Fletcher Building Limited · NZX:FBU
Fletcher Building — H1 FY2018 Earnings Presentation
47 slides from Fletcher Building's earnings presentation, Feb 21, 2018
Slide 1: Half Year Results to 31 December 2017
Building communities, building lives. Half Year Results to 31 December 2017 ROSS TAYLOR — Chief Executive Officer BEVAN MCKENZIE —Chief Financial Officer 21 February 2018 Fletcher Building Half Year Results Presentation 2018
Slide 2: Disclaimer
Disclaimer This Half Year Results presentation dated 21 February 2018 provides additional comment on the Interim Report 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 given i
Slide 3: Contents
Contents • Introduction • Results Overview • Industry Context • Divisional Performances • Financial Results • Update on Strategic Review Process and Group Outlook • Appendix 3 Fletcher Building Half Year Results Presentation | © February 2018
Slide 4: Introduction
Building communities, building lives. Introduction Fletcher Building Half Year Results Presentation 2018
Slide 5: CEO overview of first three months
CEO overview of first three months Key Areas of Focus Get to know Focus on B+I Get across Get strategy & business and and operational portfolio work customers construction outlook underway Travelled Been to/ Deliver half Strategy work extensively to reviewed key year results well underway ma
Slide 6: Results Overview
Building communities, building lives. Results Overview Fletcher Building Half Year Results Presentation 2018
Slide 7: Results overview
Results overview Dec 2016 Dec 2017 Change NZ$m 6 months 6 months $m Revenue 4,613 4,889 276 Operating earnings before significant items 310 (322) (632) Net earnings before significant items 187 (273) (460) Cashflow from operating activities1 (67) 110 177 Basic earnings per share (cents) 25.4 (39.2)
Slide 8: Safety performance
Results overview Safety performance Fletcher Building Total Recordable Injury Frequency Rate* 8.0 7.5 7.0 6.6 6.5 6.0 Feb-17 Mar-17 Apr-17 Jun-17 Jul-17 Sep-17 Nov-17 Sep-16 Nov-16 Oct-17 Oct-16 Jan-17 May-17 Aug-17 Dec-17 Aug-16 Dec-16 * Number of injuries over the last 12 months rolling per millio
Slide 9: HY18 vs HY17 EBIT bridge
Divisional performances HY18 vs HY17 EBIT bridge EBIT¹ NZ$m 5 17 47 (59) 1 (11) (1) 357 310 309 (631) (322) Residential & Land Distribution HY17 Actual HY17 B+I HY17 Actual ex B+I HY18 Actual ex B+I HY18 Actual B+I Building Products Construction ex B+I International Corporate Development 1. Before s
Slide 10: Operating earnings overview
Divisional performances Operating earning overview EBIT¹ NZ$m -13% -9% -1% +6% +57% -83% 0% 357 309 310 70 69 71 129 118 30 47 12 84 89 (27) (26) (47) (322) (631) Distribution International Group EBIT ex B+I B+I Residential & Land Construction ex B+I Group EBIT Building Products Corporate Developmen
Slide 11: Industry Context
Building communities, building lives. Industry Context Fletcher Building Half Year Results Presentation 2018
Slide 12: Revenue exposure to markets
Industry context Revenue exposure to markets Total Revenues by Market Exposure Europe 4% Asia 3% North America 5% NZ Residential 23% AU Other 6% AU Infrastructure 4% AU Commercial 8% NZ Commercial 19% AU Residential 12% NZ Infrastructure NZ Other 5% 11% 12 Fletcher Building Half Year Results Present
Slide 13: NZ residential consents up 3%, supported by high net migration
Industry context NZ residential consents up 3%, supported by high net migration Total Residential Consents¹ Change Year on Year 40,000 8% 10% 8% 3% 5% 35,000 Peak (2004) 0% -5% 30,000 -10% -15% 25,000 -20% -15% NZ Auckland Canterbury Rest of NZ Long term average (2001-2017) 20,000 Auckland represent
Slide 14: NZ non-residential sector still showing year on year growth
Industry context NZ non-residential sector still showing year on year growth NZ Infrastructure and Commercial Work NZ Infrastructure and Commercial Work 2017 on 2016 Change 16,000 12% 10% 14,000 10% 12,000 8% Work done (NZD m) 10,000 6% 5% 4% 4% 8,000 2% 6,000 0% 4,000 -2% 2,000 -4% 0 -4% 2011 2012
Slide 15: Australian residential activity is declining
Industry context Australian residential activity is declining Australian Residential Approvals Change Year-on-Year 250 0% -1% -5% 200 -10% -8% -9% -10% -15% -13% 150 -15% '000s -20% Australia NSW VIC+QLD SA WA Rest 100 Net Migration 12 month rolling 350k 300k 50 250k 200k 150k 100k 50k 0 0k 2011 201
Slide 16: Australia infrastructure and commercial work showed robust growth in all states but WA
Industry context Australia Infrastructure and Commercial work showed robust growth in all states but WA Australian Australia Infrastructure Infrastructure and and Non-residential Commercial Australia Infrastructure and Commercial Work Put in Place Work Put in Place Work Change Year on Year 180,000 2
Slide 17: Formica core markets
Industry context Formica core markets Key Formica UK USA China markets Largest market Commercial Commercial Commercial exposure c70% of total sales c65% of total sales c70% of total sales Formica market 20% 36% 36% share Average forecast GDP growth 2017- 1.6% 1.9% 6.3% 20221 1. Source: IMF World Eco
Slide 18: Divisional Performances
Building communities, building lives. Divisional Performances Fletcher Building Half Year Results Presentation 2018
Slide 19: Building Products Result detail
Building Products Result detail Dec 2016 Dec 2017 Concrete Pipes and Products NZ$m 6 months 12 months change • Ready mix concrete volumes increased 4% but masonry volumes fell 8%, operating earnings down 31% Gross revenue 1,108 1,250 13% • Costs resulting from a fire at Humes branch in Auckland Exte
Slide 20: Building Products Market Outlook
Building Products Market Outlook Outlook Comments Divisional Exposure • Continued revenue growth across NZ Resi Com Infra Other Total • Increase in Australian based earnings due NZ to operational improvement in Iplex Building 40% 26% 20% 14% 100% Australia Products Australia • Continued margin press
Slide 21: International Result detail
International Result detail Dec 2016 Dec 2017 Formica NZ$m 6 months 6 months change • Formica businesses grew operating earnings Gross revenue 1,005 1,045 4% +24% driven by strong sales momentum in Asia External revenue 997 1,034 4% • North America revenue +3%, EBIT +4% driven EBITDA 104 104 0% by i
Slide 22: International Market Outlook
International Market Outlook Outlook Comments Divisional Exposure* Resi Com Infra Other Total • Expect Laminex NZ and Australia to benefit from low top line growth NZ 70% 30% 0% 0% 100% Australia 30% 25% 0% 45% 100% • Threat of imported competing products and mix of growth by state in Australia Form
Slide 23: Distribution Result detail
Distribution Result detail Dec 2016 Dec 2017 New Zealand Building Supplies NZ$m 6 months 6 months change • Gross revenue and operating earnings both +4% Gross revenue 1,644 1,757 7% • Growth in all regions except Christchurch External revenue 1,559 1,665 7% • Placemakers improving penetration of key
Slide 24: Distribution Market Outlook
Distribution Market Outlook Outlook Comments Divisional Exposure • Continued growth in NZ based revenues Resi Com Infra Other Total given maintained levels of activity in residential and commercial building NZ Distn 58% 25% 3% 14% 100% sectors Australia 53% 37% 0% 10% 100% • Modest growth in NZ dist
Slide 25: Residential and Land Development Result detail
Residential and Land Development Result detail Dec 2016 Dec 2017 NZ Residential NZ$m 6 months 6 months change • Housing sales (incl. sections) totalled 342 Gross revenue 163 236 45% in H1 18, up from 188 in H1 17. • Residential earnings were impacted by an External revenue 163 236 45% $12m provision
Slide 26: New Zealand Residential Performance and trends
New Zealand Residential Performance and trends Residential units sold Contributions to average HY2018 Fletcher Living margins 400 350 300 86 Land Appreciation 250 200 85 Development Build Margin 13% Margin 150 30% 57% 100 171 50 0 HY 10 HY 11 HY 12 HY 13 HY 14 HY 15 HY 16 HY 17 HY 18 Low/Medium Dens
Slide 27: Residential and Land Development Market Outlook
Residential and Land Development Market Outlook Outlook Comments Divisional Exposure of Revenue • Auckland housing market has seen softer Low density High density pricing year to date with still some risk to prices for remainder of year Auckland 50% 15% • Residential earnings for FY18 are expected t
Slide 28: Recap of February 14 trading update
Construction Recap of February 14 trading update Summary of comments • Projected B+I FY18 EBIT loss of $660m • Refocus B+I on delivery of remaining projects • Cease bidding for all new vertical construction work in NZ • All current B+I projects targeted to be delivered by end of 2019 28 Fletcher Bui
Slide 29: Construction Result detail
Construction Result detail Dec 2016 Dec 2017 Infrastructure & Higgins NZ NZ$m 6 months 6 months change • Infrastructure continued strong activity Gross Revenue 1,150 1,001 (13)% levels but profit reduced due to timing of two key projects External Revenue 1,035 954 (8)% • Higgins and Infrastructure b
Slide 30: Construction Backlog
Construction Backlog B+I Backlog Higgins and Infrastructure Backlog 2,500 2,500 Infrastructure Higgins 2,000 2,000 Work Backlog $m Work Backlog $m 1,500 1,500 1,000 1,000 500 500 0 Jun-17 0 Apr-16 Jun-16 Aug-16 Aug-15 Feb-16 Oct-16 Oct-15 Dec-16 Dec-15 Apr-17 Aug-17 Feb-17 Oct-17 Dec-17 Jun-16 Jun-1
Slide 31: Financial Results
Building communities, building lives. Financial Results Fletcher Building Half Year Results Presentation 2018
Slide 32: Key financial results & ratios
Key financial results & ratios Group Group Excl. B+I Dec 2016 Dec 2017 Change Dec 2016 Dec 2017 Change NZ$m 6 months 6 months $m 6 months 6 months $m Revenue 4,613 4,889 276 4,069 4,390 321 Operating earnings before significant 310 (322) (632) 357 309 (48) items Trading cashflow1 56 202 146 152 335
Slide 33: Financial results Profit & Loss
Financial results Profit & Loss Reported Results Dec 2016 Dec 2017 Change NZ$m (except Operating Margin & EPS) 6 months 6 months $m Revenue 4,613 4,889 276 Operating earnings before significant items 310 (322) (632) Operating margin % 6.7% (6.6)% NM Significant items (16) - 16 Operating earnings (EB
Slide 34: Financial results Operating cash flow
Financial results Operating cash flow Dec 2016 Dec 2017 Change NZ$m 6 months 6 months $m Operating earnings before significant items 310 (322) (632) Depreciation and amortisation 102 110 8 Provisions, cash impact of significant items and other (43) (17) 26 Trading cashflow before working capital mov
Slide 35: Cash impact of B+I losses
Financial results Cash impact of B+I losses Cash flow impact of FY17 and FY18 B+I forecast losses NZ$m Cash outflow EBIT loss FY17 FY18F FY19F FY20F 0 -133 H1 -107 -100 -168 -299 -200 H2F -245 -300 -292 -400 -500 -600 -700 -660 c60% of cash impact c40% of cash impact 35 Fletcher Building Half Year R
Slide 36: Working capital movements
Financial results Working capital movements Dec 2016 Dec 2017 Change Net inflow from/(investment in) working capital NZ$m 6 months 6 months $m Building Products (21) (39) (18) International (56) (21) 35 Distribution (35) (18) 17 Residential & Land Development (121) 3 124 Construction (102) 491 593 O
Slide 37: Working capital metrics
Financial results Working capital metrics Key working capital metrics Debtor Days Inventory Days As at As at Change As at As at Change Dec 2016 Dec 2017 (days) Dec 2016 Dec 2017 (days) Building Products 39 36 (3) 66 67 +1 International 50 48 (2) 112 108 (4) Distribution 41 41 - 64 66 +2 Group Total
Slide 38: Increases in both capex and depreciation
Financial results Increases in both capex and depreciation NZ$m Dec 2016 Dec 2017 140 NZ$m 6 months 6 months change 120 Stay-in-business 69 88 28% 43 100 Growth 58 43 (26)% 58 Total Capex 127 131 3% 80 60 102 110 Acquisitions 305 - NM 88 40 69 Depreciation/ 20 102 110 8% Amortisation 0 2016 HY 17 20
Slide 39: Net debt movement
Opening Net Debt 1953 NZ$m losses Cashflow from operations Growth capex 110 43 Stay in business capex 88 Financial results Divestment 15 39 Fletcher Building Half Year Results Presentation | © February 2018 Dividends 123 8 Minority distribution Closing net debt before hedging/FX 2090 28 Hedging/FX o
Slide 40: Debt maturity profile
Financial results Debt maturity profile Funding and Maturity Profile Debt maturity profile prior to covenant 31 December 2017 breach Undrawn credit lines of $835m and cash of $190m 460 Average maturity of debt facilities is 4.2 years Approximately 50% of all borrowings have fixed interest rates 125
Slide 41: Update on discussions with lenders
Financial results Update on discussions with lenders Commercial Banking Syndicate • Waiver of breach received • Commitment to provide continued access to funding facilities • New covenant terms targeted to be agreed by end of March 2018 USPP • Discussions underway with USPP holders • New covenant te
Slide 42: Update on Strategic Review Process and Group Outlook
Building communities, building lives. Update on Strategic Review Process and Group Outlook Fletcher Building Half Year Results Presentation 2018
Slide 43: Financial outlook FY18 and strategy timeline
Financial outlook FY18 and strategy timeline FY18 guidance and outlook: • For the Group excluding B+I we estimate FY18 EBIT excluding significant items to be in the range of $680m – $720m; • B+I EBIT is expected to be a loss of $660m • H1/H2 proportional split of earnings to be broadly consistent wi
Slide 44: Appendix
Building communities, building lives. Appendix Fletcher Building Half Year Results Presentation 2018
Slide 45: Sectoral exposure, based on revenue
Industry Context Sectoral exposure, based on revenue Residential Geographical Exposure by Sector¹ (New + A&A)* Commercial Infrastructure Other TOTAL New Zealand 9% 7% 3% 3% 22% Australia 8% 4% 4% 6% 22% Rest of World 4% 6% 0% 1% 11% Total Manufacturing 21% 17% 7% 10% 55% New Zealand 10% 3% 0% 1% 14%
Slide 46: Company structure
Appendix Company structure CEO: Ross Taylor Residential & Land Building Products: International: Distribution: Construction: Development: Interim – David Francisco Irazusta Dean Fradgley Michele Kernahan Steve Evans Thomas • GBCWinstone (NZ) • Formica Asia • PlaceMakers (NZ) • Fletcher Living (NZ) •
Slide 47: Company overview
Appendix Company overview Revenue: $9.7 billion People: 20,964* External Revenue Rolling 12mth to Dec17 $5,524m $2,929m $460m $303m $313m $146m New NewZealand Zealand Australia North America Asia Europe South Pacific 10,599 8,843 people people 5,625 people 1,063 people 1,536 people 1,205 people 936