FLETCHER BUILDING INDUSTRIES LIMITED Annual Report 2012 This report is dated 18 September 2012 and is signed on behalf of the board of Fletcher Building Industries Limited by: Ralph Waters Chairman of Directors Jonathan Ling Managing Director Letter from the Chairman. Page 1 Statements of earnings, comprehensive income and movements in equity. Page 2 Balance sheet. Page 3 Statement of cashflows and reconciliation of net earnings/(loss) to net cash from operating activities. Page 4 Statement of accounting policies. Page 5 Notes to the financial statements. Page 7 Independent auditor’s report. Page 14 Noteholder information. Page 15 Directory. Page 16 Fletcher Building Industries Limited Annual Report 2012 1 Letter from the Chairman. The directors of the company believe that these initiatives, combined with the overarching governance procedures of Fletcher Building, provide an appropriate basis for ensuring the company meets its fi duciary obligations to the capital noteholders. Consistent with the governance principles, Cecilia Tarrant and Kate Spargo, who are both directors of Fletcher Building, joined the board of Fletcher Building Industries on 10 October 2011 and 1 March 2012 respectively. Hugh Fletcher and Jonathan Ling retire from the board on 30 September 2012 with Mr Ling being replaced by Mark Adamson, the new chief executive offi cer of Fletcher Building, on 1 October 2012. The fi nancial position of the company is dependent on that of Fletcher Building. Further information on the operations and performance of Fletcher Building is available on its website, fl etcherbuilding.com, and I recommend that you take the opportunity to review it. Ralph Waters Chairman of Directors I am pleased to present the annual report of Fletcher Building Industries Limited for the year ended 30 June 2012. Fletcher Building Industries is a wholly owned subsidiary of Fletcher Building Limited (Fletcher Building). The contents of this annual report should be read in conjunction with the Fletcher Building annual review for 2012, a copy of which has previously been sent to you, and the Fletcher Building 2012 annual report which can be viewed at fl etcherbuilding.com. Results for the year Net earnings after tax for the year to 30 June 2012 were $11.8 million (2011: $1.1 million). Shareholders’ funds increased to $239.9 million from $87.2 million at 30 June 2011 mainly as a result of additional capital of $141 million being subscribed by Fletcher Building. Business activities Fletcher Building Industries has issued capital notes and those funds have been invested in other Fletcher Building group companies. On 30 June 2012, a reorganisation within the Fletcher Building group resulted in the company continuing to own a 20 percent share of the New Zealand operating subsidiaries via a new holding company Fletcher Building Holdings New Zealand Limited. That company currently holds all of the shares in Fletcher Building’s New Zealand operating subsidiaries. Since balance date, the board of the company has introduced a policy whereby funds shall be retained which are suffi cient to meet one full year’s interest payments on the capital notes. As a result, on 22 August 2012, a dividend of $40 million was paid to Fletcher Building. Corporate governance As a wholly owned subsidiary of Fletcher Building, the company is required to comply with the corporate governance practices of the parent. These procedures include written delegations of authority to the chief executive, delegations by the chief executive to other executives prescribing matters reserved for approval by the board, and matters that can be attended by management. In addition, the corporate governance procedures include: • • terms of appointment of directors terms of reference of the chairman, directors and management • code of conduct • charters for audit and risk, remuneration and nominations committees of the board • processes for evaluating the independent status and performance of directors. The NZX has granted the company a waiver in recognition that the corporate governance procedures of Fletcher Building will apply to it, and that the Companies Act 1993 allows directors of a subsidiary company such as Fletcher Building Industries to act in the best interests of the parent company. The eff ect of the waiver is that Fletcher Building Industries does not need to comply with the full corporate governance and other regulatory disclosures that would otherwise be required, provided that the Fletcher Building annual report includes these disclosures and a copy can be accessed by all Fletcher Building Industries noteholders. Specifi c governance initiatives instituted by the company include requirements that: • • • the directors of the company will be the directors of Fletcher Building, with no further remuneration payable the chairman, chief executive, chief fi nancial offi cer and company secretary of Fletcher Building will hold the equivalent roles in the company the audit and risk committee will have the same constituency, chairmanship and charter as Fletcher Building’s committee. FINANCIAL STATEMENTS Statements of earnings, comprehensive income and movements in equity. Earnings statement For the year ended 30 June 2012 Share of profits of associate Other income/expenses Operating earnings Funding costs Earnings/(loss) before taxation Taxation benefit/(expense) Net earnings/(loss) Statement of comprehensive income For the year ended 30 June 2012 Net earnings/(loss) Share of associate’s other comprehensive income Total comprehensive income Statement of movements in equity For the year ended 30 June 2012 Total equity At the beginning of the year Issue of share capital Total comprehensive income Total equity Notes 6 2 3 4 Notes 8 8 Notes 7 Fletcher Building Industries Group Fletcher Building Industries Year ended June 2012 NZ$000 14,775 49,411 64,186 (52,532) 11,654 149 11,803 Year ended June 2011 NZ$000 29,685 29,685 (40,766) (11,081) 12,230 1,149 Year ended June 2012 NZ$000 Year ended June 2011 NZ$000 93,959 93,959 (52,532) 41,427 149 41,576 (40,766) (40,766) 12,230 (28,536) Fletcher Building Industries Group Fletcher Building Industries Year ended June 2012 NZ$000 11,803 (108) 11,695 Year ended June 2011 NZ$000 1,149 196 1,345 Year ended June 2012 NZ$000 41,576 41,576 Year ended June 2011 NZ$000 (28,536) (28,536) Fletcher Building Industries Group Fletcher Building Industries Year ended June 2012 NZ$000 Year ended June 2011 NZ$000 Year ended June 2012 NZ$000 Year ended June 2011 NZ$000 87,240 141,000 11,695 239,935 85,895 1,345 87,240 57,359 141,000 41,576 239,935 85,895 (28,536) 57,359 The accompanying notes form part of and are to be read in conjunction with these financial statements. Balance sheet. Balance sheet As at 30 June 2012 Assets Current assets: Debtors and prepayments Current taxation asset Total current assets Non current assets: Amounts owing by related companies Investment in associate Total non current assets Total assets Liabilities Current liabilities: Accrued interest Amounts owing to related companies Capital notes Total current liabilities Non current liabilities: Capital notes Total non current liabilities Total liabilities Equity Reported capital Reserves Total equity Total liabilities and equity Fletcher Building Industries Limited Annual Report 2012 2–3 Fletcher Building Industries Group Fletcher Building Industries Notes June 2012 NZ$000 June 2011 NZ$000 June 2012 NZ$000 June 2011 NZ$000 10 15 6 15 11 11 7 9 1,107 149 1,256 148,084 693,277 841,361 842,617 11,085 60,277 75,000 146,362 456,320 456,320 602,682 346,000 (106,065) 239,935 842,617 2,201 12,230 14,431 713,881 713,881 728,312 10,077 99,675 88,580 198,332 442,740 442,740 641,072 205,000 (117,760) 87,240 728,312 1,107 149 1,256 148,084 693,277 841,361 842,617 11,085 60,277 75,000 146,362 456,320 456,320 602,682 346,000 (106,065) 239,935 842,617 2,201 12,230 14,431 684,000 684,000 698,431 10,077 99,675 88,580 198,332 442,740 442,740 641,072 205,000 (147,641) 57,359 698,431 The accompanying notes form part of and are to be read in conjunction with these fi nancial statements. On behalf of the board 22 August 2012 Ralph Waters Chairman of Directors Jonathan Ling Managing Director Statement of cashflows and reconciliation of net earnings/(loss) to net cash from operating activities. Statement of cashflows For the year ended 30 June 2012 Cashflow from operating activities: Prepayments Dividend received Subvention payment received Interest paid Net cash from operating activities Cashflow from investing activities: Purchase of investments Sale of investments Net cash from investing activities Cashflow from financing activities: Advances from related companies Issue of shares Issue/(purchase) of capital notes Net cash from financing activities Net movement in cash held Add opening cash and liquid deposits Closing cash and liquid deposits Fletcher Building Industries Group Fletcher Building Industries Year ended June 2012 NZ$000 1,094 92,959 52,000 (51,524) 94,529 (693,277) 633,000 (60,277) (175,252) 141,000 (34,252) Year ended June 2011 NZ$000 1,387 (34,463) (33,076) (684,000) (684,000) 419,786 297,290 717,076 Year ended June 2012 NZ$000 1,094 92,959 52,000 (51,524) 94,529 (693,277) 633,000 (60,277) (175,252) 141,000 (34,252) Year ended June 2011 NZ$000 1,387 (34,463) (33,076) (684,000) (684,000) 419,786 297,290 717,076 Reconciliation of net earnings/(loss) to net cash from operating activities For the year ended 30 June 2012 Cash was received from net earnings/(loss) Adjustment for items not involving cash and other items: Share of profits from associate Loss on sale of associate Dividend received from associate Taxation Prepayments Trade creditors and accruals Net cash from operating activities Fletcher Building Industries Group Fletcher Building Industries Year ended June 2012 NZ$000 11,803 (14,775) 2,589 92,959 (149) 1,094 1,008 94,529 Year ended June 2011 NZ$000 1,149 (29,685) (12,230) 1,387 6,303 (33,076) Year ended June 2012 NZ$000 41,576 Year ended June 2011 NZ$000 (28,536) 51,000 (149) 1,094 1,008 94,529 (12,230) 1,387 6,303 (33,076) Fletcher Building Industries Limited Annual Report 2012 4–5 Statement of accounting policies. For the year ended 30 June 2012 Basis of presentation Valuation of assets Associates Associates are all entities over which the company has significant influence but not control, generally accompanying a shareholding of between 20 percent and 50 percent of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The group’s investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss. The group’s share of its associates’ post- acquisition profits or losses is recognised in the earnings statement, and its share of post- acquisition movements in other comprehensive income is recognised in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the group and its associates are eliminated to the extent of the group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the associate are consistent with the policies adopted by the group. Debtors Debtors are valued at estimated net realisable value. The valuation is net of a specific provision maintained for doubtful debts. All known losses are written off to earnings in the period in which it becomes apparent that the debts are not collectable. Trade debtors normally have 30 to 90 day terms. The financial statements presented are those of Fletcher Building Industries Limited (‘the company’) and the company and its associate (together, the ‘group’). Fletcher Building Industries Limited is a company domiciled in New Zealand, is registered under the Companies Act 1993, and is an issuer in terms of the Securities Act 1978 and the Financial Reporting Act 1993. The registered office of the company is 810 Great South Road, Penrose, Auckland. Fletcher Building Industries Limited is a profit oriented entity. The financial statements, of both the company and group, comprise the earnings statement, statement of comprehensive income, statement of movements in equity, balance sheet, statement of cashflows, and significant accounting policies, as well as the notes to these financial statements. Accounting convention The financial statements are based on the general principles of historical cost accounting, except that financial assets and liabilities as described below are stated at their fair value. These financial statements have been prepared in accordance with Generally Accepted Accounting Practice in New Zealand which is the New Zealand equivalent to International Financial Reporting Standards (NZ IFRS). They also comply with International Financial Reporting Standards. Estimates The preparation of financial statements in conformity with NZ IFRS 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 income and expenses during the reporting period. Actual results could differ from those estimates. The estimates and assumptions are reviewed on an ongoing basis. For further information on areas of estimation and judgement, refer to the notes to the financial statements. Statement of accounting policies continued. Valuation of liabilities Equity Derivative financial instruments Company and group policy specifically prohibits the use of derivative financial instruments for trading or speculative purposes. All the company and group’s derivative financial instruments are held to hedge risk on underlying assets, liabilities and forecast and committed sales and purchases. Share capital Ordinary shares are classified as shareholders funds. Incremental costs directly attributable to the issue of new shares or options are shown in shareholders funds as a reduction from the proceeds. Dividends are recognised as a liability in the period in which they are declared. Valuation of liabilities Income determination 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. Funding costs Net funding costs comprise interest expense, amortisation of prepaid expenses and gains/ losses on certain financial instruments that are recognised in earnings. Taxation The provision for current tax is the estimated amount due for payment during the next 12 months by the company and group. The provision for deferred taxation has been calculated using the balance sheet liability method. Deferred tax is recognised on the temporary difference between the carrying amount of assets and liabilities and their taxable value. Deferred tax assets are not recognised unless recovery is considered probable. Borrowings Interest bearing borrowings are initially recognised at fair value. Creditors Trade creditors and other liabilities are stated at cost or estimated liability where accrued. Provisions A provision is recognised when the company or group has a current obligation and it is probable that economic benefits will be required to settle this obligation. Intercompany guarantees Where the company or group enters into financial guarantee contracts to guarantee the performance or indebtedness of other companies within the Fletcher Building Limited group, the company considers these to be insurance arrangements and accounts for them as such. In this respect, the company treats the guarantee contract as a contingent liability until such time as it becomes probable that the company will be required to make a payment under the guarantee. Fletcher Building Industries Limited Annual Report 2012 6–7 Notes to the financial statements. 1 Changes in accounting policies The International Accounting Standards Board has issued a number of standards, amendments and interpretations which are not yet effective. The company has not applied these in preparing these financial statements and while the application of these standards, amendments and interpretations would require further disclosures, they are not expected to have a material impact on the company’s results. There have been no changes in accounting policy in the year ended 30 June 2012, however certain comparatives were restated to conform with the current year’s presentation. 2 Other income Subvention payment received Dividend received from associate Gain/(loss) on sale of associate 3 4 Funding costs Interest payable on: Capital notes interest Amounts owing to Fletcher Building Limited Plus bank fees, share registry and issue expenses Taxation benefit/(expense) Earnings/(loss) before taxation Taxation at 28 (2011: 30) cents per dollar Adjusted for: Non assessable income Fletcher Building Industries Group Fletcher Building Industries Year ended June 2012 NZ$000 Year ended June 2011 NZ$000 Year ended June 2012 NZ$000 Year ended June 2011 NZ$000 52,000 (2,589) 49,411 44,172 7,648 712 52,532 11,654 (3,263) 3,412 149 52,000 92,959 (51,000) 93,959 44,172 7,648 712 52,532 41,427 (11,600) 11,749 149 27,571 12,440 755 40,766 (11,081) 3,324 8,906 12,230 27,571 12,440 755 40,766 (40,766) 12,230 12,230 5 Change in nature of operations and acquisitions At 30 June 2012 the Fletcher Building group did an internal reorganisation, the outcome of which has resulted in the company continuing to own a share of the New Zealand operating subsidiaries, via a new holding company Fletcher Building Holdings New Zealand Limited. The company will continue to account for this investment in its own accounts at cost, and in its group accounts using the equity method (refer note 6). Fletcher Building Holdings New Zealand Limited is incorporated in New Zealand, is an unlisted corporate holding company and currently holds all of the shares in Fletcher Building Limited’s New Zealand operating subsidiaries. Notes to the financial statements continued. Fletcher Building Industries Group Fletcher Building Industries Year ended June 2012 NZ$000 Year ended June 2011 NZ$000 Year ended June 2012 NZ$000 Year ended June 2011 NZ$000 6 Investment in associate Carrying amount of associate – Fletcher Building Holdings Group Carrying amount at the beginning of the year Acquired during the year Equity accounted earnings of associate Dividend received from associate Sale of investment in associate Loss on sale of associate Share of associate’s other comprehensive income Investment in associate 713,881 14,775 (92,959) (633,000) (2,589) (108) 684,000 684,000 (633,000) (51,000) 684,000 684,000 29,685 196 713,881 2,233,364 (626,533) (1,432,537) 2,755,800 (2,246) 2,927,848 585,569 128,312 713,881 Associate information – Fletcher Building Holdings Group: Balance sheet information for associate – 100% External assets External current liabilities Borrowings Intercompany advances Minority interest Equity Equity – Fletcher Building Industries Limited share – 20% Goodwill acquired at cost Investment in associate Equity accounted earnings for Fletcher Building Holdings Group comprise: Summarised earnings statement for associate – 100% Sales Earnings before interest and tax Interest expense Subvention payment Foreign exchange gain/(loss) Earnings before tax Tax expense Net earnings 3,249,048 3,330,931 170,692 (45,251) (52,000) 1,166 74,607 (733) 73,874 230,126 (31,701) (23,167) 175,258 (26,831) 148,427 Net earnings – Fletcher Building Industries Limited share – 20% 14,775 29,685 Fletcher Building Industries Limited Annual Report 2012 8–9 Fletcher Building Industries Group Fletcher Building Industries Year ended June 2012 NZ$000 Year ended June 2011 NZ$000 Year ended June 2012 NZ$000 Year ended June 2011 NZ$000 Carrying amount of associate – Fletcher Building Holdings New Zealand Group Acquired during the year Equity accounted earnings of associate Investment in associate Associate information – Fletcher Building Holdings New Zealand Group Balance sheet information for associate – 100% External assets External current liabilities Intercompany advances Minority interest Equity Equity – Fletcher Building Industries Limited share – 20% Goodwill acquired at cost Investment in associate 7 Capital Reported capital: Reported capital at the beginning of the year Issue of shares Number of shares: Number of shares at the beginning of the year Issue of shares 693,277 693,277 2,417,340 (722,552) 197,618 (26,882) 1,865,524 373,105 320,172 693,277 205,000 141,000 346,000 205,000 141,000 346,000 693,277 693,277 205,000 205,000 205,000 205,000 205,000 141,000 346,000 205,000 141,000 346,000 205,000 205,000 205,000 205,000 All ordinary shares carry are issued and fully paid, and carry equal rights in respect of voting, dividend payments and distribution upon winding up. 8 Reserve movements Revenue reserve Revenue reserve at the beginning of the year Net earnings/(loss) Other comprehensive income (117,760) 11,803 (108) (106,065) (119,105) 1,149 196 (117,760) (147,641) 41,576 (119,105) (28,536) (106,065) (147,641) Notes to the financial statements continued. 9 Reserve balances Reserves comprise: Revenue reserve 10 Current taxation asset Opening asset for taxation Taxation (charge)/credit in the earnings statement Intercompany payment/(receipt) to/from Fletcher Building Holdings Limited 11 Capital notes Capital notes Current portion Capital notes Non current portion Fletcher Building Industries Group Fletcher Building Industries June 2012 NZ$000 June 2011 NZ$000 June 2012 NZ$000 June 2011 NZ$000 (106,065) (106,065) (117,760) (117,760) (106,065) (106,065) 12,230 149 (12,230) 149 75,000 75,000 456,320 456,320 531,320 (2,745) 12,230 2,745 12,230 88,580 88,580 442,740 442,740 531,320 12,230 149 (12,230) 149 75,000 75,000 456,320 456,320 531,320 (147,641) (147,641) 2,745 12,230 (2,745) 12,230 88,580 88,580 442,740 442,740 531,320 Capital notes Capital notes are long-term fixed rate unsecured subordinated debt instruments. The indebtedness of Fletcher Building Industries in respect of the capital notes is guaranteed on an unsecured subordinated basis by Fletcher Building Limited. On each election date, the coupon rate and term to the next election date of that series of the capital notes is reset. Holders may then choose either to keep their capital notes on the new terms or to convert the principal amount and any interest into shares of Fletcher Building Limited, at approximately 98 percent of 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 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. The company and Fletcher Building Limited have covenanted not to pay dividends to its shareholders while interest that is due and payable on capital notes has not been paid. The weighted average interest rate on the capital notes is 8.23 percent (June 2011: 8.51 percent). 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 held at 30 June 2012 were to be converted to shares, 92.4 million (June 2011: 62.9 million) Fletcher Building Limited shares would be issued at the share price as at 30 June 2012, of $5.87 (June 2011: $8.62). At 30 June 2012 $44.6 million (June 2011: 90.6 million) of capital notes were held by Fletcher Buildings Holdings Limited as treasury stock. Net tangible asset backing per capital note issued 12 Credit rating The company has not sought and does not hold a credit rating from an accredited rating agency. Fletcher Building Industries Group June 2012 NZ$ 1.45 June 2011 NZ$ 1.16 Fletcher Building Industries Limited Annual Report 2012 10–11 13 Financial risk management overview Exposures to credit, liquidity, currency and interest rate risks arise in the normal course of the company’s business. The company is a wholly owned subsidiary of Fletcher Building Limited and does not have an independent policy regarding credit, liquidity, currency and interest rates but is governed by the Fletcher Building group’s principles and policy documents approved by the Fletcher Building group’s board. The policy documents identify the risk and sets out the Fletcher Building group’s objectives, policies and processes to measure, manage and report the risk. The policies are reviewed periodically to reflect changes in financial markets and the Fletcher Building group’s businesses. Risk management is carried out by the Fletcher Building group’s central treasury function, which ensures compliance with the risk management policies and procedures set by the board and enters into derivative financial instruments to assist in the management of the identified financial risks. The company does not enter into derivative financial instruments for trading or speculative purposes. All derivative transactions entered into are to hedge underlying physical positions arising from normal business activities. The financial position of the company is dependent on that of Fletcher Building Limited. Risks and mitigation (a) Credit risk To the extent the company has a receivable from another party, there is a credit risk in the event of non-performance by that counterparty which arises principally from receivables from customers, derivative financial instruments and short term cash deposits. The company only has credit risk exposure to the Fletcher Building group and has no external credit risk exposure. The company has not renegotiated the terms of any financial assets which would otherwise be past due or impaired. (b) Liquidity risk Liquidity risk is the risk that the company will encounter difficulty in meeting its financial commitments as they fall due. The Fletcher Building group manages the liquidity risk of the company by having a spread of maturity dates of the Fletcher Building group’s debt facilities. Furthermore at 30 June 2012, the Fletcher Building group had $2,928 million of committed bank facilities of which $782 million were undrawn (June 2011: $2,499 million; $492 million). The following maturity analysis table sets out the remaining contractual undiscounted cashflows, including estimated interest payments for non-derivative liabilities. Creditors and accruals are excluded from this analysis as they are not part of the company’s assessment of liquidity risk. Capital notes Amounts owing to related companies Non-derivative liabilities – principal cashflows Contractual interest cashflows Total contractual cashflows Capital notes Amounts owing to related companies Non-derivative liabilities – principal cashflows Contractual interest cashflows Total contractual cashflows Fletcher Building Industries Group and Fletcher Building Industries June 2012 Contractual Cashflows NZ$000 531,320 60,277 591,597 134,510 726,107 Up to 1 year NZ$000 75,000 60,277 135,277 41,721 176,998 1-2 years NZ$000 111,857 111,857 35,707 147,564 2-5 years NZ$000 255,883 255,883 52,623 308,506 Over 5 years NZ$000 88,580 88,580 4,459 93,039 Fletcher Building Industries Group and Fletcher Building Industries June 2011 Contractual Cashflows NZ$000 531,320 99,675 630,995 140,513 771,508 Up to 1 year NZ$000 88,580 99,675 188,255 42,059 230,314 1-2 years NZ$000 75,000 75,000 35,387 110,387 2-5 years NZ$000 299,488 299,488 59,448 358,936 Over 5 years NZ$000 68,252 68,252 3,619 71,871 Notes to the financial statements continued. (c) Interest rate risk Interest rate risk is the risk that the value of a financial instrument or cashflows associated with the instrument will change due to changes in market interest rates and arises primarily from the company’s interest bearing borrowings. The Fletcher Building group manages the fixed interest rate component of its debt and capital notes obligations of the company and aims to maintain this ratio between 40 to 70 percent. The position in this range is managed depending upon underlying interest rate exposures and economic conditions. Cross currency interest rate swaps, interest rate swaps, forward rate agreements and options are entered into to manage this position. The following tables set out the interest rate repricing profile of financial assets and liabilities: Floating – non interest bearing Floating Fixed up to 1 year Fixed 1-2 years Fixed 2-5 years Fixed over 5 years Total (d) Sensitivity analysis Fletcher Building Industries Group and Fletcher Building Industries June 2012 NZ$000 60,277 75,000 111,857 255,883 88,580 591,597 June 2011 NZ$000 99,675 88,580 75,000 299,488 68,252 630,995 Foreign currency and interest rate risk is governed and managed by the Fletcher Building group. The sensitivity analysis is included in the Fletcher Building group financial statements. (e) Fair values The estimated fair values of the company’s financial assets and liabilities compared to their carrying values in the balance sheet are as follows: Fletcher Building Industries Group and Fletcher Building Industries June 2012 June 2011 Carrying value NZ$000 531,320 60,277 148,084 739,681 Fair value NZ$000 559,899 60,277 148,084 768,260 Carrying value NZ$000 531,320 99,675 Fair value NZ$000 548,803 99,675 630,995 648,478 Capital notes Classifications Amortised cost Amounts owing to related companies Loans and receivable Amounts owing by related companies Loans and receivable Fair value measurement No financial instruments are measured and recognised at fair value. Fair value disclosures The fair values of borrowings used for disclosure are measured by discounting future principal and interest cashflows at the current market interest rate that are available for similar financial instruments. The interest rates across all currencies used to discount future principal and interest cashflows are between 5.71 percent and 6.18 percent (June 2011: 5.76 percent and 7.65 percent) including margins. Fletcher Building Industries Limited Annual Report 2012 12–13 14 Contingent liabilities and capital commitments There were no contingent liabilities or capital commitments as at 30 June 2012 (June 2011: Nil). The Fletcher Building group borrows funds based on covenants and a negative pledge arrangement. The principal borrowing covenants relate to gearing and interest cover and at 30 June 2012, the Fletcher Building group was in compliance with all its covenants. The negative pledge arrangement includes a cross guarantee, ensures that external senior indebtedness ranks equally in all respects and includes the covenant that security can be given only in limited circumstances. The cross guarantee states that Fletcher Building Limited and certain of its subsidiaries, including Fletcher Building Industries Limited, guarantee the debt of the group that has the benefit of the negative pledge arrangement. As at 30 June 2012 the guaranteeing group had debt subject to the negative pledge arrangement and covenants of $1,614 million (June 2011: $1,516 million). Where the company enters into financial guarantee contracts to guarantee the performance or indebtedness of other companies within the Fletcher Building group, the company considers these to be insurance arrangements and accounts for them as such. In this respect, the company treats the guarantee contract as a contingent liability until such time as it becomes probable that the company will be required to make a payment under the guarantee. 15 Related party transactions The company is a wholly owned subsidiary of Fletcher Building Limited, which is also the ultimate holding company. All other related companies are also subsidiaries of Fletcher Building Limited. Term receivable owing from related companies Fletcher Building Limited 1 Term payable owing to related companies Fletcher Challenge Finance Investments Limited 2 Fletcher Building Limited 1 Fletcher Building Industries Group Fletcher Building Industries June 2012 NZ$000 June 2011 NZ$000 June 2012 NZ$000 June 2011 NZ$000 148,084 148,084 (60,277) (60,277) 148,084 148,084 (60,277) (60,277) (99,675) (99,675) (99,675) (99,675) 1 2 This unsecured advance is at call, but represents a long term asset and earns 7.5 percent interest. In the prior year the advance represented long term funding even though it was for no fixed term and bore interest at 7.5 percent. This unsecured advance is for no fixed term and is non interest bearing. The audit fee is borne by the company’s parent. 16 Subsequent events On 22 August 2012 the company repaid its advance to Fletcher Challenge Finance Investments Limited of $60.3 million and declared a dividend to Fletcher Building Limited of $40.0 million. This reduced the net receivable balance to $47.8 million. This balance will be available to fund the interest expense it will incur on the capital notes for the next year. Independent auditor’s report. To T hE Sh ArEhoLdErS oF F LETChEr BuILdINg INduSTrIES L IMITEd Report on the company and group financial statements We have audited the accompanying financial statements of Fletcher Building Industries Limited (‘the company’) and the group, comprising the company and its associate on pages 2–13. The financial statements comprise the balance sheets as at 30 June 2012, the statements of earnings, comprehensive income, movements in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information, for both the company and the group. Directors’ responsibility for the company and group financial statements The directors are responsible for the preparation of company and group financial statements in accordance with generally accepted accounting practice in New Zealand that give a true and fair view of the matters to which they relate, and for such internal control as the directors determine is necessary to enable the preparation of company and group financial statements that are free from material misstatement whether due to fraud or error. Auditor’s responsibility Opinion In our opinion the financial statements on pages 2–13: • • comply with generally accepted accounting practice in New Zealand; give a true and fair view of the financial position of the company and the group as at 30 June 2012 and of the financial performance and cash flows of the company and the group for the year then ended. Report on other legal and regulatory requirements In accordance with the requirements of sections 16(1)(d) and 16(1)(e) of the Financial Reporting Act 1993, we report that: • we have obtained all the information and explanations that we have required; and • in our opinion, proper accounting records have been kept by Fletcher Building Industries Limited as far as appears from our examination of those records. 22 August 2012 KPMG Auckland, New Zealand Our responsibility is to express an opinion on these company and group financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (New Zealand). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the company and group financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the company and group financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company and group’s preparation of the financial statements that give a true and fair view of the matters to which they relate in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company and group’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating the presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Our firm has also provided other services to the company and group in relation to taxation and other assurance services. 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 and group. Fletcher Building Industries Limited Annual Report 2012 14–15 Noteholder information. Enquiries Interest payment dates Fletcher Building website Noteholders with enquiries about transactions or changes of address should contact: Computershare Investor Services Limited Private Bag 92 119 Auckland 1142 Level 2, 159 Hurstmere Road Takapuna, Auckland 0622 New Zealand T. +64 9 488 8777 F. +64 9 488 8787 E. enquiry@computershare.co.nz Interest on capital notes is paid semi-annually on 15 March and 15 September in respect of the notes with the election dates of 15 March 2013, 15 March 2015, 15 March 2017 and 15 March 2018, and on 15 May and 15 November in respect of the notes with the election dates of 15 May 2014 and 15 May 2016. The company recommends that all noteholders have their interest payments direct credited to a bank account to ensure security and promptness of receipt. If you do not already have your payments direct credited, please contact Computershare Investor Services to register your bank account details. Other investor enquiries Quotation and transfers Fletcher Building Industries Limited Private Bag 92 114 Auckland 1142 New Zealand T. +64 9 525 9000 F. +64 9 525 9032 E. moreinfo@fb.co.nz fletcherbuilding.com The Fletcher Building Industries capital notes are quoted on the NZX and may be bought and sold through sharebrokers. No transfer will be registered if it would result in the transferor or the transferee holding capital notes with an aggregate principal amount of less than $2,000. Subject to this minimum holding, transfers must be in multiples of $500. Details on Fletcher Building and its operations for the year ended 30 June 2012 can be viewed at the Fletcher Building website, at fletcherbuilding.com. This website contains all news releases to the NZX and ASX and financial presentations made by Fletcher Building. Other information The NZX has granted a waiver to the company from Listing Rule 10.5 – Annual and Half-Yearly Reports, subject to the following conditions: a) that the company send copies of the annual and half-yearly reports of Fletcher Building (with financial information relating to the Fletcher Building group), or a notice complying with Section 209(3) of the Companies Act 1993, to its noteholders, b) that the company’s annual report include any specific relevant disclosures required by the Companies Act 1993 and certain sections of Listing Rule 10.5, and c) that the Fletcher Building annual report contain details of the spread of the company’s noteholders and the corporate governance policies, practices and processes. Trustee The capital notes are constituted under a Trust Deed dated 12 November 2002 as supplemented by supplemental trust deeds dated 21 November 2008, 16 March 2009, 15 March 2012 and 27 August 2012. Noteholders are entitled to the benefit of, are bound by, and are deemed to have notice of the provisions of the Trust Deeds. The Trustee is: Perpetual Trust Limited PO Box 3376 Auckland 1140 New Zealand Level 17, AMP Centre 29 Customs Street West Auckland 1010 New Zealand T. +64 9 366 3290 Directory. Directors Ralph Waters Chairman Mark Adamson Appointed with effect from 1 October 2012 Tony Carter Hugh Fletcher Member of the Audit and Risk Committee Retiring 30 September 2012 Alan Jackson John Judge Chairman of the Audit and Risk Committee Jonathan Ling Retiring 30 September 2012 Kate Spargo Member of the Audit and Risk Committee Cecilia Tarrant Member of the Audit and Risk Committee Gene Tilbrook Member of the Audit and Risk Committee Management Martin Farrell Company Secretary and General Counsel Bill Roest Chief Financial Officer Registered offices Fletcher Building Industries Limited Private Bag 92 114 Auckland 1142 New Zealand Fletcher House 810 Great South Road Penrose, Auckland 1061 New Zealand T. +64 9 525 9000 Fletcher Building Industries Limited fletcherbuilding.com +64 9 525 9000