Fletcher Building Limited · NZX:FBU
Fletcher Building — FY2017 Earnings Presentation
50 slides from Fletcher Building's earnings presentation, Aug 16, 2017
Slide 1: Full Year Results to 30 June 2017
Building communities, building lives. Full Year Results to 30 June 2017 FRANCISCO IRAZUSTA —Interim Chief Executive Officer BEVAN MCKENZIE —Chief Financial Officer 16 August 2017 Fletcher Building Full Year Results Presentation 2017
Slide 2: Disclaimer
Disclaimer This Full Year Results presentation dated 16 August 2017 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 gi
Slide 3: Contents
Contents • Results Overview • Industry Context • Divisional Performances • Financial Results • Outlook • Appendix 3 Fletcher Building Full Year Results Presentation | © August 2017
Slide 4: Results Overview
Building communities, building lives. Results Overview Fletcher Building Full Year Results Presentation 2017
Slide 5: Results overview
Results overview Operating earnings before significant Revenue items $9,399m $525m 4% 23% Total dividend per share 39c Net earnings before significant items Flat Year-on-Year $321m Basic earnings per share before significant items 23% 46.3c 24% 5 Fletcher Building Full Year Results Presentation | ©
Slide 6: Construction – the path forward
Results overview Construction – the path forward • Large projects with complex design issues not managed effectively • Compounded by constrained capacity in construction market, short supply of labour • Negative impacts on two major B+I projects in Christchurch and Auckland • Reduced profit expectat
Slide 7: FB fundamentals are strong
Results overview FB fundamentals are strong PEOPLE CUSTOMERS PROFITABILITY ENGAGEMENT A CORE VALUE BROADER PORTFOLIO GROWTH • FY17 employee • Customer Leading - a core value • 4 out of 5 divisions grew engagement increased that underpins our culture earnings - stripping out B+I, NZ portfolio earning
Slide 8: Strong macro drivers forecast
Results overview Strong macro drivers forecast 13,000 Number of houses needed per annum in Auckland to meet demand of rising population 70,000+ Net migrants per annum in NZ $9bn NZ Government investment in NZ’s state highway network over next 4 years WA declines stabilising, Eastern Seaboard robust
Slide 9: Revenue
Results overview Revenue • Reported revenue $395m or 4% higher than FY16 Revenue • Reflects Higgins acquisition and increased $9,399m activity levels in New Zealand 4% GROSS REVENUE GROWTH RATES Geographic segments Reported Local Currency New Zealand 13% 13% Australia (7)% (4)% Rest of World 0% 6% 9
Slide 10: Operating earnings
Results overview Operating earnings • Reported operating earnings (EBIT) down 62% • Operating earnings before significant items Operating earnings down 23% • Significant items: primarily due to site closure $273m costs at Fletcher Insulation and Rocla Products, plus impairment of carrying values of
Slide 11: Strong Rest of World performance reflected in increased EBIT contribution
Results overview Strong Rest of World performance reflected in increased EBIT contribution External Revenue Geographic Split FY17 EBIT¹ Geographic (FY16 in brackets) Split FY17 (FY16 in brackets) 13% (14%) 23% (11%) 57% 30% (53%) 54% (33%) 23% (66%) (23%) 1. Before significant items 11 Fletcher Buil
Slide 12: Net earnings
Results overview Net earnings • Net earnings before significant items were down 23% to $321m Net earnings • Funding costs reduced 3% $94m • Effective tax rate 35.2%, higher due mainly to impact of impairments 80% • Net earnings down 80% to $94m EARNINGS PER SHARE Earnings per share 13.5 cents (80)%
Slide 13: Dividend
Results overview Dividend • Final dividend of 19 cps fully imputed for NZ taxation purposes Total dividend per share • Dividend Reinvestment Plan will be 39c operative for this dividend • Expect to fully impute dividends in FY18 and Flat Year-on-Year FY19 DIVIDEND Interim dividend per share 20 cents
Slide 14: Industry Context
Building communities, building lives. Industry Context Fletcher Building Full Year Results Presentation 2017
Slide 15: NZ residential consents up 5%, high net migration
Industry context NZ residential consents up 5%, high net migration Total Residential Consents¹ Change % Year on Year 35,000 20% 15% Peak (2004) 10% 7% 30,000 5% 0% 25,000 -10% -20% 20,000 Long term average (2001-now) -20% Auckland represents 34% of all consents -30% NZ in the 12 months Auckland to D
Slide 16: NZ infrastructure and commercial sectors strong
Industry context NZ infrastructure and commercial sectors strong NZ Infrastructure and Non-residential Work NZ Infrastructure and Commercial Work Put in Place Put in Place Change Year-on-Year 16,000 20% 14,000 14% 15% 12,000 Value of work done (NZm) 10,000 10% 7% 8,000 5% 5% 6,000 4,000 0% 2,000 0 -
Slide 17: AU residential activity slowing
Industry context AU residential activity slowing Australian Residential Approvals Australian Residential Approvals Growth Change Year-on-Year 300 0% -5% -2% 250 -6% -10% -9% -10% 200 -15% -16% -20% -17% 000s Australia NSW VIC + SA WA Rest of 150 QLD Aus Net migration 12 month rolling 100 350.0 300.0
Slide 18: AU infrastructure and commercial work showing some regional signs of improvement
Industry context AU infrastructure and commercial work showing some regional signs of improvement Australian Infrastructure and Non-residential Australian Infrastructure and Commercial Work Work Put in Place change Year-on-Year 180,000 20% 160,000 10% 8% 140,000 3% Value of work done (AUDm) 1% 120,0
Slide 19: Divisional Performances
Building communities, building lives. Divisional Performances Fletcher Building Full Year Results Presentation 2017
Slide 20: Operating earning overview
Divisional performances Operating earning overview EBIT¹ NZ$m +6% 252² 267 +10% +27% 176 193 +55% 169 133 130 84 78 (63) (30) (204) Building Products International Distribution Residential & Land Construction Corporate Development FY 2016 FY 2017 1. Before significant items 2. FY2016 Building Produc
Slide 21: FY17 vs FY16 EBIT bridge
Divisional performances FY17 vs FY16 EBIT bridge EBIT¹ NZ$m 800 750 17 46 700 22 15 36 650 282 600 550 500 33 682 660 450 400 525 350 300 FY16 Adjusted International Divested businesses Building Products Corporate FY16 Actual Distribution Residential & Land Construction FY17 Actual Development 1. Be
Slide 22: Building Products Result detail
Building Products Result detail June 2016 June 2017 % Concrete pipes and products NZ$m 12 months 12 months change • Ready-mix concrete volumes +3%, good Firth result Gross Revenue 2,270 • NZ concrete pipe volumes +9%, however Humes EBIT 2,449 (7)% -14% External Revenue 1,969 1,783 (9)% • AU concrete
Slide 23: International Result detail
International Result detail Formica June 2016 June 2017 % NZ$m 12 months 12 months change • North America EBIT flat Year-on-Year in local currency, on 3% volume growth Gross Revenue 2,128 2,017 (5)% • Asia EBIT +35% due to revenue growth, lower raw material costs plus improved manufacturing External
Slide 24: Distribution Result detail
Distribution Result detail New Zealand building supplies June 2016 June 2017 % NZ$m 12 months 12 months change • Operating earnings +22% • PlaceMakers and Mico revenue growth both +6% Gross Revenue 3,184 3,287 3% • Growth in timber and frame and truss External Revenue 3,026 3,112 3% • Market share g
Slide 25: Residential and Land Development Result detail
Residential and Land Development Result detail NZ residential June 2016 June 2017 % NZ$m 12 months 12 months change • EBIT +3% based on 499 houses and sections sold; targeting an increase in FY18 Gross Revenue 343 420 22% • Better than expected margin per unit sold despite impact of lower margins fr
Slide 26: Residential and Land Development Performance and trends
Residential and Land Development Performance and trends Residential units sold Cumulative shortfall of houses built to meet population change Cumulative number of dwellings 60,000 Auckland NZ 45,000 30,000 15,000 0 -15,000 -30,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2002 2004 2006 2008
Slide 27: Construction Result detail
Construction Result detail New Zealand June 2016 June 2017 % NZ$m 12 months 12 months change • Infrastructure and Higgins performing well • B+I operating loss of $292m due to: Gross Revenue 1,648 2,246 36% – Complex design issues, substandard project management, and stretched resourcing negatively E
Slide 28: Construction Performance and trends
Construction Performance and trends B+I Backlog Higgins and Infrastructure Backlog 2,500 1,600 Infrastructure Higgins 1,400 2,000 Work Backlog $m Work Backlog $m 1,200 1,500 1,000 800 1,000 600 400 500 200 0 0 Aug-15 Dec-15 Jun-16 Aug-16 Dec-16 Jun-17 Oct-15 Feb-16 Apr-16 Oct-16 Feb-17 Apr-17 Nov-15
Slide 29: Construction Business unit detail
Construction Business unit detail AVERAGE CURRENT TOP 5 PROJECTS AS % FOCUS CONTRACTS ANNUAL EBIT BACKLOG¹ OF TOTAL BACKLOG¹ FY05-16 Building horizontal Fixed price Infrastructure structures (roads, $894m (c60%) and 83% $16m bridges, transport lines) alliances (c40%) Pavement-laying, road Largely fi
Slide 30: Construction B+I portfolio detail
Construction B+I portfolio detail BACKLOG¹ AT FORECAST MARGIN AT CONTRACT VALUE % COMPLETE AT 30 PROJECT COMPLETION DATE 30 JUNE 2017 30 JUNE 2017 $M JUNE 2017 $M Project 1 261 Sep-17 93% 18 Large negative Project 2 476 Jun-19 22% 372 Negative Project 3 427 Jun-19 24% 323 Positive Various out to Oth
Slide 31: Financial Results
Building communities, building lives. Financial Results Fletcher Building Full Year Results Presentation 2017
Slide 32: Profit & Loss
Financial results Profit & Loss Reported Results June 2016 June 2017 NZ$m (except EPS) 12 months 12 months Change Revenue 9,004 9,399 4% Operating earnings before significant items 682 525 (23)% Operating margin 7.6% 5.6% (26)% Significant items 37 (252) NM Operating earnings (EBIT) 719 273 (62)% Fu
Slide 33: Operating cash flow
Financial results Operating cash flow June 2016 June 2017 NZ$m 12 months 12 months Change Operating earnings before significant items 682 525 (23)% Depreciation and amortisation 194 203 5% Less cash tax paid (97) (99) 2% Less interest paid (118) (125) 6% Provisions, significant items and other (99)
Slide 34: Increases in both capex and depreciation
Financial results Increases in both capex and depreciation NZ$m June 2016 June 2017 % 350 NZ$m 12 months 12 months change 300 Stay-in-business 194 182 (6)% 250 106 137 Growth 106 137 29% 105 200 Total Capex 300 319 6% 150 100 201 194 194 203 Acquisitions 317 NM 173 182 50 Depreciation/ 0 194 203 5%
Slide 35: Net debt movement
Opening Net Debt NZ$m 1396 Cash from operations (pre 419 working capital) Other working 77 capital and Higgins Investment in land 99 and developments Financial results Growth capex 137 Stay in business 182 capex 35 Fletcher Building Full Year Results Presentation | © August 2017 Acquisitions 317 Div
Slide 36: Debt profile
Financial results Debt profile Funding and Maturity Profile 30 June 2017 Undrawn credit lines of $536m and cash of $219m Average maturity of debt facilities is 4.7 years 1 200 455 Approximately 44% of all borrowings have 335 fixed interest rates 380 Average interest rate on debt is 4.76% 286 Mix of
Slide 37: Capital management settings
Financial results 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 2017: 35% Leverage: • Target Net Debt to EBITDA of 2.0 to 2.5 times • As
Slide 38: Key ratios
Financial results Key ratios Total Shareholder Return (TSR) Debt/Debt Plus Equity Percentage1 Percentage 37 35 51 33 32 32 27 9 11 -3 -0.4 -27 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Return on Average Funds Net Debt/EBITDA Percentage2 Times 12.3 12.5 12.7
Slide 39: Outlook
Building communities, building lives. Outlook Fletcher Building Full Year Results Presentation 2017
Slide 40: Outlook FY18
Outlook FY18 New Zealand • Expect elevated levels of activity in residential market, including alterations and additions • Auckland housing shortage plus high migration rates underpinning demand • Offset by home lending restrictions cooling Auckland market in near term • Strong pipeline of infrastru
Slide 41: Financial outlook FY18
Financial outlook FY18 Earnings before interest and tax and significant items • Benefit from turnaround of B+I business • Modest growth across remaining operating divisions • Corporate costs return to more normal levels Capex forecast to be $275-325m versus $319m in FY17 Depreciation forecast to be
Slide 42: Appendix
Building communities, building lives. Appendix Fletcher Building Full Year Results Presentation 2017
Slide 43: NZ construction market has a strong pipeline
Appendix NZ construction market has a strong pipeline Value of all NZ Construction Work Put in Place NZ$bn $40 • Forecasts suggest medium term peak $35 for residential 34% construction but $30 ‘stronger for 124% longer’ $25 infrastructure construction $20 pipeline $15 $10 $5 $0 2002 2004 2006 2008 2
Slide 44: Number of dwellings needed to meet population growth
Number of dwellings needed to meet population growth in last 12 months Source: MBIE -10,000 5,000 -15,000 0 -5,000 10,000 15,000 Jul-01 Appendix Dec-01 May-02 Oct-02 Mar-03 Aug-03 Jan-04 Jun-04 Nov-04 Apr-05 Sep-05 Auckland Feb-06 Jul-06 44 Fletcher Building Full Year Results Presentation | © August
Slide 45: Sectoral exposure, based on revenue
Appendix Sectoral exposure, based on revenue Residential Geographical Exposure by Sector¹ (New + A&A)* Commercial Infrastructure Other New Zealand 41% 28% 16% 15% Australia 53% 18% 16% 13% Rest of World 39% 52% 0% 9% Total Manufacturing 45% 29% 13% 13% New Zealand 77% 20% 0% 3% Australia 52% 48% 0%
Slide 46: Building consents
Appendix Building consents FY16 FY17 17/16 12 months 12 months % Mvmt New Zealand Residential Consents 29,095 30,444 +5% Res WPIP ($m) 11,384 13,249 +16% Non Res WPIP ($m) 6,625 7,239 +9% Infrastructure WPIP ($m) 6,545 6,633 +1% Australia Source: Infometrics Residential Consents - Standalone houses
Slide 47: Strongest growth in NSW, largest decline in WA
Appendix Strongest growth in NSW, largest decline in WA Change in housing approvals – by state 50,000 Jun 2016 Jun 2017 % 12 months 12 months Change 45,000 Stand-alone 119,834 113,902 (5)% 40,000 Multi + other 118,355 103,970 (12)% Residential 35,000 Total 238,189 217,872 (9)% 30,000 25,000 20,000 1
Slide 48: Company structure
Appendix Company structure Interim CEO: Francisco Irazusta Residential & Land Building Products: International: Distribution: Development: Construction: Matt Crockett Interim: Mitch Quint Dean Fradgley Steve Evans Michele Kernahan • GBCWinstone (NZ) • Formica Asia • PlaceMakers (NZ) • Fletcher Livin
Slide 49: Company overview
Appendix Company overview Revenue: $9.4 billion People: 21,064 External Revenue FY17 ($m) $5,381m $2,766m $459m $296m $300m $197m New NewZealand Zealand Australia North America Asia Europe South Pacific 10,905 people 8,843 people 5,580 people 1,097 people 1,553 people 1,236 people 693 people 76% of
Slide 50: Full Year Results to 30 June 2017
Building communities, building lives. Full Year Results to 30 June 2017 FRANCISCO IRAZUSTA —Interim Chief Executive Officer BEVAN MCKENZIE —Chief Financial Officer 16 August 2017 Fletcher Building Full Year Results Presentation 2017