FLETCHER BUILDING LIMITED — Annual Report 2014

Aug 19, 2014

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Annual Results to 30 June 2014

Mark Adamson -Chief Executive Officer Nick Olson -Chief Financial Officer

20 August 2014

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Disclaimer

This Annual Results presentation dated 20 August 2014 provides additional comment on the management commentary of the same date. As such, it should be read in conjunction with, and subject to, the explanations and views of future outlook on market conditions, earnings and activities given in that commentary.

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2 Fletcher Building Annual Results Presentation | © August 2014

Agenda

Results Overview Geographic & Sectoral Analysis Divisional Performances Financial Results Business Transformation Programme Outlook Appendix

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3 Fletcher Building Annual Results Presentation | © August 2014

Results Overview

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Dimond, Rainbows End Auckland

Results Overview Snapshot

million $ 8,401 REVENUES down 1%

million $ NET EARNINGS up 4% 36 c DIVIDEND PER SHARE up 6% million 49.3 c $ OPERATING EARNINGS up 4% EARNINGS PER SHARE up 4%

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Fletcher Building Annual Results Presentation | © August 2014

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Results Summary 4% increase in reported net earnings

NZ$m		Reported	Reported	%∆
		June 2013 12 months	June 2014 12 months
Sales		8,517	8,401	-1
EBITDA		789	795	+1
EBIT		569	592	+4
Net earnings		326	339	+4
EPS - cps		47.6	49.3	+4
Dividend - cps		34.0	36.0	+6

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6 Fletcher Building Annual Results Presentation | © August 2014

Results Overview Revenue

million $ 8,401

REVENUES down 1%

• Reported revenue $116m lower than FY13

• $428m of decline was due to adverse currency movements

• Underlying revenue growth of 4%

Revenue growth rates Geographic segments in local currency

New Zealand	+5%
Australia	+2%
Rest of World	+5%

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7 Fletcher Building Annual Results Presentation | © August 2014

Results Overview Operating Earnings

• Reported operating earnings (EBIT) up 4%

592 million $

Significant items

Significant items relate to divestment of businesses

OPERATING EARNINGS up 4%

	Pacific Steel	$19m
	Hudson Building Supplies	$12m
	Fiji Concrete	$1m
	Total	$32m

• Operating earnings excluding significant items up 10% 624 million • $ Within guidance range of $610m -

• Within guidance range of $610m - $650m

OPERATING EARNINGS before significant items up 10%

• Excluding foreign currency translation impacts, EBIT would have been up 15%

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Fletcher Building Annual Results Presentation | © August 2014

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Results Overview Net earnings

339 million $

NET EARNINGS up 4%

362 million $

NET EARNINGS before significant items up 11%

• Reported net earnings up 4% to $339m

• Result includes net $16m of restructuring and other costs (FY13: $4m net gain)

• Net earnings before significant items were up 11% to $362m

Earnings per share

	Earnings per share	49.3 cents	+4%
	Earnings per share (before significant items)	52.7 cents	+11%

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Results Overview Dividend & Cashflow

489 million $

CASHFLOW FROM OPERATIONS down 13%

36 c DIVIDEND PER SHARE up 6%

• Cash flow from operations $489m a reduction of $70m from FY13 ($559m)

• Reduction is due to increased residential land purchases, increased inventory in emerging markets, and timing of construction contract payments

Dividend

Final dividend per share 18 cents Total dividend for the year 36 cents

• Final dividend fully imputed for NZ taxation purposes

• Dividend Reinvestment Plan not operative for this dividend

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Underlying revenue and operating earnings up 4% and 15% respectively

Revenue NZ$m

EBIT NZ$m

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Underlying Revenue Underlying EBIT
Growth + 4% Growth + 15%
8517 (428)
312 8401
83 624 (32)
592
8089 569 (28)
541
Fletcher Building Annual Results Presentation | © August 2014Annual Results Presentation | © August 2014
Translations Translations
June 2014 Excl.
June 2013 Reported Foreign Currency June 2013 Adjusted Underlying Growth June 2014 Reported June 2013 Reported Foreign Currency June 2013 Adjusted Underlying Growth Significant Items Significant Items June 2014 Reported
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Geographic &
Sectoral
Analysis
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Sectoral exposure Exposures based on revenues

Geographical Exposure by Sector¹		Residential (New/A&A)*	Commercial	Infrastructure	Other
New Zealand		47%	29%	18%	6%
Australia		45%	25%	11%	19%
Rest of World		47%	48%	0%	5%
Total Manufacturing		46%	31%	11%	12%

New Zealand		87%	13%	0%	0%
Australia		72%	28%	0%	0%
Total Distribution		80%	20%	0%	0%

New Zealand		17%	46%	37%	0%
Rest of World		0%	50%	50%	0%
Total Construction		15%	46%	39%	0%

1. Excludes NZ and Australian Distribution businesses

• A&A – Additions and Alterations

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Geographic earnings mix reflects economic performance of key markets

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Revenue

(12 months to June 2014)

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13%
48%
39%
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New Zealand Australia Rest of World

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EBIT¹

(12 months to June 2014)

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15%
27% 58%
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New Zealand Australia Rest of World

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1. Before significant items

14 Fletcher Building Annual Results Presentation | © August 2014

New Zealand operating earnings up strongly, Australia improved in second half of FY14

EBIT¹

NZ$m

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362
286
203
171
91
80
New Zealand Australia Rest of the World
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12 months to June 13 12 months to June 14

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Australian EBIT¹
AU$m
86
83
80
68
1H 2H 1H 2H
2013 2014
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1. Before significant items

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New Zealand residential consents up 24% to highest level since 2007

Total residential consents 12 month rolling – New Zealand

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24,000
Change % year on year
23,000
50%
Long run average (2001-2014)
22,000 40%
30%
21,000
20%
20,000 10%
0%
19,000
18,000
17,000
16,000
Auckland and Christchurch
15,000
represent 58% of total consents
Auckland Christchurch Rest of NZ NZ
Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
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Source: Statistics NZ, Infometrics

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Australian residential consents up 21% multi-unit dwellings up strongly

Total residential consents 12 month rolling – Australia

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110,000 200,000
180,000
100,000
160,000
140,000
90,000
120,000
80,000 100,000
80,000
70,000
60,000
40,000
60,000
20,000
50,000 0
Standalone Multi residential Total (Incl conversions)
Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 Mar 14 Jun 14 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 Mar 14 Jun 14
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Source: Australian bureau of statistics, BIS Shrapnel

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Strong growth in NSW, QLD and WA, multi-residential consents up 28%

Change in housing approvals – by state

12 months ended 30 June 2014 vs 2013

	June 2013	June 2014
	12 mths	12 mths	%∆
Stand-alone	93,546	107,920	+15
Multi + other Residential	66,695	85,266	+28
Total	160,241	193,186	+21

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50%
June 2013 June 2014
12 mths 12 mths % ∆
45%
40% Stand-alone 93,546 107,920 +15
35% Multi + other
66,695 85,266 +28
Residential
30%
Total 160,241 193,186 +21
25%
20% Multi residential & other dwellings
drove increase in consents and
15%
increased their proportional share to
10%
44% of total dwellings approved.
5%
0%
AUS NSW VIC QLD WA
Standalone Multi residential and other Total
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Source: HIS Global Insight

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18 Fletcher Building Annual Results Presentation | © August 2014

Divisional Performances

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Fletcher Construction, MacKays to Peka Peka Expressway

Divisional operating earnings overview

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EBIT¹
NZ$m
229
222
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135 122 120 124 105 87 51 42 17 8 Infrastructure Building Laminates & Distribution NZ Distribution Construction Products Products Panels Aus

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12 months to June 13 12 months to June 14

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1. Before significant items

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Infrastructure Products Result

NZ$m	June 2013 12 months	June 2014 12 months	%∆
Sales	2,095	2,050	-2
EBITDA¹	312	316	+1
EBIT¹	222	229	+3
Cement, Concrete +Aggregates	73	90	+23
Concrete Pipes + Products	67	57	-15
Plastic Pipes	54	46	-15
Steel	28	36	+29
Funds Employed	1,841	1,792	-3
EBITDA/sales %¹	14.9	15.4
EBIT/sales %¹	10.6	11.2
ROFE %¹	12.1	12.8

1. Before significant items

Cement, Concrete & Aggregates

New Zealand volumes up strongly: - Cement volumes up 24%

• Aggregates volumes up 17% - Ready-mix volumes up 14% Australian aggregates volumes up 27%, but earnings impacted by product mix

Concrete Pipes and Products

Australian pipe volumes down 19% due to weaker infrastructure and mining demand

Plastic Pipes

Australia pipe volumes down 4% New Zealand volumes up in line with activity levels in Auckland and Christchurch

Steel

Distribution earnings up due to improved operating efficiency

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Building Products Result

NZ$m	June 2013 12 months	June 2014 12 months	%∆
Sales	1,350	1,288	-5
EBITDA	159	166	+4
EBIT	122	135	+11
Funds Employed	770	725	-6
EBITDA/sales %	11.8	12.9
EBIT/sales %	9.0	10.5
ROFE %	15.8	18.6

Plasterboard

Volumes up in line with house building activity in New Zealand

Insulation

Operating earnings declined due to price and margin compression

Some recovery experienced in second half of year in both New Zealand and Australia

Coated Steel and Roof Tiles

Operating earnings up 13% as a result of margin improvement initiatives Roof tile volumes steady on prior year Australian rollforming earnings increased as a result of cost reduction

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Laminates & Panels Result

NZ$m	June 2013 12 months	June 2014 12 months	%∆
Sales	1,738	1,710	-2
EBITDA	180	177	-2
EBIT
- Laminex	62	61	-2
- Formica	58	63	+9
Total EBIT	120	124	+3
Funds Employed	1,788	1,702	-5
EBITDA/sales %	10.4	10.4
EBIT/sales %	6.9	7.3
ROFE %	6.7	7.3

Formica

Earnings up 9% at $63m

Revenue up 3% driven by volume growth in Asia and North America Asia volumes up overall, and stable in Thailand

Europe earnings up with improved operational performance

Laminex

Adjusting for currency impacts earnings would have been up 10% Australian revenue up 6% in domestic currency terms driven by increased construction activity in the Eastern States

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Formica: volume growth in North America and Asia with European markets stabilising

EBIT NZ$m	June 2013 12 months	June 2014 12 months	%∆
Asia	37	29	-22
North America	41	43	+5
Europe	(5)	6	n/m
Corporate	(15)	(15)	-
Total EBIT	58	63	+9

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Distribution New Zealand Result

NZ$m	June 2013 12 months	June 2014 12 months	%∆
Sales	1,147	1,169	+2
EBITDA	54	64	+19
EBIT	42	51	+21
Funds Employed	251	196	-22
EBITDA/sales %	4.7	5.5
EBIT/sales %	3.7	4.4
ROFE %	16.7	26.0

PlaceMakers:

Revenues up 12% with ongoing improvement in trading conditions in Auckland and Canterbury.

Operating earnings up 47% as volume increases and operational efficiencies offset increased competitive pressure

2 new branches and 2 new frame & truss plants opened in the period

Mico:

An operating loss of $2m was recorded due to restructuring costs incurred in the period

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Distribution Australia Result

NZ$m	June 2013 12 months	June 2014 12 months	%∆
Sales	994	927	-7
EBITDA¹	17	25	+47
EBIT¹	8	17	+113
Funds Employed	452	406	-10
EBITDA/sales %¹	1.7	2.7
EBIT/sales %¹	0.8	1.8
ROFE %¹	1.8	4.2

Tradelink:

Increase in operating earnings to A$12m (2013: A$4m) in domestic currency terms

Market conditions improved

Business improvement initiatives led to market share gains

Hudson Building Supplies:

Significant items of $12m relating to the sale of Hudson during the period

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1. Before significant items

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Construction Result

NZ$m	June 2013 12 months	June 2014 12 months	%∆
Sales	1,193	1,257	+5
EBITDA	95	113	+19
EBIT	87	105	+21
Funds Employed	69	116	+68
EBITDA/sales %	8.0	9.0
EBIT/sales %	7.3	8.4
ROFE %	126.1	90.5

Increase in operating earnings due to significant upturn in infrastructure business

Residential earnings slightly ahead of FY13 with continued strong sales levels at Auckland’s Stonefields development

Further land acquisitions including Manukau and Peninsula Golf courses

Home Repair programme in Canterbury with over 59,000 home repairs completed to date

Construction backlog of $1,820m as at June 2014

Major projects secured in the period

• Christchurch Justice Precinct

• Construction phase of MacKays to Peka Peka roading alliance in Wellington

• − Fonterra head office building in Auckland

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Canterbury update

Canterbury Home Repair Programme:

• 59,000 permanent house repairs completed to date

• Programme to be substantially complete by December 2014

• Insurance Council of New Zealand report that as at 30 June 2014:

• 80% of commercial claims settled ($7.7bn)

• 66% of all residential claims settled ($4.4bn)

• 50% of residential claims over EQC cap settled

Infrastructure repairs continue through SCIRT – approximately 50% completed; Estimated total cost is $2.5bn

CBD construction starting to get underway, with a number of projects coming up for tender

Fletcher Construction has commenced work on the Justice Precinct ($200m)

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Health and safety performance continued improvement

Total risk injury frequency rate*

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14.01
11.07
8.48
6.80
6.00
2010 2011 2012 2013 2014
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• Total injuries per million employee and contractor hours

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Financial Results

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Stramit Building Products, Brisbane

Reported Results

Reported financial information NZ$m

	June 2013 12 months	June 2014 12 months	%∆
Revenue	8,517	8,401	-1
EBITDA(before significant items)	789	827	+5
Depreciation / Amortisation	220	203	-8
EBIT(before significant items)	569	624	+10
Significant items		(32)
EBIT	569	592	+4
Funding costs	(147)	(130)	-12
Earnings before taxation	422	462	+9
Taxation expense	(85) (111)		+31
Earnings after taxation	337 351		+4
Earnings minority interest	(11) (12)		+9
Net earnings	326	339	+4

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Build up of earnings

Underlying NZ$ earnings by region (before significant items)

			June 2013	June 2014
	NZ$m		12 months	12 months	%∆
	New Zealand		286	362	+27
	Australia		203	171	-16
	Rest of World		80	91	+14
	Total NZ$m		569	624	+10
	FX translation to FY14 rates		(28)
	Earnings adjusted for FX		541	624	+15
	Underlying earnings by region in local currency
			June 2013	June 2014
			12 months	12 months	%∆
		New Zealand (NZ$m)	286	362	+27
		Australia (AU$m)	163	154	-6
		Rest of World (US$m)	65	75	+15

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Operating cash flow

			June 2013	June 2013	June 2014
		NZ$m	12 months		12 months
		Cashflow from operations before net working capital movements	525		579
		Net working capital movements	34		(90)
		Net cash from operating activities	559		489
	Fullyear net working capital movements
					June 2014
					12 months
	Emergingmarkets – inventory increased				(21)
	Timingon construction projects				(18)
	Residential land investment				(28)
	Trading(predominantly debtors)				(23)
					(90)

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Net debt lower mainly due to currency translation impact

NZ$m

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1,789
(579)
14
224 (119)
1,648
175 (35)
89
28
62
Dividends
land capex
Divestments
acquisitions
Opening net debt Cash from operations (pre working capital) Working capital Net Investment in Growth capex + Stay in business Minority distribution Hedging / FX on debt Closing net debt
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Capital expenditure

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325
June 2013 June 2014
NZ$m 12 months 12 months % ∆
85
Stay-in-business 148 175 +18
85 275
220 -
Growth 85 85
203
Total Capex 233 260 +12
175
148
Acquisitions 13 4 -69
Depreciation 220 203 -8
2013 2014 2015
Stay in Business Depreciation
Growth/Acquisitions 2015 Forecast Capital Expenditure
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For FY15, Capital expenditure is expected to be in the range of $275m - $325m

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Key ratios

Total Shareholder Return (TSR) Percentage

Debt/Debt Plus Equity Percentage

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37
34
33
32
51
27
24
14
9
Jun-10 Jun-11 Jun-12 Jun-13 Jun-14
-27 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14
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Return on Average Funds

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Percentage ¹
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13 13
12
11
10
Jun-10 Jun-11 Jun-12 Jun-13 Jun-14
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1. Earnings before interest, tax and significant items / average funds

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Debt profile

Funding and Maturity Profile NZ$m

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252
350
412
14
298
-
210 151
140 168 152 131
100
2015 2016 2017 2018 2019 2020 2022 2024 2027
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June Years

Commited Undrawn Debt Facilities Debt - Drawn

Undrawn credit lines of $616m and cash of $134m.

Average maturity of debt is 4.2 years.

Approximately 60% of all borrowings have fixed interest rates.

Average interest rate on debt is 6.2%.

• Mix of currency (hedged) − NZ$ 37%

• − AU$ 44%

• − US$ 10%

• − Other 9%

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Capital management settings

Fletcher Building will continue to target strong ‘BBB’ credit characteristics

Gearing

• Target of Net Debt to Net Debt + Equity (including Capital Notes) of 30-40%

• As at 30 June 2014: 32%

Leverage

• Target Net Debt to EBITDA of 2.0 to 2.5 times

• As at 30 June 2014: 1.99 times

It is intended that the group will not be materially outside target Gearing and Leverage ranges on a long run basis

Target dividend pay-out ratio is 50% to 75% of net earnings

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Business Transformation Programme

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Golden Bay Cement, Auckland

Substantial progress in implementing FBUnite programme

• Benefits of $25m delivered in FY14, partly offset by $10m increased operating costs and $12m capital expenditure

• Centralised procurement, property, financial shared services and IT functions established

• Operations excellence programme rolled out to key manufacturing sites across NZ and Australia

• Incremental benefits of $25m expected to be generated in FY15

• Total benefits from FBUnite estimated at $100m by FY18

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Outlook

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Fletcher Construction, Waterview Tunnel Auckland

Outlook FY15

• FY15 performance will be impacted by businesses sold in FY14, along with completion of Stonefields subdivision in Auckland and Canterbury Home Repair Programme

• Further cost savings from FBUnite will partly offset these earnings impacts

FY14 EBIT from Continuing Operations NZ$m

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624 (4)
(13)
(15)
(9)
583
FY14 Excl Sig Hudsons Pac Steel Stonefields EQR FY15 Base
Items
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Outlook FY15

New Zealand

• Strong activity levels in New Zealand expected to continue across residential, commercial and infrastructure

• Continued work in Canterbury around horizontal infrastructure repairs and new commercial building activity. Home repair programme to be substantially complete by December 2014

Australia

• Improved outlook for residential and commercial construction, but continued subdued activity in mining and infrastructure sectors

North America

• Modest improvement in residential, but commercial sector flat

Europe

• Stable market conditions overall with growth expected in the UK

Asia

• Slower China growth and political instability in Thailand will temper performance

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Annual Results to 30 June 2014

Mark Adamson -Chief Executive Officer Nick Olson -Chief Financial Officer

20 August 2014

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Appendix: Building consent data

Building Consents	Building Consents	June 2012 12 months	June 2013 12 months	June 2014 12 months	14/13 % Mvmt
New Zealand
Residential Consents		15,414	18,783	23,260	+24
Non Res WPIP ($m)		4,452	5,028	5,168	+3
Infrastructure WPIP ($m)		6,402	7,314	7,055	-4
Australia			Source: Infometrics
Residential Consents	- Standalone houses	91,093	93,546	107,920	+15
	- Multi residential and other dwelling types	58,867	66,695	85,266	+28
	- Total	149,960	160,241	193,186	+21
Non Res WPIP (A$Bn)		34.9	32.0	34.2	+7
Infrastructure WPIP (A$Bn)		118.3	130.2	131.0	+1
US (Billions of 2010 US$) Calendar Years			Source: ABS
Residential Consents (US$Bn)		252	284	330	+16
Non Res WPIP (US$Bn)		344	358	347	-3
Infrastructure WPIP (US$Bn)		208	214	211	-1
			Source: HIS Global Insight

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