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 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 in that commentary. 2 Fletcher Building Annual Results Presentation © August 2016 Agenda Results Overview Geographic & Sectoral Analysis Divisional Performances Financial Results Strategy Update Outlook Appendix 3 Fletcher Building Annual Results Presentation © August 2016 Results overview Net earnings $462m 71% Operating earnings $719m 43% 5 Fletcher Building Annual Results Presentation © August 2016 Revenue $9,004m 4% Dividend per share 39c 5% Earnings per share 67.0c 71% Results overview 5% increase in net earnings before significant items Reported Results June 2015 12 months June 2016 12 months % change 8,661 9,004 +4 653 682 +4 (150) 37 NM Operating earnings (EBIT) 503 719 +43 Net earnings before significant items 399 418 +5 Net earnings 270 462 +71 Earnings per share before significant items (EPS – cents) 58.0 60.6 +4 Dividend declared per share (DPS – cents) 37.0 39.0 +5 NZ$m (except EPS and DPS) Revenue Operating earnings before significant items Significant items 6 Fletcher Building Annual Results Presentation © August 2016 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% Construction revenue: +29% 1. Before significant items 7 Fletcher Building Annual Results Presentation © August 2016 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 economics 1. Before significant items 8 Fletcher Building Annual Results Presentation © August 2016 Results overview Revenue • Reported revenue $343m or 4% Revenue $9,004m 4% higher than FY15 REVENUE GROWTH RATES Geographic segments New Zealand Australia Rest of World 9 Fletcher Building Annual Results Presentation © August 2016 Reported Local Currency 8% 8% -3% -4% 5% -9% Results overview Operating earnings • Operating earnings before significant Operating earnings $719m 43% items up 4% • Within guidance range of $650m • $690m Reported operating earnings (EBIT) up 43% SIGNIFICANT ITEMS Business acquisition/disposal income Operating earnings $682m before significant items 4% $85m Site closures ($16m) Business impairment ($26m) Other ($6m) Total $37m 10 Fletcher Building Annual Results Presentation © August 2016 Results overview Net earnings • Net earnings before significant items Net earnings $462m 71% were up 5% to $418m EARNINGS PER SHARE Earnings per share 67.0 cents +71% Earnings per share 60.6 cents +4% (before significant items) Net earnings $418m before significant items 5% 11 Fletcher Building Annual Results Presentation © August 2016 Results overview Dividend • Final dividend fully imputed for NZ Dividend per share 39c 5% taxation purposes • Dividend Reinvestment Plan will be 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 to be fully imputed from FY17 to FY19 12 Fletcher Building Annual Results Presentation © August 2016 Results overview Cash flow from operations • Cash flow from operations $660m Cashflow from operations $660m 15% an increase of $85m from FY15 ($575m) • Increase is due to: – Growth in EBIT – Reduction in inventory and improved debtor management – $81m working capital release from Pacific Steel closure • Offset partly by increased cash investment in residential land & developments 13 Fletcher Building Annual Results Presentation © August 2016 Fletcher Building Annual Results Presentation 2016 Working with you Geographic & Sectoral Analysis Stronger performance from Australia reflected in increased EBIT contribution External Revenue (12 months to 30 June 2016) EBIT¹ (12 months to 30 June 2016) 11 14 23 53 33 1. Before significant items 15 Fletcher Building Annual Results Presentation © August 2016 66 New Zealand operating earnings up in Distribution, Construction, and Residential divisions EBIT¹ NZ$m 527 495 151 115 80 New Zealand Australia 12 months to 30 June 15 1. Before significant items and excluding corporate costs 16 Fletcher Building Annual Results Presentation © August 2016 67 Rest of the World 12 months to 30 June 16 New Zealand residential consents up 16% total work put in place up 9% Total residential consents¹ Change % year on year 40% 35,000 Peak (2004) 30% 20% 30,000 10% 0% -10% 25,000 Auckland Long term average (2001-2015) Canterbury Rest of NZ NZ Auckland represents 33% of total consents 20,000 Net migration 12 month rolling 80,000 60,000 15,000 40,000 20,000 0 17 Fletcher Building Annual Results Presentation © August 2016 Jun-16 Jun-15 Jun-14 Jun-13 Jun-12 Jun-11 Jun-10 Jun-09 Jun-08 Jun-07 Jun-06 Jun-05 -20,000 Jun-04 Source: Statistics NZ, Infometrics 1 – Twelve months rolling Jun-16 Jun-15 Jun-14 Jun-13 Jun-12 Jun-11 Jun-10 10,000 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 90,000 100,000 80,000 70,000 50,000 60,000 Standalone Houses Multi Residential & Other Dwelling types Source: Australian bureau of statistics, BIS Shrapnel 1 – Twelve months rolling 18 Fletcher Building Annual Results Presentation © August 2016 Total (incl Conversions) Jun-16 Mar-16 Dec-15 Sep-15 Jun-15 Mar-15 Dec-14 Sep-14 Jun-14 Mar-14 Dec-13 Sep-13 Jun-13 Jun-16 Mar-16 Dec-15 Sep-15 Jun-15 Mar-15 Dec-14 Sep-14 Jun-14 Mar-14 Dec-13 Sep-13 Jun-13 50,000 Fletcher Building Annual Results Presentation 2016 Working with you Divisional Performances 19 Divisional operating earnings overview EBIT¹ NZ$m 259 274 176 143 133 148 84 66 Building Products International Distribution 12 months to 30 June 15 1. Before significant items 20Fletcher Building Annual Results Presentation © August 2016 Residential and Land Development 12 months to 30 June 16 74 78 Construction Building Products Result Jun 2015 12 months Jun 2016 12 months % change Gross Revenue 2,656 2,449 -8 External Revenue 2,184 1,969 -10 EBITDA¹ 356 354 -1 EBIT¹ 259 274 +6 NZ$m Concrete Pipes & Products Cement & Aggregates 79 59 -25 90 87 -3 Building Materials 77 93 +21 Plastic Pipes -8 14 NM Joint Ventures & Other 21 21 - 1,877 1,581 -16 13.4 14.5 9.8 11.2 13.8 17.3 Funds Employed EBITDA¹/gross revenue % EBIT¹/gross revenue % ROFE % 1. Before significant items 21 Fletcher Building Annual Results Presentation © August 2016 Concrete Pipes & Products Ready-mix concrete volumes +7% Concrete Pipe volumes -8% in New Zealand Rocla concrete product revenues -4% in Australia Cement & Aggregates Underlying operating earnings +11% New Zealand cement volumes +6% Building Materials Plasterboard volumes +11% Insulation earnings doubled across New Zealand and Australia Plastic Pipes Significant improvement in Iplex Australia – profitable in 2H16 International Result Jun 2015 12 months Jun 2016 12 months % change 2,007 2,128 +6 1,978 2,106 +6 EBITDA¹ 203 200 -1 EBIT¹ 143 133 -7 Formica 68 62 -9 Laminex 81 80 -1 NZ$m Gross Revenue External Revenue Formica 4% revenue growth in North America² Asia revenue growth of 2-6% in key markets, operating earnings up strongly Europe: restructuring in UK operations, 2H16 breakeven EBIT versus 1H16 loss Laminex Revenue growth in New Zealand (+8%) and Australia (+2%) Underlying EBIT growth: – New Zealand +13% Roof Tile Group 14 14 - Funds Employed 2,098 1,902 -9 10.1 9.4 7.1 6.3 6.8 7.0 EBITDA¹/gross revenue % EBIT¹/gross revenue % ROFE % 1. 2. Before significant items Local currency 22 Fletcher Building Annual Results Presentation © August 2016 – Australia +3% Roof Tile Group Sales volumes improved in North America (+1%), Asia (+3%) and New Zealand (+12%) Distribution Result Jun 2015 12 months Jun 2016 12 months % change Gross Revenue 3,081 3,184 +3 External Revenue 2,958 3,026 +2 EBITDA¹ 180 205 +14 EBIT¹ 148 176 +19 NZ Building Supplies 75 85 +13 NZ Steel Distribution 36 44 +22 AU Building Supplies 23 27 +17 AU Steel Distribution 14 20 +43 1,046 1,001 -4 EBITDA¹/gross revenue % 5.8 6.4 EBIT¹/gross revenue % 4.8 5.5 ROFE % 14.1 17.6 NZ$m Funds Employed 1. Before significant items 23 Fletcher Building Annual Results Presentation © August 2016 New Zealand Building Supplies Operating earnings +13% PlaceMakers revenue growth +10% Mico revenue growth +12% New Zealand Steel Distribution Operating earnings +22% Volume growth at Pacific Coilcoaters & Easysteel Australia Building Supplies 2% decrease in Tradelink revenue following strategic reset Tradelink continues to focus on its core trade plumber customers 20 new stores planned in FY17 Australia Steel Distribution Operating earnings +43% Significant operational improvements in Stramit Residential and Land Development Result Jun 2015 12 months Jun 2016 12 months % change 238 343 +44 238 343 +44 EBITDA 66 84 +27 EBIT 66 84 +27 NZ$m Gross Revenue External Revenue NZ Residential Accelerated build programme in Auckland offset Stonefields impact Strong sales volumes & margins from existing and new developments Significant progress in securing land for future development over the next few years Land Development 66 74 +12 0 10 NM 211 355 +68 EBITDA/gross revenue % 27.7 24.5 EBIT/gross revenue % 27.7 24.5 ROFE % 31.3 23.7 NZ Residential Land Development Funds Employed 24 Fletcher Building Annual Results Presentation © August 2016 Expect to earn $25m+ per annum over the next 5 years from land developed for resale Construction Result New Zealand Construction Strong NZ Construction growth, partly offset by lower Fletcher EQR & South Pacific earnings Jun 2015 12 months Jun 2016 12 months % change Gross Revenue 1,342 1,648 +23 External Revenue 1,299 1,560 +20 EBITDA¹ 81 86 +6 Total contracted work awarded but not completed was $2.7 billion as at 30 June 2016, up from $2.4 billion in prior year EBIT¹ 74 78 +5 New contracts awarded include: Construction NZ² 51 58 +14 Construction South Pacific 23 20 -13 Funds Employed -54 -18 +67 EBITDA¹/gross revenue % 6.0 5.2 EBIT¹/gross revenue % 5.5 4.7 NZ$m – NZ International Convention Centre – Commercial Bay development in – downtown Auckland Auckland International Airport terminal upgrade Announced as preferred bidder as part of Northern Express Group consortium for Puhoi to Warkworth motorway extension Higgins acquisition completed on 29 July 2016 1. 2. Before significant items Includes Fletcher EQR 25 Fletcher Building Annual Results Presentation © August 2016 Health and safety performance Total recordable injury frequency rate* Lost time injury frequency rate 8.48 6.80 6.00 6.36 6.68 3.46 3.00 3.11 3.03 2015 2016 2.60 2012 2013 2014 2015 2016 * Total injuries per million employee and contractor hours 26 Fletcher Building Annual Results Presentation © August 2016 2012 2013 2014 FY16 EBIT result included other gains and losses June 2015 12 months June 2016 12 months Property sales 20 28 Restructuring costs (8) (20) Other one-off costs (net) (4) (6) 8 2 NZ$m Other gains and losses 28 Fletcher Building Annual Results Presentation © August 2016 Operating cash flow June 2015 12 months June 2016 12 months % change Operating earnings before significant items 653 682 +4 Depreciation and amortisation 201 194 -3 Less cash tax paid (72) (97) +35 Less interest paid (124) (118) -5 Provisions, significant items and other (42) (99) +136 Results from operations before working capital adjustments 616 562 -9 Land and developments (58) (66) +14 17 164 NM 575 660 +15 NZ$m Other working capital movements Cash flows from operating activities 29 Fletcher Building Annual Results Presentation © August 2016 30 Fletcher Building Annual Results Presentation © August 2016 1383 Closing net debt 18 Hedging / FX on debt 235 closing net debt before hedging/fx Minority Distribution (259) Dividends 113 Treasury Stock purchase 194 Divestments Stay in business capex (164) Growth capex + acquisitions Investment in land Working capital 1726 Cash from operations (pre working capital) Opening Net Debt Net debt lower at year end due to strong operating cash flow & sale of Rocla Quarry Products NZ$m (562) 13 1396 16 66 Capital expenditure in FY17 expected to be in the range of $275m to $325m NZ$m 325 106 105 275 238 201 194 June 2015 12 months June 2016 12 months % change Stay-in-business 173 194 +12 Growth 105 106 +1 Total Capex 278 300 +8 4 7 +75 201 194 -3 NZ$m 194 173 Acquisitions Depreciation/ Amortisation 2015 Stay-in-business Growth Depreciation 2016 2017 2017 Forecast Capital Expenditure 2017 Forecast Depreciation • Depreciation & Amortisation forecast to be $238 million 31 Fletcher Building Annual Results Presentation © August 2016 Key ratios Total Shareholder Return (TSR) Percentage Debt/Debt Plus Equity Percentage 37 51 32 11 -3 -27 Jun-12 Jun-13 Jun-14 Jun-15 Jun-13 Jun-14 Jun-12 11 Jun-13 Jun-15 Jun-16 Jun-16 Return on Average Funds Percentage¹ 10 32 27 9 Jun-12 33 Net Debt/EBITDA Times 12 Jun-14 13 Jun-15 13 Jun-16 1. Earnings before interest, tax and significant items / average funds 32 Fletcher Building Annual Results Presentation © August 2016 2.62 Jun-12 2.27 Jun-13 1.99 2.02 Jun-14 Jun-15 1.59 Jun-16 Debt profile Funding and Maturity Profile June 2016 Undrawn credit lines of $608m and cash of $356m Average maturity of debt is 3.5 years Approximately 61% of all borrowings have fixed interest rates 258 350 413 Average interest rate on debt is 5.4% Mix of currency (hedged) 260 205 219 164 148 127 80 2017 2018 2019 2020 2021 2022 2024 2027 June Years Drawn Committed Undrawn Debt Facilities 33 Fletcher Building Annual Results Presentation © August 2016 − − − − NZ$ 32% AU$ 47% US$ 14% Other 7% 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: 1.59 times It is intended that the group will not be materially outside target Gearing and Leverage ranges on a long run basis • Gearing and leverage metrics returned to within target range following completion of Higgins acquisition Target dividend pay-out ratio is 50% to 75% of net earnings (before significant items) 34 Fletcher Building Annual Results Presentation © August 2016 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 credits • Fully frank the final dividend with Australian tax credits, where possible Outlook: • Expect to fully impute interim and final dividends in FY17, FY18 and FY19 • Unlikely to be in the position to fully frank FY17 final dividend 35 Fletcher Building Annual Results Presentation © August 2016 Fletcher Building Annual Results Presentation 2016 Working with you Strategy Update Strategy summary Target organic growth • Residential: New Zealand • Construction: New Zealand and South Pacific • Distribution: New Zealand and Australia • Manufacturing: Growth through innovative products & services Lift the performance of underperforming businesses 37 Fletcher Building Annual Results Presentation © August 2016 Deliver sustained uplift in performance of all businesses, leverage centres of excellence established with FBUnite Build people capability, grow leadership base and develop talent pipeline 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 July 2016 • • Purchase price NZ$303m Includes NZ quarry assets 38 Fletcher Building Annual Results Presentation © August 2016 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 Transformation Office and tracked consistently across all businesses with a weekly cadence = 39 Fletcher Building Annual Results Presentation © August 2016 + Art of the Possible Top Down validation + Accelerate opportunity set was identified across the following categories % OF TOTAL IDENTIFIED OPPORTUNITY Commercial (“Sell”) 20% Cost - External spend (“Source”) - Overhead (“Staff”) 42% 16% Manufacturing - Manufacturing (“Make”) - Distribution and Construction (“Deliver”) 15% 7% DIVISIONS Building Products 37% International 20% Distribution 26% Construction & Residential 13% Corporate Total 40Fletcher Building Annual Results Presentation © August 2016 4% 100% 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 gross incremental benefit Cadence • Weekly cadence cycle ensures focus on accountability, commerciality and execution 41 Fletcher Building Annual Results Presentation © August 2016 Fletcher Building Annual Results Presentation 2016 Working with you Outlook 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 to gradually decline following peak in 2016 Little growth forecast in non-residential activity Rest of World • Asia: moderating growth in China, modest growth in Taiwan and SE Asian markets • • North America: relatively low growth, USA higher growth than Canada Europe: mixed outlook for Continental Europe, UK expect to grow modestly 43 Fletcher Building Annual Results Presentation © August 2016 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 forecast to be $238m versus $194m in FY16 First half EBIT forecast to be higher than prior corresponding period 44 Fletcher Building Annual Results Presentation © August 2016 11M Appendix: New Zealand construction market has a strong outlook Value of all construction (historic and forecast) NZ$bn Source: Statistics NZ/BRANZ/Pacifecon 46 Fletcher Building Annual Results Presentation © August 2016 Appendix: Sectoral exposure Exposures based on revenues Residential (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% 45% 0% 0% Total Distribution 70% 28% 0% 2% New Zealand 19% 49% 32% 0% Rest of World 0% 50% 50% 0% Total Construction 17% 50% 33% 0% Geographical Exposure by Sector¹ 1. Excludes business sold or closed during the year * A&A – Additions and Alterations 47 Fletcher Building Annual Results Presentation © August 2016 Appendix: Building consent data June 2014 12 months June 2015 12 months June 2016 12 months 16/15 % Mvmt 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 ($m) 6,535 6,873 7,017 +2 New Zealand Residential Consents Australia Residential Consents Source: Infometrics - Standalone houses 110,198 118,278 115,110 -3 - Multi residential and other dwelling types 87,333 111,157 108,176 -3 197,531 229,435 223,286 -3 35.5 36.1 35.8 -1 125.6 108.1 91.7 -15 - Total Non Res WPIP (A$bn) Infrastructure WPIP (A$bn) US (Billions of US$) Calendar Years Residential Consents (US$bn) Source: ABS 371 417 441 +6 Non Res WPIP (US$bn) 380 432 454 +5 Infrastructure WPIP (US$bn) 234 237 246 +4 Source: HIS Global Insight 48 Fletcher Building Annual Results Presentation © August 2016 Appendix: Strongest growth in NSW; Western Australia experience a significant decline in approvals Change in housing approvals – by state 12 months ended 30 June 2016 vs 2015 June 2015 12 months June 2016 12 months % change Stand-alone 118,278 115,110 -3 35,000 Multi + other Residential 111,157 108,176 -3 30,000 Total 229,435 223,286 -3 45,000 40,000 25,000 20,000 15,000 10,000 5,000 0 NSW VIC QLD WA 2015 Houses 2015 Total Dwellings excl Houses 2016 Houses 2016 Total dwellings excl houses Source: HIS Global Insight 49 Fletcher Building Annual Results Presentation © August 2016 Appendix: Formica geographical earnings June 2015 12 months June 2016 12 months % change North America 49 56 +14 Asia 19 23 +21 0 -17 N/M 68 62 -9 EBIT (NZ$m)¹ Europe Formica EBIT¹ 1. EBIT: Operating earnings before interest, tax and significant items 50 Fletcher Building Annual Results Presentation © August 2016 Appendix: Group Structure Building Products: Matt Crockett • GBCWinstone (NZ) including Higgins Aggregates • Firth (NZ) • Humes (NZ) • Rocla Pipelines (Aus) • Winstone Wallboards/Tasman Insulation (NZ) • Fletcher Insulation (Aus) • Iplex (NZ & Aus) • Sims Pacific Metals (NZ) • FANALCO (NZ) International: Francisco Irazusta • Formica Asia • Formica Europe • Formica North America • Laminex (NZ & Aus) • Roof Tile Group (NZ; Africa; Asia; Europe; USA) Distribution: Dean Fradgley • PlaceMakers (NZ) • Mico (NZ) • EasySteel (NZ) • Pacific Coilcoaters Residential & Land Development: Steve Evans • Fletcher Living (NZ) (NZ) • Fletcher Reinforcing (NZ) • Tradelink (Aus) • Stramit (Aus) • Tasman Sinkware (Aus) Construction: Graham Darlow • Infrastructure (NZ) • Fletcher EQR (NZ) • South Pacific • Higgins Contracting (NZ & Fiji) • Building + Interiors (NZ) Supported by Fletcher Building Corporate Services: People and Communications – Kate Daly, Chief People and Communications Officer Strategy and Finance – Gerry Bollman, Chief Financial Officer Group Technology – John Bell, Chief Information Officer Governance and Property – Charles Bolt, Company Secretary and General Counsel Procurement, Marketing, Operations Excellence and Transformation - Lee Finney, Chief Transformation Officer 51 Fletcher Building Annual Results Presentation © August 2016