Fletcher Building Limited · NZX:FBU
Fletcher Building — FY2016 Earnings Presentation
51 slides from Fletcher Building's earnings presentation, Aug 17, 2016
Slide 1: Annual Results to 30 June 2016
Fletcher Building Annual Results Presentation 2016 Annual Results to 30 June 2016 Working with you MARK ADAMSON — Chief Executive Officer GERRY BOLLMAN — Chief Financial Officer 17 August 2016 1
Slide 2: Disclaimer
Disclaimer This Annual Results presentation dated 17 August 2016 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 given
Slide 3: Agenda
Agenda Results Overview Geographic & Sectoral Analysis Divisional Performances Financial Results Strategy Update Outlook Appendix 3 Fletcher Building Annual Results Presentation | © August 2016
Slide 4: Results Overview
Fletcher Building Annual Results Presentation 2016 Working with you Results Overview
Slide 5: Results overview
Results overview Net earnings Revenue $9,004m $462m 4% 71% Dividend per share 39c Operating earnings 5% $719m Earnings per share 67.0c 43% 71% 5 Fletcher Building Annual Results Presentation | © August 2016
Slide 6: Results overview: reported results
Results overview 5% increase in net earnings before significant items Reported Results June 2015 June 2016 % NZ$m (except EPS and DPS) 12 months 12 months change Revenue 8,661 9,004 +4 Operating earnings before significant items 653 682 +4 Significant items (150) 37 NM Operating earnings (EBIT) 503
Slide 7: Highlights New Zealand
Highlights New Zealand Volume growth driven by strong New Zealand cycle: • Cement +6% • Concrete +7% • Plasterboard +11% EBIT & Revenue: Distribution - strong revenue & EBIT¹ performance • PlaceMakers revenue +10% • Mico revenue +12% • Steel Distribution EBIT +22% NZ Residential EBIT: + 12% Construc
Slide 8: Highlights Australia
Highlights Australia EBIT¹: • EBIT from Australian business +29% • Stramit: EBIT +43% • Fletcher Insulation: EBIT +150% Iplex: Return to profitability in second half of FY16, significant year-on-year performance improvement Tradelink: Store rollout strategy underway with compelling cost/return econo
Slide 9: Results overview: Revenue
Results overview Revenue • Reported revenue $343m or 4% higher than FY15 Revenue REVENUE GROWTH RATES $9,004m Geographic segments New Zealand Reported 8% Local Currency 8% 4% Australia -3% -4% Rest of World 5% -9% 9 Fletcher Building Annual Results Presentation | © August 2016
Slide 10: Results overview: Operating earnings
Results overview Operating earnings • Operating earnings before significant items up 4% Operating earnings • Within guidance range of $650m - $719m $690m • Reported operating earnings (EBIT) 43% up 43% SIGNIFICANT ITEMS Business acquisition/disposal income $85m Site closures ($16m) Operating earning
Slide 11: Results overview: Net earnings
Results overview Net earnings • Net earnings before significant items were up 5% to $418m Net earnings EARNINGS PER SHARE $462m Earnings per share 67.0 cents +71% 71% Earnings per share 60.6 cents +4% (before significant items) Net earnings $418m before significant items 5% 11 Fletcher Building Annu
Slide 12: Results overview: Dividend
Results overview Dividend • Final dividend fully imputed for NZ taxation purposes Dividend per share • Dividend Reinvestment Plan will be 39c 5% operative for this dividend DIVIDEND Final dividend per share 20 cents Total dividend for the year 39 cents • Both interim and final dividend are expected
Slide 13: Results overview: Cash flow from operations
Results overview Cash flow from operations • Cash flow from operations $660m an increase of $85m from FY15 Cashflow from operations ($575m) $660m • Increase is due to: 15% – Growth in EBIT – Reduction in inventory and improved debtor management – $81m working capital release from Pacific Steel closu
Slide 14: Geographic & Sectoral Analysis
Fletcher Building Annual Results Presentation 2016 Working with you Geographic & Sectoral Analysis
Slide 15: Stronger performance from Australia reflected in increased EBIT contribution
Stronger performance from Australia reflected in increased EBIT contribution External Revenue EBIT¹ (12 months to 30 June 2016) (12 months to 30 June 2016) 14 11 23 53 33 66 1. Before significant items 15 Fletcher Building Annual Results Presentation | © August 2016
Slide 16: New Zealand operating earnings up in Distribution, Construction, and Residential
New Zealand operating earnings up in Distribution, Construction, and Residential divisions EBIT¹ NZ$m 527 495 151 115 80 67 New Zealand Australia Rest of the World 12 months to 30 June 15 12 months to 30 June 16 1. Before significant items and excluding corporate costs 16 Fletcher Building Annual Re
Slide 17: New Zealand residential consents up 16%
New Zealand residential consents up 16% total work put in place up 9% Total residential consents¹ Change % year on year 35,000 40% Peak (2004) 30% 20% 30,000 10% 0% -10% 25,000 Auckland Canterbury Rest of NZ NZ Long term average (2001-2015) Auckland represents 33% of total consents 20,000 Net migrat
Slide 18: Australian residential consents peaked in December
Australian residential consents peaked in December, recent decline mainly in multi-residential Total residential approvals 130,000 250,000 120,000 200,000 110,000 100,000 150,000 90,000 80,000 100,000 70,000 50,000 60,000 50,000 - Mar-16 Dec-14 Jun-13 Dec-13 Mar-14 Jun-14 Mar-15 Jun-15 Dec-15 Sep-14
Slide 19: Divisional Performances
Fletcher Building Annual Results Presentation 2016 Working with you Divisional Performances 19
Slide 20: Divisional operating earnings overview
Divisional operating earnings overview EBIT¹ NZ$m 274 259 176 143 148 133 84 74 78 66 Building Products International Distribution Residential and Land Construction Development 12 months to 30 June 15 12 months to 30 June 16 1. Before significant items 20Fletcher Building Annual Results Presentation
Slide 21: Building Products Result
Building Products Result Concrete Pipes & Products Jun 2015 Jun 2016 % NZ$m 12 months 12 months change Ready-mix concrete volumes +7% Gross Revenue 2,656 2,449 -8 Concrete Pipe volumes -8% in New Zealand External Revenue 2,184 1,969 -10 Rocla concrete product revenues -4% in EBITDA¹ 356 354 -1 Austr
Slide 22: International Result
International Result Formica Jun 2015 Jun 2016 % NZ$m 12 months 12 months change 4% revenue growth in North America² Gross Revenue 2,007 2,128 +6 Asia revenue growth of 2-6% in key markets, operating earnings up strongly External Revenue 1,978 2,106 +6 Europe: restructuring in UK operations, EBITDA¹
Slide 23: Distribution Result
Distribution Result New Zealand Building Supplies Jun 2015 Jun 2016 % NZ$m 12 months 12 months change Operating earnings +13% Gross Revenue 3,081 3,184 +3 PlaceMakers revenue growth +10% Mico revenue growth +12% External Revenue 2,958 3,026 +2 New Zealand Steel Distribution EBITDA¹ 180 205 +14 Opera
Slide 24: Residential and Land Development Result
Residential and Land Development Result NZ Residential Jun 2015 Jun 2016 % NZ$m 12 months 12 months change Accelerated build programme in Auckland offset Stonefields impact Gross Revenue 238 343 +44 Strong sales volumes & margins from External Revenue 238 343 +44 existing and new developments Signif
Slide 25: Construction Result
Construction Result New Zealand Construction Jun 2015 Jun 2016 % NZ$m 12 months 12 months change Strong NZ Construction growth, partly offset by lower Fletcher EQR & South Gross Revenue 1,342 1,648 +23 Pacific earnings External Revenue 1,299 1,560 +20 Total contracted work awarded but not completed
Slide 26: Health and safety performance
Health and safety performance Total recordable injury frequency rate* Lost time injury frequency rate 8.48 6.80 6.68 6.36 6.00 3.46 3.00 3.11 3.03 2.60 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 * Total injuries per million employee and contractor hours 26 Fletcher Building Annual Results Pre
Slide 27: Financial Results
Fletcher Building Annual Results Presentation 2016 Working with you Financial Results
Slide 28: FY16 EBIT result included other gains and losses
FY16 EBIT result included other gains and losses June 2015 June 2016 NZ$m 12 months 12 months Property sales 20 28 Restructuring costs (8) (20) Other one-off costs (net) (4) (6) Other gains and losses 8 2 28 Fletcher Building Annual Results Presentation | © August 2016
Slide 29: Operating cash flow
Operating cash flow June 2015 June 2016 % NZ$m 12 months 12 months change Operating earnings before significant items 653 682 +4 Depreciation and amortisation 201 194 -3 Less cash tax paid (72) (97) +35 Less interest paid (124) (118) -5 Provisions, significant items and other (42) (99) +136 Results
Slide 30: Net debt movement
Opening Net Debt 1726 NZ$m Cash from operations (pre working capital) Working capital (562) (164) Investment in land 66 Growth capex + 113 acquisitions 30 Fletcher Building Annual Results Presentation | © August 2016 Stay in business capex 194 Divestments (259) Treasury Stock 16 purchase Dividends 2
Slide 31: Capital expenditure in FY17 expected to be $275m to $325m
Capital expenditure in FY17 expected to be in the range of $275m to $325m NZ$m 325 June 2015 June 2016 % NZ$m 12 months 12 months change 106 105 Stay-in-business 173 194 +12 275 Growth 105 106 +1 238 201 Total Capex 278 300 +8 194 194 173 Acquisitions 4 7 +75 Depreciation/ 201 194 -3 Amortisation 20
Slide 32: Key ratios
Key ratios Total Shareholder Return (TSR) Debt/Debt Plus Equity Percentage Percentage 37 51 33 32 32 27 9 11 -27 -3 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Return on Average Funds Net Debt/EBITDA Percentage¹ Times 12 13 13 11 2.62 10 2.27 1.99 2.02 1.59 Jun-12 Jun-13 Ju
Slide 33: Debt profile
Debt profile Funding and Maturity Profile June 2016 Undrawn credit lines of $608m and cash of $356m Average maturity of debt is 3.5 years Approximately 61% of all borrowings have 258 fixed interest rates 350 413 Average interest rate on debt is 5.4% Mix of currency (hedged) − NZ$ 32% 260 205 219 − A
Slide 34: 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 30 June 2016: 27.3% Leverage: • Target Net Debt to EBITDA of 2.0 to 2.5 times • As at 30 June 2016:
Slide 35: Revised dividend tax crediting policy
Revised dividend tax crediting policy Existing Policy: • To frank Australian tax credits, or alternatively impute with New Zealand tax credits, to the extent franking or imputation credits are available for distribution New Policy: • Fully impute both interim and final dividends with New Zealand tax
Slide 36: Strategy Update
Fletcher Building Annual Results Presentation 2016 Working with you Strategy Update
Slide 37: Strategy summary
Strategy summary Target organic growth • Residential: New Zealand Deliver sustained uplift in • Construction: New Zealand performance of all and South Pacific • Distribution: New Zealand and businesses, leverage Australia centres of excellence • Manufacturing: Growth through innovative products & es
Slide 38: Portfolio rationalisation completed
Portfolio rationalisation completed Rocla Quarry Products sale completed in January 2016 • Total consideration NZ$212m • Gain on sale of NZ$85m Joint Venture between Fletcher Aluminium and Nalco commenced on 30 June 2016 Purchase of Higgins road construction and maintenance business completed 29 Jul
Slide 39: Accelerate leverages capability developed under FBUnite
Accelerate leverages capability that was developed under the FBUnite programme • Accelerate builds on the work done in the ‘Art of the Possible’ bottom up analysis and ‘Top down’ validation • Harnesses the power of the centralised functions and centres of excellence • Co-ordinated through Group Tran
Slide 40: Accelerate opportunity set by category
Accelerate opportunity set was identified across the following categories % OF TOTAL IDENTIFIED OPPORTUNITY Commercial (“Sell”) 20% Cost - External spend (“Source”) 42% - Overhead (“Staff”) 16% Manufacturing - Manufacturing (“Make”) 15% - Distribution and Construction (“Deliver”) 7% DIVISIONS Buildi
Slide 41: Chief Transformation Officer role created
Chief Transformation Officer role created to coordinate and drive activities People • Transformation Office drives, governs and supports the Accelerate programme, supported by divisional and/or BU transformation roles Systems • Online tool captures initiatives across the group that will deliver gros
Slide 42: Outlook
Fletcher Building Annual Results Presentation 2016 Working with you Outlook 42
Slide 43: Outlook FY17
Outlook FY17 New Zealand • Residential consents expected to peak in FY18, but lag could mean peak activity occurs after this • Non-residential activity forecast to remain steady at elevated levels • Infrastructure work undertaken expected to continue to grow Australia • Residential activity expected
Slide 44: Financial Outlook FY17
Financial Outlook FY17 Operating Earnings (EBIT) expected to be in the range of $720m to $760m Earnings from Higgins acquisition should offset the impact of discontinued operations: • Pacific Steel • Rocla Quarry Products • Fletcher EQR Corporate costs expected to be in line with FY16 Depreciation f
Slide 45: Q&A
Fletcher Building Annual Results Presentation 2016 Working with you Q&A
Slide 46: Appendix: New Zealand construction market has a strong outlook
Appendix: New Zealand construction market has a strong outlook Value of all construction (historic and forecast) NZ$bn Source: Statistics NZ/BRANZ/Pacifecon 46 Fletcher Building Annual Results Presentation | © August 2016
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% 30% 12% 14% Australia 55% 22% 11% 12% Rest of World 44% 50% 0% 6% Total Manufacturing 49% 31% 9% 11% New Zealand 79% 18% 0% 3% Australia 55%
Slide 48: Appendix: Building consent data
Appendix: Building consent data June 2014 June 2015 June 2016 16/15 12 months 12 months 12 months % Mvmt New Zealand Residential Consents 23,316 25,154 29,097 +16 Res WPIP ($m) 8,661 9,907 11,244 +13 Non Res WPIP ($m) 5,187 6,057 6,572 +9 Infrastructure WPIP ($m) 6,535 6,873 7,017 +2 Australia Sourc
Slide 49: Appendix: Strongest growth in NSW; WA approvals decline
Appendix: Strongest growth in NSW; Western Australia experience a significant decline in approvals Change in housing approvals – by state 12 months ended 30 June 2016 vs 2015 June 2015 June 2016 % 12 months 12 months change 45,000 Stand-alone 118,278 115,110 -3 40,000 Multi + other 111,157 108,176 -
Slide 50: Appendix: Formica geographical earnings
Appendix: Formica geographical earnings June 2015 June 2016 % EBIT (NZ$m)¹ 12 months 12 months change North America 49 56 +14 Asia 19 23 +21 Europe 0 -17 N/M Formica EBIT¹ 68 62 -9 1. EBIT: Operating earnings before interest, tax and significant items 50 Fletcher Building Annual Results Presentation
Slide 51: 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