8606 Fletcher AnnRep 2002_a/w 01/10/2002 2:34 PM Page *1 FLETCHER BUILDING ANNUAL REPORT 20 02 8606 Fletcher AnnRep 2002_a/w 01/10/2002 2:34 PM Page •2 20 02 RESULTS PERIOD ENDED NZ$M Operating revenue Operating profit (EBIT) before unusual items Cash flow from operations Net earnings before unusual items Net earnings 12 MONTHS JUNE 2002 2,966 205 187 88 93 PRO FORMA 12 MONTHS JUNE 2001 2,273 94 251 34 (272) HIGHLIGHTS RESULTS EVIDENCE IMPROVING FINANCIAL RETURNS WITH: EXCELLENT OPERATING EARNINGS AND RETURN ON CAPITAL IMPROVED OPERATING MARGINS ASSISTED BY STRONGER DEMAND LOWER OVERHEADS NET DEBT AND CAPITAL NOTES REDUCED BY $126 MILLION IMPROVED INTEREST COVER INCREASED DIVIDEND — FULLY TAX CREDITED EARNINGS RISK REDUCED WITH: SALE OF THE AUSTRALIAN CONSTRUCTION AND CO-GENERATION BUSINESSES SALE OF THE BOLIVIAN CONCRETE BUSINESS CREATING: A STRONGLY PERFORMING COMPANY THE FOUNDATION FOR OUR ACQUISITION OF THE LAMINEX GROUP CONTENTS CHAIRMAN(cid:213)S & CHIEF EXECUTIVE(cid:213)S REVIEW 2 BOARD OF DIRECTORS 6 OPERATIONAL OVERVIEW BUILDING PRODUCTS 10 CONCRETE 12 CONSTRUCTION 15 DISTRIBUTION 16 FLETCHER BUILDING(cid:213)S PROFILE 18 PEOPLE 20 ENVIRONMENT 23 FINANCIAL REVIEW 26 FINANCIALS 28 AUDIT REPORT 60 CORPORATE GOVERNANCE 61 REGULATORY DISCLOSURES 65 INVESTOR INFORMATION 72 8606 Fletcher AnnRep 2002_a/w 01/10/2002 2:34 PM Page 2 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 WE HAVE STRONG FOUNDATIONS, HIGH EXPECTATIONS AND A GROWING SENSE OF OPPORTUNITY CHAIRMAN(cid:213)S & CHIEF EXECUTIVE(cid:213)S REVIEW IN ITS FIRST FULL YEAR AS AN INDEPENDENT COMPANY, FLETCHER BUILDING REPORTED A PROFIT AFTER TAX AND BEFORE UNUSUAL ITEMS OF $88 MILLION REPRESENTING A SUBSTANTIAL IMPROVEMENT ON THE PREVIOUS YEAR. AFTER AN UNUSUAL GAIN OF $5 MILLION THE NET PROFIT WAS $93 MILLION, COMPARED TO THE PREVIOUS FULL YEAR LOSS OF $288 MILLION ON A COMPARABLE BASIS, WHICH INCLUDED THE COSTS OF SEPARATION FROM FLETCHER CHALLENGE LIMITED. SINCE BALANCE DATE, THE COMPANY HAS ANNOUNCED A MAJOR STRATEGIC GROWTH INITIATIVE WITH THE PROPOSED PURCHASE OF THE LAMINEX GROUP, PLACED 43.7 MILLION NEW SHARES AT A PREMIUM TO THE THEN MARKET PRICE, AND ADVISED OF FURTHER EARNINGS IMPROVEMENTS FOR THE CURRENT FINANCIAL YEAR. RESULTS The year ended 30 June 2002 brought a pleasing start to life as an independent company, and our earnings were in line with the near-term potential assessed by directors when the decision was made to list Fletcher Building as a stand-alone entity. However, much change was necessary to ensure the company reached that potential. This has been achieved by management earlier than expected. Strong demand, particularly in the second half, contributed significantly to the results being better than the market(cid:213)s expectations; however, results benefited throughout the year from cost reductions, efficiency improvements and price movements. These will continue to benefit the company in future years. All divisions lifted their operational earnings substantially. Building Products(cid:213) earnings before interest and tax were $85 million, up from $58 million in the prior year. Concrete earned $60 million, up from $31 million. Construction earned $30 million, up from $5 million, and Distribution $34 million, up from $18 million. The biggest improvers within these divisions were Concrete(cid:213)s South American operations, Building Products(cid:213) upstream steel business, Construction(cid:213)s Residential homes and Distribution(cid:213)s PlaceMakers. Between them, these units delivered more than $45 million of the company(cid:213)s year-on-year operating earnings improvement. Following a change to the company(cid:213)s accounting policy, these results are after expensing the interest costs on capital notes to the earnings statement. These costs were previously treated as a distribution along with dividends. There is no accounting standard that requires us to report capital notes this way, but we have done so to provide better visibility of the company(cid:213)s debt servicing costs. Roderick Deane Chairman Ralph Waters Chief Executive DIVIDEND Directors declared a final dividend of 8 cents per share, payable on 14 November 2002. Coupled with the interim dividend of 6 cents, the total payout is 14 cents per share, and this tax credited dividend represents a pre-tax yield of around 7.6 percent based on the share price of $2.75 at 30 June 2002. Non-resident shareholders are paid an additional cash amount, which is the partial refund of the Dividend Withholding Payment tax credit. Their final cash dividend, net of New Zealand tax, is 10.15 cents per share. IMPROVED RETURNS ON INVESTMENT Along with the drive for earnings improvements has been a focus on achieving higher returns on investment. Earnings before interest and tax of $210 million represents a 23.1 percent return on average total capital employed well ahead of the company(cid:213)s pre-tax cost of capital, which is around 15 percent. The after-tax result represented a 16.9 percent return on equity. These returns are above average for industrial companies of our size. ASSET SALES The continued concentration of the business portfolio through the sale of under-performing or non- strategic business has been an important driver of this improvement in returns. During the year the company has sold Cyclone Wire, Fletcher Construction Australia and the Victorian co-generation power plant in Australia. Since balance date, contracts have also been signed for the sale of the Australian distribution assets of Fletcher Aluminium and the sale of the Bolivian cement, concrete and aggregates businesses. More asset disposals are possible in the year ahead. The sale of the Victorian co-generation assets, which were acquired in March 2001 as a result of a dispute with the then owner Axa Corporation, resulted in an after-tax gain of $14 million. As part of the sale process for the South American businesses, a full current valuation has been conducted and the businesses written down to our assessment of their net realisable value. This has resulted in a reduction in the revaluation reserve of $11 million, which is attributable to the decrease in the value of assets, and a further charge of $11 million to the earnings statement, which is our assessment of the discount required to achieve a clean sale. UNUSUAL GAINS The unusual items include the gains from the sale of the Lunn Avenue quarry and the Victorian co-generation assets, together with the additional income from the extra three months(cid:213) earnings at PlaceMakers that are a consequence of consolidating the results of the PlaceMakers(cid:213) joint ventures and a move from a 31 March to a 30 June balance date. These gains were partly offset by a reduction in asset values for the South American assets, and the sale costs of the Australian Construction business. SHARE PRICE In a difficult year for sharemarkets, we delivered a total shareholder return (that is, the increase in share price plus gross dividends, including the value of tax credits) of 25 percent. From its starting point at $2.33 on the day of listing 26 March 2001, the share price traded as high as $3.14 before the start of Reserve Bank interest rate rises which, as is normal, then affected the prices of cyclical stocks. Detailed operational reviews follow, and highlight some excellent individual business unit performances. At 30 June 2002, the share price was $2.75. 8606 Fletcher AnnRep 2002_a/w 01/10/2002 2:34 PM Page 4 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 BUSINESS STRATEGY Employee Share Scheme: We announced in August 2002 the establishment of an employee share From July last year, the company was reorganised into four divisions Building Products, Concrete, ownership plan available to all New Zealand-based employees. The aim of this plan is to build a greater Construction and Distribution. In a normal year, Building Products and Concrete will account for most degree of identification amongst our workforce with the interests of shareholders, and to enable them of Fletcher Building(cid:213)s earnings, as we are primarily a building products and materials company. to share in the company(cid:213)s growth and prosperity. The offer was limited to 1000 shares and was made Nevertheless, the Construction and Distribution divisions are strategically vital to our success. Each is pursuant to the provisions of section DF 7 of the Income Tax Act 1994. Further details are available in a channel to market for our products and materials. Construction, the industry leader and a strongly the Regulatory Disclosure section of this report. profitable business in its own right, is a major user of concrete, aggregates, infrastructure products, steel, wallboards and wood panels, and our businesses are the predominant suppliers for these products. Distribution, through the PlaceMakers chain of 46 stores, is also the industry leader, is strongly profitable and is a cost-effective composite distributor for many of the company(cid:213)s products. Share Register Changes: The costs of listing on stock exchanges, meeting the attendant compliance and disclosure obligations, maintaining share register information and providing shareholder reports are significant for any company. Where these costs are disproportionate to the level of investment, we have sought to facilitate the consolidation of shareholdings through assistance to small shareholders to either This combination of divisions is rather unusual, but it is an ideal solution for the New Zealand market. sell or acquire further shares in the company. To this end we implemented three initiatives during the year: The market is relatively small yet still has a challenging geographic spread across which customers ¥ delisting of the company(cid:213)s American depositary shares from the New York Stock Exchange and expect good service. The presence of PlaceMakers obviates the need for some of our other businesses termination of the American Depositary Receipt programme; to have dedicated distribution networks. The Construction pull-through of company products is key to Fletcher Building having leading market shares in most product categories, which is a necessity if we are to ensure we have appropriate volumes for competitive production. Although profitable, Fletcher Construction(cid:213)s Australian business had little strategic relevance to this model. It was not a user of Fletcher Building products, and, as a relatively small business, its potential profit was ¥ the Fletcher Building 1000 Share Plan to facilitate the consolidation of small holdings; and ¥ the compulsory sale of all holdings of less than a minimum holding as defined in the New Zealand Stock Exchange rules, being less than 100 shares. All of these initiatives have been received well by shareholders. insufficient to justify the risks associated with construction. As a consequence the business was sold. AUDIT INDEPENDENCE Our future expansion will be in compatible building products manufacturing or through expanding our role in distribution. Construction will not be undertaken outside the home markets of New Zealand and the Pacific Islands. GROWTH STRATEGY The New Zealand economy is small and has in the past often experienced lower growth rates than a number of other western economies, particularly that of Australia. That coupled with the high market shares we already have for many product markets in New Zealand, means that remaining wholly reliant on New Zealand will limit the future growth of earnings unless we can continue to expand our range of New Zealand businesses. While there are some potential opportunities in New Zealand they are few, so identifying and acquiring a meaningfully sized, strategically appropriate business outside New Zealand has been a goal. We also believe the most sensible market would be Australia rather than more remote, culturally different countries where the risks may be too high. In such context the board was pleased to announce on 18 September 2002, agreement to purchase The Laminex Group, Australia(cid:213)s leading manufacturer and marketer of decorative laminates and decorated woodpanels for use in commercial and residential applications. The Board believes this is an excellent opportunity to acquire a company in an industry that we know well through our own participation, a company that has lead a significant rationalisation of the industry, has performed very strongly in recent years, and is now well positioned to achieve future benefits from the industry restructure and export growth. The proposal to purchase The Laminex Group will be submitted for approval at the annual shareholders(cid:213) meeting. A detailed explanatory memorandum will be circulated for your consideration in advance of the meeting. We commend this opportunity to you and seek your support for it. OTHER PROJECTS Kyoto: We are one of New Zealand(cid:213)s major energy users and thus have the potential to incur significantly increased costs if a carbon tax is introduced. A cross-divisional team has kept abreast of developments in this area of policy. We will seek to establish a Negotiated Greenhouse Agreement, as set out in relevant government policy for businesses classified as (cid:210)at risk(cid:211) of competition from countries that do not intend signing the Kyoto Protocol on greenhouse gas emissions. The proposed legislation is a pragmatic approach to the Kyoto obligations, and our detailed understanding of the issues and proactive approach to address them should leave us in a reasonable position. Risk Analysis: During the year, the senior executive team undertook a comprehensive risk analysis of the company in conjunction with our auditors. The exercise highlighted the major risks to business continuity and profitability, leading to improvements in disaster recovery, standby and insurance plans. To ensure that auditor independence continues to be maintained, both in practice and in public perception, the Audit Committee has revisited its audit policy to ensure that it reflects current thinking in a range of areas. These include such matters as rotation of audit personnel and the clear separation of audit and non-audit functions. The revised policy limits the ability of Fletcher Building(cid:213)s external auditors to provide non-audit services. HEALTH AND SAFETY The deaths in early July 2002 of two subcontractors, from an industrial accident on one of our sites, was a tragedy that clouded the many successes of the year. It highlighted the extreme vigilance that is needed to safety issues, as the Pacific Steel site had been one of our successes, having recently won an award acknowledging its much improved safety procedures and practices, and the low level of recorded incidents. With some 8500 employees in Fletcher Building and many of our activities among the more hazardous industries, the company will always be at risk of incurring a share of those industrial accidents that do occur. Nevertheless, for this and subsequent years a key objective for all senior managers, with a direct link to their variable remuneration, is the need for significant improvements in our safety record. To assist in this, we recently made an appointment to a new high-level occupational health and safety role for the company. An improved safety record will require new attitudes and heightened awareness of risks from employees as well as management but above all, a joint commitment to ensuring a far safer workplace. SUPPORT By most measures, this was a successful year for the company. While conditions were favourable, the level of success could not have been achieved without the loyalty of our customers, the quality and reliability of our suppliers and the wholehearted and professional commitment of all of our staff. On behalf of the board, we extend our thanks to all of these stakeholders for their valuable contributions. OUTLOOK Given reasonable trading conditions and the many improvements achieved last year, the board expects this to be another satisfactory year for your company. Roderick Deane Chairman Ralph Waters Chief Executive Officer 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 8606 Fletcher AnnRep 2002_a/w 01/10/2002 2:34 PM Page 6 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 THE BOARD OF DIRECTORS Roderick Sheldon Deane Paul Edward Alex Baines Hugh Alasdair Fletcher Ralph James Norris Sir Dryden Spring Kerrin Margaret Vautier Ralph Graham Waters PhD, LLD (Hon), BCom (Hons), FACA, BCA, CA, MPP MCom (Hons), MBA (Stanford), BSc FNZCS, FNZIM DSc (Hon) CMG, BA CP Eng, FIE Aust, M Bus FCIS, FNZIM Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Managing Director Chairman of Directors Chairman of the Audit Committee Member of the Audit Committee Member of the Remuneration Chairman of the Remuneration Member of the Audit Committee Committee Committee Dr Deane, 61, has had a career Mr Baines, 52, has an extensive Mr Fletcher, 54, has had extensive Mr Norris, 53, is Chief Executive Sir Dryden, 62, has had a career Mrs Vautier, 57, is a research Mr Waters, 53, was recruited as in business and in the executive background in financial and management experience and now Officer and Managing Director of in management and directorship, economist specialising in Chief Executive Officer in May branch of government. He is strategic management and as holds a number of directorships Air New Zealand, having been with involvement in a range of competition law and economics, 2001 and was appointed to the currently chairman of several a director. He is a director of and advisory positions. He is appointed in February 2002 after industries. He has also been deeply organisations in addition to Comalco New Zealand, Gough chairman of New Zealand the New Zealand Government-led involved in New Zealand and Fletcher Building, including Gough and Hamer, Greenstone Insurance and CGNU Insurance reorganisation of that company. international forums relating to Telecom New Zealand (having Fund, the Reserve Bank of Australia. He is a director of retired as Chief Executive in New Zealand, Telecom VCU Technology, the Reserve Bank 1999), ANZ Banking Group New Zealand and Wrightson. of New Zealand, Rubicon, Ports of Auckland and is a member of the Asia Pacific Advisory Committee of the New York Stock Exchange, the Business Advisory Council of the United Nations Office for Project Services, the Investment Committee of No 8 Ventures and the Council of the University of Auckland. Mr Fletcher was previously a director of Fletcher Challenge, and was its Chief Executive Officer from 1987 until his retirement in 1997. (New Zealand), Te Papa Tongarewa (the Museum of New Zealand), and the New Zealand Seed Fund. Mr Baines was previously a director of Fletcher Challenge. He was also Chief Executive Dr Deane is a director of TransAlta Officer of CS First Boston Corporation of Canada, Australia New Zealand from 1990 until and New Zealand Banking Group 1993, and prior to that held a and Woolworths, both Australian number of senior positions in companies. He is a Professor of the sharebroking and investment Economics and Management at banking firm Jarden & Co. Victoria University of Wellington and is on the Board of Governance of IHC Inc. Dr Deane has previously been Chief Executive of the Electricity Corporation of New Zealand, Chairman of Fletcher Challenge and the State Services Commission of New Zealand, Deputy Governor of the Reserve Bank of New Zealand, and Alternate Executive Director of the International Monetary Fund. board in July 2001. Prior to joining Fletcher Building, Mr Waters was Managing Director of Email Limited, a major Australian industrial company. In his 18 years with Email, he was General Manager Planning, Group Manager Industrial Products, Group General Manager Major Appliances, and finally Managing Director from 1998. Mr Waters is also a director of Fisher and Paykel Appliances Holdings. and has an academic and business background with long-standing experience in directorship. She is chair of the Advisory Board of the New Zealand Before taking up his executive role agriculture and trade policy issues. at Air New Zealand, Mr Norris was Sir Dryden is chairman of WEL Asia Institute, and a director of Head of International Financial Energy Group, Fletcher Challenge Deloitte Touche Tohmatsu (NZ) Services for the Commonwealth Forests, the New Zealand APEC and Independent News & Media Bank Group, responsible for Business Advisory Council, (NZ) Ltd. operations in New Zealand, the the Asia 2000 Foundation of Pacific and Asia; and Managing New Zealand and Ericsson Director and Chief Executive Communications. He is Deputy Officer of ASB Group. He was also Chairman of Goodman Fielder, Chairman of Sovereign Assurance and a director of Nufarm, the and the New Zealand Business National Bank of New Zealand, Roundtable, and Deputy Chairman Ericsson Synergy and Maersk of the New Zealand Bankers New Zealand. Mrs Vautier is a lay member of the High Court under the Commerce Act, an External Monetary Policy Advisor to the Reserve Bank of New Zealand, a senior part-time lecturer in the Department of Commercial Law at the University of Auckland, and a member of Association. He is now a director of Team New Zealand Defence 2003, and a consultant to the Commonwealth Bank. He is a member of the New the International Advisory Group Zealand Business and Parliament of PECC’s Trade Forum. She was Trust. He is a Distinguished Fellow previously a director of Fletcher of the Institute of Directors and Challenge, and Norwich Union a member of the Washington DC- Holdings (NZ) and its subsidiary based International Policy Council State Insurance. She is a former on Agriculture, Food and Trade. member of the New Zealand Commerce Commission and the Board of Trustees of the Asia 2000 Foundation, and previously held the chair of NZPECC and the New Zealand Institute of Economic Research. 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 8606 Fletcher AnnRep 2002_a/w 01/10/2002 2:34 PM Page 8 OPERATIONAL OVERVIEW 20 02 8606 Fletcher AnnRep 2002_a/w 01/10/2002 2:35 PM Page 10 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 BUILDING PRODUCTS THE MUCH-HERALDED INCREASE IN RESIDENTIAL CONSTRUCTION HAD NO MATERIAL IMPACT ON THE BUILDING PRODUCTS(cid:213) GROUP NEW ZEALAND REVENUES UNTIL THE LAST QUARTER. IT THEN CONTRIBUTED SIGNIFICANTLY TO THE IMPROVEMENT IN OPERATING EARNINGS WHICH WERE 28 PERCENT AHEAD OF THE PREVIOUS YEAR TO THE END OF MARCH BUT 47 PERCENT AHEAD AT THE END OF THE YEAR. These results were tempered by increased insurance costs, and unusually high electricity costs in the early part of the year. Demand for plasterboard was strong, with New Zealand volumes 5 percent ahead of those for the previous year. This increase in volume, coupled with a price increase and good cost control, resulted in a 17 percent rise in operating earnings. Wood products revenues were ahead of those for the previous year in all markets, but significant increases in input costs reduced gross margins by around 1.5 percent. Tight overhead control resulted in a similar profit performance to that for the 2001 year. The Plyco Doors operation was integrated with the wood panels operation, bringing some savings in overheads. The panel and hardware distribution business had a very successful year in an increasingly competitive environment, growing revenue by 1 percent to a record $100 million and operating earnings by nearly 15 percent. A new management team was inducted into Fletcher Aluminium during the year and has achieved a positive impact on operations. The shapes distribution business in Australia was sold effective from 1 August 2002, leaving Fletcher Aluminium free to concentrate on maintaining its New Zealand shapes business and growing its windows and doors business. The upstream steel operations, comprising scrap collection, the smelter, rolling mill and wire-drawing operations, achieved record production and sales volumes. Increased sales and better margin management resulted in a $13 million improvement in operating profit. Results from the wire operations were affected by competition from imported products sold at unsustainably low prices, and the Ministry of Economic Development commenced an investigation into whether imports of South African wire are being dumped into the New Zealand market. Downstream steel operations had a mixed year, with disappointing results from the distribution, and roofing and cladding operations; however, actions taken during the year should result in significantly improved performance during 2003. The continuous paint coating plant had a good year, with volumes up 18 percent, primarily from export markets. FOCUS AND OUTLOOK FOR THE 2003 YEAR Sales volumes are expected to remain buoyant in the first half of the current financial year, but some With the significant improvement in the performance of the upstream steel business, there is no imperative to divest these assets, although the company would evaluate any opportunity to participate in an Australasian industry restructuring. easing of demand is expected in the second half. This implies that volumes should exceed those for this Operating profit (EBIT) year; however, some pricing pressure can be expected owing to the rising New Zealand dollar with its impact on export revenues, and through import competitive domestic pricing. Further benefits from the focus on productivity improvements will flow through this year, albeit at a reduced rate when compared to 2002. Margin Funds Return on funds RESULTS $M Revenue JUNE 2002 12 MONTHS 820 85 10.4% 433 19.6% PRO FORMA JUNE 2001 12 MONTHS 840 58 6.9% 450 12.9% CHANGE -2% +47% +51% -4% +52% 8606 Fletcher AnnRep 2002_a/w 01/10/2002 2:35 PM Page 12 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 CONCRETE WITH STRONG MARKET CONDITIONS AND TIGHTER COST CONTROL, OPERATING PROFIT WAS DOUBLE THAT FOR THE PREVIOUS YEAR. Activity in rural areas was strong through the full 12 months, while increased activity in most major urban markets in the second half of the year was the major reason for further growth in earnings in that period. For most products, prices and volumes were ahead of last year. Overheads were reduced substantially. Tighter control over capital expenditure and better working capital management assisted in improving significantly the free cash flow. Domestic cement sales reached the highest volume on record due mainly to improving residential construction markets. Sales into export markets were also above the previous record. For the first time in some years domestic cement prices increased, while production costs were reduced through operational improvements. The aggregates operations recorded a strong improvement in earnings. Quarry volumes were 4 percent higher, but revenues were 3 percent lower due to changes in customer and product mix following the closure of the Lunn Avenue quarry. Production costs were lower due to the closure of loss-making sites and ongoing reconfiguration of the Auckland quarry resource. A flatter management structure assisted in considerably reducing overheads. Earnings from the readymix and concrete products businesses were significantly higher than in the previous year. Record readymix volumes were achieved, and the overall contribution per cubic metre was the best in three years. Concrete masonry product revenues were similar to those for the previous year. Stresscrete(cid:213)s result, following a period of significant restructuring, was the best for a number of years. The Humes group generated good earnings and strong cashflow. Overall revenues were ahead of last year due to increased penetration in rural markets and a buoyant Southern region. Concrete pipe, precast and plastic pipeline product sales all increased. Production costs were lower, but margins were similar to last year as competitive pressures remained intense. Humes undertook significant change during the year, and this should have a positive impact on earnings over the next 24 months. Despite very difficult trading conditions in both Peru and Bolivia, these substantially reshaped businesses recorded a major turnaround in operating earnings and generated positive cashflow. Since balance date the company has announced the sale of its operations in Bolivia. The Indian joint venture generated a small profit, but the Fijian operations experienced very difficult market conditions and recorded a loss for the period. FOCUS AND OUTLOOK FOR THE 2003 YEAR A continuing focus will be on improving operational performance, with a particular emphasis on improved asset utilisation and cost control. The company will continue to seek performance enhancement in the international businesses, and determine their longer-term role in the company. RESULTS $M Revenue Operating profit (EBIT) Margin Funds Return on funds JUNE 2002 12 MONTHS 470 60 12.8% 416 14.4% PRO FORMA JUNE 2001 12 MONTHS 454 31 6.8% 485 6.4% CHANGE +4% +94% +88% -14% +130% 8606 Fletcher AnnRep 2002_a/w 01/10/2002 2:35 PM Page 14 CONSTRUCTION STRONG TRADING CONDITIONS RESULTED IN A SIGNIFICANT INCREASE IN EARNINGS, AND ALSO SECURED A GOOD VOLUME OF QUALITY FUTURE WORK. Construction operations traded well, with some milestone operational achievements. With a number of high- value projects complete, the construction businesses successfully sought replacement turnover, and the buoyant infrastructure and health sectors drove a strong rise in backlog to around $400 million as at 30 June 2002. New Zealand residential sales were ahead of those for the previous year particularly in Auckland, assisted by increased immigration. Fletcher Residential benefited from increased prices, lower overheads, reduced landholdings and the closure of non-performing branches to produce a standout performance. The sale of the company(cid:213)s Australian commercial construction operations concluded the international withdrawal that commenced in 1996. The A$140 million Global Switch commercial contract in Sydney was completed successfully after the sale, and there is one more major contract to be completed on the company(cid:213)s behalf. In Auckland, the PricewaterhouseCoopers Tower was delivered early to considerable acclaim by the tenants and owner. Other significant projects completed by the commercial building division included Lambton Towers in Wellington, Waikato Stadium and the new grandstand at Jade Stadium in Christchurch. Major works in progress include the new Auckland City Hospital ($200 million), the Sky City Conference Centre and the Southland Hospital (in joint venture). The engineering division had a very strong result. The Manapouri Tailrace Tunnel was handed over ahead of the rescheduled completion date, and there was broad industry recognition of the project as a world- class engineering feat and an award-winning example of environmental management. The largest work in progress remains the Manukau Wastewater project ($400 million). This project is progressing well and will be substantially complete in 2003. The Grafton Gully roading project is also progressing well, and further Auckland motorway work dominates prospects for the coming year. The South Pacific(cid:213)s relatively small profit contribution was a reflection of tight market conditions. It is expected that improvements in the Fiji economy will flow through to a turnaround for the operation there. The result for the year included several amounts, totalling $11 million, that will not be repeated. These include earnings from the Victorian co-generation assets which as non-core assets were sold during the year, and the finalisation of payment for a long since completed project in Hawaii. FOCUS AND OUTLOOK FOR THE 2003 YEAR Delivering on the contracts secured around New Zealand and throughout the improving South Pacific market will remain a key focus. People development initiatives have focused on better utilisation of resources across geographies and business units. RESULTS $M Revenue Operating profit (EBIT) Funds JUNE 2002 12 MONTHS 871 30 -95 PRO FORMA JUNE 2001 12 MONTHS 808 5 -59 CHANGE +8% +500% -61% 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 8606 Fletcher AnnRep 2002_a/w 01/10/2002 2:35 PM Page 16 DISTRIBUTION BUOYANT MARKET CONDITIONS LED TO INCREASED REVENUE AND A BIG LIFT IN EARNINGS, PARTICULARLY IN THE SECOND HALF OF THE FINANCIAL YEAR. AT YEAR END TOTAL REVENUE WAS UP 8 PERCENT AND EARNINGS UP 89 PERCENT. PlaceMakers had an excellent year, with strong gains in both trade and retail sales. While the increase in revenue was significant, there were also substantial gains in productivity and margins achieved through an ongoing profit improvement project. A new store design was introduced in the new Whakatane store, and this has provided a basis for a more significant store development programme in the coming year. The joint venture partnership structure remains a source of strength in local markets. The national position was enhanced during the year through the establishment of new joint ventures in Invercargill, Taupo, Rotorua and West Auckland. Four branches were returned to 100 percent ownership. The largest of these, Mt Wellington, is the focus of major development plans. With the combination of joint venture partnerships in local markets and extensive national scale, PlaceMakers has a strong competitive position. The company is seeking to further strengthen this position through a number of new initiatives designed to benefit trade customers. The Building Depot is focused on the DIY retail segment, with particular emphasis on affordable kitchens and bathrooms. It achieved a strong sales increase of 16 percent above the previous year. In this light, the profit outcome was disappointing, reflecting the difficulties of previously inadequate systems to effectively manage the business. A new information technology system installed in the latter part of the year is already delivering encouraging improvements in margin. Hire A Hubby steadily grew its base of franchisees throughout the country. The growing strength of the Hire A Hubby franchise was recognised by a number of awards from the Franchise Association of New Zealand. FOCUS AND OUTLOOK FOR THE 2003 YEAR The short-term outlook remains positive, but the possibility of a market slowdown, together with intensifying competition, means that the latter part of the current year could present some challenges. Development of the division(cid:213)s brands, initiatives to strengthen trade focus, upgrading information systems and store development programmes should ensure that Distribution is well placed to meet these challenges. RESULTS $M Revenue Operating profit (EBIT) Margin Funds JUNE 2002* 12 MONTHS PRO FORMA JUNE 2001* 12 MONTHS 686 34 5% 101 638 18 2.8% 92 Return on funds 33.7% 19.6% *Restated to incorporate changes to accounting treatment on a comparable twelve month basis. CHANGE +8% +89% +79% +10% +72% 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 8606 Fletcher AnnRep 2002_a/w 01/10/2002 2:35 PM Page 18 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 FLETCHER BUILDING(cid:213)S PROFILE BUILDING PRODUCTS MAJOR PRODUCTS Plasterboard Compounds and plasters Medium density fibreboard Low pressure Melamine Hardboard/softboard Particleboard Doors Aluminium windows Aluminium extruded shapes Long and flat steel Reinforcing bar Merchant bar Wire rod Pipe Painted coil Wire Long run metal roofing and cladding Rollformed structural products KEY OPERATING STATISTICS Plasterboard and Building Papers 34 million m2 plasterboard capacity (2 plants) 1 building papers production facility Wood Panels & Doors 130,000 m3 particleboard capacity (2 plants) 160,000 m3 medium density fibreboard capacity (1 plant) 4 million m2 hardboard/softboard capacity (1 plant) 2 laminating operations 1 door manufacturing plant and 4 prehanging plants 13 company-owned distribution outlets Aluminium 9000 tonnes capacity in 2 extrusion presses 6500 tonnes capacity in the remelt facility 90 franchised fabricators Upstream Steel 300,000 tonnes capacity mini-mill steel plant 340,000 tonnes capacity rolling mill (200,000 tonnes bar and 140,000 tonnes rod) 1 fully integrated wire mill / wire products plant 1 ferrous and non-ferrous scrap facility (50% owned) Downstream Steel A 13-branch steel merchandising business nationwide 2 metal processing and 5 reinforcing fabrication facilities 1 continuous paint coating plant An 11-branch roofing business nationwide 2 galvanising plants 2 structural products rollforming factories COMPETITIVE STRENGTHS Low cost position in New Zealand board/panel markets Respected brands Trading skills and customer relationships in Asia Broad distribution network New Zealand(cid:213)s only producer of long steel products and plasterboard New Zealand(cid:213)s only integrated producer of wire and wire products Ability to supply a large range of products within competitive lead times KEY OBJECTIVES THIS YEAR Maintain emphasis on productivity improvements Continue with margin enhancing product differentiation strategies where appropriate Ensure the focus on organic growth is maintained Improve people reviews and development processes Further improve the group(cid:213)s safety and environmental performance. CONCRETE MAJOR PRODUCTS Aggregates — building Aggregates — roading Cement Readymix concrete Concrete and plastic pipes and fittings KEY OPERATING STATISTICS Aggregates More than 100 million m3 of proven plus indicated reserves (more than 30 years supply) 18 hard rock quarries, 7 shingle plants 5 sand plants, 1 scoria pit 2 hard rock quarries (Fiji) 3 alluvial aggregate plants (Bolivia) 2 hard rock quarries (Peru) Cement A 600,000 tonnes dry kiln cement plant 1 bulk cement vessel serving 6 customer service centres 35 years(cid:213) supply of cement rock and limestone resource A 130,000 tonnes cement plant (Bolivia) A 120,000 tonnes cement plant (Fiji) (25% owned) Concrete Products 47 fixed plants, 2 mobile plants, 7 joint venture plants 241 trucks and 18 mobile pumps 2 bagging plants 6 concrete pipe/castings plants 6 fixed joint venture plants (Fiji) COMPETITIVE STRENGTHS Location and size of aggregate deposits Cement and limestone resource World-class dry process cement plant Nationwide distribution network Modern central mix readymix plants, using computer-controlled batching systems KEY OBJECTIVES THIS YEAR Continue operational improvement Improve return on funds employed CONSTRUCTION MAJOR PRODUCTS Commercial construction Industrial construction Engineering Marine construction Interior fitouts Refurbishments New Zealand residential housing DISTRIBUTION MAJOR PRODUCTS Timber Panels Plumbing Roofing Concrete and Masonry Hardware Paint KEY OPERATING STATISTICS KEY OPERATING STATISTICS Construction Largest contractor in the key markets of New Zealand and the South Pacific Housing Land bank of: 463 developed lots 269 undeveloped potential lots Housing activities in: Auckland, Napier COMPETITIVE STRENGTHS Established track record in New Zealand and South Pacific Unrivalled experience at managing large-scale projects in New Zealand KEY OBJECTIVES THIS YEAR Secure further major infrastructure projects PlaceMakers 40 outlets owned in joint venture with owner/operators 6 company-owned outlets The Building Depot 10 company-owned outlets Hire A Hubby 124 franchises COMPETITIVE STRENGTHS Strong brands National coverage Economies of scale Franchise structure KEY OBJECTIVES THIS YEAR Develop PlaceMakers(cid:213) trade focus with a number of trade-based initiatives Several major store developments Improve point of sale and information systems F L E T C H E R A L U M I N I U M 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 8606 Fletcher AnnRep 2002_a/w 01/10/2002 2:35 PM Page 20 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 PEOPLE THE COMPANY RECOGNISES THAT ITS EMPLOYEES ARE CRITICAL TO ITS SUCCESS. IT STRIVES TO BE REGARDED AS A GOOD EMPLOYER, KNOWING THAT THIS WILL HELP IT TO ATTRACT AND RETAIN AN EXCELLENT WORKFORCE, ENHANCING ITS ABILITY TO SERVE ITS CUSTOMERS AND DELIVER SHAREHOLDER VALUE. At 30 June 2002, Fletcher Building employed around 8500 people, with 7000 in New Zealand, making it one of the country(cid:213)s largest employers. The company accepts that the cornerstones of business success are leadership excellence, competitive, balanced and safe employment conditions, customer focus and good corporate citizenship. These attributes are endorsed in the company(cid:213)s new Code of Values, and reflected in its programmes to develop its business unit leaders and emerging talent, its range of employee benefits and its focus on workplace safety. HEALTH AND SAFETY The company takes workplace safety extremely seriously. Given the hazardous nature of the industries in which it operates, high standards of occupational health and safety are key priorities and the need for vigilance is constant. Tragically however, in July of this year two people lost their lives at a Fletcher Building work site. The company recognises its duty to ensure safe working practices throughout its business and regards workplace fatalities as completely unacceptable. It is determined to eliminate or minimise hazards by continually strengthening standards of safety company-wide in the year ahead. It is believed that every task and every project can be completed without injury, and the company continues to make this a priority focus at every workplace. The company achieved a 25 percent reduction in lost-time injuries this year. While this rate of improvement fell short of target, it is pleasing that its safety and return-to-work programmes are continuing to have a worthwhile impact. Many Fletcher Building business units are leaders in occupational health and safety practice in their industries. The Construction Group has continued to lead efforts to increase the standard of safety in the construction sector. The Site Safe initiative provides a standard training package targeting workplace safety on construction sites. Employees, contractors and subcontractors are not permitted to enter participating work sites without a Site Safe Passport, which proves that they have completed the necessary training. The programme was extended in 2002 by the introduction of Supervisor Gold Card Health and Safety Training, which provides a more in-depth programme for those who have responsibilities for supervising the work of others. Equally, dedicated attention to safety practices has continued to pay off in the Concrete Group. With 800 employees and 70 sites, the readymixed concrete business has a large challenge deploying health and safety programmes. Great success has been achieved in reducing injuries amongst truck drivers, using a sustained awareness campaign and a customised ergonomic education programme. Within the Building Products Group, a business unit received the Forest Industries(cid:213) Training Company of the Year Award for its occupational health and safety training achievements. The Steel group was awarded the Manukau Business Excellence Award for its (cid:210)Smartsite(cid:211) safety programme, currently used in all Steel business units. 8606 Fletcher AnnRep 2002_a/w 01/10/2002 2:35 PM Page 22 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 Health and safety in the Distribution Group has also improved significantly. Lost-time injury rates are down more than 60 percent on the previous year, a reflection of the good work being done in training and in follow-up and communication after accidents and incidents. In July 2000, the Accident Compensation Corporation (ACC) accepted Fletcher Building into the primary level of its Partnership Programme following an audit of health and safety management practices, including injury claims and case management. This three-level programme recognises the extent to which a company has the capacity and the systems to self-manage injury claims and rehabilitation, allowing it to self-insure for these rather than take mandatory cover from ACC. In 2001 an independent audit confirmed further improvements in company-wide health and safety standards, gaining the company admission to the secondary level of self-insurance and affording substantial further premium savings. LEADERSHIP DEVELOPMENT Recognising the critical impact of leadership on business performance, the company has launched a programme to identify and develop current and emerging business leaders. While this initiative is still in its infancy, much of the groundwork is complete and the company has high expectations of it. EQUAL OPPORTUNITY AND DIVERSITY Fletcher Building is an equal opportunity employer. At present, the company(cid:213)s workforce is a microcosm of New Zealand, reflecting a wide spread of ethnicity and age but an imbalance in gender — a consequence of historic employment practices in our industrial and construction businesses. Management is committed to developing a working culture that promotes business strength through diversity. LABOUR RELATIONS Many of Fletcher Building(cid:213)s employees belong to labour unions. The company is proud of its industrial relations record and continues to enjoy a constructive working relationship with the union movement, built on partnership and mutual respect. WORK-LIFE BALANCE The company has several options to help its employees balance their work and home lives. Staff in the many business units near the Penrose head office have access to the Fletcher Building Health and Fitness Centre a facility which offers all employees the opportunity to manage general health issues at affordable rates through a range of programmes and services. A programme of voluntary individual health assessments commenced during the year and will be a key focus in the future. This programme provides employees with an accurate assessment of their risk factors in relation to cardiovascular disease, and highlights the modifiable lifestyle choices that will deliver most benefit for each individual. Parents in the Auckland workforce have access to Kimba Corner, Fletcher Building(cid:213)s corporate child-care centre. Catering to parents of children aged six weeks to five years, this cr(cid:143)che is a model of its kind. So also is our fully supervised school holiday programme for children. Approved by the National Association of Out of School Care & Recreation, this initiative is now in its eighth year of operation. Special benefits lend support to Fletcher Building employees in time of need. Free professional and confidential counselling is available to all employees through an independent employee assistance service. The company recognises that everyone faces personal and work-related problems at times, and that it ENVIRONMENT ACHIEVING A HIGH STANDARD OF ENVIRONMENTAL PERFORMANCE IS A MATTER REQUIRING CONSTANT VIGILANCE. WITH THE NATURE AND SCALE OF ITS BUSINESSES, FLETCHER BUILDING IS CONTINUOUSLY EXPOSED TO A RANGE OF ENVIRONMENTAL ISSUES AT AN OPERATIONAL LEVEL. is helpful to both the individual and the employer if guidance can be given to resolve problems and We have a deep interest in managing these issues responsibly, and try to do so conscientiously through maintain wellbeing and work performance. an ongoing review and improvement programme. Regrettably, in the latest year our performance in this Two unique independently-governed trust funds stand ready to assist all permanent Fletcher Building area was below our expectations. employees. The Fletcher Building Employee Educational Fund recognises, encourages and financially There were a number of environmental non-compliance incidents during the year, and in four business supports vocational learning among staff and their families; while the Fletcher Building Employee Welfare units this resulted in court action and fines. These incidents related to discharges of wastewater to Fund provides immediate support to employees suffering financial difficulty in times of unexpected stormwater systems or local waterways. Humes(cid:213) Papakura site incurred fines totalling $29,000, and personal hardship. TECHNOLOGY During the year the company extended its central shared services payroll, and developed and launched an electronic human resources information system. Once complete, this will provide a broad range of employee-related information and services to managers(cid:213) desktops. The initiatives outlined above reflect the importance which the company places on its people — its most important asset. A number of challenges and performance targets remain, and so (cid:210)people issues(cid:211) will retain a high level of focus and commitment from the board and management in the coming year. Firth(cid:213)s Henderson site was fined $23,000. In addition, Fletcher Wood Panels were fined $1000 by the regulatory authority at both its Penrose and Kumeu sites for odour emission incidents, and Fletcher Aluminium were fined $750 for a caustic spill. To ensure that these unacceptable incidents are not repeated, rigorous reviews of environmental systems and procedures at these sites have been undertaken by business unit management. These reviews, and the remedial actions identified, are being subjected to external audit for additional overview. Within New Zealand, our operations span 22 business units at more than 300 sites around the country, with 7000 employees. There are numerous national and local laws and regulations governing these 8606 Fletcher AnnRep 2002_a/w 01/10/2002 2:35 PM Page 24 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 operations from an environmental viewpoint. Management monitors the company(cid:213)s overall environmental performance regularly, and strives to improve it. We believe that, ultimately, good environmental management is a matter not just of compliance, but of strategic importance. In keeping with this belief, a company-wide Environmental Management Strategy was launched this year, beginning with an external review of all business units carried out by URS New Zealand Ltd. URS(cid:213) preliminary findings indicate that all Fletcher Building operations are continuing to make progress towards improving their environmental performance, and there are adequate management systems in place at business unit level to enable compliance with environmental legislation. However, several business units are challenged to improve their environmental performances next year through implementation of specific environmental improvement programmes. Our approach to environmental management also includes engaging in issues existing at the national or even international level with potential to affect the company. One such issue is that of greenhouse gas emissions, which has been the focus of intense policy activity by the New Zealand Government. Since the decision by the Government that it will ratify the Kyoto Protocol on greenhouse gas emissions this year, we have instigated discussions on a negotiated greenhouse agreement to take into account factors essential to maintaining a competitive international position in the industries in which we operate. This process is currently unclear, but we are hopeful we will have substantial progress to report within the current financial year. There are many examples of positive outcomes from proactive environmental management throughout the company. We have chosen to present just three in this report, to indicate the commitment of Fletcher Building and its people to achieving satisfying results in this area. MANAPOURI TAILRACE TUNNEL Our construction division was commended for its environmental management of the 10 kilometres, $200 million Manapouri Tailrace Tunnel, completed by the Fletcher Dillingham Ilbau (FDI) joint venture during the year. Meridian Energy Chief Executive Dr Keith Turner commented that the project was (cid:210)an environmental achievement of global significance. It was conducted in a UN World Heritage Area where preservation of the unique and fragile environment has been of paramount concern throughout the project.(cid:211) The largest environmental task was incorporating 1 million cubic metres of excavated rock back into the environment at Deep Cove, Fiordland. This involved careful soil management and contouring to blend in with the slip-modified glacial landscape, and planting of more than 150,000 plants. All water from the site flowed through a specially designed treatment system prior to discharging into the tailrace free of unnatural sediment levels that would have been disastrous for the marine ecology. The FDI project team was commended by the Department of Conservation, which found its (cid:210)environmental management to be well resourced and of a consistently high standard. All issues have been dealt with in a consultative and expedient manner.(cid:211) PACIFIC WIRE MECHANICAL DE-SCALING An example of innovative thinking from our business units was demonstrated at Pacific Wire, whose location close to the Manukau Harbour in Auckland raises its environmental profile. Pacific Wire installed the first of four machines for mechanical de-scaling of rod prior to wire drawing and galvanizing, and an effluent treatment plant for trade wastes. Mechanical de-scaling removes the need to use the traditional acid bath process. When complete, the mechanical system will essentially eliminate the risks of on-site bulk storage of acid and caustic chemicals, produce cleaner effluent, and significantly reduce production of sludge in the effluent treatment plant. Pacific Wire(cid:213)s Manukau Harbour environment will be better protected as a result. PENROSE SITE ENHANCEMENTS Employees at Fletcher Wood Panels displayed great initiative in improving the visual and physical environment of their 1940s site in Penrose, Auckland. Through a sponsorship link with the Manukau Institute of Technology horticulture department, they arranged for the factory(cid:213)s street frontage of 280 metres to be landscape-designed and planted by the Institute(cid:213)s students, using trees and shrubs native to the area. The renewed and environmentally friendly site will be a more appropriate backdrop to the production of reconstituted fibreboard panels, composed, as they are, of recycled waste wood. Air quality in the Penrose area also benefited this year from the installation of a $630,000 bag filter plant for the CSP Galvanizing business. 8606 Fletcher AR 2002 Financals 01/10/2002 2:46 PM Page 1 FINANCIALS 20 02 8606 Fletcher AR 2002 Financals 01/10/2002 2:46 PM Page 26 72 72 71 71 70 70 69 69 68 68 67 67 66 66 65 65 64 64 63 63 62 62 61 61 60 60 59 59 58 58 57 57 56 56 55 55 54 54 53 53 52 52 51 51 50 50 49 49 48 48 47 47 46 46 45 45 44 44 43 43 42 42 41 41 40 40 39 39 38 38 37 37 36 36 35 35 34 34 33 33 32 32 31 31 30 30 29 29 28 28 27 27 26 26 25 25 24 24 23 23 22 22 21 21 20 20 19 19 18 18 17 17 16 16 15 15 14 14 13 13 12 12 1 1 1 1 10 10 9 9 8 8 7 7 6 6 5 5 4 4 3 3 2 2 FINANCIAL REVIEW REDUCED DEBT FROM STRONG CASHFLOWS ACCOUNTING POLICY CHANGES There are three changes in accounting treatment for the current year: ¥ the consolidation of all PlaceMakers Joint Venture branches, which were previously equity accounted ¥ the inclusion of capital notes interest in the earnings statement, whereas it was previously treated as a distribution along with dividends ¥ the expensing of the cost of options to the earnings statement. Whilst the accounting standards restrict the changing of comparative data, this report attempts to clarify the impact of these changes where appropriate. RESULTS On a comparative basis, trading revenue increased by 4 percent to $2.8 billion. Earnings before interest, tax and unusual items more than doubled, to $205 million. Net profit after tax and minorities was $88 million before unusual items and $93 million after unusual items. Earnings per share increased to 27.0 cents after unusual items, representing a return on average equity of 16.9 percent, and a return on average funds employed of 23.1 percent. 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 CASHFLOW AND CAPITAL EXPENDITURE Cash from operations was $187 million, reflecting good control over working capital and the improved operating result. Capital expenditure, at $51 million, was well below depreciation and amortisation of $89 million. Divestment proceeds of $54 million included proceeds from the sale of Cyclone, Fletcher Construction Australia and the Victorian co-generation assets. After the payment of dividends and minority distributions, internally generated cash was used to repay net debt of $126 million, including $20 million of capital notes. BALANCE SHEET Total net debt, including capital notes, reduced by $126 million to $398 million. Gearing (the ratio of net debt including capital notes to equity plus net debt plus capital notes) improved from 49 percent to 40 percent, reflecting the company’s strong cashflow. Interest cover (the ratio of EBITDA to interest paid on net debt) improved to 5.8 times, and the gearing ratio (net debt to EBITDA) improved to 1.4 times. At year end, the group had available undrawn debt facilities of $385 million. The total dividend for the year was increased by 2 cents to 14 cents per share, with full tax credits available. RISK MANAGEMENT The company has an integrated programme to manage risks associated with interest rate, commodity price and exchange rate movements. This hedging programme aims to assure a base level of profitability and reduce volatility in earnings. REVALUATION The directors have adopted a policy to revalue land, buildings and plant and machinery in accordance with accounting standard FRS3. During the year in review, the carrying values of the assets in South America were adjusted by $11 million to reflect lower valuation levels determined by independent valuation. PENSION PLAN The company operates a defined benefit pension plan for its employees, which has been closed to new members for some years. This scheme is accounted for in accordance with United States accounting standard FAS-87 which has the effect of smoothing the volatility in the returns earned by the scheme by amortising the difference between expected returns and actual returns over the remaining working life of the employees. At balance date some $32 million of net losses are to be expensed in future periods. The scheme is currently fully funded to 115 percent of projected benefit obligations, and no contributions were made by the company in the current year. RESULTS $M JUNE 2002 12 MONTHS PRO FORMA JUNE 2001 12 MONTHS Operating cashflow Return on average capital employed (%) Gearing (%) Interest cover (times) 187 23 40 5.8 251 9 49 3.1 8606 Fletcher AR 2002 Financals 01/10/2002 2:46 PM Page 28 STATEMENT OF FINANCIAL PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2002 STATEMENT OF MOVEMENTS IN EQUITY FOR THE YEAR ENDED 30 JUNE 2002 FLETCHER BUILDING GROUP FLETCHER BUILDING LIMITED PRO FORMA YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED NOTE JUNE 2002 JUNE 2001 JUNE 2002 JUNE 2001 NZ$M NZ$M NZ$M NZ$M 62 (2) 60 (46) 14 10 24 24 28 (8) 20 (9) 11 3 14 14 Operating revenue Operating expenses Operating earnings Funding costs Earnings before taxation Taxation expense Earnings after taxation Minority interest Net earnings Net earnings per share (cents) Basic Diluted Weighted average number of shares outstanding (millions of shares) Basic Diluted 2, 4 3, 4 5 6 8 8 2,966 (2,756) 2,273 (2,360) 210 (51) 159 (54) 105 (12) 93 27.0 25.1 345 430 (87) (36) (123) (148) (271) (1) (272) (83.7) (83.7) 344 344 Dividends declared per share (cents) 14.00 12.00 The accompanying notes form part of and are to be read in conjunction with these financial statements. FLETCHER BUILDING GROUP FLETCHER BUILDING LIMITED PRO FORMA YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED NOTE JUNE 2002 JUNE 2001 JUNE 2002 JUNE 2001 NZ$M NZ$M NZ$M NZ$M Total equity and capital funds At the beginning of the year 790 969 788 Net earnings — parent interest Net earnings — minority interest Revaluation of investments Revaluation of fixed assets 13 1 1 1 1 Taxation on revaluation of fixed assets 1 1, 22 Movement in currency translation reserve 1 1 Total recognised revenues and expenses for the year Movement in minority equity Movement in reported capital Movement in capital notes Restatement of capital notes as debt Dividends and distributions Total equity and capital funds 13 10 23 23 9 93 12 (1 1) (5) (19) 70 13 6 (20) (230) (38) 591 24 34 14 83 (272) 1 91 (18) 30 (168) 58 97 3 59 (73) 790 6 (20) (230) (38) 564 449 250 (8) 788 The accompanying notes form part of and are to be read in conjunction with these financial statements. 72 72 71 71 70 70 69 69 68 68 67 67 66 66 65 65 64 64 63 63 62 62 61 61 60 60 59 59 58 58 57 57 56 56 55 55 54 54 53 53 52 52 51 51 50 50 49 49 48 48 47 47 46 46 45 45 44 44 43 43 42 42 41 41 40 40 39 39 38 38 37 37 36 36 35 35 34 34 33 33 32 32 31 31 30 30 29 29 28 28 27 27 26 26 25 25 24 24 23 23 22 22 21 21 20 20 19 19 18 18 17 17 16 16 15 15 14 14 13 13 12 12 1 1 1 1 10 10 9 9 8 8 7 7 6 6 5 5 4 4 3 3 2 2 72 72 71 71 70 70 69 69 68 68 67 67 66 66 65 65 64 64 63 63 62 62 61 61 60 60 59 59 58 58 57 57 56 56 55 55 54 54 53 53 52 52 51 51 50 50 49 49 48 48 47 47 46 46 45 45 44 44 43 43 42 42 41 41 40 40 39 39 38 38 37 37 36 36 35 35 34 34 33 33 32 32 31 31 30 30 29 29 28 28 27 27 26 26 25 25 24 24 23 23 22 22 21 21 20 20 19 19 18 18 17 17 16 16 15 15 14 14 13 13 12 12 1 1 1 1 10 10 9 9 8 8 7 7 6 6 5 5 4 4 3 3 2 2 8606 Fletcher AR 2002 Financals 01/10/2002 2:46 PM Page 30 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2002 STATEMENT OF CASHFLOWS FOR THE YEAR ENDED 30 JUNE 2002 FLETCHER BUILDING GROUP FLETCHER BUILDING LIMITED JUNE 2002 JUNE 2001 JUNE 2002 JUNE 2001 NOTE NZ$M NZ$M NZ$M NZ$M Assets Current assets: Cash and liquid deposits Stocks Debtors Contracts Total current assets Non current assets: Fixed assets Investments Provision for deferred taxation Advances to subsidiaries Total non current assets Total assets Liabilities Current liabilities: Short-term loans Accruals and provisions Creditors Provision for current taxation Capital notes Total current liabilities Non current liabilities: Capital notes Term debt Advances from subsidiaries Total non current liabilities Total liabilities Equity Reported capital Revenue reserves Other reserves Shareholders funds Capital notes Minority equity Total equity Total liabilities and equity 14 15 16 17 18 19 22 20 2 1 22 23 23 24 10 12 12 23 13 59 318 410 (86) 701 669 72 96 837 1,538 3 101 401 (12) 53 546 177 224 401 947 455 66 43 564 27 591 1,538 132 298 420 (79) 771 759 90 136 985 1,756 2 98 463 (1) 562 404 404 966 449 1 1 78 538 250 2 790 1,756 9 6 15 1,019 1 290 1,310 1,325 2 3 8 (6) 53 60 1 77 190 334 701 761 455 (8) 1 1 7 564 564 1,325 32 3 35 985 341 1,326 1,361 2 16 (5) 13 390 170 560 573 449 6 83 538 250 788 1,361 The accompanying notes form part of and are to be read in conjunction with these financial statements. On behalf of the Board, 14 August 2002 FLETCHER BUILDING GROUP FLETCHER BUILDING LIMITED PRO FORMA YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED JUNE 2002 JUNE 2001 JUNE 2002 JUNE 2001 NZ$M NZ$M NZ$M NZ$M Cashflow from operating activities Receipts from customers 2,972 2,270 Dividends received Interest received Total received Payments to suppliers, employees and other Interest paid Income tax paid Total applied Net cash from operating activities Cashflow from investing activities Sale of fixed assets Sale of investments Sale of subsidiaries Total received Purchase of fixed assets Purchase of investments Purchase of subsidiaries Net debt in subsidiaries acquired Total applied Net cash from investing activities Cashflow from financing activities 12 2 2,986 2,723 53 23 2,799 187 12 42 54 50 1 14 65 (11) Net debt settlements (179) Sale of taxation benefits to other Fletcher Challenge divisions Advances from subsidiaries Issue of capital notes Total received Repurchase of capital notes Distribution to minority shareholders Dividends and distributions paid to stakeholders Total applied Net cash from financing activities Net movement in cash held Add opening cash and liquid deposits Effect of exchange rate changes on net cash Closing cash and liquid deposits (179) 20 14 32 66 (245) (69) 132 (4) 59 12 3 2,285 1,983 45 6 2,034 251 14 17 3 1 84 3 50 9 146 (115) (151) 99 185 133 126 77 203 (70) 66 64 2 132 4 41 19 64 13 48 61 3 20 8 28 8 7 15 13 509 509 (509) (200) 392 226 26 20 32 52 (26) (23) 32 167 2 561 33 33 528 32 9 32 Roderick Deane Chairman of Directors Ralph Waters Managing Director The accompanying notes form part of and are to be read in conjunction with these financial statements. 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 8606 Fletcher AR 2002 Financals 01/10/2002 2:46 PM Page 32 STATEMENT OF CASHFLOWS FOR THE YEAR ENDED 30 JUNE 2002 RECONCILIATION OF NET EARNINGS TO NET CASH FROM OPERATING ACTIVITIES FOR THE YEAR ENDED 30 JUNE 2002 FLETCHER BUILDING GROUP FLETCHER BUILDING LIMITED PRO FORMA YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED JUNE 2002 JUNE 2001 JUNE 2002 JUNE 2001 NZ$M NZ$M NZ$M NZ$M Analysis of subsidiaries disposed 1 Proceeds from sale of subsidiaries Fixed assets Current assets Term liabilities Current liabilities Minority interest Net assets of subsidiaries disposed Gain on disposal of subsidiaries Analysis of subsidiaries acquired 2 Fixed assets Goodwill on acquisition Term liabilities Cash acquired Current liabilities Net assets of subsidiaries acquired 42 1 7 22 (3) 36 6 63 (27) 18 (4) 50 1 Subsidiaries disposed were Varnsdorf Pty Limited for a profit of $14 million, the rural business of Cyclone, a division of Fletcher Steel Limited, at book value, and the construction activities in Australia upon which a loss of $8 million was provided. 2 Cash outflow on purchase of subsidiaries includes $50 million for Varnsdorf Pty Limited in March 2001. Fletcher Construction was involved in an arbitration in Australia, concerning a project known as the Victorian Hospitals Co-generation Project. Under the arbitration settlement agreement, Fletcher Challenge Limited — Building Operations purchased Varnsdorf Pty Limited, the owner of the project, for A$42 million in cash. The acquisition cost was then charged to earnings and provisions were reversed. The accompanying notes form part of and are to be read in conjunction with these financial statements. FLETCHER BUILDING GROUP FLETCHER BUILDING LIMITED PRO FORMA YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED JUNE 2002 JUNE 2001 JUNE 2002 JUNE 2001 NZ$M NZ$M NZ$M NZ$M Cash was received from: Net earnings 93 (272) Adjustment for items not involving cash: Depreciation, depletions, amortisation and provisions 93 Taxation Minority interest in earnings of subsidiaries Non cash adjustments Cashflow from operations 1 Less (gain)/loss on disposal of affiliates and fixed assets Cashflow from operations before net working capital movements Net working capital movements Net cash from operating activities 2 Net working capital movements: Debtors Stocks Contracts Creditors Net working capital movements 1 2 Includes loss on disposal of affiliates and fixed assets. As per the Statement of Cashflows. 31 12 136 229 (16) 213 (26) 187 54 19 7 (106) (26) 224 142 1 367 95 1 96 155 251 38 73 44 155 24 (3) (10) (13) 11 11 (8) 3 (3) (5) (8) 14 (3) (3) 11 11 2 13 2 2 The accompanying notes form part of and are to be read in conjunction with these financial statements. 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 8606 Fletcher AR 2002 Financals 01/10/2002 2:46 PM Page 34 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 STATEMENT OF ACCOUNTING POLICIES FOR THE YEAR ENDED 30 JUNE 2002 STATEMENT OF ACCOUNTING POLICIES FOR THE YEAR ENDED 30 JUNE 2002 BASIS OF PRESENTATION Goodwill on Acquisition The financial statements presented are those of Fletcher Building Limited (the (cid:210)company(cid:211)) and its subsidiaries Fair values are assigned to the assets and liabilities of subsidiaries and associates of the group at the date they (the (cid:210)group(cid:211)). Fletcher Building Limited is a company domiciled in New Zealand, is registered under the Companies are acquired. Goodwill arises to the extent that the fair value is determined to be less than the purchase cost Act 1993, and is an issuer in terms of the Securities Act 1978 and the Financial Reporting Act 1993. and this goodwill is amortised to earnings on a systematic basis over the period it is believed benefits will arise. The financial statements comprise statements of the following: financial performance, movements in equity, The period of amortisation will generally be five years or less; however, in individual cases it may be up to financial position, cashflows and significant accounting policies, as well as the notes to these financial statements. twenty years. The period of amortisation of any goodwill is regularly reviewed and, if it is believed that the On 23 March 2001 Fletcher Challenge Limited — Building Operations, a targeted share of Fletcher Challenge Limited, became a stand-alone publicly listed company called Fletcher Building Limited under a court approved arrangement. Fletcher Building Limited was incorporated on 19 December 2000 and acquired the net assets of Fletcher Challenge Limited — Building Operations on 23 March 2001. The company and group therefore began trading on 24 March 2001. The results of Fletcher Building group are for the period 1 July 2001 to 30 June 2002. The pro forma results for the twelve months ended 30 June 2001 consist of the results of Fletcher Challenge Limited - Building Operations for the period 1 July 2000 to 23 March 2001 and the results of the Fletcher Building group for the period 24 March 2001 to 30 June 2001. For the period ended 23 March 2001, Fletcher Challenge Limited — Building Operations was a division and targeted share of Fletcher Challenge Limited. As the financial statements of Fletcher Challenge Limited — Building Operations are derived from the financial statements of Fletcher Challenge Limited, they should at all times amount remaining to be amortised will not be recovered by future benefits to be realised, the unrecoverable amount is written off to earnings and the balance amortised over the period it is believed benefits will be realised. Negative goodwill on acquisition arises to the extent the fair value is determined to exceed the purchase cost and this surplus is applied to reduce the book value of non-monetary assets acquired and, to the extent there are insufficient non-monetary assets, taken to earnings. Joint Ventures Where the ownership interest in the joint venture is in the net residue of the business and does not give rise to an economic or controlling interest in excess of 50 percent, the share of the net assets and liabilities and earnings of the investment is included on an equity basis. If the interest does give rise to a controlling interest in excess of 50 percent, the investment is consolidated. be read in conjunction with the financial statements of Fletcher Challenge Limited and in particular with the basis of Joint ventures in which the ownership interest is directly in the assets and liabilities rather than the net residue attributing assets, liabilities, income and expenses to the then divisions of Fletcher Challenge Limited as set out in the are included in proportion to the group(cid:213)s interest in the assets, liabilities and earnings. statement of adopted policies. FOREIGN CURRENCY The results of Fletcher Building Limited are for the period 1 July 2001 to 30 June 2002. The results for the period Translation of the Financial Statements of Foreign Operations ended June 2001 are for the period 24 March 2001 to 30 June 2001. ACCOUNTING CONVENTION The financial statements are based on the general principles of historical cost accounting with the exception of investments and specific fixed assets as noted below. These financial statements have been prepared in accordance The assets and liabilities of the group(cid:213)s overseas operations are translated into New Zealand currency at the rates of exchange ruling at balance date. The revenue and expenditure of these entities are translated using an average exchange rate reflecting an approximation of the appropriate transaction rates. Exchange variations arising on the translation of these entities are recognised directly in the currency translation reserve. with generally accepted accounting practice (GAAP) in New Zealand. Where no financial reporting standard or Exchange Differences statement of standard accounting practice exists in New Zealand in relation to a particular issue, the accounting Monetary assets and liabilities in foreign currencies at balance date, not covered by forward exchange contracts, policies adopted have been determined having regard to authoritative support. These policies have been applied are translated at the rates of exchange ruling at balance date. on a consistent basis except as disclosed in note 1, changes in accounting policies. ESTIMATES The preparation of financial statements in conformity with GAAP requires the directors to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. BASIS OF CONSOLIDATION The consolidated financial statements comprise the company and its subsidiaries and the group(cid:213)s interest in associates, partnerships and joint ventures. Inter-company transactions are eliminated in preparing the consolidated financial statements. Subsidiaries Monetary assets and liabilities in foreign currencies at balance date, covered by forward exchange contracts, are translated at the exchange rates specified in those contracts. Non-monetary assets and liabilities in foreign currencies are translated at the exchange rates in effect when the amounts of these assets and liabilities were determined. If a foreign currency liability is designated as a hedge of a foreign currency non-monetary asset (or vice versa), both the asset and the liability are translated at the closing rate and the exchange difference taken to the currency translation reserve. VALUATION OF ASSETS Land, Buildings, Plant and Machinery, Fixtures and Equipment Initial recording The cost of purchasing land, buildings, plant and machinery, fixtures and equipment is the value of the consideration given to acquire the assets and the value of other directly attributable costs which have been Subsidiaries are included in the consolidated financial statements using the purchase method of consolidation, incurred in bringing the assets to the location and the condition neccessary for their intended service. except for the acquisition of the assets and liabilities of Fletcher Challenge Limited — Building Operations, which were at book value. The company has revalued its investment in subsidiaries to net asset backing. Associates The costs of self-constructed assets include, where appropriate, the costs of all materials used in construction, direct labour on the project, site preparation and installation costs, costs of obtaining resource consents, financing costs that are directly attributable to the project, variable and fixed overheads and unrecovered operating costs The equity method has been used for associate entities in which the group has a significant but not controlling interest. incurred during planned commissioning. Costs cease to be capitalised as soon as the asset is ready for productive use. All feasibility costs are expensed as incurred. 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 8606 Fletcher AR 2002 Financals 01/10/2002 2:46 PM Page 36 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 STATEMENT OF ACCOUNTING POLICIES FOR THE YEAR ENDED 30 JUNE 2002 STATEMENT OF ACCOUNTING POLICIES FOR THE YEAR ENDED 30 JUNE 2002 Revaluations Taxation Land, buildings, plant and machinery are revalued by independent registered valuers on the basis of fair value. The provision for current tax is the estimated amount due for payment in the next 12 months by the group. Revaluations are conducted on a systematic basis across the group so that each asset is revalued at least every The provision for deferred tax of the group is the liability for taxation that has been deferred because of timing five years. The values are reviewed annually to ensure that no asset is held at a value materially different from differences less taxation benefits which will offset the deferred liability as it arises. The provision for deferred fair value. taxation of the group has been calculated by applying the liability method. Fixtures and equipment are stated at cost. Land, buildings, plant and machinery, fixtures and equipment are stated In the group, the future tax benefit of past and current tax losses, to the extent they exceed related deferred at cost or valuation, less accumulated depreciation. Investments taxation liabilities, is not recognised unless recovery is considered certain. Finance Leases Investments are valued at historical cost. Impairments in value of investments are written off to earnings as they arise. Finance leases are capitalised to reflect the term borrowing incurred and the cost of the asset acquired. Stocks Trading stock, raw materials and work in progress are valued at the lower of cost or net realisable value determined principally on the first-in-first-out basis. Cost includes direct manufacturing costs and manufacturing overheads at normal operating levels. Construction Contracts Earnings on construction contracts (including sub-contracts) are determined using the percentage-of-completion method. Earnings are not recognised until the outcome can be reliably estimated. Provision is made for estimated future losses on the entire contract from the date it is first recognised that a contract loss may be incurred. Debtors Debtors are valued at estimated net realisable value. The valuation is net of a provision maintained for doubtful Such obligations are classified within term debt. The finance cost portion of lease payments is written off to earnings. The leased asset is depreciated on a straight line basis over the estimated useful life of the asset with regard to residual values. INCOME DETERMINATION Revenue Recognition Operating revenue is recognised in accordance with the terms of sale when the benefits of ownership and risk of loss passes to the customer. Investment Revenue Interest income is taken to earnings when received or accrued in respect of the period for which it was earned. Dividends and distributions are taken to earnings when received or accrued where declared prior to balance date. debts. All known losses are written off to earnings in the period in which it becomes apparent that the debts are Depreciation not collectable. Cash Cash and liquid deposits comprise cash and demand deposits with banks or other financial institutions and highly liquid investments that are readily convertible to cash. Impairment Impairment is deemed to occur when the recoverable amount falls below the book value of the asset. The recoverable Depreciation of fixed assets is calculated on the straight line method. Expected useful lives, which are regularly reviewed, are on a weighted average basis: Buildings Plant and machinery 30 years 13 years Leased assets capitalised 10 years Fixtures and equipment 5 years amount is determined to be the sum of expected future discounted net cashflows arising from the ownership of Leasing Commitments the asset. Future net cashflows take into account remaining useful life, and the expected period of continued Expenditure arising from operating leasing commitments is written off to earnings in the period incurred. ownership, including any intended disposals, and any costs or proceeds expected to eventuate at the end of the Purchased head leases are valued at cost and amortised over the unexpired period of the lease. remaining useful life or end of the expected period of continued ownership. Pension Plan Expense For the purposes of considering whether there has been an impairment, assets are grouped at the lowest level for The actuarial cost of providing pension plan benefits in respect of services provided by pension plan members which there are identifiable cashflows that are largely independent of the cashflows of other groups of assets. to the group is expensed as it accrues over the service life of the employees, taking account of the income earned When an impairment loss arises the impairment is measured as the amount by which the book value exceeds by the income generating assets owned by the plan. Any over or under accrual of expenses or income from previous the recoverable amount of the asset. VALUATION OF LIABILITIES Derivative Financial Instruments Derivative financial instruments including foreign exchange contracts, interest rate swaps, currency swaps, options, forward rate agreements and electricity price swaps are utilised to reduce exposure to market risks. Group policy specifically prohibits the use of derivative financial instruments for trading or speculative purposes. All derivative financial instruments are held to hedge risk on underlying assets, liabilities and sales and purchases. For a derivative instrument to be classified and accounted for as a hedge, it must be highly correlated with and effective as a hedge of the underlying risk being managed. Derivative financial instruments are reported in the financial statements on a basis consistent with the underlying hedged item. The fair value of derivative financial instruments, as disclosed in the financial instrument note, is estimated based upon quoted market prices. The group holds instruments until expiry except where the underlying rationale from a risk management point of view changes, such as when the underlying asset or liability which the instrument hedges no longer exists, in which case early termination occurs. periods is amortised to earnings over a maximum period of the remaining average service life of plan members employed by the group. Share Options Granted Share options have been granted under a senior executive option scheme. The fair value of the option is recognised as an expense over the restricted period of the senior executive option scheme and a corresponding amount is recognised in shareholders(cid:213) funds. 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 8606 Fletcher AR 2002 Financals 01/10/2002 2:46 PM Page 38 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 1 Changes in accounting policies Financial Reporting Standard (FRS) 36, Accounting for Acquisitions Resulting in Combinations of Entities or 1 Changes in accounting policies continued (c) Consolidation of PlaceMakers Operations, FRS 37, Consolidating Investments in Subsidiaries, and FRS 38, Accounting for Investments in As a result of FRS 37 the group has changed how it accounts for the PlaceMakers joint ventures comprising Associates, have been issued with a mandatory implementation date for accounting periods ending on or after 42 legal entities. Previously these were equity accounted, however for the year ended 30 June 2002, they have 31 December 2002. The directors elected to comply with the requirements of FRS 36, 37 and 38 prior to their been consolidated. mandatory implementation date. There has been no material impact on the financial statements in complying The effect of the change is as per the following table. with FRS 36 and 38. (a) Capital notes Capital notes are long-term, fixed rate, unsecured subordinated notes. At each election date the coupon and term to the next election date of that series of notes is reset. Holders may then choose either to keep their capital notes on the new terms or to convert the notes to shares. Fletcher Building Limited may, at its option, purchase or redeem the capital notes for cash. Capital notes have previously been accounted for as a component of equity. The directors have reviewed this accounting treatment and have concluded that the capital notes are more fairly reflected if accounted for as debt. This change has been made for the year ended 30 June 2002. As a result of this reclassification, interest on the capital notes is recorded as funding costs within the Statement of Financial Performance and in cashflow from operations within the Statement of Cashflows, rather than as a distribution from equity. In accordance with the requirements of FRS 2, Presentation of Financial Reports, the comparative balances have not been restated. (b) Share options The company has changed how it accounts for share options. Previously no expense was recognised for these. The company now accounts for the fair value of the options at their grant date, and recognises this as an expense over the restricted period provided by the scheme. A corresponding amount is recognised in shareholders(cid:213) funds. For the year ended 30 June 2002 an amount of $256,000 has been expensed. There is no material impact on the Statement of Financial Position or the Statement of Cashflows. Operating revenue Operating expenses Operating earnings Funding costs Earnings before taxation Taxation expense Earnings after taxation Minority interest Net earnings Total current assets Investments Fixed assets Total assets Total current liabilities Term liabilities Total liabilities Shareholders funds Minority equity Total equity Total liabilities and equity Net cash from operating activities Net cash from investing activities Net cash from financing activities Net movement in cash held 15 MONTHS TO JUNE 2002 NZ$M 670 (644) 26 (3) 23 (9) 14 (12) 2 113 (21) 10 102 51 22 73 3 26 29 102 (1) (5) 6 0 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 8606 Fletcher AR 2002 Financals 01/10/2002 2:46 PM Page 40 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 1 Changes in accounting policies continued (d) PlaceMakers change in balance date Changes in the ownership percentage for the PlaceMakers joint ventures now make it appropriate to recognise earnings on a consistent basis with the rest of the group. Previously income was recognised on an April to March year, in line with the joint venture companies balance date. This period(cid:213)s earnings include 15 months of the joint ventures earnings from 1 April 2001 to 30 June 2002. The earnings from 1 April 2001 to 30 June 2001 are stated in the following table. Operating revenue Operating expenses Operating earnings Funding costs Earnings before taxation Taxation expense Earnings after taxation Minority interest Net earnings THREE MONTHS ENDED JUNE 2001 NZ$M 119 (115) 4 4 (1) 3 (1) 2 These operating earnings have been disclosed as unusual income in note 3. (e) Restatement of results In the segmental analysis in note 34 the comparative balances have been restated for Distribution for operating revenue, operating earnings and total assets. Previously the results for 30 June 2001 were for twelve months on an equity accounting basis, and the results for 30 June 2002 are for fifteen months on a consolidated basis. To ensure comparability the results of Distribution have been restated for both years on a twelve month consolidated basis. Certain comparatives have been restated to conform with the currrent year(cid:213)s presentation. There were no other changes in accounting policies during the year. 2 Operating revenue Operating revenue includes: Trading sales to external customers Equity earnings Dividends Interest Income from joint ventures 3 Operating earnings Operating earnings includes: Net gains on disposal of fixed assets Amortisation of goodwill and intangibles Depreciation and depletions: Buildings Plant and machinery Fixtures and equipment Resource extraction assets Total depreciation and depletions Net periodic pension cost/(benefit) Unusual items: Restructuring and separation costs 1 Impairment 2 Other (gains)/losses 3 FLETCHER BUILDING GROUP FLETCHER BUILDING LIMITED PRO FORMA YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED JUNE 2002 JUNE 2001 JUNE 2002 JUNE 2001 NZ$M NZ$M NZ$M NZ$M 2,955 11 2,249 11 1 12 2 41 19 2,966 2,273 62 20 8 28 (2) 7 5 56 20 1 82 (8) 11 (12) (4) 2 7 1 1 54 38 1 1 9 6 67 7 1 81 (6) 43 101 37 3 8 1 59 34 1 5 PlaceMakers joint ventures three month income to 30 June 2001 4 Research and development Bad debts written off Directors(cid:213) fees Donations Maintenance and repairs Operating lease expense Auditors(cid:213) fees and expenses payable for: Statutory audit Other services 5 1 Restructuring and separation costs relate to costs of $43 million in June 2001 arising from the separation of the Fletcher Challenge targeted share structure. 2 The impairment relates to the overseas concrete operations of $11 million in June 2002 and $70 million in June 2001. In addition June 2001 includes impairment to the concrete operations in New Zealand of $17 million and the group(cid:213)s owned properties in Auckland of $14 million. 3 Other gains in June 2002 relate to the $14 million profit on sale of Varnsdorf Pty Limited, a gain on sale of land at Lunn Avenue of $6 million, and a loss of $8 million relating to the sale of the construction activities in Australia. Other losses of $37 million in June 2001 relate to the settlement of a dispute over the construction of co-generation plants in Australia. 4 Refer note 1 (d). 5 Fees paid to the auditors for other services in 2002 consist mainly of the half annual review and taxation work in overseas jurisdictions. 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 8606 Fletcher AR 2002 Financals 01/10/2002 2:46 PM Page 42 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 4 Discontinued operations During the year, Fletcher Building Limited disposed of the following business operations by way of sale: Varnsdorf Pty Limited, an Australian co-generation power business, the Australian construction business, and the rural business of Cyclone, a division of Fletcher Steel Limited. The impact on the 2002 financial year of the discontinued operations is shown below. Operating revenue Discontinued operations Continuing operations Total group Operating earnings Discontinued operations Continuing operations Total group 5 Funding costs Interest payable on: Term debt Attributed debt Short term loans and bank overdrafts Capital notes interest Income from short term deposits Plus share registry and issue expenses FLETCHER BUILDING GROUP FLETCHER BUILDING LIMITED PRO FORMA YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED JUNE 2002 JUNE 2001 JUNE 2002 JUNE 2001 NZ$M NZ$M NZ$M NZ$M 272 2,694 2,966 5 205 210 28 3 22 (2) 51 51 2,273 2,273 (87) (87) 10 26 2 (3) 35 1 36 62 62 60 60 28 28 20 20 24 9 22 46 46 9 9 FLETCHER BUILDING GROUP FLETCHER BUILDING LIMITED PRO FORMA YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED JUNE 2002 JUNE 2001 JUNE 2002 JUNE 2001 NZ$M NZ$M NZ$M NZ$M 6 Taxation expense Earnings before taxation: Domestic Foreign Taxation at 33 cents per dollar Adjusted for: Impairment Restructuring and separation costs Non assessable income Non deductible expenses Taxation charge from overseas jurisdicitions Other permanent differences Unusual tax items: Attributed taxation benefits lost upon separation Permanent differences Taxation in respect of prior periods Taxation expense on earnings before unusuals Taxation expense/(benefit) on unusual items Unusual tax expense arising upon separation Current taxation New Zealand Non New Zealand Deferred taxation New Zealand Non New Zealand 154 5 159 52 4 (9) 4 2 1 54 54 54 44 5 3 2 54 2 (125) (123) (40) 23 10 12 133 3 7 148 23 (18) 143 148 (3) 8 99 44 148 14 14 5 11 11 4 (15) (7) (10) (10) (10) (9) (1) (10) (3) (3) (3) (3) (3) 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 8606 Fletcher AR 2002 Financals 01/10/2002 2:46 PM Page 44 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FLETCHER BUILDING GROUP FLETCHER BUILDING LIMITED PRO FORMA YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED JUNE 2002 JUNE 2001 JUNE 2002 JUNE 2001 NZ$M NZ$M NZ$M NZ$M 7 Shareholder tax credits Imputation credit account Imputation credits at the beginning of the year Imputation credits received Imputation credits lost upon separation Imputation credits available to Shareholders at year end are: Subsidiaries Dividend withholding payment credit account Dividend withholding payment credits at the beginning of the year Dividend withholding payment credits received Transfer to conduit tax relief account Dividend withholding payment credits attached to dividends paid Dividend withholding payment credits available to Shareholders at year end are: Parent company 1 1 1 1 (7) 20 (7) (16) (10) (10) (10) Conduit tax relief account Conduit tax relief credits at the beginning of the year (3) Conduit tax relief credits received Conduit tax relief lost upon separation Transfer from dividend withholding payment credit account Conduit tax relief credits attached to dividends paid 7 (4) Conduit tax relief credits available to Shareholders at year end are: Parent company 2 (2) (7) 14 (14) (7) (7) (7) (7) 12 1 (9) (3) (3) (3) (7) 20 (7) (16) (10) (10) (10) (3) 7 (4) (7) (7) (7) (7) (3) (3) (3) (3) Fletcher Building Limited has until March 2003 to fund any deficiency in its dividend withholding payment credit account. FLETCHER BUILDING GROUP PRO FORMA YEAR ENDED YEAR ENDED JUNE 2002 JUNE 2001 NZ$M NZ$M 8 Net earnings per share Diluted net earnings per share applies the weighted average number of shares used for basic net earnings per share, adjusted for dilutive securities. Capital notes and options are convertible into the company(cid:213)s shares, and are therefore considered dilutive securities for diluted net earnings per share. Numerator Net earnings Capital note distributions Numerator for basic earnings per share Dilutive capital notes distribution 93 93 15 (272) (16) (288) Numerator for diluted net earnings per share 108 (288) Denominator (millions of shares) Denominator for basic net earnings per share Conversion of dilutive capital notes Denominator for diluted net earnings per share 345 85 430 344 344 9 Dividends and distributions Dividends and distributions paid to holders of: Shares 1 Conduit tax relief paid Refund of conduit tax relief Capital notes 2 FLETCHER BUILDING GROUP FLETCHER BUILDING LIMITED PRO FORMA YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED JUNE 2002 JUNE 2001 JUNE 2002 JUNE 2001 NZ$M NZ$M NZ$M NZ$M 41 4 (7) 38 48 9 16 73 41 4 (7) 38 3 5 8 1 No final dividend for June 2002 was provided for in the June 2002 financial statements. On 14 August 2002, the directors declared a final dividend for the 2002 year of eight cents per share. This will be paid on 14 November 2002. 2 For the year ended 30 June 2002, capital notes have been reclassified as debt. Interest paid on these notes is classified as interest within the Statement of Financial Performance. 10 Capital Reported capital: Reported capital at the beginning of the year Issue of shares Adjustment to reserves required on issue of shares on separation Reported capital 449 6 455 500 3 (54) 449 449 6 449 455 449 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 8606 Fletcher AR 2002 Financals 01/10/2002 2:46 PM Page 46 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FLETCHER BUILDING GROUP FLETCHER BUILDING LIMITED PRO FORMA YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED JUNE 2002 JUNE 2001 JUNE 2002 JUNE 2001 344,540,655 342,632,401 344,540,655 2 344,540,655 2,020,171 1,908,252 2,020,171 346,560,826 344,540,655 346,560,826 344,540,655 10 Capital continued Shares: Number of shares at the beginning of the year Issue of shares Shares issued under the dividend reinvestment plan Shares on issue Share options: On 13 June 2001, the company issued 1,000,000 share options under the executive option scheme. The exercise price of the share options is $2.28. The restrictive period is until 16 May 2004 and the final exercise date is 13 June 2007. 11 Reserve movements Reserves at the beginning of the year Net earnings Investment revaluation Asset revaluation Net currency translations Adjustment to capital required on issue of shares on separation Dividends and distributions paid1 Total reserves 1 refer note 9 12 Reserve balances Reserves comprise: Revenue reserves Asset revaluation — land and buildings Asset revaluation — plant and machinery Investment revaluation Net currency translation Total reserves FLETCHER BUILDING GROUP FLETCHER BUILDING LIMITED PRO FORMA YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED JUNE 2002 JUNE 2001 JUNE 2002 JUNE 2001 NZ$M NZ$M NZ$M NZ$M 89 93 (16) (19) (38) 109 66 13 44 (14) 109 277 (272) 73 30 54 (73) 89 11 15 58 5 89 89 24 34 (38) 109 14 83 (8) 89 (8) 6 117 109 83 89 13 Minority equity Share capital Reserves 14 Cash and liquid deposits Cash and bank balances Short term deposits FLETCHER BUILDING GROUP FLETCHER BUILDING LIMITED JUNE 2002 JUNE 2001 JUNE 2002 JUNE 2001 NZ$M NZ$M NZ$M NZ$M 21 6 27 51 8 59 2 2 100 32 132 1 8 9 1 31 32 $2 million of the cash at 30 June 2002 (June 2001 $18 million) represents cash held by the group on behalf of former divisions of the Fletcher Challenge Limited Group. The obligation to these other parties is included within other liabilities in creditors. 15 Stocks Raw materials Work in progress Finished goods Consumable stores and spare parts 16 Debtors Trade debtors Contract debtors Less provision for doubtful debts Other receivables 17 Contracts Gross construction work in progress Progress billings Work in progress 45 20 247 6 318 298 75 (14) 359 51 410 793 (879) (86) 48 21 210 19 298 259 118 (22) 355 65 420 614 (693) (79) 6 6 3 3 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 8606 Fletcher AR 2002 Financals 01/10/2002 2:46 PM Page 48 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FLETCHER BUILDING GROUP FLETCHER BUILDING LIMITED JUNE 2002 NZ$M JUNE 2001 NZ$M JUNE 2002 NZ$M JUNE 2001 NZ$M FLETCHER BUILDING GROUP FLETCHER BUILDING LIMITED JUNE 2002 NZ$M JUNE 2001 NZ$M JUNE 2002 NZ$M JUNE 2001 NZ$M 18 Fixed assets Valuation Land Buildings Plant and machinery Cost Fixtures and equipment Resource extraction assets Leased assets capitalised Total cost or valuation Accumulated depreciation Buildings Plant and machinery Fixtures and equipment Leased assets capitalised Total accumulated depreciation Net book value Land Buildings Plant and machinery Fixtures and equipment Resource extraction assets Leased assets capitalised Total net book value Goodwill Total fixed assets 55 79 513 175 5 18 845 (5) (51) (116) (7) (179) 55 74 462 59 5 11 666 3 669 61 75 545 117 4 17 819 (62) (5) (67) 61 75 545 55 4 12 752 7 759 All land, buildings, plant and machinery were revalued to fair value at 30 June 2001. The values were determined by an independent registered valuer, Beca Valuations Ltd, who are a registered and chartered engineer and a member of the New Zealand Institute of Valuers. Assets held in South America were revalued at 30 June 2002 by independent valuers and $11 million has been written off to the asset revaluation reserve. The directors then wrote down the value of the assets by a further $8 million to recognise the impairment on assets available for sale. These assets have a total net book value of $33 million. During the year $2 million was capitalised to the cost of fixed assets. This represents employment and overhead costs arising from the construction activities undertaken by The Fletcher Construction Company Limited for another group subsidiary. No interest costs were capitalised. 19 Investments Investment in associates Investment in other companies Joint ventures Pension plan surplus1 Other investments Investment in subsidiary companies2 Carrying amount of associates Carrying amount at the beginning of the year Equity accounted earnings of associate Impairment of overseas assets Dividends from associates Carrying amount at the end of the year Equity accounted earnings comprise Surplus before taxation Taxation Net surplus 1 refer note 33 2 refer note 32 20 Accruals and provisions Employee entitlements Construction, property and product warranty claims Other liabilities 17 1 53 1 72 21 11 (3) (12) 17 11 11 39 47 15 101 21 1 21 45 2 90 21 11 (11) 21 11 11 36 52 10 98 1,019 1,019 985 985 3 3 The group has provided for various construction claims, onerous property contracts and product warranty obligations. During the year $5 million was charged to earnings, $4 million was settled, $3 million was utilised and $3 million released to earnings. The provisions are expected to be utilised over the next seven years. 21 Creditors Trade creditors Accrued interest Other liabilities 22 Taxation assets Current taxation Deferred taxation Provision for taxation Provision for deferred taxation: Provisions Provision for doubtful debts Depreciation and amortisation Other Provision for deferred taxation 359 6 36 401 12 96 108 31 5 58 2 96 419 6 38 463 1 136 137 36 7 88 5 136 6 10 16 5 5 6 2 8 6 1 7 1 1 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 8606 Fletcher AR 2002 Financals 01/10/2002 2:46 PM Page 50 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FLETCHER BUILDING GROUP FLETCHER BUILDING LIMITED 23 Capital notes continued PRO FORMA YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED JUNE 2002 JUNE 2001 JUNE 2002 JUNE 2001 NZ$M NZ$M NZ$M NZ$M 22 Taxation assets continued Provision for current taxation: Opening provision for taxation 1 Taxation in the Statement of Financial Performance (49) (5) Transfer from deferred taxation Consolidation of PlaceMakers Minority share of taxation expense Intercompany payment Taxation in reserves Net taxation payments Provision for current taxation Provision for deferred taxation: Opening provision for taxation Taxation in the Statement of Financial Performance Transfer to current taxation Sale of losses to other Fletcher Challenge divisions Taxation on asset revaluation Net taxation payments Taxation in reserves Provision for deferred taxation 29 2 7 (1) 23 12 136 (5) (29) (5) (1) 96 6 1 359 (143) (99) (18) 15 22 136 3 2 5 5 9 (6) (2) 6 1 1 FLETCHER BUILDING GROUP FLETCHER BUILDING LIMITED JUNE 2002 JUNE 2001 JUNE 2002 JUNE 2001 NZ$M NZ$M NZ$M NZ$M 23 Capital notes Capital notes Coupon Election date Series 2001 12.75% 31 October 2001 Series 2002 11.75% 15 December 2002 Series 2003 8.55% 15 June 2003 Series 2003 10.80% 30 November 2003 Series 2004 8.50% 15 April 2004 Series 2005 10.50% 30 April 2005 Series 2006 8.75% 15 March 2006 Series 2006 7.90% 31 October 2006 28 25 17 43 68 33 16 36 28 25 17 43 68 33 Capital notes of Fletcher Building 230 250 Capital notes due for election within 12 months Capital notes due for election after 12 months Capital notes of Fletcher Building 53 177 230 36 214 250 28 25 17 43 68 33 16 230 53 177 230 36 28 25 17 43 68 33 250 36 214 250 During the year the company repurchased $20 million of capital notes. In the prior year $59 million were issued. Capital notes are long-term fixed rate unsecured subordinated notes. On each election date, the coupon rate and term to the next election date of that series of the capital notes will be reset. Holders may then choose either to keep their capital notes on the new terms or to convert the principal amount and any accrued but unpaid interest into shares, in the prescribed ratio at approximately the current market price. Instead of issuing shares to holders who choose to convert, Fletcher Building may, at its option, purchase or redeem the capital notes for cash at the principal amount plus any accrued but unpaid interest. Under the terms of the capital notes, non-payment of interest is not an act of default although unpaid interest is accrued and is interest bearing at the same rate as the principal of the capital notes. Fletcher Building Limited has covenanted not to pay dividends to its shareholders, while interest that is due and payable on any capital notes has not been paid. The capital notes do not carry voting rights and do not participate in any change in value of the issued shares of Fletcher Building Limited. If the principal amount of the capital notes were to be converted to shares, 85 million shares would be issued at the share price as at 30 June 2002, of $2.75. 24 Term debt Loans subject to the negative pledge The group borrows funds based on covenants and a negative pledge arrangement. The principal borrowing covenants relate to gearing, interest cover and minimum net tangible assets and at 30 June 2002, the group was in compliance with all its covenants. The negative pledge ensures that external senior indebtedness ranks equally in all respects and includes the covenant that security can be given only in very limited circumstances. Loans not subject to the negative pledge Loans not having the benefit of the negative pledge are secured against the subsidiaries(cid:213) own statement of financial position or specific assets. Unused committed lines of credit At 30 June 2002, the group had $614 million of committed facilities of which $385 million was undrawn. At 30 June 2001, there were $639 million committed facilities of which $235 million was undrawn. FLETCHER BUILDING GROUP FLETCHER BUILDING LIMITED JUNE 2002 JUNE 2001 JUNE 2002 JUNE 2001 NZ$M NZ$M NZ$M NZ$M Floating loans Fixed loans Loans not subject to the negative pledge — floating Loans not subject to the negative pledge — fixed Term debt 84 106 22 12 224 332 58 14 404 84 106 332 58 190 390 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 5 1 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 8606 Fletcher AR 2002 Financals 01/10/2002 2:46 PM Page 52 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 24 Term debt continued Summary of repayment terms and interest rates by repayment period 25 Financial instruments continued Off balance sheet risk Due for repayment: within one year two years three years four years five years after five years Term debt FLETCHER BUILDING GROUP JUNE 2002 NZ$M JUNE 2002 INT. RATE % JUNE 2001 JUNE 2001 NZ$M INT. RATE % 25 2 2 192 1 2 224 8.1 10.6 10.6 7.0 10.5 10.5 7.2 3 3 3 2 391 2 404 9.9 10.2 10.2 10.1 6.8 10.0 6.9 The amount due for repayment within one year relates to the PlaceMakers joint ventures. This facility is reviewed annually. Summary of repayment terms and interest rates by repayment period Term debt due for repayment within four years 190 7.0 Term debt due for repayment within five years 390 6.8 FLETCHER BUILDING LIMITED 25 Financial instruments Financial instruments are used as a means of reducing exposure to fluctuations in foreign exchange rates, interest rates and commodity prices. While these financial instruments are subject to the risk of market rates changing subsequent to acquisition, such changes would generally be offset with an opposite effect on the items being hedged. The principal or contract amounts of forward exchange contracts and financial instruments with off balance sheet risk for the group are as follows: PRINCIPAL OR CONTRACT AMOUNT Foreign currency forward exchange contracts To pay To receive Foreign currency options purchased Foreign currency options sold Interest rate swaps Electricity price swaps JUNE 2002 JUNE 2001 NZ$M NZ$M 106 (107) (1) 109 13 112 (113) (1) 3 1 63 16 The cash settlement amounts of these instruments, if they had settled on 30 June 2002, approximates the principal or contract amounts, except for interest rate swaps, currency options and commodity price swaps for which the cash settlement is limited to the fair value. Credit risk Exposures to currency, interest rate, and commodity risks arise in the normal course of the group(cid:213)s business. To the extent the group has a receivable from another party there is a credit risk in the event of non-performance To manage and limit the effects of these financial risks the group operates within the following policies and utilises by that counterparty. At balance date there were no significant concentrations of credit risks in respect of trade the following financial instruments. Management policies The group does not enter into derivative financial instruments for trading or speculative purposes. The group(cid:213)s policies are: Currency balance sheet risk To manage foreign exchange exposure to balance sheet currency risk by utilising currency swaps. The only significant unhedged assets are in South America where it is not practical to manage the currency exposures. Net assets in South America at 30 June 2002 total $30 million. Currency trade risk No currency exchange risk may be entered into or allowed to remain outstanding should it arise on trade transactions. When exposures are incurred by operations in currencies other than their functional currency, currency forwards, swaps, forward rate agreements and options are entered into to eliminate the exposure. Interest rate risk To manage the fixed interest rate ratio on its debt and capital notes portfolio within the range of 40 to 60 percent. The position in this range is managed depending upon underlying interest rate exposures and economic conditions. Interest rate swaps, forward rate agreements and options are entered into to manage this position. Commodity price risk To use commodity price swaps and options to manage the market price risk of a commodity. The group manages its commodity price risk depending on the underlying exposures, economic conditions, and access to active derivatives markets. receivables. The group enters into financial instruments with various counterparties in accordance with established limits as to credit rating and dollar limits and does not require collateral or other security to support the financial instruments. In accordance with the established counterparty restrictions, there are no significant concentrations of credit risk in respect of financial instruments. Interest rate repricing The following table sets out the interest rate repricing profile and weighted average interest rate of the group(cid:213)s term debt, capital notes and interest rate hedges: Interest rate repriced: within one year two years three years four years five years after five years JUNE 2002 NZ$M JUNE 2002 INT. RATE % JUNE 2001 NZ$M JUNE 2001 INT. RATE % 218 63 70 84 17 2 454 7.9 9.2 10.5 7.5 8.0 10.0 8.4 371 114 63 70 34 2 654 7.2 9.3 9.2 10.5 8.8 10.0 8.2 The net effective interest rate for cash and liquid deposits and bank overdrafts as at 30 June 2002 is 2 percent. Debtors and creditors are not interest rate sensitive. 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 8606 Fletcher AR 2002 Financals 01/10/2002 2:46 PM Page 54 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 25 Financial instruments continued Fair values The estimated fair values of the group(cid:213)s financial assets and liabilities which differ from their carrying values are as follows: JUNE 2002 CARRYING VALUE NZ$M JUNE 2002 FAIR VALUE NZ$M JUNE 2001 CARRYING VALUE NZ$M JUNE 2001 FAIR VALUE NZ$M Currency forward exchange contracts Currency options Interest rate swaps Electricity price swaps 1 (1) (2) 9 7 29 Environment It is group policy to monitor environmental performance on an ongoing basis and to require that all of its operations comply with applicable environmental regulatory requirements. As part of this policy, management is required to report regularly to the Board of Directors on current and future environmental performance. The group also commissions regular independent reports with respect to environmental management systems and the implementation of this policy. The group is subject to numerous national and local environmental laws and regulations concerning its products, operations and other activities. Failure to comply with these laws and regulations may result in orders being issued that could cause certain of the group(cid:213)s operations to cease or be curtailed or may require installation of additional equipment at substantial cost. Violators may be required to compensate those suffering loss or damage by reason of violations and may be fined if convicted of an offence under such legislation. Management believes that group(cid:213)s activities are in compliance in all material respects with applicable environmental laws and regulations. 30 Self-insurance The carrying values in the fair value table include interest accruals which are included within current assets and current liabilities. Term debt of $224 million (refer note 24) includes cross-currency and interest rate swaps and currency forward exchange contracts. The company has completed an analysis of its capacity to retain otherwise insurable loss. The directors believe that the group(cid:213)s risk management programmes are adequate to protect its assets and earnings against losses incurred, within the self-insurance level of $10 million. The fair value of derivative financial instruments is based on the quoted or estimated market prices of Based on past experience, the directors do not anticipate that future losses within these levels would have a those instruments. 26 Capital expenditure commitments Approved by the directors but uncommitted at period end Committed at period end JUNE 2002 JUNE 2001 NZ$M NZ$M 10 11 21 6 8 14 31 27 24 23 21 72 198 27 Lease commitments The expected future minimum rental payments required under operating leases that have initial or remaining non-cancellable lease terms in excess of one year at 30 June are as follows: within one year two years three years four years five years after five years 37 34 27 24 22 38 182 Operating lease commitments relate mainly to occupancy leases of buildings. 28 Contingent liabilities Provision has been made in the ordinary course of business for all known and probable future claims but not for such claims as are considered remote. Contingent liabilities arise in respect of the following categories: Contingent liabilities with respect to guarantees extended on trading transactions, performance bonds and other transactions Letters of credit 158 5 123 6 significant impact on the group(cid:213)s financial position or performance. In certain circumstances, where required by law or where management considers it appropriate, insurance may be arranged for exposures within the self-insurance levels. In general terms, subject to the self-insurance levels, the group remains insured with insurers of high credit quality for the following risks at 30 June 2002: Public and product liability Loss or damage to group property including business interruption Marine public liability Public and product liability resulting from construction activities Property in the course of construction LOSS INSURED FOR EACH EVENT NZ$M 100 100 50 50 50 The group has made provision for reported and estimated unreported losses incurred at balance date. 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 8606 Fletcher AR 2002 Financals 01/10/2002 2:46 PM Page 56 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 31 Related party transactions 32 Principal operations FLETCHER BUILDING GROUP FLETCHER BUILDING LIMITED PRO FORMA YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED JUNE 2002 JUNE 2001 JUNE 2002 JUNE 2001 NZ$M NZ$M NZ$M NZ$M Fletcher Building Limited is the holding company of the Fletcher Building group. The principal subsidiaries and associates, as at 30 June 2002, are outlined below: COUNTRY OF % DOMICILE HOLDING PRINCIPAL ACTIVITY Fletcher Building Group Purchase of lumber and wood products from Fletcher Challenge Forests 1 Purchase of scrap metal from Sims Pacific Metals Limited Amounts owing relating to the purchase of scrap metal from Sims Pacific Metals Limited and included within creditors Fletcher Building Limited Interest income received from subsidiary companies Dividend received from subsidiary companies Term receivable owing from subsidiary companies 2 Term liability owing to subsidiary companies 2 46 3 47 41 19 41 290 (334) 8 20 341 (170) 1 All trading activities with other Fletcher Challenge divisions were carried out on a commercial and arm(cid:213)s length basis and relate to the period prior to the separation of the Fletcher Challenge group. 2 These advances are for no fixed term but represent long term funding advances, and bear interest at 7.5 percent. The principal subsidiaries included within investment in subsidiary companies are disclosed in note 32, Principal operations. Principal subsidiaries Fletcher Building Holdings Limited Fletcher Building Products Limited Fletcher Concrete and Infrastructure Limited Fletcher Distribution Limited Fletcher Steel Limited Fletcher Residential Limited The Fletcher Construction Company Limited Winstone Wallboards Limited Fletcher Property Limited PlaceMakers subsidiaries Firth Industries Peru S.A. Fletcher Challenge Industries S.A. Fletcher Challenge Building Bolivia S.A. Cemac (Hong Kong) Limited Fletcher Construction Company (Fiji) Limited Fletcher Challenge Concrete Industries (Fiji) Limited Metromix Concrete Company Limited Fletcher Projects Pty Limited Fletcher Building (Australia) Pty Limited Fletcher Aluminium Pty Limited NZ NZ NZ NZ NZ NZ NZ NZ NZ NZ Peru Bolivia Bolivia Hong Kong Fiji Fiji Fiji Australia Australia Australia Fletcher Construction (Solomon Islands) Limited Solomon Is. Fletcher Morobe Construction Pty Limited Fletcher Building Netherlands BV Tasman Investments (NA) NV PNG Netherlands Neth. Antilles Associates Fletcher Pioneer Mauritius Limited Sims Pacific Metals Limited 33 Pension plan India NZ 100 100 100 100 100 100 100 100 100 50.1 100 100 100 100 100 100 100 100 100 100 100 100 100 100 50 50 Holding company Building products Concrete products Merchandising Steel production Housing Construction Gypsum plasterboards Property management Retail Concrete products Concrete products Holding company Wall partitions & ceiling systems Construction Quarrying Concrete products Construction Holding company Aluminium extrusion Construction Construction Finance Finance Readymix Metal recycling Fletcher Building Limited is the principal sponsoring company of a defined benefit pension plan covering certain employees. Membership to the plan has been closed for a number of years. This plan is accounted for in accordance with Statement of Financial Accounting Standard (FAS) 87, Employers Accounting for Pensions. This has the effect of smoothing the volitality in the returns earned by the plan through amortising gains and losses over the life of the plan. At balance date $32 million of net losses are to be expensed in future periods. If the funding ratio of the plan falls below 1 1 5 percent at any two consecutive annual actuarial valuations, Fletcher Building Limited has an obligation to ensure that the value of the assets is re-established to at least 115 percent of the plan(cid:213)s accrued actuarial liability, as calculated by the plan(cid:213)s actuary. This calculation is done on the plan(cid:213)s funding basis which differs from the calculation under FAS 87. At 31 March 2002, being the plan(cid:213)s balance date and the date of the actuarial assessment, the value of the assets exceeded 1 1 5 percent of the actuarial liability and no contributions have been made by the company in this period. 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 8606 Fletcher AR 2002 Financals 01/10/2002 2:46 PM Page 58 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 33 Pension plan continued 34 Segmental information The benefits are based on years of service and the employees(cid:213) compensation during that service. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. Plan assets consist primarily of property, equity and fixed income securities. JUNE 2002 JUNE 2001 NZ$M NZ$M Assets of the plan Assets of plan at fair value Total projected benefit obligation Funded surplus Projected unrecognised funded (surplus)/obligation consists of: Prior service costs Net (gain)/loss1 Transition asset2 Projected unrecognised funded (surplus)/obligation Recognised funded surplus3 1 The unrecognised net loss is being amortised over ten years. 2 The net transition asset is being amortised over two years as per the requirements of FAS 87. 3 Recognised funded surplus included within note 19, Investments. Net periodic pension cost Service cost earned during the year Interest cost on projected benefit obligation Actual return on assets Net amortisation of: Transition asset Amortisation of net (gain)/loss Difference between expected and actual return on assets Net periodic pension (cost)/benefit Assumptions used 268 (247) 21 1 50 (19) 32 53 (3) (12) 2 9 (4) 16 8 304 (267) 37 1 35 (28) 8 45 (3) (9) 7 6 5 6 The following table provides the weighted average assumptions used to develop the net periodic pension cost and the actuarial present value of projected benefit obligations for the group(cid:213)s plan: Assumed discount rate on benefit obligations Expected long term rate of return on plan assets Rate of increase in future compensation levels 2002 % 4.75 5.5 3.5 2001 % 4.8 6.0 4.0 NZ$M Industry Segments Building Products Distribution Concrete Construction Other Adjustment for Distribution1 Other unusual items PRO FORMA PRO FORMA JUNE 2002 JUNE 2001 JUNE 2002 JUNE 2001 JUNE 2002 JUNE 2001 OPERATING OPERATING OPERATING OPERATING REVENUE REVENUE EARNINGS EARNINGS TOTAL ASSETS TOTAL ASSETS (EBIT) (EBIT) 820 686 470 871 840 638 454 808 2,847 2,740 1 19 2 (467)3 85 34 60 30 (4) 205 4)2 1 210 58 18 31 5 (6) 106 (12)3 (181) (87) 571 180 479 123 185 583 169 562 254 266 1,538 1,834 (78) 3 1,538 1,756 Group 2,966 2,273 1 In the segmental analysis the comparative balances have been restated for Distribution for operating revenue, operating earnings and total assets. Previously the results for 30 June 2001 were for twelve months on an equity accounting basis, and the results for 30 June 2002 are for 15 months on a consolidated basis. To ensure comparability, the results for Distribution have been restated for both years on a twelve months consolidated basis. 2 Additional three months results recognised in June 2002. 3 Adjustments required to remove the impact of consolidating PlaceMakers in the comparative results. PRO FORMA PRO FORMA JUNE 2002 JUNE 2001 JUNE 2002 JUNE 2001 JUNE 2002 JUNE 2001 OPERATING OPERATING OPERATING OPERATING REVENUE REVENUE EARNINGS EARNINGS TOTAL ASSETS TOTAL ASSETS NZ$M BY ORIGIN BY ORIGIN (EBIT) (EBIT) Geographical segments Australia New Zealand Other Group 315 2,513 138 272 1,870 131 2,966 2,273 4 210 (4) 210 (43) 41 (85) (87) 39 1,420 79 1,538 83 1,504 169 1,756 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 8606 Fletcher AR 2002 Financals 01/10/2002 2:46 PM Page 60 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 AUDIT REPORT CORPORATE GOVERNANCE TO THE SHAREHOLDERS OF FLETCHER BUILDING LIMITED We have audited the financial statements on pages 28 to 59. The financial statements provide information about the past financial performance and financial position of the company and group as at 30 June 2002. This information is stated in accordance with the accounting policies set out on pages 34 to 37. DIRECTORS(cid:213) RESPONSIBILITIES The directors are responsible for the preparation of financial statements which give a true and fair view of the financial position of the company and group as at 30 June 2002 and the results of their operations and cashflows for the year ended on that date. AUDITORS(cid:213) RESPONSIBILITIES It is our responsibility to express an independent opinion on the financial statements presented by the directors and report our opinion to you. BASIS OF OPINION An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial statements. It also includes assessing: ¥ the significant estimates and judgements made by the directors in the preparation of the financial statements; Fletcher Building Limited is a New Zealand based building materials manufacturer whose securities are listed on the New Zealand and Australian stock exchanges. In accordance with the requirement by these exchanges for formal adoption by boards of directors of approved corporate governance practices, the board of the company confirms that it is committed to the highest standards of behaviour and accountability, and has adopted the following policies and procedures: ROLE OF THE BOARD The board has statutory responsibility for the activities of the company, which is exercised through delegation to the Chief Executive Officer (CEO), who is charged with the day-to-day leadership and management of the company. To strengthen its governance processes, the board approved revised delegations to the CEO, and the operating delegations by the CEO, during the year. The board has an obligation to protect and enhance the value of the company(cid:213)s assets, and to act in its interests. It exercises this obligation through the approval of appropriate corporate strategies, with particular regard to portfolio composition and return expectations. These include the approval of transactions relating to acquisitions, divestments and capital expenditures above delegated authority limits; financial and dividend policy; and the review of performance against strategic objectives. The board evaluates annually the performance of the CEO and the CEO(cid:213)s direct reports. The evaluation is based on ¥ whether the accounting policies are appropriate to the company(cid:213)s and group(cid:213)s circumstances, consistently applied criteria that include the performance of the business, the accomplishment of long-term strategic objectives and of and adequately disclosed. other non-quantitative objectives established at the beginning of each year. We conducted our audit in accordance with New Zealand Auditing Standards issued by the Institute of Chartered Accountants of New Zealand. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to obtain reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Our firm has also provided other services to the company and certain subsidiaries in relation to taxation and general accounting services. A related firm, KPMG Legal has provided legal services to the company and certain subsidiaries. Partners and employees of our firm may also deal with the company and group on normal terms within the ordinary course of trading activities of the business of the company and group. These matters have not impaired our independence as auditors of the company and group. The firm has no other relationship with, or interest in, the company or any of its subsidiaries. UNQUALIFIED OPINION We have obtained all the information and explanations we have required. In our opinion: ¥ proper accounting records have been kept by the company as far as appears from our examination of those records; ¥ the financial statements on pages 28 to 59: - comply with New Zealand generally accepted accounting practice; - give a true and fair view of the financial position of the company and group as at 30 June 2002 and the results of their operations and cashflows for the year ended on that date. Our audit was completed on 14 August 2002 and our unqualified opinion is expressed as at that date. KPMG Auckland, New Zealand The board supports the concept of the separation of the role of Chairman from that of the CEO. The Chairman(cid:213)s role is to manage the board effectively, to provide leadership to the board, and to interface with the CEO. THE WORK OF DIRECTORS All directors attended at least 9 of the 10 scheduled meetings throughout the year. Six company site visits were undertaken during board meetings as part of the review of operations. There were also three special purpose meetings of directors. The board programme includes a strategic retreat session with senior management. The directors receive comprehensive information on the company(cid:213)s operations before each meeting and have unrestricted access to any other information or records. In addition, senior management is available at each meeting to address queries, and to assist in developing the board(cid:213)s understanding of the issues facing the company and the performance of its businesses. Other corporate governance initiatives undertaken during the year included the establishment of a new policy on auditor independence, addressing the extent to which the auditors may undertake non-audit engagements with the company; and the completion of a strategic business risk assessment programme. In addition, the board has adopted a number of policies, including those on health and safety, trading in the company(cid:213)s shares, senior executive remuneration, and a governance programme for the company(cid:213)s retirement plan. Under the delegations by the board to management, authority limits are in place to minimise risk relating to foreign currencies, commodity prices and interest rates, and to preclude speculative financial transactions. The board believes that the Code of Practice it applies is consistent with that of the Institute of Directors in New Zealand (Incorporated). BOARD COMPOSITION Although directors are elected by the shareholders to bring special expertise or perspectives to board deliberations, decisions of the board are made as a group, after taking each perspective into account and in the best interests of the company as a whole. The constitution provides that the appropriate size for the board is between three and nine members, and the board has determined that seven is an appropriate number at this time. One third of all directors stand for election every year. The directors who retire in each year are those who have been longest in office since their last election. With the exception of the CEO all directors are independent, although H A Fletcher was CEO of Fletcher Challenge Limited until 1997. The terms of reference for the board, the Chairman, the committees and the CEO are reviewed annually by the board. The Chairman assesses the composition and effectiveness of the board and its committees annually. There has been no change in the directors since the release of the previous annual report. 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 8606 Fletcher AR 2002 Financals 01/10/2002 2:46 PM Page 62 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 BOARD COMMITTEES DIRECTORS(cid:213) AND OFFICERS(cid:213) INDEMNIFICATION AND INSURANCE Committees established by the board review and analyse policies and strategies, usually developed by management, The company has arranged a programme of directors(cid:213) and officers(cid:213) liability insurance covering directors, executives which are within their terms of reference. They examine proposals and, where appropriate, make recommendations and employees in managerial positions acting on behalf of the company. Cover is for damages, judgements, fines, to the full board. Committees do not take action or make decisions on behalf of the board unless specifically mandated penalties, legal costs awarded and defence costs arising from wrongful acts committed whilst acting for the company. by prior board authority to do so. The current committees of the board are Audit and Remuneration. These meet when necessary and consist entirely of non-executive directors. The board does not have a formal nominations committee as all non-executive directors The types of acts that are not covered are dishonest, fraudulent, malicious acts or omissions; wilful breach of statute, regulations or duty to the company; improper use of information to the detriment of the company; and breach of professional duty. This is supplemented by indemnification by the company, but excluding liability for criminal acts. are involved in the appointment of new directors. From time to time the board may create ad hoc committees to DEALING IN COMPANY SECURITIES examine specific issues on its behalf. The Audit Committee has reviewed during the year the company(cid:213)s practices with respect to auditor independence. KPMG have been the company(cid:213)s auditors since incorporation on 19 December 2000, and pursuant to New Zealand law their appointment is required to be approved by shareholders at the annual shareholders(cid:213) meeting. The company requires that KPMG comply with the International Federation of Accountants Code of Ethics on Independence. KPMG have confirmed their independence. In addition, the company has agreed with KPMG that the audit personnel on the The company(cid:213)s Securities Trading Code of Conduct for insider trading supplements the New Zealand legislation contained in the Insider Trading (Approved Procedure for Company Officers) Notice 1996. That legislation and the Securities Trading Code of Conduct prevent short-term trading and dealing in the company(cid:213)s securities whilst directors and senior executives are in possession of non-public material and relevant information. The company supplements this by requiring that anyone designated as having the opportunity to access price sensitive information can transact in the company(cid:213)s securities only with the prior approval of the Company Secretary. group and major operating subsidiaries will be rotated off the audits every seven years. SHARE DEALINGS BY DIRECTORS A committee or an individual director may engage separate independent counsel at the expense of the company in appropriate circumstances, with the approval of the chairman. NON-EXECUTIVE DIRECTORS(cid:213) REMUNERATION The aggregate amount of fees paid to non-executive directors for services in their capacity as directors during the year ended 30 June 2002 were: NEW ZEALAND DOLLARS BASE FEE R S Deane P E A Baines H A Fletcher R J Norris Sir D Spring K M Vautier TOTAL 180,000 60,000 60,000 60,000 60,000 60,000 COMMITTEE CHAIR 12,500 12,500 TOTAL 180,000 72,500 60,000 60,000 72,500 60,000 480,000 25,000 505,000 The remuneration policy for non-executive directors does not include participation in either a share or share option plan. Directors or their associates are nevertheless required to hold at least 20,000 shares in the company. EXECUTIVE DIRECTOR(cid:213)S REMUNERATION Mr Waters(cid:213) remuneration for the year ended 30 June 2002 comprised an annual salary of $800,000 and incentive remuneration of $596,640. Incentive remuneration was based on achieving a minimum level of profitability and specific goals related to the establishment and performance of the company. Mr Waters(cid:213) appointment as CEO is for indefinite duration, subject to the company(cid:213)s standard criteria for cessation of employment. In terms of that contract he has been issued 1,000,000 options over the ordinary shares of the company, at an exercise price of $2.28 per option. This price was the weighted average selling price of the company(cid:213)s shares in the 10 trading days prior to 16 May 2001, being the date of announcement of his appointment as CEO. The options have a term of six years. The fair value of these options have been determined as at the date granted at $0.71 per option, by using the modified Black-Scholes option pricing model. The cost of the options has been charged to the earnings statement as required by Statement of Financial Accounting Standard 123, Accounting for Stock Based Compensation. An executive director does not receive remuneration as a director of Fletcher Building Limited or group subsidiaries. During the year, directors disclosed in respect of section 148(2) of the Companies Act 1993 that they acquired or disposed of shares as follows: DIRECTOR P E A Baines R J Norris D T Spring K M Vautier R G Waters NUMBER OF SHARES ACQUIRED NUMBER OF SHARES DISPOSED CONSIDERATION PAID/RECEIVED $ 10,000 20,000 17,000 777 747 75,000 3,398 2,211 2,138 26,765 54,000 45,050 2,097 2,144 210,050 8,936 5,968 6,136 DATE 24/08/01 31/08/01 24/08/01 27/11/01 10/04/02 28/08/01 11/09/01 27/11/01 10/04/02 DIRECTORS(cid:213) HOLDINGS OF EQUITY SECURITIES AT 30 JUNE 2002: DIRECTORS(cid:213) INTERESTS REGISTER DIRECTOR ORDINARY SHARES CAPITAL NOTES P E A Baines R S Deane H A Fletcher R J Norris D T Spring K M Vautier R G Waters TOTAL BENEFICIAL 22,115 1,295 150,186 20,000 20,550 36,485 OPTIONS BENEFICIAL ASSOCIATED PERSONS 25,000 ASSOCIATED PERSONS 50,000 383,283 12,025 82,747 1,000,000 9,000 250,631 528,055 1,000,000 9,000 25,000 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 8606 Fletcher AR 2002 Financals 01/10/2002 2:46 PM Page 64 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 Directors(cid:213) certificates to cover entries in the Interests Register in respect of remuneration, dealing in the company’s securities, insurance and other interests have been disclosed as required by the Companies Act 1993. In accordance with Section 140(2) of the Companies Act 1993, directors have advised changes in their interests REGULATORY DISCLOSURES SUBSIDIARY COMPANY DIRECTORS during the year of: H A Fletcher Reserve Bank of New Zealand Infrastructure Auckland R J Norris ASB Group Limited Sovereign Assurance Limited Commonwealth Bank Group Limited Air New Zealand Sir Dryden Spring Waikato Medical Research Foundation Asia 2000 Foundation Goodman Fielder Limited Goodman Fielder Limited K M Vautier Reserve Bank of New Zealand NZPECC Wilson & Horton Limited Independent News & Media (NZ) Limited Advisory Board of the New Zealand Asia Institute R G Waters 16/05/02 30/06/02 Appointed Director Resigned as Director 30/09/01 30/09/01 30/09/01 18/02/02 01/1 1/01 01/1 1/01 02/1 1/01 Resigned as CEO/Managing Director Resigned as Chairman Resigned as Head of Int’l Financial Services Appointed CEO/Managing Director Resigned as Trustee Appointed Chairman Appointed Acting Chairman 01/03/02 Appointed Deputy Chairman on resignation as Acting Chairman 06/09/01 07/03/02 07/03/02 07/03/02 01/07/02 Appointed External Monetary Policy Adviser Resigned as Chair Resigned as Director Appointed Director Appointed Chair Fisher & Paykel Appliances Holdings Limited 12/1 1/01 Appointed Director Section 211(2) of the New Zealand Companies Act 1993 requires the company to disclose, in relation to its subsidiaries, the total remuneration and value of other benefits received by directors and former directors and particulars of entries in the interests registers made during the year ended 30 June 2002. Apart from some overseas subsidiaries which have independent directors or are required to have a specific number of local residents as directors, no wholly owned subsidiary has directors who are not full-time employees of the group. No employee of Fletcher Building Limited appointed as a director of Fletcher Building Limited or its subsidiaries receives or retains any remuneration or other benefits as a director. The remuneration and other benefits of such employees, received as employees, are included in the relevant bandings for remuneration disclosed below under Employee Remuneration. Except where shown below, no other director of any subsidiary company within the group receives director(cid:213)s fees or other benefits as a director. The following persons respectively held office as directors of subsidiary companies at the end of the year or in the case of those persons with the letter (R) after their name ceased to hold office during the year. Alternate directors are indicated by the letter (A) after their name. Aickin Timber Limited Delcon Holdings (No. 1) Limited O Lyttleton, R Scott, D Worley, R de Raat, V Avery (R) M Binns, M Farrell, A Reding, W Roest Alan Milne Building Supplies Limited Delcon Holdings (No. 2) Limited A Milne, D Worley, R de Raat (A), L Dixon (A), V Avery (R) M Binns, M Farrell, A Reding, W Roest Amies Building Supplies Limited Delcon Holdings (No. 3) Limited J Amies, D Worley, R de Raat (A), P Flay (A), V Avery (R), M Binns, M Farrell, A Reding, W Roest L Dixon (A R) Anson Building Supplies Limited A Anson, D Worley, R de Raat (A), L Dixon (A), V Avery (R) Aramis Investments Limited M Binns, M Farrell, A Reding, W Roest Auckland Frame and Truss Supplies Limited S Blakemore, O Lyttleton, D Worley Bandelle Pty Limited M Binns, C Wickham, G Taylor (R) Delcon Holdings (No. 4) Limited M Binns, M Farrell, A Reding, W Roest Dial A Hubby Limited O Lyttleton, R Scott, L Stickland, R de Raat Duroid Pty Limited G Kirk, C Wickham Evans Building Supplies Limited M Evans, D Worley, R de Raat (A), L Dixon (A), V Avery (R), P Flay (A R) Bowen Building Supplies Limited Express Building Systems Limited B Bowen, D Worley, R de Raat (A), P Flay (A), V Avery (R) M Binns, M Farrell, A Reding, W Roest, Bramley Building Supplies Limited FDCC California Inc P Bramley, D Worley, R de Raat (A), L Dixon (A), V Avery (R) M Binns, K Kupchak, C Munkowits Building Choices Limited FDL No. 6 Limited D Close, D Worley, R de Raat (A), L Dixon (A), V Avery (R) D Worley BVP No. 1 Limited M Binns, M Farrell, A Reding, W Roest BVP No. 3 Limited M Binns, M Farrell, A Reding, W Roest Cemac (Hong Kong) Limited C Wing Shum, D Thomas, N Gunn (R) Collier Building Supplies Limited FDL No. 7 Limited D Worley FDL No. 8 Limited D Worley FDL No. 9 Limited D Worley FDL No. 10 Limited C Collier, A Ellis, D Worley, R de Raat (A), V Avery (R), L Dixon (R) D Worley Cotter & Thomas Building Supplies Fernhill Realty Limited A Ellis, D Worley, R de Raat, V Avery (R), L Dixon (R), G Cotter (R) S Boroughs, C Loughlin Craig Building Supplies Limited A Ellis, D Worley, R de Raat (A) Cullen Building Supplies Limited Firth Industries Peru S.A. M Binns, K Cowie, R Silva-Rodriguez Bonazzi Fletcher Aluminium Pty Limited R Cullen, D Worley, R de Raat (A), A Ellis (A), V Avery (R), L Dixon (R) G Kirk, C Wickham, M Eglington (R) Davis & Casey Building Supplies Limited Fletcher Building (Australia) Pty Limited T Davis, D Worley, R de Raat (A), L Dixon (A), V Avery (R) M Binns, M Hope, G Taylor, C Wickham 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 8606 Fletcher AR 2002 Financals 01/10/2002 2:46 PM Page 66 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 Fletcher Building (Australia) Finance Pty Limited Fletcher Projects Pty Limited M Binns, M Hope, C Wickham M Binns, M Stone, C Wickham, G Taylor (R) Fletcher Building Holdings Limited M Binns, M Farrell, A Reding, W Roest Fletcher Building Netherlands B.V. M Farrell, W Roest, P Ruoff, A Van de Werken Fletcher Building Products Limited M Binns, M Farrell, A Reding, W Roest Fletcher Challenge Building Bolivia S.A. M Binns, K Cowie, H Ritchie Fletcher Challenge Building UK Limited J Ollard, D Wood Fletcher Challenge Concrete Industries (Fiji) Limited R Frost, F Leslie Fletcher Challenge Finance Investments Limited M Binns, M Farrell, A Reding, W Roest Fletcher Challenge Forest Industries Limited M August, J Ollard, D Wood Fletcher Challenge Industries S.A. M Gibson, D Lloyd, K Rose Fletcher Challenge Investments UK Limited J Ollard, D Wood Fletcher Challenge Investments Overseas Limited M Binns, M Farrell, A Reding, W Roest Fletcher Challenge Overseas Holdings Limited M Binns, M Farrell, A Reding, W Roest Fletcher Challenge Steel (Fiji) Limited D Hargovind (NZ$2,481), A Pearson, A Reding, W Roest, K Howard (R), B Wignall (R) Fletcher Challenge Steel Products (Australia) Pty Limited A Pearson, C Wickham Fletcher Concrete & Infrastructure Limited M Binns, M Farrell, A Reding, W Roest Fletcher Construction (Malaysia) SDN BHD C Lum, S Ehsan, G Ogilvie, B Bandaraya Fletcher Construction (Nouvelle Caledonie) Limited A Brown Fletcher Construction (Singapore) PTE Limited G Davies, A Jones, Kay Lee Fletcher Construction (Solomon Islands) Limited A Brown, R Gibson Fletcher Construction Australia Limited M Binns, C Munkowits, C Wickham, G Taylor (R) Fletcher Construction Company (Fiji) Limited A Brown, R Gibson, R Maginnity, P Watts Fletcher Construction Limited M Binns, C Munkowits, C Wickham, G Taylor (R) Fletcher Property Developments UK Limited M August, J Ollard, D Wood Fletcher Property Investments UK Limited M August, J Ollard, D Wood Fletcher Property Limited M Binns, M Farrell, A Reding, W Roest Fletcher Residential Limited M Binns, M Farrell, A Reding, W Roest Fletcher Resorts Limited M Binns, M Farrell, A Reding, W Roest Fletcher Steel Limited M Binns, M Farrell, A Reding, W Roest Fletcher Wood Panels (Australia) Pty Limited J Brendan, H Dolan, R Linton, A Reding Fletcher Wood Panels Building Technologies Limited S Broome, R Linton, A Reding, W Roest Fletcher Challenge Materials De Construcao Limitada D Kenderdine (NZ$6,126), J Wisniewski FML No. 23 Limited L Dixon, A Ellis, D Worley, R de Raat, V Avery (R) Furnz Inc S Donoghue-Cox, R Johnson Geoff Brown Building Supplies Limited L Dixon, G Brown, D Worley, R de Raat (A), V Avery (R), A Ellis (A R) Graeme Joy Building Supplies Limited L Dixon, G Joy, D Worley, R de Raat (A), V Avery (R), A Ellis (R), P Flay (A R) Grant McLeod Building Supplies Limited D Worley, V Avery (R), R de Raat (A R), A Anson (R) Hedges Building Supplies Limited R Hedges, D Worley, R de Raat (A), A Ellis (A), V Avery (R) Hilson Building Supplies Limited C Hilson, D Worley, R de Raat (A), P Flay (A), V Avery (R), L Dixon (A R) Hire A Hubby (NZ) Limited O Lyttleton, R Scott, D Worley, R de Raat (A), V Avery (R) Hooper Building Supplies Limited G Hooper, D Worley, R de Raat (A), L Dixon (A), V Avery (R) Hudson Building Supplies Limited L Dixon, A Ellis, D Worley, R de Raat, V Avery (R), M Hudson (R) Inventure Limited M Binns, M Farrell, A Reding, W Roest John Cockburn Building Supplies Limited J Cockburn, D Worley, R de Raat (A), L Dixon (A), V Avery (R) Ken Jones Building Supplies Limited Fletcher Construction Company North America Inc K Jones, D Worley, R de Raat (A), L Dixon (A), V Avery (R) A Brown, K Kupchak, C Munkowits Fletcher Distribution Limited M Binns, M Farrell, A Reding, W Roest, D Worley Fletcher Marketing Pty Limited M Binns, M Stone, C Wickham, G Taylor (R) Fletcher Morobe Construction Pty Limited A Brown, R Gibson, L Gray, L Mathias Fletcher Paynter Profiles Limited S Broome, R Linton, A Reding, W Farmer Kenna Building Supplies Limited L Kenna, D Worley, R de Raat (A), L Dixon (A), V Avery (R) Kevin Jarvis Building Supplies Limited K Jarvis, D Worley, R de Raat (A), A Ellis (A), V Avery (R) Key Building Supplies Limited A Ellis, D Worley, R de Raat (A), S Blakemore (A), V Avery (R), L Dixon (A R), G Key (R) Langford-Lee Building Supplies Limited M Langford-Lee, D Worley, R de Raat (A), P Flay (A), V Avery (R) Laracy Building Supplies Limited Steven Marshall Building Supplies Limited K Laracy, D Worley, R de Raat (A), S Blakemore (A), V Avery (R), S Marshall, D Worley, R de Raat (A), P Flay (A), V Avery (R), L Dixon (A R) L Dixon (A R) M Wong Building Supplies Limited Stichbury Building Supplies Limited M Wong, D Worley, R de Raat (A), L Dixon (A), V Avery (R) S Stichbury, D Worley, R de Raat (A), S Blakemore (A), McDonald Building Supplies Limited V Avery (R), L Dixon (A R) L Dixon, I McDonald, D Worley, R de Raat, V Avery (R) Stickland Building Supplies Limited McGill Building Supplies Limited L Stickland, D Worley, R de Raat (A), P Flay (A), V Avery (R), J McGill, P Flay, D Worley, R de Raat, V Avery (R), L Dixon (R) L Dixon (A R) McGrory Building Supplies Limited A Ellis, C Gray, D Worley, R de Raat, V Avery (R), W McGrory (R) McLaughlan Building Supplies Limited K McLaughlan, D Worley, R de Raat (A), L Dixon (A), V Avery (R) Mecon Hawaii Limited J Caldwell, D Hastert, K Kupchak Meleccio Enterprises Limited M Binns, M Farrell, A Reding, W Roest, P Duffy (R), J Larkin (R), C Loughlin (R) Metromix Concrete Company Limited R Frost, F Leslie Mike Mattin Building Supplies Limited M Mattin, D Worley, R de Raat (A), P Flay (A), V Avery (R) Minnell Building Supplies Limited S Blakemore, D Minnell, D Worley, R de Raat (A), V Avery (R), L Dixon (A R), C Gray (R) Mount Timber & Hardware Limited O Lyttleton, R Scott, D Worley, R de Raat, V Avery (R) Neil Thomson Building Supplies Limited N Thomson, D Worley, R de Raat (A), P Flay (A) Nick Letica Building Supplies Limited N Letica, D Worley, R de Raat (A), P Flay (A), V Avery (R), L Dixon (A R) Nock Building Supplies Limited A Ellis, M Darwin, D Worley, R de Raat (A), V Avery (R), L Dixon (A R) Pacific Trade & Export Limited M Binns, M Farrell, A Reding, W Roest Peter Flay Building Supplies Limited L Dixon, A Ellis, D Worley, R de Raat, V Avery (R) PlaceMakers Limited D Worley, V Avery (R) Precast Concrete Structure Limited R Bradford, T Shearer, Raoul Holdings Limited M Binns, M Farrell, A Reding, W Roest, A Wildman (R) Residential Advances Limited M Binns, D Halsey, B Nixon (R) Residential Mortgages Limited M Binns, D Halsey, B Nixon (R) Sullivan & Armstrong Building Supplies Limited J Sullivan, D Worley, R de Raat (A), P Flay (A), V Avery (R), L Dixon (A R) Tasman Investments (Netherlands Antilles) N.V. E Rakers (NZ$3,063), T Mol (NZ$3,063), M Farrell, W Roest, A Van de Werken Ted Harper Building Supplies Limited E Harper, D Worley, R de Raat (A), P Flay (A), V Avery (R), L Dixon (A R) Terrace Insurance (PCC) Limited M Eades (NZ$6,244), J Stuart, J McDonald (NZ$6,244), J Parkinson (NZ$6,244), I Maynard (R) Terrace Insurances Limited M Eades, J Stuart, J McDonald, J Parkinson, I Maynard (R) Terry Mellsop Building Supplies Limited T Mellsop, D Worley, R de Raat (A), A Ellis (A), V Avery (R), L Dixon (A R) The Fletcher Construction Co (PNG) Limited A Brown, R Gibson, Les Gray , L Mathias The Fletcher Construction Company Cook Islands Limited A Brown, R Gibson The Fletcher Construction Company Limited M Binns, M Farrell, A Reding, W Roest The Fletcher Organsiation (Vanuata) Limited A Brown, R Gibson The Fletcher Trust and Investment Company Limited M Binns, C Munkowits Trade Mart Limited A Ellis, O Lyttleton, D Worley, R de Raat, R Scott, V Avery (R) Trademates Limited O Lyttleton, R Scott, D Worley, V Avery (R), L Stickland (R) Trevor Cockburn Building Supplies Limited L Dixon, T Cockburn, D Worley, R de Raat, V Avery (R) Van Der Vossen Building Supplies Limited A Ellis, D Worley, R de Raat (A), V Avery (R), L Dixon (A R), P Flay (A R), C Gray (R) Varoy Building Supplies Limited A Ellis, J Varoy, D Worley, R de Raat (A), P Flay (A), V Avery (R), L Dixon (A R), C Gray (R) Warren Smith Building Supplies Limited Residential Mortgage Investments Limited A Ellis, W Smith, D Worley, R de Raat (A), V Avery (R), M Binns, D Halsey, B Nixon (R) L Dixon (A R) Seabar Holdings (No. 16) Limited M Binns, M Farrell, A Reding, W Roest Waterman Building Supplies Limited M Waterman, D Worley, R de Raat (A), P Flay (A), V Avery (R) Servicios Y Administraciones Apoquindo Limitada Winstone Investments Limited - Hong Kong C Eyzaguirre C Wing Shum, N Gunn (R) Shunde Cemac Building Material Company Limited Winstone Limited E Keung Leung, J Shum, D Thomas, N Gunn (R) M Binns, M Farrell, A Reding, W Roest Southbound Building Supplies Limited Winstone Wallboards Limited A Rance, D Worley, R de Raat (A), L Dixon (A), V Avery (R) M Binns, M Farrell, A Reding, W Roest 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 8606 Fletcher AR 2002 Financals 01/10/2002 2:46 PM Page 68 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 EMPLOYEE REMUNERATION An employee share scheme has been established recently to assist all employees of the company and its subsidiaries to acquire up to 1000 shares in the company. The scheme, which complies with the terms of section DF7 of the Income Tax Act 1994 (the Act), is at a market price after allowing for a discount for the three-year restriction before vesting. As provided by the Act, an interest-free loan has been made, and dividends paid during the three-year restricted period are for the benefit of the employee shareholder. No director of the company can participate in this share scheme. Section 211(1)(g) of the Companies Act 1993 requires disclosure of remuneration and other benefits, including redundancy and other payments made on termination of employment, in excess of $100,000 per year, paid by the company or any of its subsidiaries worldwide to any employees who are not directors of the company. To give more appropriate information on total employees(cid:213) remuneration, where there is a contractual commitment to provide incentive remuneration in respect of the year ended 30 June 2002, the amount accrued as at that date has also been included in the total remuneration disclosed below. $NZ 1 00,000 - 1 10,000 1 10,000 - 120,000 120,000 - 1 30,000 130,000 - 1 40,000 140,000 - 1 50,000 150,000 - 1 60,000 160,000 - 1 70,000 170,000 - 1 80,000 180,000 - 1 90,000 190,000 - 200,000 200,000 - 2 10,000 210,000 - 220,000 220,000 - 230,000 230,000 - 240,000 240,000 - 250,000 250,000 - 260,000 260,000 - 270,000 270,000 - 280,000 280,000 - 290,000 290,000 - 300,000 300,000 - 31 0,000 310,000 - 320,000 350,000 - 360,000 360,000 - 370,000 380,000 - 390,000 390,000 - 400,000 420,000 - 430,000 440,000 - 450,000 NEW ZEALAND BUSINESS ACTIVITIES INTERNATIONAL BUSINESS ACTIVITIES 21 8 4 2 6 5 5 1 1 3 1 1 1 1 1 3 1 1 1 89 74 44 23 21 15 14 14 3 3 4 8 3 1 4 2 4 4 2 1 2 1 1 1 1 $NZ 460,000 - 470,000 510,000 - 520,000 580,000 - 590,000 620,000 - 630,000 700,000 - 710,000 730,000 - 740,000 750,000 - 760,000 NEW ZEALAND BUSINESS ACTIVITIES INTERNATIONAL BUSINESS ACTIVITIES 1 1 1 1 1 1 1 1 STOCK EXCHANGE LISTINGS The company(cid:213)s shares are listed on the New Zealand (NZSE) and Australian (ASX) stock exchanges. With effect from 1 July 2002, the company(cid:213)s shares were accepted for full listing, rather than a foreign exempt listing, by the ASX. The listing on the New York Stock Exchange was terminated on 14 June 2002. 20 LARGEST SHAREHOLDERS AS AT 31 AUGUST 2002 NAME NUMBER OF SHARES % OF SHARES New Zealand Central Securities Depository Limited 197,959,382 RBC Global Services Australia Nominees Pty Limited Queensland Investment Corporation National Nominees Limited Citicorp Nominees Pty Limited Peter Hanbury Masfen & Joanna Alison Masfen Fletcher Challenge Building Trust Nominees Limited MLC Limited J P Morgan Nominees Australia Limited Guardian Assurance Limited Asset Custodian Nominees Limited Yarrow Consulting Limited Investment Custodial Services Limited Westpac Custodian Nominees Limited Tower Trust (NSW) Limited RBC Global Services Australia Nominees Pty Limited Robin MacDonald Smith Victor Hugh Bedford Forbar Custodians Limited Tecity Management Pte Limited 5,165,085 5,000,000 2,603,430 2,504,490 2,017,611 2,002,765 1,673,467 1,297,850 1,064,300 844,778 832,151 778,750 657,222 600,000 516,727 500,000 450,692 419,565 404,708 57.12 1.49 1.44 0.75 0.72 0.58 0.57 0.48 0.37 0.30 0.24 0.24 0.22 0.18 0.17 0.14 0.14 0.13 0.12 0.11 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 8606 Fletcher AR 2002 Financals 01/10/2002 2:46 PM Page 70 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 New Zealand Central Securities Depository Limited provides a custodial depository service that allows electronic The other equity securities on issue are 229,806,000 capital notes, which can convert to ordinary shares of the trading of securities to its members and does not have a beneficial interest in these shares. Its major holders of company on the basis of 98 percent of the then current value of the shares. There were 14,540 holders of the Fletcher Building shares are: NAME National Nominees New Zealand Limited Westpac Banking Corporation Citibank Nominees (New Zealand) Limited National Mutual Life Ass of Australasia Limited NUMBER OF SHARES % OF SHARES 75,438,404 22,105,109 16,335,519 11,479,426 21.76 6.37 4.71 3.31 3.00 2.33 1.43 1.40 1.05 1.04 The Trustee Executors & Agency Company of New Zealand Limited 10,408,918 Accident Compensation Corporation ANZ Nominees Limited AMP Life Limited Premier Nominees Limited HSBC Nominees (New Zealand) Limited SUBSTANTIAL SECURITY HOLDERS 8,079,000 4,971,969 4,855,371 3,662,437 3,616,230 According to notices given to the company under the Securities Amendment Act 1988, as at 31 August 2002 the following were substantial security holders in the company through having relevant interests as below: The total number of issued voting securities of Fletcher Building Limited as at that date was 346,560,826. SUBSTANTIAL SECURITY HOLDER NUMBER OF VOTING SECURITIES DATE OF NOTICE AXA Asia Pacific Holdings Limited 22,705,776 25/07/02 Tower Asset Management Limited 17,183,702 27/08/02 DISTRIBUTION OF SHAREHOLDER AND HOLDINGS AS AT 31 AUGUST 2002 SIZE OF HOLDING 1-999 1,000-4,999 5,000-9,999 10,000-49,999 50,000-99,999 100,000-499,999 500,000 and over GEOGRAPHIC DISTRIBUTION New Zealand NUMBER OF SHAREHOLDERS 10,387 17,375 2,944 2,301 133 80 17 NUMBER OF SHAREHOLDERS % 31.25 52.28 8.86 6.92 0.40 0.24 0.05 % NUMBER OF SHARES 3,900,467 34,126,605 19,273,617 38,962,126 8,645,414 15,634,589 % 1.13 9.85 5.56 11.24 2.49 4.51 226,018,008 65.22 31, 221 93.95 321,285,338 NUMBER OF SHARES United States of America Australia Rest of World 136 1,228 652 0.41 3.69 1.95 394,539 22,850,071 2,030,878 % 92.72 0.11 6.59 0.58 All shares issued are fully paid and have full voting rights. The number of shareholders holding less than the marketable parcel of A$500 under the listing rules of the ASX is 3331. capital notes at 31 August 2002. These equity securities are only quoted on the NZSE. LIMITATIONS ON THE ACQUISITION OF THE COMPANY(cid:213)S SECURITIES As the company is incorporated in New Zealand, it is not subject to Chapters 6, 6A, 6B and 6C of the Australian Corporations Act dealing with the acquisition of shares such as substantial holdings and takeovers. Limitations on acquisition of the securities are, however, imposed on the company under New Zealand law: (i) Securities in the company are in general freely transferable and the only significant restrictions or limitations in relation to the acquisition of securities are those imposed by New Zealand laws relating to takeovers, overseas investment and competition. (ii) The New Zealand Takeovers Code creates a general rule under which the acquisition of more than 20 percent of the voting rights in the company or the increase of an existing holding of 20 percent or more of the voting rights in the company can only occur in certain permitted ways. These include a full takeover offer in accordance with the Takeovers Code, a partial takeover offer in accordance with the Takeovers Code, an acquisition approved by an ordinary resolution, an allotment approved by an ordinary resolution, a creeping acquisition (in certain circumstances) or compulsory acquisition if a shareholder holds 90 percent or more of the shares in the company. (iii) The New Zealand Overseas Investment Act and Overseas Investment Regulations regulate certain investments in New Zealand by overseas persons. In general terms, the consent of the New Zealand Overseas Investment Commission is likely to be required where an "overseas person" acquires shares or an interest in shares in the company that amount to more than 25 percent of the shares issued by the company or, if the overseas person already holds 25 percent or more, the acquisition increases that holding. (iv) The New Zealand Commerce Act 1986 is likely to prevent a person from acquiring shares in the company if the acquisition would have, or would be likely to have, the effect of substantially lessening competition in a market. NEW ZEALAND STOCK EXCHANGE WAIVERS (i) Capital notes On 18 September 2001, the Market Surveillance Panel of the NZSE granted the company a waiver from Listing Rule 7.6.1 (prohibition on acquisition of an Equity Security of the company) with respect to the repurchase of $20 million of capital notes. This waiver was necessary because the capital notes are equity securities by virtue of a term of their issue allowing a holder on certain dates to elect to have the capital notes convert to shares of the company. If the holder so elects, the company can either redeem or repurchase the capital notes for cash at par. A repurchase would be a technical breach of Listing Rule 7.6.1 even though the company(cid:213)s option to purchase is expressly provided in the original terms of issue and those terms were fully disclosed to holders. (ii) Dual NZSE / ASX listed companies On 14 June 2001, the NZSE granted two general waivers to companies that have dual listing on the NZSE and the ASX. These will apply to the company from 1 July 2002. Firstly, Listing Rule 10.2.3(d), which requires all public releases to be given to the NZSE at least 30 minutes prior to its public release, has been waived so that simultaneous releases can be made to the two exchanges. Secondly, a waiver from Listing Rules 11.1.1 and 11.1.4 was granted to allow compliance with the ASX rules prohibiting the transfer of restricted securities during an escrow period. 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 8606 Fletcher AR 2002 Financals 01/10/2002 2:46 PM Page 72 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 1 1 10 9 8 7 6 5 4 3 2 INVESTOR INFORMATION ANNUAL SHAREHOLDERS(cid:213) MEETING The annual shareholders(cid:213) meeting of Fletcher Building Limited will be held at the Sheraton Auckland Hotel & Towers, 83 Symonds Street, Auckland, New Zealand, at 2.00pm on Tuesday 12 November 2002. DIVIDEND REINVESTMENT PLAN Fletcher Building shareholders (excluding those in jurisdictions where the issue of shares is not permitted by law) can participate in a Dividend Reinvestment Plan, under which they have the opportunity to reinvest their dividends in additional shares. To participate, please contact the share registry. 1000 SHARE PLAN The 1000 Share Plan was instituted during the year to facilitate shareholders with small holdings to either increase or sell their shares, as part of a programme to reducing the administrative costs to the company. This plan closed on 15 August 2002, with around 47 percent of eligible shareholders with less than 1000 shares participating in the offer. ON-LINE TRADING AND FINANCIAL INFORMATION Details on Fletcher Building and its operations for the year ended 30 June 2002 can be viewed at the Fletcher Building website, at www.fletcherbuilding.com. This website contains all news releases to the NZSE and other financial presentations made by the company. ELECTRONIC COMMUNICATIONS The Electronic Transactions Bill 2000 is expected to become law this year. If enacted, it will allow various forms of information disclosure, including the annual report, to be provided electronically where the shareholder so agrees. In the expectation that the company will be able to provide some information electronically in future, a consent form advising an email address is enclosed with the annual report. TERMINATION OF NYSE LISTING The company has terminated its American Depositary Receipt (ADR) programme and the associated New York Stock Exchange listing with effect from 14 June 2002. This step was taken because the combined costs of maintaining the ADR programme and the listing, and ensuring United States regulatory compliance, had become disproportionate to the number of shares being held through that programme rather than directly on the NZSE. Any person still holding an ADR is advised to contact the Depositary, Citibank NA, by telephone 1-800-308-7887 or email citibank@em.fcnbd.com. FINAL DIVIDEND INFORMATION NZ cents per share NZ residents Non-residents Dividend declared Tax credits Dividend withholding payment refund Gross dividend NZ tax (33%) Non-resident withholding tax (15%) 8.0000 3.9402 11.9402 3.9402 Net cash dividend to shareholders 8.0000 8.0000 3.9402 11.9402 1.7910 10.1492 Record date Payment date 25 October 2002 25 October 2002 14 November 2002 14 November 2002 As individual shareholders(cid:213) circumstances may differ, these New Zealand tax and non-resident withholding tax calculations are for guidance only. SHARE REGISTRIES Details of the company(cid:213)s share registries are given in the Directory on the back cover of this report. Shareholders with enquiries about share transactions, changes of address or dividend payments should contact the share registry in the country in which their shares are registered. DIRECTORY EXECUTIVE COMMITTEE Ralph Waters Mark Binns Mark Binns Andrew Reding David Worley Bill Roest Martin Farrell Malcolm Hope Peter Merry Chief Executive Officer and Managing Director Chief Executive, Construction Group Chief Executive, Concrete Group Chief Executive, Building Products Group Chief Executive, Distribution Group Chief Financial Officer Company Secretary General Manager, Planning & Corporate Support General Manager, Human Resources REGISTERED OFFICES New Zealand Australia Fletcher Building Limited Fletcher Building Limited Private Bag 92 114 Auckland Fletcher House 810 Great South Road Penrose, Auckland, New Zealand Telephone: 64-9-525 9000 PO Box 667 Hamilton Queensland 4007 Building 31, Lane 14 Hedley Avenue, Hendra Brisbane, Queensland 4011, Australia Telephone: 61-7-3632 2700 ARBN 096 046 936 SHAREHOLDER ENQUIRIES REGISTRIES Shareholders with enquiries about New Zealand Australia share transactions or changes of Computershare Investor address should contact the Share Services Limited Registrar in the country in which Private Bag 92 119 their shares are registered. Auckland 1020 Level 2, 159 Hurstmere Rd Takapuna, North Shore City New Zealand Telephone: 64-9-488 8777 Facsimile: 64-9-488 8787 Computershare Investor Services Pty Limited GPO Box 7045 Sydney, NSW 1115, Australia Level 3, 60 Carrington St Sydney, NSW 2000, Australia Telephone: 61-2-8234 5000 Facsimile: 61-2-8234 5050 OTHER INVESTOR ENQUIRIES Fletcher Building Limited Private Bag 92 114 Auckland New Zealand Telephone: 64-9-525 9000 Facsimile: 64-9-525 9032 Email: moreinfo@fb.co.nz Website: www.fletcherbuilding.com