Fletcher Building Limited
Annual Report 2015

Plain-text annual report

ANNUAL REPORT 2015 Building better, together At Fletcher Building we stand together, work together, forge ahead, overcome adversity and meet new challenges together. Our unique skills and expertise, unmatched resources and vision enable us to keep building better, together. Directors’ responsibility 2015 annual report The directors are pleased to present for Fletcher Building Limited and its subsidiaries the annual report and financial statements for the year ended 30 June 2015. When used in this annual report, references to the ‘company’ are references to Fletcher Building Limited. References to ‘Fletcher Building’ or the ‘group’ are to Fletcher Building Limited, together with its subsidiaries and its interests in associates. All references to financial years (e.g. FY14 and FY15) in this annual report are to the financial year ended 30 June. References to $ and NZ$ are to New Zealand dollars unless otherwise stated. Any references to documents and information included on external websites, including Fletcher Building’s website, are provided for convenience alone and none of the documents or other information on those websites is incorporated by reference in this annual report. You can obtain an electronic copy of this annual report at fbu.com/ investor-centre/reports. Strategy overview The directors are responsible for assessing and overseeing strategy and how risks and opportunities are managed within Fletcher Building. Late last year, the board and management team undertook a review of the whole business portfolio and the returns that our businesses are generating. This work has informed the group’s strategic direction. We recognise that we must deliver further value from our existing operations, through revenue growth and market share gains, and through effective cost and margin management. In addition to pursuing organic growth, we will look to selectively invest where we can see strong returns and where such investments are sufficiently linked to our chosen growth priorities. Areas we are targeting for expansion include our residential development business in New Zealand, our civil and engineering construction business and our distribution businesses in both Australia and New Zealand. At the same time, we will continue to actively manage the business portfolio and will divest businesses which we have determined are not core to our future. Financial statements The directors are responsible for preparing the annual report, including the financial statements, and ensuring that the financial statements comply with generally accepted accounting practices. The directors believe that proper accounting records have been kept which allow for the determination of the group’s financial position with reasonable accuracy and that the financial statements comply with the requirements of the Companies Act 1993 and the Financial Markets Conduct Act 2013. The annual report is dated 19 August 2015 and is signed on behalf of the board by: Sir Ralph Norris Chairman Mark Adamson Managing Director 2015 FLETCHER BUILDING ANNUAL REPORT Contents Directors Financial review Trend statement Independent auditor’s report Financial statements Corporate governance statement Remuneration report Regulatory disclosures Investor information Directory 2 4 13 14 15 52 55 60 66 67 1 2015 FLETCHER BUILDING ANNUAL REPORTDirectors SIR RALPH NORRIS FNZIM, HFIITP, KNZM, HON.DBUS (UNIVERSITY OF NEW SOUTH WALES) MARK ADAMSON BA (HONS), ACA, ATII Independent Chairman Member of the Remuneration and Nominations Committees First appointed 1 April 2014 Sir Ralph Norris retired as managing director and chief executive officer of the Commonwealth Bank of Australia in November 2011 following a 40 year career in the banking sector in Australia and New Zealand, including as chief executive officer of ASB Bank. He is a former chief executive officer of Air New Zealand. Sir Ralph is a director of Fonterra Co-Operative Group, Fonterra Shareholders’ Fund, Origin Energy, New Zealand Treasury and Fletcher Building Industries and Chairman of RANQX Holdings. He is a member of the NZ Olympic Advisory Committee, the Juvenile Diabetes Research Foundation Advisory Board, The University of Auckland Council and trustee of Business Mentors New Zealand. He also served as an independent non- executive director of Fletcher Building from 2001 to 2005. Non-independent Executive Director First appointed 1 October 2012 Mark Adamson is chief executive officer and managing director of the company. He joined the Formica Group in 1998 as chief financial officer of the European division followed by the role of managing director UK and Eire and in 2004 became president of Formica Europe. He became the chief executive of Formica Corporation in 2008 and of the Laminates & Panels division in 2011. Prior to joining Formica he was financial controller of the pharmaceutical company GlaxoSmithKline. Mark is a member of the English Institute of Chartered Accountants and the Institute of Taxation and a director of Fletcher Building Industries. ANTONY CARTER BE (HONS), ME, MPHIL (LOUGHBOROUGH) Independent Non-executive Director Member of the Remuneration and Nominations Committees First appointed 1 September 2010 Tony Carter was previously managing director of Foodstuffs (Auckland) and Foodstuffs (New Zealand), New Zealand’s largest retail organisation, and a director of a number of related companies. He has extensive experience in retailing, having joined Foodstuffs in 1994 and from having owned and operated several Mitre 10 hardware stores, and was a director and later chairman of Mitre 10 New Zealand. Tony is chairman of Fisher & Paykel Healthcare, Air New Zealand and the Blues LLP, a director of ANZ Bank New Zealand, Fletcher Building Industries and Avonhead Mall and a trustee of the Maurice Carter Charitable Trust. DR ALAN JACKSON BENG (HONS), PHD (AUCKLAND) MBA (IMD MANAGEMENT INSTITUTE) Independent Non-executive Director Chairman of the Remuneration Committee and member of the Sustainability, Environment, Health and Safety and Nominations Committees First appointed 1 September 2009 Dr Alan Jackson was until 2009 chairman Australasia, senior vice president and director of The Boston Consulting Group. He has been an international management consultant since 1987 with The Boston Consulting Group and has proven experience at the most senior levels of international and government business. Alan has worked across a range of industries, including resources, diversified industrials, building products and construction sectors, including as chairman of Housing Corporation New Zealand. Alan is a Fellow of the Institution of Professional Engineers. He is a director of Delegat’s Group and Fletcher Building Industries. 2 2015 FLETCHER BUILDING ANNUAL REPORTJOHN JUDGE BCOM, FCA, MPP, FINSTD KATHRYN SPARGO LLB (HONS), BA Independent Non-executive Director Chairman of the Audit and Risk Committee and member of the Nominations Committee First appointed 9 June 2008 John Judge has considerable experience in Australasian business and brings financial and analytical knowledge to the board. His career includes various roles within Ernst & Young, culminating in the position of chief executive of Ernst & Young New Zealand. He is chairman of ANZ Bank New Zealand and the Auckland Arts Festival Trust, a director of Fletcher Building Industries and The New Zealand Initiative and a member of the Otago Business School Board of Advisors. Independent Non-executive Director Chairman of the Sustainability, Environment, Health and Safety Committee and member of the Audit and Risk and Nominations Committees First appointed 1 March 2012 Kate Spargo has extensive business experience from advisory roles on strategic and governance issues following a career in legal practice in both the public and private sectors. She is the chairman of ASX listed company UGL and a director of Adairs, Sonic Healthcare, SMEC Holdings (Australia) and Fletcher Building Industries. She also serves as a director on a number of ‘not for profit’ businesses. Kate is a Fellow of the Australian Institute of Company Directors. CECILIA TARRANT BA, LLB (HONS), LLM (BERKELEY) Independent Non-executive Director Member of the Audit and Risk, Sustainability, Environment, Health and Safety and Nominations Committees First appointed 10 October 2011 Cecilia Tarrant has over 20 years of experience in international banking and finance, having worked as a lawyer and an investment banker in the USA and Europe. Prior to returning to New Zealand, she was a managing director at Morgan Stanley in London. She is a director of Fletcher Building Industries, Annuitas Management and Shopping Centres Australasia Property Group Trustee NZ and deputy chairman of the Government Superannuation Fund Authority. Cecilia is also a member of The University of Auckland Council, a trustee of The University of Auckland Foundation and an executive-in-residence at The University of Auckland Business School. STEVEN VAMOS BE (HONS) Independent Non-executive Director Member of the Nominations Committee First appointed 6 July 2015 Steve Vamos has more than 30 years’ experience in the information technology and online media industry. His previous executive roles include vice president, Worldwide Sales and International Operations for Microsoft Corporation Online Services Group, chief executive officer of Microsoft Australia and New Zealand, chief executive officer of ninemsn and senior executive roles at Apple and IBM. He is a non-executive director of Telstra and Fletcher Building Industries and is a member of the Advisory Board of the University of Technology Sydney Business School. Steve Vamos joined the board after the end of FY15. 3 2015 FLETCHER BUILDING ANNUAL REPORTFinancial review Financial review. Fletcher Building reports underlying net earnings growth of 10 percent 2015 Reported results Total revenue Operating earnings before significant items1 Significant items2 Operating earnings (EBIT) Funding costs Earnings before tax Tax expense Earnings after tax Non-controlling interests Net earnings before significant items Net earnings Earnings per share before significant items (EPS – cents) Earnings per share (EPS – cents) Dividends declared per share (DPS – cents) Capital expenditure Year ended June 2015 NZ$M Year ended June 2014 NZ$M 8,661 8,401 653 (150) 503 (127) 376 (96) 280 (10) 399 270 58.0 39.2 37.0 278 624 (32) 592 (130) 462 (111) 351 (12) 362 339 52.7 49.3 36.0 260 Change % 3 5 NM (15) (2) (19) (14) (20) (17) 10 (20) 10 (20) 3 7 Year ended June 2015 NZ$M Year ended June 2014 NZ$M Change % 2,144 1,306 1,828 1,757 826 1,580 5 9,446 (785) 8,661 2,274 1,312 1,731 1,650 928 1,301 7 9,203 (802) 8,401 (6) – 6 6 (11) 21 (29) 3 (2) 3 Revenue Heavy Building Products Light Building Products Laminates & Panels Distribution New Zealand Distribution Australia Construction Other Gross revenue Less intercompany sales Total revenue Heavy Building Products Light Building Products Laminates & Panels Distribution New Zealand Distribution Australia Construction Corporate Total Funding costs Earnings before tax Tax expense Earnings after tax Non-controlling interests Net earnings Reported operating earnings Operating earnings before significant items(1) Year ended June 2015 NZ$M Year ended June 2014 NZ$M Change % Year ended June 2015 NZ$M Year ended June 2014 NZ$M 120 63 129 90 18 120 (37) 503 (127) 376 (96) 280 (10) 270 194 116 124 84 5 106 (37) 592 (130) 462 (111) 351 (12) 339 (38) (46) 4 7 NM 13 – (15) (2) (19) (14) (20) (17) (20) 177 118 129 108 18 140 (37) 653 (127) 526 (117) 409 (10) 399 214 116 124 84 17 106 (37) 624 (130) 494 (120) 374 (12) 362 Change % (17) 2 4 29 6 32 – 5 (2) 6 (3) 9 (17) 10 1 Operating earnings before significant items is a non-GAAP measure used by management to assess the performance of the business and has been derived from Fletcher Building Limited’s group financial statements for the year ended 30 June 2015. 2 Details of significant items can be found in note 4 of the financial statements. 4 2015 FLETCHER BUILDING ANNUAL REPORT Geographic segments New Zealand Australia Rest of World Total New Zealand Australia Rest of World Total Geographic segments in local currency Australia (A$M) Rest of World (US$M) Australia (A$m) Rest of World (US$m) Gross revenue External revenue Year ended June 2015 NZ$M Year ended June 2014 NZ$M Change % Year ended June 2015 NZ$M Year ended June 2014 NZ$M Change % 5,082 3,158 1,206 9,446 4,654 3,451 1,098 9,203 9 (8) 10 3 4,435 3,042 1,184 8,661 4,031 3,287 1,083 8,401 10 (7) 9 3 Operating earnings before significant items1 Year ended June 2015 NZ$M Year ended June 2014 NZ$M 449 119 85 653 362 171 91 624 Gross revenue External revenue Year ended June 2015 NZ$M Year ended June 2014 NZ$M 2,929 936 3,113 907 Change % (6) 3 Year ended June 2015 NZ$M Year ended June 2014 NZ$M 2,821 919 2,966 895 Change % 24 (30) (7) 5 Change % (5) 3 Operating earnings before significant items1 Year ended June 2015 NZ$M Year ended June 2014 NZ$M 110 66 154 75 Change % (29) (12) 1 Operating earnings before significant items is a non-GAAP measure used by management to assess the performance of the business and has been derived from Fletcher Building Limited’s group financial statements for the year ended 30 June 2015. Details of the significant items incurred can be found in note 4 of the financial statements. • External revenue for the year of $8,661 million was $260 million higher than the prior year. Of this increase $404 million related to increased New Zealand revenues, partly offset by the lower revenues in Australia. In local currencies, revenues increased by 10% in New Zealand and 3% in the Rest of World, with a decrease of 5% in Australia. • Reported operating earnings before interest and tax of $503 million were 15% lower than the prior year. • In the Rest of World, market conditions varied geographically with most markets experiencing strong competition and price pressures. Operating earnings in Formica North America increased by 14%, benefiting from improved prices and operating margins. In Asia, activity increased in all key locations with the exception of China where there were weaker market conditions and strong competition. In Europe, challenging economic conditions in Central Europe and Russia continued to put pressure on earnings. • The result was driven by increased activity levels across most sectors in New Zealand and improved conditions in the USA, partly offset by subdued markets in Australia and Europe. • In New Zealand, earnings continued to benefit from an increase in construction activity and continued strong demand for houses in Fletcher Building’s residential developments. Consents for new houses in New Zealand of 25,154 increased 8% over the prior year, the highest level since 2007. The positive revenue growth in New Zealand, along with cost reduction and efficiency measures, drove operating earnings before significant items 24% higher to $449 million. • In Australia, the continued strength of the residential construction market assisted strong performances in our laminates and panels, insulation and distribution businesses. Residential consents increased by 10% to reach record levels. Conditions continued to be challenging in the infrastructure and mining sectors, with significant decline in activity, competitive pressures in the coated steel business and a notable decrease in demand for plastic pipes from coal seam gas projects. • Reported operating earnings include significant items of $150 million relating to impairment of goodwill, site closure costs and the sale of businesses. – $78 million of goodwill has been impaired in the year, with $32 million relating to the Forman businesses, $30 million to Stramit, $15 million to Tasman Insulation and $1 million to Humes. The impairments are largely attributable to a reduction in the future earnings prospects of these businesses. – Site closure costs of $65 million were recognised in the year relating to the closure of the Crane Copper Tube business and site closures in Iplex Australia, Stramit, Tasman Insulation, Humes and the Forman businesses. – Business disposal expenses of $7 million relate principally to the prior year sale of the long steel business with additional costs incurred in the year under the transitional agreements with the purchaser. – Of the $150 million significant items, $126 million were non-cash. 5 2015 FLETCHER BUILDING ANNUAL REPORT Financial review continued • Operating earnings before significant items were $653 million, • Earnings per share were 39.2 cents, a decrease of 20% from 5% higher than the prior year. • Funding costs of $127 million were 2% lower than the prior year, due to lower interest costs in New Zealand. • The tax expense of $96 million represents an effective tax rate for the year of 26% (2014: 24%). 49.3 cents per share in the prior year. Earnings per share before significant items were 58.0 cents, an increase of 10%. The following sections provide a commentary on individual division results for the year ended 30 June 2015. Heavy Building Products. New Zealand Concrete Products; New Zealand Cement and Quarry Products; Australian Concrete Products; Australian Quarry Products; Plastic Pipes; Steel and Other Gross revenue External revenue Operating earnings before significant items1 Significant items2 Operating earnings Funds New Zealand Concrete Products New Zealand Cement and Quarry Products Australian Concrete Products Australian Quarry Products Plastic Pipes Steel and Other Total Year ended June 2015 NZ$M Year ended June 2014 NZ$M 2,144 1,782 177 (57) 120 2,274 1,859 214 (20) 194 1,666 1,719 Change NZ$M (130) (77) (37) (37) (74) (53) Change % (6) (4) (17) NM (38) (3) Operating earnings before significant items1 Year ended June 2015 NZ$M Year ended June 2014 NZ$M Change % 63 72 16 18 (8) 16 46 51 33 19 45 20 177 214 37 41 (52) (5) NM (20) (17) 1 Operating earnings before significant items is a non-GAAP measure used by management to assess the performance of the business and has been derived from Fletcher Building Limited’s group financial statements for the year ended 30 June 2015. 2 Details of significant items can be found in note 4 of the group’s financial statements. Heavy Building Products operating earnings were $120 million, compared with $194 million in the prior year. The result includes significant items of $57 million relating to the closure of the Crane Copper Tube factory in Australia ($28 million), costs related to site closures in Iplex Australia ($17 million), the closure of a concrete pipe plant in New Zealand ($6 million) and the prior year divestment of the long steel business in New Zealand ($6 million). The division’s operating earnings before significant items were $177 million, compared with $214 million in 2014. The decline was attributable to reductions in Australian plastic and concrete pipe earnings, partially offset by increased earnings in the New Zealand concrete, cement and quarry businesses. The New Zealand Concrete Products businesses recorded a 37% increase in operating earnings before significant items to $63 million. This was driven by increased demand from major infrastructure projects and greater building activity in the Auckland and Christchurch residential markets which drove ready-mix concrete and concrete pipes volumes 14% and 7% higher respectively. Operating earnings of the New Zealand Cement and Quarry Products businesses increased by 41% to $72 million. Domestic cement volumes were 9% higher driven by growth in demand in most regions. Improvements to the mix of sales and manufacturing efficiencies also helped to lift earnings. A focus on higher value quarry products contributed to both increases in revenue and operating margins. Operating earnings in Australian Concrete Products declined 52% to $16 million, principally due to lower demand from the infrastructure and mining sectors. Australian Quarry Products earnings were down slightly from the prior year as a result of lower market activity in Victoria and Western Australia. The Plastic Pipes businesses recorded an $8 million operating loss before significant items. This was primarily attributable to weaker demand in most Australian market segments and intensifying competition. Of particular note was the significant reduction in demand from coal seam gas projects. New Zealand Plastic Pipes earnings were in line with the prior year. Earnings from the long steel business were $10 million, compared with $13 million in the prior year. Long steel production will cease in the first quarter of FY16, and earnings from long steel will reduce to zero. 6 2015 FLETCHER BUILDING ANNUAL REPORTLight Building Products. New Zealand Building Materials; Australian Building Materials; Roof Tile Group Gross revenue External revenue Operating earnings before significant items1 Significant items2 Operating earnings Funds NZ Building Materials Australian Building Materials Roof Tile Group Total Year ended June 2015 NZ$M Year ended June 2014 NZ$M Change NZ$M Change % 1,306 1,156 118 (55) 63 612 1,312 1,166 116 – 116 637 (6) (10) 2 (55) (53) (25) – (1) 2 NM (46) (4) Operating earnings before significant items1 Year ended June 2015 NZ$M Year ended June 2014 NZ$M 81 23 14 118 71 23 22 116 Change % 14 – (36) 2 1 Operating earnings before significant items is a non-GAAP measure used by management to assess the performance of the business and has been derived from Fletcher Building Limited’s group financial statements for the year ended 30 June 2015. 2 Details of significant items can be found in note 4 of the group’s financial statements. Light Building Products operating earnings before significant items were $118 million, an increase of 2% on the prior year. The aluminium windows and doors business recorded an 11% increase in volumes. A goodwill impairment charge of $30 million has been recognised in the Australian steel roll-forming business, and in the New Zealand insulation business goodwill has been impaired by $15 million. Other significant items of $10 million were incurred relating to the closures of the Christchurch glass wool insulation plant ($3 million), the Sydney insulated panels’ plant ($6 million) and the sale of a small New Zealand based garage doors business ($1 million). In the Australian Building Materials businesses, operating earnings before significant items were stable year-on-year. Roll-forming volumes were slightly ahead, however, higher overhead costs impacted adversely on overall earnings with a decrease of 25% on the prior year. Glass wool insulation volumes were 22% higher due to increased activity levels and market share increases, and earnings also benefited from restructuring initiatives. Gross revenue in New Zealand businesses grew 4% to $431 million. In Australia revenue remained stable and a 10% decline in revenue, principally in North America and Europe, was reported in the Roof Tile Group. New Zealand Building Materials operating earnings before significant items increased by $10 million. Plasterboard volumes increased 7%; prices remained generally stable and earnings in the business increased by 6% on the prior year. Insulation operating earnings increased by 51% due to higher sales of foil and laminate products. Operating earnings in the Roof Tile Group fell by $8 million, primarily due to volume declines of 6% and 33% in the key markets of North America and Europe respectively. North America has suffered from increased competition in Southern States with negative margin impacts, and in Eastern Europe demand was adversely affected by both economic and political instability. 7 2015 FLETCHER BUILDING ANNUAL REPORTYear ended June 2015 NZ$M Year ended June 2014 NZ$M Change NZ$M Change % 1,828 1,809 129 1,965 1,731 1,710 124 1,702 97 99 5 263 Operating earnings Year ended June 2015 NZ$M Year ended June 2014 NZ$M 81 48 129 61 63 124 6 6 4 15 Change % 33 (24) 4 Revenues in Europe were up by 1% from the prior year. Volumes decreased by 3% driven by a change in mix towards compact laminate. Market conditions varied significantly by region with revenue in domestic currencies in Germany, Spain and Scandinavia up by 20%, 19%, and 10% respectively while in central Europe and the United Kingdom, revenues were down by 8% and 2% respectively. Revenues in Russia fell by 8% due to the economic deterioration in the region. Operating earnings for Europe were down by $6 million on the prior year due to competitive pressures and changing product mix. Revenues in Asia were up by 1% in domestic currencies for the region but varied significantly by country. In all key markets, except China, revenue in domestic currencies was up on the prior year: Thailand up 12%; Taiwan up 8%; Singapore and Hong Kong up 22% and 12% respectively. These performances were aided by market activity and the successful development of new products. Revenue in domestic currency was down by 12% in China as a result of weaker market conditions and strong competitor activity. Earnings in Asia were down by 34% to $19 million due to lower earnings in China, coupled with increased costs associated with operating the new plant in Jiujiang. Corporate costs of $20 million increased $5 million on the prior year as a result of investment initiatives in sales and marketing effectiveness and better customer engagement across all regions. These investments are aimed at growing sustainable long-term improvements in revenue. Investment in IT during the year increased as the division invested further in developing its global digital capabilities. Financial review continued Laminates & Panels. Laminex and Formica Gross revenue External revenue Operating earnings Funds Laminex NZ and Australia Formica Total Operating earnings in Laminates & Panels were $129 million compared with $124 million in the prior year, with a 33% increase in Laminex offset by a decline in Formica earnings. Gross revenues were up by 6% to $1,828 million compared with $1,731 million in the prior year. Prices and margins varied by major market. In North America, Australia and New Zealand prices and margins improved due to a combination of initiatives to drive revenue and improve market share in addition to demand remaining firm. However, in the Chinese and European markets, prices and margins were generally flat or down; the result of strong competition and pressure on volumes. Improvements in manufacturing efficiencies at the division’s key manufacturing facilities coupled with improving input costs such as oil and resins delivered improved performances. In the Laminex businesses, gross revenue increased by 6% over the prior year. This was driven by continuing growth of certain product categories such as engineered stone and plywood along with initiatives to improve service and optimise pricing. Coupled with increased activity in the residential sector, revenues increased by 7% in Australia, and 3% in New Zealand. Laminex’s operating earnings were up 33% to $81 million with operational and manufacturing efficiencies contributing to improved margins. Formica’s gross revenue of $888 million was up by 5% on the prior year, due to the translation effects of the New Zealand dollar, and down 1% in local currencies. Operating earnings were $48 million, down by 24% on the prior year. Revenue in North America, in domestic currency, was up by 1% on the prior year, in line with the increase in volumes. Earnings were $49 million, up 14% on the prior year, largely the result of continued improvements in operational performance. 8 2015 FLETCHER BUILDING ANNUAL REPORTDistribution New Zealand. Building Supplies; Steel Distribution Gross revenue External revenue Operating earnings before significant items1 Significant items2 Operating earnings Funds Building Supplies Steel Distribution Total Year ended June 2015 NZ$M Year ended June 2014 NZ$M Change NZ$M Change % 1,757 1,548 108 (18) 90 330 1,650 1,462 84 – 84 332 107 86 24 (18) 6 (2) 6 6 29 NM 7 (1) Operating earnings before significant items1 Year ended June 2015 NZ$M Year ended June 2014 NZ$M 75 33 108 53 31 84 Change % 42 6 29 1 Operating earnings before significant items is a non-GAAP measure used by management to assess the performance of the business and has been derived from Fletcher Building Limited’s group financial statements for the year ended 30 June 2015. 2 Details of significant items can be found in note 4 of the group’s financial statements. Distribution New Zealand operating earnings before significant items for the year were $108 million, an increase of 29% on the prior year. During the year $18 million of significant items were recognised, relating to restructuring costs and goodwill impairments in the Forman Distribution business. Revenues of $1,757 million increased by $107 million, reflecting a 6% growth in Building Supplies and 9% in the Steel Distribution businesses. Revenue growth was driven by both existing and new customers in Building Supplies businesses and through organic growth in the Steel Distribution businesses, especially in Fletcher Reinforcing and Easysteel with increased volumes of 20% and 17% respectively. During the year, PlaceMakers grew core categories such as timber, frame and truss, and concrete, as well as increasing penetration into the kitchen sector. Mico also achieved significant growth in own brand and private label sales. The improved operating earnings before significant items reflects the benefits from increased revenues, margin retention in the building supplies business, operational efficiencies and well-controlled operating costs. Synergies were also realised from combining the Steel Distribution businesses into Distribution New Zealand during the year. PlaceMakers recorded 26% operating earnings growth year-on-year. Additionally, a highlight of the year was the successful turnaround of the Mico plumbing supplies business from a loss of $2 million in the prior year to a profit of $7 million (including property gains of $3 million). During the year, a colocation programme of Mico stores with PlaceMakers branches was implemented with six stores now colocated. The division’s revenue and earnings growth was also achieved without growing the division’s funds base, which was largely unchanged at $330 million at 30 June 2015. 9 2015 FLETCHER BUILDING ANNUAL REPORTFinancial review continued Distribution Australia. Tradelink Gross revenue External revenue Operating earnings before significant items1 Significant items2 Operating earnings Funds Year ended June 2015 NZ$M Year ended June 2014 NZ$M 826 825 18 – 18 448 928 927 17 (12) 5 406 Change NZ$M (102) (102) 1 12 13 42 Change % (11) (11) 6 NM NM 10 For comparative purposes the results of the Australian distribution business are presented in Australian dollars below. Gross revenue External revenue Operating earnings before significant items1 Significant items2 Operating earnings Funds Year ended June 2015 A$M Year ended June 2014 A$M Change A$M Change % 766 765 17 – 17 400 837 836 15 (10) 5 378 (71) (71) 2 10 12 22 (8) (8) 13 NM NM 6 1 Operating earnings before significant items is a non-GAAP measure used by management to assess the performance of the business and has been derived from Fletcher Building Limited’s group financial statements for the year ended 30 June 2015. 2 Details of significant items can be found in note 4 of the group’s financial statements. Distribution Australia operating earnings before significant items were $18 million, up 6% from $17 million in the prior year. Revenue in domestic currency fell 8% on the prior year to A$766 million, primarily due to the sale of the Hudson Building Supplies business during the year. Tradelink revenue, excluding Hudson Building Supplies, in domestic currency was A$732 million, up 3% on the prior year. This increase was a result of the successful turnaround programmes initiated in the previous year and improved residential building activity. The key pillars of the turnaround being: sales effectiveness, merchandising, pricing and supply chain effectiveness are now well established and set the platform for solid market share gain and consistent profitability. The business has also developed and tested a transformation to the customer value proposition focused on the largest segments of the Australian plumbing market, which will provide further opportunities for growth in future years. Construction. Construction; Housing Gross revenue External revenue Operating earnings before significant items1 Significant items2 Operating earnings Funds Construction Housing Total Year ended June 2015 NZ$M Year ended June 2014 NZ$M Change NZ$M Change % 1,580 1,537 140 (20) 120 157 1,301 1,277 106 – 106 141 279 260 34 (20) 14 16 21 20 32 NM 13 11 Operating earnings before significant items1 Year ended June 2015 NZ$M Year ended June 2014 NZ$M 74 66 140 57 49 106 Change % 30 35 32 1 Operating earnings before significant items is a non-GAAP measure used by management to assess the performance of the business and has been derived from Fletcher Building Limited’s group financial statements for the year ended 30 June 2015. 2 Details of significant items can be found in note 4 of the group’s financial statements. 10 2015 FLETCHER BUILDING ANNUAL REPORTThe Construction division operating earnings were $120 million, a 13% increase on the prior year. Significant items of $20 million relate to restructuring costs and goodwill impairment for the Forman Contracting business. Operating earnings before significant items were $140 million, a 32% increase on the prior year. All business units in the division reported record revenue and operating earnings for the year. Gross revenue for the year was $1,580 million, an increase of 21% on the prior year as a result of increased residential sales and commercial activity in New Zealand and the South Pacific. Construction gross revenue increased by 19% to $1,342 million. Gross revenue for Fletcher Living rose by 35% to $238 million. During the year, contracts in New Zealand and the South Pacific worth over $1.4 billion were awarded. The total construction backlog, being work secured but yet to be constructed, is now $2.4 billion, up 32% on the prior year. Major projects won in the last year include MXH Kirkbride Alliance SH20A roading improvements in Auckland, Auckland International Airport terminal and the new National Biocontainment Lab in Wellington. As project manager for the Canterbury Home Repair Programme since October 2010, over 65,000 homes have been repaired. A contract beyond the initial contract expiry date of April 2015 has been agreed with EQC, which provides for up to 12 months of further repair work to be carried out. The strong Auckland residential housing market supported sales volumes and prices. Continued investment in securing land holdings will enable development of over 1,800 homes, and further sites across Auckland are being developed to allow increased volumes. In Christchurch, either agreement has been reached or Fletcher Living is the preferred partner with the Crown, to build over 1,200 residential properties in central Christchurch on the Awatea, Colombo and Welles sites and in the East and North Frame Residential Precinct development. Group cash flow. Operating earnings before significant items1 Depreciation and amortisation Less cash tax paid Less interest paid Provisions, significant items and other Results from operations before working capital movements Land and developments Other working capital movements Cash flows from operating activities Year ended June 2015 NZ$M Year ended June 2014 NZ$M Change NZ$M 653 201 (72) (124) (42) 616 (58) 17 575 624 203 (73) (131) (44) 579 (28) (62) 489 29 (2) 1 7 2 37 (30) 79 86 1 Operating earnings before significant items is a non-GAAP measure used by management to assess the performance of the business and has been derived from Fletcher Building Limited’s group financial statements for the year ended 30 June 2015. Detailed disclosure of the above line items is included in Fletcher Building Limited’s group financial statements which have been included in this annual report. Cash flows from operating activities of $575 million were $86 million, or 18%, higher than the prior year, while cash flows from operations before working capital movements were $616 million, up from $579 million. The improvement in working capital was partially offset by the $58 million cash impact of further residential land acquisitions in Auckland for future development. Capital expenditure Capital expenditure Year ended June 2015 NZ$M Year ended June 2014 NZ$M 278 260 Change NZ$M 18 The group defines capital expenditure as “additions to the balance sheet of property, plant and equipment and intangible assets, excluding the initial impacts of the acquisitions of companies or businesses”. Capital expenditure was $278 million, compared with $260 million in the prior year. Of this total, $173 million was for stay-in-business capital projects, including $23 million on IT projects, and $105 million related to new growth initiatives. 11 2015 FLETCHER BUILDING ANNUAL REPORTFinancial review continued Funding. Total available funding as at 30 June 2015 was $2,483 million. Of this, approximately $614 million was undrawn and there was an additional $228 million of cash on hand. Drawn debt facilities maturing within the next 12 months total $246 million and a further $94 million of capital notes are subject to interest rate and term reset. These maturities are more than covered by the undrawn facilities and available cash. The group’s gearing1 at 30 June 2015 was 31.8% compared with 32.3% at 30 June 2014. This is within the target range of 30–40%. The group’s leverage2 at 30 June 2015 was 2.02 times compared with 1.99 times at 30 June 2014. This is within the target range of 2.0–2.5 times. The average maturity of the debt is 3.7 years and the hedged currency split is 47% Australian dollar; 32% New Zealand dollar; 12% US dollar; and 9% spread over various other currencies. Approximately 56% of all borrowings have fixed interest rates with an average duration of 3.0 years and a rate of 6.47%. Inclusive of floating rate borrowings, the average interest rate on the debt is approximately 5.5%. Interest coverage3 for the year was 5.1 times compared with 4.8 times in the previous year. Dividend. The 2015 final dividend is 19 cents per share. The increase is in line with underlying earnings performance. In line with the group’s tax crediting policy announced in 2011, the final dividend will be fully imputed with New Zealand tax credits and unfranked for Australian tax purposes. The imputed amount per share on the dividend is 7.3889 cents. As a fully imputed dividend, a supplementary dividend is payable to non-New Zealand non-portfolio shareholders and has the effect of removing or reducing the cost of New Zealand non-resident withholding tax (NRWT). For most Australian resident shareholders receiving a supplementary dividend, the after tax return of the fully imputed dividend is equivalent to receiving a 41% franked dividend. The dividend will be paid on 14 October 2015 to holders registered as at 5.00 pm Friday 25 September 2015 (NZT). The shares will be quoted on an ex-dividend basis from 23 September 2015 on the NZX and ASX. The interim dividend of 18 cents per share was paid on 15 April 2015. 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 (‘the Plan’) under which they have the opportunity to reinvest their dividends in additional shares. The Plan will be operative for this dividend payment. There will be no discount to the price applied to ordinary shares issued. Documentation for participation is available from the share registry or the website www.fbu.com and must be received by the registry before 5.00 pm Monday 28 September 2015. The price used to determine entitlements under the Plan is the average of the individual daily volume weighted average sale prices of price-setting trades of the company’s shares sold on the NZX on each of the five business days from and including the ex-dividend date of 23 September 2015. The new shares will rank equally with existing shares and will be issued on the dividend payment date of 14 October 2015. Dividend Policy Fletcher Building seeks to maintain dividends through economic cycles and to progressively grow the dividend over the medium term. The target dividend pay-out ratio, in the range of 50% to 75% of net earnings, is intended to provide sufficient flexibility for dividends to be maintained despite variations in economic conditions. Maintenance of a dividend in this range will be subject to there being no material adverse change in circumstances or outlook. In determining a dividend for any year, a number of factors are taken into consideration, including current and forecast earnings and operating cash flows, capital requirements, and the company’s debt equity position. Beyond dividends, Fletcher Building will consider other means of distribution, should cash flows and future investment requirements allow. Fletcher Building’s policy on franking and imputation is to frank with Australian tax credits, or alternatively impute with New Zealand tax credits, to the extent that there are sufficient franking or imputation credits available for distribution. Interest bearing net debt (including capital notes) to interest bearing net debt (including capital notes) and equity Interest bearing net debt (including capital notes) to EBITDA before significant items EBIT before significant items to total interest paid including capital notes interest 1 2 3 12 2015 FLETCHER BUILDING ANNUAL REPORTTrend statement Trend statement. Notes 3 2 June 2015 June 2014 June 2013 June 2012 June 2011 June 2010 June 2009 June 2008 1 June 2007 June 2006 NZ$M NZ$M NZ$M NZ$M NZ$M NZ$M NZ$M NZ$M NZ$M NZ$M Financial performance Revenue Earnings before interest and taxation (EBIT) Net earnings Cash flow from operations Earnings per share – basic (cents per share) Dividends for the period (cents per share) Balance sheet Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Capital Reserves Minority equity Total equity Total liabilities and equity Other financial data Return on average funds (%) 4 Return on average equity (%) 5 Gearing (%) 6 Net tangible assets per share ($) 8,661 8,401 8,517 8,839 7,416 6,799 7,103 7,091 5,926 5,520 503 270 575 592 339 489 569 326 559 403 185 448 492 283 402 521 272 522 159 (46) 533 768 467 434 703 484 483 675 379 560 39.2 49.3 47.6 27.2 45.0 44.9 (8.7) 93.2 101.9 81.3 37.0 36.0 34.0 34.0 33.0 29.0 38.0 48.5 45.0 40.0 3,272 4,229 7,501 1,947 1,844 3,791 2,633 1,050 27 3,710 7,501 9.6 7.7 31.8 2.88 2,958 3,983 6,941 1,596 1,891 3,487 2,868 4,257 7,125 1,557 2,014 3,571 3,112 4,367 7,479 1,936 2,091 4,027 2,624 2,606 2,582 795 35 3,454 6,941 913 35 3,554 7,125 838 32 3,452 7,479 11.7 9.9 32.3 2.60 10.8 9.4 33.5 2.61 7.4 5.2 37.4 2.65 3,104 4,388 7,492 1,700 2,092 3,792 2,553 1,113 34 3,700 7,492 10.6 8.2 34.3 2.71 2,317 3,397 5,714 1,384 1,307 2,691 1,912 1,077 34 3,023 5,714 12.7 9.1 26.8 2.90 2,255 3,550 5,805 1,313 1,508 2,821 1,895 1,057 32 2,984 5,805 3.4 (1.6) 31.1 2.80 2,549 3,686 6,235 1,436 2,043 3,479 1,364 1,351 41 2,756 6,235 19.0 19.0 40.1 2.90 2,074 2,359 4,433 1,187 950 2,137 1,325 926 45 2,296 4,433 24.8 26.0 22.2 3.25 1,699 2,400 4,099 1,207 1,092 2,299 970 786 44 1,800 4,099 26.1 24.6 37.1 2.47 Market capitalisation (NZ$M) 5,593 6,060 5,784 4,009 5,850 4,763 3,967 3,197 6,166 4,296 Total shareholders’ return (%) 7 (3) 9 51 (27) 14 24 14 (43) 42 40 1 2 3 4 5 6 7 The Formica Corporation group was acquired on 2 July 2007. The Crane group was acquired with an effective acquisition date of 28 March 2011. The June 2012 balance sheet has been restated following revisions to IAS 19 Employee Benefits adopted by the group. EBIT to average funds (net debt and equity less deferred tax asset). Net earnings to average shareholders’ funds. Net debt (borrowings less cash and deposits) to net debt and equity. Share price movement in year and gross dividend received, to opening share price. 13 2015 FLETCHER BUILDING ANNUAL REPORTIndependent auditor’s report. Independent auditor’s report To the Shareholders of Fletcher Building Limited Report on the Financial Statements We have audited the group financial statements of Fletcher Building Limited and its subsidiaries (“the Group”) on pages 15 to 51, which comprise the balance sheet of the Group as at 30 June 2015, and the statement of comprehensive income, income statement, statement of changes in equity and statement of cash flows for the year then ended of the Group, and a summary of significant accounting policies and other explanatory information. This report is made solely to the company’s shareholders, as a body, in accordance with section 461G(1) of the Financial Markets Conduct Act 2013. Our audit has been undertaken so that we might state to the company’s shareholders those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s shareholders as a body, for our audit work, for this report, or for the opinions we have formed. Directors’ Responsibility for the Financial Statements The directors are responsible for the preparation and fair presentation of the financial statements in accordance with generally accepted accounting practice in New Zealand, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (New Zealand). These auditing standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our 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, we have considered the internal control relevant to the entity’s preparation and fair presentation of the financial statements 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 entity’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 overall presentation of the financial statements. We believe we have obtained sufficient and appropriate audit evidence to provide a basis for our audit opinion. We have provided other services to the Group in relation to taxation and other assurance services. We have no other relationship, or interest in, the Group. Partners and employees of our firm may deal with the Group on normal terms within the ordinary course of trading activities of the business of the Group. Opinion In our opinion, the financial statements on pages 15 to 51: • comply with generally accepted accounting practice in New Zealand; • comply with International Financial Reporting Standards; and • present fairly, in all material respects, the financial position of the Group as at 30 June 2015 and the financial performance and cash flows of the Group for the year then ended. 19 August 2015 Auckland 14 2015 FLETCHER BUILDING ANNUAL REPORTIncome statement Financial statements. 2015 For the year ended 30 June 2015 Fletcher Building Group Revenue Cost of goods sold Gross margin Selling and marketing expenses Administration expenses Share of profits of associates and joint ventures Other investment income Other gains and losses Significant items Earnings before interest and taxation (EBIT) Funding costs Earnings before taxation Taxation expense Earnings after taxation Earnings attributable to non-controlling interests Net earnings attributable to the shareholders Net earnings per share (cents) Basic Diluted Weighted average number of shares outstanding (millions of shares) Basic Diluted Dividends declared per share (cents) On behalf of the Board, 19 August 2015 Sir Ralph Norris Chairman Mark Adamson Managing Director Notes 19 3 4 5 6 8 8 Year ended June 2015 NZ$M 8,661 (6,553) 2,108 (880) (606) 23 8 (150) 503 (127) 376 (96) 280 (10) 270 39.2 39.1 688 703 37.0 Year ended June 2014 NZ$M 8,401 (6,294) 2,107 (929) (563) 24 1 (16) (32) 592 (130) 462 (111) 351 (12) 339 49.3 49.2 687 714 36.0 The accompanying notes form part of and are to be read in conjunction with these financial statements. 15 2015 FLETCHER BUILDING ANNUAL REPORT Statement of comprehensive income For the year ended 30 June 2015 Fletcher Building Group Net earnings – parent interest Net earnings – non-controlling interests Net earnings Other comprehensive income Items that do not subsequently get reclassified to profit or loss: Movement in pension reserve Items that may be reclassified subsequently to profit or loss: Movement in cash flow hedge reserve Movement in currency translation reserve Other comprehensive income Total comprehensive income for the year Year ended June 2015 NZ$M Year ended June 2014 NZ$M 270 10 280 12 217 229 229 509 339 12 351 9 9 9 (245) (236) (227) 124 The accompanying notes form part of and are to be read in conjunction with these financial statements. 16 2015 FLETCHER BUILDING ANNUAL REPORT Statement of movements in equity For the year ended 30 June 2015 Fletcher Building Group Total equity at 30 June 2013 l a t i p a c e r a h S M $ Z N d e s a b - e r a h S s t n e m y a p e v r e s e r M $ Z N i d e n a t e R i s g n n r a e M $ Z N e v r e s e r e g d e h w o l f h s a C M $ Z N 2,606 1,078 1 (31) s e t o N n o i t a s n a r t l y c n e r r u C e v r e s e r M $ Z N (55) i n o s n e P e v r e s e r M $ Z N g n i l l o r t n o c s t s e r e t n i M $ Z N M $ Z N l a t o T - n o N y t i u q e l a t o T M $ Z N (80) 3,519 35 3,554 Total comprehensive income for the year 339 9 (245) 9 112 Movement in non-controlling interests Issue of shares Dividends paid to shareholders of the parent Movement in share-based payments reserve Movement in treasury stock Total equity at 30 June 2014 Total comprehensive income for the year Movement in non-controlling interests Issue of shares Dividends paid to shareholders of the parent Movement in share-based payments reserve Movement in treasury stock Total equity at 30 June 2015 11 10 9 10 11 10 9 10 12 (12) 124 (12) 17 (240) 10 1 17 1 (240) 10 17 (240) 10 1 2,624 1,177 11 (22) (300) (71) 3,419 35 3,454 270 12 217 8 1 (248) 4 499 8 (248) 4 1 10 (18) 509 (18) 8 (248) 4 1 2,633 1,199 15 (10) (83) (71) 3,683 27 3,710 The accompanying notes form part of and are to be read in conjunction with these financial statements. 17 2015 FLETCHER BUILDING ANNUAL REPORT Balance sheet As at 30 June 2015 Fletcher Building Group Assets Current assets: Cash and deposits Current tax assets Derivatives Debtors Inventories Total current assets Non-current assets: Property, plant and equipment Goodwill Intangible assets Investments in associates and joint ventures Other investments Derivatives Deferred tax assets Total non-current assets Total assets Liabilities Current liabilities: Creditors and accruals Provisions Current tax liabilities Derivatives Construction contracts Borrowings Total current liabilities Non-current liabilities: Creditors and accruals Provisions Retirement plan liabilities Deferred tax liabilities Derivatives Borrowings Total non-current liabilities Total liabilities Equity Capital Reserves Shareholders’ funds Non-controlling interests Total equity Total liabilities and equity Notes June 2015 NZ$M June 2014 NZ$M 12 23 25 13 14 15 16 17 19 18 25 23 20 21 23 25 22 24 20 21 31 23 25 24 10 11 228 23 6 1,509 1,506 3,272 2,222 1,131 568 98 70 107 33 4,229 7,501 1,315 100 28 8 156 340 1,947 40 16 71 58 45 1,614 1,844 3,791 2,633 1,050 3,683 27 3,710 7,501 134 55 6 1,401 1,362 2,958 2,093 1,122 507 133 62 41 25 3,983 6,941 1,231 57 22 18 130 138 1,596 66 14 79 50 38 1,644 1,891 3,487 2,624 795 3,419 35 3,454 6,941 The accompanying notes form part of and are to be read in conjunction with these financial statements. 18 2015 FLETCHER BUILDING ANNUAL REPORTStatement of cash flows For the year ended 30 June 2015 Fletcher Building Group Cash flow from operating activities Receipts from customers Dividends received Total received Payments to suppliers, employees and others Interest paid Income tax paid Total applied Net cash from operating activities Cash flow from investing activities Sale of property, plant and equipment Sale of investments Sale of subsidiaries/businesses Total received Purchase of property, plant and equipment Purchase of subsidiaries/businesses Total applied Net cash from investing activities Cash flow from financing activities Net debt drawdown Issue of capital notes Total received Net debt repayment Repurchase of capital notes Distribution to non-controlling interests Dividends Total applied Net cash from financing activities Net movement in cash held Add opening cash deposits Effect of exchange rate changes on net cash Closing cash and liquid deposits The accompanying notes form part of and are to be read in conjunction with these financial statements. Year ended June 2015 NZ$M Year ended June 2014 NZ$M 8,635 19 8,654 7,883 124 72 8,079 575 46 1 21 68 278 4 282 (214) 11 10 16 240 277 (277) 84 134 10 228 8,323 12 8,335 7,642 131 73 7,846 489 13 1 21 35 260 4 264 (229) 25 13 38 43 14 224 281 (243) 17 123 (6) 134 19 2015 FLETCHER BUILDING ANNUAL REPORT Reconciliation of net earnings to net cash from operating activities For the year ended 30 June 2015 Fletcher Building Group Cash was received from: Net earnings Earnings attributable to non-controlling interests Adjustment for items not involving cash: Depreciation, depletions, and amortisation Significant items Provisions and other adjustments Taxation Gain on disposal of businesses and property, plant and equipment Non-cash adjustments Cash flow from operations before net working capital movements Net working capital movements Net cash from operating activities Net working capital movements Debtors Inventories Land and developments Contracts Creditors Year ended June 2015 NZ$M Year ended June 2014 NZ$M 270 10 280 201 126 4 24 (19) 336 616 (41) 575 (47) (1) (58) 21 44 (41) 339 12 351 203 22 (34) 38 (1) 228 579 (90) 489 (108) (76) (28) 32 90 (90) The accompanying notes form part of and are to be read in conjunction with these financial statements. 20 2015 FLETCHER BUILDING ANNUAL REPORTStatement of accounting policies For the year ended 30 June 2015 General information The financial statements presented are those of Fletcher Building Limited (the company) and its subsidiaries (the group). The group is primarily involved in the manufacturing and distribution of building materials and residential and commercial construction. Fletcher Building Limited is a company domiciled in New Zealand. The registered office of the company is 810 Great South Road, Penrose, Auckland. The company is registered under the Companies Act 1993 and is a Financial Markets Conduct Act 2013 reporting entity in terms of the Financial Reporting Act 2013. The group is a profit-oriented entity. Basis of presentation 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. These financial statements are presented in New Zealand dollars ($), which is the group’s functional and presentation currency and rounded to the nearest million unless otherwise stated. The financial statements comprise the income statement, statement of comprehensive income, statement of movements in equity, balance sheet, statement of cash flows, 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. The accounting policies have been applied consistently by all group entities throughout all periods presented, except as disclosed in note 1, changes in accounting policies. Segmental reporting Segmental information is presented in respect of the group’s industry and geographical segments. The use of industry segments as the primary format is based on the group’s management and internal reporting structure, which recognises groups of assets and operations with similar risks and returns. Inter-segment pricing is determined on an arm’s length basis. Critical accounting estimates and judgements The preparation of financial statements in conformity with NZ IFRS requires the directors to make estimates and judgements 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 revenue and expenses during the reporting period. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results could differ from those estimates. The estimates and assumptions are reviewed on an ongoing basis. The estimates and judgements that are critical to the determination of the amounts reported in the financial statements relate to the following: Revenue from construction contracts The construction contract accounting policy below requires estimates to be made of the outcome under each contract, which requires assessments and judgements to be made on a range of factors, such as: recovery of pre-contract costs, changes in the scope of work, contract programmes, maintenance and defects liabilities, and changes in costs. Intangible assets Assessing the carrying value of goodwill and indefinite life brands requires management to estimate future cash flows to be generated by the related cash-generating unit or brand. The key assumptions used in the value-in-use models include the expected rate of growth of revenues and earnings, the terminal growth rate and the appropriate discount rate to apply. Refer to notes 16 and 17 for further details. Deferred tax assets Estimates are required relating to the availability and utilisation of losses to be carried forward (refer to note 23 for further details). Retirement plan assets and liabilities Principal assumptions made in the actuarial calculation of the defined benefit obligation relate to the discount rate, rate of salary inflation and life expectancy (refer to note 31 for further details). Provisions and contingent liabilities Management consults with legal counsel on matters related to litigation, with respect to matters in the ordinary course of business. In respect of all claims and litigation, the group provides for anticipated costs in line with the accounting policy stated below. Refer to note 21 and note 28 for further details. Fair value of derivatives The valuation of derivatives is determined in accordance with the accounting policy stated below and as discussed in note 25(g). Basis of consolidation The consolidated financial statements comprise the company and its subsidiaries and the group’s interest in associates, partnerships and joint arrangements. Intercompany transactions are eliminated in preparing the consolidated financial statements. Subsidiaries Subsidiaries are all entities over which the group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are included in the consolidated financial statements using the acquisition method of consolidation, from the date control commences until the date control ceases. Non-controlling interests are allocated their share of profit for the year in the income statement and are presented separately within equity in the balance sheet. The effect of all transactions with non-controlling interests that change the group’s ownership interest but do not result in a change in control are recorded in equity. 21 2015 FLETCHER BUILDING ANNUAL REPORTStatement of accounting policies continued For the year ended 30 June 2015 Associates The equity method has been used for associate entities over which the group has significant influence but not control. Land, buildings, plant and machinery, finance leased assets and fixtures and equipment are stated at cost, less accumulated depreciation. Goodwill on acquisition Fair values are assigned to the identifiable assets and liabilities of subsidiaries and associates of the group at the date they are acquired. Goodwill arises to the extent of the excess of the cost of the acquisition over the fair value of the assets and liabilities. Goodwill is stated at cost, less any impairment losses. Goodwill is allocated to cash-generating units and is not amortised but is tested annually for impairment. Goodwill in respect of associates is included in the carrying amount of associates. Any discount on acquisition is recognised directly in earnings. Intangible assets (other than goodwill) Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangibles are carried at cost less any accumulated amortisation and accumulated impairment losses. Intangible assets with indefinite useful lives are not amortised but are tested for impairment annually, either individually or at the cash- generating unit level. Definite lived intangible assets are amortised on a straight-line basis. Joint arrangements A joint arrangement is an arrangement where two or more parties have joint control. The group classifies its joint arrangements as either joint operations or joint ventures depending on the legal, contractual and other rights and obligations. Where the interest in the joint arrangement is in the net residual value of the business, the arrangement is a joint venture. Joint ventures are accounted for using the equity method. Under the equity method of accounting investments in joint ventures are initially recognised at cost. Subsequent to initial recognition, the consolidated financial statements include the group’s share of profit or loss and other comprehensive income of equity accounted investees. Where the group has rights to the assets and obligations for the liabilities of the joint arrangement, this is a joint operation. The group recognises its share of assets, liabilities, revenue and expenses of each joint operation. Valuation of assets Property, plant and equipment 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 incurred in bringing the assets to the location and the condition necessary for their intended service, including subsequent expenditure. 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 attributable to the project, variable and fixed overheads and unrecovered operating costs incurred during planned commissioning. Costs cease to be capitalised as soon as the asset is in the location and condition necessary for it to be capable of operating in the manner intended by management. All feasibility costs are expensed as incurred. Leases in which the group assumes substantially all the risks and rewards of ownership are classified as finance leases and are measured at the lower of their fair value or the present value of the minimum lease payments at the inception of the lease. Site development costs incurred in order to commence extraction are capitalised as resource extraction assets. Resource extraction assets are held at historic cost and depleted over the shorter of the life of the site or right to use period. Other investments Other investments are valued at historical cost. Impairments in the value of investments are written off to earnings as they arise. Inventories Inventories 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. Land and developments are stated at the lower of cost and net realisable value. Cost includes the cost of acquisition and development. Costs incurred after completion of development are expensed as incurred. 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. Construction work in progress Construction work in progress is stated at cost plus profit recognised to date, less progress billings and any provision for foreseeable losses. Cost includes all expenditure directly related to specific projects and an allocation of fixed and variable overheads incurred in the group’s contract activities based on normal operating capacity. Cash and deposits Cash and 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 of an asset falls below its carrying value. The recoverable amount is determined to be the greater of the fair value, less disposal costs or the sum of expected future discounted net cash flows arising from the ownership of the asset. Future net cash flows take into account the remaining useful life and the expected period of continued ownership, including any intended disposals, and any costs or proceeds expected to eventuate at the end of the remaining useful life or the end of the expected period of continued ownership. For the purposes of considering whether there has been an impairment, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. When the book value of a group of assets exceeds the recoverable amount, an impairment loss arises and is recognised in earnings immediately. Goodwill and brands with an indefinite life are tested for impairment annually and when an indication of impairment exists. Other assets are tested for impairment when an indication of impairment exists. Brands Brands for which all relevant factors indicate that there is no limit to the foreseeable net cash flows are considered to have an indefinite useful life and are held at cost and are not amortised but are subject to an annual impairment test. 22 2015 FLETCHER BUILDING ANNUAL REPORTRetirement plans The group’s plan assets and liabilities in respect of individual retirement plans are calculated separately for each plan by an independent actuary, as being the fair value of the plan’s assets less the present value of the future obligations to the members. The value of the asset recognised cannot exceed the present value of any future refunds from the plans or reductions in future contributions to the plans, unless a constructive right to a refund of the surplus exists, in which case the amount to be refunded is recognised as an asset. In the group’s balance sheet, plans that are in a surplus position are not offset with plans that are in a liability position. Foreign currency Translation of the financial statements of foreign operations The assets and liabilities of the group’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 and other currency instruments designated as hedges of such investments are recognised directly in the currency translation reserve. The cumulative exchange variations would be reclassified subsequently to earnings if the overseas operation to which the reserve relates were to be sold or otherwise disposed of. Foreign currency transactions Transactions in foreign currencies are translated at exchange rates at the date of the transactions. Monetary assets and liabilities in foreign currencies at balance date are translated at the rates of exchange ruling at balance date. Foreign exchange gains and losses resulting from the settlement of such transactions are recognised in earnings, except where deferred in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges. 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. Financial Instruments Non-derivative financial instruments Non-derivative financial instruments comprise borrowings, trade and other payables, cash and cash equivalents, and trade and other receivables. Non-derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition, non-derivative financial instruments are measured at amortised cost using the effective interest method, less any impairment losses. Derivative financial instruments Derivative financial instruments, including foreign exchange contracts, interest rate swaps, currency swaps, options, forward rate agreements and commodity 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 the group’s derivative financial instruments are held to hedge risk on underlying assets, liabilities and forecast and committed trading transactions. The fair values of derivative financial instruments are determined by applying quoted market prices, where available, or by using inputs that are observable for the asset or liability. Further information is included in note 25(g). The group holds derivative 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. Derivative financial instruments are initially recorded at fair value and are then revalued to fair value at balance date. The gain or loss on revaluation is recorded either in earnings or equity depending on whether the instruments qualify for hedge accounting and the nature of the item being hedged. 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. This relationship must be documented from inception. Fair value hedges Where a derivative financial instrument is designated as a hedge of a recognised asset or liability, or of a firm commitment, any gain or loss is recognised directly in earnings, together with any changes in the fair value of the hedged risk. Cash flow hedges Where a derivative financial instrument is designated as a hedge of the variability in cash flows of assets or liabilities, or of a highly probable forecasted transaction, the effective part of any gain or loss is recognised directly in the cash flow hedge reserve within equity and the ineffective part is recognised immediately in earnings. The effective portion is transferred to earnings when the underlying cash flows affect earnings. Net investment hedges Where the derivative financial instruments are designated as a hedge of a net investment in a foreign operation, the derivative financial instruments are accounted for on the same basis as cash flow hedges through the currency translation reserve within equity. Derivatives that do not qualify for hedge accounting Where a derivative financial instrument does not qualify for hedge accounting, or where hedge accounting has not been elected, any gain or loss is recognised directly in earnings. Valuation of liabilities Taxation The provision for current tax is the estimated amount due for payment during the next 12 months by the group. The provision for deferred tax 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 except for when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. Deferred tax assets are not recognised on temporary differences and tax losses unless recovery is considered probable. Finance leases Finance leases are capitalised to reflect the borrowings incurred and the cost of the asset acquired. Such obligations are classified within borrowings. The finance cost portion of lease payments is expensed to earnings over the lease period. The leased asset is depreciated on a straight-line basis over the estimated useful life of the asset with regard to residual values. Borrowings Interest bearing borrowings are initially recognised at fair value on transaction date, less directly attributable transaction costs, and subsequently measured at amortised cost using the effective interest rate method. 23 2015 FLETCHER BUILDING ANNUAL REPORTStatement of accounting policies continued For the year ended 30 June 2015 Creditors Trade creditors and other liabilities are stated at cost or estimated liability where accrued. Annual leave Annual leave is recognised on an accrual basis. Long service leave The liability for long service leave is recognised in the employee entitlements liability and is measured as the present value of expected future payments to be made in respect of services provided by employees. Consideration is given to expected future wage and salary levels, experience of employee turnover and periods of service. Depreciation and amortisation Depreciation of property, plant and equipment and amortisation of definite lived intangible assets are calculated on the straight-line method. Expected useful lives, which are regularly reviewed on a weighted average basis are: Buildings Plant and machinery Fixtures and equipment Leased assets capitalised 30 years 13 years 5 years 10 years Intangible assets 5 to 10 years Provisions A provision is recognised when the group has a current obligation and it is probable that an economic benefit will be required to settle it. Leasing commitments Expenditure arising from operating leasing commitments is written off to earnings in the period in which it is incurred. Equity Share capital Ordinary shares are classified as shareholders’ funds. 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. Where a member of the group purchases the company’s share capital, the consideration paid is deducted from equity under the treasury stock method as if the shares were cancelled, until they are reissued or otherwise disposed of. Income determination Revenue recognition Revenue is recognised in accordance with the terms of sale when the benefits of ownership and risk of loss passes to the customer. 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. The company uses its professional judgement to assess both the physical completion and the forecast financial result of the contract. 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. Investment revenue Dividends and distributions are taken to earnings when received and are accrued where declared prior to balance date. Significant items Transactions are classified as significant items when they meet certain criteria approved by the group’s Audit and Risk Committee. Significant items are determined in accordance with the principles of consistency, relevance and clarity. Transactions considered for classification as significant items include acquisition and disposal costs; impairment or reversal of impairment of assets; business integration; and transactions or events outside of the group’s ongoing operations that have a significant impact on reported profit. Funding costs Net funding costs comprise interest expense, interest income, amortisation of prepaid expenses and gains/losses on certain financial instruments that are recognised in earnings. Retirement plan expense Obligations for contributions to defined contribution plans are recognised in earnings as incurred. The actuarial cost of providing benefits under defined benefit plans is expensed as it accrues over the service life of the employees, after taking account of the income expected to be earned by the assets owned by the plans. All retirement plan related actuarial gains or losses are recognised in other comprehensive income in the pension reserve in the year in which they arise. Research and development Expenditure on research activities is recognised in earnings as incurred. Significant development expenditure is recognised as an asset if certain criteria, relating to technical feasibility and future economic benefits, are met. All other development expenditure is recognised in the income statement as incurred. Executive share scheme The group has a long-term share-based performance incentive scheme targeted at certain group executives most able to influence the results of the group. The executive long-term share scheme introduced in 2008 allows group executives to acquire shares in the company at market price, funded by an interest-free loan from the group. The executives are entitled to vote on the shares and to receive cash dividends, the proceeds of which are used to reduce the loan. The shares are held in trust for the executives by the Trustee, Fletcher Building Share Schemes Limited. Payment of half of any entitlement under the executive long-term share scheme is dependent upon the group’s total shareholder return exceeding the 51st percentile of the total shareholder return of a comparative group of companies over a three year restricted period. Payment of the other half of any entitlement is dependent upon the group achieving an earnings per share target. Additionally, in respect of the entitlement which is dependent on total shareholders’ return, the three year restrictive period is automatically extended for up to one year if total shareholders’ return is less than the 51st percentile. Executives can elect to extend the restrictive period for up to one year if total shareholders return is between the 51st and 75th percentile. No extension is permitted for the entitlement which is dependent upon achieving an earnings per share target. 24 2015 FLETCHER BUILDING ANNUAL REPORTAt the end of the restrictive period or any extension, the group will pay a bonus to the executives to the extent that performance targets have been met, the after-tax amount of which will be generally sufficient for the executives to repay the balance of the loan in respect of the shares that are to be transferred. Due to the integrated nature of the scheme, for accounting purposes the group accounts for the incentive scheme as being equity-settled. If the performance obligations are not met or are only partially met, the trustee will acquire the beneficial interest in some or all of the shares. The loan provided in respect of those shares that do not transfer to the executives (the forfeited shares) will be novated to the trustee and will be fully repaid by the transfer of the forfeited shares. The group will recognise an expense in earnings, with a corresponding increase in the share-based payments reserve, over the restrictive period. If the performance targets based on total shareholder return are not met and the shares do not transfer to the executives, the amount in the share-based payments reserve will remain in equity and will not be released to earnings. If the performance targets based on earnings per share are not met and the shares do not transfer, the amount in the share-based payments reserve will be released to earnings. The group accounts for the share schemes under the treasury stock method. The receivable owing from the executives, representing the shares held in the company, is deducted from the group’s paid up capital. The shares are deducted from equity until the end of the restrictive period, at which point they transfer to the executive or novate to the Trustee. Employee share purchase scheme – FBuShare The global employee share purchase scheme, FBuShare, allows eligible group employees to regularly save up to NZ$5,000 per annum of their after-tax pay and purchase shares in the company (purchased shares) at market prices. At the end of rolling three year qualification periods, and provided they remain employed by a group company, employees will be awarded one free award share for every two purchased shares acquired in the first year of each three year qualification period and still held at the end of those periods. Dividends payable will be reinvested in additional shares. Employees will receive award shares on any additional shares, subject to the same conditions set out above. The employees are responsible for any income tax liability payable on dividends and on the value of any award shares. At the end of each three year qualification period, employees may continue to hold any purchased, additional and award shares or they may sell some or all of the shares. The group accrues the liability to pay for award shares over the three year qualification periods. 25 2015 FLETCHER BUILDING ANNUAL REPORTNotes to the financial statements 1 Changes in accounting policies The following sets out the new accounting standards and amendments to standards that were applicable to the group from 1 July 2014. IAS 32 Financial Instruments: Presentation (amendment) clarifies the meaning ‘legally enforceable right to set-off’ and the criteria for certain financial instruments to qualify for offsetting and is applied retrospectively. This has not affected the measurement of any items recognised in the balance sheet or the income statement in the current year, however certain disclosures have been removed. There has been no material impact of any relevant standards adopted in the year to 30 June 2015, however certain comparatives have been restated to conform with the current year’s presentation. A number of new standards, amendments and interpretations have been issued by the International Accounting Standards Board and the External Reporting Board in New Zealand that are not yet effective and have not been early adopted by the group. Those which may be relevant to the group are set out below: NZ IFRS 9 Financial Instruments addresses the classification, measurement and recognition of financial assets and financial liabilities. It will eventually replace NZ IAS 39 Financial Instruments – Recognition and Measurement and is required to be adopted by the group in the financial statements for the year ending 30 June 2019. NZ IFRS 15 Revenue from Contracts with Customers was issued on 28 May 2014 and addresses recognition and measurement of revenue. It is required to be adopted by the group in the financial statements for the year ending 30 June 2018. The group has not applied these new standards in preparing these financial statements and is assessing the impact on the group’s results. Year ended June 2015 NZ$M Gross revenue Year ended June 2014 NZ$M Gross revenue Year ended June 2015 NZ$M External revenue Year ended June 2014 NZ$M External revenue 2,144 1,306 1,828 1,757 826 1,580 5 9,446 (785) 8,661 2,274 1,312 1,731 1,650 928 1,301 7 9,203 (802) 8,401 1,782 1,156 1,809 1,548 825 1,537 4 8,661 1,859 1,166 1,710 1,462 927 1,277 8,401 8,661 8,401 EBIT before significant items EBIT before significant items Significant items in EBIT (note 4) Significant items in EBIT (note 4) 177 118 129 108 18 140 (37) 653 (150) 503 214 116 124 84 17 106 (37) 624 (32) 592 (57) (55) (18) (20) (20) (12) (150) (32) 2 Segmental information Industry segments Heavy Building Products Light Building Products Laminates & Panels Distribution New Zealand Distribution Australia Construction Other Group less intercompany revenue Group external revenue Heavy Building Products Light Building Products Laminates & Panels Distribution New Zealand Distribution Australia Construction Other Group Significant items Earnings before interest and taxation (EBIT) per income statement 26 2015 FLETCHER BUILDING ANNUAL REPORTIndustry segments Heavy Building Products Light Building Products Laminates & Panels Distribution New Zealand Distribution Australia Construction Other Group Heavy Building Products Light Building Products Laminates & Panels Distribution New Zealand Distribution Australia Construction Other (including debt and taxation) Group Geographic segments New Zealand Australia North America Asia Europe Other jurisdictions Debt and taxation Group New Zealand Australia North America Asia Europe Other jurisdictions Group Significant items Earnings before interest and taxation (EBIT) per income statement Year ended June 2015 NZ$M Depreciation, depletion and amortisation expense Year ended June 2014 NZ$M Depreciation, depletion and amortisation expense Year ended June 2015 NZ$M Capital expenditure Year ended June 2014 NZ$M Capital expenditure 84 28 55 14 7 8 5 85 30 53 16 8 8 3 79 29 71 24 25 16 34 201 203 278 Funds* 1,666 612 1,965 330 448 157 (1,468) 3,710 Funds* 1,839 2,312 304 524 373 (43) (1,599) 3,710 External revenue 4,435 3,042 412 272 320 180 External revenue 4,031 3,287 392 263 322 106 8,661 8,401 64 27 115 17 3 9 25 260 Funds* 1,719 637 1,702 332 406 141 (1,483) 3,454 Funds* 1,747 2,263 240 424 292 (13) (1,499) 3,454 EBIT before significant items EBIT before significant items Significant items in EBIT (note 4) Significant items in EBIT (note 4) 449 119 46 24 (8) 23 653 (150) 503 362 171 40 36 3 12 624 (32) 592 (69) (81) (20) (12) (150) (32) * Funds represent the external assets and liabilities of the group and are used for internal reporting purposes. 27 2015 FLETCHER BUILDING ANNUAL REPORT2 Segmental information continued New Zealand Australia North America Asia Europe Other jurisdictions Group June 2015 NZ$M Non-current assets+ June 2014 NZ$M Non-current assets+ 1,088 1,867 326 456 273 11 1,160 1,839 256 357 236 8 4,021 3,856 + Excludes deferred tax assets, retirement plan surplus and financial instruments. During the year, there were changes to the organisational structure which resulted in two new divisions – Heavy Building Products and Light Building Products – being formed. In addition to these two new divisions, a number of business units have been incorporated into the Distribution New Zealand division. Prior year data has been re-presented. Description of industry segments Heavy Building Products The Heavy Building Products division is a manufacturer, distributor and marketer of heavy construction material typically used in the early stages of the construction cycle. Light Building Products The Light Building Products division manufactures a broad range of building products for residential and commercial markets in New Zealand, Australia, USA, Europe and Asia. Laminates & Panels The Laminates & Panels division manufactures and distributes decorative surface laminates in Australia, New Zealand, North America, Europe and Asia. These divisions consist of building, plumbing, pipeline and steel distribution businesses in Australia and New Zealand. Fletcher Construction is a general contractor in New Zealand and the South Pacific and a builder of residential homes in New Zealand. Distribution Construction 3 Specific disclosures Fletcher Building Group The following items are specific disclosures required to be made and are included within the income statement: Net periodic pension cost Employee related short-term costs 1 Other long-term employee related benefits Research and development expenditure Amortisation of intangibles Bad debts written off Donations and sponsorships Maintenance and repairs Operating lease expense Other gains and (losses) 2 Auditor’s fees and expenses payable for: Audit of the financial statements – EY All other services performed – EY3 Audit and review of the financial statements – KPMG All other services performed – KPMG 3 28 Year ended June 2015 NZ$M Year ended June 2014 NZ$M 6 1,593 65 1 6 4 2 148 186 8 10 1,370 62 2 3 5 3 158 184 (16) NZ$000’s NZ$000’s 2,830 490 338 162 3,266 558 2015 FLETCHER BUILDING ANNUAL REPORTNotes to the financial statements continuedNOTES: 1 Remuneration for the executive committee included in the above is disclosed in note 29. 2 Other gains and (losses) include the following: Year ended June 2015 NZ$M Year ended June 2014 NZ$M Gain on sale of assets Redundancies and restructuring costs Other 20 (8) (4) 8 3 Fees paid to the auditor during the year for other services are mainly with respect to tax advisory services. 4 Significant items Fletcher Building Group – June 2015 Heavy Building Products Light Building Products Distribution New Zealand Construction Total significant items before taxation Tax benefit on above items Total significant items after taxation Fletcher Building Group – June 2014 Heavy Building Products 4 Distribution Australia 5 Total significant items before taxation Tax benefit on above items Total significant items after taxation Business disposal income and expenses 1 NZ$M Site closure costs 2 NZ$M Impairment of goodwill 3 NZ$M 6 1 7 (2) 5 50 9 2 4 65 (19) 46 1 45 16 16 78 78 Business disposal income and expenses NZ$M Impairment of property, plant and equipment NZ$M 5 12 17 (5) 12 15 15 (4) 11 2 (18) (16) Total NZ$M 57 55 18 20 150 (21) 129 Total NZ$M 20 12 32 (9) 23 NOTES: 2015 1 During the year, the group recognised a $6 million charge relating to the prior year sale of the long steel business, comprising additional costs incurred under the transitional agreements with the purchaser, and $1 million in respect of the sale of the Taurean Doors business in New Zealand. 2 The group has recognised a charge of $65 million for costs associated with closing a number of sites: • $28 million relating to the closure of the Crane Copper Tube factory in Penrith, due to a decision to exit the copper manufacturing business; • $17 million relating to the decision to close two sites in the Iplex Australia business; • $5 million relating to the closure of the Humes Rolleston pipe plant as part of a strategic review; • $6 million relating to the closure of Stramit’s insulated panels business; • $3 million relating to the insulation manufacturing plant in Hornby, following a consolidation of operations in New Zealand; and • $6 million relating to closures in the Forman businesses. Included within site closure costs are fixed asset impairments disclosed in note 15 of $28 million. 3 During the year, the group has recognised a $78 million impairment charge, relating primarily to businesses where the carrying amount exceeded the recoverable amount. • $32 million of this goodwill impairment relates to the Forman business, $30 million of the goodwill impairment relates to Stramit, $15 million of goodwill impairment relates to Tasman Insulation New Zealand and $1 million relates to site closures in the Humes business. 29 2015 FLETCHER BUILDING ANNUAL REPORT 4 Significant items continued NOTES: 2014 4 The group sold parts of the Pacific Steel Group to BlueScope Steel Limited in June 2014 in a transaction with sale proceeds of $60 million and a further consideration for net working capital of $52 million. The gain on sale, offset by transaction costs, amounted to a $4 million charge. In addition, there was a $15 million adjustment to retained asset carrying values. Included in other receivables at 30 June 2014 is an amount of $82 million relating to deferred consideration. In a separate transaction, a $1 million loss was recorded on the sale of the group’s investment in Fiji Industries Limited, a concrete business. 5 In June 2014 the group entered into an agreement to sell its Hudson Building Supplies business to HTH Stores Pty Limited, conditional upon a number of matters, including Australian Competition and Consumer Commission clearance (subsequently received on 7 August 2014). Due to the anticipated loss on sale of $12 million, the group recorded an impairment charge against goodwill of $8 million and provided for $4 million of other charges related to the disposal. 5 Funding costs/(income) Fletcher Building Group Interest expense Loans and derivatives Capital notes Other Interest income Cash and deposits Bank fees, registry and issue expenses Year ended June 2015 NZ$M Year ended June 2014 NZ$M 87 28 4 (1) 118 9 127 83 33 5 (1) 120 10 130 Included in interest expense is the net settlement of the group’s interest derivatives. This consisted of $53 million of interest income and $60 million of interest expense (2014: $50 million interest income; $58 million interest expense). For items applying fair value hedges, the gains or losses on the hedging instrument and on the hedged item net to zero. 6 Taxation expense Fletcher Building Group Earnings before taxation Taxation at 28 cents per dollar Adjusted for: Lower tax rate in overseas jurisdictions Non-assessable income Non-deductible expenses Tax losses not recognised Tax in respect of prior years Other permanent differences Tax on earnings before significant items Tax benefit on significant items Total current taxation expense Total deferred taxation (benefit)/expense 30 Year ended June 2015 NZ$M Year ended June 2014 NZ$M 376 105 (1) (15) 30 4 (27) 96 117 (21) 96 99 (3) 96 462 129 (1) (9) 5 3 7 (23) 111 120 (9) 111 109 2 111 2015 FLETCHER BUILDING ANNUAL REPORTNotes to the financial statements continued 7 Shareholder tax credits Fletcher Building Group Imputation credit account Imputation credits at the beginning of the year Taxation paid Imputation credits attached to dividends paid Year ended June 2015 NZ$M Year ended June 2014 NZ$M 1 35 (35) 1 1 34 (34) 1 Fletcher Building’s practice is to attach imputation credits to the final dividend and the company has until 31 March the following year to fund any deficiency in its imputation credit account. Fletcher Building Group Franking credit account Franking credits at the beginning of the year Taxation paid Franking credits received Year ended June 2015 A$M Year ended June 2014 A$M 16 2 8 26 12 (1) 5 16 8 Net earnings per share The diluted net earnings per share calculation uses the weighted average number of shares as determined for basic net earnings per share, adjusted for dilutive securities. Capital notes and options are convertible into the company’s shares and may therefore result in dilutive securities for purposes of determining the diluted net earnings per share. Fletcher Building may, at its option, purchase or redeem the capital notes for cash at the principal amount plus any accrued but unpaid interest. Fletcher Building Group Numerator Net earnings Numerator for basic earnings per share Dilutive capital notes distribution Numerator for diluted net earnings per share Denominator (millions of shares) Denominator for basic net earnings per share Conversion of dilutive capital notes Denominator for diluted net earnings per share 9 Dividends Fletcher Building Group Dividends paid to shareholders On 19 August 2015 the directors declared a dividend of 19 cents per share, payable on 14 October 2015. Year ended June 2015 NZ$M Year ended June 2014 NZ$M 270 270 5 275 688 15 703 339 339 12 351 687 27 714 Year ended June 2015 NZ$M Year ended June 2014 NZ$M 248 248 240 240 31 2015 FLETCHER BUILDING ANNUAL REPORT10 Capital Fletcher Building Group Reported capital at the beginning of the year Issue of shares Reported capital at the end of the year including treasury stock Treasury stock June 2015 NZ$M June 2014 NZ$M 2,645 8 2,653 (20) 2,633 2,628 17 2,645 (21) 2,624 All ordinary shares are issued and fully paid and carry equal rights in respect of voting, dividend payments and distribution upon winding up. Fletcher Building Group Number of ordinary shares Number of shares on issue at the beginning of the year Shares issued under the dividend reinvestment plan Total number of shares on issue Less accounted for as treasury stock June 2015 June 2014 687,854,788 686,096,427 908,573 1,758,361 688,763,361 687,854,788 (2,401,439) (2,575,905) 686,361,922 685,278,883 Share options On 1 September 2009, the company issued 500,000 share options under the executive option scheme. As at 30 June 2015, the exercise price of the share options was $10.22 adjusted annually by the amount of actual dividends paid. The restrictive period ended on 1 September 2012 and the final exercise date is 1 September 2015. On 1 October 2012, the company issued a further 500,000 options under the executive option scheme. At 30 June 2015, the exercise price of these share options was $6.91. The restrictive period ends on 1 October 2015 and the final exercise date is 1 October 2018. The options carry no dividend or voting rights. The company has calculated the fair value of granting these options and has expensed $0.1 million during the year in respect of the 2012 options to a share-based payments reserve. 11 Non-controlling interests Fletcher Building Group Share capital Reserves 12 Cash and deposits Fletcher Building Group Cash and bank balances Short-term deposits June 2015 NZ$M June 2014 NZ$M 16 11 27 20 15 35 June 2015 NZ$M June 2014 NZ$M 154 74 228 76 58 134 Cash and deposits include the group’s share of amounts held by joint operations of $25 million (2014: $4 million). At 30 June 2015, approximately $40 million of total cash and deposits were held in subsidiaries that operate in countries where exchange controls and other legal restrictions apply and are therefore not immediately available for general use by the group. 32 2015 FLETCHER BUILDING ANNUAL REPORTNotes to the financial statements continued13 Debtors Fletcher Building Group Trade debtors Contract debtors Contract retentions Less provision for doubtful debts Trade and contract debtors Other receivables Current 0 – 30 days over standard terms 31 – 60 days over standard terms 61+ days over standard terms Provision Trade and contract debtors 14 Inventories Fletcher Building Group Raw materials Work in progress Finished goods Consumable stores and spare parts Inventories held at cost Inventories held at net realisable value June 2015 NZ$M June 2014 NZ$M 1,082 1,004 164 24 (26) 1,244 265 1,509 1,038 151 27 54 (26) 157 16 (26) 1,151 250 1,401 859 221 33 64 (26) 1,244 1,151 June 2015 NZ$M June 2014 NZ$M 479 121 860 46 354 133 831 44 1,506 1,362 1,388 118 1,506 1,276 86 1,362 Included in inventories are land and developments to the value of $368 million (June 2014: $280 million) of which $167 million is expected to be held for greater than 12 months (2014: $123 million). The group also has conditional commitments for the purchase of land to be used for residential construction totalling $393 million (June 2014: $196 million), of which $259 million is to be delivered in the period to 30 June 2018. 33 2015 FLETCHER BUILDING ANNUAL REPORTLand NZ$M Buildings NZ$M Plant & machinery NZ$M Fixtures & equipment NZ$M Resource extraction NZ$M Leased assets NZ$M 15 Property, plant and equipment Fletcher Building Group Gross value at 1 July 2014 Additions Reclassification of joint operation plant & machinery Disposals Currency translation Gross value at 30 June 2015 308 3 (21) 16 306 452 8 (13) 27 474 2,246 148 28 (29) 116 2,509 Accumulated depreciation at 1 July 2014 (131) (1,089) Disposals Impairments in the income statement (note 4) Reclassification of joint operation plant & machinery Depreciation expense Currency translation 2 (10) (16) (8) 23 (18) (20) (139) (48) Accumulated depreciation at 30 June 2015 (163) (1,291) 108 10 (5) 3 116 (12) 3 (5) 529 86 (1) 31 645 (318) 1 (35) (8) (360) 3 (1) Total NZ$M 3,646 255 28 (70) 193 2 4,052 (3) 1 (1,553) 30 (28) (20) (195) (64) (14) (2) (1,830) Net book value at 30 June 2015 306 311 1,218 285 102 2,222 335 483 2,340 475 113 4 3,750 Gross value at 1 July 2013 Acquisitions during the year Additions Disposals Currency translation Gross value at 30 June 2014 2 (3) (26) 308 9 (7) (33) 452 4 132 (100) (130) 2,246 Accumulated depreciation at 1 July 2013 (112) (1,071) Disposals Impairments in the income statement (note 4) Depreciation expense Currency translation 4 (13) (17) 7 67 (2) (141) 58 Accumulated depreciation at 30 June 2014 (131) (1,089) 81 (3) (24) 529 (294) 3 (37) 10 (318) 13 (11) (7) 108 (20) 11 (4) 1 (12) 4 237 (125) (220) (1) 3 3,646 (3) 1 (1) (1,500) 86 (15) (200) 76 (3) (1,553) Net book value at 30 June 2014 308 321 1,157 211 96 2,093 As at 30 June 2015 property, plant and equipment includes $184 million of assets under construction (June 2014: $134 million). 34 2015 FLETCHER BUILDING ANNUAL REPORTNotes to the financial statements continued16 Goodwill Fletcher Building Group Goodwill acquired at cost Accumulated currency translation Accumulated impairment Goodwill at the end of the year Goodwill at the beginning of the year Acquired during the year Disposed of during the year Impairments in the income statement (note 4) Currency translation June 2015 NZ$M June 2014 NZ$M 1,367 15 (251) 1,131 1,373 (70) (181) 1,122 1,122 1,219 3 (1) (78) 85 (8) (89) 1,131 1,122 Goodwill by significant cash-generating units (CGUs) The goodwill allocated to significant CGUs accounts for 66% (2014:60%) of the total carrying value of goodwill. The remaining ‘other’ CGUs, which comprise 25 (2014: 25) in total, are each less than 10% of total carrying value. Formica Asia Tradelink Laminex Australia Iplex New Zealand Other 266 210 164 105 386 208 201 159 105 449 1,131 1,122 Goodwill impairment review Goodwill was tested for impairment in June 2015. Each CGU which carries goodwill is valued on a value-in-use basis using a discounted cash flow. Management has used its past experience of revenue growth, operating costs and margin, and external sources of information where appropriate, to determine their expectations for the future. These cash flow projections are principally based on the group’s three year strategic plan approved by the directors, which has been extended for a further two years. Cash flows beyond five years have been extrapolated using estimated terminal growth rates, which do not exceed the long-term average growth rate for the industries and countries in which the business units operate. The terminal growth rates used range from 2.5%–3% (2014: 2.5%–3%), with the majority of the business units using 2.5% (2014: 2.5%). The cash flows are discounted using a nominal rate after tax of 9.5% (2014: 9.5%) for New Zealand, 8.5% (2014: 9.5%) for Australia, 8.0% (2014: 9.0%) for Europe and North America and 9.0% (2014: 9.0%) for Asia, reflecting the risk profile for the regions in which the CGUs operate. The valuation models used are most sensitive to changes in the terminal year earnings and cash flows. The group has identified certain business units that face particular challenges. The group operates in cyclical markets, which face uncertain market conditions that make it difficult to predict future profitability. Due to the deterioration of market conditions and the outlook of certain companies’ sustainable mid-cycle earnings, the group impaired $78 million of goodwill where the carrying amount exceeded the recoverable amount. Of this goodwill impairment, $32 million relates to the Forman business, $30 million to Stramit and $15 million to Tasman Insulation New Zealand. The aggregate recoverable amount of these CGUs after the impairments is $286 million. Management has identified a number of strategies and initiatives to achieve an appropriate improvement in their earnings before interest and taxation. If this improvement does not eventuate there may be a need for further impairment. Sensitivity to reasonably possible changes in assumptions The impairment assessment confirmed that, for all other business units, the recoverable amounts exceed carrying values as at 30 June 2015. With the exception of Iplex Australia, Formica Asia and Tradelink, management considers that no reasonably possible change in assumptions would cause the carrying amount to exceed the recoverable amount. For Iplex Australia, which has goodwill of $35 million, and brands of $38 million, a 29% decrease in the expected level of terminal year EBIT or a 2% increase in the post-tax discount rate would result in the elimination of the $102 million excess of recoverable amount over carrying amount. For Formica Asia, which has goodwill of $266 million and brands of $nil, a reduction of 11% in the expected level of terminal year EBIT, a 0.5% increase in the post-tax discount rate, or a 0.7% decrease in terminal growth rate would result in the elimination of the $47 million excess of recoverable amount over carrying amount. For Tradelink, which has goodwill of $210 million and brands of $54 million, a reduction in expected terminal year EBIT of 16% or an increase in the post-tax discount rate of 0.9% would result in the elimination of the $66 million excess of recoverable amount over carrying amount. 35 2015 FLETCHER BUILDING ANNUAL REPORT17 Intangible assets Fletcher Building Group Brands Other intangible assets Brands Brands at the beginning of the year Brands in subsidiaries sold during the year Currency translation June 2015 NZ$M June 2014 NZ$M 503 65 568 459 (1) 45 503 459 48 507 504 (45) 459 Significant brands The significant brand assets account for 64% (2014: 62%) of the total carrying value of brands. The remaining ‘other’ brand assets are each less than 10% of total carrying value. Formica Corporation Laminex Australia Tradelink Other 143 127 54 179 503 112 122 52 173 459 Brands are considered to have an indefinite useful life as there are no factors that indicate that there is a limit on their capacity to generate foreseeable cash flows. Factors considered before arriving at this conclusion are whether the businesses that own the brands are going concerns, whether there is any evidence of obsolescence due to changes in either technology or regulatory conditions, whether the businesses are trading profitably and whether there are any other market based indications. Brands have been tested for impairment in June 2015. Each CGU that carries a brand value, and determined to be not separately identifiable, has prepared a discounted cash flow of the CGU on a value-in-use basis as described in note 16. The impairment review confirmed that, for all intangible assets (excluding goodwill for which impairments are disclosed in note 16), the recoverable amounts exceed carrying values as at 30 June 2015. Sensitivity analysis was performed on the key assumptions used in the value-in-use calculations and further disclosure has been made for certain CGUs in note 16. Other intangible assets Other intangible assets at cost Currency translation Accumulated amortisation Other intangible assets at the end of the year Other intangible assets at the beginning of the year Additions Currency translation Charged to earnings 108 (3) (40) 65 48 23 (6) 65 85 (3) (34) 48 30 23 (2) (3) 48 As at 30 June 2015 other intangible assets includes $20 million of assets under construction (June 2014: $27 million). 18 Other investments Fletcher Building Group Retirement plan surplus (note 31) Other investments 36 June 2015 NZ$M June 2014 NZ$M 68 2 70 61 1 62 2015 FLETCHER BUILDING ANNUAL REPORTNotes to the financial statements continued19 Investments in associates and joint ventures Fletcher Building Group Carrying amount of associates/joint ventures Carrying amount at the beginning of the year New investment in associates/joint ventures Loans to associates/joint ventures Share of profits of associates/joint ventures Sale of investment in associates/joint ventures Reclassification of assets and liabilities of joint operations Currency translation Distributions from associates/joint ventures Investment in associates and joint ventures Investment by associate/joint venture Wespine Industries Pty Limited Hexion Australia Pty Ltd (formerly Momentive Specialty Chemicals Australia Pty Ltd) Sims Pacific Metals Limited* Mt Marrow Blue Metal Quarries Pty Limited Mittagong Sands Pty Limited Regional Resources NW Quarrying Other * During the year, Sims Pacific Metals Limited was reclassified from a joint venture to a joint operation. Associate and joint venture information Balance sheet information for associates and joint ventures – 100% Assets Liabilities Equity Equity – Fletcher Building share Goodwill acquired at cost Loans to associates and joint ventures Investment in associates and joint ventures Equity accounted earnings comprise: Revenue – 100% Earnings before taxation – 100% Earnings before taxation – Fletcher Building share Taxation expense Earnings after taxation – Fletcher Building share June 2015 NZ$M June 2014 NZ$M 133 (1) 23 (3) (27) 5 (32) 98 45 19 7 9 2 16 98 241 (133) 108 49 47 2 98 124 9 24 (1) (11) (12) 133 44 18 26 10 5 4 26 133 313 (147) 166 77 52 4 133 366 519 60 30 (7) 23 60 30 (6) 24 37 2015 FLETCHER BUILDING ANNUAL REPORT20 Creditors and accruals Fletcher Building Group Trade creditors Contract retentions Accrued interest Other liabilities Employee entitlements Workers’ compensation schemes Current portion Non-current portion Carrying amount at the end of the year June 2015 NZ$M June 2014 NZ$M 911 29 34 128 234 19 857 31 30 127 235 17 1,355 1,297 1,315 40 1,355 1,231 66 1,297 The non-current portion of creditors and accruals relates to long service employee entitlement obligations and deferred land payments. 21 Provisions Fletcher Building Group June 2015 Carrying amount at the beginning of the year Currency translation Charged to earnings Settled or utilised Released to earnings June 2014 Carrying amount at the beginning of the year Currency translation Charged to earnings Settled or utilised Released to earnings Current portion Non-current portion Carrying amount at the end of the year Restructuring NZ$M Warranty & environmental NZ$M Other NZ$M Total NZ$M 4 24 (14) 14 9 (1) 3 (5) (2) 4 26 2 29 (20) (3) 34 39 (3) 12 (15) (7) 26 41 43 (14) (2) 68 34 (1) 23 (9) (6) 41 100 16 116 71 2 96 (48) (5) 116 82 (5) 38 (29) (15) 71 57 14 71 During the year the group utilised $14 million (30 June 2014: $5 million) in respect of restructuring obligations at certain businesses. The remaining balance is expected to be utilised in the next year. Warranty and environmental provisions relate to products sold and services provided and are expected to be utilised over the next three years. Other provisions relate to miscellaneous matters, including a $14 million provision for costs from the prior year divestment of the long steel business and a $27 million provision for costs associated with the development of the Penrose Campus, both of which are expected to be utilised within the next two years. No other individual amounts are significant. 38 2015 FLETCHER BUILDING ANNUAL REPORTNotes to the financial statements continued 22 Construction contracts Fletcher Building Group Gross construction work in progress plus margin to date Progress billings Construction contracts with net work in progress Construction contracts with billing in advance of cost and margin Carrying amount at the end of the year Included in total group revenue is $1,327 million of contract revenue (June 2014: $1,069 million). 23 Taxation Fletcher Building Group Current tax assets/(liabilities) Included within the balance sheet as follows: Current tax assets Current tax liabilities Opening provision for current tax assets/(liabilities) Taxation expense Transfer from deferred taxation Transfers from other receivables Non-controlling interest share of taxation expense Tax recognised directly in reserves Net tax payments Provision for deferred tax assets/(liabilities) Included within the balance sheet as follows: Deferred tax assets Deferred tax liabilities Opening provision for deferred tax assets/(liabilities) Taxation (expense)/benefit Transfer to current tax Tax recognised directly in reserves Composed of: Provisions Inventories Debtors Property, plant and equipment Brands Tax losses Pensions Other June 2015 NZ$M June 2014 NZ$M 3,145 (3,301) (156) 49 (205) (156) 2,855 (2,985) (130) 12 (142) (130) June 2015 NZ$M June 2014 NZ$M 23 (28) (5) 33 (99) (1) 3 (13) 72 (5) 33 (58) (25) (25) 3 1 (4) (25) 130 19 7 (63) (158) 20 8 12 (25) 55 (22) 33 15 (109) 17 19 3 15 73 33 25 (50) (25) (8) (2) (17) 2 (25) 121 17 7 (65) (139) 23 7 4 (25) 39 2015 FLETCHER BUILDING ANNUAL REPORT 23 Taxation continued There are no significant deferred tax liabilities in respect of the undistributed profits of subsidiaries and associates. The group has recognised certain tax losses available in the USA, Germany and the UK on the basis that the respective companies will have future assessable income. The tax losses have been recognised on the basis of the forecast earnings before interest and taxation set out in the companies’ strategic plans. The group reviews future loss utilisations at each reporting date. The group has unrecognised tax losses in France, Spain, Sweden, the UK and China of $110 million representing $396 million of gross tax losses (June 2014: $96 million; $344 million gross losses). 24 Borrowings Fletcher Building Group Private placements Other loans Capital notes Current borrowings Bank loans Private placements Other loans Capital notes Non-current borrowings Carrying value of borrowings (as per balance sheet) Less impact of debt hedging activities (included within derivatives) Borrowings after impact of hedging activities Less fair value adjustment included in borrowings Borrowings excluding derivative adjustments Total available funding Unutilised banking facilities June 2015 NZ$M June 2014 NZ$M 144 102 94 340 128 1,176 15 295 1,614 1,954 (53) 1,901 (32) 1,869 2,483 614 64 74 138 122 1,128 68 326 1,644 1,782 5 1,787 (25) 1,762 2,378 616 The undrawn facilities have a weighted average maturity of 3.5 years (June 2014: 3.5 years). Negative pledge The group borrows certain funds based on a negative pledge arrangement. The negative pledge includes a cross guarantee between a number of wholly owned subsidiaries and ensures that external senior indebtedness ranks equally in all respects and includes the covenant that security can be given only in very limited circumstances. At 30 June 2015, the group had debt subject to the negative pledge of $1,418 million (June 2014: $1,308 million). Bank loans At 30 June 2015 the group had a syndicated revolving credit facility on an unsecured, negative pledge and borrowing covenant basis, with ANZ Bank New Zealand Limited, The Bank of Tokyo Mitsubishi UFJ, Bank of New Zealand, Commonwealth Bank of Australia, Citibank N.A., The Hongkong and Shanghai Banking Corporation Limited and Westpac New Zealand Limited. The funds under this facility can be borrowed in United States, Australian and New Zealand dollars. The borrowing covenants relate to net debt to EBITDA and interest cover and at 30 June 2015, and throughout the year, the group was in compliance with the covenants. Private placements The group has borrowed funds from private investors (primarily US and Japanese based) on an unsecured, negative pledge and borrowing covenant basis. These borrowings comprise NZ$144 million, AU$231 million, US$525 million and YEN10,000 million with maturities between 2015 and 2027. The borrowing covenants relate to net debt to EBITDA and interest cover and at 30 June 2015, and throughout the year, the group was in compliance with the covenants. Other loans At 30 June 2015 the group had $22 million (June 2014: $25 million) of loans which are secured against the subsidiaries’ own balance sheet or against specific assets and had unsecured loans at 30 June 2015 of $95 million (June 2014: $107 million) some of which are subject to the negative pledge. Other loans include bank overdrafts, short-term loans, working capital facilities, finance leases, PlaceMakers joint venture funding, amortising loans and discounted receivables. 40 2015 FLETCHER BUILDING ANNUAL REPORTNotes to the financial statements continuedCapital notes Capital notes are long-term fixed rate unsecured subordinated debt instruments. On each election date the coupon rate and term to the next election date of that series of the capital notes are 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, at approximately 98% 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 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 due and payable on these 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 held at 30 June 2015 were to be converted to Fletcher Building shares, 48 million (June 2014: 46 million) would be issued at the share price as at 30 June 2015 of $8.12 (June 2014: $8.81). As at 30 June 2015, the group held $142 million (30 June 2014: $131 million) of its own capital notes. Fair value adjustment included in borrowings This is the revaluation of certain borrowings that have been designated in fair value hedge relationships for changes in benchmark interest rates. Credit rating The company has not sought and does not hold a credit rating from an accredited rating agency. 25 Financial instruments Financial risk management overview Exposures to credit, liquidity, currency, interest rate and commodity price risks arise in the normal course of the group’s business. The principles under which these risks are managed are set out in policy documents approved under board delegated authority by the chief executive officer. The policy documents identify the risks and set out the group’s objectives, policies and processes to measure, manage and report the risks. The policies are reviewed periodically to reflect changes in financial markets and the group’s businesses. Risk management is carried out in conjunction with the group’s central treasury function, which ensures compliance with the risk management policies and procedures set by the board. The group enters into derivative financial instruments to assist in the management of the identified financial risks. The group does not enter into derivative financial instruments for trading or speculative purposes. All derivative transactions entered into are to hedge underlying exposures arising from normal business activities. Risks and mitigation (a) Credit risk To the extent the group has a receivable from another party, there is a credit risk in the event of non-performance by that counterparty and arises principally from receivables from customers, derivative financial instruments and the investment of cash. (i) Trade receivables The group has a credit policy in place under which customers are individually analysed for credit worthiness and assigned a purchase limit. If no external ratings are available, the group reviews the customers’ financial statements, trade references, bankers’ references and/or credit agencies’ reports to assess credit worthiness. These limits are reviewed on a regular basis. Due to the group’s industry and geographical spread at balance date there were no significant concentrations of credit risk in respect of trade receivables. Refer to note 13 for debtor ageing analysis. Most goods are sold subject to retention of title clauses, so that in the event of non-payment the group may have a secured claim. Credit risks may be further mitigated by registering an interest in the goods sold and the proceeds arising from that supply. The group does not otherwise require collateral in respect of trade receivables. (ii) Derivative financial instruments and the investment of cash The group enters into derivative financial instruments and invests cash with various counterparties in accordance with established limits as to credit rating and dollar value but does not require collateral or other security except in limited circumstances. In accordance with the established counterparty restrictions, there are no significant concentrations of credit risk in respect of the financial instruments and no loss is expected. The group has not renegotiated the terms of any financial assets which would otherwise be overdue or impaired. The carrying amount of non-derivative financial assets represents the maximum credit exposure. The carrying amount of derivative financial assets are at their current fair value. 41 2015 FLETCHER BUILDING ANNUAL REPORT25 Financial instruments continued (b) Liquidity risk Liquidity risk is the risk that the group will encounter difficulty in meeting its financial commitments as they fall due. The group manages its liquidity risk by maintaining a target level of undrawn committed credit facilities and a spread of the maturity dates of the group’s debt facilities. The group reviews its liquidity requirements on an ongoing basis. The following maturity analysis table sets out the remaining contractual undiscounted cash flows, including estimated interest payments for non-derivative financial liabilities and derivative financial instruments. Creditors and accruals are excluded from this analysis as they are not part of the group’s assessment of liquidity risk because these are offset by debtors with similar payment terms. Fletcher Building Group – June 2015 Bank loans Capital notes Private placements Other loans Non-derivative financial liabilities – principal cash flows Gross settled derivatives – to pay Gross settled derivatives – to receive Debt derivatives financial instruments – principal cash flows Total principal cash flows Contractual cash flows NZ$M Up to 1 year NZ$M 1–2 years NZ$M 2–5 years NZ$M Over 5 years NZ$M 128 389 1,288 117 1,922 616 (669) (53) 1,869 94 144 102 340 257 (258) (1) 339 68 282 7 357 128 227 340 7 702 357 702 522 1 523 359 (411) (52) 471 Contractual interest cash flows 424 95 76 107 146 Total contractual cash flows 2,293 434 433 809 617 Fletcher Building Group – June 2014 Bank loans Capital notes Private placements Other loans Non-derivative financial liabilities – principal cash flows Gross settled derivatives – to pay Gross settled derivatives – to receive Debt derivatives financial instruments – principal cash flows Total principal cash flows Contractual cash flows NZ$M Up to 1 year NZ$M 1–2 years NZ$M 2–5 years NZ$M Over 5 years NZ$M 122 400 1,103 132 1,757 540 (535) 5 1,762 74 64 138 197 (195) 2 140 94 144 60 298 122 232 362 6 722 298 722 597 2 599 343 (340) 3 602 Contractual interest cash flows 523 105 92 170 156 Total contractual cash flows 2,285 245 390 892 758 42 2015 FLETCHER BUILDING ANNUAL REPORTNotes to the financial statements continued(c) Foreign currency risk (i) Currency translation risk Currency translation risk arises from net investments in foreign operations. It is the group’s policy to hedge this foreign currency translation risk by borrowing in the currency of the asset in proportion to the group’s long-term debt to debt plus equity ratio. This reduces the variability in the debt to debt plus equity ratio due to currency translation. Where the underlying debt in any currency does not equate to the required proportion of total debt, debt derivatives, such as foreign exchange forwards, swaps and cross currency interest rate swaps are entered into for up to 12 years. Net investment, cash flow and fair value hedge accounting is applied to these instruments. In addition, the group has entered into foreign exchange derivatives to hedge the taxation exposure arising from the translation of certain assets for a period of up to two years. Cash flow hedge accounting is applied to these instruments. The group’s exposure to foreign currency risk on foreign currency borrowings after hedging is summarised as follows: Fletcher Building Group Australian dollar Euro British pound New Zealand dollar United States dollar Indian rupee Chinese renminbi Canadian dollar June 2015 NZ$M June 2014 NZ$M 873 79 26 595 233 13 32 18 782 74 22 649 175 10 50 Currency translation risk – Foreign currency borrowings 1,869 1,762 (ii) Currency transaction risk Currency transaction risk arises from committed or highly probable trade and capital expenditure transactions that are denominated in currencies other than the operation’s functional currency. The objective in managing this risk is to reduce the variability from changes in currency exchange rates on the operation’s income and cash flow to acceptable parameters. It is group policy that no currency exchange risk may be entered into or allowed to remain outstanding should it arise on committed transactions. In addition, the group hedges some highly probable forecast transactions for up to five years. When exposures are incurred by operations in currencies other than their functional currency, foreign exchange forwards and swaps are entered into to eliminate the exposure. The majority of these transactions have maturities of less than one year. Cash flow hedge accounting is applied to forecast transactions. The main currencies hedged are the Australian dollar, the United States dollar, the Japanese yen, the Euro and the British pound. The gross value of these foreign exchange derivatives at 30 June 2015 was $543 million (June 2014: $338 million). (d) Interest rate risk Interest rate risk is the risk that the value of a financial instrument or cash flows associated with the instrument will change due to changes in market interest rates and arises primarily from the group’s interest bearing borrowings. The group manages the fixed interest rate component of its debt and capital notes obligations and aims to maintain this ratio between 40–70% and at 30 June 2015 the group was within the range at 56% fixed (June 2014: 60% fixed). The position in this range is managed depending upon underlying interest rate exposures and economic conditions. Cross currency interest rate swaps, interest rate swaps, forward rate agreements and options are entered into to manage this position. The financial instruments entered into are in Australian dollars, United States dollars, Euros, Japanese Yen and New Zealand dollars and will mature over the next 12 years. Hedge accounting is applied on these instruments for floating-to-fixed instruments as cash flow hedges or for fixed-to-floating instruments as fair value hedges. 43 2015 FLETCHER BUILDING ANNUAL REPORT 25 Financial instruments continued Interest rate repricing The following tables set out the interest rate repricing profile of interest bearing financial assets and liabilities. The group’s overall weighted average interest rate excluding fees is 5.5% (June 2014: 6.22%). Fletcher Building Group Floating Fixed up to 1 year Fixed 1–2 years Fixed 2–5 years Fixed over 5 years Total financial liabilities Floating financial assets June 2015 NZ$M June 2014 NZ$M 827 125 323 482 112 1,869 (228) 701 161 118 615 167 1,762 (134) (e) Commodity price risk Commodity price risk arises from committed or highly probable trade and capital expenditure transactions that are linked to traded commodities. Where possible the group manages its commodity price risks through negotiated supply contracts and, for certain commodities, by using commodity price swaps and options. The group manages its commodity price risk depending on the underlying exposures, economic conditions and access to active derivatives markets. Currently the group’s guideline is to hedge up to 50% of certain New Zealand business units’ electricity requirements for up to 12 months. Cash flow hedge accounting is applied to commodity derivative contracts. At balance date, the notional value of fixed electricity exposure was as follows: Fletcher Building Group Fixed up to 1 year Fixed 1–2 years Total Average hedge price June 2015 NZ$M June 2014 NZ$M 4 4 13 18 31 NZ$/MWh NZ$/MWh 99 93 Aluminium and copper are also hedged but the volume and values are not material. (f) Sensitivity analysis The numbers in the sensitivity analysis for foreign currency risk, interest rate risk and commodity price risk have not been adjusted for tax and are based only on the group’s financial instruments held at balance date and assume that all other variables remain constant, except for the change in the chosen risk variable. (i) Foreign currency risk It is estimated a 10% weakening of the New Zealand dollar against the major foreign currencies the group is exposed to on the net assets of its foreign operations would result in an increase to equity of approximately $250 million (June 2014: $260 million) and no material impact on earnings. (ii) Interest rate risk It is estimated a 100 basis point increase in interest rates would result in an increase in the group’s interest costs in a year by approximately $8.3 million on the group’s debt portfolio exposed to floating rates at balance date (June 2014: $7.0 million). (iii) Commodity price risk It is estimated a 10% increase in the New Zealand electricity spot price at balance date would not materially impact the group’s earnings or equity position. 44 2015 FLETCHER BUILDING ANNUAL REPORTNotes to the financial statements continued(g) Fair values The estimated fair value measurements for financial assets and liabilities are compared to their carrying values in the balance sheet as follows: Fletcher Building Group June 2015 June 2014 Bank loans Private placements Other loans Capital notes Borrowings Classification Amortised cost Amortised cost Amortised cost Amortised cost Forward exchange contracts – fair value hedge Fair value through P&L Forward exchange contracts – net investment hedge Fair value through P&L Forward exchange contracts – cash flow hedge Fair value through P&L Forward exchange contracts – fair value through P&L Fair value through P&L Cross currency interest rate swaps – cash flow hedge Fair value through P&L Cross currency interest rate swaps – fair value hedge Fair value through P&L Cross currency interest rate swaps – FX spot value Fair value through P&L Interest rate swaps – fair value hedge Interest rate swaps – cash flow hedge Fair value through P&L Fair value through P&L Electricity price swaps – cash flow hedge Fair value through P&L Carrying value NZ$M 128 1,320 117 389 Fair value NZ$M 128 1,400 117 409 Carrying value NZ$M 122 1,128 132 400 Fair value NZ$M 122 1,266 132 407 1,954 2,054 1,782 1,927 (1) (1) 1 7 (3) (58) 5 (26) 15 1 (60) (1) (1) 1 7 (3) (58) 5 (26) 15 1 (60) 1 1 2 (4) 5 4 3 (27) 16 8 9 1 1 2 (4) 5 4 3 (27) 16 8 9 Derivatives Creditors and accruals Debtors Cash and liquid deposits Total financial instruments Amortised cost Loans and receivables Loans and receivables 1,355 (1,509) (228) 1,512 1,355 (1,509) (228) 1,612 1,297 (1,401) (134) 1,553 1,297 (1,401) (134) 1,698 Fair value measurement Financial instruments measured and recognised at fair value are derivatives that are designated in hedge relationships. The fair value of base metal price swaps is based on the quoted market prices of those instruments and is measured under level 2. All other derivatives are level 2 valuations based on accepted valuation methodologies. Forward exchange fair value is calculated using quoted forward exchange rates and discounted using yield curves derived from quoted interest rates matching maturity of the contract. The fair value of electricity price swaps is measured using a derived forward curve and discounted using yield curves derived from quoted interest rates matching the maturity of the contract. Interest rate derivatives are calculated by discounting the future principal and interest cash flows at current market interest rates that are available for similar financial instruments. (Level 1) Quoted prices (unadjusted) in active markets for identical assets or liabilities. (Level 2) Inputs that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) other than quoted prices included within level 1. (Level 3) Inputs for the asset or liability that are not based on observable market data (unobservable inputs). Fair value disclosures The fair values of borrowings used for disclosure are measured under level 2, by discounting future principal and interest cash flows at the current market interest rate plus an estimated credit margin that is available for similar financial instruments with a similar credit profile to the group. The interest rates across all currencies used to discount future principal and interest cash flows are between 1.49% and 9.05% (June 2014: 1.17% and 10.04%) including margins, for both accounting and disclosure purposes. (h) Capital risk management The group’s objectives when managing capital are to safeguard the group’s ability to continue as a going concern in order to provide returns to shareholders, benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The group monitors capital on the basis of net debt to net debt plus equity and the target gearing range is 30–40%. A target leverage range has been introduced that reflects the ratio of debt to cash flow. Expressed as a ratio of net debt to EBITDA, the target range is 2.0–2.5 times. It is intended that the group will not be materially outside the target gearing and leverage ranges on a long-term basis. 45 2015 FLETCHER BUILDING ANNUAL REPORT26 Capital expenditure commitments Fletcher Building Group Committed at year end Approved by the directors but uncommitted at year end 27 Lease commitments Fletcher Building Group Expected future minimum lease payments on non-cancellable leases: Within one year Within two years Within three years Within four years Within five years After five years June 2015 NZ$M June 2014 NZ$M 157 45 202 64 31 95 June 2015 NZ$M June 2014 NZ$M 183 139 103 77 59 167 728 177 152 110 84 58 133 714 Operating lease commitments relate mainly to occupancy leases of buildings. 28 Contingent liabilities Provision has been made in the ordinary course of business for all known and probable future claims. Contingent liabilities arise in respect of the following categories: Fletcher Building Group Contingent liabilities with respect to guarantees extended on trading transactions, performance bonds and other transactions Letters of credit June 2015 NZ$M June 2014 NZ$M 237 1 195 1 46 2015 FLETCHER BUILDING ANNUAL REPORTNotes to the financial statements continued29 Related party transactions Trading activities with related parties Fletcher Building Group – 2015 Sims Pacific Metals Limited Wespine Industries Pty Limited and Hexion Australia Pty Ltd (formerly Momentive Specialty Chemicals Australia Pty Ltd) Dongwha New Zealand Limited Fletcher Residential Joint Ventures Fletcher Building Group – 2014 Sims Pacific Metals Limited Wespine Industries Pty Limited and Hexion Australia Pty Ltd (formerly Momentive Specialty Chemicals Australia Pty Ltd) Dongwha New Zealand Limited Mt Marrow Blue Metal Quarries Pty Limited Fletcher Residential Joint Ventures Fletcher Building Group Key management personnel compensation Directors’ fees Executive committee remuneration paid, payable or provided for: Short-term employee benefits Termination benefits Share-based payments Sales to related parties NZ$M Purchases from related parties NZ$M Amounts owing from related parties (included within debtors) NZ$M Amounts owing to related parties (included within creditors) NZ$M 100 74 17 104 81 16 1 18 14 4 15 1 5 14 1 4 Year ended June 2015 NZ$M Year ended June 2014 NZ$M 2 15 2 2 15 2 2 Fletcher Building Retirement Plan As at 30 June 2015 Fletcher Building Nominees Limited (the New Zealand retirement plan) held $3,800,000 of shares and $18,500,000 of capital notes in Fletcher Building (June 2014: $5,300,000 of shares; $18,500,000 of capital notes). 47 2015 FLETCHER BUILDING ANNUAL REPORT30 Principal operations Fletcher Building Limited is the holding company of the Fletcher Building Group. The principal subsidiaries, associates and joint arrangements, as at 30 June 2015, are outlined below: Country of domicile % holding Principal activity Principal subsidiaries Fletcher Building Holdings Limited Fletcher Building Holdings New Zealand 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 – wholly owned PlaceMakers subsidiaries – joint venture ownership Fletcher Building Industries Limited Tasman Insulation New Zealand Limited AHI Roofing Limited Forman Group Limited Crane Distribution NZ Limited Fletcher Building (Australia) Pty Limited Laminex Group Limited Fletcher Insulation Pty Limited Tasman Sinkware Pty Limited Rocla Pty Limited Stramit Corporation Pty Limited Crane Distribution Limited Iplex Pipelines Australia Pty Limited Kingston Bridge Engineering Pty Limited Laminex Finance Pty Limited Fletcher Building (Fiji) Limited NZ NZ NZ NZ NZ NZ NZ NZ NZ NZ NZ NZ NZ NZ NZ NZ NZ Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Fiji Fletcher Construction (Solomon Islands) Limited Fletcher Morobe Construction Pty Limited Solomon Islands Papua New Guinea Decra Roofing Systems Inc. Formica Corporation Diller Corporation Formica Canada Inc. Formica Limited Formica S.A. Shanghai Formica Decorative Material Co. Ltd Formica Decorative Materials (China) Co. Ltd Formica IKI Oy Formica Scandinavian AB Formica (Thailand) Co., Ltd Homapal Plattenwerk GmbH & Co. KG. Formica Laminates (India) Pte Limited Formica Taiwan Corporation Formica (Asia) Limited 48 USA USA USA Canada UK Spain China China Finland Sweden Thailand Germany India Taiwan Hong Kong 100 100 100 100 100 100 100 100 100 100 100 50.1 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Holding company Holding company Light Building Products Heavy Building Products Distribution Heavy Building Products Construction Construction Light Building Products Property management Distribution Distribution Holding company Light Building Products Light Building Products Construction/Distribution Distribution Holding company Laminates & Panels Light Building Products Light Building Products Heavy Building Products Light Building Products Distribution Heavy Building Products Heavy Building Products Finance Construction Construction Construction Light Building Products Laminates & Panels Laminates & Panels Laminates & Panels Laminates & Panels Laminates & Panels Laminates & Panels Laminates & Panels Laminates & Panels Laminates & Panels Laminates & Panels Laminates & Panels Laminates & Panels Laminates & Panels Laminates & Panels 2015 FLETCHER BUILDING ANNUAL REPORTNotes to the financial statements continuedCountry of domicile % holding Principal activity Associates and joint ventures Wespine Industries Pty Limited Hexion Australia Pty Ltd (formerly Momentive Specialty Chemicals Australia Pty Ltd) Mt Marrow Blue Metal Quarries Pty Limited Mittagong Sands Pty Limited Regional Resources NW Pty Ltd Dongwha New Zealand Limited Joint operations Well-Connected Joint Operation MacKays to Peka Peka Alliance Sims Pacific Metals Limited Australia Australia Australia Australia Australia NZ NZ NZ NZ 50 50 50 50 50 20 32 75 50 Sawmill Light Building Products Quarrying Quarrying Quarrying Laminates & Panels Construction Construction Metal recycling 31 Retirement plans Fletcher Building Limited is the principal sponsoring company of a plan that provides retirement and other benefits to employees of the group in New Zealand. Participation in this plan has been closed for a number of years, although defined contribution savings plans have been made available. Various defined benefit and defined contribution plans exist in Australia following the acquisition of Crane, Amatek, Tasman Building Products and the Laminex groups which companies contribute to on behalf of their employees. Various defined benefit plans and medical plans exist in other countries as a result of the acquisition of the Formica group, which companies contribute to on behalf of their employees. Where the plans have a deficit in their funded status, the companies are making additional contributions, as recommended by the trustees of the plans, to improve the funded status. The calculation of the defined benefit obligations are based on years of service and the employees’ compensation during their years of employment. 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. These obligations are accounted for in accordance with NZ IAS 19 Employee Benefits, which has the effect of recognising the volatility in the returns earned by the plans in the pension reserve. Fletcher Building Limited has an obligation to ensure that the funding ratio of the New Zealand plan’s assets is at least 115% of the plan’s actuarial liability. This is based upon any two consecutive annual actuarial valuations as calculated by the plan’s actuary. This calculation is done on the plan’s funding basis, which differs from the calculation under NZ IAS 19. At 31 March 2015 the value of the assets was 137% of the actuarial liability and the funded surplus was $77 million (31 March 2014: 130%, $64 million). During the year, the group contributed $3 million in respect of its Australian defined benefit plans and $22 million in respect of its Formica defined benefit and medical plans. It contributed $43 million in respect of its defined contribution plans worldwide, including Kiwisaver. Fletcher Building Group Net periodic pension cost Service cost Net interest cost Net periodic pension cost – recognised in earnings before interest and taxation Recognised net liability Assets of plans Projected benefit obligation Funded surplus/(obligation) Asset ceiling effect Recognised net liability Recognised net liability by jurisdiction New Zealand plan Australian plans Retirement plan surplus – recognised within other investments (note 18) Other overseas plans Retirement plan liability – recognised within non-current liabilities Recognised net liability June 2015 NZ$M June 2014 NZ$M 5 1 6 851 (845) 6 (9) (3) 52 16 68 (71) (71) (3) 9 1 10 742 (760) (18) (18) 51 10 61 (79) (79) (18) 49 2015 FLETCHER BUILDING ANNUAL REPORT31 Retirement plans continued Fletcher Building Group Movement in recognised net liability Recognised net liability at the beginning of the year Currency translation Actuarial movements for the year Net periodic pension cost Employer contributions Recognised net liability Assets of the plans Assets of plans at the beginning of the year Actual return on assets Total contributions Benefit payments Currency translation Assets of the plans consist of: Australasian equities International equities Property Bonds Cash and short-term deposits Other assets Projected benefit obligation June 2015 NZ$M June 2014 NZ$M (18) (15) 11 (6) 25 (3) 742 80 27 (68) 70 851 77 404 35 278 34 23 851 (42) 5 10 (10) 19 (18) 743 59 24 (57) (27) 742 72 331 33 222 61 23 742 Projected benefit obligation as at the beginning of the year (760) (785) Service cost Interest cost Member contributions Actuarial gain/(loss) arising on movements in the discount rate Actuarial loss arising on changes in financial assumptions Actuarial gain/(loss) arising on other assumptions – experience adjustments Benefit payments Currency translation (9) (34) (4) 6 (42) 9 74 (85) (9) (29) (5) (2) (11) (8) 57 32 (845) (760) Assumptions used 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’s plans: Assumed discount rate on benefit obligations Annual rate of increase in future compensation levels 2015 % 3.69 2.78 2014 % 4.14 2.77 Expected returns on plan assets have been determined by the independent actuaries as the weighted average of the expected return after tax and investment fees for each asset class by the target allocation of assets to each class. The group expects to contribute at least $25 million to its overseas defined benefit plans during the year to 30 June 2016. 50 2015 FLETCHER BUILDING ANNUAL REPORTNotes to the financial statements continued32 Share-based payments Executive share schemes The group has a long-term share-based incentive scheme targeted at the executives most able to influence the results of the group. Refer to the accounting policies for a description of the scheme. The following are details with regard to the scheme: Grant date Number of shares granted Market price per share at grant date Total value at grant date Vesting date 2014 award 2013 award 2012 award 2011 award 1 October 2014 1 October 2013 1 October 2012 1 October 2011 815,164 $8.79 771,038 $9.52 1,542,549 1,340,033 $6.87 $7.43 $7,165,292 $7,340,282 $10,597,312 $9,956,445 30 September 2017 30 September 2016 30 September 2015 30 September 2014 Maximum bonus payable – expensed over three years $11,338,812 $12,588,231 $19,317,505 $17,962,298 Number of shares: Number of shares originally granted Less forfeited over life of scheme Less vested over life of scheme 815,164 (20,674) 771,038 (194,557) Number of shares held at 30 June 2015 794,490 576,481 Total amount expensed in year for executive performance share scheme Amount recognised at year end for related bonus payable 1,542,549 (583,863) (158,693) 799,993 1,340,033 (1,107,372) (2,186) 230,475 June 2015 NZ$M June 2014 NZ$M 11 25 12 21 33 Post balance sheet events On 29 July 2015, the group announced the closure of two manufacturing sites in Iplex Australia. Site closure costs of $17 million have been recorded at 30 June 2015, primarily relating to fixed asset impairments. 51 2015 FLETCHER BUILDING ANNUAL REPORTCorporate governance statement The board is committed to ensuring that Fletcher Building has appropriate corporate governance arrangements in place and that those arrangements are disclosed in a meaningful way to maximise transparency and investor confidence. Fletcher Building’s framework of rules, relationships, systems and processes are designed to ensure that Fletcher Building meets best practice standards of governance. Framework Fletcher Building has securities listed on the New Zealand and Australian stock exchanges. Consequently, its corporate governance framework is informed by the principles, guidelines, recommendations and requirements of the NZX Listing Rules, the NZX Corporate Governance Best Practice Code, the Financial Markets Authority’s ‘Corporate Governance in New Zealand Principles and Guidelines’, the ASX Listing Rules and the ASX Corporate Governance Council’s Principles and Recommendations. The company has followed the recommendations of the NZX Corporate Governance Code and the ASX Corporate Governance Council during the reporting period, except where specifically noted. Shareholders should also refer to details of the board of directors (on pages 2–3) and the Remuneration Report (on page 55). Further information is also available on the company’s website at www.fbu.com/investor-centre/governance. This corporate governance statement is dated 19 August 2015 and has been approved by the board. Lay solid foundations for management and oversight Roles and responsibilities The board’s roles and responsibilities are formalised in a Board Charter, which is available on the company’s website. The Board Charter sets out those functions that are delegated to management and those that are reserved for the board. It appoints the company secretary as secretary of the board, accountable directly to the board, through the chairman, on all matters to do with the proper functioning of the board. Appointment Before a person is appointed to the board, checks as to the person’s character, experience, education, criminal record and bankruptcy history are conducted. During FY15, checks were commenced in connection with the appointment of Steve Vamos to the board. All material information in the company’s possession relevant to whether 52 or not to elect new directors or re-elect those directors who resign by rotation is included in the notice of meeting for the next annual shareholders’ meeting. Each director has a letter of appointment setting out the terms of his or her appointment. Each senior executive is a party to an employment agreement setting out the terms of his or her employment, including duties, responsibilities and remuneration. Further details of the terms of employment for Mark Adamson were provided to the NZX and ASX on 18 June 2012. Diversity Policy Fletcher Building has a Diversity Policy, which is available on the company’s website. The remuneration committee reviews progress against diversity objectives and initiatives developed by the group to deliver outcomes against the Diversity Policy. The board is satisfied with the initiatives being implemented by the company and its performance with respect to the diversity policy. Further information on diversity initiatives can be found in the People and Community section (on pages 28–30 of the Annual Review). The proportion of women and men within Fletcher Building as at 30 June 2015 is set out in the table below. 2015 women 2015 men 2014 women 2014 men Board of directors 2 (29%) 5 (71%) 2 (22%) 7 (78%) Executive committee Senior management1 All employees 1 (11%) 8 (89%) 1 (9%) 10 (91%) 19 (25%) 58 (75%) 20 (24%) 65 (76%) 19% 81% 21% 79% ¹ Senior management for these purposes includes any person who reports to a member of the executive committee Performance The board carried out a review of its performance and of the committees during the year. The review process involved each director completing and submitting to the chairman a comprehensive questionnaire relating to board performance. Those responses were then collated, analysed and circulated to the directors to use as a basis for their review. The board annually evaluates the performance of the chief executive officer and the chief executive officer’s direct reports. The evaluation is based on criteria that include the financial performance of the business and the accomplishment of other non-quantitative objectives established at the beginning of each year. Further information can be found in the Remuneration Report (on page 55). During the most recent financial year, performance evaluations of senior executives were conducted in accordance with this process. Structure the board to add value Nominations committee The nominations committee makes recommendations to the board in respect of board and committee composition and, when required, identifies individuals believed to be qualified to become board members. The chairman of the board is the chairman of the nominations committee and all independent directors are members of the nominations committee. The roles and responsibilities are set out in a Nominations Committee Charter, which is available on the company’s website. Board Skills Matrix The board has adopted a Board Skills Matrix which takes account of the breadth of the company’s business interests and the nature of the company’s strategic focus. Skills and diversity that are relatively underweight are considered in making appointments to the board. 2015 FLETCHER BUILDING ANNUAL REPORTBOARD SKILLS MATRIX Industry Building products industry Construction industry Distribution industry Geography Australian business experience International business experience Expertise Strategy Management Finance/Accounting Legal/Governance Marketing Information technology Supply chain Diversity Gender Director independence Information on the skills, experience and expertise of current directors and their independence status is contained under ‘Directors’ (on pages 2–3). The company follows recommendations that the chairman be an independent director who is not the same person as the chief executive officer and that a majority of the board are independent directors. The board considers all directors to be independent, with the exception of Mark Adamson. Director induction and professional development The board ensures that new directors are appropriately introduced to Fletcher Building and are acquainted with relevant industry knowledge and economics. The induction and continuing professional development includes visits to specific company operations and briefings from key executives and industry experts. Directors are provided with material health and safety information relevant to the business and attend site visits. Committees The current standing committees of the board are audit and risk, remuneration, nominations and sustainability, environment, health and safety. From time to time the board may create ad hoc committees to examine specific issues on its behalf. No ad hoc committees were formed during FY15. Each committee is governed by a charter setting out its responsibilities, with the exception of the sustainability, environment, health and safety committee, which is in the process of developing its charter. Committees do not take action or make decisions on behalf of the board unless specifically mandated by prior board authority to do so. The table below shows director membership and attendance at board and committee meetings. Board Audit and Risk Remuneration Nominations Sustainability, Environment, Health and Safety* Member Attend Member Attend Member Attend Member Attend Member Attend Norris Adamson Carter Jackson Judge Spargo Tarrant Tilbrook Waters 11(C) 11 11 11 11 11 11 9 4 11 11 11 11 11 11 11 6 4 – – – – 5(C) 5 5 4 – 5 5 – – 5 5 5 3 1 3 – 3 3(C) – – – – – 3 3 3 3 – – – – – 4(C) – 4 4 4 4 4 2 1 4 – 4 4 4 4 4 2 1 – – – 2 – 2(C) 2 – – (C) denotes chairman at 30 June 2015 * The sustainability, environment, health and safety committee was formed with effect from 1 January 2015 1 1 – 2 – 2 2 – – 53 2015 FLETCHER BUILDING ANNUAL REPORTCorporate governance statement continued Act ethically and responsibly Respect the rights of shareholders Code of Conduct The company has a written Code of Conduct with which all directors, senior executives and employees are required to comply. The Code of Conduct is available on the company’s website. Safeguarding integrity in financial reporting Audit and risk committee The board has formed an audit and risk committee, which is subject to a formal charter available on the company’s website. The charter sets out the roles and responsibilities of the audit and risk committee. The audit and risk committee has three members, whose names and qualifications are presented under ‘Directors’ on pages 2-3. The committee is chaired by John Judge and all members are non- executive, independent directors. The audit and risk committee held five meetings during the year and attendance at those meetings is recorded under ‘Committees’ above. Approval of financial statements Prior to approving the interim and full year financial statements, the board received a declaration from the chief executive officer and chief financial officer that, in their opinion, the financial records of the entity have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. External auditor The audit and risk committee performs an annual performance assessment of the external auditor to ensure ongoing quality and effectiveness. During the year the company conducted a competitive tender process for the external auditor appointment. As a result of the tender, EY were appointed in February 2015 to replace KPMG. The Auditor Independence Policy includes requirements for the rotation of external audit engagement partners. The Auditor Independence Policy is available at www.fbu.com/investor-centre/governance. In addition, the policy covers the provision of non-audit services by the company’s auditor. Auditors’ fees and expenses paid to EY and KPMG are presented within Note 3 of the group financial statements included in this Annual Report. The other work performed by the external auditors beyond the statutory audit were pre-approved in accordance with the Auditor Independence Policy and is not considered to compromise independence as the services did not constitute material sums of money. The company’s external auditor attends its annual shareholders’ meeting and is available to answer questions from security holders relevant to the audit. Make timely and balanced disclosure Continuous disclosure The company has in place a Market Disclosure Policy designed to ensure compliance with its continuous disclosure requirements under NZX and ASX Listing Rules. The Market Disclosure Policy is available on the company’s website. Informed shareholders Fletcher Building maintains a website, which includes current information about Fletcher Building’s activities and governance, including information of specific relevance to investors. Core policies on communicating with shareholders are formalised in a Shareholder Communication Policy, which is available on the website. The company operates an investor relations programme, which includes scheduled interactions with institutional investors, analysts and other market commentators. Presentations are also disclosed on the company’s website and the NZX and ASX announcement platforms. Electronic communications Shareholders have the option to receive communications from, and send communications to, Fletcher Building electronically. Shareholders are actively encouraged to take up this option. Recognising and managing risk Risk The audit and risk committee oversees risk. Further information on the composition of the audit and risk committee can be found above, under ‘Safeguarding Integrity in Financial Reporting’. The audit and risk committee has reviewed the company’s Risk Management Framework during the year and satisfied itself that it continues to be sound. The Risk Management Framework includes a formalised system for identifying, overseeing, managing and controlling risk. Internal audit Fletcher Building has an internal audit function, which evaluates and improves the effectiveness of key risk management, control and governance processes. Internal audit develops an annual internal audit plan for approval by the audit and risk committee and is accountable for its implementation. To provide for the independence of the internal audit function, internal audit reports functionally to the audit and risk committee and administratively to the chief financial officer. Sustainability The Sustainability Report on pages 30–31 of the Annual Review discusses economic, environmental and social sustainability risks and how those risks are managed. Remunerate fairly and responsibly Remuneration committee The board has formed a remuneration committee, which is subject to a formal charter available on the company’s website. The charter sets out the roles and responsibilities of the remuneration committee. The remuneration committee has three members, whose names and qualifications are presented under ‘Directors’ on pages 2-3. The committee is chaired by Alan Jackson and all members are non- executive, independent directors. The remuneration committee held three meetings during the year and attendance at those meetings is recorded under ‘Committees’ on page 53. Remuneration Report The company’s policies and practices regarding the remuneration of non-executive directors and the remuneration of executive directors and other senior executives are included in the Remuneration Report (on page 55). The Remuneration Report also includes a discussion of the operation of, and policy for, equity-based remuneration. 54 2015 FLETCHER BUILDING ANNUAL REPORTRemuneration report The company seeks to ensure that it remunerates management and directors fairly and responsibly. Remuneration policies are designed to attract, retain and motivate talented executives and senior management as a way of enhancing the performance of the company and aligning their interests with the creation of value for shareholders. Executive and senior management remuneration The company’s remuneration strategy aims to attract, retain and motivate high-calibre employees at all levels of the organisation and so drive performance and sustained growth in shareholder value. The company’s remuneration committee is kept appraised of relevant market information and best practice, obtaining advice from external advisors when necessary. Remuneration levels are reviewed annually for market competitiveness and alignment with strategic and performance priorities. The remuneration committee engaged PwC to provide remuneration benchmark data for the chief executive officer and other executive committee roles during FY15. The peer group consisted of New Zealand and Australian listed companies of comparable size, complexity and industry to Fletcher Building. An additional global peer group was considered in respect of the chief executive officer role, which included comparable companies from other regions where Fletcher Building has operations. Total remuneration for executives and senior management comprises: • fixed remuneration, including the value of base remuneration and any other benefits; • a short-term variable incentive in the form of an annual performance-related cash bonus; and • participation in the Executive Long-Term Share Scheme or Executive Long-Term Incentive Scheme. For the purposes of determining total remuneration within the executive and senior management group, it is assumed that executives and senior management will, on average, achieve 75% of their potential incentives over time, such percentages to be reassessed periodically in the light of the actual earnings achieved over the business cycle. Fixed remuneration It is the company’s policy to pay fixed remuneration comparable to the median and total remuneration comparable to the upper quartile for equivalent roles in the country or region in which the incumbent is located. The New Zealand/Australian peer group data compiled by PwC was used for this comparison for executives based in New Zealand and Australia. Participation in retirement savings plans is made available to employees as required by remuneration practices in relevant jurisdictions. Short-term variable incentive Short-term variable incentives (STI) are designed to incentivise growth in net earnings by rewarding employees’ performance against financial and personal objectives. Short-term variable incentive targets are expressed as a percentage of base remuneration. Participation in the plan is by annual invitation at the discretion of the company, at which time financial targets and personal objectives are established. Financial component: For operating executives and senior management, the financial target is based on the EBIT and funds employed for the applicable division or business unit. For corporate executives and senior management, the financial target is based on the economic value added (EVA), which is an EBIT and funds employed calculation for the whole group, taking into account foreign exchange and taxation. The financial targets allow normalisation adjustments as agreed by the remuneration committee in advance for acquisitions, divestments and significant items, such as impairments. Financial targets are set at three levels; a threshold level, which must be met before any STI is paid, a target level and a maximum level, above which the STI paid will remain constant. For FY15, the financial threshold is set at achieving 90% of target. The maximum financial level is set at achieving 105% of target for the chief executive officer and 120% of target for other executives and senior management. Achievement of the maximum financial level results in a payment of 120% of STI for the chief executive officer and 150% of the financial component of STI for all others. Personal component: Personal objectives comprise several challenging, measurable personal objectives. Objectives are strategic in nature and are cascaded through the management team according to role. Mark Adamson’s objectives include portfolio management, margin enhancement, safety and environment outcomes and people targets such as employee engagement and are approved directly by the chairman. Payment for the personal component is calculated by reference to the individual performance against the personal objectives for the financial year. Maximum uplift for chief executive officer personal component is set at 120% and 100% for all other executives. If the threshold financial level (or the financial target with the greater weighting in the case of executives and senior management who have more than one financial target) is not met, no STI will be payable. 55 2015 FLETCHER BUILDING ANNUAL REPORTRemuneration report continued The components of STI by role are as follows: Personal component Financial component Total STI Corporate EVA EBIT/funds target Threshold Chief executive officer Corporate executives 30% 15% 70% 45% Operational executives¹ 15% – 20% 11.25% – 15% 33.75% – 45% Senior management¹ 7.5% – 10% 10% – 30% 10% – 30% ¹ Varies depending on role 0% 0% 0% 0% Target 100% 60% Maximum 120% 82.5% 60% – 80% 20% – 40% 82.5% – 110% 25% – 55% The board has the discretion to require repayment of an employee’s STI for a period of up to three years where the company’s reported financial statements are subsequently restated or there is misconduct that causes a financial trading loss that has not been taken into account in the STI calculations. Executive Long-Term Share Scheme and Executive Long-Term Incentive Scheme Long-term performance incentives are designed to align employee remuneration with financial outcomes for shareholders over the longer term. The company has implemented an Executive Long-Term Share Scheme (ELSS) targeted at the employees most able to influence financial results. In circumstances where shares cannot be acquired under applicable securities legislation in certain jurisdictions, equivalent economic entitlements are conveyed by way of cash bonus entitlements under an Executive Long-Term Incentive Scheme (ELIS). Participation in any year is by annual invitation at the discretion of the company. Under the ELSS, participants purchase shares in the company at the offer price with an interest-free loan. The offer price is established at market value at the time of offer. The shares are held by a trustee on behalf of participants until the end of a restrictive period. Provided certain performance criteria are met and participants remain employed with the company throughout the restrictive period, a cash bonus is paid to meet the repayment of the interest-free loan and legal title in the shares is then transferred to the participants. To the extent that the performance criteria are not met or the participant ceases to be employed by the company, the shares will be forfeited and proceeds used to repay the interest-free loan. The performance criteria under the ELSS and ELIS are split into two components as follows: • Total shareholder return (TSR) – 50% of shares The TSR of the group for the period is compared with the average consolidated TSR for the same period of a comparator group to derive a percentile ranking. The 2014 offer is for the period 1 October 2014 – 30 September 2017, which may be extended for up to one more year until 30 September 2018. The comparator group used for the 2014 offer comprises Adelaide Brighton, Amcor, BlueScope, Boral, Brickworks, CSR, Downer EDI, GWA International, James Hardie, Leighton Holdings, Nuplex, Reece, Sims Group, Spark and Steel & Tube. The entitlement to the TSR tranche is determined as follows: TSR percentile Percentage entitlement < 51st 51st nil 50% between 51st – 75th 50 – 100% linear pro-rata > 75th 100% • Earnings per share (EPS) – 50% of shares The EPS target for the year ended 30 June 2017 was set based on a required increase from the year ended 30 June 2014. The EPS for the year ended 30 June 2014, adjusted for significant items, was 52.7 cents and is required to increase by a minimum of 5% per annum before any of the EPS tranche will vest. The EPS tranche will fully vest if the EPS increases by 10% or more per annum. The entitlement to the EPS tranche is determined as follows: EPS for year ended 30 June 2017¹ Percentage entitlement < 61.0 cents 61.0 cents per share nil 50% between 61.0 – 70.2 cents per share 50 – 100% linear pro-rata > 70.2 cents per share 100% ¹ EPS will be adjusted for significant items 56 2015 FLETCHER BUILDING ANNUAL REPORT The board has retained discretion to determine the extent to which any shares held in the ELSS should be transferred in any takeover, merger or corporate reconstruction. The granting, vesting and forfeiture of shares under the ELSS over the last six years was as follows: The following short-term incentive was accrued in the current year: Short-term variable incentive (STI) FY15 – accrued and payable in September 2015 $2,008,341 Refer above under ‘Executive and Senior Management Remuneration’ for details of the STI. Date of grant October 2014 October 2013 October 2012 October 2011 October 2010 October 2009 Initial grant 815,164 771,038 1,542,549 1,332,232 956,940 793,847 Shares vested Shares forfeited Mark Adamson was also granted the following long-term incentive during the year, which remains at risk: 46.0% 41.6% 50.0%¹ 54.0% 58.4% Executive Long-Term Share Scheme (ELSS) 2014 173,788 shares $1,527,600¹ Refer to ‘Executive and Senior Management Remuneration’ on page 55 for details of the ELSS. ¹ Based on a share price of $8.79, being the volume-weighted average price for the five business days ended 30 September 2014 ¹ The October 2011 tranche has forfeited the EPS component. The TSR component has been extended to 30 September 2015. FBuShare FBuShare is a broad-based employee share plan that promotes employee engagement and retention. Employees acquire shares in the company and, if they continue to be employed after a three year qualification period, become entitled to receive one award share for every two shares purchased in the first year of the qualification period and still owned at the end of that period. FBuShare does not require any performance criteria to be met. FBuShare has a maximum contribution rate of NZ$5,000 per annum (or the equivalent currency in other countries). Employees in certain countries are invited to participate in the Phantom Plan, which replicates the benefits of FBuShare. The chief executive officer is not eligible to participate in FBuShare. Chief executive officer’s remuneration Mark Adamson’s current base salary is $1,900,000. The remuneration he received in the current year comprised: Base remuneration Short-term variable incentive (STI) FY14 – paid September 2014 $1,875,000 $2,151,900 Medical insurance benefit $3,225 Refer to ‘Executive and Senior Management Remuneration’ on page 55 for details of the STI. As an executive director, Mark Adamson did not receive any further remuneration in his capacity as director of Fletcher Building Industries Limited or other subsidiaries. 2012 Share Options Plan – chief executive officer Shareholders approved the issue of up to 1,000,000 options to acquire ordinary shares in the company to Mark Adamson at the annual shareholders’ meeting on 20 November 2012, pursuant to NZX Listing Rule 7.3.1 and ASX Listing Rule 10.14. Each option is issued for no cash consideration. Mark Adamson is the only eligible recipient under the 2012 Share Options Plan. An initial issue of 500,000 options was made with effect on 1 October 2012 with an exercise price of $6.22, being the volume weighted average price of Fletcher Building shares sold on the NZSX in the five business days immediately preceding the announcement of Mark Adamson’s appointment on 18 June 2012. The exercise price for any additional options issued will be the volume weighted average price of Fletcher Building shares sold on the NZSX in the five business days immediately preceding the date the options are issued. The exercise price is adjusted annually, with effect from the date of grant, by the company’s cost of capital, less any dividends actually paid. There is a restrictive period of three years from the date of grant during which the options may not be exercised. Subject to the company’s rules on the trading of securities, options may be exercised at any time between the third and sixth anniversary of the date of grant. A further issue of up to 500,000 options may be made to Mark Adamson at the discretion of the board during the period from 1 October 2015 to 20 November 2015. Non-executive directors’ remuneration The remuneration scale for non-executive directors was as follows: 2015 calendar year 2014 calendar year Board of directors Audit and risk committee Remuneration committee Nominations committee Sustainability, environment, health and safety committee Travel allowance – Australian residents Member per annum $159,000 $23,000 $17,500 $10,000 $17,500 $18,000 Chairman¹ per annum $422,500 $46,000 $35,000 – $35,000 Member per annum $159,000 $23,000 $17,500 $10,000 – – $18,000 ¹ The chairmen’s amounts are not additional to the corresponding member amounts. Chairman¹ per annum $422,500 $34,500 $26,500 – – – 57 2015 FLETCHER BUILDING ANNUAL REPORTRemuneration report continued All non-executive directors were also paid a non-vouchable expense reimbursement allowance of $5,000 per annum. Where an ad hoc committee is convened, such as for due diligence, additional remuneration may be payable at $1,200 per half day. However, no payments for ad hoc committees were made in the current year. Directors do not receive any further remuneration for also being directors of Fletcher Building Industries Limited, the NZX listed issuer of the group’s debt securities. Director fees are reviewed annually in the last quarter of the calendar year. The company engaged PwC to benchmark directors’ fees against the director fees paid by a peer group consisting of New Zealand and Australian listed companies of comparable size, complexity and industry to Fletcher Building. As a result of the benchmark findings, adjustments were made to the committee chairmen fees to bring them more in line with the peer group market data. A new fee was also introduced for membership of the sustainability, environment, health and safety committee, commencing on 1 January 2015, to reflect increased structure and focus being placed on this committee. All other directors’ fees remained unchanged. The maximum aggregate remuneration able to be provided to all non-executive directors was set at $2,000,000 at the 2011 annual shareholders’ meeting. The remuneration paid to non-executive directors in the year ended 30 June 2015 was as follows: A J Carter A T Jackson J F Judge R J Norris K D Spargo C Tarrant G T Tilbrook R G Waters Total Remuneration paid $186,500 $208,500 $209,250 $344,815 $227,500 $200,750 $169,750 $135,468 $1,682,533 Non-executive directors do not participate in any company share or option plan. However, the Board Charter requires non-executive directors (or their associates) to hold at least 20,000 shares in the company to demonstrate their commitment and alignment with the company. There are no schemes for retirement benefits for non-executive directors. Directors’ and officers’ indemnification and insurance The company has arranged a programme of directors’ and officers’ liability insurance covering directors, executives and employees acting on behalf of the company. Cover is for damages, judgments, fines, penalties, legal costs awarded and defence costs arising from wrongful acts committed whilst acting for the company. Actions not covered include dishonest, fraudulent or malicious acts or omissions, wilful breach of a statute, regulation or a duty to the company, improper use of information to the detriment of the company and breach of professional duty. The insurance cover is supplemented by an indemnity from the company. However, the indemnity does not cover liabilities that cannot be indemnified under the Companies Act 1993 or other statutes, including liability arising from criminal acts or a failure to act in good faith and in the best interests of the company. Holding the company’s securities A standard term in the executive and senior management employment contract is a requirement that, over time, executives and senior managers must acquire and maintain a holding in the company’s ordinary shares until such time as the greater of the sum invested or the market value of their shareholding exceeds 50% of their base remuneration. In meeting this obligation, executives and senior managers may not sell any shares that vest under the ELSS, or any similar scheme, until the shareholding equals or exceeds the shareholding threshold. For executives or senior managers who are domiciled outside New Zealand or Australia, any net after-tax payments made under the ELIS, or any similar scheme, are to be used to acquire shares on or before 31 March of the following financial year (i.e. 31 March immediately following the payment from the scheme) until the shareholding equals or exceeds the shareholding threshold. In addition, for members of the executive committee who are domiciled in New Zealand or Australia, if at the time of appointment to an executive role, the greater of the market value or cost of the individual shareholding is less than the value of 10% of base remuneration, the executive is required to apply no less than 25% of the after-tax value of any short-term incentive payment to acquire Fletcher Building Limited shares on or before 31 March of the following financial year (i.e. 31 March immediately following the short-term incentive payment). This requirement applies for the first two years of employment as an executive unless the shareholding equals or exceeds the shareholding threshold. The company believes this shareholding strengthens the alignment of executives and senior management with the interests of shareholders and puts their own remuneration at risk to long-term company performance. Directors may, in any year at their discretion, ease the share investment percentage required in respect of any incentive payment arising in that year. Shares issued to executives and senior management under the ELSS, but still subject to the restrictive period, do not count towards the required minimum shareholding. The company does, however, allow New Zealand-based executives or senior management to include an economic exposure to the shares through a defined contribution investment account in the Fletcher Building Retirement Plan, the value of which is calculated by reference to the Fletcher Building share price. The company has a policy that prohibits entering into transactions in associated products that limit the economic risk of participating in unvested entitlements under equity-based remuneration schemes. Employee remuneration Section 211(1)(g) of the New Zealand Companies Act 1993 requires disclosure of the number of employees or former employees of the company whose remuneration and any other benefits received by them during the year in their capacity as employees, was equal to or exceeded $100,000 per annum and to state the number of such employees or former employees in brackets of $10,000. These amounts are included below and include all applicable employees or former employees of Fletcher Building worldwide. The remuneration amounts include all monetary amounts and benefits actually paid during the year, including redundancies and the face value of long-term incentives vested. Amounts paid to the chief executive officer, which are presented in the table above, are not included in the disclosure on the following page. 58 2015 FLETCHER BUILDING ANNUAL REPORTEmployee remuneration From NZ$ – To NZ$ International business activities New Zealand business activities Total From NZ$ – To NZ$ International business activities New Zealand business activities Total 100,000 – 110,000 110,000 – 120,000 120,000 – 130,000 130,000 – 140,000 140,000 – 150,000 150,000 – 160,000 160,000 – 170,000 170,000 – 180,000 180,000 – 190,000 190,000 – 200,000 200,000 – 210,000 210,000 – 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 – 310,000 310,000 – 320,000 320,000 – 330,000 330,000 – 340,000 340,000 – 350,000 350,000 – 360,000 360,000 – 370,000 370,000 – 380,000 380,000 – 390,000 390,000 – 400,000 400,000 – 410,000 410,000 – 420,000 420,000 – 430,000 430,000 – 440,000 363 245 208 145 121 103 70 52 39 36 30 23 28 18 20 17 7 14 8 3 4 7 4 4 3 3 4 2 6 1 2 1 451 370 249 166 123 112 96 84 73 52 49 30 32 24 17 15 12 8 9 7 13 10 10 5 6 13 6 7 3 5 1 3 2 4 814 615 457 311 244 215 166 136 112 88 79 53 60 42 37 32 19 22 17 10 17 17 14 9 9 16 10 9 9 6 3 4 2 4 440,000 – 450,000 450,000 – 460,000 460,000 – 470,000 470,000 – 480,000 480,000 – 490,000 490,000 – 500,000 500,000 – 510,000 510,000 – 520,000 520,000 – 530,000 530,000 – 540,000 540,000 – 550,000 550,000 – 560,000 570,000 – 580,000 580,000 – 590,000 610,000 – 620,000 620,000 – 630,000 650,000 – 660,000 660,000 – 670,000 710,000 – 720,000 720,000 – 730,000 730,000 – 740,000 780,000 – 790,000 800,000 – 810,000 850,000 – 860,000 880,000 – 890,000 900,000 – 910,000 920,000 – 930,000 1,000,000 – 1,010,000 1,050,000 – 1,060,000 1,140,000 – 1,150,000 1,150,000 – 1,160,000 1,310,000 – 1,320,000 1,960,000 – 1,970,000 2,090,000 – 2,100,000 2 1 3 1 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 3 2 1 4 1 1 3 2 1 3 1 3 1 1 1 1 1 1 1 2 1 1 5 2 2 4 4 2 4 1 3 1 3 2 3 2 2 1 1 1 1 1 1 1 1 1 1 2 1 1 1 1 1 2 1 1 Grand total 2,092 1,627 3,719 59 2015 FLETCHER BUILDING ANNUAL REPORTRegulatory disclosures Directors’ relevant interests in equity securities at 30 June 2015 M D Adamson1 A J Carter A T Jackson J F Judge R J Norris K D Spargo C Tarrant Total Relevant interests 30 June 2015 Ordinary shares Capital notes 1,062,485 32,843 20,000 58,155 26,474 25,000 22,639 150,000 200,000 1,247,596 350,000 ¹ Includes 500,000 options over ordinary shares Directors’ interests register Directors have advised changes in their interests during the year ended 30 June 2015 of: Affected interest A T Jackson J F Judge R J Norris Disclosure of directors’ interests • Ceased to be a trustee of the Icehouse Trust • Ceased to be chairman of Thorough Vision Pty • Director of The New Zealand Initiative Limited • Chairman of the Auckland Arts Festival Trust • Director of Fonterra Co-Operative Group • Director of Fonterra Shareholders’ Fund • Director of Origin Energy • Director of New Zealand Treasury • Member of the NZ Olympic Advisory Committee • Member of the Juvenile Diabetes Research Foundation Advisory Board • Trustee of Business Mentors New Zealand • Member of The University of Auckland Council • Chairman of RANQX Holdings Limited K D Spargo • Ceased to be a member of the International Ethics Standards Board for Accountants • Chairman of UGL Limited • Director of Adairs Limited During the year directors disclosed that they (or their associated persons) acquired or disposed of a relevant interest in securities as follows: Affected interest Transaction Class Relevant interests in shares M D Adamson A J Carter J F Judge R J Norris C Tarrant R G Waters Purchase Purchase Purchase Purchase Purchase Purchase Purchase Sale * Includes non-beneficial interests Ordinary shares Ordinary shares Ordinary shares* Ordinary shares* Ordinary shares* Ordinary shares* Ordinary shares Ordinary shares Number 173,788 1,262 434 20 45 2,000 284 Consideration $1,527,597 $10,749 $3,698 $171 $387 $17,260 $2,417 250,000 $2,297,080 60 2015 FLETCHER BUILDING ANNUAL REPORTThe following directors’ certificates were disclosed in the interests register: Affected interest Nature of interest All directors • Directors’ and officers’ insurance effected for the period 1 July 2014 – 30 June 2015. Non-executive directors • Payment of director fees to non-executive directors for the period 1 January 2014 – 31 December 2014. Base director fees to increase to $159,000 and chairman’s remuneration to continue to be paid at a ratio of 2.5 times that of the base fee for non-executive directors, inclusive of the nominations committee fee. • Payment of director fees to non-executive directors to increase from 1 January 2015. Base director fees and committee member fees to remain the same. Committee chairman fees increased to two times that of the committee members. New committee member fee introduced for sustainability, environment, health and safety committee of NZ$17,500. M D Adamson • Increase in base salary to $1,900,000 per annum effective 1 October 2014. Stock exchange listings The company’s shares are listed on the New Zealand (NZX) and Australian (ASX) stock exchanges. 20 largest shareholdings as at 31 July 2015 Name New Zealand Central Securities Depository Limited JP Morgan Nominees Australia Limited National Nominees Limited Citicorp Nominees Pty Limited HSBC Custody Nominees (Australia) Limited RBC Investor Services Australia Nominees Pty Limited BNP Paribas Noms Pty Ltd FNZ Custodians Limited RBC Investor Services Australia Nominees Pty Limited Custodial Services Limited Southern Steel Group Pty Limited Investment Custodial Services Limited UBS Nominees Pty Limited Forsyth Barr Custodians Limited Custodial Services Limited New Zealand Depository Nominee Limited Custodial Services Limited HSBC Custody Nominees (Australia) Limited Masfen Securities Limited Custodial Services Limited Number of shares % of shares 351,085,027 39,970,843 22,568,949 18,847,825 15,454,414 14,009,664 13,488,087 8,260,571 7,129,160 6,777,654 3,876,365 3,537,312 2,795,030 2,781,061 2,768,806 2,329,177 2,268,749 2,149,258 2,137,898 2,084,585 50.97 5.80 3.27 2.73 2.24 2.03 1.95 1.19 1.03 0.98 0.56 0.51 0.40 0.40 0.40 0.33 0.32 0.31 0.31 0.30 New Zealand Central Securities Depository Limited provides a custodial depository service that allows electronic trading of securities to its members. It does not have a beneficial interest in these shares. Its major holdings of Fletcher Building shares are: Name JP Morgan Chase Bank NA NZ Branch HSBC Noms (NZ) Ltd HSBC Nominees (NZ) Limited Citibank Nominees (NZ) Limited National Nominees NZ Ltd Accident Compensation Corporation BNP Paribas Nominees (NZ) Limited NZ Superannuation Fund Noms Ltd TEA Custodians Ltd ANZ Wholesale Australasian Share Fund BNP Paribas Nominees (NZ) Limited Guardian Nominees BNP Paribas Nominees (NZ) Limited Private Nominees Ltd BNP Paribas Nominees (NZ) Limited ANZ Wholesale NZ Share Fund Number of shares % of shares 65,087,082 64,283,742 43,392,741 40,229,425 32,816,854 22,218,333 16,530,395 15,568,945 10,129,148 9,365,649 7,950,651 5,138,619 4,782,257 4,389,140 2,485,749 2,200,132 9.48 9.37 6.32 5.86 4.78 3.24 2.41 2.27 1.48 1.36 1.16 0.75 0.70 0.64 0.36 0.32 61 2015 FLETCHER BUILDING ANNUAL REPORTRegulatory disclosures continued Substantial security holders According to notices given to the company under the Financial Markets Conduct Act 2013, as at 31 July 2015, the substantial security holders in the company and their relevant interests are noted below. The total number of issued voting securities of Fletcher Building Limited as at that date was 686,375,286. Substantial security holders Perpetual Limited Blackrock, Inc Distribution of holdings as at 31 July 2015 Size of holdings 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,000 and over Total Number of voting securities 40,396,726 34,427,194 Date of notice 13 March 2015 23 March 2015 Ordinary shares Capital notes Number of holders % Number of holders 15,918 18,548 3,804 2,472 139 40,881 38.94 45.37 9.31 6.04 0.34 100.00 – 888 1,136 4,490 455 6,969 % – 12.74 16.30 64.43 6.53 100.00 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 1,075 as at 31 July 2015. There is no current on-market buy-back of shares. A total of 557,250 ordinary shares were purchased on market for the purposes of employee share schemes during FY15 at an average price per share of $8.46. Fletcher Building Industries Limited has 531 million capital notes on issue, which can convert to Fletcher Building Limited ordinary shares on the basis of 98% of the then current value of the shares. Unless the capital notes convert into Fletcher Building Limited ordinary shares, they carry no voting rights in Fletcher Building Limited. There were 6,969 holders of the capital notes at 31 July 2015. Fletcher Building Holdings Limited held $142 million capital notes at 31 July 2015. The capital notes are quoted on the NZX but are not quoted on the ASX. ASX waivers The terms of the company’s admission to the ASX and ongoing listing require disclosure that the company is incorporated in New Zealand and 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). 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, as follows: (a) The New Zealand Takeovers Code creates a general rule under which the acquisition of more than 20% of the voting rights in the company or the increase of an existing holding of 20% 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% or more of the shares in the company. (b) The New Zealand Overseas Investment Act 2005 and Overseas Investment Regulations 2005 regulate certain investments in New Zealand by ‘overseas persons’. In general terms, the consent of the New Zealand Overseas Investment Office is likely to be required where an ‘overseas person’ acquires shares or an 62 interest in shares in the company that amount to more than 25% of the shares issued by the company or, if the overseas person already holds 25% or more, the acquisition increases that holding. (c) 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. On 31 March 2009, ASX granted the company an ongoing waiver from ASX Listing Rule 7.1 which regulates the circumstances where companies listed on ASX are required to seek shareholder approval for the issue of securities. One of the conditions of the waiver is that the company remains subject to, and complies with, the listing rules of NZX with respect to the issue of new securities. In accordance with the requirements of the ASX waiver, the company certifies that during the 12 months to 30 June 2015 it has been subject to, and has complied with, the requirements of the NZX with respect to the issue of new securities and that it continues to comply with those requirements. NZX waivers The company has been granted a waiver from NZX Listing Rule 7.6.6(a), to allow its chief executive officer and managing director, Mark Adamson, to participate in the Fletcher Building Limited Executive Long-Term Share Scheme (ELSS) and to receive financial assistance as part of that ELSS, for as long as Mark Adamson remains an employee of the company and a participant in the ELSS. This waiver was granted subject to the following conditions: (a) (b) the company obtained shareholder approval for the provision of financial assistance to Mark Adamson in connection with his participation in the ELSS at its annual shareholders’ meeting; and the notice of meeting contained the precise terms and conditions of Mark Adamson’s participation in the ELSS, and a description of the waiver and its implications, being that financial assistance may continue to be provided to Mark Adamson for the period for which he is a participant in the ELSS, which may be beyond 36 months. Approval in accordance with these conditions was given at the annual shareholders’ meeting on 20 November 2012. 2015 FLETCHER BUILDING ANNUAL REPORTSubsidiary company directors. 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 2015. No employee of Fletcher Building 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 under Employee remuneration. Except where shown below, no other director of any subsidiary company within the group receives director’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. Alternate directors are indicated by the letter (A) after their name. Directors who retired during the year are indicated by the letter (R) after their name. Directors who died during the year are indicated by the letter (D) after their name. AHI Roofing (Malaysia) SDN BHD Amatek Investments Limited Cameron Building Supplies Limited I Bin Harun, P Lamb, T Richards (R), P Wilson (R), C Bolt, S-J Goh D Le Quesne, N Olson (R), L Huynh (R), G Bollman, S Lo Ricco AHI Roofing (Middle East) Limited Andy Sellar Building Supplies Limited T Richards (R), N Olson (R), G Bollman, C Bolt (R), F Irazusta AHI Roofing Gyarto Es Kereskedelmi Korlatolt Felelossegu Tarasag T Richards (R), O Pascutiu, P Wilson (R), C Bolt, D Shulz AHI Roofing Limited T Richards (R), N Olson (R), G Bollman, C Bolt (R), F Irazusta AHI Roofing Proizvodnja In Distribucija Stresnih Sistemov D.O.O. T Richards (R), O Pascutiu, P Wilson (R), C Bolt Amatek Holdings Limited D Le Quesne, N Olson (R), L Huynh (R), G Bollman, S Lo Ricco Amatek Industries Pty Limited D Le Quesne, N Olson (R), L Huynh (R), G Bollman, S Lo Ricco A Sellar(R), D Fradgley Anson Building Supplies Limited V G Grant Austral Bronze Crane Copper Limited R McLeod (R), N Olson (R), L Mayne (R), G Bollman, S Lo Ricco, N Sumich Australian Construction Products Pty Limited S Baker, M Malpass (R), C Bolt Australian Fibre Glass Pty Limited D Le Quesne, L Huynh (R), S Lo Ricco Bandelle Pty Limited D Le Quesne, L Huynh (R), S Lo Ricco Baron Insulation Pty Ltd T Richards (R), C Zeitlyn (R), C Bolt, J Hodgkinson (R), J Hollis Boden Building Supplies Limited P Boden, D Fradgley Building Choices Limited D Close, D Fradgley D Cameron, D Fradgley Caravan Components Pty Limited D Le Quesne, L Huynh (R), S Lo Ricco Cleaver Building Supplies Limited M Cleaver, D Fradgley Consort Laminates Limited P Hall, N Mason (R), M Gill Crane Distribution Limited L Mayne (R), N Olson (R), T Hickey, G Bollman, S Lo Ricco Crane Enfield Metals Pty Limited N Olson (R), L Mayne (R), G Bollman, S Lo Ricco Crane Group Limited D Le Quesne, N Olson (R), L Mayne (R), G Bollman, S Lo Ricco Crevet Ltd R McLeod (R), N Olson (R), L Mayne (R), G Bollman, S Lo Ricco, N Sumich Crevet Pipelines Pty Ltd R McLeod (R), N Olson (R), L Mayne (R), G Bollman, N Sumich CTCI Pty Limited D Surveyor (R), E Woldhuis, N Olson (R), G Bollman, A Webster (A), P Zuckerman Cullen Building Supplies Limited R Cullen, D Fradgley Dale King Building Supplies Limited D King, D Fradgley Davis & Casey Building Supplies Limited T Davis, D Fradgley Decra Roofing Systems, Inc. W Hudson (R), T Richards (R), N Olson (R), S Henwood, G Bollman, C Bolt Delcon Holdings (No. 1) Limited P Zuckerman, N Olson (R), G Bollman Delcon Holdings (No. 2) Limited P Zuckerman, N Olson (R), G Bollman Delcon Holdings (No. 3) Limited A Cadman (R), N Olson (R), G Bollman, F Irazusta Delcon Holdings (No. 8) Limited T Richards (R), N Olson (R), G Bollman C Bolt (R), F Irazusta Delcon Holdings (No. 11) Limited Fletcher Building (Fiji) Limited N Olson (R), G Bollman, C Bolt (R), F Irazusta A Kumar, C White, A Brown, M Malpass (R), C Bolt Delcon Holdings (No. 15) Limited G Darlow, N Olson (R), G Bollman EE-Fit Pty Limited T Richards (R), C Zeitlyn (R). C Bolt, J Hodgkinson (R), J Hollis EFA Technologies Pty Limited D Le Quesne, M Malpass (R), C Bolt Evans Building Supplies Limited M Evans, D Fradgley FBHS (Aust) Pty Limited T Richards (R), M Negri (R), G Bollman, A Pidcock FBSOL Pty Limited T Richards (R), M Negri (R), G Bollman, A Pidcock FDL No. 30 Limited D Fradgley Fletcher Building (Australia) Pty Limited D Le Quesne, N Olson (R), L Huynh (R). G Bollman, C Bolt, S Lo Ricco Fletcher Building Holdings Limited N Olson (R), G Bollman, C Bolt Fletcher Building Holdings New Zealand Limited N Olson (R), M Adamson (R), G Bollman, C Bolt Fletcher Building Holdings USA Inc. M Quint, N Olson (R), G Bollman Fletcher Building Industries Limited A Carter, A Jackson, J Judge, K Spargo, C Tarrant, G Tilbrook (R), R Waters (R), R Norris, M Adamson Fletcher Building Netherlands B.V. N Olson (R), D Slob (R), C Bolt, A Van De Werken (EUR 2,500) (R) G Bollman Fletcher Building Nominees Limited J McDonald, G Niccol, M Farrell, C Munkowits, K Daly (R), N Olson (R), J Chapman, P Demarie-Crook 63 2015 FLETCHER BUILDING ANNUAL REPORT Fletcher Construction Company (Fiji) Limited A Brown, L Gray (D), J Matthews Forman Insulation Limited T Richards (R), N Olson (R), G Bollman, C Bolt Regulatory disclosures continued Fletcher Building Products Limited T Richards (R), N Olson (R), G Bollman, C Bolt (R), F Irazusta Fletcher Building Share Schemes Limited G Niccol, J McDonald Fletcher Building Trading (Shanghai) Company Limited C Rawlinson, P Wilson, G Bollman, C Bolt Fletcher Distribution Limited N Olson (R), D Fradgley, G Bollman, B McEwen Fletcher Insulation Pty Limited T Richards (R), C Zeitlyn (R), C Bolt, J Hodgkinson (R), J Hollis Fletcher Challenge Building Bolivia S.A. Fletcher Morobe Construction Limited M Binns, K Cowie, H Ritchie A Brown, K Fletcher, L Gray (D), L Mathias Fletcher Challenge Building UK Limited J Ollard Fletcher Challenge Finance Investments Limited N Olson (R), C Bolt, G Bollman Fletcher Property Developments UK Limited M August, J Ollard Fletcher Property Investments UK Limited M August, J Ollard Fletcher Challenge Forest Industries Limited M August, J Ollard Fletcher Property Limited G Darlow, N Olson (R), G Bollman Fletcher Challenge Industries S.A. Fletcher Residential Limited M Binns, K Cowie, H Ritchie G Darlow, N Olson (R), G Bollman Fletcher Challenge Overseas Holdings Limited N Olson (R), C Bolt, G Bollman Fletcher Steel Limited M Malpass (R), T Richards (R), N Olson (R), G Bollman, C Bolt (R), F Irazusta Fletcher Concrete (Fiji) Limited A Kumar, A Brown, M Malpass (R), C White, C Bolt FM Holdings Inc. L Box, M Quint, P Zuckerman, N Olson (R), G Bollman Forman Building Systems Limited T Richards (R), N Olson (R), G Bollman, C Bolt Forman Commercial Interiors Limited T Richards (R), N Olson (R), G Bollman, C Bolt Fletcher Concrete & Infrastructure Limited M Malpass (R), N Olson (R), G Bollman, C Bolt Fletcher Construction (Nouvelle Caledonie) S.A.R.L. A Brown Fletcher Construction (Solomon Islands) Limited A Brown, L Gray (D) 64 Forman Manufacturing Limited T Richards (R), N Olson (R), G Bollman, C Bolt Formica (Asia) Ltd C Rawlinson, P Wilson Formica (China) Trading Co., Ltd C Rawlinson, P Wilson, P List Formica (Malaysia) Sdn. Bhd. J Yang, C Chiu, C Rawlinson, P Wilson Formica (Nederland) B.V. J Ruurd de Pater, N Mason Formica (Singapore) Pte. Ltd C Chang, C Rawlinson, P Wilson Formica (Thailand) Co., Ltd W Kunanantakul, S Mahacharoenkeat, C Rawlinson, P Wilson Formica Canada Inc. L Box, C Sarrazin, M Quint Formica Corporation M Adamson, L Box, M Quint, N Olson (R), G Bollman Formica Danmark A/S I Delen, U Hector, R Pollington Formica de Mexico SA DE CV L Box , M Quint, B Strobel Formica Decorative Materials (China) Co. Ltd C Rawlinson, P Wilson, P List Formica Global LLC Formica PSM Limited L Box, M Quint, B Strobel, R Rosado Jr. P Hall, N Mason (R), M Gill Formica Holdco UK Limited P Hall, N Mason (R), R Pollington, M Gill Formica Holding Corp. L Box, M Quint, P Zuckerman, N Olson (R), G Bollman Formica Holding GmbH Formica S.A. (Spain) P Hall, H Ruloffs, P Zuckerman Formica S.A.S (France) N Mason, P Zuckerman, J M de Pater Formica Skandinavien AB I Delen, R Pollington E Hoernisch, T Ruhnke Formica SP.zo.O. Formica Holdings Limited P Hall, N Mason (R), R Pollington, M Gill Formica II Corporation L Box, M Quint, P Zuckerman, N Olson (R), G Bollman Formica Iki Oy I Delen, R Pollington, P Zuckerman Formica International LLC L Box, M Quint, B Strobel, R Rosado Jr. Formica Korea Corporation T Ren, C Rawlinson, P Wilson Formica Laminates (India) Private Limited S Badri, L Box , N Mason, R Pollington, P Zuckerman Formica Limited L Box, P Foreman, P Hall, N Mason (R), R Pollington, P Zuckerman, N Olson (R), J M De Pater, M Gill Formica LLC I Delen, N Mason, R Pollington, A Tsvetov Formica Middle East B.V. M Adamson Formica Norge A/S I Delen, U Hector N Mason Formica Taiwan Corporation T Ren, C Rawlinson, P Wilson Gatic Pty Limited R McLeod (R), N Olson (R), L Mayne (R), G Bollman, N Sumich Geoff Brown Building Supplies Limited G Brown, D Fradgley Geraldton Independant Building Supplies Pty Limited D Surveyor (R), N Olson (R), P Zuckerman, G Bollman, A Webster Graeme Joy Building Supplies Limited G Joy, D Fradgley Gravure et Polissage de Surfaces Metalliques M Adamson, P Hall, N Mason Homapal GmbH T Ruhnke Home&Dry Limited T Richards (R), N Olson (R), G Bollman, C Bolt (R), F Irazusta Iplex Pipelines Australia Pty Limited R McLeod (R), N Olson (R), L Mayne (R), G Bollman, N Sumich Iplex Pipelines NZ Limited N Olson (R), C Bolt, G Bollman Iplex Properties Pty. Limited R McLeod (R), N Olson (R), L Mayne (R), G Bollman, N Sumich John Cockburn Building Supplies Limited J Cockburn, D Fradgley Ken Jones Building Supplies Limited K Jones, D Fradgley Kenna Building Supplies Limited L Kenna, D Fradgley Key Plastics Pty. Ltd. R McLeod (R), N Olson (R), L Mayne (R), G Bollman, N Sumich Kimura Building Supplies Limited D Fradgley Kingston Bridge Engineering Pty Ltd R McLeod (R), N Olson (R), L Mayne (R), G Bollman, N Sumich Kinsey Kydd Building Supplies Limited S Kinsey, D Fradgley Koning Building Supplies Limited J Koning, D Fradgley Kusabs Building Supplies Limited G Kusabs, D Fradgley Laminates Acquisition Co. L Box, M Quint, P Zuckerman, N Olson (R), G Bollman Laminates Holdings Pty Limited D Surveyor (R), N Olson (R), P Zuckerman, A Webster, G Bollman Forman Group Limited T Richards (R), N Olson (R), G Bollman, C Bolt Formica Finance Limited P Hall, N Mason (R), R Pollington, M Gill 2015 FLETCHER BUILDING ANNUAL REPORTTrade Mart Limited N Olson (R), D Fradgley, G Bollman, B McEwen Unidur GmbH T Ruhnke Winstone Wallboards Limited T Richards (R), N Olson (R), G Bollman, C Bolt (R), F Irazusta Companies amalgamated Crane Distribution Properties Limited N Olson (R), C Bolt, G Bollman G. E. Crane N.Z. Holdings Ltd N Olson (R), C Bolt, G Bollman G. E. Crane N.Z. Limited N Olson (R), C Bolt, G Bollman Rocla Pty Limited S Baker, M Malpass (R), A Pidcock (R), C Bolt Tasman Building Products Pty Limited Thomas Street Pty Limited D Le Quesne, L Huynh (R), S Lo Ricco D Le Quesne, M Malpass (R), C Bolt Laminex Finance Pty Limited D Le Quesne, L Huynh (R), S Lo Ricco Laminex Group (N.Z.) Limited Northern Iron and Brass Foundry Pty. Ltd. R McLeod (R), N Olson (R), L Mayne (R), G Bollman, N Sumich Rocla SA Pty Limited D Le Quesne, M Malpass (R), C Bolt Rocla Vic Pty Limited D Le Quesne, L Huynh (R), S Lo Ricco Perstorp Warerite Limited P Hall, N Mason (R), M Gill PinkFit Limited T Richards (R), N Olson (R), C Bolt (R), G Bollman, F Irazusta S Cubed Pty Limited T Richards (R), M Negri (R), G Bollman, A Pidcock N Olson (R), P Zuckerman, G Bollman Laminex Group Pty Limited D Surveyor (R), N Olson (R), P Zuckerman, A Webster, G Bollman Laminex Overseas Holdings Pty Limited D Le Quesne, L Huynh (R), S Lo Ricco PlaceMakers Limited N Olson (R), D Fradgley, B McEwen, G Bollman Seabar Holdings (No 16) Limited G Darlow, N Olson (R), G Bollman Tasman Insulation New Zealand Limited T Richards (R), N Olson (R), G Bollman, C Bolt (R), F Irazusta Tasman Sinkware North America, Inc. N Olson (R), G Bollman Tasman Sinkware Pty Limited T Richards (R), L Mayne (R), N Olson (R), M Freeman (R), M Watters, G Bollman Servicios Formica de Mexico SA DE CV TBP Group Pty Limited L Box , M Quint, B Strobel D Le Quesne, L Huynh (R), S Lo Ricco Shanghai Formica Decorative Material Co., Ltd J Hu, C Rawlinson, P Wilson, P List Shed Boss NZ Limited N Olson (R), C Bolt (R) G Bollman, F Irazusta Southbound Building Supplies Limited Tenedora Formica Mexico, S.A. de C.V. L Box , M Quint, B Strobel Terrace Insurances (PCC) Limited J Crowder (R), M Eades (£2,500), N Olson (R), C Bolt, G Bollman, K Carten A Rance, D Fradgley The Diller Corporation Laminex US Holdings Pty Limited D Le Quesne, L Huynh (R), S Lo Ricco Leary Building Supplies Limited D Fradgley, B McEwen, B Leary Macready Building Supplies Limited J Macready, D Fradgley Mico New Zealand Ltd (formerly Crane Distribution NZ Limited) D Fradgley, G Bollman Milnes Holdings Limited Polymer Fusion Education Pty Ltd R McLeod (R), N Olson (R), L Mayne (R), G Bollman, N Sumich Rocla Australia Pty Limited D Le Quesne, M Malpass (R), C Bolt Rocla Concrete Pipes Pty Limited D Le Quesne, M Malpass (R), C Bolt Rocla Drilling Pty Limited D Le Quesne, M Malpass (R), C Bolt R McLeod (R), N Olson (R), L Mayne (R), G Bollman, N Sumich, S Lo Ricco Rocla Group Superannuation Fund Pty Limited J Gardiner, L Box Monday Company Limited Rocla Industries Pty Limited Stanley Building Supplies Limited D Fradgley, B McEwen, B Stanley-Joblin Steven Marshall Building Supplies Limited S Marshall, D Fradgley Stickland Building Supplies Limited L Stickland, D Fradgley D Hargovind (FJ$2,500), I Jones, A Kumar Morinda Australia Pty Limited T Richards (R), M Negri (R), G Bollman, A Pidcock New Zealand Ceiling & Drywall Supplies Limited D Jones (R), D Thomas Ngapo-Kimura Building Supplies Limited J Ngapo-Kimura, D Fradgley D Le Quesne, L Huynh (R), S Lo Ricco Rocla Masonry Pty Limited D Le Quesne, M Malpass (R), C Bolt Stramit Corporation Pty Limited Rocla Materials Pty Limited M Malpass (R), A Pidcock (R), C Bolt, S Baker Rocla NSW Pty Limited T Richards (R), M Negri (R), G Bollman, A Pidcock Sullivan & Armstrong Building Supplies Limited J Sullivan, D Fradgley D Le Quesne, M Malpass (R), C Bolt Tasman Australia Pty Limited D Le Quesne, L Huynh (R), S Lo Ricco L Box, M Quint, P Zuckerman, N Olson (R), G Bollman The Fletcher Construction Company Cook Islands Limited A Brown, L Gray (D) The Fletcher Construction Company Limited G Darlow, N Olson (R), G Bollman The Fletcher Organisation (Vanuatu) Limited A Brown, L Gray (D), Diract Limited, Lotim Limited The Fletcher Trust and Investment Company Limited G Darlow, N Olson (R), G Bollman 65 2015 FLETCHER BUILDING ANNUAL REPORTInvestor information Annual shareholders’ meeting The annual shareholders’ meeting of Fletcher Building Limited will be held in the Auckland Room, Level 4, SKYCITY Auckland Convention Centre, 88 Federal Street, Auckland, at 10.30am on Tuesday 17 November 2015. Final dividend information The company has declared a final dividend for the year of 19 cents per share payable on 14 October 2015. This is in addition to the interim dividend of 18 cents per share paid on 15 April 2015. The final dividend has imputation credits attached at a 28 per cent tax rate. There are no Australian franking credits attached. 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. The Dividend Reinvestment Plan will operate for the FY15 final dividend. Further information online Details on Fletcher Building, its governance policies, and its operations for the year ended 30 June 2015 can be viewed on the Fletcher Building website at fbu.com. This website contains all announcements to NZX and ASX and financial presentations made by the company. Shareholder communications The company is not required to send printed copies of the annual report and half year review to shareholders. Instead, Fletcher Building sends a snapshot of the company’s operational and financial activities for the year. An annual review is also available containing further information on Fletcher Building’s operations. Shareholders can view the annual report, annual review, snapshot and half year review on the company’s website. In addition, shareholders have a right to receive a copy of the annual report and half year review on request. Direct crediting of dividends To minimise the risk of fraud and misplacement of dividend cheques, shareholders are strongly recommended to have all payments made by way of direct credit to their nominated New Zealand or Australian bank account. This can be done simply by giving the share registry written notice. Share registries Details of the company’s share registries are given in the Directory on the inside 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. 66 2015 FLETCHER BUILDING ANNUAL REPORTDirectory Registered offices New Zealand Fletcher Building 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 Australia Fletcher Building Australia Locked Bag 7013 Chatswood DC 2067 NSW 2067, Australia Level 11, Tower B, Zenith Centre 821 Pacific Highway Chatswood, NSW 2067, Australia T. +61 2 8986 0900 ARBN 096 046 936 Shareholder enquiries Changes of address, payment instructions and investment portfolios can be viewed and updated online: investorcentre.com/nz Enquiries may be addressed to the Share Registrar, Computershare Investor Services: New Zealand Computershare Investor Services Limited Private Bag 92 119 Auckland 1142 New Zealand 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 Australia Computershare Investor Services Pty Limited GPO Box 3329 Melbourne, VIC 3001, Australia Yarra Falls, 452 Johnston Street Abbotsford, VIC 3067, Australia T. 1800 501 366 (within Australia) T. +61 3 9415 4083 (outside Australia) F. +61 3 9473 2500 Other investor enquiries Fletcher Building Limited Private Bag 92 114 Auckland 1142, New Zealand T. +64 9 525 9000 E. moreinfo@fbu.com Company secretary Charles Bolt Other information www.fbu.com 67 2015 FLETCHER BUILDING ANNUAL REPORT

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