Fletcher Building Limited · NZX:FBU
Fletcher Building — Investor Day (June 2018)
117 slides from Fletcher Building's investor day presentation, Jun 21, 2018
Slide 1: Fletcher Building Investor Day - Strategy Presentation
Fletcher Building Limited Private Bag 92114 Auckland 1142 810 Great South Road Penrose Auckland 1061 New Zealand fletcherbuilding.com For personal use only +64 9 525 9000 21 June 2018 Fletcher Building Investor Day - Strategy Presentation Today, Fletcher Building will hold an investor day in Sydney
Slide 2: Fletcher Building Strategy Presentation
FOCUS For personal use only Fletcher Building Strategy Presentation ROSS TAYLOR — Chief Executive Officer BEVAN MCKENZIE — Chief Financial Officer 21 June 2018 Fletcher Building Strategy Presentation 2018
Slide 3: Agenda
FOCUS Agenda For personal use only 1. Group Strategy: Context and Case for Change Portfolio Choices Strategy and Five Year Plan Operating Model Innovation 2. Divisional Strategies: New Zealand: A. Building Products B. Distribution C. Steel D. Concrete E. Residential + Development F. Construction Aus
Slide 4: FBU is one of the most diversified building materials companies
FBU is one of the most diversified building materials companies in the world… For personal use only Diversified Geographic Exposure Focused Diversified Product Exposure 3 Fletcher Building Strategy Presentation 2018
Slide 5: Operations spanning multiple geographies, sectors, value chains and product lines
…with operations spanning multiple geographies, sectors, value chains and product lines For personal use only 0% 100% Geography NZ AU ROW Sector Residential Commercial Infrastructure / Other Primary Construction / Land Value Chain Secondary Manufacturing Distribution Manufacturing Development Aggs.,
Slide 6: Strong NZ performance offset by Construction losses and Australia
We’ve seen strong performance in NZ offset by recent losses in Construction, made limited headway with Formica, and failed to For personal use only turn around Australia FY13-17 EBIT Performance (NZ$m) 1 Key: CAGR % FBU Overall: (0%) EBIT NZ Building Products 18% and Distribution 400 300 200 Residen
Slide 7: Underperformance versus key peers
This has led to underperformance vs. key peers, which is a similar theme to other highly diversified businesses 1 For personal use only 10 Year TSR 5 Year TSR 1 Year TSR 61 50 33 31 27 28 27 26.8% 23 23 23.1% 22 20 19 19 18 17 15 15 16 16 14 13 Top 11 10 10.2% 11 10 quartile 8 6 6 6 4 3 2 1 1 1 (3)(
Slide 8: Market growth forecast to hold at present levels
While we don’t expect the same level of historical market growth, we forecast it to hold at present levels for the medium term For personal use only NZ Historical and Forecast Market Outlook (NZ$b) AU Historical and Forecast Market Outlook (NZ$b) 18-23 18-23 CAGR CAGR 1.6% 0.1% 6.2% 0.1% 1.4% 4.2% F
Slide 9: Portfolio decisions need to take advantage of key macro trends
Any portfolio decisions need to position us to take advantage of key macro trends For personal use only Product Service and channel Labour Global supply innovation innovation productivity chains • Green and efficient • Personalised service • Pre-assembled • Low cost country (LCC) buildings: regulati
Slide 10: Elevated sales multiples make now the time to simplify
With elevated sales multiples, if we’re going to simplify the portfolio, now is the time For personal use only Trade Buyer Building Products EV / LTM Financial Buyer Building Products EV / LTM EBITDA 1 multiples EBITDA 1 multiples 9.8x 9.3x 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 9 Fletche
Slide 11: Managing multiple platforms across geographies is challenging
Continuing to manage multiple platforms across multiple geographies from a capital and capability perspective was likely For personal use only to be challenging 10 Fletcher Building Strategy Presentation 2018
Slide 12: Therefore we have decided to focus the business
Therefore we have decided to focus the business For personal use only 11 Fletcher Building Strategy Presentation 2018
Slide 13: Agenda
FOCUS Agenda For personal use only 1. Group Strategy: Context and Case for Change Portfolio Choices Strategy and Five Year Plan Operating Model Innovation 2. Divisional Strategies: New Zealand: A. Building Products B. Distribution C. Steel D. Concrete E. Residential + Development F. Construction Aus
Slide 14: Starting point: a portfolio made complex through lack of clear strategy
Our starting point: a portfolio made complex through lack of a clear strategy For personal use only Product Line Raw Material Primary Secondary Supply + Merchant Residential + Development / Value Chain Extraction Processing Processing Install Distribution Construction Concrete Concrete Firth GBC Win
Slide 15: Businesses generally occupy a #1 or #2 position
For personal use only 14 Market share % 0% 100% Position 1 Winstone Wallboards 1 Golden Bay Cement 1 Tasman Insulation NZ 1 Humes 1 Iplex NZ 1 Firth 2 Laminex NZ Fletcher Building Strategy Presentation 2018 1 Winstone Aggregates 1 PlaceMakers 1 1 NZ Building Products + Dist. Mico 2 Steel Distributio
Slide 16: Ample opportunities to grow share
With FBU at only 15% of the overall NZ market and 1% of Australia, there are ample opportunities to grow share… For personal use only New Zealand FY17 Sector Market Size (NZ$bn) Australia FY17 Sector Market Size (NZ$bn) and FBU Share (%) and FBU Share (%) $13.3bn $7.2bn $10.0bn $80.5bn $40.3bn $77.3
Slide 17: Pursue new adjacencies
…and pursue new adjacencies For personal use only Basic Materials required for the Residential, Commercial and Infrastructure sectors Roofing + Hardfill / Roofing + Hardfill / Insulation Concrete Asphalt Cladding Insulation Concrete Asphalt Cladding Fixtures Sand Fixtures Sand Plumbing Plaster- Plum
Slide 18: A strong core in NZ Building Products and Distribution
We have a strong core in NZ Building Products and Distribution For personal use only Building Prod. Residential + Construction Australia ROW + Distribution Development FY18F Revenue 3,720 (NZ$m) 3,120 1,930 1,170 580 FY18F EBIT (NZ$m) 390 and EBIT % 21% 120 130 11% 80 NM 4% 6% FY18F Revenue Pull-Thr
Slide 19: First priority: refocus on the core
Our first priority will be to refocus on our core, and actively defend and grow NZ Building Products and Distribution For personal use only Product Line Raw Material Primary Secondary Supply + Merchant Residential + Development / Value Chain Extraction Processing Processing Install Distribution Cons
Slide 20: Leverage complementary businesses in NZ
In NZ, we will continue to leverage businesses that are complementary to our core and strong performers in their own For personal use only right Product Line Raw Material Primary Secondary Supply + Merchant Residential + Development / Value Chain Extraction Processing Processing Install Distribution
Slide 21: A choice between two plays relative to the core
Finally, we had a choice to make. We had two legitimate plays relative to the core, but we couldn’t do both given constraints For personal use only around capital and capability Product Line Raw Material Primary Secondary Supply + Merchant Residential + Development / Value Chain Extraction Processin
Slide 22: Australia is the preferred growth platform
Australia is the preferred growth platform For personal use only Strategic Options + Option 1: Option 2: Considerations Australia Formica Replicate select NZ Building Products and Pursue a global laminates play, particularly Strategy in the Northern Hemisphere and emerging Distribution positions
Slide 23: Agenda
FOCUS Agenda For personal use only 1. Group Strategy: Context and Case for Change Portfolio Choices Strategy and Five Year Plan Operating Model Innovation 2. Divisional Strategies: New Zealand: A. Building Products B. Distribution C. Steel D. Concrete E. Residential + Development F. Construction Aus
Slide 24: Strategy for Fletcher Building
This translates to our strategy for Fletcher Building… For personal use only Vision To be the undisputed leader in NZ and AU building solutions – with Products and Distribution at our core Where to 1. Refocus on the 2. Stabilise 3. Strengthen 4. Exit non-core Play core Construction Australia busines
Slide 25: Three broad stages
…which can be characterised by three broad stages… For personal use only Stage 1 | FY19 Stage 2 | FY20 Stage 3 | FY21-23 Turnaround / Exit Solid Performance Growth Ongoing refinement of operating model and governance Innovating to achieve continuous improvement and take advantage of key macro trends
Slide 26: Improvements across our balanced scorecard
…and see improvements across our balanced scorecard For personal use only Safety Engagement Total Recordable Injury • Drive TRIFR <5 across all Employee Engagement • Drive employee engagement Frequency Rate 1 businesses Rating >80% with no business lower than 70% 6.9 • Focus on removing serious 67%
Slide 27: Agenda
FOCUS Agenda For personal use only 1. Group Strategy: Context and Case for Change Portfolio Choices Strategy and Five Year Plan Operating Model Innovation 2. Divisional Strategies: New Zealand: A. Building Products B. Distribution C. Steel D. Concrete E. Residential + Development F. Construction Aus
Slide 28: Aligning organisation, people and activities around new strategy
To maximise the likelihood of success we will be aligning our organisation, people and activities around our new strategy For personal use only A structure that aligns with the new strategy 1 • NZ organised around more logical business groupings • Australia set up as a single business to ensure focu
Slide 29: Is there a better way to organise our business?
When thinking through our structural choices, we asked the question - is there a better way to organise our business? For personal use only Economic proximity • Each BU scored against all other BUs based on the degree of customer, cost, and capability sharing analysis: • The more sharing between BUs
Slide 30: New divisional approach
A new divisional approach is designed to better align businesses to our strategic imperatives, execute on operating fundamentals, For personal use only and realise cost savings at the Centre More homogeneity within divisions More heterogeneity within divisions FY17 Size Residential Construc- Steel D
Slide 31: New organisational structure effective July 1, 2018
A new organisational structure reflecting this will commence effective July 1, 2018 For personal use only CEO – Ross Taylor Building Distribu- Steel Concrete Resi. Construc- Australia Formica Finance People Tech. EHS Legal Products tion + Dev. tion David Bruce Hamish Ian Steve Michele Dean Francisco
Slide 32: Future FBU management team
The future FBU management team has deep experience and are proven performers 1 For personal use only Chief Financial Officer Chief People Officer Bevan McKenzie Claire Carroll • FBU CFO since 2017 • FBU CPO since 2017 • Reset balance sheet and led the successful • Led the review and design of a new
Slide 33: Future FBU management team (continued)
The future FBU management team has deep experience and are proven performers (continued) 1 For personal use only Group General Counsel and Company Secretary Head of Environment, Health and Safety Charles Bolt Wendi Croft 2 • FBU GC+CS since 2013 • Joined FBU in early 2018 • Previously with Bell Gull
Slide 34: Overhead moved closer to the front line
FBU overhead will be moved closer to the front line… For personal use only Corporate Moves Front Line Sales, Marketing + Pricing Excellence Central Functions Divisions Finance Manufacturing Excellence Building Products HR Distribution Comms. Steel Legal Supply Chain and Procurement Concrete ICT Resi
Slide 35: Reduced corporate overhead and business unit recharges
…which will reduce Corporate overhead and business unit recharges For personal use only FY16A-19F Corporate Gross Costs (NZ$m) 1 FY16A-18F CAGR = c.15% 205 190 30 175 160 15 15 145 140 100 100 60 50 50-60 50-60 FY16A FY17A FY18F Saving / Move FY19F Key: Corporate Overhead Divisional Recharges FBU Sa
Slide 36: Agenda
FOCUS Agenda For personal use only 1. Group Strategy: Context and Case for Change Portfolio Choices Strategy and Five Year Plan Operating Model Innovation 2. Divisional Strategies: New Zealand: A. Building Products B. Distribution C. Steel D. Concrete E. Residential + Development F. Construction Aus
Slide 37: Existing focus on innovation further strengthened
FBU’s existing focus on innovation will be further strengthened For personal use only Continuous improvement - “Better Every Day” Culture / front line ownership Customer excellence Manufacturing excellence Supply chain and procurement Positioning FBU to take advantage of key macro trends Product inn
Slide 38: Continuous improvement moved closer to the businesses
Continuous improvement will be moved closer to the businesses… For personal use only Culture / front line Customer Manufacturing Supply chain and ownership excellence excellence procurement • Accountability and • Understanding the • Ongoing ideation and • Building commercial ownership for outcomes c
Slide 39: Many initiatives to build on
…and we have many initiatives we can build on For personal use only Continuous improvement domains Culture / front Customer Manufacturing Supply chain line ownership excellence excellence and procurement Present • ~25% of FBU’s • FBU’s customer • Golden Bay • Firth’s digital examples businesses have
Slide 40: Innovation case study - customer service promises
Innovation case study - customer service promises For personal use only Customer excellence example Stramit, alongside other FBU businesses, has refocused its Customer Service Promise: Declaration of Done business model around a customer first culture. Our steel-clad commitment to you every time Dec
Slide 41: Positioning to take advantage of key macro trends
FBU is further positioning itself to take advantage of key macro trends… For personal use only Product Service and channel Labour Global supply innovation innovation productivity chains • Green and efficient • Personalised service • Pre-assembled • Low cost country (LCC) buildings: regulation expect
Slide 42: Activity well underway
…with activity well underway For personal use only Key macro trends Product Service and Labour Global supply innovation channel innovation productivity chains Present • Laminate exterior • Digitally enabled • New panelisation • Offshore sourcing examples cladding showrooms of the factory, having par
Slide 43: Innovation case study - panelisation
Innovation case study - panelisation For personal use only Labour productivity example Fletcher Living has developed a panelised solution that Offsite manufacturing: Panelisation reduces duplex construction time from 22 weeks to 9 weeks. The new market offer will: • Reduce construction time • Improv
Slide 44: A simpler and more focused strategy
A simpler and more focused strategy will enable FBU to achieve its full potential For personal use only Vision To be the undisputed leader in NZ and AU building solutions – with Products and Distribution at our core Where to Play 1. Refocus on the 2. Stabilise 3. Strengthen 4. Exit non-core core Con
Slide 45: Agenda
FOCUS Agenda For personal use only 1. Group Strategy: Context and Case for Change Portfolio Choices Strategy and Five Year Plan Operating Model Innovation 2. Divisional Strategies: New Zealand: A. Building Products B. Distribution C. Steel D. Concrete E. Residential + Development F. Construction Aus
Slide 46: Building Products summary
Building Products summary For personal use only Business Unit Overviews Chief Executive Profile • Winstone Wallboards (WWB) is NZ’s largest David Thomas 1 | Ngati Whakaue manufacturer and distributor of plasterboard • Worked within FBU businesses and drywall systems under the iconic GIB® for 42 year
Slide 47: Building Products market size and share
Building Products market size and share For personal use only Market Size (NZ$m) and Share (%) $430m $340m $250m $220m $120m 100% Market share % - Laminex Humes Winstone Iplex Tasman Wallboards Insulation Combined Market Size = $1,360m Key: FBU Share Other Competitors 46 Fletcher Building Strategy P
Slide 48: Building Products sector exposure
Building Products sector exposure For personal use only FY18 Revenue Weighted Sector Exposure 2023 Market Outlook FY18 Sector CAGR Exposure Overall: 2.6% 21% 1.6% 58% 58% 21% 6.2% 21% 1.4% FY18 FY19 FY20 FY21 FY22 FY23 Key: Residential Non Residential Infrastructure / Other 47 Fletcher Building Stra
Slide 49: Building Products outlook
Building Products outlook For personal use only Key Strategic Priorities 19-23 Outlook Market Share Drive Stand up new Looking to hold market share in Winstone Wallboards and Introduce and performance Winstone Humes, and target incremental share gain in Iplex NZ, scale new through Wallboards Laminex
Slide 50: Agenda
FOCUS Agenda For personal use only 1. Group Strategy: Context and Case for Change Portfolio Choices Strategy and Five Year Plan Operating Model Innovation 2. Divisional Strategies: New Zealand: A. Building Products B. Distribution C. Steel D. Concrete E. Residential + Development F. Construction Aus
Slide 51: Distribution summary
Distribution summary For personal use only Business Unit Overviews Chief Executive Profile • PlaceMakers has served the NZ building Bruce McEwen industry for over 35 years • Worked within FBU businesses • It operates as New Zealand’s largest for 4 years supplier of building materials and • Most rece
Slide 52: Distribution market size and share
Distribution market size and share For personal use only Market Size (NZ$bn) and Share (%) $2.4bn $0.5bn $0.5bn $0.4bn $0.5bn $3.5bn 100% Market share % - Small to Medium Sized Com. Plumb. GHBs HVAC Retail Enterprises Bath. Combined Market Size = $7.9bn Key: FBU Share Other Competitors 51 Fletcher B
Slide 53: Distribution sector exposure
Distribution sector exposure For personal use only FY18 Revenue Weighted Sector Exposure 2023 Market Outlook FY18 Sector CAGR Exposure Overall: 2.0% 1.6% 9% 69% 22% 1.4% 69% 22% 9% 6.2% FY18 FY19 FY20 FY21 FY22 FY23 Key: Residential Non Residential Infrastructure / Other 52 Fletcher Building Strateg
Slide 54: Distribution outlook
Distribution outlook For personal use only Key Strategic Priorities 19-23 Outlook Market Share Customer Digitally Innovate PlaceMakers and Mico are targeting incremental share gain led solutions enhance the through in B2B trade through a leading customer experience (i.e. that reduce customer categor
Slide 55: Agenda
FOCUS Agenda For personal use only 1. Group Strategy: Context and Case for Change Portfolio Choices Strategy and Five Year Plan Operating Model Innovation 2. Divisional Strategies: New Zealand: A. Building Products B. Distribution C. Steel D. Concrete E. Residential + Development F. Construction Aus
Slide 56: Steel summary
Steel summary For personal use only Business Unit Overviews Chief Executive Profile Fletcher Steel operates with 10+ brands, Hamish Mcbeath across four businesses: • Worked within FBU businesses • Easysteel: Steel products distributor and for 17 years related services • Most recently GM of Fletcher
Slide 57: Steel market size and share
Steel market size and share For personal use only Market Size (NZ$m) and Share (%) $560m $500m $460m $290m $240m 100% Market share % - Reinforcing Dimond Roofing Easysteel Pacific Dimond Coilcoaters Structural Combined Market Size = $2,050m Key: FBU Share Other Competitors 56 Fletcher Building Strat
Slide 58: Steel sector exposure
Steel sector exposure For personal use only FY18 Revenue Weighted Sector Exposure 2023 Market Outlook FY18 Sector CAGR Exposure Overall: 3.8% 6.2% 22% 48% 48% 1.4% 30% 22% 1.6% 30% FY18 FY19 FY20 FY21 FY22 FY23 Key: Residential Non Residential Infrastructure / Other 57 Fletcher Building Strategy Pre
Slide 59: Steel outlook
Steel outlook For personal use only Key Strategic Priorities 19-23 Outlook Market Share Leverage Reduce FBU is currently No. 2 in the NZ steel market and expects to Introduce and price to overhead as a hold market share scale new reflect cost to percentage of products serve sales Revenue The Steel D
Slide 60: Agenda
FOCUS Agenda For personal use only 1. Group Strategy: Context and Case for Change Portfolio Choices Strategy and Five Year Plan Operating Model Innovation 2. Divisional Strategies: New Zealand: A. Building Products B. Distribution C. Steel D. Concrete E. Residential + Development F. Construction Aus
Slide 61: Concrete summary
Concrete summary For personal use only Business Unit Overviews Chief Executive Profile • Winstone Aggregates (WA) has over 150 Ian Jones years experience in manufacturing and • Worked within FBU supplying aggregates. It operates 18 businesses for 27 years quarries nationally • Most recently GM of GB
Slide 62: Concrete market size and share
Concrete market size and share For personal use only Market Size (NZ$m) and Share (%) $850m $420m $330m $120m 100% Market share % - Certified Concrete Aggregates Cement Masonry and Dricon Key: FBU Share Other Competitors 61 Fletcher Building Strategy Presentation 2018 Source: FBU Management estimate
Slide 63: Concrete sector exposure
Concrete sector exposure For personal use only FY18 Revenue Weighted Sector Exposure 2023 Market Outlook FY18 Sector CAGR Exposure Overall: 2.5% 22% 1.6% 44% 1.4% 44% 34% 6.2% 22% 34% FY18 FY19 FY20 FY21 FY22 FY23 Key: Residential Non Residential Infrastructure / Other 62 Fletcher Building Strategy
Slide 64: Concrete outlook
Concrete outlook For personal use only Key Strategic Priorities 19-23 Outlook Market Share Execute foundational Improve low Readymix represents the largest market for the Concrete Invest for Division and pulls through aggregate and cement. Firth is customer performing growth targeting market share g
Slide 65: Agenda
FOCUS Agenda For personal use only 1. Group Strategy: Context and Case for Change Portfolio Choices Strategy and Five Year Plan Operating Model Innovation 2. Divisional Strategies: New Zealand: A. Building Products B. Distribution C. Steel D. Concrete E. Residential + Development F. Construction Aus
Slide 66: Residential and Development summary
Residential and Development summary For personal use only Business Unit Overview Chief Executive Profile The Residential and Development Division Steve Evans comprises three business units: • Chief Executive of Residential and • Fletcher Living, a builder of residential Development since 2015 homes
Slide 67: Residential and Development market size and share
Residential and Development market size and share For personal use only Market Size (NZ$bn) and Share (%) $1.9bn $0.6bn $3.9bn 100% Market share % - Auckland Christchurch Rest of NZ Combined Market Size = $6.4bn Key: FBU Share Other Competitors 66 Fletcher Building Strategy Presentation 2018 Source:
Slide 68: Residential and Development sector exposure
Residential and Development sector exposure For personal use only FY18 Revenue Weighted Sector Exposure 2023 Market Outlook FY18 Sector CAGR Exposure Overall: 1.6% 20% 1.6% 80% 80% 1.4% 20% FY18 FY19 FY20 FY21 FY22 FY23 Key: Residential Non Residential Infrastructure / Other 67 Fletcher Building Str
Slide 69: Residential outlook
Residential outlook For personal use only Key Strategic Priorities 19-23 Outlook Market Share Introduce and Support Residential is the joint #1 player in NZ’s largest market, Build and sell profitably affordable Auckland, and is planning to scale from the present c.700 up to 1,000 scale housing unit
Slide 70: Development outlook
Development outlook For personal use only Historic Financials (NZ$m) 19-23 Outlook Revenue NZ$m FY15 FY16 FY17 Revenue is forecast to decrease in FY19 and remain flat over Revenue 23 30 80 the plan period EBIT EBIT 9 14 54 As Development stock eases, EBIT is forecast to decrease from the outperform
Slide 71: Agenda
FOCUS Agenda For personal use only 1. Group Strategy: Context and Case for Change Portfolio Choices Strategy and Five Year Plan Operating Model Innovation 2. Divisional Strategies: New Zealand: A. Building Products B. Distribution C. Steel D. Concrete E. Residential + Development F. Construction Aus
Slide 72: Construction summary
Construction summary For personal use only Business Unit Overviews Chief Executive Profile • Building + Interiors is a general constructor Michele Kernahan of commercial, retail, health, hospitality, • Chief Executive of Construction education and government buildings since 2017 • Infrastructure del
Slide 73: Construction market size and share
Construction market size and share For personal use only Market Size (NZ$bn) and Share (%) $4.6bn $4.2bn $2.3bn $1.6bn $1.5bn 100% Market share % - B+I Higgins South Pacific Infra- Brian Perry structure Civil Combined Market Size = $14.2bn Key: FBU Share Other Competitors 72 Fletcher Building Strate
Slide 74: Construction sector exposure
Construction sector exposure For personal use only FY18 Revenue Weighted Sector Exposure 2023 Market Outlook FY18 Sector CAGR Exposure Overall: 3.7% 6.2% 1.4% 52% 48% 48% 52% FY18 FY19 FY20 FY21 FY22 FY23 Key: Residential Non Residential Infrastructure / Other 73 Fletcher Building Strategy Presentat
Slide 75: Construction outlook
Construction outlook For personal use only Key Strategic Priorities 19-23 Outlook Market Share Win profitable Construction will complete the remaining B+I projects Close out B+I Retain and work in key having curtailed bidding for projects in the commercial within attract growth sector. The Infrastru
Slide 76: Agenda
FOCUS Agenda For personal use only 1. Group Strategy: Context and Case for Change Portfolio Choices Strategy and Five Year Plan Operating Model Innovation 2. Divisional Strategies: New Zealand: A. Building Products B. Distribution C. Steel D. Concrete E. Residential + Development F. Construction Aus
Slide 77: Australia summary
Australia summary For personal use only Business Unit Overviews Chief Executive Profile • Laminex AU has been manufacturing and Dean Fradgley distributing decorative surfaces for over 80 • Chief Executive of Distribution years. It operates 6 manufacturing sites, 5 Division since 2015 distribution ce
Slide 78: Australia market size and share
Australia market size and share For personal use only Market Size (NZ$bn) and Share (%) $4.4bn $2.8bn $1.6bn $1.6bn $1.2bn $0.5bn 100% Market share % - Tradelink Stramit Laminex Iplex Rocla Fletcher Insulation Combined Market Size = $12.1bn Key: FBU Share Other Competitors 77 Fletcher Building Strat
Slide 79: Australia sector exposure
Australia sector exposure For personal use only FY18 Revenue Weighted Sector Exposure 2023 Market Outlook FY18 Sector CAGR Exposure Overall: 1.2% 41% 0.1% 0.1% 33% 33% 4.2% 41% 26% 26% FY18 FY19 FY20 FY21 FY22 FY23 Key: Residential Non Residential Infrastructure / Other 78 Fletcher Building Strategy
Slide 80: Australia outlook
Australia outlook For personal use only Key Strategic Priorities 19-23 Outlook Market Share Drive Execute Plumbing distribution is FBU’s largest market in Australia. performance foundational Invest for Laminex AU and Iplex AU occupy No. 1 positions in market. through customer growth With performance
Slide 81: Agenda
FOCUS Agenda For personal use only 1. Group Strategy: Context and Case for Change Portfolio Choices Strategy and Five Year Plan Operating Model Innovation 2. Divisional Strategies: New Zealand: A. Building Products B. Distribution C. Steel D. Concrete E. Residential + Development F. Construction Aus
Slide 82: Formica summary
Formica summary For personal use only Business Unit Overview Chief Executive Profile Formica has 105 years global experience in Francisco Irazusta designing, manufacturing and supplying • Chief Executive of International laminates and other decorative surfaces. since 2016 Formica comprises of four b
Slide 83: Formica market size and share
Formica market size and share For personal use only Market Size (NZ$bn) and Share (%) $1.8bn $1.2bn $0.8bn $0.1bn 100% Market share % - Formica Formica Formica Homapal Europe North America Asia Combined Market Size = $3.9bn Key: FBU Share Other Competitors 82 Fletcher Building Strategy Presentation
Slide 84: Formica geographic exposure
Formica geographic exposure For personal use only FY18 Revenue Weighted Sector Exposure 2023 Market Outlook FY18 Geographic CAGR Exposure Overall: 4.2% 28% 30% 2.8% 42% 8.6% 1.4% 30% 28% 42% FY18 FY19 FY20 FY21 FY22 FY23 Key: Europe North America Asia 83 Fletcher Building Strategy Presentation 2018
Slide 85: Formica outlook
Formica outlook For personal use only Historic Financials (NZ$m) 19 Outlook Market Share NZ$m FY15 FY16 FY17 Formica is a market leader in several countries and will seek Revenue 888 980 933 to maintain these positions through design and innovation leadership. Developing Asian countries are Formica’
Slide 86: Formica update
Formica update For personal use only Divestment Process Stage Deal Bidder Indicative Signing and Appoint advisor Due diligence preparation discussions offers completion Formica 1 85 Fletcher Building Strategy Presentation 2018 1 Macquarie has been appointed as the deal advisor
Slide 87: Agenda
FOCUS Agenda For personal use only 1. Group Strategy: Context and Case for Change Portfolio Choices Strategy and Five Year Plan Operating Model Innovation 2. Divisional Strategies: New Zealand: A. Building Products B. Distribution C. Steel D. Concrete E. Residential + Development F. Construction Aus
Slide 88: Base business of c.$7.6bn revenue and c.$600m EBIT
After targeted exits and based on a mid-point of FY18 guidance, FBU’s base business is c.$7.6bn revenue and c.$600m EBIT For personal use only Group Base Mid-Point of FY18 Guidance Group - B+I = - Exits 1 = ex. B+I Business Revenue (NZ$bn) $9.8bn $0.9bn $8.9bn $1.3bn $7.6bn EBIT (NZ$m) $40m $(660)m
Slide 89: FY18 likely to include restructuring charges and impairments
FY18 result is likely to include below-the-line restructuring charges plus impairment of certain business unit carrying values For personal use only FY18F Likely Significant Items 1 (NZ$m) Restructuring charges, including redundancy costs and write-down of Group IT assets c.$(85)m to $(95)m Potentia
Slide 90: Lifting margins and returns in Australia key to Group performance
Lifting margins and returns in Australia will be key to driving Group performance For personal use only FY18F EBIT Margin (%) 1 FY18F Return on Funds Employed (%) 1 2 23% 20% 15% 15% FBU base c.13% 11% FBU base 7% c.8% 5% 4% NZ Building Residential Construction Australia NZ Building Residential Cons
Slide 91: Outlook - earnings
Outlook - earnings: FY19 objective is to stabilise and focus the business, growth from FY20 driven especially by AU turn around For personal use only and targeted M+A FY19 FY20-23 Earnings outlook Stable Growing Building Products Defend strong positions and deliver organic revenue growth at 1-2 ppts
Slide 92: Outlook - working capital
Outlook - working capital: opportunity for one-off c.$100m cash release through to FY23 For personal use only Metrics for Building Products and FY18 Forecast (days) FY23 Target (days) Distribution businesses Inventory (DIO) 68 Receivables (DSO) 42 Payables (DPO) 41 Working Capital Cycle 69 < 64 One
Slide 93: Outlook - CAPEX
Outlook - CAPEX: expected investment in base business of $275- 325m p.a. from FY19 For personal use only FY19-23F CAPEX by Markets Major Investments Group Other • Winstone Wallboards new plant 5-10% • Laminex AU new product development and plant efficiency improvements NZ Building • ERP replacements
Slide 94: Outlook - returns
Outlook - returns: target >15% return on funds employed For personal use only FY18F Base Funds Division FY18F ROFE 1 Outlook (NZ$m) 1 • Higher funds on Winstone NZ Building Products and 1,600-1,650 23% Wallboards investment Distribution • Target stable returns • Funds levelling off at c.$750m Reside
Slide 95: Outlook - cash generation
Outlook - cash generation: targeting improvement in cash conversion from c.45% in FY18F to >70% through to FY23 For personal use only • Base business has Trading cashflow 1 of c.$600m in FY18F • Improved Trading cashflow generation to be driven by: - Earnings uplift, notably in Australia - Residenti
Slide 96: Outlook - cash
Outlook - cash: cashflow profile impacted in FY19-20 by Formica divestment, B+I and taxation For personal use only Group Cashflow Profile (NZ$m) 120 240 Base Business Trading Base Business Cashflow 1 280 Free Cashflow 2 (285) FY18F FY19F FY20F Base Business Exits Trading Key: Cash Tax Group CAPEX B+
Slide 97: Outlook - taxation
Outlook - taxation: B+I losses will limit cash tax in FY19-20 For personal use only Accounting tax • Effective tax rate expected to be 25% in FY18 • Anticipated step up in effective tax rate in FY19 to 26%, then 28% from FY20 onwards - Increase in effective tax rates reflects the impact of tax law c
Slide 98: Summary of key metrics and outlook to FY23
Summary of key metrics for base business and outlook to FY23 For personal use only FY18F Base Metric Outlook to FY23 Business 1 Revenue c.$7.6bn • FY19 focus: Construction turn around, International exit • Growth from FY20: Targeting Revenue growth above market forecasts and EBIT margins >10% EBIT c
Slide 99: Agenda
FOCUS Agenda For personal use only 1. Group Strategy: Context and Case for Change Portfolio Choices Strategy and Five Year Plan Operating Model Innovation 2. Divisional Strategies: New Zealand: A. Building Products B. Distribution C. Steel D. Concrete E. Residential + Development F. Construction Aus
Slide 100: Debt: lender negotiations finalised
Debt: lender negotiations finalised in line with target terms For personal use only • On 15 May 2018, FBU announced that it had reached agreement with its commercial banking syndicate and USPP noteholders on revised terms of its lending arrangements • Key terms agreed: - Previously announced B+I los
Slide 101: Debt: target leverage range 1.5x-2.5x
Debt: target leverage range is 1.5x-2.5x, with Exits creating a resilient balance sheet and headroom for investment For personal use only Leverage 1 2.5x Target Band 1.8x 1.5x 0.8x 1.0x FY18F Impact of Exits Post Exits 100 Fletcher Building Strategy Presentation 2018 1 Leverage = Net Debt / EBITDA l
Slide 102: Debt: funding maturity profile is robust
Debt: current funding maturity profile is robust For personal use only Pro-forma Facilities Post Capital Raising (NZ$m) 1 Maturities (NZ$m) 102 789 566 600 1,103 452 Total 200 392 $2,696m 100 750 200 268 189 100 350 375 150 186 167 925 FY19F FY20F FY21F FY22F FY23F FY24F+ Key: USPP Bank Syndicate Ca
Slide 103: Debt: funding costs 5.0-5.5%
Debt: funding costs to be in range of 5.0-5.5% (assuming stable base rates) For personal use only Drawings 31 March 2018 Forecast Drawings as at Average Cost of Facility (NZ$m) 30 June 2018 (NZ$m) 1 Funds (%) 2 USPP 3 1,119 1,140 5.1% Bank Syndicate 714 97 3.7% 4 Capital Notes 566 566 5.7% Other 5 1
Slide 104: Dividend: policy of 50-75% of NPAT pay-out
Dividend: policy continues to be a pay-out of 50-75% of NPAT For personal use only • FBU will continue to target a pay out of 50-75% of NPAT before significant items to shareholders as an annual dividend • Reference to available cashflow 1 will be considered at the time of setting the dividend 368 3
Slide 105: Agenda
FOCUS Agenda For personal use only 1. Group Strategy: Context and Case for Change Portfolio Choices Strategy and Five Year Plan Operating Model Innovation 2. Divisional Strategies: New Zealand: A. Building Products B. Distribution C. Steel D. Concrete E. Residential + Development F. Construction Aus
Slide 106: Governance framework has four pillars
The Fletcher Building governance framework has four pillars For personal use only Performance Culture and Enablers Control Environment Decision Forums Management • Core values • Policies and standards Board + Sub-Committees (ARC, SHES, Rem. Co.) • Vision and strategy • Delegated authorities, includi
Slide 107: Risk management based on three lines of defence model
Our risk management and assurance processes are based on a ‘three lines of defence’ model For personal use only 3rd Line of Defence: FBU Board Board, Executive and Internal Assurance ARC Internal Audit Executive Committee 2nd Line of Defence: Finance Group Functions Legal Property Group Risk People
Slide 108: Group risk management areas of focus and RADAR tool
Group risk management has clear areas of focus, now supported by a central risk and incident tool (RADAR) For personal use only Areas of Focus for Risk Management FB Risk and EHS Incident Management Tool • Business Continuity and Resilience: disruption to business processes and assets, in particular
Slide 109: Agenda
FOCUS Agenda For personal use only 1. Group Strategy: Context and Case for Change Portfolio Choices Strategy and Five Year Plan Operating Model Innovation 2. Divisional Strategies: New Zealand: A. Building Products B. Distribution C. Steel D. Concrete E. Residential + Development F. Construction Aus
Slide 110: Current trading remains in line with expectations
Current trading across FBU’s New Zealand and Australian businesses remains in line with expectations For personal use only • NZ Building Products and Distribution activity at expected levels, Residential sales volumes higher than FY17, reduced Construction earnings excluding B+I • H1 / H2 proportion
Slide 111: Agenda
FOCUS Agenda For personal use only 1. Group Strategy: Context and Case for Change Portfolio Choices Strategy and Five Year Plan Operating Model Innovation 2. Divisional Strategies: New Zealand: A. Building Products B. Distribution C. Steel D. Concrete E. Residential + Development F. Construction Aus
Slide 112: Recap: a simpler and more focused strategy
To recap, a simpler and more focused strategy will enable FBU to achieve its full potential For personal use only Vision To be the undisputed leader in NZ and AU building solutions – with Products and Distribution at our core Where to Play 1. Refocus on the 2. Stabilise 3. Strengthen 4. Exit non-cor
Slide 113: FY19 objective to stabilise and focus, growth from FY20
…with a FY19 objective to stabilise and focus the business, and realise growth from FY20 For personal use only FY19 FY20-23 Earnings outlook: Stable Growing Building Products Defend strong positions and deliver organic revenue growth at 1-2 ppts. above market forecasts + Distribution Stabilise verti
Slide 114: Q+A
For personal use only Q+A
Slide 115: Glossary (1 of 2)
Glossary (1 of 2) For personal use only Term Definition BUs Business units. This refers to all the different businesses that Fletcher Building owns across its portfolio. Each BU has a General Manager who reports into a Divisional Chief Executive. For example, Humes is a BU in the Building Products d
Slide 116: Glossary (2 of 2)
Glossary (2 of 2) For personal use only Term Definition FY18, FY19 etc. Shorthand for Financial Year 2018 which is the 12 months ended 30 June 2018 Net Promoter Score % Promoters (9-10) minus % Detractors (0-6) ROFE EBIT / average funds employed RTG Roof Tile Group. A business which is part of the I
Slide 117: Disclaimer
Disclaimer For personal use only This presentation contains not only information about the historical performance of Fletcher Building and its operations, but also some forward looking statements about Fletcher Building and the environment in which the company operates. Because these statements are