Fletcher Building : 2019 Annual Shareholders Meeting Presentation

F O C U S

2019 Annual

Shareholders'

Meeting

28 November 2019

Fletcher Building Limited

Annual Shareholders' Meeting 2019

F O C U S

Bruce Hassall

Chair

Fletcher Building Limited

Annual Shareholders' Meeting 2019

Directors

Martin Brydon		Tony Carter		Barbara Chapman		Peter Crowley

Rob McDonald		Doug McKay		Cathy Quinn		Steve Vamos

3	Fletcher Building LimitedAnnual Shareholders' Meeting 2019

Meeting agenda

Chair's address

Chief Executive Officer's address

Voting on Resolutions

General Q&A

Refreshments

4	Fletcher Building LimitedAnnual Shareholders' Meeting 2019

FY2019 results at a glance

	Revenue		Net Earnings/(Loss)		EBIT*		EPS*
	$9,307m		$164m		$631m		43.0c
	FY2018 $9,471m		FY2018 ($190m)		FY2018 $50m		FY2018 (8.1c)
					* Before significant items		* Before significant items
	Net debt		Leverage ratio		Return on Funds		Cash Flow from
			Employed		operating activities
	$325m		0.4x		%		m
	FY2018 $1.3b		FY2018 4.8x		11.8		$153
			FY2018: 0.9%		FY2018: 396m

5	Fletcher Building LimitedAnnual Shareholders' Meeting 2019

Note: All metrics include discontinued operations RTG and Formica which were sold during the year

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 year ended 30 June 2019. Details of significant items can be found in note 2 of the financial statements. Leverage ratio is Net Debt/EBITDA

Returns to shareholders: dividend reinstated, share buyback underway

Dividends		Share buyback of up to
23c		$300m
FY2018 nil		$106m spent so far

• Dividend policy to pay dividends in the range of50%-75% of net earnings before significant items and having regard to available cash flow1
• Return of capital to shareholders via share buyback is tax effective for shareholders and increases the relative earnings per share

6	Fletcher Building LimitedAnnual Shareholders' Meeting 2019

1Available cash flow = Free cash flow less cash interest

FY2019 performance - continuing operations

Group

New Zealand Divisions

Australia

Division

External RevenueEBIT1,2

$8,308m$549m

FY2018 $8,211m

FY2018 ($28m)

$5,375m		$532m
FY2018 $5,239m		FY2018 ($97m)
$2,933m		$57m
FY2018 $2,972m		FY2018 $114m

7	Fletcher Building LimitedAnnual Shareholders' Meeting 2019

1. Before significant items
2. Includes Corporate costs of $40m

FY2019 balanced scorecard

Safety

Total Recordable Injury Frequency Rate 1

6.7	6.9	5.1	5.0
FY16	FY17	FY18	FY19

Sustainability

Carbon Emission Intensity 2

143	141	149
139

FY16 FY17 FY18 FY19

	Engagement
Employee Engagement Rating	70%	71%
66%	67%
FY16	FY17	FY18	FY19

Customer

Net Promoter Score 3

	33	41
24

FY17 FY18 FY19

8	Fletcher Building LimitedAnnual Shareholders' Meeting 2019

1. TRIFR = Total no. of recorded injuries per million man hours worked.
2. Carbon Emission Intensity = FBU Co2 Tonnes for every $1m of revenue. Restated per ISO14064-1, previously overestimated; increase in FY18 is due to Higgins acquisition
3. Net Promoter Score calculated as % Promoters (9 - 10) minus % Detractors (0 - 6).

Sustainability strategy

•Significant focus on health and safety through Protect safety reset

•Diversity and inclusion

•Science-based target for reducing our carbon emissions

•Dow Jones Sustainability™

Australia Index inclusion

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Governance

Board Skills Matrix

Diversity Industry

Expertise Geography

• Strengthened governance, including revitalised delegated financial authorities, implementation of golden rules and policy refresh
• Comprehensive induction of the new Board and there-organisation and composition of board committees
• Adoption of the new NZX listing rules
• Systematic review of the company's approach to health and safety
• Emphasis on stakeholder relationships
• Strength and depth of skills on Board to effectively govern Fletcher Building Limited

• Board performance review underway

10Fletcher Building LimitedAnnual Shareholders' Meeting 2019

Ihumātao

11Fletcher Building LimitedAnnual Shareholders' Meeting 2019

Delivering the strategy

			FY2019	FY2020	FY2021-23
			REFOCUS AND STABILISE	PERFORMANCE	GROWTH
	1.	Refocus on		NZ Businesses strong and growing
		the NZ core
			Complete B+I projects
	2.	Stabilise		Construction turnaround complete
		Construction	Return division to profit
			Set-up for		Performance improvement
	3.	Strengthen
		Australia	turnaround		Profitable market share
			Roof Tile Group and
	4.	Exit non-core
		businesses	Formica divested

12Fletcher Building LimitedAnnual Shareholders' Meeting 2019

F O C U S

Ross Taylor

Chief Executive Officer

Fletcher Building Limited

Annual Shareholders' Meeting 2019

Firmly focused on our future

To be the undisputed leader in New Zealand

and Australian building solutions -

with products and distribution at our core

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Positions us well to drive shareholder returns into the future

Focus

Consistency

Leveraged to upside

Strong balance sheet, strong cash flows

Well positioned for macro trends

FY23 TARGETS

• Revenue growth above background market growth
• Core business margin improvements in NZ and Australia
• Return on Funds Employed (ROFE) >15%

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Medium term market outlook is forecast to be supportive

New Zealand Market

NZ Historical and Forecast Market Outlook (NZ$b)1

	40																	CAGR
	35		1.1%
	30
	25
	20
Population	15
10
growing at
1.2%	5
20-23
CAGR	0

FY13 14 15 16 17 18 19 20F 21F 22F 23F

Key: Residential

Australia Market

AU Historical and Forecast Market Outlook (AU$b) 1

300

	CAGR
250	9.2%

200

150

100

Population growing at

1.5% 50

20-23

CAGR0

FY13 14 15 16 17 18 19 20F 21F 22F 23F

Non-Residential		Infrastructure / Other

16Fletcher Building LimitedAnnual Shareholders' Meeting 2019

1Work put in place. Source: Infometrics, Oxford Economics

Focus now on driving consistent performance and setting up for growth

1. Strengthen and grow the NZ core
2. Profitable growth in Residential and Development
3. Stabilise and reset Construction
4. Turnaround and grow Australia

FY2020	FY2021-23
PERFORMANCE	GROWTH

Get all NZ core	NZ businesses strong and growing
businesses performing

NZ businesses strong and growing

Complete B+I projects	Complete Construction turnaround
Maintain profits	and overall repositioning

Set-up

for turn Performance improvement and profitable market share growth around

17Fletcher Building LimitedAnnual Shareholders' Meeting 2019

Executive Team well positioned to drive and lift performance

Operational Heads

HAMISH		BRUCE		IAN		STEVE		PETER		DEAN
MCBEATH		McEWEN		JONES		EVANS		REIDY		FRADGLEY
Chief Executive		Chief Executive		Chief Executive		Chief Executive		Chief Executive		Chief Executive
Building Products		Distribution		Concrete		Residential &		Construction		Australia
						Development

Functional Heads

BEVAN		CLAIRE		ANDREW		DAVID		WENDI
McKENZIE		CARROLL		CLARKE		MOSS		CROFT
Chief Financial		Chief People &		Company Secretary &		Acting Chief		Chief Health &
Officer		Communications		General Council		Information Officer		Safety Officer
		Officer

18Fletcher Building LimitedAnnual Shareholders' Meeting 2019

NZ core has good market positions, but margins under pressure

Building

Products

Distribution

Concrete

Gross Revenue And Margin FY14-FY19

5,000									12.0%
4,000									10.0%
3,000									8.0%
									6.0%
2,000									4.0%
1,000									2.0%
-										0.0%
		FY14	FY15	FY16	FY17	FY18	FY19
			Revenue ($NZ millions)		EBIT Margin %

Current Position

• #1 or #2 position in all businesses
• Revenue has grown in good market conditions
• Margin compression through input cost pressures and competitive markets
• Limited recent new product innovation or moves into logical adjacencies

19Fletcher Building LimitedAnnual Shareholders' Meeting 2019

Positioning the NZ core for margin improvement and growth

Key Focus Areas		What We Are Doing

1

2

34

Operational excellence

Product innovation

E-commerce, digitisation and automation

Logical adjacencies and opportunities

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Highly successful Residential and Development division

Residential Units Sold FY14-FY19

Residential and

Development

800
700
600
500
400
300
200
100
0
FY14	FY15	FY16	FY17	FY18	FY19
Low/Medium Density	High Density	Sections

Current position

• #2 house builder in New Zealand
• New home sales mainly priced $600- 900k
• 755 residential units sold in FY19
• Strong operating disciplines
• Strong customer focus
• c5,000 future lots under control, c5 years' supply

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Ability to scale Residential further

Key Focus Areas		What We Are Doing

1

2

34

Grow to 1,000 units pa

Land Dev continues at $25m pa

Clever Core panelisation plant drives speed and quality

Scale our apartment business

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Pivoting Construction to a more balanced portfolio

Revenue By Project Type (NZ$m)

Current position

•

The leading contractor in NZ and the

Construction

$2bn

•

South Pacific

c10% market share

$1.5bn

•

Strong positions in roading,

$1bn

•

infrastructure

Focused re-commitment to vertical

$0.5bn

•

More balanced portfolio in the future:

•

1/3rdLump Sum / D&C

FY19

FY20

FY21

FY22

FY23

•

1/3rdAlliance / Measure & Value

Alliance / Measure & Value

Maintenance

Lump Sum / D&C

Nil Margin

•

1/3rdMaintenance

23Fletcher Building LimitedAnnual Shareholders' Meeting 2019

Growing Construction in profitable sectors

Key Focus Areas		What We Are Doing

1

2

34

Rebuild talent and skills

Improved operating disciplines and governance

Winning the right work with the right customers

Complete legacy projects within provisions

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Update on NZICC

• Fire at NZICC construction site in October
• All staff and subcontractors on site evacuated safely
• Extremely grateful to the Fire and Emergency teams
• We remain committed to delivering aworld-class convention centre for Auckland and New Zealand
• Plan to restart the project as quickly as possible
• Contract Works and Third Party Liability insurances will respond to loss and damage
• Expect to be in a position to provide a further update athalf-year results announcement in February 2020

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Intervened in Australia and dealing with market downturn

AU Historical and Forecast Market Outlook

Australia	Residential Approvals (#)

232k					241k
	(c30%)
				215k
	187k
			173k
		150k-160k
FY18	FY19	FY20F	FY21F	FY22F	FY23F

Current Position

• #1 or #2 position in all businesses
• 54% exposed to Residential market
• Decline in Residential market, higher input costs, leading to price /margin pressure
• Decisive intervention to set the business up for performance improvement and growth: clear BU priorities,cost-out programme, targeted growth investment, and talent development
• Continue to target 7% EBIT margin in the medium term

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Source: BIS Oxford Economics (financial years)

Australia cost out and growth investment progressing well

						Key Focus Areas		What We Are Doing
1	Operational excellence,
complete final stage of
cost out programmes
2	Product innovation
3	Ecommerce, digitisation and
automation
						4	Logical adjacencies and
						opportunities

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Continued focus on our key enablers to drive performance

Strong safety

culture

Disciplined

performance

improvement and capital allocation

Engaged and

capable people, lean operating model

Leading innovation

and local

adaptation anchored in environmental consciousness

Fit for purpose systems, next generation digital capabilities

High level of

customer intimacy

built through

owning channels to key segments

28Fletcher Building LimitedAnnual Shareholders' Meeting 2019

Market and trading update - New Zealand

New Zealand Trading Update

• Core divisions - Building Products, Distribution, Concrete:
• • Finishing trade volumes remain strong, supporting good performance in plasterboard, insulation, laminates
  • Civil, infrastructure and early trade work trending slightly lower, leading to slight easing in demand for concrete and pipes
  • Steel market remains highly competitive
• Residential & Land Development:
• • Strong demand for houses in key$600k-$900k segment, prices remain supportive
  • First of two Land Development transactions completed in July, second scheduled to complete in late H1 or early H2
• Construction: Higgins' asphalt works impacted by wet first quarter, no change to B+I provisions based on information currently available

New Zealand Market FY20 Outlook

• Residential activity to ease slightly off peaks, with continued trend to higher proportion of multi- residential dwellings
• Commercial activity to remain steady
• Infrastructure spend to ease in major roading, with increased spend in road safety, water, and rail

29Fletcher Building LimitedAnnual Shareholders' Meeting 2019

Market and trading update - Australia

Australia Trading Update

• Cost-outprogramme progressing to plan
• Good turnaround momentum in Laminex, Fletcher Insulation
• High competitive intensity placing continued pressure on price and margin in Stramit and Tradelink
• Infrastructure project delays expected to have somenear-term impact on Iplex-Rocla in FY20

Australia Market FY20 Outlook

• Residential contraction expected to bottom in FY20 in line with prior expectations(c150k-160k housing approvals)
• Commercial activity to remain steady
• Infrastructure project activity to remain lumpy, with an expected lift in project commencements in key sectors in calendar 2020

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FY20 outlook

• FY20 EBIT before significant items expected to be in the range of $515 million to $565 million
• • New Zealand core: earnings solid overall; Steel impacted by ongoing high competitive intensity
  • Residential & Land Development: Residential earnings to grow slightly on prior period; Land Development returns to c$25m p.a. EBITrun-rate
  • Construction: broadly stable earnings driven mainly by upcoming roading season
  • Australia: earnings weighted to H2 as benefits of cost out programmes ramp up; pipes businesses impacted by lumpy infrastructure project activity

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F O C U S

Resolutions and Voting

Fletcher Building Limited

Annual Shareholders' Meeting 2019

Resolutions

Ordinary Resolutions

•

•

Resolution 1 - Election of Peter Crowley

Resolution 2 - Auditor fees and expenses

Special Resolution

• Resolution 3 - To adopt a new Constitution

33Fletcher Building LimitedAnnual Shareholders' Meeting 2019

F O C U S

Appendix

Fletcher Building Limited

Annual Shareholders' Meeting 2019

Summary of FY20 metrics already communicated

Land Development

Australia

Corporate Costs

Depreciation and Amortisation

IFRS 16

Funding Costs

Capex

Buyback

Dividends

• Land Development earnings to return to medium term average of c $25m p.a. (c$30m lower than FY19)
• Targeting $100m gross annualcost-out benefit by FY21; expect c$15m of this to flow to net EBIT benefit in FY20 and c$50m in FY21
• Normalisedrun-rate of c $55m p.a. (c$15m higher than FY19)
• c $200m1(c$25m higher than FY19)
• c$50m increase in EBIT, c$15m reduction in NPAT
• Funding costs expected to bec$80-$90m (excl. lease interest costs under IFRS16)
• Expected to be in the range of$275-$325m (excl. WWB plant investment)
• Up to $300mon-market share buyback
• Dividend policy to pay dividends in the range of50%-75% of net earnings before significant items and having regard to available cash flow

35Fletcher Building LimitedAnnual Shareholders' Meeting 2019

1Excludes impact of IFRS 16 adjustments

Important Information

This presentation dated 28 November 2019 should be read in conjunction with, and subject to, the explanations and views of future outlook on market conditions, earnings and activities given in the 2019 Annual Report and management commentary published on 21 August 2019.

In certain sections of this presentation the Group has chosen to present certain financial information exclusive of the impact of Significant Items and/or the results of the Building + Interiors (B+I) business unit, consistent with previous market guidance. Where such information is presented, it is clearly described and marked with an appropriate footnote. This allows the readers of this presentation to better understand the underlying operations and performance of the Group.

The Group's financial results, including comparative information, have been presented in accordance with the revised divisional structure announced on 21 June 2018.

36Fletcher Building LimitedAnnual Shareholders' Meeting 2019