Fletcher Building Limited · NZX:FBU
Fletcher Building — H1 FY2020 Earnings Presentation
42 slides from Fletcher Building's earnings presentation, Feb 19, 2020
Slide 1: Fletcher Building Half Year Results to 31 December 2019
FOC US Fletcher Building Half Year Results to 31 December 2019 ROSS TAYLOR — Chief Executive Officer BEVAN MCKENZIE — Chief Financial Officer 19 February 2020
Slide 2: Important Information
Important Information This presentation has been prepared by Fletcher Building Limited and its group of companies (“Fletcher Building”) for informa tional purposes. This disclaimer applies to this document and the verbal or written comments of any person presenting it. This presentation provides add
Slide 3: Agenda
FOC US Agenda 1. Results Overview Ross Taylor 2. New Zealand Operations Ross Taylor 3. Australia Operations Ross Taylor 4. Financial Results Bevan McKenzie 5. Outlook Ross Taylor Fletcher Building Half Year Results Presentation 2020
Slide 4: Revenue in line with expectations, full year earnings guidance reconfirmed
Revenue in line with expectations, full year earnings guidance reconfirmed Revenue ($bn) Revenue 4.2 • NZ core revenue steady 4.0 • Construction revenues lower as legacy projects 1.5 1.4 complete • Australia lower from residential and infrastructure market decline 2.7 2.6 HY19 HY20 NZ Australia EBIT
Slide 5: Reported net earnings in line with expectations
Reported net earnings in line with expectations Reported Net Earnings ($m) Net Earnings 89 • Incorporates changes to operations and accounting 82 changes • HY20 includes $35m sig items associated with the Australian cost out programme HY19 1 HY20 Return on Funds Employed2 (%) ROFE 12.3% 12.4% • Grou
Slide 6: Strong cash performance through working capital improvement
Strong cash performance through working capital improvement Trading Cash Flow1 ($m) Trading Cash Flow Improvement 88 • Driven by working capital improvements, especially inventory 36 HY19 HY20 Net Debt ($m) Net Debt • Net debt increased as expected - from share buyback 766 and legacy construction pr
Slide 7: Interim dividend of 11 cents per share declared
Interim dividend of 11 cents per share declared EPS (cps) EPS 10.4 • Slightly down half on half in line with earnings 9.8 HY19 HY20 Interim Dividend (cps) Interim Dividend 11.0 • Interim dividend payment to be made on 9 April 2020 8.0 • Return to normal split between interim and final dividends HY19
Slide 8: Strong focus on 'Protect' reset, Science Based Targets verified
Strong focus on ‘Protect’ reset, Science Based Targets verified Safety Safety Total Recordable Injury Frequency Rate 1 • Major safety program ‘Protect’ reset launched across all businesses 6.7 6.9 • Our aim is to be injury free as a business 5.1 5.0 5.15 • Focus is on culture, mindsets, skills and t
Slide 9: Agenda
FOC US Agenda 1. Results Overview Ross Taylor 2. New Zealand Operations Ross Taylor 3. Australia Operations Ross Taylor 4. Financial Results Bevan McKenzie 5. Outlook Ross Taylor Fletcher Building Half Year Results Presentation 2020
Slide 10: New Zealand market steady year on year, outlook remains positive
New Zealand market steady year on year, outlook remains positive FBU Revenue by Market (%) Residential • Activity levels steady year on year: ‒ Consents growth weighted to multi-unit dwellings NZ (smaller floor area, typology mix change) Residential ‒ Standalone housing flat on total floor area basi
Slide 11: Building Products Results overview
Building Products Results overview Dec 2018 Dec 2018 Dec 2019 6 months 6 months 6 months NZ$m reported pro forma1 Gross Revenue 672 672 645 • Strong volumes and operating performance EBITDA 96 114 92 in plasterboard, insulation and laminates EBIT 87 91 66 • Pipes volumes and performance impacted by
Slide 12: Building Products Performance focus
Building Products Performance focus Operating Margin ex Steel (EBITDA %) Key Focus Areas 21.3% 21.8% • Tasman Insulation building wraps • GIB Weatherline and Barrierline • Iplex mobile extrusion, PVC-O plant investments • Winstone Wallboards MyGIB® app • Laminex decor and ecommerce launch • c$400m W
Slide 13: Distribution Results overview
Distribution Results overview Dec 2018 Dec 2018 Dec 2019 6 months 6 months 6 months NZ$m reported pro forma1 Gross Revenue 809 809 824 • Revenue increase in line with market activity EBITDA 55 79 73 • Conditions in key Auckland market highly EBIT 50 55 50 competitive Trading Cash Flow 49 49 64 • Ear
Slide 14: Distribution: digitisation and transport
Distribution To date focused on branch service digitisation and transport Seamless Service Through Digitisation Transforming Transport Capability (m) Transactions # (m) • Efficiency improved through own vehicle 4 delivery: ̶ Delivery per load increased 3 2H ̶ Load time reduced ̶ More accurate and co
Slide 15: Distribution: focus on digital transformation
Distribution Our focus is now firmly on our digital transformation Digital Transformation from physical analogue to 24x7 omnichannel experience Data Seamless Our promise: Service infrastructure and analytics “Unmatched digital Our digital experience - best service every ambition day, on every transa
Slide 16: Concrete Results overview
Concrete Results overview Dec 2018 Dec 2018 Dec 2019 6 months 6 months 6 months NZ$m reported pro forma1 Gross Revenue 404 404 403 • Volumes down slightly on softening civil / EBITDA 67 82 87 infrastructure activity in the half EBIT 42 44 49 • Price gains in aggregates and ready-mix, slight compress
Slide 17: Concrete Performance focus
Concrete Performance focus Operating Margin (EBITDA %) Operating Efficiency and Pricing 21.6% • New barge capacity between Portland and 20.2% Auckland • Mobile plant replacement in ready-mix and aggregates • Improved manufacturing performance in new masonry facility HY19 1 HY20 • Pricing focus Produ
Slide 18: Residential and Development Results overview
Residential and Development Results overview Dec 2018 Dec 2018 Dec 2019 6 months 6 months 6 months NZ$m reported pro forma1 Gross Revenue 251 251 224 • Market demand strong and prices supportive, EBITDA 43 44 36 especially in key $600k-$900k pricing category • Margins tracking above plan EBIT 43 43
Slide 19: Residential and Development Performance focus
Residential and Development Performance focus Weekly House Sales Panelisation # Unconditional Agreements 23 15 10 11 Q1 Q2 HY19 HY20 • Strong sales since mid-October • Continued momentum into Q3 • Firm pricing • Clever Core manufacturing site officially • Targeting 800-900 unit sales for FY20 (vs 75
Slide 20: Construction Results overview
Construction Results overview Dec 2018 Dec 2018 Dec 2019 6 months 6 months 6 months NZ$m reported pro forma1 Gross Revenue 866 866 774 • Revenue ex-legacy projects up 3% year on year EBITDA 25 35 33 as new work starts to flow through • EBIT weighted to 2H20 due to wet first quarter EBIT 15 17 14 imp
Slide 21: Construction Performance focus
Construction Performance focus Talent and skills now broadly reset Winning the right work with the right customers Work in hand ($m) • Strong operational leadership team in place 92 473 256 • Driving consistent project management and governance 1,438 1,122 1,189 HY19 FY19 HY20 Lega cy Other Cons tru
Slide 22: Agenda
FOC US Agenda 1. Results Overview Ross Taylor 2. New Zealand Operations Ross Taylor 3. Australia Operations Ross Taylor 4. Financial Results Bevan McKenzie 5. Outlook Ross Taylor Fletcher Building Half Year Results Presentation 2020
Slide 23: Australia sharp decline in residential sector but looks to be turning
Australia sharp decline in residential sector but looks to be turning; expect improvements in all sectors from FY21 FBU Australia Revenue by Market Residential • Material contraction in line with expectations AU Infrastructure • Expect c150-160k approvals in FY20, down 20% AU Commercial year on year
Slide 24: Australia Results overview
Australia Results overview Dec 2018 Dec 2018 6 months 6 months Dec 2019 NZ$m reported pro forma1 6 months Gross Revenue 1,557 1,557 1,453 • Revenue held well relative to market decline EBITDA2 65 110 103 • Cost-out programme mostly complete, EBIT2 33 43 35 benefits are second half weighted • Strong
Slide 25: Australia Seeing improvement from well-advanced cost out programme
Australia Seeing improvement from well-advanced cost out programme Operational Excellence Strategy and Portfolio • Performance focus, reset well advanced •• Clever With the Corereset well advanced, manufacturing we have site officially • Costs mostly out - $100m gross annual cost- assessed opened in
Slide 26: Agenda
FOC US Agenda 1. Results Overview Ross Taylor 2. New Zealand Operations Ross Taylor 3. Australia Operations Ross Taylor 4. Financial Results Bevan McKenzie 5. Outlook Ross Taylor Fletcher Building Half Year Results Presentation 2020
Slide 27: Income statement First half group profit in line with expectations
Income statement First half group profit in line with expectations Reported results Dec 2018 Dec 2019 Change NZ$m 6 months 6 months $m Revenue 4,185 3,961 (224) EBITDA 335 402 67 EBIT before significant items from continuing operations 248 219 (29) Significant items 0 (35) (35) EBIT from continuing
Slide 28: IFRS 16 adopted in FY20 Background and impact
IFRS 16 adopted in FY20 Background and impact • Effective for the Group for period commencing 1 July 2019 • Total of c 5,000 operating leases now accounted for under IFRS 16 • Balance Sheet impact: Recognises right-of-use asset of $1.5bn and lease liability of $1.8bn • Income Statement impact: Opera
Slide 29: Tax and funding costs
Tax and funding costs Effective tax rate steady, funding costs materially lower Effective Tax Rate 1 (%) Funding Costs ($m) 25.9% 25.3% 62 35 HY19 HY20 HY19 HY20 Tax Funding costs • Effective tax rate (excl. B+I): • Average interest rate on debt is 5.0% based on – expected to be c26% in FY20 period
Slide 30: Cash flow $52m improvement in trading cash flows
Cash flow $52m improvement in trading cash flows Dec 2018 Dec 2019 Change NZ$m 6 months 6 months $m EBIT before significant items from continuing operations 248 219 (29) Depreciation and amortisation 87 183 96 Lease principal payments and lease interest paid - (119) (119) Provisions, significant ite
Slide 31: Working capital Continued improvement in working capital management
Working capital Continued improvement in working capital management Cash flow working capital movements continuing operations Dec 2018 Dec 2019 Change NZ$m 6 months 6 months $m Residential and Development (29) - 29 Construction excluding B+I (19) (33) (14) Debtors 76 92 16 Inventories (90) (34) 56 C
Slide 32: Capex and depreciation Focused investment in core business
Capex and depreciation Focused investment in core business Capex by Markets (NZ$m) • FY20 capex expected to be in the range $275-$325m, 4 including land for new WWB plant • Capex programme focused on enabling investments for strategy, especially: 32 – Digital – Manufacturing efficiency and operating
Slide 33: Net debt Net debt higher as expected
Net debt Net debt higher as expected Net Debt (NZ$m) 141 9 119 34 142 44 128 766 88 325 Opening Net Reclassification Trading cash FY19 final Legacy projects Funding costs Capex Repurchase of Other 1 Closing net Debt - FY20 to lease from dividend shares debt liabilities continuing payment operations
Slide 34: Leverage Leverage position remains strong
Leverage Leverage position remains strong Leverage (Net Debt / EBITDA) • IFRS 16 impact on EBITDA c$240m • Target leverage range adjusted from 1.5x-2.5x to 1.0x-2.0x to reflect this impact 2.0x • Target range is unchanged on an underlying basis Target • Leverage ratio tracking to lower bound of targ
Slide 35: Funding Strong maturity profile and liquidity
Funding Strong maturity profile and liquidity Debt Maturity Profile at Dec-19 (NZ$m) Facilities Drawings NZ$m 31 Dec 19 31 Dec 19 Syndicate 925 - 14 USPP 878 878 Capital Notes 435 435 400 Other 23 23 525 Total 2,261 1,336 460 5 162 • Undrawn credit lines of $925m and cash of $570m 147 as at 31 Decem
Slide 36: Dividend and share buyback
Dividend and share buyback Interim dividend of 11cps, buyback tracking to plan Dividend Share Buyback • Interim dividend of 11.0 cents per share • On-market share buyback programme of up to NZ$300m • Payment date of 9 April 2020 • This form of shareholder distribution takes into • Interim dividend u
Slide 37: Agenda
FOC US Agenda 1. Results Overview Ross Taylor 2. New Zealand Operations Ross Taylor 3. Australia Operations Ross Taylor 4. Financial Results Bevan McKenzie 5. Outlook Ross Taylor Fletcher Building Half Year Results Presentation 2020
Slide 38: FY20 focus on driving consistent performance
FY20 focus on driving consistent performance FY2020 FY2021–23 PERFORMANCE GROWTH 1. Strengthen and grow the Performance focus Performance and growth NZ core 2. Profitable growth in Continue strong performance Growth across low and medium density housing Residential and Development Business fix compl
Slide 39: FY20 market outlook
FY20 market outlook Expect market activity in H2 to be broadly in line with H1 New Zealand Market FY20 Outlook Australia Market FY20 Outlook • NZ residential expected to be similar • AU residential approvals stabilising to first half. With ongoing trends to and returning to growth in FY21 smaller an
Slide 40: Second half outlook FY20 EBIT guidance reconfirmed
Second half outlook FY20 EBIT guidance of $515m - $565m reconfirmed Earnings weighted to second half, but more marked than usual owing to: • Improved performance from Steel • Stronger pipeline of Residential house sales due for settlement • Construction pavement season weighted to 2H20, benefiting H
Slide 41: Appendix
FOC US Appendix Fletcher Building Half Year Results Presentation 2020
Slide 42: Industry context New Zealand and Australia
Industry context New Zealand and Australia NZ Historical AU Historical Residential Consents (#) Residential Approvals (#) 37k 239k 35k 232k 33k 222k 29k 30k 188k 173k FY16 FY17 FY18 FY19 HY20 FY16 FY17 FY18 FY19 HY20 Reti rement Key: Hous es Apa rtments Townhouses Key: Hous es Apa rtments Townhouses