Fletcher Building Limited · NZX:FBU
Fletcher Building — H1 FY2017 Earnings Presentation
50 slides from Fletcher Building's earnings presentation, Feb 22, 2017
Slide 1: Half Year Results to 31 December 2016
Fletcher Building Half Year Results Presentation 2017 Half Year Results to 31 December 2016 Working with you MARK ADAMSON — Chief Executive Officer BEVAN MCKENZIE — Chief Financial Officer 22 February 2017 1
Slide 2: Disclaimer
Disclaimer This Half Year Results presentation dated 22 February 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
Slide 3: Contents
Contents • Results Overview • Industry Context • Divisional Performances • Financial Results • Strategy Update • Outlook • Appendix 3 Fletcher Building Half Year Results Presentation | © February 2017
Slide 4: Results Overview
Fletcher Building Half Year Results Presentation 2017 Working with you Results Overview
Slide 5: Results overview
Results overview Operating earnings before Revenue significant items $4,613m $310m 4% 12% Dividend per share 20c Net earnings before 5% significant items Basic earnings per share before $187m significant items 18% 27.0c 17% 5 Fletcher Building Half Year Results Presentation | © February 2017
Slide 6: Highlights
Highlights Distribution: • Total EBIT +31% • NZ Steel Distribution EBIT +47% • NZ Building Supplies EBIT +21% • AU Steel Distribution EBIT +25% • Strong NZ performance, AU improvements International: • Total EBIT +32% • Formica EBIT +113% • Laminex EBIT +10% • Laminex performing well in both NZ and
Slide 7: Highlights
Highlights New Zealand: • Total EBIT1 (excluding Construction, divestments/ acquisitions) +20% • Volume improvements: Steel +14%, Plasterboard +9%, Concrete Pipe +12%, Cement +5%, Ready Mix +4% • Residential and Land Development EBIT +25% • Construction result impacted by one-off factors • Corporate
Slide 8: Results overview: Revenue
Results overview Revenue • Reported revenue $179m or 4% higher than HY16 Revenue $4,613m 4% REVENUE GROWTH RATES Geographic segments Reported Local Currency New Zealand 14% 14% Australia (10)% (6)% Rest of World 0% 8% 8 Fletcher Building Half Year Results Presentation | © February 2017
Slide 9: Results overview: Operating earnings
Results overview Operating earnings • Reported operating earnings (EBIT) up 2% Operating earnings • Operating earnings before significant $294m items up 12% • Significant items primarily due to site closure 2% costs at Fletcher Insulation and Rocla Products EBIT (before significant items) GROWTH RAT
Slide 10: Stronger performance from Rest of World reflected in increased EBIT contribution
Stronger performance from Rest of World reflected in increased EBIT contribution External Revenue Geographic EBIT¹ Geographic Split H1 17 Split H1 17 (H1 16 in brackets) (H1 16 in brackets) 14% 17% (14%) (9%) 17% 29% 57% (19%) (34%) (52%) 66% (72%) 1. Before significant items 10 Fletcher Building Ha
Slide 11: Results overview: Net earnings
Results overview Net earnings • Net earnings before significant items were up 18% to $187m Net earnings • Funding costs down 13% $176m • Effective tax rate 25%, slightly higher 2% Net earnings before EARNINGS PER SHARE significant items Earnings per share 25.4 cents +2% $187m Earnings per share (bef
Slide 12: Results overview: Cash flow from operations
Results overview Cash flow from operations • Cash outflow from operations of $67m compared to $170m inflow in Cashflow from operations HY16 $(67)m • Decrease mainly due to: – $56m Pacific Steel working capital release in HY16 – $79m increased investment in land and development – Timing of Constructi
Slide 13: Results overview: Dividend
Results overview Dividend • Interim dividend fully imputed for NZ taxation purposes Dividend per share • Dividend Reinvestment Plan will be 20c operative for this dividend 5% • Expect to fully impute interim and final dividends in FY17, FY18 and FY19 DIVIDEND Interim dividend per share 20 cents 13 F
Slide 14: Industry Context
Fletcher Building Half Year Results Presentation 2017 Working with you Industry Context
Slide 15: New Zealand residential consents up 10%, supported by high net migration
New Zealand residential consents up 10%, supported by high net migration Change % Year on Year Total residential consents 1 30% 24% 35,000 20% Peak (2004) 10% 7% 10% 30,000 0% -10% 25,000 -9% -20% Long term average (2001-2015) NZ Auckland Canterbury Rest of NZ 20,000 Auckland represents 34% of all c
Slide 16: New Zealand Infrastructure and Commercial backlog strong
New Zealand Infrastructure and Commercial backlog strong New Zealand Infrastructure and NZ Infrastructure and Commercial Work Commercial Work Put in Place Change Year-on-Year 16,000 25% Value of work done (NZm) 14,000 21% 20% 12,000 15% 10,000 8,000 10% 8% 6,000 5% 5% 4,000 0% 2,000 0% 0 -5% 2010 20
Slide 17: Australian residential activity impacted by WA, standalone approvals remain resilient
Australian residential activity impacted by WA, standalone approvals remain resilient Australian Residential Approvals Australian Residential Australian Residential Approvals Approvals Change Year-on-Year* 300 10% 5% 4% 2% 2% 0% '000s 250 -5% -3% -4% -10% -15% 200 -20% -25% -30% -27% Australia NSW V
Slide 18: Australian Infrastructure and Commercial work has slowed in most states
Australian Infrastructure and Commercial work has slowed in most states Australian Infrastructure and Commercial Work Australian Infrastructure and Commercial 180,000 Work Change Year-on-Year 2016 10% 160,000 Value of work done (AUDm) 140,000 5% 4% 1% 120,000 0% 100,000 ‐5% -4% 80,000 60,000 ‐10% 40
Slide 19: Divisional Performances
Fletcher Building Half Year Results Presentation 2017 Working with you Divisional Performances 19
Slide 20: Divisional operating earnings overview
Divisional operating earnings overview EBIT¹ NZ$m +10% excluding divestments (2)% 132 129 +31% +32% 84 70 64 53 +25% (33)% 36 30 24 +13% 24 (31) (27) Building Products International Distribution Residential and Construction Corporate Land Development HY 2016 HY 2017 1. Before significant items 20Fle
Slide 21: H1 2017 vs H1 2016 EBIT Bridge
H1 2017 vs H1 2016 EBIT Bridge EBIT¹ NZ$m 340 6 (12) 320 20 310 4 17 300 278 (15) 12 280 263 260 240 220 200 180 Distribution Residential & Discontinued H1 17 reported Products Construction H1 16 adjusted Corporate H1 16 Actual Building International Land 1. Before significant items 21 Fletcher Buil
Slide 22: Building Products Result
Building Products Result Dec 2015 Dec 2016 % Concrete Pipes & Products NZ$m 6 months 6 months change Ready-mix concrete volumes +4% Gross Revenue 1,265 1,108 (12)% NZ concrete pipe volumes +12% External Revenue 1,021 859 (16)% Australia concrete product volumes flat EBITDA¹ 172 167 (3)% Cement & Agg
Slide 23: International Result
International Result Dec 2015 Dec 2016 % Formica NZ$m 6 months 6 months change 3% volume growth in both North America Gross Revenue 1,080 1,005 (7)% & Asia Asia revenue1 growth of +7%, operating External Revenue 1,067 997 (7)% earnings1 +4% EBITDA 87 104 20% Europe: operating earnings up $14m EBIT 5
Slide 24: Distribution Result
Distribution Result Dec 2015 Dec 2016 % New Zealand Building Supplies NZ$m 6 months 6 months change Operating earnings +21% Gross Revenue 1,610 1,644 2% PlaceMakers revenue growth +7% External Revenue 1,531 1,559 2% Mico revenue growth +7% EBITDA 79 96 22% New Zealand Steel Distribution Operating ea
Slide 25: Residential and Land Development Result
Residential and Land Development Result Dec 2015 Dec 2016 % NZ Residential NZ$m 6 months 6 months change Continued new developments coming Gross Revenue 108 163 51% online Solid sales in Beachlands, Karaka and External Revenue 108 163 51% Hobsonville Significant progress in securing land for EBITDA
Slide 26: Construction Result
Construction Result Dec 2015 Dec 2016 % New Zealand NZ$m 6 months 6 months change Revenue +29% (excluding Higgins) Gross Revenue 748 1,150 54% Backlog of work as at 31 December 2016 was $2.7bn External Revenue 707 1,035 46% Operating earnings significantly impacted by: EBITDA 40 35 (13)% • Timing of
Slide 27: Financial Results
Fletcher Building Half Year Results Presentation 2017 Working with you Financial Results
Slide 28: Profit & Loss
Profit & Loss 18% increase in net earnings before significant items Reported Results Dec 2015 Dec 2016 NZ$m (except EPS) 6months 6months Change Revenue 4,434 4,613 4% Operating earnings before significant items 278 310 12% Operating margin 6.3% 6.6% 5% Significant items 10 (16) NM Operating earnings
Slide 29: Operating cash flow
Operating cash flow Dec 2015 Dec 2016 NZ$m 6 months 6 months Change Operating earnings before significant items 278 310 12% Depreciation and amortisation 97 102 5% Less cash tax paid (67) (69) 3% Less interest paid (60) (54) (10)% Provisions, significant items and other (40) (43) 8% Results from ope
Slide 30: Capital expenditure in FY17 expected to be in the range of $275m to $325m
Capital expenditure in FY17 expected to be in the range of $275m to $325m NZ$m 325 Dec 2015 Dec 2016 % NZ$m 6 months 6 months change 106 105 Stay-in-business 77 69 (10)% 275 Growth 45 58 29% 220 210 Total Capex 122 127 4% 201 194 194 173 Acquisitions 305 NM Depreciation/ 97 102 5% Amortisation 2015
Slide 31: Net debt movement
Opening Net Debt NZ$m 1,396 Cash from operations (246) (pre working capital) 149 Other working capital Investment in land 164 and developments 58 Growth capex 69 Stay in business capex 31 Fletcher Building Half Year Results Presentation | © February 2017 capital, land and Higgins Acquisitions 305 Fi
Slide 32: Debt profile
Debt profile Funding and Maturity Profile 31 December 2016 Undrawn credit lines of $310m and cash 10 of $229m 466 Average maturity of debt is 5.1 years 300 Approximately 47% of all borrowings 377 have fixed interest rates Average interest rate on debt is 5.0% 279 Mix of currency (hedged) 246 − NZ$ 5
Slide 33: Capital management settings
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 31 December 2016: 35.4% Leverage: • Target Net Debt to EBITDA of 2.0 to 2.5 times • As at 31 Decemb
Slide 34: Key ratios
Key ratios Total Shareholder Return (TSR) Debt/Debt Plus Equity Percentage1 Percentage 51 37 35 51 33 32 32 27 9 11 -27 -3 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Dec-16 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Dec-16 Net Debt/EBITDA Return on Average Funds Times Percentage2 12.3 12.5 12.7 13.2 2.62 2.27 2.48
Slide 35: Strategy Update
Fletcher Building Half Year Results Presentation 2017 Working with you Strategy Update
Slide 36: Strategy summary
Strategy summary People and performance culture Turnaround capability Targeted investments Prudent portfolio management $ Focus on shareholder value 36 Fletcher Building Half Year Results Presentation | © February 2017
Slide 37: Performance culture embedded through Accelerate
Performance culture embedded through Accelerate L1 Value identification Value capture L2 L3 L4 L5 Identify Validate Plan Realise Implement Track Ideas Value Number of initiatives at 1,876 1,794 1,692 1,182 618 each layer 1 • Weekly cadence • Continuous renewal of initiative pipeline • Balance of rev
Slide 38: Turnaround capability established
Turnaround capability established Collective Turnaround of Selected FBU Businesses1 • FB management is developing a track record of turning around underperforming businesses 80 60 • Improved performance reflects a mixture of improved pricing, product 40 offering, customer service, operational effici
Slide 39: Targeted Investments
Targeted Investments Auckland Housing Shortage NZ Infrastructure Pipeline 1,600 40,000 10,000 35,000 9,000 1,500 8,000 30,000 7,000 1,400 25,000 6,000 Population Dwellings 20,000 NZ$m 1,300 5,000 15,000 4,000 1,200 10,000 3,000 5,000 2,000 1,100 0 1,000 - 1,000 (5,000) 2010 2011 2012 2013 2014 2015
Slide 40: Prudent Portfolio Management
Prudent Portfolio Management Business Unit Investment/ EBIT1 ROFE Proceeds Rocla Quarries $205m $18m2 c.9% Higgins $307m $40m - $45m3 c.15% Net $102m $22m - $27m 22% - 25% • Divestment of Rocla Quarries and acquisition of Higgins highlights positive return on incremental capital employed 1. Before s
Slide 41: Focus on shareholder value
Focus on shareholder value Results for last 12 month period (ie CY 2016) Underlying Strong Disciplined Capital Superior + + = Earnings Growth Cash Management Value-Creation Market Growth Sustain Capex: ROFE: & $186m +0.4% pts Share Gains Organic Growth Investment1: Post-tax Operating $119m Net Price
Slide 42: Outlook
Fletcher Building Half Year Results Presentation 2017 Working with you Outlook 42
Slide 43: Outlook FY17
Outlook FY17 New Zealand • Strong macro-economic conditions expected to continue to benefit FY17 and provide opportunities to expand Building Products and Distribution operating margins • Elevated levels of residential, commercial and infrastructure construction are likely to be sustained in the med
Slide 44: Financial Outlook FY17
Financial Outlook FY17 FY17 operating earnings (EBIT before significant items) expected to be in the range of $720m to $760m Earnings from Higgins acquisition should offset the impact of discontinued operations: • Pacific Steel • Rocla Quarry Products • Fletcher EQR Capex forecast to be $275-325m ve
Slide 45: Q&A
Fletcher Building Half Year Results Presentation 2017 Working with you Q&A
Slide 46: Appendix: New Zealand construction market has a strong pipeline
Appendix: New Zealand construction market has a strong pipeline Value of all NZ Construction Work Put in Place NZ$bn $40 • Forecasts suggest medium term peak $35 for residential construction but 26% $30 ‘stronger for longer’ infrastructure $25 construction 106% pipeline $20 $15 $10 $5 $0 2002 2004 2
Slide 47: Appendix: Sectoral exposure
Appendix: Sectoral exposure Exposures based on revenues Residential Geographical Exposure by Sector¹ (New/A&A)* Commercial Infrastructure Other New Zealand 44% 29% 12% 15% Australia 55% 22% 10% 13% Rest of World 44% 49% 0% 7% Total Manufacturing 49% 30% 9% 12% New Zealand 79% 18% 0% 3% Australia 49%
Slide 48: Appendix: Building consent data
Appendix: Building consent data Dec 2015 Dec 2016 16/15 12 months 12 months % Mvmt New Zealand Residential Consents 27,129 29,967 +10% Non Res WPIP ($m) 6,202 7,144 +15% Infrastructure WPIP ($m) 6,594 6,703 +2% Australia Source: Infometrics Residential Consents - Standalone houses 118,997 117,056 (2
Slide 49: Appendix: Strongest growth in NSW; Western Australia significant decline in approvals
Appendix: Strongest growth in NSW; Western Australia experience a significant decline in approvals Change in housing approvals – by state 12 months ended 31 Dec 2016 vs 2015 Dec 2015 Dec 2016 % 12 months 12 months Change 50,000 Stand-alone 118,997 117,056 (2)% 45,000 Multi + other 40,000 120,074 113
Slide 50: Appendix: Group Structure
Appendix: Group Structure Building Products: International: Distribution: Residential & Land Construction: Matt Crockett Francisco Irazusta Dean Fradgley Development: Graham Darlow Steve Evans • GBCWinstone (NZ) • Formica Asia • PlaceMakers (NZ) • Fletcher Living (NZ) • Infrastructure (NZ) including