the prior period, which included the impact
of the cement mill failure, as the division achieved price gains and
operating efficiencies, partially offset by higher energy prices and a
slight decline in volumes in line with market activity.
The Residential and Development division delivered earnings of
$35 million, compared to $43 million in the prior period. The market
environment for housing sales remained positive, with strong
demand and supportive pricing in the key $600k – $900k range in
Auckland. Earnings for the Residential business of $27 million were
lower than the prior period, due mainly to the timing of sales being
taken to account, with the prior year result having benefited from a
large number of sales agreements executed in late FY18 which were
settled and taken to account in the first half of FY19. The division
also officially opened its new Clever Core panelisation factory in the
period and delivered the first houses into Auckland developments.
Land Development EBIT of $11 million was in line with expectations.
The Construction division reported gross revenue of $774 million,
$92 million lower than the prior period, with EBIT for the division
of $14 million slightly below the prior period. The lower revenue
reflects the ongoing close-out of the legacy projects, where revenue
was $110 million lower than the prior period. Excluding the legacy
projects, Construction gross revenue increased 3%. There was no
change to the B+I provisions announced in February 2018 and all
legacy projects are on track to be completed by June 2020, except
for the New Zealand International Convention Centre which was
affected by a significant fire in October 2019. Insurance will respond
to loss and damage on the project, and work is ongoing to agree the
rebuild methodology. Excluding the legacy projects, the division’s
backlog of work increased by $249 million from June 2019 due to the
successful bid for the 10-year Watercare Enterprise Model contract
and new work won in Higgins for wind farm ground works and local
authority maintenance contracts. Good progress continued to be
made on the Pu
-
hoi to Warkworth project, which remains on target to
meet the contracted completion date of October 2021.
In Australia, market conditions remained challenging as residential
activity declined significantly and there were delays to key
infrastructure projects. Divisional revenue fell 7%, while earnings
before significant items of $35 million were below the prior period. In
the context of a sharply falling market, the result reflects the positive
impact of our intervention over the past year to reset operating costs
and invest in focused growth initiatives. Strong turnaround momentum
was achieved in the Laminex and Fletcher Insulation businesses,
with both businesses growing earnings despite lower revenue. In
the pipes, steel, and distribution businesses, volumes were lower
and high competitive intensity placed ongoing pressure on price and
margin. This was partially, but not fully, offset by benefits of the cost-
out programme. The division reported significant items of $35 million
for the period in relation to restructuring charges from this programme.
Basic earnings per share from continuing operations were 9.8 cents
compared with 16.6 cents per share in the prior period. Adjusting for
the impact of significant items, earnings per share from continuing
operations were 12.8 cents compared with 16.6 cents per share in
the prior period.
Fletcher Building Limited 2020 Interim Financial Results6
Six months ended 31 December
ReportedPro formaReported19R v 18P
Cash flow (NZ$m) for the period ended20192018
2
2018Change
EBIT from continuing operations before significant items
1
219272248(19%)
Depreciation and amortisation183180872%
Lease principal repayments (84)(85)1%
Lease interest paid(35)(32)(9%)
Provisions, significant items and other(31)(50)(50)38%
Trading cashflow before working capital movements252285285(12%)
Residential and Development(29)(29)NM
Construction excluding B+I(33)(19)(19)(74%)
Other divisions:
- Debtors92767621%
- Inventories(34)(90)(90)62%
- Creditors(189)(187)(187)(1%)
Working capital movements(164)(249)(249)34%
Trading cashflow from continuing operations excluding B+I883636NM
Discontinued operations3333NM
B+I cash flow(142)(105)(105)(35%)
Trading cashflow(54)(36)(36)(50%)
Add : Lease principal payments 8485(1%)
Less: Cash tax paid(1)(17)(17)94%
Less: Funding costs paid(34)(61)(61)44%
Cash flows from operating activities(5)(29)(114)83%
Free cash flow from continuing operations excluding B+I(32)(73)(73)56%
(1)
Operating earnings 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
interim financial statements for the period ended 31 December 2019. Details of significant items can be found in note 2A of the interim financial statements.
(2)
The pro forma figures for the period ended 31 December 2018 have been restated for comparative purposes to include the impact from NZ IFRS 16.
Trading cash flow from continuing operations excluding B+I was
$88 million, a significant improvement on the $36 million reported
in the prior period. This was due to ongoing improvement in working
capital management in the material and distribution businesses,
notably in inventories. The cost of completing the legacy projects
resulted in an increased cash outflow of $142 million in the
period, reflecting increased activity for key projects as they near
completion. Cash tax paid was only $1 million due to the impact of
the construction losses in prior periods.
Capital expenditure for the Group was $119 million, with investments
in the period focused on digitisation of the distribution business,
growth and efficiency initiatives in the manufacturing business and
sustainability initiatives.
Group Overview (Continued)
Fletcher Building Limited 2020 Interim Financial Results7
FUNDING
Total available funding as at 31 December 2019 was $2,147 million.
Of this, $925 million was undrawn and there was an additional $570
million of cash on hand.
The Group’s gearing at 31 December 2019 was 17% compared with
7% at 30 June 2019.
The Group’s leverage ratio (net debt / EBITDA) at 31 December 2019
was 0.8 times compared with 0.3 times at 30 June 2019.
The average maturity of the Group’s debt at 31 December 2019 is 4
years and the hedged currency split is 45% Australian dollar; 54%
New Zealand dollar and 1% spread over various other currencies.
Approximately 61% of all borrowings have fixed interest rates
with an average duration of 2.3 years. Inclusive of floating rate
borrowings, the average interest rate on the debt (based on period
end borrowings) is 5.0%.
Net interest expense for the period was $70 million, of which $35
million was related to NZ IFRS 16 classification of lease expenses.
Funding costs excluding lease interest were $35 million, significantly
lower than the $62 million in the prior period, due to lower debt
levels and lower average funding costs. Tax expense from continuing
operations of $28 million was $11 million lower than the prior period
due primarily to a land development sale in Australia.
Group Overview (Continued)
DIVIDEND
The 2020 interim dividend is 11.0 cents per share. The interim
dividend will be unimputed and unfranked for tax purposes.
The interim dividend will be paid on Thursday 9 April 2020 to holders
registered as at 5.00 pm (NZ time) on Friday 20 March 2020. The
shares will be quoted on an ex-dividend basis from Thursday 19
March 2020 on the NZX and ASX. The Dividend Reinvestment Plan
will not be operative for this dividend payment.
SHARE BUYBACK PROGRAMME
The Group commenced an on-market share buyback in September
2019. At 31 December 2019, the Group had repurchased 27,893,926
shares for total consideration of $141 million. The purchased shares
were subsequently cancelled, leaving the total number of shares
on issue at 31 December 2019 at 825,453,215 shares. In addition,
$0.1 million of transaction costs relating to the buyback were offset
against equity.
OUTLOOK
In New Zealand, market activity in the residential sector in the
second half of FY20 is expected to be similar to the first half. While
consents remain high, we continue to see a changing shift to smaller
floor size and typology weighted to attached dwelling units. Activity
in the commercial, civil and infrastructure sectors is expected to
continue to trend slightly lower until the renewed infrastructure
investment comes on-stream from FY21.
In Australia, we expect the contraction in residential activity to
stabilise in the second half of FY20, before returning to growth from
FY21. Non-residential activity is expected to be broadly flat for the
remainder of FY20, with infrastructure project activity to remain
lumpy in key sectors.
FY20 EBIT before significant items is expected to be in the range
of $515 million to $565 million. Earnings will be weighted to the
second half more than usual owing to: an expected improvement in
performance of the Steel business; a stronger pipeline of Residential
house sales due for settlement; the construction pavement season
weighted to the second half, benefiting Higgins; and benefits of the
Australia cost-out programme nearing full run-rate.
FINANCIAL HIGHLIGHTS
Six
months
Dec 19
1
Six
months
Dec 18
Year
ended
Jun 19
Return on average funds (%)
2
8.27. 97. 4
Return on average equity (%)
3
3.84.44.0
Return on average funds - before
significant items (%)
2
12.412.311. 8
Return on average equity - before
significant items (%)
3
7. 79.68.8
Earnings per share (cents) 9.810.419.2
Net tangible assets per share ($)
4
3.192.953.53
Dividends per share (cents)11.0 8.023.0
Gearing (%)
5
16.826.27. 2
(1)
Return on average funds and return on average equity are based on pro forma rolling 12
month financial statements that include full year impact of transition to NZ IFRS 16.
(2)
Rolling 12 month EBIT to average funds (net debt and equity less deferred tax assets).
(3)
Rolling 12 month net earnings attributable to shareholders to average shareholders' funds.
(4)
Net tangible assets per share is a non-GAAP financial measure that is not defined by NZ
IFRS. Total assets include right-of-use assets and total liabilities include lease liabilities.
(5)
Net debt (borrowings less cash and deposits) to net debt and equity.
Fletcher Building Limited 2020 Interim Financial Results8
Building Products
Financial Summary
Six months ended 31 December
ReportedPro formaReported19R v 18P
NZ$m20192018
1
2018Change %
Gross revenue645 672 672 (4%)
External revenue507 520 520 (3%)
EBIT66 91 87 (27%)
Funds716 720 748 (1%)
Trading cashflow54 36 36 50%
Capital expenditure17 18 18 6%
Building
Products
The Building Products division reported gross
revenue of $645 million, which was $27 million or
4% lower than the prior year. EBIT for the division
was $66 million, a decrease of $25 million
compared to the prior period.
Revenue performance in the division was mixed. Businesses
primarily selling into residential finishing trades (Winstone
Wallboards, Tasman Insulation, Laminex) performed well, reporting
revenue in line with last year. In the pipes (Iplex, Humes) and steel
businesses, gross revenue was down by a total of $27 million due
to a softening of civil, infrastructure and early trade work, combined
with challenging trading conditions in the steel sector.
EBIT across the division trended in line with revenue performance.
Winstone Wallboards, Tasman Insulation, and Laminex delivered
earnings in line with the prior period, and achieved 30 bps of
operating margin expansion. This was driven by price gains and
positive operating leverage, partially offset by higher depreciation,
energy and freight costs. Earnings from the pipes businesses were
slightly lower than the prior period as a result of reduced volumes,
although operating margins improved 40 bps due to manufacturing
efficiencies in our concrete products. Earnings in the Steel business
were $1 million, a decrease of $21 million compared to the prior
period. The result reflects both a softening of volumes in the
infrastructure and residential roofing sectors, and sustained pressure
on margins.
Trading cash flow of $54 million was 50% higher than the prior
period, resulting from the ongoing focus on working capital
improvements, especially inventory management.
Capital expenditure in the period was $17 million, with key
investments focused on manufacturing plant replacement, and
growth and efficiency opportunities.
The division’s focus continues to be in four key areas: product
innovation and adjacencies; improvements in customer experience;
operating efficiencies; and enhanced pricing disciplines. Highlights
for the period included:
–Launch of the Winstone Wallboards MyGIB® application, allowing
customers to transact and track their product, at a time, and on a
device, of their choosing;
–Launch of a new range of decors and a new integrated
ecommerce solution at Laminex;
–Continued growth of new products including GIB Weatherline,
GIB Barrierline, Iplex PVC-O, and Tasman Insulation’s building
wraps range;
–Successful commissioning of the Iplex mobile extrusion pipe
plant in the South Island;
–Expansion of the stainless steel range at EasySteel and launch of
a highly innovative mobile roll-to-roof system at Dimond;
–Continued investment in the automation of our manufacturing
and warehousing facilities; and
–Securing the land for the new Winstone Wallboards plasterboard
plant to be built in Tauranga.
Building Products: Winstone Wallboards | Laminex New Zealand | Tasman Insulation | Humes | Iplex New Zealand
Steel: Easy Steel (including Dimond Structural and Dimond Roofing) | Pacific Coilcoaters | Fletcher Reinforcing | CSP Pacific
(1)
The pro forma figures for the period ended 31 December 2018 have been
restated for comparative purposes to include the impact from NZ IFRS 16.
EBIT for six months ended 31 December
ReportedPro formaReported19R v 18P
NZ$m20192018
1
2018Change %
Building Products65 69 66 (6%)
Steel 1 22 21 (95%)
Total66 91 87 (27%)
Fletcher Building Limited 2020 Interim Financial Results9
Six months ended 31 December
ReportedPro formaReported19R v 18P
NZ$m20192018
1
2018Change %
Gross revenue824 809 809 2%
External revenue805 786 786 2%
EBIT50 55 50 (9%)
Funds242 235 284 3%
Trading cashflow64 49 49 31%
Capital expenditure12 11 11(9%)
The Distribution division reported gross revenue
of $824 million, 2% higher than the prior period.
EBIT for the division was $50 million, a decrease
of $5 million compared to the prior period.
Activity in the building supplies market showed signs of slight
softening in the period. PlaceMakers delivered revenue growth of
2%, with Mico revenue in line with the prior period. Building activity
was slightly softer in Auckland, Christchurch and the lower South
Island, however growth continues to be robust in the mid and lower
North Island.
Competitive intensity in both the residential and commercial sectors
remained high during the period. Together with inflationary impacts
from higher wage, property and freight costs, as well as investments
by the division in its digital strategy, this placed some pressure on
operating margins in the period.
Trading cashflow of $64 million was 31% higher than the prior
period, driven by improvements in inventory management across the
branch network, as well as continued strong debtor collections.
Capital expenditure for the period was $12 million as the division
continued its programme of upgrading its branch and showroom
network, and its technology platforms and digital capabilities.
The division’s focus continues to be in the key areas of firstly,
building digital capabilities to support best-in-class customer
experience and operating efficiencies, and secondly, achieving
sustained improvement in the network. Highlights for the
period included:
–Continued roll-out of PlaceMakers’ transport management
system, and insourcing of the businesses’ delivery fleet, which
will enable efficiencies through optimised routing and load sizes
and allow customers to track and trace orders;
–Go-live of the PlaceMakers eCommerce site and trade app,
and advanced development of the PlaceMakers Trade Portal;
–Refresh of the Mico website and Trade Portal, providing
additional functionality to Mico’s digital offering; and
–Significant upgrades to the PlaceMakers Kaiwharawhara and
Wairau Park branches, and three new branches confirmed to
open in the second half of FY20 – PlaceMakers Warkworth,
Mico Drury and Mico Matamata.
(1)
The pro forma figures for the period ended 31 December 2018 have been restated for comparative purposes to include the impact from NZ IFRS 16.
Distribution
Distribution
Financial Summary
PlaceMakers | Mico | Forman Building Systems
Fletcher Building Limited 2020 Interim Financial Results10
Concrete
Financial Summary
Six months ended 31 December
ReportedPro formaReported19R v 18P
NZ$m20192018
1
2018Change %
Gross revenue403 404 404 (0%)
External revenue273 275 275 (1%)
EBIT49 44 42 11 %
Funds629 628 638 0%
Trading cashflow49 49 49 0%
Capital expenditure33 17 17 (94%)
The Concrete division reported gross revenue of
$403 million, consistent with the prior period.
EBIT for the division was $49 million, an increase
of $5 million compared to the prior period.
In Winstone Aggregates, quarry revenue increased 1% on the prior
period despite volumes reducing by 5% as activity from major
infrastructure projects softened. The lift in revenue was underpinned
by the successful implementation of a refreshed pricing strategy.
In Golden Bay Cement (GBC), domestic revenue was 1% lower
than the prior period. Cement volumes were steady overall, with
slightly lower sales into ready-mix offset by higher sales into other
sectors. Average cement prices trended slightly lower, however
good progress was made in securing supply agreements with key
non-ready-mix customers.
In Firth, ready-mix volumes reduced by 3% from the prior period,
with a continuing decline in Canterbury partially offset by growth
across other areas of New Zealand. A strong lift in sales price was
achieved against the prior half with this flowing through to
improved margins.
EBIT for the division was 11% ahead of the prior period, which
included the impact of the cement mill failure. Adjusting for this
impact, earnings were steady between the two periods. In Winstone
Aggregates, a strong price performance combined with product mix
improvements lifted operating earnings by 6%. GBC’s earnings were
impacted by cost pressure from higher electricity and coal prices,
which was partially offset by improved supply chain efficiency as
additional barge capacity between Portland and Auckland became
fully operational. Firth’s earnings were steady, with strong pricing
disciplines and improved masonry manufacturing efficiencies
resulting in improved operating margins to offset the slight decline
in ready-mix volumes.
Trading cash flow for the division remained solid at $49 million.
Capital expenditure in the period of $33 million was focused on
capacity and efficiency investments across the division, notably the
ongoing replacement of ready-mix trucks and mobile plant, new
ready-mix capacity, and increased mobile aggregate processing.
The division’s focus continues to be on projects to support long
term capacity, reduce carbon emissions, improve customer service
experience – especially through digital connectivity – and ensuring
cost competitive manufacturing and supply chain positions.
Highlights for the period included:
–Progress in the development of a low carbon cementitious
material to reduce the carbon footprint for concrete, with product
testing and concrete mix designs underway;
–Advanced work on the Tyre Derived Fuel initiative, a project in
conjunction with the Ministry for the Environment to use waste
tyres to enable both energy cost improvements and reduce
carbon emissions in our cement manufacture with the facility
going live later in 2020;
–Full integration of Firth’s Auckland airport precinct ready-mix plant
and commissioning of the new Mt Maunganui plant; and
–New product development in masonry including an
environmentally friendly honing plant for enhanced surface
finishes, and the development of new sized paving options.
(1)
The pro forma figures for the period ended 31 December 2018 have been restated for comparative purposes to include the impact from NZ IFRS 16.
Concrete
Winstone Aggregates | Golden Bay Cement | Firth Industries
Fletcher Building Limited 2020 Interim Financial Results11
The Residential and Development division
reported revenue of $224 million, a decrease of
11% compared to the prior period. EBIT for the
division of $35 million was $8 million lower than
the prior period.
The market environment for the Residential housing business
remains positive. While activity was slow during the first quarter
of FY20, from mid-October there was a notable increase in sales
demand and firmer pricing in both the Auckland and Christchurch
markets. Demand in Auckland in the $600k – $900k range remains
especially strong, supporting sales in the Waiata Shores, Swanson
and Kowhai Ridge developments. Sales in Red Beach, Ormiston,
Whenuapai and Beachlands, where the average selling price point is
higher, have benefited from the overall improvement in the Auckland
market. The Canterbury branch has continued to sell the remaining
houses in Awatea, Atlas Quarter and Colombo St developments and
is becoming increasingly focused on the One Central development.
The Residential business reported revenue of $206 million and EBIT
of $27 million. Both were below the prior period, however this was
due mainly to the timing of sales, with the prior period result having
benefited from a large number of sales agreements executed in late
FY18 which were settled and taken to account in the first half of
FY19. Improved sales activity in the second quarter of FY20 provides
confidence that an increase in the volume of houses taken to profit
in FY20 versus FY19 is achievable.
Land Development EBIT of $11 million in the current period
represents the first of two transactions on the former Crane Copper
Tube site in Sydney, with the second transaction targeted for early in
the second half of FY20.
Clever Core, the division’s new panelisation business, was officially
opened in October 2019 and made an EBIT loss of $3 million. The
result reflects the start-up period of production for the new plant,
with ten panelised houses manufactured and erected for Fletcher
Living’s developments in Auckland so far.
Trading cash flow for the division of $35 million compared to an
outflow of $7 million in the prior period. Cash flow in the current
period included a $50 million receipt related to the Wiri Land
Development transaction taken to account in late FY19.
Divisional funds employed decreased slightly to $657 million at 31
December 2019 from $661 million at 30 June 2019. This included $61
million of lot purchases and $31 million of costs to develop residential
land. The current funds balance includes 3,167 residential lots for
further development or sale, and the business has a further 1,498
residential lots under unconditional agreements to be delivered over
the next five years.
The division continues to focus on scaling its housing business
to around 1,000 units per annum, with a number of new housing
developments underway across Auckland, while also looking at
innovative ways to grow its apartments offering. In Christchurch the
focus is increasingly on the profitable One Central development. The
Land Development business will continue to develop sites surplus
to the Group’s requirements and look for opportunities to work with
external partners on commercial and industrial developments. Clever
Core will look to increase the volume of houses it supplies into
Fletcher Living through the second half of FY20, driving operating
efficiencies as a result, and will also look to sell into third party
clients in FY21.
Residential and Development
Financial Summary
Six months ended 31 December
ReportedPro formaReported19R v 18P
NZ$m20192018
1
2018Change %
Gross revenue224 251 251 (11%)
External revenue224 251 251 (11%)
EBIT35 43 43 (19%)
Funds657 661 661 (1%)
Trading cashflow35 (7)(7)NM
Capital expenditure2 2 2 0%
(1)
The pro forma figures for the period ended 31 December 2018 have been restated
for comparative purposes to include the impact from NZ IFRS 16.
Residential and
Development
Residential | Land Development | Clever Core
EBIT for six months ended 31 December
ReportedPro formaReported19R v 18P
NZ$m20192018
1
2018Change %
Residential27 37 37 (27%)
Land
Development
11 6 6 83%
Clever Core(3) NM
Total35 43 43 (19%)
Fletcher Building Limited 2020 Interim Financial Results12
Construction
Financial Summary
The Construction division reported gross revenue
of $774 million, $92 million lower than the prior
period. EBIT for the division of $14 million was
slightly below the prior period.
The decline in divisional revenue reflects the ongoing close-out of
the legacy vertical projects, where revenue was $110 million lower
than the prior period. All legacy projects are on track to be completed
by June 2020, except for the New Zealand International Convention
Centre, where the 22 October 2019 fire has delayed completion
and work is ongoing to agree the rebuild methodology. Based on
information currently available, there is no change to the provisions
announced in February 2018.
Excluding the legacy projects, Construction division gross revenue
increased by 3% in the period, due mainly to recognition of income
on the Northern Interceptor Watercare contract in the Infrastructure
business. Good progress continues to be made on the Pu
-
hoi to
Warkworth project, which remains on target to meet the contracted
completion date of October 2021.
At 31 December 2019 the backlog of work (value of contracted work
awarded but not completed) for the division was $1,530 million,
compared with $1,445 million in June 2019. The close-out of the
legacy projects accounted for a $164 million decrease in the backlog,
while backlog in the rest of the division increased by $249 million from
June 2019. The largest contributor to this increase was the successful
bid by Fletcher Construction Infrastructure and Brian Perry Civil (BPC)
for the Watercare Enterprise Model (10-year contract). Higgins also
secured new contracts including a contract with Tilt Renewables for
the ground works of a new wind farm plus a number of new local
authority maintenance contracts. In addition, there are large sealing
and paving workloads ahead at the Peka Peka to O
-
taki, City Edge
Alliance and the Pu
-
hoi to Warkworth PPP projects. South Pacific also
continued to have good success with project wins in Fiji.
EBIT for the division of $14 million was again underpinned by
Higgins, despite a slow start to sealing and paving work caused by
adverse early first half weather conditions. Improved performance in
Infrastructure of $3 million and BPC of $4 million was offset by a $6
million decline in South Pacific.
Trading cash outflows for the half year were $152 million compared
to an outflow of $97 million in the prior period. Of this, cash outflows
on legacy projects were $142 million, compared to $105 million in
the prior period, reflecting increased activity for key projects as they
neared completion – notably Commercial Bay, Greybase Hospital
and Christchurch Airport Novotel Hotel. Excluding this, trading cash
outflows were $10 million compared to an inflow of $7 million in
the prior period, mainly reflecting the unwind of advance payment
positions for Infrastructure in the Pu
-
hoi to Warkworth and City Edge
Alliance projects.
Capital expenditure in the period of $19 million was focused on
mobile and static asphalt plants for Higgins to service both New
Zealand and the Pacific; investment in core drilling rig capacity for
Brian Perry Civil; and targeted investment in innovative information
technology applications.
The division’s ongoing focus is completion of the legacy projects,
continuing to rebuild capability and operating disciplines, and moving
to a more balanced portfolio of work with the right customers.
Highlights for the period included:
–Appointment of new General Managers for Brian Perry Civil
and the newly formed Fletcher Construction Buildings Limited,
completing a strong operational leadership team for the division;
–Securing new work in line with the division’s targeted portfolio,
especially in Infrastructure and Higgins, with promising commercial
discussions underway in the vertical sector; and
–Ongoing development of a consistent project management
governance and management framework ‘Fletcher One’.
Six months ended 31 December
ReportedPro formaReported19R v 18P
NZ$m20192018
1
2018Change %
Gross revenue774 866 866 (11%)
External revenue742 842 842 (12%)
EBIT14 17 15 (18%)
Funds219 (121)(113)NM
Trading cashflow(152)(97)(97)(57%)
Capital expenditure19 15 15 (27%)
(1)
The pro forma figures for the period ended 31 December 2018 have been restated for
comparative purposes to include the impact from NZ IFRS 16.
Construction
Infrastructure | Building + Interiors (B+I) | FC Buildings
South Pacific | Brian Perry Civil | Higgins
EBIT for six months ended 31 December
ReportedPro formaReported19R v 18P
NZ$m20192018
1
2018Change %
Higgins14 17 15 (18%)
Infrastructure,
South Pacific,
Brian Perry Civil
& FC Buildings
0 0 0NM
Total14 17 15 (18%)
B+I Legacy0 0 0 NM
Total14 17 15 (18%)
Fletcher Building Limited 2020 Interim Financial Results13
The Australia division reported gross revenue of
$1,453 million compared with $1,557 million in
the prior period, a decrease of 7%. EBIT before
significant items was $35 million, a decrease of $8
million compared to the prior period.
The division recognised a $35 million charge to significant items
during the period, relating to costs associated with the turnaround of
the division which represents a major restructuring project that began
in FY19 and will continue through FY20.
In the context of a sharply falling residential market, the division’s
performance reflects the positive impact of the material intervention
over the past year to right-size operating costs and invest in focused
growth initiatives. Execution of the programme has progressed well
and remains on track to deliver targeted gross benefits in FY20, which
will be weighted towards the second half.
Building Products Australia revenue declined by 10% in the period,
however EBIT before significant items of $27 million was in line with
the prior period. The result was driven by strong turnaround momentum
in the Laminex and Fletcher Insulation businesses, both of which grew
earnings despite subdued market activity. Laminex revenue declined
7% however earnings increased by 27% due to market share gains
aided by an improved digital offering and new product ranges and
benefits of the cost-out programme especially through supply chain
efficiency. The business also integrated a new particleboard site in
Queensland which has improved manufacturing performance and
margins on the East Coast. Fletcher Insulation returned to positive
earnings and delivered a stabilised performance after undertaking
transformational restructuring of its manufacturing and distribution
footprints over the past 12 months. In the pipes business (Iplex, Rocla),
both revenue and earnings declined, primarily due to delays in key
infrastructure projects and subdued residential subdivision activity.
Distribution Australia and Steel Australia both reported reduced
earnings in the period, as high competitive intensity placed ongoing
pressure on price and margin. Stramit is particularly weighted
to the residential sector, with activity in higher-margin market
segments particularly subdued. Tradelink’s focus on the small to
medium network customer segment continues to provide increased
stability in revenue despite the residential downturn, with four new
stores opened in the period as the business continues to roll out
its showroom and branch refurbishment programme. Earnings in
Oliveri grew in the period as a result of a favourable margin mix from
changes to the bathroom product range, as well as the successful
execution of cost-out and manufacturing efficiency initiatives.
Trading cash outflows were $64 million compared to outflows of
$71 million in the prior year. Excluding the cash impact of significant
items, trading cash outflows improved from $71 million to $44
million, reflecting focused improvements in working capital, mainly
inventory management.
Capital expenditure in the period was $32 million, with key
investments focused on network densification in the distribution
business, new product development, and automation in the
manufacturing businesses.
The Australia division’s focus will continue to be on delivering: an
efficient operating model, a healthy pipeline of product and service
innovation, including through improved digital capabilities, and
leveraging the division’s scale, particularly as market activity recovers.
The cost-out programme is now moving into the latter stages of
execution, with an increased focus on key growth initiatives. The focus
on customer continues, with value propositions and service promises
which will be live in all businesses by the end of FY20.
Australia
Financial Summary
Six months ended 31 December
NZ$m
ReportedPro formaReported19R v 18P
20192018
3
2018Change %
Gross revenue1,453 1,557 1,557 (7%)
External revenue1,410 1,511 1,511 (7%)
EBIT before
significant items
1
35 43 33 (19%)
Significant items
2
(35) NM
EBIT (NZ$m)0 43 33 NM
EBIT (A$m) 040 31 NM
Funds1,669 1,745 1,876 (4%)
Trading cashflow(64)(71)(71)10%
Capital expenditure32 33 33 3%
(1)
Operating earnings 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 interim financial statements for the period ended 31
December 2019.
(2)
Details of significant items can be found in note 2A of the interim financial statements.
(3)
The pro forma figures for the period ended 31 December 2018 have been restated for
comparative purposes to include the impact from NZ IFRS 16.
EBIT for six months ended 31 December
ReportedPro formaReported19R v 18P
NZ$m20192018
3
2018Change %
Building Products
Australia
27 29 24 (7%)
Distribution
Australia
4 5 2 (20%)
Steel Australia5 10 8 (50%)
Divisional costs(1)(1)(1)NM
Total35 43 33 (19%)
Australia
Building Products Australia: Laminex Australia | Iplex Australia | Rocla | Fletcher Insulation
Distribution Australia: Tradelink | Oliveri Solutions
Steel Australia: Stramit
Fletcher Building Limited 2020 Interim Financial Results14
Consolidated Income Statement (Unaudited)
FOR THE SIX MONTHS ENDED 31 DECEMBER 2019
Continuing operationsNotes
Six months
Dec 19
NZ$M
Six months
Dec 18
NZ$M
Year ended
Jun 19
NZ$M
Revenue
3,961
4,185 8,308
Cost of goods sold
(2,860)
(3,051)(6,025)
Gross margin
1,101
1,134 2,283
Selling, general and administration expenses
(888)
(893)(1,748)
Share of profits of associates and joint ventures
6
7 14
Significant items2A
(35)
(94)
Earnings before interest and taxation (EBIT)
184
248 455
Net interest expense
(70)
(62)(116)
Earnings before taxation
114
186 339
Taxation expense4
(28)
(39)(80)
Earnings after taxation86
147 259
Earnings attributable to non-controlling interests
(4)
(5)(13)
Net earnings from continuing operations82
142 246
Net loss from discontinued operations net of tax(53)(82)
Net earnings attributable to the shareholders82
89 164
Net earnings per share (cents)
Basic
9.8
10.4 19.2
Diluted
9.8
10.2 19.0
Net earnings per share from continuing operations (cents)
Basic
9.8
16.6 28.8
Diluted
9.8
15.7 27.7
Weighted average number of shares outstanding (millions of shares)
Basic
835
853 853
Diluted
906
974 951
Dividends declared per share (cents)
11. 0
8.0 23.0
The accompanying notes form part of and are to be read in conjunction with these interim financial statements.
Fletcher Building Limited 2020 Interim Financial Results15
Consolidated Statement of Comprehensive Income (Unaudited)
FOR THE SIX MONTHS ENDED 31 DECEMBER 2019
Six months
Dec 19
NZ$M
Six months
Dec 18
NZ$M
Year ended
Jun 19
NZ$M
Net earnings attributable to shareholders
82
89 164
Net earnings attributable to non-controlling interests
4
5 13
Net earnings86
94 177
Other comprehensive income
Items that do not subsequently get reclassified to profit or loss:
Movement in pension reserve(4)(25)
(4)(25)
Items that may be reclassified subsequently to profit or loss in the future:
Movement in cash flow hedge reserve
(1)
(1)(6)
Movement in currency translation reserve
(4)
(28)(34)
(5)
(29)(40)
Items that have been reclassified to profit or loss during the period:
Reclassification from currency translation reserve (7)7
(7)7
Other comprehensive loss
(5)
(40)(58)
Total comprehensive income for the period81
54 119
Total comprehensive income/(loss) for the period arises from:
Continuing operations
81
97178
Discontinued operations(43)(59)
81
54 119
The accompanying notes form part of and are to be read in conjunction with these interim financial statements.
Fletcher Building Limited 2020 Interim Financial Results16
Consolidated Statement of Movements in Equity (Unaudited)
FOR THE SIX MONTHS ENDED 31 DECEMBER 2019
NZ$MNotesShare capital Retained earningsShare-based payments reserve Cash flow hedge reserve Currency translation reserve Pension reserve TotalNon-controlling interestTotal equity
Total equity at 30 June 2018
3,425 894 9 (157)(53)4,118 24 4,142
Change in accounting policies (19)(19)(19)
Adjusted equity at 30 June 20183,425 875 9 (157)(53)4,099 24 4,123
Total comprehensive income/(loss) for the period 89 (1)(35)(4)49 5 54
Movement in non-controlling interests (6)(6)
Movement in share-based payment reserve1 1 1
Movement in treasury stock (1)(1)(1)
Total equity at 31 December 2018
3,424 964 10 (1)(192)(57)4,148 23 4,171
Adjusted equity at 30 June 2018 3,425 875 9 (157) (53) 4,099 24 4,123
Total comprehensive income/(loss) for the year 164 (6)(27)(25)106 13 119
Movement in non-controlling interests (5)(5)
Dividends paid to shareholders of the parent(68)(68)(68)
Reclassification of pension reserve on disposal
of business
(73)73
Movement in share-based payment reserve2 2 2
Movement in treasury stock 2 2 2
Total equity at 30 June 2019
3,427 898 11 (6)(184)(5)4,141 32 4,173
Change in accounting policies10 (183)(183)(183)
Adjusted equity at 30 June 2019
3,427 715 11 (6)(184)(5)3,958 32 3,990
Total comprehensive income/(loss)
for the period
82 (1)(4)77 4 81
Movement in non-controlling interests (6)(6)
Dividends paid to shareholders of the parent (128)(128)(128)
Repurchase of shares2B(141)(141)(141)
Total equity at 31 December 20193,286 669 11 (7)(188)(5)3,76630 3,796
The accompanying notes form part of and are to be read in conjunction with these interim financial statements.
Fletcher Building Limited 2020 Interim Financial Results17
Consolidated Balance Sheet (Unaudited)
AS AT 31 DECEMBER 2019
AssetsNotes
Dec 2019
NZ$M
Dec 2018
NZ$M
Jun 2019
NZ$M
Current assets:
Cash and cash equivalents
570
284 1,372
Current tax assets
65
67 66
Contract assets2E
50
41 40
Derivatives
6
19 5
Debtors
1,125
1,159 1,298
Inventories
1,370
1,454 1,340
3,186
3,0244,121
Assets classified as held for sale412
Total current assets
3,186
3,436 4,121
Non-current assets:
Property, plant and equipment
1,707
1,687 1,754
Intangible assets
1,130
1,119 1,129
Right-of-use assets10
1,500
Investments in associates and joint ventures
156
151 152
Inventories
309
302 264
Retirement plan assets
61
85 61
Derivatives
111
91 108
Deferred tax assets
168
136 121
5,142
3,571 3,589
Assets classified as held for sale1,025
Total non-current assets
5,142
4,596 3,589
Total assets8,328
8,032 7,710
The accompanying notes form part of and are to be read in conjunction with these interim financial statements.
Fletcher Building Limited 2020 Interim Financial Results18
On behalf of the Board, 19 February 2020
Bruce Hassall Robert McDonald
Chair Director
LiabilitiesNotes
Dec 2019
NZ$M
Dec 2018
NZ$M
Jun 2019
NZ$M
Current liabilities:
Creditors, accruals and other liabilities
1,046
1,149 1,254
Provisions
193
444 346
Lease liabilities 10
166
Current tax liabilities
5
18 5
Derivatives
5
2 4
Contract liabilities2E
80
120 119
Borrowings5
159
434 602
1,654
2,167 2,330
Liabilities classified as held for sale183
Total current liabilities
1,654
2,350 2,330
Non-current liabilities:
Creditors, accruals and other liabilities
63
39 84
Provisions
16
19 18
Lease liabilities10
1,611
Deferred tax liabilities
2
2
Derivatives
9
26 8
Borrowings5
1,177
1,354 1,095
2,878
1,438 1,207
Liabilities classified as held for sale73
Total non-current liabilities
2,878
1,511 1,207
Total liabilities4,532
3,861 3,537
Equity
Share capital2B
3,286
3,424 3,427
Reserves
480
724 714
Shareholders' funds
3,766
4,148 4,141
Non-controlling interests
30
23 32
Total equity 3,796
4,171 4,173
Total liabilities and equity8,328
8,032 7,710
The accompanying notes form part of and are to be read in conjunction with these interim financial statements.
Consolidated Balance Sheet (Unaudited) (Continued)
AS AT 31 DECEMBER 2019
Fletcher Building Limited 2020 Interim Financial Results19
Consolidated Statement of Cash Flows (Unaudited)
FOR THE SIX MONTHS ENDED 31 DECEMBER 2019
Six months
Dec 19
NZ$M
Six months
Dec 18
NZ$M
Year ended
Jun 19
NZ$M
Cash flow from operating activities
Receipts from customers
3,954
4,859 9,139
Dividends received
1
3 6
Payments to suppliers, employees and other
(3,890)
(4,898)(8,836)
Interest paid
(69)
(61)(128)
Income tax paid
(1)
(17)(28)
Net cash from operating activities(5)
(114)153
Cash flow from investing activities
Sale of property, plant and equipment
2
1 5
Sale of subsidiaries/investments
1
80 1,320
Sale of cash in subsidiaries(37)
Purchase of property, plant and equipment and intangible assets
(119)
(139)(348)
Purchase of subsidiaries/businesses
(10)(26)
Net cash from investing activities(116)
(68)914
Cash flow from financing activities
Issue of capital notes10 0
Repayment of borrowings
(271)
(151)(199)
Principal elements of lease payments
(84)
Repurchase of capital notes
(50)
(181)
Distribution to non-controlling interests
(6)
(11)(7)
Repurchase of shares
(141)
Dividends
(128)
(68)
Net cash from financing activities(680)
(162)(355)
Net movement in cash held
(801)
(344)712
Add: opening cash and liquid deposits
1,372
665 665
Less: cash balances classified as held for sale(36)
Effect of exchange rate changes on net cash
(1)
(1)(5)
Closing cash and cash equivalents570
284 1,372
The accompanying notes form part of and are to be read in conjunction with these interim financial statements.
Fletcher Building Limited 2020 Interim Financial Results20
Notes to the Consolidated Financial Statements
1. Basis of presentation
The condensed consolidated interim financial statements presented are those of Fletcher Building Limited and its subsidiaries (the "Group").
Fletcher Building Limited is a company domiciled in New Zealand, registered under the Companies Act 1993 and is a Financial Markets Conduct
Act 2013 reporting entity in terms of the Financial Reporting Act 2013 under which the interim financial statements are prepared. The Company
is a for profit entity. The condensed consolidated interim financial statements have been prepared in accordance with Generally Accepted
Accounting Practice in New Zealand, which is the New Zealand equivalent to International Financial Reporting Standards (NZ IFRS). They comply
with NZ IAS 34 Interim Financial Reporting and should be read in conjunction with the 30 June 2019 annual report.
Accounting policies
Changes in presentation - Income statement and segmental information
The Group has restated its 31 December 2018 consolidated statement of comprehensive income and segmental information to exclude the
results of discontinued operations.
Changes in presentation - Balance sheet
The following changes have been applied:
–Following adoption of NZ IFRS 15, the Group accounts for loss-making contracts in accordance with NZ IAS 37 – Provisions, contingent
liabilities and contingent assets. Lifetime contract loss provisions of $375 million, previously reported under contract liabilities as at
31 December 2018, have been reclassified to provisions in comparative figures.
–Land and development of $302 million that is expected to be held for greater than 12 months, previously reported under current asset
category, has been reclassified to non-current portion as at 31 December 2018.
Changes in accounting standards
The following sets out the new accounting standards and amendments to standards that were applicable to the Group from 1 July 2019.
NZ IFRS 16
NZ IFRS 16 is effective for the Group from 1 July 2019 and sets out the principles for the recognition, measurement, presentation and
disclosure of leases for both lessees and lessors. NZ IFRS 16 replaces NZ IAS 17 and the related interpretations.
The Group has adopted the modified retrospective approach on transition which has resulted in a cumulative catch-up adjustment to equity
as at 1 July 2019. The comparative information presented for the year ended 31 December 2018 and 30 June 2019 has not been restated and
therefore continues to be shown under NZ IAS 17. The Group's activities as a lessor are not material and therefore the Group has not recognised
any changes to lessor accounting as a result of the transition to NZ IFRS 16.
Under NZ IFRS 16, a single lessee accounting model requires right-of-use assets and lease liabilities to be recognised in the balance sheet for
most lease contracts at the lease commencement date. The lease liabilities are initially measured at the present value of the lease payments
that are not yet paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily
determined, the Group's incremental borrowing rate. Generally the Group uses the incremental borrowing rate as the discount rate and this rate
is determined on a portfolio basis, in relation to asset type and location.
Lease liabilities are subsequently measured at amortised cost and are increased by the interest charged and decreased by the lease payments
made. Lease liabilities are remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in
the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether
a renewal or purchase option is reasonably certain to be exercised or a termination clause is reasonably certain not to be exercised. The Group
has applied judgement to determine the discount rate applicable to each lease and the lease term for those lease contracts that include a
renewal or termination option. The assessment of whether the Group is reasonably certain to either exercise a renewal option or not exercise a
termination option significantly impacts the value of lease liabilities and right-of use assets recognised on the balance sheet.
Right-of-use assets are initially measured at cost, which is an amount equal to the corresponding lease liabilities adjusted for any lease
payments made at or before commencement date, less any lease incentives received. Right-of-use assets are subsequently measured at
cost less any accumulated depreciation and impairment losses, adjusted for certain remeasurements to the lease liabilities. Depreciation is
calculated on a straight-line basis over the expected useful economic life of a lease which is taken as the lease term.
The Group applies both the short-term and low value lease exemptions allowed under NZ IFRS 16 which recognises payments for leases of 12
months or less or leases of a low value on a straight-line basis as an expense in the income statement. The Group also adopted the following
transition reliefs to:
–exclude initial direct costs in the measurement of the right-of-use asset as at the date of initial application;
–use the benefit of hindsight to assist in the assumptions and judgements regarding renewals; and
–rely on previous assessments on whether leases are onerous.
Refer to note 10 for further information on the adoption and impact of NZ IFRS 16.
Fletcher Building Limited 2020 Interim Financial Results21
NZ IFRIC 23
NZ IFRIC 23 is effective for the Group from 1 July 2019. NZ IFRIC Interpretation 23 “Uncertainty over income tax treatments” clarifies the
recognition and valuation principles applicable to income tax risks. These risks arise when there is uncertainty related to a tax position adopted
by the Group that could be challenged by the tax authorities. The Group has not identified any material impact to the financial statements at 1
July 2019 following the implementation of NZ IFRIC 23.
There are no other new standards, updates and interpretations published and effective whose impact could be significant for the Group.
2. Key estimates and judgements
2A. SIGNIFICANT ITEMS
Six months ended 31 December 2019
Restructuring activity
NZ$M
Total
NZ$M
Australia (35) (35)
Total significant items before taxation(35)(35)
Tax benefit on above items 10 10
Total significant items after taxation(25)(25)
Restructuring activity
The Group has recognised a charge of $35 million for restructuring costs, all of which relate to the continued strategic reset of the
Australian businesses.
Six months ended 31 December 2018
M&A Activity
(1)
NZ$M
Impairments
(2)
NZ$M
Total
NZ$M
Formica and Roof Tile Group(31)(37)(68)
Total significant items before taxation(31)(37)(68)
Tax expense on above items (3)(3)
Total significant items after taxation(34)(37)(71)
(1)
M&A activity
On 1 November 2018 the Group divested the Roof Tile Group business for total proceeds of $66 million. A net loss on sale of $18 million was
recorded, comprising a transaction loss of $11 million and the reclassification of $7 million of the foreign currency translation reserve. The Group
incurred transaction costs during the period related to the sale of the Formica business of $13 million.
(2)
Impairments
During the period, the Group recognised a $37 million impairment charge relating to the Formica business, where goodwill was impaired to
recognise the business as held for sale at the lower of carrying value and fair value less costs to sell.
Notes to the Consolidated Financial Statements (Continued)
Fletcher Building Limited 2020 Interim Financial Results22
Year ended 30 June 2019
Restructuring activity
(1)
NZ$M
M&A Activity
(2)
NZ$M
Total
NZ$M
Building Products (10) (10)
Australia (78) (78)
Formica and Roof Tile Group (140) (140)
Corporate (6) (6)
Total significant items before taxation
(94)(140)(234)
Tax benefit on above items 27 4 31
Total significant items after taxation
(67)(136)(203)
(1)
Restructuring activity
The Group recognised a charge of $94 million for restructuring costs, $78 million in Australia, associated with the restructure of various
businesses across the Group as an extension of the strategic reset that began in FY18. The restructuring included redundancies and property
exit costs, as well as associated advisory costs incurred.
(2)
M&A activity
The Group divested its Formica and Roof Tile Group businesses for total proceeds of $1.25 billion, resulting in a net loss on sale of $140 million.
2B. SHARE BUYBACK
The Group commenced an on-market share buyback in September 2019. At 31 December 2019, the Group had repurchased 27,893,926
shares for total consideration of $141 million. The purchased shares were subsequently cancelled, leaving the total number of shares on
issue at 31 December 2019 of 825,453,215 shares. In line with NZ IFRS, $0.1 million of transaction costs relating to the buyback were offset
against equity.
2C. INTANGIBLE ASSET IMPAIRMENT TESTING
The Group performs a detailed impairment assessment annually and considers indicators of impairment at each interim reporting date. At 31
December 2019, the Group performed a review of indicators of impairment for all cash generating units (CGU) with significant intangible asset
balances and considered each individual CGU for impairment indicators. There was no impairment required as a result of this review.
2D. SUPPLEMENTARY DISCLOSURES: EARNINGS PER SHARE
The below disclosure has been included to provide additional useful information by removing the impact of one-off events in the current and
prior year, and the resulting impact on the earnings per share measure.
The effect of significant items on earnings per share is as follows:
Six months
Dec 2019
NZ$M
Six months
Dec 2018
NZ$M
Year ended
Jun 2019
NZ$M
Net earnings after taxation (as per income statement)
82
89164
Add back: Significant items after taxation (note 2A)
25
71203
Net earnings before significant items
107
160367
Net earnings per share before significant items (cents)
12.8
18.843.0
Net earnings per share from continuing operations before significant items (cents)
12.8
16.636.7
Net earnings per share - as reported per income statement (cents)
9.8
10.419.2
2E. SUPPLEMENTARY DISCLOSURES: CONSTRUCTION ACCOUNTING
Construction work-in-progress is stated at cost plus profit recognised to date, less progress billings. Cost includes all expenditure directly
related to specific projects and an allocation of fixed and variable overheads incurred in the Group’s contract activities based on normal
operating capacity.
Notes to the Consolidated Financial Statements (Continued)
Fletcher Building Limited 2020 Interim Financial Results23
Six months
Dec 2019
NZ$M
Six months
Dec 2018
NZ$M
Year ended
Jun 2019
NZ$M
Construction contracts with cost and margin in advance
50
41 40
Contract assets50
41 40
Construction contracts with billings in advance of costs and margin
80
120 119
Contract liabilities80
120 119
During FY17 and FY18, the Group recognised significant provisions within the division as a number of these construction contracts were loss
making. These projects were determined to be onerous contracts. The unavoidable costs related to loss making contracts have been included
in provisions.
Estimates and judgements are made relating to a number of factors when assessing construction contracts. These primarily include the
programme of work throughout the contract period, assessment of future costs after considering changes in the scope of work, maintenance
and defect liabilities, expected inflation (for unlet sub-trades) and performance bonuses or penalties. Construction projects are inherently
more uncertain earlier in their lifetime, which leads to a number of significant estimates and judgements being made at these early stages.
The significant judgements inherent in accounting for the Group’s most material construction projects are:
–The extent to which a project progresses in line with the complex project programme and timetable previously formed and the resulting
impact of any programme delays or gains on project costs, especially project overheads (preliminary and general costs) and any liquidated
or other damages;
–Sub-contractor cost, in particular cost that is yet to be agreed in scope or price (including inflationary pressures) or that relating to
programme prolongation;
–The outcome of ongoing commercial negotiations, including elements of variable consideration and changes in project scope; and
–Future weather and ground conditions.
Status of construction projects ( > $200m original contract value) as at 31 December 2019
A summary of total contracted work under construction and details of the major construction projects and their approximate stage of
completion is disclosed to demonstrate the uncertainty that remains on these projects.
Business Unit
Percentage of
completion (% cost)*
Forecast
completion*
Commercial Bay - Fixed price contractB+I91%2020
Pu
-
hoi to Warkworth - Fixed price contract (Public Private Partnership)Infrastructure68%2021
Hamilton City Edge Expressway - Alliance contractInfrastructure / Higgins69%2021
Peka Peka to O
-
taki Expressway - Fixed price contractInfrastructure / Higgins56%2021
* Due to early nature of the assessment associated with the NZICC fire, management has yet to quantify the estimates for the forecast completion date and percentage of completion (% cost).
Revenue Backlog by Business Unit as at 31 December 2019
Current Revenue Backlog
NZ$M
Top 5 projects as a % of
Revenue Backlog
Buildings + Interiors*
92
99%
Infrastructure
534
10 0%
Higgins
498
49%
Brian Perry Civil
333
72%
South Pacific
73
78%
1,530
N/A
* Buildings + Interiors revenue backlog excludes the scope of work associated with October 2019 NZICC fire.
Revenue backlog refers to the level of construction work the Group is contracted to but is not yet complete as at period end. This represents
the performance obligations that are yet to be completed for the construction contracts active as at 31 December 2019. The long term nature
of the contracts held by the Infrastructure and Higgins businesses will see these performance obligations be completed over a period generally
between one to five years, although some may extend longer.
Notes to the Consolidated Financial Statements (Continued)
Fletcher Building Limited 2020 Interim Financial Results24
New Zealand International Convention Centre (NZICC)
On 22 October 2019 there was a significant fire at the NZICC project construction site causing damage to both the International Convention
Centre and Hobson Street Hotel.
Contract Works and Third Party Liability insurances are in place on the project, and the Fletcher Construction Company Limited is an insured
party under these policies.
Insurers for the project have confirmed that, based on their assessment to date, the Contract Works insurance policy will respond to loss and
damage resulting from the fire. In December 2019, the insurers made a progress claims payment under this Contract Works policy.
The Third Party Liability insurance policy is expected to respond where legal liability exists and cases are being reviewed on a claim-by-claim
basis. There are no third party claims or legal proceedings in respect of this matter that require additional provision in these financial statements.
The NZICC project continues to be accounted for under NZ IFRS 15: Revenue from Contracts with Customers and NZ IAS 37: Provisions,
Contingent Liabilities and Contingent Assets.
The Group has assessed all relevant known facts and circumstances related to the estimation of cost to complete and insurance recoveries
and concluded based on current information that there is no impact to the NZICC forecast project loss as a result of the fire. The assessment
required key judgments and estimates (including an assessment of the cost to complete remediation, the likelihood of receipt of insurance
recoveries and quantification of any claims and costs that it is probable insurance will not cover) and as such is subject to change as the
project progresses. The current estimated cost to complete is within insurance indemnity limits.
3. Segmental information
Segmental information is presented in respect of the Group’s industry and geographical segments. The results of the previous Steel division
have been consolidated into the Building Products division as announced during FY19.
Industry segmentsSix months
Dec 2019
NZ$M
Six months
Dec 2018
NZ$M
Year ended
Jun 2019
NZ$M
Gross Revenue
Building Products
645
672 1,314
Distribution
824
809 1,596
Concrete
403
404 802
Residential and Development
224
251 639
Construction
774
866 1,702
Australia
1,453
1,557 3,024
Other
5
6 11
Group
4,328
4,565 9,088
Intercompany Revenue
(367)
(380)(780)
External Revenue Per Income Statement
3,961
4,185 8,308
External Revenue
Building Products
507
520 1,013
Distribution
805
786 1,552
Concrete
273
275 549
Residential and Development
224
251 639
Construction
742
842 1,622
Australia
1,410
1,511 2,933
Group
3,961
4,185 8,308
EBIT before significant items
Building Products
66
87 160
Distribution
50
50 104
Concrete
49
42 84
Residential and Development
35
43 137
Construction
14
15 47
Australia
35
33 57
Corporate
(30)
(22)(40)
Continuing operations
219
248 549
Significant items (note 2)
(35)
(94)
Group
184
248 455
Notes to the Consolidated Financial Statements (Continued)
Fletcher Building Limited 2020 Interim Financial Results25
Six months
Dec 2019*
NZ$M
Six months
Dec 2018
NZ$M
Year ended
Jun 2019
NZ$M
Depreciation, depletion and amortisation expense
Building Products
26
9 17
Distribution
23
5 10
Concrete
38
25 50
Residential and Development
1
Construction
19
10 21
Australia
68
32 62
Corporate
8
6 14
Group
183
87 174
Capital expenditure
Building Products
17
18 55
Distribution
12
11 23
Concrete
33
17 65
Residential and Development
2
2 7
Construction19 15 31
Australia
32
33 91
Corporate
4
4 13
Group
119
10 0 285
Funds*
Building Products
716
748 723
Distribution
242
284 300
Concrete
629
638 656
Residential and Development
657
661 651
Construction
219
(113)48
Australia
1,669
1,876 1,735
Other (including debt and taxation)
(336)
(1,094)60
Group
3,796
3,000 4,173
Geographic segments External Revenue
New Zealand
2,472
2,584 5,220
Australia
1,428
1,522 2,944
Other jurisdictions
61
79 144
Group
3,961
4,185 8,308
EBIT before significant items
New Zealand
166
194 467
Australia
44
32 54
Other jurisdictions
9
22 28
Group
219
248 549
Funds*
New Zealand
2,501
2,237 2,405
Australia
1,681
1,891 1,752
Other (including debt and taxation)
(386)
(1,128)16
Group
3,796
3,000 4,173
Non-current assets
+
New Zealand
2,886
1,861 1,895
Australia
1,868
1,355 1,359
Other
48
43 45
Group
4,802
3,2593,299
* Funds represent the external assets and liabilities of the Group and are used for internal reporting purposes.
+ Excludes deferred tax assets, retirement plan surplus and financial instruments.
Notes to the Consolidated Financial Statements (Continued)
Fletcher Building Limited 2020 Interim Financial Results26
4. Taxation expense/(benefit)
Six months
Dec 2019
NZ$M
Six months
Dec 2018
NZ$M
Year ended
Jun 2019
NZ$M
Continued earnings before taxation
114
186 339
Discontinued losses before taxation(31)(59)
11 4
155280
Taxation at 28 cents per dollar
32
4378
Adjusted for:
Difference in tax rates
(1)
(1)(8)
Non assessable income
(1)
(1)(5)
Non deductible expenses
1
1938
Tax losses for which no deferred tax asset was recognised59
Utilisation of previous unrecognised tax losses
(3)
(2)
Tax in respect of prior years63
Other permanent differences(10)(11)
28
61102
Tax expense on earnings from continuing operations
28
3980
Tax expense on earnings from discontinued operations2222
28
61102
Tax expense on earnings before significant items
38
58133
Tax expense/(benefit) on significant items
(10)
3(31)
28
61102
The net deferred tax asset balance of $166 million at 31 December 2019 largely comprises construction losses provided for in the prior period
which are expected to be deductible in future years. These losses relate to New Zealand projects, and it is expected there will be sufficient
future earnings in New Zealand to utilise the deferred tax asset.
5. Borrowings
Six months
Dec 2019
NZ$M
Six months
Dec 2018
NZ$M
Year ended
Jun 2019
NZ$M
Private placements
878
1,050 886
Bank loans
94 258
Capital notes
435
566 485
Other loans
23
89 68
Carrying value of borrowings (as per balance sheet) 1,336
1,799 1,697
Less: value of derivatives used to manage changes in hedged risks on debt
instruments
(114)
(84)(107)
Economic debt 1,222
1,715 1,590
Less: Cash and cash equivalents
(570)
(320)(1,372)
Net debt 652
1,395 218
Notes to the Consolidated Financial Statements (Continued)
Fletcher Building Limited 2020 Interim Financial Results27
Carrying value of borrowings included within the balance sheet as follows:
Six months
Dec 2019
NZ$M
Six months
Dec 2018
NZ$M
Year ended
Jun 2019
NZ$M
Current borrowings
159
434 602
Non-current borrowings
1,177
1,354 1,095
Borrowings - classified as held for sale 11
Carrying value of borrowings (as per balance sheet) 1,336
1,799 1,697
Less: Cash and cash equivalents
(570)
(284)(1,372)
Less: Cash and cash equivalents – classified as held for sale (36)
Net debt (as per balance sheet) 766
1,479 325
6. Fair value measurement
Financial instruments are measured at fair value using the following fair value measurement hierarchy:
(Level 1) Quoted prices (unadjusted) in active markets for identical assets or liabilities.
(Level 2) Inputs that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) other than quoted
prices included within level 1.
(Level 3) Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
All of the Group's derivatives are in designated hedge relationships and are measured and recognised at fair value. All derivatives are level 2
valuations based on accepted valuation methodologies. Forward exchange fair value is calculated using quoted forward exchange rates and
discounted using yield curves derived from quoted interest rates matching maturity of the contract. The fair value of electricity price swaps is
measured using a derived forward curve and discounted using yield curves derived from quoted interest rates matching the maturity of the
contract. Interest rate derivatives are calculated by discounting the future principal and interest cash flows at current market interest rates that
are available for similar financial instruments.
Fair value disclosures
The fair values of borrowings used for disclosure are measured under level 2, by discounting future principal and interest cash flows at the
current market interest rate plus an estimated credit margin that is available for similar financial instruments with a similar credit profile to
the Group. The interest rates across all currencies used to discount future principal and interest cash flows are between 1.02% and 4.99%
(December 2018: 1.69% and 6.68%; June 2019: 1.1% and 5.3%) including margins, for both accounting and disclosure purposes.
7. Contingencies and commitments
Contingent Liabilities
Provision has been made in the ordinary course of business for all known and probable future claims to the extent they can be reliably
measured. There have been no material movements in capital expenditure commitments, contingent liabilities or contingent assets to those
disclosed in the 30 June 2019 annual report.
On 22 October 2019 there was a significant fire at the NZICC project construction site causing damage to both the International Convention
Centre and Hobson Street Hotel. Contract Works and Third Party Liability insurances are in place on the project, and the Fletcher Construction
Company Limited is an insured party under these policies. Certain costs resulting from the fire may fall outside the scope of the Contract Works
and Third Party Liability policies, with the possibility that recovery may be sought from the Group. As outlined in note 2E, such costs that are
known or considered probable as at balance date have been included in the assessment of the onerous contract provision. It is possible that
as the project progresses additional costs will be identified that will need to be included in the onerous contract provision or as a separate
provision. Due to the uncertainty regarding whether additional costs will be identified and incurred post balance date, no additional amounts
have been recognised or disclosed as at 31 December 2019.
Notes to the Consolidated Financial Statements (Continued)
Fletcher Building Limited 2020 Interim Financial Results28
8. Reconciliation of net earnings to net cash from operating activities
Six months
Dec 2019
NZ$M
Six months
Dec 2018
NZ$M
Year ended
Jun 2019
NZ$M
Net earnings
82
89 164
Earnings attributable to minority interest
4
5 13
86
94 177
Add/(Less) non-cash items:
Depreciation, depletions and amortisation
183
113199
Other non-cash items
3
9108
Taxation
27
44 74
(Gain)/loss on disposal of businesses and property, plant and
equipment
2
1 (1)
215
167 380
Net working capital movements
Residential and Development(29)(26)
Construction
(175)
(124)(276)
Other divisions:
Debtors
92
8526
Inventories
(34)
(96)(69)
Creditors
(189)
(211)(59)
(306)
(375)(404)
Net cash from operating activities(5)
(114)153
9. Discontinued operations
The Group divested the Roof Tile Group and the Formica business during the prior year. The cash flow associated with discontinued operations
is presented below:
Six months
Dec 2019
NZ$M
Six months
Dec 2018
NZ$M
Year ended
Jun 2019
NZ$M
Cash flows from operating activities 24 28
Cash flows from investing activities (38) (59)
Cash flows from financing activities (12) (23)
Total cash flows from discontinued operations
(26) (54)
Notes to the Consolidated Financial Statements (Continued)
Fletcher Building Limited 2020 Interim Financial Results29
10. Impact of NZ IFRS 16
The Group has a large number of leases, consisting of property, mobile plant and heavy machinery, commercial and passenger vehicles and IT
equipment and photocopiers.
Property leases which include retail, manufacturing, distribution, storage and office sites have the most significant impact on adoption of NZ
IFRS 16 given their high value and long lease terms with renewal options.
Impact on the consolidated balance sheet: Right-of-use asset
Six months ended 31 December 2019
Land
NZ$M
Buildings
NZ$M
Plant &
machinery
NZ$M
Fixtures &
fittings
NZ$M
Total
NZ$M
Opening net book value - retrospective application since
lease commencement
171,226131371,411
Opening net book value - retrospective application since
transition date
185389
Reclassification of finance lease asset at 30 June 2019*3838
Opening net book value 1 July 2019
181,311172371,538
Additions and renewals26321068
Depreciation (1)(63)(19)(9)(92)
Disposals(9)(2)(11)
Currency translation(3)(3)
Closing Balance 31 December 2019171,262183381,500
* Finance lease asset has been reclassified to Right-of-use assets, previously reported as Property, plant and equipment.
Impact on the consolidated balance sheet: Lease liabilities
Six months ended 31 December 2019
Total
NZ$M
Opening net book value - retrospective application of standard since lease commencement1,669
Opening net book value -application of standard since transition date90
Reclassification of finance lease liability at 30 June 2019*44
Opening net book value 1 July 2019
1,803
Additions70
Repayments(84)
Disposals(8)
Currency translation(4)
Closing Balance 31 December 20191,777
* Finance lease liability has been reclassified to Lease liabilities, previously reported as Other Loans in Borrowings (Note 5).
Impact on the consolidated income statement
Six months ended 31 December 2019
Total
NZ$M
Right-of-use asset depreciation92
Lease interest expense35
Total right-of-use asset depreciation and lease interest expense127
Notes to the Consolidated Financial Statements (Continued)
Fletcher Building Limited 2020 Interim Financial Results30
Transition disclosures
(a) Weighted average incremental borrowing rate (IBR) rate on transition
These lease liabilities at 1 July 2019 were measured at the present value of the remaining lease payments, discounted using the Group's
incremental borrowing rate as of 1 July 2019. The weighted average lessee's IBR applied to the lease liabilities on 1 July 2019 was 3.72%.
(b) Operating lease commitments reconciliation:
NZ$M
Operating lease commitments disclosed as at 30 June 2019 discounted using the Group's incremental
borrowing rate of the date of initial application
2,293
Add: Reclassification of finance lease liability at 30 June 2019*44
Less: Short-term and low-value
leases recognised on a straight-line basis as expense
(6)
Less: Impact of discounting at the initial date of application(528)
Lease liability recognised as at 1 July 20191,803
* Finance lease liability has been reclassified to Lease liabilities, previously reported as Other loans in Borrowings.
Impact on retained earnings
NZ IFRS 16 was applied using the modified retrospective approach without adjusting the figures for comparative periods. The transition resulted
in recognition of right-of-use assets, right-of-use lease liabilities and deferred tax assets on 1 July 2019, with a net impact of $183 million being
recognised in retained earnings, summarised as follows:
NZ$M
Retained earnings - as reported 30 June 2019898
Recognition of right-of-use assets1,500
Recognition of right-of-use liability(1,759)
Deferred tax consequences of above adjustments76
Retained earnings as at 1 July 2019 (Restated)715
11. Subsequent events
(a) Dividend announcement
On 19 February 2020, the Directors declared an interim dividend of 11.0 cents per share, payable on Thursday 9 April 2020.
(b) Sale process of Rocla business
On 19 February 2020, the Directors approved the launch of a formal sale process for the disposal of the Rocla business unit. The financial
effects of this transaction have not been recognised at 31 December 2019.
Notes to the Consolidated Financial Statements (Continued)
Fletcher Building Limited 2020 Interim Financial Results31
A member firm of Ernst & Young Global Limited
Chartered Accountants
Independent Auditor's Report
To the Shareholder of Fletcher Building Industries Limited
Report on the Financial Statements
Opinion
We have audited the financial statements of Fletcher Building Industries Limited (“FBIL” or “the Company”), on pages 2 to 11,
which comprise the balance sheet as at 30 June 2019, and the income statement, statement of comprehensive income, statement of
movements in equity and statement of cash flows for the year then ended, and notes to the financial statements including a
summary of significant accounting policies.
In our opinion, the financial statements on pages 2 to 11 present fairly, in all material respects, the financial position of FBIL as at
30 June 2019 and its financial performance and its cash flows for the year then ended in accordance with New Zealand
equivalents to International Financial Reporting Standards and International Financial Reporting Standards.
This report is made solely to the Company's shareholder. Our audit has been undertaken so that we might state to the Company's
shareholder those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's shareholder for
our audit work, for this report, or for the opinions we have formed.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand). Our responsibilities under those
standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.
We are independent of the Company in accordance with Professional and Ethical Standard 1 (revised) Code of Ethics for
Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Other than in our capacity as auditor we have no relationship with, or interest in FBIL. Ernst & Young has provided tax advisory
and other assurance services to various companies within the Fletcher Building Limited Group (“the Group”). Partners and
employees of our firm may deal with the Group on normal terms within the ordinary course of trading activities of the business of
the Group.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current year. These matters were addressed in the context of our audit of the financial statements as a whole, and
in forming our opinion thereon, but we do not provide a separate opinion on these matters. For the matter below, our description
of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the audit of the financial statements section of
the audit report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to
respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures,
including the procedures performed to address the matter below, provide the basis for our audit opinion on the accompanying
financial statements.
Accounting for investment in associate
Why significant How our audit addressed the key audit matter
The Company owns 20 per cent of the shares in Fletcher
Building Holdings New Zealand Limited (“FBHNZ”)
which currently holds all of the shares in Fletcher Building
In obtaining sufficient appropriate audit evidence, we:
► evaluated the basis of accounting and its appropriateness;
► recalculated the share of the equity accounted profits
including dividend receipts;
A member firm of Ernst & Young Global Limited
Chartered Accountants
Independent Auditor's Report
To the Shareholder of Fletcher Building Industries Limited
Report on the Financial Statements
Opinion
We have audited the financial statements of Fletcher Building Industries Limited (“FBIL” or “the Company”), on pages 2 to 11,
which comprise the balance sheet as at 30 June 2019, and the income statement, statement of comprehensive income, statement of
movements in equity and statement of cash flows for the year then ended, and notes to the financial statements including a
summary of significant accounting policies.
In our opinion, the financial statements on pages 2 to 11 present fairly, in all material respects, the financial position of FBIL as at
30 June 2019 and its financial performance and its cash flows for the year then ended in accordance with New Zealand
equivalents to International Financial Reporting Standards and International Financial Reporting Standards.
This report is made solely to the Company's shareholder. Our audit has been undertaken so that we might state to the Company's
shareholder those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's shareholder for
our audit work, for this report, or for the opinions we have formed.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand). Our responsibilities under those
standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.
We are independent of the Company in accordance with Professional and Ethical Standard 1 (revised) Code of Ethics for
Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Other than in our capacity as auditor we have no relationship with, or interest in FBIL. Ernst & Young has provided tax advisory
and other assurance services to various companies within the Fletcher Building Limited Group (“the Group”). Partners and
employees of our firm may deal with the Group on normal terms within the ordinary course of trading activities of the business of
the Group.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current year. These matters were addressed in the context of our audit of the financial statements as a whole, and
in forming our opinion thereon, but we do not provide a separate opinion on these matters. For the matter below, our description
of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the audit of the financial statements section of
the audit report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to
respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures,
including the procedures performed to address the matter below, provide the basis for our audit opinion on the accompanying
financial statements.
Accounting for investment in associate
Why significant How our audit addressed the key audit matter
The Company owns 20 per cent of the shares in Fletcher
Building Holdings New Zealand Limited (“FBHNZ”)
which currently holds all of the shares in Fletcher Building
In obtaining sufficient appropriate audit evidence, we:
► evaluated the basis of accounting and its appropriateness;
► recalculated the share of the equity accounted profits
including dividend receipts;
Independent Auditor's Review Report
REVIEW REPORT TO THE SHAREHOLDERS OF FLETCHER BUILDING LIMITED (“THE COMPANY”) AND ITS SUBSIDIARIES
(TOGETHER “THE GROUP”)
We have reviewed the consolidated interim financial statements on pages 15 to 31, which comprise the consolidated balance sheet of the
group as at 31 December 2019, and the consolidated income statement, consolidated statement of comprehensive income, consolidated
statement of movements in equity and consolidated statement of cash flows of the group for the period ended on that date, and a summary of
significant accounting policies and other explanatory information.
This report is made solely to the company's shareholders, as a body. Our review has been undertaken so that we might state to the company's
shareholders those matters we are required to state to them in a review report and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the company and the company's shareholders as a body, for our review work,
for this report, or for our findings.
DIRECTORS’ RESPONSIBILITIES
The directors are responsible for the preparation and fair presentation of consolidated interim financial statements which comply with New
Zealand Equivalent to International Accounting Standard 34: Interim Financial Reporting and for such internal control as the directors determine
is necessary to enable the preparation and fair presentation of the interim financial statements that are free from material misstatement,
whether due to fraud or error.
REVIEWER’S RESPONSIBILITIES
Our responsibility is to express a conclusion on the consolidated interim financial statements based on our review. We conducted our review in
accordance with NZ SRE 2410 Review of Financial Statements Performed by the Independent Auditor of the Entity. NZ SRE 2410 requires us
to conclude whether anything has come to our attention that causes us to believe that the consolidated interim financial statements, taken as
a whole, are not prepared in all material respects, in accordance with New Zealand Equivalent to International Accounting Standard 34: Interim
Financial Reporting. As the auditor of the group, NZ SRE 2410 requires that we comply with the ethical requirements relevant to the audit of the
annual financial statements.
BASIS OF STATEMENT
A review of the consolidated interim financial statements in accordance with NZ SRE 2410 is a limited assurance engagement. The auditor
performs procedures, primarily consisting of making enquiries, primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures.
The procedures performed in a review are substantially less than those performed in an audit conducted in accordance with International
Standards on Auditing (New Zealand). Accordingly we do not express an audit opinion on those consolidated interim financial statements.
We have provided other services to the group in relation to taxation and other assurance services. We have no other relationship, or interest in,
the group.
CONCLUSION
Based on our review nothing has come to our attention that causes us to believe that the accompanying consolidated interim financial
statements, set out on pages 15 to 31, do not present fairly, in all material respects, the financial position of the group as at 31 December
2019 and its financial performance and cash flows for the six month period ended on that date in accordance with New Zealand Equivalent to
International Accounting Standard 34: Interim Financial Reporting.
Our review was completed on 19 February 2020 and our findings are expressed as at that date.
Ernst & Young
Auckland
Fletcher Building Limited 2020 Interim Financial Results32
---
F O C U S
Fletcher Building
Half Year Results to
31 December 2019
ROSS TAYLOR
—Chi ef Executi ve Offi cer
BEVAN MCKENZIE
—Chi ef Fi nanci al Offi cer
19 Fe bruary 2020
Important Information
2
This presentation has been prepared by Fletcher Building Limited and its group of companies (“Fletcher Building”) for informati onal purpos es .Thi s di sclaimer
appl i es to thi s document and the verbal or wri tten comments of any pers on pres enti ng i t.
Thi s pres entati on provi des addi ti onal comment on the Interi m Fi nanci al Res ul ts 2020 dated 19 February 2020.As s uch, i t s houl d be read i n conj uncti on wi th
and s ubject to the expl anati ons and vi ews gi ven i n that document. Unl es s otherwi s e s peci fi ed, al l i nformation i s for the hal fyear ended 31 December 2019.
In certai n s ecti ons of thi s pres entati on, Fl etcher Bui l di ng has chos en to pres ent certai n fi nanci al i nformation excl us ive of thei mpact of s i gni ficant i tems and/or
the results of the businesses divested in the year ended 30 June 2019. For the six months ended 31 December 2019, the Group’s fi nanci al s tatements are
prepared i n accordance wi th the new l eas e accounti ng s tandard NZ IFRS 16, adopted from 1 Jul y 2019. In pri or peri ods , l eas e costs were ful l y reported i n EBIT.
Under NZ IFRS 16, the two components of l eas e cos ts are reported s eparatel y: (1) the depreci ati on of ri ght-of-us e as s ets i s reported i n EBIT and (2) the
deemed i nteres t porti on of the l eas e l i ability i s reported i n net i nteres t expens e. Fi nanci al tabl es i n thi s pres entati on (where i ndi cated) s how both the reported
res ul t for the pri or peri od, as wel l as a pro forma res tatement of the pri or peri od to i l l ustrate the i mpact of NZ IFRS 16 had it been appl i ed and to al l ow for a
l i ke-for-l ike compari son. A number of non-GAAP fi nanci al meas ures are us ed i n thi s pres entati on whi ch are us ed by management to as s es s the performance of
the business and have been derived from Fletcher Building’s financial statements for the six months ended 31 December 2019. You s houl d not cons i der any of
thes e s tatements i n i s ol ation from, or as a s ubs ti tute for the i nformati on provi ded i n the Interi m Fi nanci al Statements for the s i x months ended 31 December
2019, whi ch are avai l able at www.fl etcherbui l di ng.com.
The i nformati on i n thi s pres entati on has been prepared by Fl etcher Bui l di ng wi th due care and attenti on, however, nei ther Fl etcher Bui l di ng nor any of i ts
di rectors , empl oyees , s harehol ders nor any other pers on gi ven any repres entati ons or warranti es (ei ther expres s or i mpl i ed) as to the accuracy or
compl etenes s of the i nformati on and to the maxi mum extent permi tted by l aw, no s uch pers on s hal l have any l i ability whats oever to any pers on for any l os s
(i ncl udi ng, wi thout l i mi tati on, arising from any faul t or negl i gence) ari s ing from thi s pres entati on or any i nformati on s uppliedi n connecti on wi th i t.
Thi s pres entati on may contai n forward l ooki ng s tatements , that i s s tatements rel ated to future, not pas t, events or other matters . Forward l ooki ng s tatements
may i ncl ude s tatements regardi ng our i ntent, bel i ef or current expectati ons i n connecti on wi th our future operati ng or fi nanci alperformance, or market
condi ti ons . Such forward l ooki ng s tatements are bas ed on current expectati ons , es ti mates and as s umpti ons and are s ubj ect to anumber of ri s ks and
uncertai nti es , i ncl uding materi al adverse events , s i gni fi cant one-off expens es and other unfores eeabl e ci rcums tances . There i s no as s urance that res ul ts
contempl ated i n any of thes e proj ecti ons and forward l ooki ng s tatements wi l l be real i s ed.Actual res ul ts may di ffer materi al l y from thos e proj ected. Except as
requi red by l aw, or the rul es of any rel evant s tock exchange or l i s ting authori ty, no pers on i s under any obl i gati on to update thi s pres entati on at any ti me after
i ts rel eas e or to provi de further i nformati on about Fl etcher Bui l di ng.
The i nformati on i n thi s pres entati on does not cons ti tute fi nanci al product, l egal , fi nancial, i nves tment, tax or any other advi ce or a recommendati on.
Fletcher Building Half Year Results Presentation | © February 2020
F O C U S
Fletcher Building
Half Year Results Presentation 2020
Agenda
1. ResultsOverview Ross Taylor
2. New Zealand Operations Ross Taylor
3. Australia Operations Ross Taylor
4. Financial Results Bevan McKenzie
5.Outlook Ross Taylor
Revenue in line with expectations, full year earnings guidance
reconfirmed
4
Fletcher Building Half Year Results Presentation | © February 2020
Revenue
•NZ core revenue steady
•Construction revenues lower as legacy projects
complete
•Australia lower from residential and infrastructure
market decline
2.7
2.6
1.5
1.4
HY19HY20
Revenue ($bn)
NZAustralia
4.2
4.0
EBIT
1
($m)
248
219
HY19HY20
EBIT –First Half
•NZ core earnings solid, except Steel
•Timing of Residential and Development sales second
half weighted
•AU cost-out benefits flow more fully in second half
EBIT –Full year guidance of $515m-$565m reconfirmed
•Earnings weighted to 2H20 on Steel improvement,
Residential sales timing, Australia turnaround
Note: All metrics are for continuing operations unless stated otherwise. RTG and Formica were sold during the prior year
1
Measures before significant items are non-GAAP measures used by management to assess the performance of the business and
has been derived from Fletcher Building’s financial statements for the six months ended 31 December 2019. Details of significant
items can be found in note 2A of the financial statements
Reported net earnings in line with expectations
5
Fletcher Building Half Year Results Presentation | © February 2020
Net Earnings
•Incorporates changes to operations and accounting
changes
•HY20 includes $35m sig items associated with the
Australian cost out programme
89
82
HY19HY20
Reported Net Earnings ($m)
Return on Funds Employed
2
(%)
12.3%
12.4%
HY19HY20
ROFE
•Group ROFE steady
•NZ delivering above target
•AU remains below target but turnaround plans in
place to drive through uplift
1
1
$142m for continuing operations
2
Rolling 12 month EBIT to average funds (net debt and equity less deferred tax assets). Measures before significant items are
non-GAAP measures used by management to assess the performance of the business and has been derived from Fletcher Building’s
financial statements for the six months ended 31 December 2019. Details of significant items can be found in note 2 of the financial statements
Strong cash performance through working capital improvement
6
Fletcher Building Half Year Results Presentation | © February 2020
36
88
HY19HY20
Trading Cash Flow
1
($m)
Net Debt($m)
325
766
FY19HY20
Trading Cash Flow Improvement
•Driven by working capital improvements, especially
inventory
Net Debt
•Net debt increased as expected -from share buyback
and legacy construction projects
•Strong balance sheet: leverage ratio 0.8x, undrawn
credit of $925m, cash on hand of $570m
Note: All metrics are for continuing operations unless stated otherwise. RTG and Formica were sold during the prior year
1
Trading cash flow from continuing operations excluding legacy construction projects
Interim dividend of 11 cents per share declared
7
Fletcher Building Half Year Results Presentation | © February 2020
EPS
•Slightly down half on half in line with earnings
10.4
9.8
HY19HY20
EPS (cps)
Interim Dividend (cps)
8.0
11.0
HY19HY20
Interim Dividend
•Interim dividend payment to be made on 9 April
2020
•Return to normal split between interim and final
dividends
Strong focus on ‘Protect’ reset, Science Based Targets verified
Safety
Total Recordable Injury Frequency Rate
1
6.7
6.9
5.1
5.0
5.15
FY16FY17FY18FY19HY20
Sustainability
FY16FY17FY18FY19
143
141
149
Carbon Emission Intensity
2
139
8
Fletcher Building Half Year Results Presentation | © February 2020
Safety
•Major safety program ‘Protect’ reset launched across
all businesses
•Our aim is to be injury free as a business
•Focus is on culture, mindsets, skills and the
identification and effective management of critical
risks
•Success will see TRIFR fall to well under 5.0 in the
coming years
Sustainability
•Committed to reduce carbon emissions by 30% by
2030
•Aligns with aims to limit global warming to below 2
o
C
•First building materials and construction company in
NZ or Australia to have accredited Science-Based
Targets for carbon reduction
1
TRIFR = Total no. of recorded injuries per million man hours worked.
2
Carbon Emission Intensity = FBU Co2 Tonnes for every $1m of revenue. ISO 14064-1
F O C U S
Fletcher Building
Half Year Results Presentation 2020
Agenda
1. ResultsOverview Ross Taylor
2. New Zealand Operations Ross Taylor
3. Australia Operations Ross Taylor
4. Financial Results Bevan McKenzie
5.Outlook Ross Taylor
29%
16%
22%
New Zealand market steady year on year, outlook remains positive
NZ
Residential
NZ
Commercial
NZ
Infrastructure
FBU Revenue by Market (%)
10
Fletcher Building Half Year Results Presentation | © February 2020
Residential
•Activity levels steady year on year:
‒Consents growth weighted to multi-unit dwellings
(smaller floor area, typology mix change)
‒Standalone housing flat on total floor area basis
‒New subdivision trending slightly lower
Commercial
•Activity levels trending slightly lower
Infrastructure
•Softer activity in 1H20 on project timing and wet first
quarter
•Strong long term outlook supported by $12b
government infrastructure package
Source: Statistics NZ, Infometrics
•Strong volumes and operating performance
in plasterboard, insulation and laminates
•Pipes volumes and performance impacted
by lower subdivision and civil work plus wet
first quarter
•Steel a disappointment with trading
conditions remaining challenging through
the first half, materially impacting volumes
and margins
•Half on half profit reduction mainly due to
Steel performance
•Operating margins higher in Building
Product businesses (ex Steel) on price gains
and operating leverage
•Divisional cash flow higher on improved
working capital management
11
NZ$m
Dec 2018
6 months
reported
Dec 2018
6 months
pro forma
1
Dec 2019
6 months
Gros s Revenue
672672645
EBITDA
9611492
EBIT
879166
Tradi ng Cas h Fl ow
363654
ROFE
2
%
23%25%18%
Capex
181817
Cas h Convers i on
3
21%20%56%
Bui l di ng Products (ex Steel ) EBIT
666965
Steel EBIT
21221
Domes ti c board vol umes (m
2
)
+4%
Domes ti c l ami nate s al es (m
2
)
+3%
Pi pe vol umes (t)
-17%
Steel vol umes (t)
-16%
Resi, 45%Com, 26%Infra, 29%
Di vi s ional Expos ure
Building Products
Results overview
Fletcher Building Half Year Results Presentation | © February 2020
1
Dec 2018 6 months pro forma is Dec 2018 6 months reported adjusted for IFRS 16
2
EBIT/Closing Funds
3
Cash conversion = FCF/EBIT
12
Building Products
Performance focus
Fletcher Building Half Year Results Presentation | © February 2020
Operating Margin ex Steel (EBITDA %)
21.3%
21.8%
HY19HY20
Steel EBIT ($m)
22
1
HY19HY20
117,835 t
HY19HY20
•Intervention, business reset complete
•Solid recent project wins
•Expectation for better market volumes, margins
improving into 2H20
Key Focus Areas
Steel Outlook
1
Steel Volumes (t)
•Tasman Insulation building wraps
•GIB Weatherline and Barrierline
•Iplex mobile extrusion, PVC-O plant investments
•Winstone Wallboards MyGIB® app
•Laminex decor and ecommerce launch
•c$400m Winstone Wallboards plant in Tauranga,
50% land and buildings, 50% equipment
•Humes fix / focus ongoing
99,096 t
1
HY19 is Dec 2018 6 months reported adjusted for IFRS 16 to allow like-for-like comparison
1
13
NZ$m
Dec 2018
6 months
reported
Dec 2018
6 months
pro forma
1
Dec 2019
6 months
Gros s Revenue
809
809824
EBITDA
55
7973
EBIT
50
5550
Tradi ng Cas h Fl ow
494964
ROFE
2
%
35%47%41%
Capex
111112
Cas h Convers i on
3
76%69%104%
Pl aceMakers revenue
+2%
Mi co revenue
-1%
Distribution
Results overview
Fletcher Building Half Year Results Presentation | © February 2020
Di vi s ional Expos ure
Resi, 79%Com, 21%
•Revenue increase in line with market activity
•Conditions in key Auckland market highly
competitive
•Earnings lower due to: Auckland environment,
higher wage, property and freight costs, and
investments in digital capability
•Continue to drive branch and showroom
upgrade programme and increase network
density with new branch openings
•Cash flow higher on improved inventory
management
1
Dec 2018 6 months pro forma is Dec 2018 6 months reported adjusted for IFRS 16
2
EBIT/Closing Funds
3
Cash conversion = FCF/EBIT
14
Distribution
To date focused on branch service digitisation and transport
Fletcher Building Half Year Results Presentation | © February 2020
Seamless Service Through Digitisation
70% of branch transactions now digitised
•c4m transactions digitally per annum:
̶paper eliminated
̶accuracy of receipting and picking
improved
̶staff resourcing better matched
Transforming Transport Capability
Transactions # (m)
•Efficiency improved through own vehicle
delivery:
̶Delivery per load increased
̶Load time reduced
̶More accurate and consistent
charging
•Service levels enhanced through Uber-style
“track your truck”
(m)
0
1
2
3
4
FY17FY18FY19FY20
1H
2H
15
Distribution
Our focus is now firmly on our digital transformation
Fletcher Building Half Year Results Presentation | © February 2020
FY20
•Trade app and Initial portal
•Shop.PlaceMakerslaunched
Our promise:
“Unmatched digital
experience -best service every
day, on every transaction”
FY21
FY22
•Trade portal (full rollout)
•Shop.Placemakersexpanded to full
ecommerce offering
•Analytics, artificial intelligence,
machine learning
•Portal expanded to full consumer
focus
•Endless Aisle
•Supply chain automation and
Estimation transformation
Digital Transformation from physical analogue to 24x7 omnichannel experience
Data
infrastructure
and analytics
Smart job
manage-
ment
Digital
supply
chain
Seamless
Service
Our digital
ambition
Concrete
Results overview
16
NZ$m
Dec 2018
6 months
reported
Dec 2018
6 months
pro forma
1
Dec 2019
6 months
Gros s Revenue
404
404403
EBITDA
67
8287
EBIT
42
4449
Tradi ng Cas h Fl ow
494949
ROFE
2
%
13%14%16%
Capex
171733
Cas h Convers i on
3
76%73%33%
Aggregates s al es vol umes
-5%
Domes ti c cement vol umes
0%
Ready-mi x vol umes
-3%
Fletcher Building Half Year Results Presentation | © February 2020
Di vi s ional Expos ure
Resi, 44%Com, 29%Infra, 27%
•Volumes down slightly on softening civil /
infrastructure activity in the half
•Price gains in aggregates and ready-mix, slight
compression in cement price
•Margins higher on price gains and supply
chain efficiencies, partially offset by energy
costs
•Trading cash flow steady
•Capex higher on timing of capacity
investments in mobile equipment, ready-mix
plants, and aggregate processing
1
Dec 2018 6 months pro forma is Dec 2018 6 months reported adjusted for IFRS 16
2
EBIT/Closing Funds
3
Cash conversion = FCF/EBIT
17
•New barge capacity between Portland and
Auckland
•Mobile plant replacement in ready-mix
and aggregates
•Improved manufacturing performance in
new masonry facility
•Pricing focus
Concrete
Performance focus
Fletcher Building Half Year Results Presentation | © February 2020
Operating Margin (EBITDA %)
Operating Efficiency and Pricing
20.2%
21.6%
HY19HY20
Product Innovation and Sustainability
•GBC cement currently 20% lower carbon
•Tyre Derived Fuel initiative go-live end
2020, diverting up to 50% of NZ waste tyres
from landfill
•Pozzolans product testing underway
•Masonry: new honing plant and paving size
range
Construction at Portland for the feed
supply portion of the TDF process
Pile of chipped tyres
1
HY19 is Dec 2018 6 months reported adjusted for IFRS 16 to allow like-for-like comparison
1
Residential and Development
Results overview
18
NZ$m
Dec 2018
6 months
reported
Dec 2018
6 months
pro forma
1
Dec 2019
6 months
Gros s Revenue
251
251224
EBITDA
43
4436
EBIT
43
4335
Tradi ng Cas h Fl ow
(7)(7)35
ROFE
2
%
13%13%11%
Capex
222
Cas h Convers i on
3
(21)%(21)%94%
Res i denti al EBIT
373727
Land Devel opment EBIT
6611
Cl ever Core EBIT
--(3)
Fletcher Building Half Year Results Presentation | © February 2020
•Market demand strong and prices supportive,
especially in key $600k-$900k pricing category
•Margins tracking above plan
•1H20 Residential EBIT lower due to timing of
settlements (weighted to 2H20)
•Cash flow supported by receipts from FY19
Land Development transaction
•c5 years’ supply of lots under control, of which
75% are on balance sheet
•FY20 Residential earnings expected to grow
year on year
•FY20 Land Development profits likely to be
$35m+ (higher than $25m p.a. run-rate)
1
Dec 2018 6 months pro forma is Dec 2018 6 months reported adjusted for IFRS 16
2
EBIT/Closing Funds
3
Cash conversion = FCF/EBIT
19
Residential and Development
Performance focus
Fletcher Building Half Year Results Presentation | © February 2020
Panelisation
•Strong sales since mid-October
•Continued momentum into Q3
•Firm pricing
•Targeting 800-900 unit sales for FY20 (vs 755
in FY19)
10
15
11
23
Q1Q2
•Clever Core manufacturing site officially
opened in October, first houses completed in
the half
Weekly House Sales
HY19HY20
# Unconditional Agreements
Construction
Results overview
20
NZ$m
Dec 2018
6 months
reported
Dec 2018
6 months
pro forma
1
Dec 2019
6 months
Gros s Revenue
866
866774
EBITDA
25
3533
EBIT
15
1714
Tradi ng Cas h Fl ow
(97)(97)(152)
ROFE
2
% (ex l egacy)
10%12%8%
Capex
151519
Cas h Convers i on
3
NMNMNM
Revenue backl og (ex l egacy)
1,1221,1221,438
Revenue backl og l egacy
47347392
Fletcher Building Half Year Results Presentation | © February 2020
•Revenue ex-legacy projects up 3% year on year
as new work starts to flow through
•EBIT weighted to 2H20 due to wet first quarter
impacting bitumen and asphalt volumes in
Higgins
•Cash flow driven by legacy projects outflow of
$142m as key projects near completion
•Profile of work shifting to more balanced
portfolio with only $92m legacy revenue
backlog remaining (excl. NZICC)
•No change to legacy provisions
1
Dec 2018 6 months pro forma is Dec 2018 6 months reported adjusted for IFRS 16
2
EBIT/Closing Funds
3
Cash conversion = FCF/EBIT
•All legacy projects (ex NZICC) will be
complete by June 2020
•NZICC –Contract Works and Third Party
Liability insurances will respond to loss
and damage
Construction
Performance focus
Fletcher Building Half Year Results Presentation | © February 2020
Talent and skills now broadly resetWinning the right work with the right customers
Complete legacy projects within provisions
•New work win rates improving with a strong
1H20 performance
•Securing new work in line with targeted
balanced portfolio and better risk profile
1,122
1,189
1,438
473
256
92
HY19FY19HY20
•Strong operational leadership team
in place
•Driving consistent project
management and governance
21
Othe r Cons truction
Le ga cy
Work in hand ($m)
F O C U S
Fletcher Building
Half Year Results Presentation 2020
Agenda
1. ResultsOverview Ross Taylor
2. New Zealand Operations Ross Taylor
3. Australia Operations Ross Taylor
4. Financial Results Bevan McKenzie
5.Outlook Ross Taylor
Australia sharp decline in residential sector but looks to be
turning; expect improvements in all sectors from FY21
23
Fletcher Building Half Year Results Presentation | © February 2020
Residential
•Material contraction in line with expectations
•Expect c150-160k approvals in FY20, down 20%
year on year
•Signs of market stabilising, recovery from FY21
Commercial
•Steady activity levels. Approvals looking positive
Infrastructure
•Activity remains weak in key sectors, especially
water and roading
•Government commitment of $100b spend over
next 10 years
18%
9%
6%
AU
Residential
AU Commercial
AU Infrastructure
FBU Australia Revenue by Market
Source: BIS Oxford Economics (financial years)
Australia
Results overview
24
NZ$m
Dec 2018
6 months
reported
Dec 2018
6 months
pro forma
1
Dec 2019
6 months
Gros s Revenue
1,557
1,5571,453
EBITDA
2
65
110103
EBIT
2
33
4335
Tradi ng Cas h Fl ow
2
(71)(71)(44)
ROFE
3
%
4%5%4%
Capex
333332
Cas h Convers i on
4
NMNMNM
Bui l di ng Products Aus . EBIT
2
242927
Di s tri buti on Aus . EBIT
2
254
Steel Aus . EBIT
2
8105
Di vi s ional costs
(1)(1)(1)
Fletcher Building Half Year Results Presentation | © February 2020
•Revenue held well relative to market decline
•Cost-out programme mostly complete,
benefits are second half weighted
•Strong momentum in Laminex and Insulation
•EBIT impacted by lower volumes and margin
pressure in pipes, steel and distribution
•Cash flow higher on improved inventory
management but were impacted by
restructuring costs
•FY20 earnings weighted to second half as we
get full run rate benefits from cost out work
Di vi s ional Expos ure
Resi, 54%Com, 28%Infra, 18%
1
Dec 2018 6 months pro forma is Dec 2018 6 months reported adjusted for IFRS 16. pro forma $43m under IFRS 16
2
Before significant items
3
EBIT/Closing Funds
4
Cash conversion = FCF/EBIT
•Ranges expanded in Laminex, Stramit
(Taurean garage doors), Fletcher Insulation
and Oliveri bathroom products
•Compact decorative surface trials
underway
•Laminex digital delivering
•Fletcher Insulation packaging refreshed,
service install offering expanded
•Performance focus, reset well advanced
•Costs mostly out -$100m gross annual cost-
out benefit by FY21
•Right-sized network with store and branch
closures complete; first wave of branch co-
locations complete
•Insulation consolidated into one site
•DCs consolidation complete
•Freight suppliers consolidated
25
•Clever Core manufacturing site officially
opened in October, first houses completed
in the half
Australia
Seeing improvement from well-advanced cost out programme
Fletcher Building Half Year Results Presentation | © February 2020
Operational Excellence
Strategy and Portfolio
•With the reset well advanced, we have
assessed our portfolio
•Decision made to divest Rocla
•Expect this to be completed through
calendar 2020
Product and Service Innovation
La mi nex Gold Coast Labrador (shop i n shop)
F O C U S
Fletcher Building
Half Year Results Presentation 2020
Agenda
1. ResultsOverview Ross Taylor
2. New Zealand Operations Ross Taylor
3. Australia Operations Ross Taylor
4. Financial Results Bevan McKenzie
5.Outlook Ross Taylor
Income statement
First half group profit in line with expectations
27
Reported results
NZ$m
Dec 2018
6 months
Dec 2019
6 months
Change
$m
Revenue4,1853,961(224)
EBITDA33540267
EBIT before significant items from continuing operations248219(29)
Significant items0(35)(35)
EBIT from continuing operations248184(64)
Lease interest expense0(35)(35)
Funding costs(62)(35)27
Tax expense(39)(28)11
Non-controlling interests(5)(4)1
Net earnings from discontinued operations net of tax(53)053
Net earnings8982(7)
Basic earningsper share (EPS –cents)10.49.8(0.6)cps
Dividends declared per share (EPS –cents)8.011.03.0cps
Fletcher Building Half Year Results Presentation | © February 2020
IFRS 16 adopted in FY20
Background and impact
28
Fletcher Building Half Year Results Presentation | © February 2020
•Effective for the Group for period commencing 1 July 2019
•Total of c 5,000 operating leases now accounted for under IFRS 16
•Balance Sheet impact: Recognises right-of-use asset of $1.5bn and lease liability of $1.8bn
•Income Statement impact: Operating lease expense treated as depreciation and interest charges
•Cash Flow Statement impact: No impact on underlying cash flows but new lease arrangement
results in reclassification of certain cash flows; Operating cash flows increase by the principal
payment amount with an offsetting outflow in financing cash flows
IFRS 16 impact
NZ$m
pro forma
HY19
6 months
pro forma
FY19
12 months
EBITDA117234
EBIT2449
Net earnings(8)(15)
Tax and funding costs
Effective tax rate steady, funding costs materially lower
29
Fletcher Building Half Year Results Presentation | © February 2020
Funding costs
•Average interest rate on debt is 5.0% based on
period end borrowings
•FY20 funding costs expected to be c$70-80m
Tax
•Effective tax rate (excl. B+I):
–expected to be c26% in FY20
–expected to track back to 29% in FY21
•Cash tax paid:
–$1m in HY20
–expected to be c$10m in FY20
Effective Tax Rate
1
(%)
25.9%
25.3%
HY19HY20
Funding Costs ($m)
62
35
HY19HY20
1
Before significant items
•No change to B+I provisions or total expected cash outflows. Phasing of remaining cash outflows to be confirmed based on
revised NZICC programme
Cash flow
$52m improvement in trading cash flows
30
NZ$m
Dec 2018
6 months
Dec 2019
6 months
Change
$m
EBIT before significant items from continuing operations248219(29)
Depreciationand amortisation8718396
Lease principal payments and lease interest paid-(119)(119)
Provisions,significant items and other(50)(31)19
Trading cash flow before working capitalmovements285252(33)
Working capital movements(249)(164)85
Trading cash flow from continuing operations excluding B+I368852
Discontinued operations33-(33)
B+I cash flow(105)(142)(37)
Trading cashflow(36)(54)(18)
Add: Lease principal payments-8484
Less: cash tax paid(17)(1)16
Less: interest paid(61)(34)27
Cash flows from operatingactivities(114)(5)109
Free Cash Flow
1
from continuing operations excluding B+I(73)(32)41
Fletcher Building Half Year Results Presentation | © February 2020
1
Free Cash Flow = Trading cash flow less capex less cash tax, excluding M+A activities
Working capital
Continued improvement in working capital management
31
Fletcher Building Half Year Results Presentation | © February 2020
Key working capital metrics (days)
As at
Dec 2018
As at
Dec 2019
Change
(days)
Debtor Days43.344.00.7
Inventory Days79.475.5(3.9)
Payables Days40.641.61.0
Materials and Distribution Total Cycle82.177.9(4.2)
Cash flow working capital movements continuing operations
NZ$m
Dec 2018
6 months
Dec 2019
6 months
Change
$m
Residential and Development(29)-29
Construction excluding B+I(19)(33)(14)
Debtors769216
Inventories(90)(34)56
Creditors(187)(189)(2)
Cash flow working capital movements(249)(164)85
•Working capital cycle improved by 4.2 days = $72.5m cash release
Capex and depreciation
Focused investment in core business
32
62
2
19
32
4
$119m
Capex by Markets (NZ$m)
•FY20 capex expected to be in the range $275-$325m,
including land for new WWB plant
•Capex programme focused on enabling investments
for strategy, especially:
–Digital
–Manufacturing efficiency and operating capacity
–Product & service innovation
–Sustainability
•WWB plant update:
–Land secured in Tauranga
–Technology and construction contracts will be
finalised in 2H20
–c$400m (50% land & buildings, 50% equipment)
mainly in FY21 and FY22
•FY20 depreciation & amortisation is expected to be
$180m-$190m (prior to impact of IFRS 16)
Fletcher Building Half Year Results Presentation | © February 2020
NZ Core
Residential and
Development
Construction
AustraliaCorporate
325
766
44
88
128
142
34
119
141
9
Openi ng Net
Debt - F Y20
Reclassif ication
to lease
liabilities
Trading cash
from
continuing
operations
FY19 final
dividend
payment
Leg acy projectsFunding costsCap exRepurchase of
shares
OtherClosing net
debt
33
Net debt
Net debt higher as expected
Net Debt (NZ$m)
Fletcher Building Half Year Results Presentation | © February 2020
1
1
Other is comprised of Minority distribution of $6m and Hedging/FX on debt of $2m and income tax paid of $1m
0.3x
0.8x
HY19HY20
34
Leverage
Leverage position remains strong
Fletcher Building Half Year Results Presentation | © February 2020
•IFRS 16 impact on EBITDA c$240m
•Target leverage range adjusted from 1.5x-2.5x to
1.0x-2.0x to reflect this impact
•Target range is unchanged on an underlying basis
•Leverage ratio tracking to lower bound of target
range by end of FY20 as anticipated
Leverage (Net Debt / EBITDA)
Target
range
2.0x
1.0x
1
1
HY19 is adjusted for IFRS16
150
100100
16
69
162
147
460
525
400
5
14
FY20FY21FY22FY23FY24-25FY26+
Cap ital NotesUSPPBank SyndicateOther
Funding
Strong maturity profile and liquidity
35
Debt Maturity Profile at Dec-19 (NZ$m)
•Undrawn credit lines of $925m and cash of $570m
as at 31 December 2019
•All sensible debt reduction opportunities being
undertaken: $321m
1
repaid in 1H20, total of
$736m since Jul-18
•Syndicated banking facility renegotiated in 1H20,
establishing new 3 and 5-year tenor
2
Fletcher Building Half Year Results Presentation | © February 2020
NZ$m
Facilities
31 Dec 19
Drawings
31 Dec 19
Syndicate925-
USPP878878
Capital Notes435435
Other2323
Total2,2611,336
1
Includes CCIRS component and excludes fair value hedge component
2
USPP NZ$8m, bank loans NZ$260m, purchase of institutional capital notes NZ$50m, NZ$3m other
•Interim dividend of 11.0 cents per share
•Payment date of 9 April 2020
•Interim dividend unimputed for NZ taxation
purposes and unfranked for Australian taxation
purposes
•Dividend Reinvestment Plan will not be operative
for this dividend
•Return to normal split between interim and final
dividend
Dividend and share buyback
Interim dividend of 11cps, buyback tracking to plan
36
•On-market share buyback programme of up to
NZ$300m
•This form of shareholder distribution takes into
account tax effectiveness for all shareholders and
earnings per share accretion
•Commenced on 9 September 2019
•27.9m shares purchased on NZX and ASX
exchanges to date for NZ$141m (3.3% issued
capital)
Fletcher Building Half Year Results Presentation | © February 2020
DividendShare Buyback
1
Available cash flow = Free cash flow less cash interest
F O C U S
Fletcher Building
Half Year Results Presentation 2020
Agenda
1. ResultsOverview Ross Taylor
2. New Zealand Operations Ross Taylor
3. Australia Operations Ross Taylor
4. Financial Results Bevan McKenzie
5.Outlook Ross Taylor
FY20 focus on driving consistent performance
38
1. Strengthen
and grow the
NZ core
3. Stabilise
Construction
4. Turnaround
and grow
Australia
FY2020
PERFORMANCE
FY2021–23
GROWTH
Fletcher Building Full Year Results Presentation | © August 2019
Business fix complete
Legacy projects complete
Performance and growth
Predictable performance and growth
Reset complete
Portfolio rationalised
2. Profitable
growth in
Residential and
Development
Growth across low and medium density housing
Performance focus
5. Lift
performance
across all key
enablers
Good focus and cadence across all enablers
Major investment in safety and
innovation
Continue strong performance
Performance and growth
FY20 market outlook
Expect market activity in H2 to be broadly in line with H1
39
Fletcher Building Half Year Results Presentation | © February 2020
•AU residential approvals stabilising
and returning to growth in FY21
•Non-residential broadly flat
•Infrastructure project activity to
remain lumpy
Australia Market FY20 Outlook
•NZ residential expected to be similar
to first half. With ongoing trends to
smaller and attached dwelling units
•Civil expected to trend slightly lower
•Infrastructure slightly softer until the
renewed infrastructure activity comes
onstream from FY21 and beyond
New Zealand Market FY20 Outlook
Market outlook assumes no material economic impact due to coronavirus
Earnings weighted to second half, but more marked than usual owing to:
•Improved performance from Steel
•Stronger pipeline of Residential house sales due for settlement
•Construction pavement season weighted to 2H20, benefiting Higgins
•Benefits of AU cost-out programme nearing full run-rate
Second half outlook
FY20 EBIT guidance of $515m -$565m reconfirmed
40
Fletcher Building Half Year Results Presentation | © February 2020
F O C U S
Fletcher Building
Half Year Results Presentation 2020
Appendix
Value of Commercial and Infrastructure work done
(A$b)
FY16FY17FY18FY19FY20 F
38
38
44
46
48
95
88
110
92
95
FY16FY17FY18FY19HY20
6,627
7,318
7,636
8,687
9,118
6,022
6,200
8,342
8,403
8,688
FY16FY17FY18FY19FY20 F
Industry context New Zealand and Australia
Residential Consents (#)
NZ Historical
Value of Commercial and Infrastructure work put in place
(Nominal $m)
Ke y:Comme rci alI nfrastructure
42
29k
30k
33k
35k
Fletcher Building Half Year Results Presentation | © February 2020
37k
Ke y:Hous esApa rtme nts
Re ti rement
Uni ts
Townhouses
Residential Approvals (#)
FY16FY17FY18FY19HY20
AU Historical
239k
173k
232k
188k
Ke y:Hous esApa rtme nts
Townhouses
222k
Ke y:Comme rci alI nfrastructure
Source: Statistics NZ, Infometrics
---
Distribution Notice
Page | 1
Section 1: Issuer information
Name of issuer Fletcher Building Limited
Financial product name/description Ordinary Shares
NZX ticker code FBU
ISIN NZFBUE0001S0
Type of distribution
(Please mark with an X in the
relevant box/es)
Full Year Quarterly
Half Year X Special
DRP applies No
Record date 20/03/2020
Ex-Date (one business day before the
Record Date)
19/03/2020
Payment date (and allotment date for DRP) 09/04/2020
Total monies associated with the
distribution
$90,799,854
(825,453,215 ordinary shares @ $0.11 per share)
Source of distribution (for example,
retained earnings)
Retained earnings
Currency NZD
Section 2: Distribution amounts per financial product
Gross distribution $0.11000000
Gross taxable amount $0.11000000
Total cash distribution $0.11000000
Excluded amount (applicable to listed PIEs) N/A – Not a listed PIE
Supplementary distribution amount N/A
Section 3: Imputation credits and Resident Withholding Tax
Is the distribution imputed Fully imputed
Partial imputation
No imputation
If fully or partially imputed, please state
imputation rate as % applied
N/A
Imputation tax credits per financial product N/A
Resident Withholding Tax per financial
product
$0.03630000
Fletcher Building Limited Page | 2
Section 4: Distribution re-investment plan (if applicable) – Not Applicable
DRP % discount (if any)
Start date and end date for determining
market price for DRP
Date strike price to be announced (if not
available at this time)
Specify source of financial products to be
issued under DRP programme (new issue or
to be bought on market)
DRP strike price per financial product
Last date to submit a participation notice
for this distribution in accordance with DRP
participation terms
Section 5: Authority for this announcement
Name of person authorised to make this
announcement
Shehnaz Hajati, Deputy Company Secretary
Contact person for this announcement Aleida White, Head of Investor Relations
Contact phone number +64 21 155 8837
Contact email address investor.relations@fbu.com
Date of release through MAP 19/02/2020
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.