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Annual Report 2018
Building a
stronger,
more
focussed
Fletcher
Building.
Fletcher Building is currently
one of the most diversified
building materials companies
in the world. In FY18 we
announced a new strategy
to improve our performance
by focussing and simplifying
our business.
01
Fletcher Building Limited Annual Report 2018 New
strategic
focus
Our vision is to be
the undisputed leader
in New Zealand and
Australian building
solutions with products
and distribution at
our core.
1.
Refocus on the core
2.
Stabilise Construction
3.
Strengthen Australia
4.
Exit non-core businesses
02
Fletcher Building Limited Annual Report 2018 Enabled and
driven by:
• Highly engaged and capable
people who deliver results
for our customers.
• A simpler and leaner
decentralised operating
model.
• An increased focus
on innovation, to achieve
continuous improvement
and take advantage of
global trends.
• Disciplined performance
improvements in
safety, sustainability,
procurement and
operations.
• Capital directed behind
strategically important,
high-return businesses
that align with our vision.
• Targeted acquisitions and
organic growth to fill gaps
in our supply chain or move
into adjacent categories.
03
Fletcher Building Limited Annual Report 2018 Contents
Results at a Glance
Chairman’s Report
CEO’s Report
Strategy
Our Board
Executive Team
Group Performance
Divisions
Building Products
Distribution
Steel
Concrete
Residential and Development
Construction
Australia
Formica and Roof Tile Group
Business Sustainability
Our People
Our Communities
Health and Safety
Environment
Contribution to the NZ Economy
Innovation
Trend Statement
Financial Statements
Independent Auditor’s Report
Remuneration Report
Governance
Statutory Disclosures
Corporate Directory
04
05
06
08
10
12
14
18
20
22
24
26
28
30
32
34
36
38
38
42
43
46
49
50
52
53
101
105
110
117
126
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 in accordance with the requirements
of the Financial Markets Conduct Act 2013,
and these accounting records enable
Fletcher Building to ensure that the
Company’s financial statements comply
with the requirements of the Companies
Act 1993 and the Financial Markets Conduct
Act 2013. The financial statements have
been independently audited, and EY
has issued an unqualified audit report.
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 and joint ventures.
All references to financial years (e.g. FY17 and
FY18) in this annual report are to the financial
year ended 30 June. References to $ and
NZ$ are to New Zealand dollars unless
otherwise stated.
In certain sections of this report the Group
has chosen to present certain financial
information exclusive of the impact of
Significant Items and / or the results of
the Building + Interiors (B+I) business unit,
consistent with previous market guidance.
Where such information is presented, it is
clearly described and marked with an
appropriate footnote. This allows the
readers of this report to better understand
the underlying operations and performance
of the Group.
Any reference 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.
An electronic copy of this annual report
is available to view on our website
www.fletcherbuilding.com
The Annual Report is dated 22 August 2018
and is signed on behalf of the board by:
Sir Ralph Norris
Chairman
Bruce Hassall
Director
Fletcher Building Limited Annual Report 2018
Our Year in Review
Strategy
Our Leadership
Divisions
Business Sustainability
Financials and Governance
BACK
HOME
Results at a Glance
Chairman's Report
CEO's Report
Results at a Glance
Revenue
Net earnings/(loss) – reported
$9,471m
$(190)m
2017 $9,399m ▲ 1%
2017 $94m
EBIT – reported
EBIT (excluding B+I) before significant items1
$(118)m
2017 $273m
$710m
2017 $817m ▼ 13%
Trading cash (excluding B+I)1
EBIT % (excluding B+I) before significant items1
$924m
2017 $635m ▲ 46%
7.5%
2017 8.7% ▼ 1 ppts
ROFE (excluding B+I)1
Capital expenditure
12.6%
2017 14.6% ▼ 2 ppts
$304m
2017 $319m ▼ 5%
Safety TRIFR2
5.1
2017 6.9 ▼ 26%
Employee engagement
Customer NPS3
70%
2017 67% ▲ 3 ppts
33
2017 26 ▲ 7 ppts
1 Measures (excluding B+I) before significant items are non-GAAP measures used by
2 Total recordable injury frequency rate. Measured by the total number of recordable
management to assess the performance of the business and have been derived from
Fletcher Building Limited’s financial statements for the year ended 30 June 2018.
injuries per million hours worked.
3 Net Promoter Score is a measure of how satisfied our customers are with our business.
05
Fletcher Building Limited Annual Report 2018
Results at a Glance
Chairman's Report
CEO's Report
Chairman’s Report
Sir Ralph Norris CHAIRMAN
The theme of this year’s annual report
is focus. This is fitting for a year that
was completed with the launch of
a new, focussed strategy and the
announcement of a refreshed board,
ready to support Fletcher Building
as the new strategy is implemented.
06
Dear Shareholders,
FY18 was a very challenging year for
Fletcher Building, characterised by
the deteriorating performance of the
Building + Interiors (B+I) business of our
Construction division. As I described at
our last annual shareholders’ meeting
(ASM), we had taken on too many
large-scale and complex projects too
quickly, in a hot market, and experienced
failings within the core capabilities of
the business across a range of projects.
At the same meeting I announced the
appointment of Ross Taylor as chief
executive officer (CEO), who then started
with the business in November 2017.
Ross is a proven performer who has led
business turnarounds and improved
performance and shareholder returns
for businesses that operate in Fletcher
Building’s core sectors – including
housing, manufacturing and construction.
Since his appointment Ross has
embedded himself in the business
quickly, undertaking further reviews
of the B+I business and implementing
a comprehensive review of the
Group strategy.
The B+I review resulted in an additional
large provision for losses announced on
14 February 2018. Understanding that
shareholders expect accountability from
the board for all aspects of the Company’s
performance, I thought it was appropriate
to announce that I would stand down as
chairman no later than the 2018 ASM.
This would allow me to first ensure
I supported Ross as he led the finalisation
of a new strategy for the Company,
while also providing an orderly transition
of the board.
As the Group strategy was progressed,
the board and executive undertook a full
review of our capital structure, which
resulted in the decision to undertake an
equity raising. The $750 million
entitlement offer was successfully
completed in May 2018, and served to
strengthen our financial position and
allow us to more effectively execute our
new Group strategy.
On 21 June 2018 a new Group strategy
was announced to the market, which
focusses Fletcher Building’s operations on
the New Zealand and Australian markets,
and in particular, its core operations
of building products and distribution.
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME
It has been a privilege
to serve as chairman of the
Fletcher Building board
and in departing I offer
my sincere thanks to our
shareholders for their
support during my tenure.
Sir Ralph Norris
Results at a Glance
Chairman's Report
CEO's Report
TOTAL SHAREHOLDER RETURNS
In the last 12 months total shareholder
returns for Fletcher Building have been
disappointing, reflecting the market’s
reaction to the downgrades made
through the year, and the curtailment
of dividend payments
Encouragingly, in the last three months
of the financial year the Fletcher Building
share price increased 20%, as the market
reacted positively to our equity raising,
debt restructure and the announcement
of our new strategy. We believe these
initiatives will hold the Company in good
stead and, as the new strategy is
executed, our improved performance
will be reflected in returns to shareholders.
It has been a privilege to serve as
chairman of the Fletcher Building board
and in departing I offer my sincere thanks
to our shareholders for their support
during my tenure. While the last financial
year has been a difficult one for the
Company, the underlying performance
of the business remains strong and with
new leadership and a clear strategy, I am
confident Fletcher Building will reach
its full potential and deliver the returns
our shareholders deserve.
Thank you for your support and my
best wishes to you, the Company and
its people.
Sir Ralph Norris
Chairman
With this new focus, divestment
processes have commenced for
Formica and Roof Tile Group.
The new strategy sets a very clear path for
the business, leveraging our strengths to
deliver more value for our customers and
improved returns for our shareholders.
BOARD APPOINTMENTS
On 22 June 2018 I announced Bruce
Hassall as my successor and the
appointment of four new directors,
effective 1 September 2018.
Barbara Chapman, Rob McDonald,
Doug McKay and Cathy Quinn are high
calibre individuals, who bring a mix of
commercial, operational and governance
expertise, which will greatly enhance the
experience and diversity of the board.
Dr Alan Jackson will retire at the
conclusion of the 2018 annual
shareholders’ meeting, following nine
years of service. In addition, Cecilia
Tarrant made the decision to resign from
the board effective 1 September 2018,
following seven years’ service.
I would like to thank Alan and Cecilia
for their considerable contributions
to Fletcher Building and wish them
every success in the future.
To finalise the board refresh it is expected
that another director from Australia will be
appointed in the near term.
DIVIDEND
Fletcher Building’s dividend policy is to
pay dividends in the range of 50%–75%
of net earnings before significant items,
with consideration of available cash flow
in the same period. Given the financial
performance of the Company in FY18,
and in line with this policy, the board has
resolved not to declare a final dividend.
The board expects, subject to satisfactory
trading performance, to be in a position
to resume dividends in respect of FY19.
07
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME Results at a Glance
Chairman's Report
CEO's Report
CEO’s Report
Ross Taylor CEO
I was delighted to join Fletcher
Building as CEO in November 2017.
While the year has not been without
its challenges, we have completed
FY18 meeting our earnings guidance,
while containing our B+I losses within
the provisions we announced to the
market in February 2018.
08
We have strengthened the business by
refocussing our Construction division on
project completion, undertaking a capital
raising that has significantly strengthened
our balance sheet, and launching a new
Group strategy.
As a result, we have started FY19 on strong
foundations and with clear priorities.
• Refocussing the Construction
division
A detailed analysis of all B+I projects
in February this year resulted in
a $486 million increase in our
provisioning and ultimately, a total
B+I loss of $660 million in FY18.
Subsequently we decided to cease
bidding in the vertical construction
sector to reduce future risk to
the business from the current
market dynamics.
While it was not an easy decision
to make, we believe that it was the
right course of action to provide
more certainty for our shareholders
and the business as a whole.
We have committed to completing
our remaining B+I projects within
these new provisions, while
refocussing our bidding on lower-
risk, higher-margin sectors such
as infrastructure and roading.
• Review of capital structure and
equity raising
The increase in B+I provisioning
resulted in breaches of our debt
covenants and triggered a full
review of our capital structure.
On 17 April 2018 we announced a
1 for 4.46 accelerated entitlement offer
to both institutional and retail investors
for $750 million, and a new standby
loan facility with three of the banks in
our commercial lending syndicate.
The offer was very well received
by investors, with a 98% acceptance
of entitlements by institutional
shareholders and a 56% acceptance
by retail shareholders. In both cases
shareholders who did not take up their
entitlements, or were not eligible to do
so, received a significant premium to
the offer price for the shares sold on
their behalf – ensuring all shareholders
were treated equitably.
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME
Results at a Glance
Chairman's Report
CEO's Report
As a result of the equity raising, our
balance sheet has been strengthened;
we have agreed a permanent solution
with our banking syndicate in relation
to the breaches of the covenants;
and we confirmed our US private
placement (USPP) debt facilities
in line with our target terms, with
no redemption required.
• Launch of new Group strategy
We announced a new Group strategy
to the market on 21 June 2018.
Our vision is for Fletcher Building to be
the undisputed leader in New Zealand
and Australian building solutions – with
products and distribution at our core.
In New Zealand we will grow our
building products and distribution
businesses and leverage our strong
positions in the concrete value chain
and residential construction. Alongside
this we will return Construction to
sound operating performance by
completing the remaining B+I projects
within provisions and profitably
growing our infrastructure and
roading businesses.
In Australia our focus is on improving
the operating and financial performance
of our current businesses. In time,
we will seek to grow our market
share and expand our portfolio as we
have done in New Zealand through
targeted acquisitions.
As a result of our decision to focus
on the New Zealand and Australian
markets, it was logical to then begin
a process to divest our international
businesses, Formica and Roof Tile
Group. We expect to complete both
of these transactions during FY19.
With our strategy decided we then
implemented a new operating model,
which has reduced corporate costs
by $30 million per annum. The new
operating model included a new
divisional structure and the
reorganisation of our individual
businesses into seven divisions.
It went live on 1 July 2018.
FY18 PERFORMANCE
During a year of significant change,
our divisions and businesses remained
focussed on delivering on their
commitments.
09
In FY18 we reported total revenues of
$9,471 million, a 1% increase on FY17.
Group operating earnings before interest
and tax (EBIT) excluding B+I and significant
items was $710 million, in the top half of
our guidance range of $680 million to
$720 million. B+I losses were contained
to the projected $660 million announced
in February 2018.
In New Zealand our Residential and
Development division performed strongly,
growing revenue and earnings and
significantly increasing the volume of
units sold. We also realised revenue
gains in Distribution, Building Products,
Concrete and Steel; however, this was
offset in certain areas by input cost
pressures and the need to invest in our
supply chain ahead of planned timelines
to meet increased market demand.
In Construction, outside B+I, while we
saw continued strong earnings growth
in Higgins, the timing of major projects
in the Infrastructure and South Pacific
businesses reduced earnings across
the division.
In Australia market conditions were mixed.
The residential market softened, while the
Eastern Seaboard infrastructure pipeline
grew. While many of our Australian
businesses made progress against their
turnaround strategies, particularly Iplex
Australia and Tradelink, earnings across
the division were impacted by increased
input costs, particularly in energy
and resins.
Internationally, a positive performance
by Formica in North America and Asia
was offset by difficult trading conditions
in Formica Europe and a number of our
Roof Tile Group export markets.
OUR BALANCED SCORECARD
Beyond our financial performance
we remain focussed on continuous
improvement across our balanced
scorecard.
Safety
The health and safety of our people is
paramount, so it was pleasing to see that
our total recordable injury frequency rate
(TRIFR) reduced from 6.9 in FY17 to 5.1
in FY18 and serious incidents reduced
from 33 in FY17 to 21 in FY18. This is an
encouraging trend but still too high.
We remain focussed on driving TRIFR
below five across all our businesses and
we have made good headway, with the
ongoing implementation of our Protect
safety programme and the introduction
of a new real-time risk and incident
management tool, RADAR.
People engagement
In FY18 we were pleased to see an
increase in our people engagement
score from 67% to 70%, which is on-par
with our peer group. In future years we
will seek to drive engagement above 80%,
which will put us in the upper quartile of
our industry.
Customer satisfaction
It was pleasing to see an increase in our
Net Promoter Score (NPS) over the last
year, which is a measure of how satisfied
our customers are with our business,
from 26 in 2017 to 33 in 2018. Our aim for
future years is to drive to a best-in-class
NPS of greater than 55.
Sustainability and Innovation
We see sustainability and innovation as
critical drivers of our performance and
through the next financial year we will
refine our strategies and targets in both
areas, to provide more detailed reporting
on our year-on-year progress in the future.
OUTLOOK
As we outlined at the launch of our new
strategy in June 2018, we expect Group
earnings to be stable in FY19 and then
growing from FY20.
In FY19 we will remain focussed on
our building materials and distribution
businesses; divesting Formica and Roof
Tile Group; stabilising the Construction
division, by progressively closing out
our remaining B+I projects; and
embedding our new strategy and
structure in Australia, while continuing
our turnaround momentum.
We expect to provide detailed
FY19 guidance at the 2018 annual
shareholders’ meeting.
I thank our shareholders, people,
customers and suppliers for their
continued support of Fletcher Building
and I look forward to updating you on
our progress during FY19 and beyond.
Ross Taylor
CEO
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME Strategy
F O C U S
On 21 June 2018 we announced
a new strategy and operating
model to our shareholders.
Fletcher Building is one of the most
diversified building materials companies
globally, with operations across multiple
geographies, sectors, value chains and
product lines. While our performance in
New Zealand has been strong across our
core building products and distribution
businesses, this has been offset by recent
losses in the B+I business unit of our
Construction division. Improving the
performance of Formica has been
slow and capital intensive, while our
performance in Australia and the progress
of our turnaround strategies have been
mixed. This has led to share price
underperformance versus our peers,
which is something other highly
diversified companies around the
world have experienced.
It was clear that continuing to manage
multiple platforms across multiple
geographies from both a capital and
capability perspective was unlikely
to be successful. This is why we have
introduced a more focussed strategy,
which will help Fletcher Building reach
its full potential.
The first strategic decision we made
was to refocus the business on our core
markets of New Zealand and Australia
and divest Formica and Roof Tile Group.
With this decided, our strategy is then
defined by four key principles:
10
1.
Refocus on the core
Our new vision is to be the undisputed
leader in New Zealand and Australian
building solutions with products and
distribution at our core.
We will defend and grow our
New Zealand building products and
distribution businesses and leverage
our positions in concrete and residential,
which are complementary to our core
and strong performers in their own right.
With only a 15% share of the New Zealand
market,1 there is plenty of opportunity to
deliver more from our existing operations,
and grow into adjacent sectors.
2.
Stabilise Construction
We will stabilise the Construction division
by closing out our remaining B+I projects
within our provisions and then growing
our infrastructure and roading businesses.
We have already made progress here,
with seven of our 16 key loss making
B+I projects now completed.
3.
Strengthen Australia
In Australia, we are targeting a significant
improvement in the operating and
financial performance of our existing
businesses. We have just a 1% share1 of
the Australian market and the majority of
our businesses hold number one or two
market positions – therefore we have a
strong base to build from and we do not
believe there are any structural reasons
that will prevent us from getting our
portfolio performing. In time, we will
seek to expand our portfolio as we
have done in New Zealand through
targeted acquisitions.
4.
Exit non-core businesses
With a new vision and focus, we will exit
non-core businesses and divest Formica
and Roof Tile Group.
1 Sources: FBU Management estimates, Infometrics
WPIP, BIS Oxford Economics (Residential, Non-
Residential Work Done), ABS (Value of Engineering
Work Commenced).
To support the strategy we have also
made changes to how we work and
are now very clear on the enablers
of successful execution.
There are six key enablers of
our strategy:
61. We will continue to
increase the engagement
and capability of our
people to deliver results
for our customers.
2. We have introduced
a simpler and leaner
decentralised
operating model.
3. We will increase our focus
on innovation, to achieve
continuous improvement
and take advantage of
global trends.
4. We will seek disciplined
performance improvements
in safety, sustainability,
procurement and
our operations.
5. We will direct our capital
into strategically important,
high-returning businesses
that align with our vision
and what we’re trying
to achieve.
6. We will fill gaps in our
portfolio or move into
adjacent categories
both organically and
through acquisition.
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME
Our new operating model was announced
on 21 June and has been effective since
1 July 2018. It will reduce overheads across
the Group by $30 million per annum,
empower businesses at the frontline
and the new divisional structure aligns
businesses to our new strategy.
This new structure includes seven
divisions, each with its own chief
executive who reports to our CEO
Ross Taylor. This structure reflects a
logical grouping of our businesses
in New Zealand and establishes a
new stand-alone division in Australia.
The Australian division groups all our
Australian businesses together for the
first time, under one chief executive
Dean Fradgley who will be based in the
country. This will provide more focus,
integration and capability sharing,
better positioning us to achieve our
turnarounds, identify and pursue
cost-efficiencies and take advantage
of customer and market opportunities.
Formica and Roof Tile Group will continue
to operate as a separate division, under
the leadership of chief executive
Francisco Irazusta, as the assets are
prepared for divestment.
In terms of innovation, we will have a
dual focus on continuous improvement,
which is in line with our Fletcher Building
value of ‘better every day’, and taking
advantage of global trends influencing
our markets.
Our continuous improvement activities
will be moved closer to the businesses to
improve accountability, drive manufacturing
excellence, reduce procurement costs,
enhance customer service and support
a culture of innovation.
Right across our portfolio we will be
looking at how our business can respond
to, and lead, global trends in our local
markets. Some key trends currently
influencing our industries are product
innovation (particularly around the
sustainability of our products), service
and channel innovation (which speaks
to how we serve our customers), labour
productivity and the global shift to offsite
manufacturing, and global supply chains,
including lower-cost country sourcing for
certain inputs.
The strategy will be delivered over three
broad stages. In FY19 the focus is on
stabilising the go-forward businesses and
exiting non-core businesses. Done well
this should set us up for a solid FY20, with
momentum building so that in FY21 and
beyond we achieve above market growth.
With clear strategic focus areas in place,
and a new operating model to support
our aspirations, we are in a stronger
position to grow in the coming years.
But no business can grow without
strong foundations in safety, people
engagement, sustainability and customer
engagement – and we will remain
focussed on growing our performance
across these fundamentals.
In safety, we will drive TRIFR2 below five
across all businesses and pivot our focus
onto managing and removing serious
and high-potential incidents from our
day to day activities.
We want to lead in sustainability and
will look to embed sustainability
measures and outcomes into our
products and practices.
We want our employees to remain
engaged and we will aim to get all
businesses performing in the top quartile.
We continue to head in the right direction,
with our FY18 people engagement score
for the total business increasing to 70%.
Finally, we will assess everything we do
through a customer lens, ensuring
our businesses embed transparent and
measurable customer service promises
that differentiate us from the competition
and drive high levels of customer
satisfaction.
We believe the new Fletcher Building
strategy is focussed, clear and
uncomplicated and will ultimately
better enable us to deliver more value
for our shareholders.
STAG E 1 | FY19
STAG E 2 | FY20
STAG E 3 | FY21 – 23
Turnaround / Exit
Solid Performance
Growth
Ongoing refinement of operating model and governance
Innovating to achieve continuous improvement and take advantage of key macro trends
NZ
AU
$
Construction returned to profit
Construction turnaround complete
New Zealand businesses strong and growing
Australia turnaround underway
Performance improvement advancing strongly
Profitable market share gains in Australia
Formica and Roof Tile Group sold
Fill network gaps and enter new adjacencies with M+A3
2 Total recordable injury frequency rate. Measured by
the total number of recordable injuries per million
hours worked.
3 Mergers and acquisitions.
11
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME Our Board
Executive Team
Our Board
SIR RALPH NORRIS
FNZIM, HFIITP, KNZM, Hon.DBus
(University of New South Wales)
Chairman and Independent
Non-Executive Director
Term of office
Appointed director 1 April 2014,
last re-elected 2016 annual meeting
Board committees
Chairman of the Nominations Committee
Sir Ralph Norris has over 40 years’
business and banking experience,
having led large organisations through
transformational changes in both
New Zealand and Australia. During his
career, he has held a number of senior
executive roles, including managing
director and chief executive officer of
Commonwealth Bank of Australia and
chief executive officer of Air New Zealand
Limited and ASB Bank. Sir Ralph is the
chairman of Contact Energy Limited and
a director of RANQX Holdings Limited.
As previously announced, Sir Ralph Norris
will step down from the board effective
1 September 2018.
ANTONY CARTER
BE (Hons), ME, MPhil (Loughborough)
BRUCE HASSALL
BCom, FCA (CAANZ)
Independent Non-Executive Director
Independent Non-Executive Director
Term of office
Appointed director 1 September 2010,
last re-elected 2016 annual meeting
Term of office
Appointed director 1 March 2017,
last elected 2017 annual meeting
Board committees
Member of the Audit and Risk Committee,
Member of the Nominations Committee and
Member of the Remuneration Committee
Tony Carter has extensive experience
in retail management having served
as managing director of Foodstuffs
(Auckland) and Foodstuffs (New Zealand),
New Zealand’s largest retail organisation.
Prior to this he owned and operated
several Mitre 10 hardware stores, later
serving as a director and chairman of
Mitre 10 New Zealand Limited. Tony is
the chairman of Air New Zealand Limited
and Fisher & Paykel Healthcare Corporation
Limited, a director of ANZ Bank
New Zealand Limited and Avonhead
Mall Limited and a trustee of the
Maurice Carter Charitable Trust.
Board committees
Chairman of the Audit and Risk Committee
and Member of the Nominations Committee
Bruce Hassall has had a distinguished
career with broad and deep commercial
and strategic experience and connections
across the New Zealand economy,
including in the small medium enterprise
(SME), commercial, government and
export sectors. As former senior partner
and chief executive officer of PwC
New Zealand he has extensive advisory
background and knowledge of the
corporate environment. Bruce is the
chairman of The Farmers’ Trading
Company Limited and Prolife Foods
Limited and is a director of Bank of
New Zealand and Fonterra Co-operative
Group Limited.
Bruce Hassall assumes the role of
chairman of Fletcher Building Limited
effective 1 September 2018.
NEW BOARD MEMBERS EFFECTIVE 1 SEPTEMBER 2018
BARBARA CHAPMAN, BCom
ROBERT McDONALD, BCom, FCA
DOUGLAS McKAY, BA, ONZM, CMinstD
Barbara Chapman has had an impressive
executive career, serving most recently
as managing director and chief executive
officer of ASB Bank for seven years and
previously as group executive Human
Resources and group services for the
Commonwealth Bank of Australia.
Barbara recently joined the boards
of Genesis Energy and NZME as an
independent director.
Rob McDonald has a strong track record in
financial and risk management, developed
over two decades with Air New Zealand
Limited and most recently as the airline’s
chief financial officer. Rob currently serves
as an independent director of Contact
Energy Limited, taking up the role of
chairman on 1 September 2018, and is a
director of the Chartered Accountants of
Australia and New Zealand. Rob will assume
the role of chairman of the audit and risk
committee upon appointment as a director
of Fletcher Building.
Doug McKay has considerable business
leadership and commercial experience, as
the former chief executive of major
manufacturing and distribution businesses
in New Zealand and Australia, such as Lion
Nathan Limited, Carter Holt Harvey Limited,
Goodman Fielder Limited, Sealord and
Independent Liquor. As chief executive of
Auckland Council, he led the amalgamation
of eight territorial authorities into the one
12
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME Our Board
Executive Team
DR ALAN JACKSON
BEng (Hons), PhD (Auckland),
MBA (IMD Management Institute), F Eng NZ
CECILIA TARRANT
BA, LLB (Hons), LLM (Berkeley)
STEVE VAMOS
BE (Hons)
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Term of office
Appointed director 1 September 2009,
last re-elected 2016 annual meeting
Term of office
Appointed director 10 October 2011,
last re-elected 2017 annual meeting
Term of office
Appointed director 6 July 2015,
last elected 2015 annual meeting
Board committees
Chairman of the Remuneration Committee,
Member of the Nominations Committee and
Member of the Safety, Health, Environment
and Sustainability Committee
Board committees
Chairman of the Safety, Health, Environment
and Sustainability Committee, Member of the
Audit and Risk Committee and Member of the
Nominations Committee
Dr Alan Jackson has over 35 years’
international business experience across a
wide spectrum of industries and disciplines.
He has worked across a range of industries,
including the resources, diversified
industrials, building products and
construction sectors. Alan is the chairman
of New Zealand Thoroughbred Racing Inc.
and a director of Delegat Group Limited
and Aurora Vineyard Limited. He has
served as managing partner and
subsequently chairman of The Boston
Consulting Group Australasia and on the
global executive committee of The Boston
Consulting Group and has also chaired
Housing Corporation of New Zealand.
Dr Alan Jackson retires at the conclusion
of the 2018 annual shareholders’ meeting
following nine years’ service.
Cecilia Tarrant is a professional company
director. She has over 20 years’ experience
in international banking and finance,
having worked as a lawyer and an
investment banker in the USA and
Europe. Cecilia is the chairman of the
Government Superannuation Fund
Authority, a director of Annuitas
Management Limited, Payments NZ
Limited and Seeka Limited and a trustee
of The University of Auckland Foundation.
She previously held a number of senior
management positions with Credit Suisse
First Boston and Morgan Stanley in
New York and London.
Cecilia Tarrant resigns from the board
effective 1 September 2018 following
seven years’ service.
Board committees
Member of the Audit and Risk Committee,
Member of the Nominations Committee and
Member of the Remuneration Committee
Steve Vamos has more than 30 years’
experience in the information
technology, internet and online
media industries. He is the chief
executive officer of Xero Limited,
a global online platform providing
accounting software for businesses
and their advisors. Steve is a member of
the Advisory Board of the University of
Technology Sydney Business School, as
well as a director of Telstra Corporation
Limited (although will retire from the
Telstra board on 16 October 2018). He
has held senior management roles at
IBM, Apple Computers, ninemsn in
Australia and Microsoft Corporation in
Australia and the USA.
‘super city’ it is today. He is the chair of
the Bank of New Zealand and Eden Park
Trust and serves as an independent
director on the boards of Genesis Energy,
IAG New Zealand and National Australia Bank.
CATHY QUINN, LLB, ONZM
Cathy Quinn is one of New Zealand’s
foremost commercial and corporate lawyers.
She leads the mergers and acquisitions
and private equity teams and the China
practice at MinterEllisonRuddWatts, and
served as chairman of the firm for eight
years. Cathy is currently a director of
Tourism Holdings Limited, and a board
member of New Zealand Treasury and the
New Zealand China Council.
13
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME
Our Board
Executive Team
Executive Team
F O C U S
A simpler, leaner decentralised operating
model was introduced on 1 July 2018.
This included a new divisional structure
that aligned our individual businesses
to our new strategic priorities.
These changes resulted in a number of
new appointments to the Fletcher Building
executive team, which were also effective
from 1 July 2018. The executive team is
comprised of proven performers with deep
experience in their industries and functional
disciplines and will provide strong leadership
as we progress our new strategy.
Our plan is clear, it has
improved our focus as
a business, and we are
now putting it into action.
Ross Taylor
14
ROSS
TAYLOR
Chief Executive Officer
Ross Taylor joined Fletcher Building as
CEO on 22 November 2017. Previously,
Ross was CEO of UGL, an international
engineering, services, construction
and product manufacturing business,
operating across the rail, transport and
technology systems, power, resources,
water and defence sectors, and
headquartered in Australia.
Prior to this he was managing director and
CEO of Tenix, a privately held engineering
and construction services company and
held senior leadership roles at Lendlease
across a 23-year period.
Ross has proven experience leading
business turnarounds and improving
performance and shareholder returns
and has direct experience across a
range of Fletcher Building’s core sectors,
including housing, manufacturing
and construction.
Ross holds a Bachelor of Engineering
from the University of Queensland.
BEVAN
MCKENZIE
Chief Financial Officer
Bevan McKenzie was appointed chief
financial officer in November 2016, having
joined Fletcher Building as general manager
of Group Strategy in January 2014.
Bevan has led several significant portfolio
changes, including completion of the
Higgins acquisition. Prior to this, he
worked for the Boston Consulting Group
in Australia and New Zealand and for
Roquette Frères in France. At Roquette
Frères, Bevan’s roles included head of
mergers and acquisitions and
responsibility for the rest-of-world
commercial team.
Bevan holds a Masters of Business
Administration from the International
Institute for Management Development
in Lausanne, Switzerland and a Master
of Arts (Hons) in Political Science from
the University of Auckland.
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME
Our Board
Executive Team
CLAIRE
CARROLL
CHARLES
BOLT
DAVID
THOMAS
Chief People and
Communications Officer
Group General Counsel and
Company Secretary
Chief Executive Building Products
Claire Carroll was appointed chief people
and communications officer in July 2018.
Claire joined Fletcher Building in 2013 as
the general manager of Human Resources
(HR) for the Construction division and was
general manager People and Performance
for the Building Products division between
2015 and 2017. She has previously held
head of HR positions for the Product and
Technology and Wholesale divisions of
Spark New Zealand, the National Bank
of New Zealand and Deutsche Bank and
NatWest Markets in the United Kingdom.
Claire holds a Bachelor of Commerce
from The University of Auckland.
Charles Bolt was appointed to his current
role in October 2013, having joined
Fletcher Building as corporate legal
counsel in 2002. He has been closely
involved in the Company’s corporate
initiatives in that time, in particular major
acquisitions and divestments, and the
establishment of the global employee
share schemes. He was also instrumental
in the establishment of the Fletcher
Building Legal and Fletcher Building
Property teams. Prior to this, he spent
eight years at Bell Gully working on
mergers and acquisitions, capital markets
and managed funds matters.
Charles holds a Bachelor of Laws from
Victoria University of Wellington and has
completed the Senior Executive
Programme at Columbia University
in New York.
David Thomas was appointed the interim
chief executive of the Building Products
division in 2017.
He has over 40 years’ experience in
the building industry and has led several
key business units within Fletcher Building.
Most recently he was general manager
of Winstone Wallboards, a position he
held for 17 years, where he consistently
delivered strong business results and
maintained high levels of engagement
with his people and customers.
David is currently on the board of
directors of Watercare, is a director
of Altus New Zealand Limited and
chairman of Ngati Whakaue Tribal
Lands Incorporated.
As announced on 16 July 2018,
David will return to his role as general
manager Winstone Wallboards effective
November 2018.
JOHN
BELL
WENDI
CROFT
BRUCE
McEWEN
Chief Information Officer
Global Head
Environment Health and Safety (EHS)
Chief Executive Distribution
John Bell joined Fletcher Building as
chief information officer in 2015. John has
more than 30 years’ business consulting
experience and has held a variety of
leadership roles and worked in Canada,
Southeast Asia, Australia and New Zealand
across both the private and public sectors,
including leading the Technology Advisory
practice at Deloitte Consulting in Auckland.
Since joining Fletcher Building, John has
driven significant transformation of Group
Technology bringing together 20 teams
into a shared service and improving
service delivery across 900 locations.
John holds a Bachelor in Business Studies
and Information Systems and a Diploma
of Business Administration, both from
Massey University. He is a Chartered
Accountant and a member of both
Chartered Accountants ANZ and the
Institute of Management Consultants.
15
Wendi Croft was appointed the interim
Global Head Environment Health and
Safety in July 2018, having joined Fletcher
Building at the beginning of 2018 as
EHS global programmes and governance
manager. Wendi has nearly 20 years’
experience in EHS across a variety of
industries, including manufacturing,
transport, construction and utilities.
Prior to Fletcher Building, Wendi held
director and global general manager-level
roles for Compac and Massey University,
in addition to 15 years with AECOM in
North America and Asia Pacific.
Wendi holds a Bachelor of Science from
the University of British Columbia and
is a Certified Member of the Board of
Canadian Registered Safety Professionals.
Bruce McEwen was appointed to chief
executive of the Distribution division
in July 2018. He joined the Company in
2014 as general manager of Strategy
and Commercial Distribution and was
part of the team that established the
former Distribution division. He became
general manager of PlaceMakers in
2015. Between 2009 and 2013, he was
the chief financial officer of Coca-Cola
Amatil New Zealand responsible for
New Zealand and Fiji; and prior to this the
chief operating officer for Bendon, during
which time he transformed the domestic
business into a global export brand.
He has also worked for Compaq, Hewlett
Packard and Unisys.
Bruce holds a Bachelor of Commerce
from the University of Canterbury,
is a Chartered Accountant and has
completed an Advanced Management
Course at Babson College in the USA.
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME Our Board
Executive Team
Executive Team continued
HAMISH
McBEATH
IAN
JONES
STEVE
EVANS
Chief Executive Steel
Chief Executive Concrete
Hamish Mcbeath was appointed chief
executive of the Steel division in July 2018.
He joined Fletcher Building in May 2002,
rising from shift manager to general
manager of Pacific Coilcoaters in
November 2010. He has held several
senior roles within the Company since
then and was chairman of Sims Pacific
Metals, a joint venture between Fletcher
Building and Sims Metal Management
Group sold in June 2018. Hamish has
driven significant growth for Fletcher
Steel, with the group almost doubling
in size in the past four years.
Hamish holds a Master of Business
Administration and a Post Graduate
Diploma of Operations Management
from the University of Auckland and has
completed the Mount Eliza Advanced
Mergers and Acquisitions Programme.
Ian Jones was appointed chief executive
of the Concrete division in July 2018.
His experience within the Company
totals 27 years, including roles as general
manager of Golden Bay Cement (GBC)
and Winstone Aggregates and general
manager and manufacturing manager
for Pacific Steel.
His accomplishments include resetting
GBC’s distribution model (including a
$90 million investment in shipping,
storage and South Island distribution),
integrating Higgins quarries into Winstone
Aggregates, and successfully divesting
Pacific Steel to enable the development
of James Fletcher Drive.
Ian has Diplomas in Business
Management and Operations
Management from the University
of Auckland.
Chief Executive
Residential and Development
Steve Evans joined Fletcher Building
in 2013 as the chief operating officer for
housing in the Construction division and
was appointed chief executive Residential
and Land Development in 2015.
Prior to Fletcher Building, Steve spent
more than 12 years in director roles in
the development industry for Heron
International and First Base. He has
worked on landmark projects, including
Heron Tower and the Heron, Stratford
Olympic Village, East Greenwich Hospital
and Old London Park Hotel. His earlier
career with Lendlease spanned Australia,
Singapore, Taiwan, China and the UK,
where he worked on the construction
of major residential and commercial
developments.
Steve was one of the founding directors
of an urban regeneration business in
London that worked with Government
to address affordable, state and key
worker housing needs and is leading
the development of a new high-tech,
fast house-building panelisation factory
in Auckland.
CEO – Ross Taylor
New Organisational Structure
Steel
Hamish
Mcbeath
Pacific
Coilcoaters
Easysteel
Dimond
Roofing and
Dimond
Structural
Fletcher
Reinforcing
Fletcher Wire
Products
Building
Products
David Thomas1
Distribution
Bruce McEwen
PlaceMakers
Mico
Forman
Building
Systems
Snappy
Winstone
Wallboards
Laminex NZ
Tasman
Insulation
Humes
Iplex NZ
CSP Pacific
Altus (JV)
16
Concrete
Ian
Jones
Winstone
Aggregates
Golden Bay
Cement
Firth
Residential and
Development
Steve
Evans
Construction
Michele
Kernahan
Residential
Land
Development
Building +
Interiors
Infrastructure
Property
Brian Perry Civil
Innovation
Higgins
Panelisation
South Pacific
Australia
Dean
Fradgley
Laminex AU
Iplex AU
Fletcher
Insulation
Tradelink
Tasman
Sinkware
Stramit
Rocla
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME
Our Board
Executive Team
MICHELE
KERNAHAN
DEAN
FRADGLEY
FRANCISCO
IRAZUSTA
Chief Executive Construction
Chief Executive Australia
Michele Kernahan joined Fletcher Building
in 1998 and was appointed chief executive
of the Construction division in 2017.
Michele has previously held several
general management roles in Fletcher
Building, including Laminex Australia,
GBC and Fletcher Earthquake Recovery
(EQR), where she led the team managing
the rebuild efforts in Christchurch.
Michele has a Master of Business
Administration from the University of
Canterbury and has graduated from
leadership and management programmes
at the Wharton Business School, Stanford
University Graduate School of Business
and Harvard Business School.
As announced on 16 July 2018,
Peter Reidy has been appointed
chief executive Construction and
Michele Kernahan will move into
the role of chief executive Building
Products, effective November 2018.
Dean Fradgley was appointed chief
executive of the Australian division in
July 2018. He joined Fletcher Building
in 2013 as chief executive New Zealand
Distribution and became chief executive
of the Trans Tasman Distribution division
in 2015.
Prior to joining Fletcher Building, he
worked for Wolseley UK in several senior
positions, including managing director
of its commercial and industrial division
and prior to that as commercial director.
Dean has also worked with a number
of blue chip companies, including
J Sainsbury, Kingfisher and as Head
of Trade for B&Q.
Dean has completed studies in Business
Management and Strategy through IMD
in Switzerland.
Chief Executive
Formica and Roof Tile Group
Francisco Irazusta joined Fletcher Building
in March 2015 as the chief executive of
the Light Building Products division and
became chief executive of the International
division in March 2016. He was Fletcher
Building interim chief executive officer
from July to November 2017.
Francisco has an impressive background,
bringing together broad experience
across manufacturing, supply chain
and sales and marketing, gained from
a range of senior leadership roles for
global building products companies in
North America, Asia, Africa, Middle East
and Europe.
Francisco holds a Master of Science,
Industrial Engineering and Innovation
and a Bachelor of Science in Ceramic
Engineering, both from the State
University of New York.
Formica and
Roof Tile Group
Francisco
Irazusta
Formica
NA
Formica
Asia
Formica
EU
Homapal
Roof Tile Group
17
Finance
Bevan
McKenzie
People
Claire
Carroll
Technology
John
Bell
EHS
Wendi
Croft1
Legal
Charles
Bolt
Operating Divisions
Exits
Supporting Functions
1
Interim position
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME
Divisions
Group Performance
Fletcher Building posted underlying
operating earnings of $710 million1
Reported results
Total revenue
Operating earnings before significant items1
Significant items
Operating earnings (EBIT)
Funding costs
Earnings/(loss) before tax
Tax benefit/(expense)
Earnings/(loss) after tax
Non-controlling interests
Net earnings/(loss)
Net earnings/(loss) before significant items1
Basic earnings/(loss) per share (cents)
Dividends declared per share (cents)
Cash flows from operating activities
Capital expenditure
Operating earnings before significant items1
B+I
Operating earnings (excluding B+I) before significant items1
Year ended
30 June 2018
NZ$m
Year ended
30 June 2017
NZ$m
9,471
9,399
50
(168)
(118)
(157)
(275)
96
(179)
(11)
(190)
(60)
(25.5)
0.0
396
304
50
(660)
710
525
(252)
273
(111)
162
(57)
105
(11)
94
321
13.5
39.0
243
319
525
(292)
817
Change
%
1%
(90%)
(33%)
NM
41%
NM
NM
NM
0%
NM
NM
NM
NM
63%
(5%)
(90%)
NM
(13%)
1 Measures (excluding B+I) before significant items are non-GAAP measures used by management to assess the performance
of the business and have been derived from Fletcher Building Limited’s financial statements for the year ended 30 June 2018.
Building Products
Distribution
Steel
Concrete
Residential and Development
Construction
Australia
Formica and Roof Tile Group
Divested businesses
Other
Gross revenue
Less intercompany sales
Group external revenue
18
Revenue
Year ended
30 June 2018
NZ$m
Year ended
30 June 2017
NZ$m
Change
%
764
1,530
532
812
575
1,685
3,076
1,177
108
8
10,267
(796)
9,471
745
1,519
491
781
420
2,246
2,858
1,120
78
9
10,267
(868)
9,399
3%
1%
8%
4%
37%
(25%)
8%
5%
38%
(11%)
0%
(9%)
1%
Fletcher Building Limited Annual Report 2018Building ProductsDistributionSteelConcreteResidential and DevelopmentConstructionAustraliaFormica and Roof Tile GroupOur Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME
Building Products
EBIT 2018
Distribution
EBIT* 2018
Steel
EBIT* 2018
Concrete
EBIT* 2018
$132m
2017 $152m ▼ 13%
$104m
2017 $104m
$49m
2017 $54m ▼ 9%
$90m
2017 $113m ▼ 20%
Residential and
Development
EBIT 2018
Construction
EBIT+ 2018
Australia
EBIT* 2018
$136m
2017 $130m ▲ 5%
$52m
2017 $88m ▼ 41%
$114m
2017 $119m ▼ 4%
Formica and
Roof Tile Group
EBIT* 2018
$65m
2017 $79m ▼ 18%
* EBIT before significant items
+ EBIT (excluding B+I) before significant items
Reported
operating earnings
Operating earnings (excluding B+I)
before significant items1
Year ended
30 June 2018
NZ$m
Year ended
30 June 2017
NZ$m
Change
%
Year ended
30 June 2018
NZ$m
Year ended
30 June 2017
NZ$m
Change
%
132
101
41
73
136
(613)
65
8
(111)
50
(118)
(157)
(275)
96
(179)
(11)
(190)
152
104
54
113
130
(204)
(132)
79
(31)
8
273
(111)
162
(57)
105
(11)
94
(13%)
(3%)
(24%)
(35%)
5%
NM
NM
(90%)
NM
NM
NM
41%
NM
NM
NM
0%
NM
132
104
49
90
136
52
114
65
(45)
13
710
(157)
553
(127)
426
(11)
415
152
104
54
113
130
88
119
79
(30)
8
817
(111)
706
(164)
542
(11)
531
(13%)
0%
(9%)
(20%)
5%
(41%)
(4%)
(18%)
50%
63%
(13%)
41%
(22%)
(23%)
(21%)
0%
(22%)
Building Products
Distribution
Steel
Concrete
Residential and Development
Construction
Australia
Formica and Roof Tile Group
Corporate
Divested businesses
Total
Funding costs
Earnings/(loss) before tax
Tax benefit/(expense)
Earnings/(loss) after tax
Non-controlling interests
Net earnings/(loss)
1 Measures (excluding B+I) before significant items are non-GAAP measures used by management to assess the performance of the
business and has been derived from Fletcher Building Limited’s financial statements for the year ended 30 June 2018.
19
Fletcher Building Limited Annual Report 2018Building ProductsDistributionSteelConcreteResidential and DevelopmentConstructionAustraliaFormica and Roof Tile GroupOur Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME
Divisions
s
t
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Fletcher Building Limited Annual Report 2018Building ProductsDistributionSteelConcreteResidential and DevelopmentConstructionAustraliaFormica and Roof Tile GroupOur Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME
l
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t
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21
Fletcher Building Limited Annual Report 2018Building ProductsDistributionSteelConcreteResidential and DevelopmentConstructionAustraliaFormica and Roof Tile GroupOur Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME
Our Year in Review
Strategy
Our Leadership
Divisions
Business Sustainability
Financials and Governance
BACK
HOME
Building Products
Distribution
Steel
Concrete
Residential and Development
Construction
Australia
Formica and Roof Tile Group
Divisions
Building
Products
1,400+
7
The Building Products division
brings together Fletcher
Building’s manufacturing
businesses, which supply into
the building and construction
sector in New Zealand.
• Winstone Wallboards is
New Zealand’s largest
manufacturer and distributor
of plasterboard and drywall
systems under the well-known
GIB® brand.
• Laminex New Zealand
is a manufacturer and
distributor of particle board
and laminate surfaces.
• Tasman Insulation manufactures
and distributes the renowned
Pink® Batts® brand.
• Humes manufactures and
distributes concrete pipes and
other drainage products and
solutions.
• Iplex New Zealand is the largest
manufacturer of plastic pipes
in the country, offering a broad
range of products and solutions.
• CSP Pacific supplies metal lamp
posts and barrier solutions.
• Altus is a joint venture that
develops and manufactures
premium aluminium extrusions
for an extensive range
of industries.
DIVISIONAL PERFORMANCE OVERVIEW
The Building Products division reported
gross revenue of $764 million, an increase
of 3% from FY17, as the majority of
businesses achieved price increases
and benefited from elevated demand.
and modest volume growth and market
share increases for Iplex New Zealand.
Demand was consistent across all
sectors of the market, however, regional
performance was mixed as the rate of
growth in Auckland slowed and demand
in Christchurch continued to rebase
following higher activity levels during
the earthquake rebuild period.
While revenues increased, operating
earnings before significant items
decreased 13% to $132 million due to
the highly competitive market, increasing
input costs, one-off costs due to natural
events, provisions for obsolete stock
and historical claims and the need for
businesses to invest in their supply chains
ahead of planned timelines to meet
higher than expected demand.
Energy and raw material cost increases
were experienced most acutely in Iplex
New Zealand and Winstone Wallboards,
while supply chain investments included
a new Winstone Wallboards freight
initiative to relieve capacity constraints.
During the year a number of businesses
also experienced one-off costs including
$2 million of repairs and raw material
delay at the Winstone Wallboards
manufacturing facility and $3 million
following a fire at the Humes Penrose site.
The division spent $19 million of capital
expenditure during the year, continuing to
invest in its key operations to improve
performance and realise cost-efficiencies.
This included new extruder and pipe
coilers, along with digital enhancements,
at Iplex New Zealand; deployment of a
new Enterprise Resource Planning (ERP)
system at Humes; new plant robotics at
Winstone Wallboards; a new packaging
plant for Tasman Insulation; and the
relocation of a treater at Laminex
New Zealand’s Hamilton factory.
This was led by Winstone Wallboards,
which experienced a volume increase
of 2% in its value added plasterboard,
The division also continued its focus on
customer satisfaction and innovation.
Customer satisfaction improved in the
22 Fletcher Building Limited Annual Report 2018
Gross Revenue
$764m
2017 $745m ▲ 3%
EBIT
$132m
2017 $152m ▼ 13%
EBIT %
17%
2017 20% ▼ 3ppts
majority of Building Products business
during the year.
Several new products were launched,
including Winstone Wallboards’ new GIB®
Barrierline® intertenancy wallboard solution,
which is cost effective, lightweight, robust
and fast to install with high noise control
and fire performance, and Laminex New
Zealand’s roll out of new and refreshed
product ranges, such as Melteca Acrylic
soft touch panels and additional colours
in the melamine portfolio.
The New Zealand Government’s revisions
of the Residential Tenancy Act 1986
on retrofit insulation also continued
to stimulate demand for Tasman
Insulation’s products and its network
of insulation installers.
FUTURE FOCUS
The division remains focussed on
delivering customer-leading products
and solutions, increasing customer
engagement and improving cost
efficiency, operational excellence and
resilience in the supply chain to support
increasing market demand.
A significant capital investment project
is planned for Winstone Wallboards,
with a new state-of-the-art manufacturing
facility to be built to meet future capacity
requirements and improve efficiencies
by bringing manufacturing and four
distribution sites together into one
Auckland location.
Operating efficiencies will also be
pursued in Humes, including relocating
manufacturing to meet demand in
high-growth regions and improving
supply chain efficiencies.
During FY18 Winstone Wallboards was the
recipient of ‘The Global Gypsum Company
of the Year 2017’ award from the 17th Global
Gypsum conference.
Building Products
Distribution
Steel
Concrete
Residential and Development
Construction
Australia
Formica and Roof Tile Group
Building Products
Financial Summary
Building Products
FY18 Revenue Weighted
Sector Exposure
Year ended 30 June
2018
NZ$m
2017
NZ$m
Change
NZ$m
Change
%
Gross revenue
External revenue
EBIT
Funds
Trading cashflow
764
613
132
494
142
745
589
152
489
143
19
24
(20)
5
(1)
3%
4%
(13%)
1%
(1%)
21%
24%
55%
Residential
Infrastructure/other
Non-residential
We deliver results
because we meet our
customers’ needs,
in a cost-effective
manner, better than
anyone else.
David Thomas
Chief Executive
Building Products
Recycled glass is melted down at Tasman Insulation to make Pink® Batts®
23
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME Building Products
Distribution
Steel
Concrete
Residential and Development
Construction
Australia
Formica and Roof Tile Group
Divisions
Distribution
3,000+
4
Gross Revenue
$1,530m
2017 $1,519m ▲ 1%
EBIT before significant items
$104m
2017 $104m
EBIT %
7%
2017 7%
We can’t be complacent
– we must continue to
evolve the business,
raising the bar to deliver
ever-increasing levels
of service and solutions
for our customers.
Bruce McEwen
Chief Executive
Distribution
PlaceMakers Mt Wellington
24
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME Building Products
Distribution
Steel
Concrete
Residential and Development
Construction
Australia
Formica and Roof Tile Group
Distribution
Financial Summary
Year ended 30 June
Gross revenue
External revenue
EBIT before significant items1
Funds
Trading cashflow
2018
NZ$m
1,530
1,490
104
264
112
2017
NZ$m
Change
NZ$m
Change
%
1,519
1,470
104
256
93
11
20
0
8
19
1%
1%
0%
3%
20%
1 EBIT 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 financial statements for the year
ended 30 June 2018.
Distribution
FY18 Revenue Weighted
Sector Exposure
21%
9%
70%
DIVISIONAL PERFORMANCE OVERVIEW
The Distribution division reported gross
revenue of $1,530 million, an increase
of 1% from FY17, as it benefited from
increased housing investment across
the country and market share gains in the
small-medium enterprise (SME) sector.
PlaceMakers experienced growth in
specialty timber, fastenings and power
tools, as well as its installed solutions
business, which provides custom-made
kitchens, bathrooms, foundations, roofs
and windows. Mico achieved greater
penetration of its owned bathroom range
brands Raymor and Adesso and sustained
growth in back-of-wall product categories.
Both businesses experienced the strongest
growth in the regions, particularly Central
Otago, while Auckland and Christchurch
slowed; with the latter continuing to
rebase following the earthquake rebuild.
Operating earnings before significant
items were consistent year-on-year at
$104 million. This result included earnings
growth of 1% in PlaceMakers and 11% in
Mico, as both businesses benefited from
purchasing synergies and a mix shift to
higher-margin categories.
During the year the division continued
its longer-term focus on customer and
employee engagement, maintaining
high performance across both measures.
During the year the division spent $20
million of capital expenditure, increasing
its investment in digital, to take advantage
of emerging customer purchasing trends
and improve competitiveness. This
included the launch of a new e-commerce
platform, Snappy, an online-only hardware
seller aimed at tradespeople and DIY
enthusiasts. The start-up operating cost
Residential
Infrastructure/other
Non-residential
investment in Snappy was $2 million
and initial trading shows encouraging
margins and low operating costs.
PlaceMakers automated a number
of manual processes during the year,
including the development of a
new general ledger system that
will be live in the first half of FY19.
Across the division investments in the
branch network continued, with 14
PlaceMakers branches refurbished,
one new greenfield PlaceMakers
branch opened and two new Mico
branches opened.
FUTURE FOCUS
The division will continue to digitally
enhance the customer experience, and
further improve customer satisfaction,
through continual improvement initiatives
in PlaceMakers and Mico and by increasing
sales through the new e-commerce
platform Snappy.
Innovation through category expansion
will also remain a focus, with a particular
emphasis on high-margin categories,
owned-brands and product ranges
and solutions in core building and
plumbing materials.
PlaceMakers
The Distribution division employs
over 3,000 people throughout
New Zealand who work across
its retail trade stores and supply
building, plumbing and bathroom
products to the market.
• PlaceMakers has served all
parts of the building industry in
New Zealand for over 35 years.
It operates as New Zealand’s
largest trade supplier of building
materials and hardware, selling
over 100,000 product lines, from
concrete to paint and
plasterboard. PlaceMakers has a
branch network with 62 locations
nationwide, a frame and truss
business that produces over
7,000 house lots across eight
sites every year and a supply,
fix and install team delivering
customer solutions.
• Mico has 70 years of experience
in providing plumbing and
bathroom products throughout
New Zealand, with 65 stores
nationwide including nine sites
co-located with PlaceMakers.
• Forman Building Systems
distributes ceilings and interior
wall systems, thermal and
acoustic insulation and passive
fire protection products.
• Snappy was launched during
FY18 and is an online-only
hardware seller aimed at
tradespeople and industrious
DIYers. Snappy uses smart,
simple technology to help
customers find what they
want and deliver it in as little
as two hours.
25
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME Building Products
Distribution
Steel
Concrete
Residential and Development
Construction
Australia
Formica and Roof Tile Group
Gross Revenue
$532m
2017 $491m ▲ 8%
EBIT before significant items
$49m
2017 $54m ▼ 9%
EBIT %
9%
2017 11% ▼ 2ppts
The division also maintained its focus
on customer satisfaction, with Easysteel
launching a new customer service
promise that includes a commitment
to steel-origin traceability – a first-of-its-
kind initiative in New Zealand, which will
enhance competitiveness in light of
recent challenges within the broader
industry regarding imported steel quality.
FUTURE FOCUS
The division will remain focussed on
improving the efficiency of its site
footprint, to reduce overheads as
a percentage of sales and support
future earnings growth.
Following the successful integration
of Calder Stewart Roofing into Dimond,
and the rebranding of the combined
business to Dimond Roofing, the division
will continue to focus on growing its
roofing revenue, while embedding
customer service promises across all
businesses, to support higher levels of
customer engagement.
Our focus is on
delivering superior
quality project and
service innovation
so we remain the
preferred choice for
our customers.
Hamish Mcbeath
Chief Executive
Steel
DIVISIONAL PERFORMANCE OVERVIEW
The Steel division reported gross
revenue of $532 million, an increase
of 8% from FY17, as it benefited from
strong demand within the construction
and infrastructure markets.
Easysteel achieved revenue growth
of 15%, due to the full-year impact of
the acquisition of the Calder Stewart
Roofing business and a 3% increase in
core structural steel volumes. Pacific
Coilcoaters and Fletcher Reinforcing
maintained stable revenues, with plants
operating at high capacity levels to
meet strong demand.
Operating earnings before significant items
were down 9% to $49 million, primarily
driven by global steel prices and margin
contraction in Fletcher Reinforcing.
Steel prices have continued an upward
trend year-on-year and are 220% up
from the most recent low in 2016 of
US$280 per tonne.
In addition, during the year $8 million
of significant items were incurred including
$7 million relating to the integration of
the Calder Stewart Roofing business
into the division, site consolidations
and co-locations across the country.
During the year the division invested
$14 million in its distribution and
manufacturing operations and systems
to improve cost-efficiencies and enable
future growth. This included new
state-of-the-art facilities in Dunedin,
that brings Fletcher Reinforcing, Easysteel
and Dimond under one roof, and a new
Enterprise Resource Planning (ERP)
system for Fletcher Reinforcing, which
went live in the last quarter of the financial
year and delivered immediate
improvements in inventory, operating
efficiencies and pricing.
Divisions
Steel
750+
6
Under the umbrella of Fletcher
Steel, the Steel division operates
through six brands, with more
than 750 people working
across operations that span
New Zealand.
• Easysteel is a steel products
distributor and provider of
related services.
• Pacific Coilcoaters operates
a paint line that distributes
pre-painted steel and aluminium
for roofing and cladding.
It sells products through
the ColorCote® brand.
• Dimond Roofing and Dimond
Structural are roofing,
cladding, structural and
rainwater specialists.
• Fletcher Reinforcing supplies
the construction sector with
reinforcing-related products
and also manages the onsite
installation of reinforcing.
• Fletcher Wire Products provides
fencing wire and finished fencing
products (Cyclone Wire, NZ Wire
and Eclipse) to rural merchants.
Dimond Structural
26
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME Building Products
Distribution
Steel
Concrete
Residential and Development
Construction
Australia
Formica and Roof Tile Group
Steel
Financial Summary
Year ended 30 June
2018
NZ$m
2017
NZ$m
Change
NZ$m
Change
%
Gross revenue
External revenue
EBIT before significant items1
Funds
Trading cashflow
532
411
49
184
55
491
378
54
184
35
41
33
(5)
0
20
8%
9%
(9%)
0%
57%
1 EBIT 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 financial statements for the year
ended 30 June 2018.
Steel
FY18 Revenue Weighted
Sector Exposure
26%
37%
37%
Residential
Residential
Infrastructure/other
Infrastructure/other
Non-residential
Non-residential
Easysteel
Fletcher Reinforcing
27
Fletcher Reinforcing
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME Building Products
Distribution
Steel
Concrete
Residential and Development
Construction
Australia
Formica and Roof Tile Group
Gross Revenue
$812m
2017 $781m ▲ 4%
EBIT before significant items
$90m
2017 $113m ▼ 20%
EBIT %
11%
2017 14% ▼ 3ppts
Divisions
Concrete
1,300+
3
Our focus is on reinvesting
for growth, delivering
best-in-class operational
performance and
continuing to build a
highly engaged workforce,
with people who go the
extra mile to deliver for
our customers.
Ian Jones
Chief Executive
Concrete
Winstone Aggregates
28
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME Building Products
Distribution
Steel
Concrete
Residential and Development
Construction
Australia
Formica and Roof Tile Group
Concrete
Financial Summary
Concrete
FY18 Revenue Weighted
Sector Exposure
Year ended 30 June
2018
NZ$m
2017
NZ$m
Change
NZ$m
Change
%
Gross revenue
External revenue
EBIT before significant items1
Funds
Trading cashflow
812
545
90
628
128
781
507
113
621
142
31
38
(23)
7
(14)
4%
7%
(20%)
1%
(10%)
1 EBIT 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 financial statements for the year
ended 30 June 2018.
The Concrete division comprises
Fletcher Building’s aggregate,
cement and concrete businesses.
These businesses have a proud
history of serving the New Zealand
construction and infrastructure
markets, some for more than
100 years.
• Winstone Aggregates has
over 150 years’ experience in
manufacturing and supplying
aggregates, and operates 18
quarries nationally. This includes
a mixture of hard rock, alluvial
(a mixture of sand, gravel and
sediments) and sand quarries
supplying nearly eight million
tonnes into the ready-mix, roading
and general contracting markets.
• Golden Bay Cement (GBC) is over
100 years old and is New Zealand’s
only manufacturer of clinker and
cement. With national distribution
capabilities, GBC supplies over
900,000 tonnes per year for
domestic and export markets.
A short supply chain provides full
control of the end-to-end process,
from the cement rock quarries,
manufacturing and multi-modal
distribution into customer silos.
• Firth Industries is comprised of
three major businesses: Certified
Concrete (readymix), masonry
(concrete blocks and pavers)
and Dricon (bagged dry concrete).
It operates 70 concrete plants,
eight masonry plants and two
dry bagged product plants.
This comprehensive nationwide
network allows Firth to supply
its products into all segments of
the construction industry.
29
DIVISIONAL PERFORMANCE OVERVIEW
The Concrete division reported gross
revenue of $812 million compared with
$781 million in the prior year. The 4%
increase has resulted from improved sales
volumes across all business units.
Aggregates revenue grew through a mix
of pricing and volume growth, albeit
weighted towards a lower margin product
mix. Investment continued to develop the
existing quarry footprint to meet current
and future demand.
Cement revenue was consistent
with the prior year driven by domestic
sales where volumes grew 4% on the prior
year. This was supported by a 3% increase
in manufacturing volumes to set a new
production record, and market share
continued to be strong.
While the ready-mix market was flat
during the year, revenue increased by 6%
on FY17, driven by a 2% increase in sales
volumes and pricing gains. Ready-mix
market share is estimated to have grown
1% in the period.
Operating earnings before significant
items were $90 million, down 20% from
FY17. When excluding the prior year
gain of $12 million on the sale of a Firth
property, divisional earnings reduced by
11%, which was driven by a contraction
in gross margin.
The contraction in gross margin was
caused by increased energy and
supply chain costs across all businesses,
particularly in GBC and Firth. Strong price
competition prevented these cost
increases from being fully passed on.
Costs associated with commissioning the
new Firth ready-mix and masonry plants
and higher-than-anticipated demand
for aggregates led to additional costs
incurred to alleviate capacity constraints
and support the increased volumes.
The division recognised a $17 million
charge to significant items during
the year, as a strategic review identified
Firth
32%
42%
26%
Residential
Infrastructure/other
Non-residential
an impairment of a previously
mothballed quarry.
During the year the division invested
$62 million across its businesses. This
included investment to improve customer
service and competitiveness, including
the launch of new digital applications for
order tracking in Firth, the opening of a
new $30 million Firth masonry plant in
Auckland, a new Firth ready-mix plant
in Manukau and substantial quarry
development projects, including further
development of the Hunua quarry, south
of Auckland.
FUTURE FOCUS
The division remains focussed on
investing in its core assets and customer
engagement to position its businesses
to meet increasing demand for
aggregates and cement off the back
of sustained infrastructure investment
across the country.
The division will also pursue improvements
in the sustainability and efficiency of
its operations. GBC is progressing an
alternative fuels strategy, and planning a
new project that is jointly funded by the
Ministry for the Environment, aimed at
substituting a further 20% of GBC’s coal
requirement through the use of end-of-life
tyres. If successful, this project will help
to address a major waste problem in
New Zealand, while improving the
sustainability of GBC's energy sources.
As part of the project GBC would reuse
up to 3.1 million disposed tyres per annum,
which is up to half of New Zealand’s annual
tyre waste, excluding stockpile.
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME Building Products
Distribution
Steel
Concrete
Residential and Development
Construction
Australia
Formica and Roof Tile Group
Gross Revenue
$575m
2017 $420m ▲ 37%
EBIT
$136m
2017 $130m ▲ 5%
EBIT %
24%
2017 31% ▼ 7ppts
During the year the division recognised
a $12 million provision for a forecast loss
on the Christchurch Atlas Quarter project.
This reflects anticipated lower selling
prices and cost escalations, mainly due
to seismic requirements and higher than
forecast construction market rates.
Excluding the impact of this provision,
Residential earnings were up 28%
from FY17.
Land Development operating earnings
were $51 million. The most significant sale
in FY18 was a 10 hectare site at the Wiri
North development. It is anticipated that
Land Development will earn at least $25
million per annum over the next five years,
while recognising that Land Development
earnings will be irregular in nature.
The Innovation business completed
testing of a rigid air barrier product for
Winstone Wallboards and finalised trials
of panelised homes for Fletcher Living, to
prove the concept for commercialisation.
The panelisation solution reduces duplex
construction time from 22 weeks to
nine weeks. These innovations will be
introduced to the market in FY19 and FY20.
Divisions
Residential and
Development
DIVISIONAL PERFORMANCE OVERVIEW
The Residential and Development division
reported gross revenue of $575 million,
an increase of 37% from FY17, driven
by higher unit sales in Auckland and
Christchurch and several significant
land sales. This translated to operating
earnings of $136 million, an increase of
5% from FY17.
Funds employed in the division increased
to $604 million in FY18, from $547 million
at 30 June 2017, reflecting an increase in
work-in-progress in both the Residential
and Land Development businesses.
Residential operating earnings were
$85 million, an increase of 12% from
FY17. This was driven by an increase in
completed homes sold, from 499 in FY17
to 714 in FY18. Unit sales came from both
the established subdivisions of Swanson,
Whenuapai and Red Beach, which are
now operating at sustainable levels,
and new subdivisions, including Waiata
Shores, Kowhai Ridge and Totara
Heights in Auckland and Atlas Quarter
in Christchurch.
In Auckland demand was strongest for
homes priced between $600,000 and
$900,000, while demand softened for
large standalone homes priced at
$1,000,000 or greater.
In Christchurch, after significant
preparatory work and resource
consenting, work commenced on 112
units at One Central, formerly known as
East Frame. The next anticipated stage
will include a further 59 terrace homes.
175+
5
Residential and Development
undertakes both residential and
commercial land developments for
on-sale and is responsible for Group
Innovation projects including
panelisation.
• Residential (trading as Fletcher
Living) specialises in building
master-planned residential
communities in Auckland and
Christchurch, encompassing
design through to sales.
• Land Development sells brownfield
sites transferred from elsewhere in
the Fletcher Building portfolio to
commercial customers.
• Property manages Fletcher
Building‘s property portfolio.
• Innovation is a central hub that
partners with Fletcher Building
businesses to develop and
commercialise innovation.
• Panelisation will be an offsite
manufacturer of house panels
that will supply Fletcher Living
and potentially third parties in
the future.
Homes delivered in FY18
714
30
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME Building Products
Distribution
Steel
Concrete
Residential and Development
Construction
Australia
Formica and Roof Tile Group
Residential and Development
Financial Summary
Year ended 30 June
2018
NZ$m
2017
NZ$m
Change
NZ$m
Change
%
Gross revenue
External revenue
EBIT
Funds
Trading cashflow
575
575
136
604
109
420
420
130
547
(49)
155
155
6
57
158
37%
37%
5%
10%
NM
Residential and Development
FY18 Revenue Weighted
Sector Exposure
19%
81%
Residential
Infrastructure/other
FUTURE FOCUS
The division’s vertically integrated model
continues to enable it to effectively
source and develop land in desirable
locations, providing a good pipeline
of developments to bring to market.
Its aim is to deliver 1,000 dwellings
a year, subject to market conditions.
Residential continues to see strong
demand for quality homes, at the right
price point, and has 3,707 units on its
balance sheet, with a further 1,272 units
under unconditional agreements, to be
delivered over the next five years.
As one of the largest home builders
in New Zealand, the division can
make a significant contribution to the
Government's KiwiBuild programme
and will continue to engage with
Government on opportunities to
support implementation during FY19.
Following successful trials in FY18, a new
panelisation plant in Auckland will be
commissioned, which will allow Fletcher
Living to deliver homes more efficiently
in a supply constrained market. It is
anticipated that the new plant will initially
deliver an additional 300 homes per year
to support Fletcher Living’s pipeline, with
the opportunity to then extend supply to
Government agencies and other group
home builders.
We will leverage our end-to-end relationship with
other Fletcher Building businesses, our proven
ability to innovate and our unique position as
both a residential and land developer to deliver
housing and community solutions that set us
apart from our competitors.
Steve Evans
Chief Executive
Residential and Development
Fletcher Living Whenuapai
31
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME Building Products
Distribution
Steel
Concrete
Residential and Development
Construction
Australia
Formica and Roof Tile Group
Divisions
Construction
3,500+
5
The Construction division is
a leading general contractor
operating throughout New Zealand
and the South Pacific. Every day
thousands of New Zealanders use
roads and infrastructure the division
has built, and live or work in buildings
it has constructed. The division
comprises five business units:
• Fletcher Infrastructure delivers
transport and infrastructure
projects within New Zealand
including regional and national
roads, bridges, wharves, railway
and bus connection stations, water
and wastewater services plants,
industrial plants and upgrades.
• Higgins designs, builds and
maintains roads and manufactures
roading products with a team of
more than 1,600 people across
New Zealand and Fiji. As a specialist
roading company Higgins has the
expertise and resources to deliver
a fully integrated range of services.
• South Pacific is a full service
contractor providing vertical and
horizontal infrastructure, with bases
in seven island nations and its head
office in Auckland.
• Brian Perry Civil (BPC) is a
specialist contractor in foundation
and groundworks, complex civil,
three waters and marine projects.
The business includes Piletech,
PipeWorks and Seovic.
• Building and Interiors (B+I) remains
a national contractor completing
commercial, retail, health, education
and other buildings.
32
DIVISIONAL PERFORMANCE OVERVIEW
The division reported gross revenue of
$1,685 million, down 25% on the previous
year. FY18 has followed a year of high
activity in which a number of major
projects have come to completion.
Operating earnings before significant
items were a loss of $608 million,
compared with a loss of $204 million in
FY17. This includes a loss in B+I of $660
million, which reflects provisions taken
on a number of major projects during
the year, offset by the earnings for the
rest of the division.
Excluding B+I, operating earnings before
significant items were $52 million, down
41% from FY17 largely reflecting the timing
of major contracts completed in the prior
year and the early stage of current
multi-year contracts.
A strong performer has been Higgins
with operating earnings increasing 8%
from FY17. During the year Higgins was
awarded several new maintenance
contracts including its first in the South
Island with the Christchurch City Council,
a maintenance contract for the Kapiti
District Council and another covering 530
kilometres of highways in the Hauraki
Plains and Coromandel Peninsula.
Higgins also benefits from participation
in the North Canterbury Transport
Infrastructure Recovery Alliance and
the ongoing response to the Kaikōura
earthquakes. In Fiji, Higgins successfully
completed the Nadi2 capital roading project.
South Pacific and Infrastructure reported
reduced earnings from FY17 as a number
of major projects had completed in the
prior period including the Waterview
Connection in Auckland; the Mackays
to Peka Peka expressway and significant
projects in Fiji and Papua New Guinea.
Gross Revenue (including B+I)
$1,685m
2017 $2,246m ▼ 25%
EBIT before significant items
$(608)m
2017 $(204)m
EBIT (excluding B+I) before significant items
$52m
2017 $88m ▼ 41%
The key to achieving any
strategy starts and ends
with people. We need to
continue to recruit and
retain the best talent and
create an environment
where they can achieve
and thrive.
Michele Kernahan
Chief Executive
Construction
The addressable pipeline for both South
Pacific and Infrastructure is robust. For
Infrastructure, work underway through
FY21 includes the Pūhoi to Warkworth
motorway, the Hamilton section of the
Waikato expressway and Peka Peka to
Ōtaki expressway.
Risks and forecast cost increases have
been identified on Pūhoi to Warkworth,
associated principally with earthworks and
aggregate supply. The project is a joint
venture between Fletcher Construction
and Acciona, and the partners are working
on a range of options to mitigate the risks.
The division is reporting a nil margin for
the project currently as these options are
worked through.
B+I, including Forman Commercial
Interiors, has had a primary focus on
project delivery and completion since
February 2018 when the business unit
ceased bidding for new projects
due to unfavourable market conditions
in the sector.
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME
Building Products
Distribution
Steel
Concrete
Residential and Development
Construction
Australia
Formica and Roof Tile Group
Construction
Financial Summary
Gross revenue
External revenue
EBIT before significant items1
Funds
Trading cashflow
As reported
Excluding B+I
2018
NZ$m
1,685
1,605
(608)
(238)
(172)
2017
NZ$m
Change
NZ$m
Change
%
2,246
2,085
(204)
174
(103)
(561)
(480)
(404)
(412)
(69)
(25%)
(23%)
NM
NM
67%
2018
NZ$m
1,053
1,000
52
274
113
2017
NZ$m
Change
NZ$m
Change
%
1,196
1,103
88
306
65
(143)
(103)
(36)
(32)
48
(12%)
(9%)
(41%)
(10%)
74%
1 EBIT 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
financial statements for the year ended 30 June 2018.
Of the 16 key loss-making B+I projects
ongoing at the start of FY18, seven were
completed as at 30 June 2018, including
the Justice and Emergency Services
Precinct in Christchurch, Auckland
University’s Engineering, Design and
Technology building, Victoria University’s
Gateway Building and Auckland East
Prison. A further three projects are forecast
for completion by 31 December 2018.
At year end, contracted work underway for
the division was valued at $1,784 million.
FUTURE FOCUS
As outlined in Fletcher Building’s strategy,
the division will focus on stabilising its
performance by completing B+I projects
and refocussing the division on more
profitable sectors such as infrastructure
and roading.
The New Zealand Government is planning
significant investment in infrastructure
in the coming years, which will support
these plans.
Brian Perry Civil, including Piletech,
PipeWorks and Seovic, became a
standalone business unit from 1 July 2018
– separated from the broader Infrastructure
business unit to capitalise on future
growth opportunities in groundwork,
three waters and marine projects.
During FY19 the division will re-invest to
sustain future growth, with new piling
equipment for Brian Perry Civil and two
new asphalt plants to be commissioned
to grow Higgins’ Auckland business.
A central Project Management Office
was established in March 2018, which
will continue to build capability and help
ensure consistent best practice across
all the Construction businesses.
33
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME Building Products
Distribution
Steel
Concrete
Residential and Development
Construction
Australia
Formica and Roof Tile Group
Gross Revenue
$3,076m
2017 $2,858 ▲ 8%
EBIT before significant items
$114m
2017 $119m ▼ 4%
EBIT %
4%
2017 4%
Divisions
Australia
5,600+
7
The Australian division brings together the
Group’s interests in the manufacture and
distribution of building materials across
Australia which are grouped into the
following segments:
• Building Products Australia comprises:
– Laminex Australia is a manufacturer
and distributor of decorative wood
panels and laminate, particle board,
fibreboard and other products.
– Iplex Australia is a manufacturer
and supplier of pipeline systems
servicing the water infrastructure,
irrigation, telecommunications,
plumbing, electrical, gas and civil
construction sectors.
– Rocla manufactures concrete
infrastructure products for civil
contractors, developers, local
governments, water and other
authorities.
– Fletcher Insulation is an insulation
manufacturer, with facilities in
Melbourne and Sydney supplying
Pink® Batts® insulation, Sisalation®
foil and Permastop® building blanket
to residential, commercial and
industrial markets.
• Distribution Australia comprises:
– Tradelink is a plumbing merchant
with over 230 stores nationwide,
and specialises in the supply
of products to the residential
and commercial sectors.
– Tasman Sinkware, manufacturer of the
Oliveri brand, is an Adelaide-based sink
manufacturer and master distributor.
• Steel Australia comprises:
– Stramit supplies steel roof and wall
cladding, guttering, fascia, purlins,
flooring, structural formwork, insulated
panels and sheds to the residential
and commercial building markets.
34
Tradelink
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME Building Products
Distribution
Steel
Concrete
Residential and Development
Construction
Australia
Formica and Roof Tile Group
Australia
Financial Summary
Australia
FY18 Revenue Weighted
Sector Exposure
25%
34%
41%
44%
34%
22%
Residential
Infrastructure/other
Non-residential
We need to make
Fletcher Building
Australia greater than
the sum of its parts,
build a customer-leading
obsession, innovate,
take number one
positions and deliver
above market growth.
Dean Fradgley
Chief Executive
Australia
Stramit
Year ended 30 June
2018
NZ$m
2017
NZ$m
Change
NZ$m
Change
%
Gross revenue
External revenue
EBIT before significant items1
3,076
2,973
114
2,858
2,771
119
Funds
1,804
1,778
Trading cashflow
146
143
218
202
(5)
26
3
8%
7%
(4%)
1%
2%
1 EBIT 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 financial statements for the year
ended 30 June 2018.
DIVISIONAL PERFORMANCE OVERVIEW
The Australian division reported gross
revenue of $3,076 million, an increase
of 8% from FY17. All businesses achieved
positive sales growth, while the turnaround
of Iplex Australia and Tradelink gathered
momentum, with both businesses
experiencing market share gains.
Operating earnings before significant
items were $114 million, a decrease of
4% on the prior year and largely driven
by increased input costs.
Building Products Australia delivered
gross revenue growth of 9% from FY17,
driven by strong performances from
Laminex Australia, Iplex Australia and
Fletcher Insulation. Rocla continued to
underperform owing to operational issues.
The forecast for industry demand in the
pipe and precast segment is strong and
the recent merger of the Iplex Australia
and Rocla businesses is expected to
accelerate the turnaround of Rocla.
Despite this positive sales growth, Building
Products Australia’s operating earnings
before significant items decreased by
10%. Laminex Australia and Iplex Australia
experienced sizeable increases in energy
and raw material input costs, which we
were not able to fully recover, while
Fletcher Insulation incurred a $5 million
charge as a result of its structural
reorganisation and associated
redundancy payments.
Distribution Australia recorded gross
revenue growth of 8% from FY17, with
Tradelink growing sales in a declining
market through 19 new store openings
and relocations, and positive growth in
the small to medium network customer
market segment. Tasman Sinkware also
grew revenue as it made a strategic shift
to become both a manufacturer and
master distributor of products.
Distribution Australia’s operating earnings
before significant items grew 30% from
FY17, as Tradelink successfully delivered
35
on procurement strategies and controlled
operating costs.
With a strong focus on delivering
consistently high customer service levels,
Steel Australia reported gross revenue
increases of 3% from FY17, while operating
earnings before significant items were
stable year-on-year.
Significant items of $49 million primarily
comprised an impairment charge against
the carrying value of the Rocla business,
following a revision of expected medium-
term earnings.
The division invested $79 million during
the year including $8 million on Tradelink
stores and showrooms, Laminex Press
Refurbishment ($8 million) and a new
Laminex digital platform ($5 million).
In addition, there were a very large
number of other capital expenditure
projects of less than $5 million during
the year.
FUTURE FOCUS
While the majority of the Australian
businesses expect to be trading in flat
or slightly declining markets, the newly
formed division will focus on accelerating
individual business unit strategies to
deliver manufacturing, distribution and
overhead efficiencies and increase its
share of the Australian residential and
commercial markets.
To position the division for increased
growth, a number of site network
investments will be made or finalised in
FY19. Iplex Australia opened a dedicated
civil service centre in Melbourne in May,
and will open service centres in Sydney
and Brisbane in the first half of FY19.
Tradelink plans to open a further 15
branches in FY19, while a site
consolidation programme completed
within Stramit in late FY18 will reduce
property costs in both Victoria and
Queensland and deliver further efficiency
gains in the coming years.
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME Building Products
Distribution
Steel
Concrete
Residential and Development
Construction
Australia
Formica and Roof Tile Group
Divisions
Formica and
Roof Tile Group
3,800+
5
The Formica and Roof Tile Group
division employs over 3,800
people, designing, manufacturing
and supplying laminates and other
decorative surfaces and supplying
pressed metal roof tiles.
• Formica North America is based
in the USA, Canada and Mexico
and has two manufacturing sites
and seven distribution centres.
• Formica Asia is based in China,
Taiwan and Thailand and sells high
pressure laminate and Compact
through four manufacturing sites
and two distribution centres and
13 branches.
• Formica Europe has an extensive
presence across the region through
five manufacturing sites and two
distribution centres and a pan-
European sales team supported
by a local office network.
• Homapal is based in Germany
and provides metallic and
decorative laminates used in
furniture and public settings,
such as hotels and showrooms.
It supplies Germany, Austria
and Switzerland directly;
Formica and Laminex globally
and also operates through a
network of independent third
party distributors.
• Roof Tile Group is a supplier of
pressed metal roof tiles in North
America, Europe, New Zealand,
Africa and Asia.
36
DIVISIONAL PERFORMANCE OVERVIEW
The Formica and Roof Tile Group division
reported gross revenue of $1,177 million,
an increase of 5% from FY17, which was
driven by positive performances from
Formica in North America and Asia.
This was offset by difficult trading
conditions in Formica Europe and a
number of Roof Tile Group export
markets, with operating earnings before
significant items down 18% from FY17
to $65 million.
Formica achieved gross revenue of
$1,030 million, an increase of 8% from
FY17, which translates to an increase of
4% in domestic currencies. Formica’s
operating earnings before significant
items were up by 1% to $75 million.
Formica North America grew revenue in
local currencies by 3% from FY17 through
successful new product development,
including the launch of anti-finger print
laminate. Operating earnings excluding
significant items were also up 3%, driven
by continued improvements in
operational efficiencies.
In Formica Asia gross revenue in local
currencies was up 8% from FY17, driven by
strong growth in China, with the business
benefiting from a focus on customer
service, reliability and new product
development. Revenue in the Association
of Southeast Asian Nations (ASEAN) and
Taiwan was flat year-on-year. Operating
earnings excluding significant items
increased by 24%, driven by revenue
growth and improved manufacturing
efficiencies, especially at the two
manufacturing facilities in China.
In Formica Europe, gross revenue in
domestic currency was up by 1% from
FY17, with Germany up 18% as the
business continued to expand in the local
market. Gross revenue in the UK was up
by 4% as the business grew market share
in the face of a declining construction
market, while Spain grew by 6% as
Gross Revenue
$1,177m
2017 $1,120m ▲ 5%
EBIT before significant items
$65m
2017 $79m ▼ 18%
EBIT %
6%
2017 7% ▼ 1ppts
economic conditions continued to
improve. These benefits were offset by
Benelux and France, which were down by
6% and 5% respectively as activity slowed
in these markets. Operating earnings
excluding significant items were lower
than the prior year and attributable to
adverse mix, market conditions and
increased investment in sales capability.
Homapal continued to grow from FY17,
especially in Asia and North America.
Roof Tile Group’s gross revenue in local
currencies decreased by 15% compared
with FY17. This was due to continued soft
economic conditions in Africa, volume
declines in Japan, as a key customer
moved to dual supply, poor weather,
resulting in reduced activity in the USA,
and softening demand in New Zealand.
The division incurred $52 million of
significant items related to the impairment
of the carrying value of Roof Tile Group,
following a review of the recoverable
value as part of the divestment process.
The division invested $61 million including
$21 million in Formica Europe for the UK
Redevelopment programme.
FUTURE FOCUS
In line with the new Fletcher Building
strategy, we expect to divest Formica
and Roof Tile Group during FY19. In the
meantime, both businesses continue
to operate under the leadership of
chief executive Francisco Irazusta.
Formica will continue to deliver cost-
efficiency initiatives, particularly in
Europe, as the investment in the UK
redevelopment programme is completed
in FY19. Formica (including Homapal)
will also continue to focus on delivering
profitable growth through innovation
and new product development.
Roof Tile Group will focus on improving
its earnings by driving higher volume
through its operating assets.
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME Building Products
Distribution
Steel
Concrete
Residential and Development
Construction
Australia
Formica and Roof Tile Group
Formica and Roof Tile Group
Financial Summary
Formica and Roof Tile Group
FY18 Revenue Weighted
Sector Exposure
Year ended 30 June
2018
NZ$m
2017
NZ$m
Change
NZ$m
Change
%
Gross revenue
External revenue
EBIT before significant items1
1,177
1,151
65
1,120
1,101
79
Funds
1,244
1,174
Trading cashflow
110
90
57
50
(14)
70
20
5%
5%
(18%)
6%
22%
1 EBIT 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 financial statements for the year
ended 30 June 2018.
60%
31%
9%
Residential
Infrastructure/other
Non-residential
We are focussed on
driving our growth plans
and maximising value
for Fletcher Building and
Formica. Formica created
its categories – innovation
is in our DNA, and will
continue to be key to
our success.
Francisco Irazusta
Chief Executive
Formica and Roof Tile Group
Formica 180fx Carerra Marble
37
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME Our People
Our Communities
Health and Safety
Environment
Contribution to NZ Economy
Innovation
Business Sustainability
Our People
Firth – Auckland
OUR PEOPLE STRATEGY
FLETCHER BUILDING’S VALUES
Be Bold
At Fletcher Building
our people are the
reason we are able to
do what we do – from
delivering roads, bridges,
buildings and houses to
making and distributing
insulation, pipes, concrete,
plasterboard and many
other building products.
We need good people to do this well,
and enabling our people to be their
best is what our people strategy is all
about. Our strategy is focussed on
creating a culture that encourages
teamwork and innovation and places
the utmost importance on safety.
38
Our values guide our people’s behaviour
and shape our culture, but this past year
has brought a lot of change. We wanted
to take stock, so as part of the broader
strategy development process, we
reviewed our four values – Be Bold, Play
Fair, Better Every Day and Customer
Leading. In doing so we found that they
continue to bring our people together
and reflect a culture our people want to
be part of. But we also found something
was missing – and that was a value that
spoke to how we can achieve more
together, as Fletcher Building, than we
can as individual businesses. A value
that spoke to our commitment to work
together as a team. For this reason,
we decided to add a fifth value –
Better Together.
We innovate and take calculated risks
to drive business for our shareholders,
customers, communities and employees.
Play Fair
We are honest and respectful in our
relationships with fellow employees,
customers and the community.
Better Every Day
We seize opportunities to improve
regardless of how big or small they
may seem.
Customer Leading
Without customers and clients, we don’t
have a business – it’s as simple as that.
Customer leading is about being ahead
of the game for our customers, every
single day.
Better Together
We harness our diversity, collaborate
and share. We think and act as Fletcher
Building teams.
Fletcher Building Limited Annual Report 2018Our Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME Our People
FBuSay Employee Engagement
3
6
7
6
6
6
7
6
0
7
80
70
60
50
40
30
20
10
0
2014
2015
2016
2017
2018
TRAINING, TALENT AND LEADERSHIP
EMPLOYEE ENGAGEMENT
We aim to attract, retain and develop
diverse talent and our capability
programmes are an important part of
how we achieve this. We offer world-class
programmes in leadership, health
and safety, salesforce effectiveness,
operational excellence, and customer
excellence.
In FY18, participants through our courses
reached a new record of over 38,000 –
with many people attending more than
one training programme during the year.
Through our Learning Academy we offer
five tailored leadership programmes for
our emerging leaders and to upskill
those already in leadership positions.
During the course of the year a total of 953
employees completed these programmes.
Our online safety training module,
Protect Fundamentals, launched this
year and was successfully delivered to
approximately 19,500 of our people
around the world. Other Protect training
modules, such as leadership and
compliance, were delivered to more
than 11,000 employees.
In line with our Customer Leading value,
the Learning Academy provided targeted
programmes in sales and customer
service excellence, which were completed
by 610 and 882 people, respectively.
Additionally, 550 people in our
manufacturing and supply chain
operations are working on their National
Certificate in Competitive Manufacturing
and Supply Chain.
We strive to provide equal opportunity
learning and as such, many of our
courses are available in multiple
languages, including Te Reo.
We run a confidential employee
engagement survey, FBuSay, across our
whole business. The survey is
undertaken annually, with the most
recent one carried out in March 2018.
Participation this year was 92%, on par
with the previous year and significantly
higher than the global best practice
response rate of 85%.
Our Group engagement score improved
three percentage points from last year
to 70%, which is on par with our industry
peers for this type of survey (70% for a
composite of manufacturing, heavy
building products and retail sectors).
This continues the improvement in
engagement we have experienced from
a score of 63% for the inaugural
company-wide survey in 2014.
Specifically, this year’s results showed
increases in people finding a sense of
achievement in their work and in our
focus on safety, an area that has been a
particular focus with the launch of the
Protect programme.
In future, we aim to drive engagement
over 80%, which will put us in the top
quartile for our industry.
Employee engagement
Survey – FBuSay 2018 –
participation rate
92%
39
EMPLOYEE EDUCATION
AND WELFARE FUNDS
Fletcher Building employees have
access to financial support through
the Fletcher Trust Emergency Welfare
and Education Funds. Between 1 April
2017 and 31 March 2018, 632 Fletcher
employees received support to
advance their education. A special
aspect of the fund is that employees’
families are eligible to apply for this
fund – in FY18, 182 were grateful to
receive financial support towards
their learning aspirations and
qualifications.
632
Fletcher employees
received support to
advance their education
DIVERSITY
We recognise the importance of
diversity. Diversity drives creativity and
innovation, better decisions, employee
attraction and engagement and helps
us better understand our customers.
Ultimately, diversity is good for financial
performance too.
We are focussing our efforts in four
areas: developing and supporting Māori
leadership, female employees, people
entering the workforce for the first time
and the LGBTIQ+ (lesbian, gay, bisexual,
transgender, intersex, queer-plus equals
inclusive) community.
Through the support of
Fletcher Building I can
truly say I am proud to
be part of such a diverse,
inclusive, forward looking
organisation. I am now a
much more confident,
happier employee who
looks forward to coming
to work everyday.
Allan Lennie
Firth Certified Cadet
Fletcher Building Limited Annual Report 2018Our CommunitiesHealth and SafetyEnvironmentContribution to NZ EconomyInnovationOur Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME Fletcher Reinforcing, Levin
Our People
Business Sustainability
Whakatupu
While we employ a significant number
of Māori people overall, they are
underrepresented in management
positions. Our Whakatupu programme
was introduced to specifically address
this and improve the progression of Māori
into leadership roles. The programme
supports Māori to explore their heritage
and develop their leadership potential.
Throughout the year 54 people
completed the programme in Auckland
and Wellington. There is high demand
for places in the programme, with a
waitlist of participants for the next intake.
Whakatupu received a highly commended
in the Emerging Diversity and Inclusion
category at the 2017 Diversity Awards NZ.
54 Māori completed the
Whakatupu programme
exploring their heritage
and developing their
leadership potential.
Women
Facilitating an inclusive and motivating
working environment for women is
important to us. Ultimately, we want to
create a culture in which gender diversity
in management and our industry is the
norm. For this reason we provide targeted
development for high-performing women
within the business. Fletcher Building is
also a principal supporter of Global
Women and runs a ‘FAB’ Women
programme, an internal series of guest
speakers to inspire, equip and train
women from all levels of the business.
Youth and new graduates
We have a number of initiatives aimed
at recruiting and supporting younger
workers and those new to the workforce.
In FY18 we launched Switch Up which
is a game-changing online platform
specifically designed to capture and
support the recruitment of people
transitioning from secondary school or
unemployment. It does away with the
traditional cover letter and CV based
process and instead establishes
applicants’ suitability for employment
through an easy-to-complete profile,
activity-based questions, and an open
day with business leaders. Since the
initiative launched, 12 people have
been successfully recruited into our
businesses, including roles with Humes,
Fletcher Steel, Laminex New Zealand,
PlaceMakers, Winstone Aggregates
and Iplex New Zealand.
Our Connect Youth programme creates
a community of young people who are
new to Fletcher Building to help them
ease into the business faster. These new
employees connect through group
learning modules and sessions and
are further supported by mentors
within the business.
We have been running a graduate
programme for four years. In FY18, we
successfully placed 50 graduates into
permanent positions within the company.
In partnership with the First Foundation,
we provide work experience and
mentoring for high-potential students
from low-decile schools. The programme
gives preference to Year 12 students
40
AUCKLAND COUNCIL
YOUNG AT HEART AWARDS X 4
Innovative
Youth Employer
Youth Employment
Programme
Youth Induction and
Development
Jobfest Exhibitor 2017
Fletcher Building Limited Annual Report 2018Our CommunitiesHealth and SafetyEnvironmentContribution to NZ EconomyInnovationOur Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME Our People
'Pride of the fleet' Firth truck, the Fletcher team and special guests
who are often the first in their immediate
families to attend university, have a
proven academic record and demonstrate
leadership qualities. In FY18, Fletcher
Building supported 15 students from
schools in Auckland.
We also run mentoring and development
programmes for young people through
the Ministry of Social Development and
Te Puni Kōkiri and TupuToa, which
focus on Māori and Pasifika career
development pathways.
LGBTIQ+
Our business takes great pride in its
commitment to a safe and supportive
workplace for LGBTIQ+ employees.
Our pride network was formed in 2015
and has grown significantly in the
three years since. Pride month is a
much anticipated event in Fletcher
Building’s calendar.
This year’s activities included:
• Principal sponsor of the Auckland
Pride Festival.
• Ongoing accreditation from
Rainbow Tick.
• Two show-stopping mirror ball and
rainbow-wrapped Firth concrete trucks
in the Auckland Pride Parade, with the
latter delivering concrete throughout
Auckland in February. Around 200 of
our people marched in the parade.
• An open day for our people to learn
about Fletcher Building Pride and the
Rainbow Tick.
41
Fletcher Building Limited Annual Report 2018Our CommunitiesHealth and SafetyEnvironmentContribution to NZ EconomyInnovationOur Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME Our Communities
Business Sustainability
Our Communities
Fletcher Building is
committed to looking
after the communities
in which we operate.
As an organisation with
operations around the
globe, our local managers
take leadership roles in
community investment
and activities to make a
positive impact. Activities
range from cultural to
educational, environmental
to health-focussed and
often involve partnerships
with third parties.
Over $2 million in
donations to various
community organisations
or initiatives across our
global footprint in FY18
Fletcher South Pacific with donated roofing iron from Dimond Roofing
DONATIONS AND VOLUNTEERING
Fletcher Building donated over $2 million
to various community organisations or
initiatives around the world this financial
year. Recipient organisations included
local city missions, mental and physical
health organisations, community park and
beach clean ups, mentoring programmes
and local community sports clubs, as well
as in-kind donations of food, personal and
household supplies and blankets as part
of our annual internal appeals. We also
supported our communities through
employee volunteering days.
In response to the devastating cyclone
Gita, several of our New Zealand
businesses including Dimond Roofing
and PlaceMakers worked together to
donate building products to help rebuild
the homes of people in the communities
hardest hit in Tonga.
COMMUNITY ENGAGEMENT
Engaging and consulting with our
communities, iwi and indigenous people
to build relationships and a better
understanding of needs on both sides are
important for our business operations.
We work closely with iwi on joint housing
development ventures, roading projects
and quarry operations.
Across the business we are taking positive
steps forward through cultural training
sessions, language lessons and diversity
programmes and engaging outside
counsel to advise and facilitate workshops
where appropriate. As part of our usual
operations, our projects, residential
developments and manufacturing sites
regularly host community open days and
stakeholder engagement meetings.
$2m
42
Fletcher Building Limited Annual Report 2018Our PeopleHealth and SafetyEnvironmentContribution to NZ EconomyInnovationOur Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME Health and Safety
Health and Safety
We are committed to
protecting our people, and
the people we work with,
from harm, and promoting
a healthy and safe working
environment and culture.
Our fundamental belief
is that all work-related
injuries and illnesses are
preventable. To achieve
this we are creating best-
in-class systems and
processes, while enabling
our businesses and leaders
to continually improve and
find simple and effective
solutions to reduce the
risks we face.
Winstone Aggregates Hunua
PROTECT
Since our new safety programme
Protect was launched in June 2017,
approximately 19,500 employees
have been through the Protect
Fundamentals course and 1,000
leaders have been through a two
day safety leadership training course.
17 Global Foundation and Risk
Standards and 10 Golden Rules
have been released to the businesses.
Protect continues to be fully embedded
in all business operations through our
Leadership Walks and Share Meetings.
Radar, our new Risk and Environment,
Health and Safety reporting tool,
launched in FY18 to complement
Protect. The launch of Radar included
over 500 hours of administrator
training, in addition to the local training
and support that was provided to all
employees, from Fletcher Building
directors to frontline shift managers.
Radar now helps us manage and
monitor our risks, incidents, walks,
observations, inspections, audits and
associated actions through the tracking
of over 100,000 records per year.
Radar helps us manage
and monitor our risks,
incidents, inspections,
walks, observations,
inspections, audits
and associated actions
through the tracking of
over 100,000 records
per year.
19,500
Employees have been through the
Protect Fundamentals course since
its launch in June 2017
43
Fletcher Building Limited Annual Report 2018Our PeopleOur CommunitiesEnvironmentContribution to NZ EconomyInnovationOur Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME Business Sustainability
Health and Safety
Total Recordable Injury
Frequency Rate (TRIFR)
Serious Injury
Frequency Rate
5.1
2017 6.9 ▼ 26%
0.328
2017 0.510 ▼ 36%
SERIOUS AND RECORDABLE INJURIES
A highlight for the year was a significant
reduction in serious injuries and
recordable injuries. In FY18, we reversed
our injury trends and achieved significant
reductions across all of our divisions. Our
Serious Injury Frequency Rate decreased
by 36% to 0.328 and our Total Recordable
Injury Frequency Rate (TRIFR) decreased
by 26% to 5.1.
All of our people deserve to go home
safe at the end of every day and there
are further improvements we can make
to ensure this is the case.
One area we are working to improve within
the Group, and across the construction
industry, is the approach to temporary
works. It is a challenging area that requires
collaboration and shared learning between
designers, contractors and suppliers to
create safe work environments.
A subcontractor on one of our sites was
injured by the collapse of a temporary
wall following a high-rain event and
investigations found the risks in the
works had not been fully recognised.
As a result an Enforceable Undertaking
was agreed with WorkSafe New Zealand
in April 2018 and we are developing a new
procedure for temporary works that will
apply to all our sites from March 2019.
We are also working to help establish
new national guidelines.
The learnings from this incident are
reflected in our long-term strategy to
improve our whole-of-life health and
safety outcomes through our product
and infrastructure designs.
Our strategy for FY19 will include a
focus on our critical safety risks and
the development and implementation
of greater oversight, direction and
planning to prevent occupational illness
and promote the health and wellbeing of
our people. The final piece to our strategy
is a renewed focus on simplifying and
streamlining our systems and processes
while continuing to build our leadership
and engagement with our people on
the frontline.
TRIFR1
8
6
4
2
0
4
6
.
7
.
6
.
9
6
1
.
5
FY15
FY16
FY17
FY18
Serious Injuries2
3
3
2
2
5
2
1
2
40
30
20
10
0
FY15
FY16
FY17
FY18
1 Total recordable injury frequency rate. Measured by the total number of recordable injuries per million hours worked.
2 Serious Injury includes immediate treatment as an in-patient at hospital for more than 24 hours or immediate
treatment for a serious injury or illness as defined by Safe Work Australia.
44
Fletcher Building
Excellence Awards
SAFETY EXCELLENCE
At the Fletcher Building Excellence
Awards, the Individual Contribution to
Safety Improvement and Safety Team
awards winners were Andrew Holt
from Firth and Iplex Australia health
and safety team.
Andrew Holt, in conjunction with our
truck GPS suppliers, developed and
installed a safety alert system for
handbrakes and seatbelts on our
400+ fleet of certified trucks. Alerts
for both handbrake and seatbelts are
delivered by an in-cab voice-over-
audio for the driver, his or her
immediate supervisor receives a text
alert of the breach and the incident is
recorded against that driver, along
with any other health and safety alerts,
including speeding, harsh braking and
excessive tilts.
The Iplex Australia safety team has
supported the business to deliver
some outstanding safety results
reducing TRIFR by 53% and Long
Term Injuries (LTI) from eight to one
compared with FY16. The cost of
workers compensation claims has
also dropped as a result.
Some of the initiatives rolled out by
the business included Riskmindful
training, a risk management guide
to clarify which safety tools to use
and when, and Lock Out and
Tag Out modules.
Individual Contribution
To Safety Improvement
Andrew Holt
– Firth
Safety Team Award
Iplex Australia
H&S Team
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Iplex Australia
45
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Environment
Environment
Our commitment is to protect
the environment we work
in and increase the use of
environmentally sustainable
practices across all of our
operations, from extraction
and manufacturing through
to residential development
and distribution.
We have dedicated sustainability and
environmental managers within many
of our businesses, who regularly review
the environmental impacts and risks of
our businesses and progress mitigation
and innovation initiatives to reduce
our impact.
Issues that are important to society are
important to us. As such, we consult with
our employees, stakeholders, communities,
customers and suppliers to understand
their needs and work with them to improve
our environmental performance.
In FY19 we will recruit a head of
environment, who will lead the
development and execution of a Fletcher
Building-wide environmental strategy,
to improve our performance across the
Group. In doing so an important focus
area will be the development of life-cycle
goals, to ensure that for any change we
make the overall impact is positive and
that we are not simply moving the impact
up or down the supply chain.
EMISSIONS AND
CLIMATE CHANGE
Addressing climate change is one of the
biggest challenges of this century. The
board recognises that Fletcher Building
needs an overarching sustainability
strategy to inform how we work with
Government, industry and the community
to reduce emissions and support the
transition to low-emissions economies in
the markets in which we operate. The
development of this strategy will be a
focus in FY19, with the recruitment of a
head of sustainability planned.
46
We voluntarily disclose our greenhouse
gas emissions, climate change and water
risks through the CDP (formerly known as
the Carbon Disclosure Project) and the
establishment of new emissions reduction
targets and initiatives will be a key feature
of the new sustainability strategy.
In FY18 we undertook a number of capital
investments across our concrete division
to improve the environmental performance
of our individual cement and concrete
businesses, which collectively generate
the largest proportion of Fletcher
Building’s greenhouse gas emissions.
At Firth we completed the construction
of a new $30 million state-of-the-art
masonry factory at Hunua, which opened
in November 2017. The 4,900m2 plant
combines agile and sustainable
manufacturing design.
Automation has optimised how the plant
runs. It recycles 100% of waste blocks
back into the production line onsite and
uses rainwater collected from the roof as
its primary source of water. Raw materials
come from the Winstone Aggregates
quarry next door, significantly reducing
the distance raw materials travel and the
new curing oven operates at much lower
temperatures than the previous one,
resulting in 22% less energy used per
block produced.
Our Golden Bay Cement (GBC) plant
is progressing an alternative fuels
strategy, and planning a new project
that is jointly funded by the Ministry for
the Environment, aimed at substituting
a further 20% of GBC’s coal requirement
through the use of end-of-life tyres.
If successful, this project will help to
address a major waste problem in
New Zealand, while improving the
sustainability of GBC's energy sources.
As part of the project GBC would
reuse up to 3.1 million disposed tyres
per annum, which is up to half of
New Zealand’s annual tyre waste,
excluding stockpile.
The use of tyre-derived fuel is also
expected to replace 5,000 tonnes of
iron-sand per year, a 40% reduction
in iron-sand use at the plant.
3.1m
New Golden Bay
Cement project
would enable
shredded tyres
to be added to
the fuel mix
Once fully operational the cement kiln
would take up to 3.1 million shredded
tyres per year, diverting up to half of
New Zealand's waste tyres, excluding
stockpile, from going to landfill. Using
tyre-derived fuel would replace 15,000
tonnes of coal and 5,000 tonnes of
iron sand.
Reducing the reliance
on coal by around
20%
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Fletcher Construction sponsored planting morning in collaboration with
Friends of the Ōtaki River and the local Surf Life Saving Club.
Peka Peka to Ōtaki expressway
Green corridor
to be created
40+
Hectares of plantings
600,000+
plants and native species including
1,000+
new tōtara
ECOLOGY
Quarrying, manufacturing and construction
can all have an impact on biodiversity. We
owe it to New Zealanders to look after this
beautiful land and protect its biodiversity,
which is why an important part of our
project management is managing and
mitigating any impacts on our special
flora and fauna.
On behalf of the NZ Transport Agency,
the Peka Peka to Ōtaki project team will
create a ‘green corridor’ alongside the
expressway, with more than 40 hectares
of planting made up of over 600,000
plants and native trees. More than 1,000
species, including new tōtara, will be
part of this significant planting project,
resulting in increased numbers of
native trees in the district at the end
of the project.
On the Pūhoi to Warkworth motorway
project, prior to work starting in the Ōkahu
Inlet, adult native mud snails living on the
mudflat were carefully relocated. Across
several days the alliance team, supported
by external ecologists and representatives
from Hōkai Nuku, collected over 30,000
snails and relocated them to a suitable
new home away from the construction
area. The habitats of snails, lizards,
geckos and native worms have also been
carefully managed on the Peka Peka to
Ōtaki expressway.
GBC has been working closely with
Whitebait Connection, a conservation
and education group, to manage Inanga
(Whitebait) spawning sites in the Otaika
stream, a significant taonga (treasure)
to the local people. While the stream
isn’t on our land, it is a water source
for our cement works and one of our
quarries is located nearby. During the
first stage of the project, a survey was
undertaken to identify Inanga spawning
sites. Subsequently, native planting in
those areas has begun. Further stream
habitat restoration work is planned,
including an upstream freshwater fish
survey. Funding for the stream work was
provided by GBC and the work is being
undertaken in consultation with local
schools and landowners.
Fletcher Living undertakes land
remediation work as part of all of its
developments, but where possible we
aim to enhance biodiversity and further
protect native species. At Waiata Shores
in South Auckland, following works to
control storm water run-off into the
Papakura Stream and replanting the
wetland areas, we are working with iwi
and Auckland Council to provide a
suitable spawning habitat for Inanga.
In FY18, Iplex NZ donated $30,000 worth
of pipes and fittings to the Charitable
Wildbase Recovery Community Trust. The
donated materials are being used for the
specially designed recovery aviaries at the
Wildbase Recovery Centre, New Zealand's
only native wildlife recovery facility, in
Palmerston North. The new facility will
provide a safe environment for recovery
from injury and illness, along with
world-leading care by Massey University
veterinary staff.
47
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Environment
Single-use plastic bags,
while convenient, come
at great cost to our
environment particularly
our beautiful oceans.
By going plastic bag free,
we estimate that we will
prevent around 168,000
plastic bags from entering
either our rubbish tips
or the environment
each year.
Richard Doig
Mico General Manager
Formica designers commissioned a
special technical paper called Paper
Terrazzo® which is made from paper
off-cuts – creating a new paper sheet
that is 30% reclaimed material.
TRACEABILITY AND LIFE-CYCLE
SUSTAINABILITY
Alongside our focus on emissions,
ecology and waste reduction, our
businesses have undertaken a range
of initiatives looking more closely at
the environmental sustainability of our
products and how we can share this
information in a trusted and transparent
way with our customers.
Winstone Wallboards achieved
Environmental Product Declarations
(EPDs) this year, while GBC, Tasman
Insulation and Pacific Coilcoaters have
begun the process. EPDs provide
customers with transparent information
on the life-cycle environmental impact
of a product from raw material sourcing
and energy source and use, to emissions
to air, soil, and water, and waste. They are
independently verified and registered.
Easysteel recently launched its new
service promise to customers, which
includes a commitment to the
certification and traceability of its
products, providing reassurance on
the quality of the steel being purchased.
In Australia Rocla is progressively
converting its concrete recipes and
processes to self-compacting concrete
(SCC). Traditional concrete processes
tend to end with a sticky concrete and
poor flow requiring a lot of artificial
vibration to ensure the concrete fully
settles into Rocla moulds. The vibration
is noisy and jarring, potentially impacting
the amenity of the work environment for
local neighbours. SCC removes these
issues, is almost silent during casting
and results in a better quality surface
finish on our products as well.
REDUCING WASTE
AND PLASTICS
With an increasing community focus on
reducing waste, and specifically single-
use plastics, our businesses have been
looking at how they can contribute to
these efforts across our operations.
In FY18 Mico became the first in the
New Zealand building trade industry
to go plastic bag free. The initiative
was kicked off by some particularly
passionate employees who wanted to
make a difference. It was rolled out in
14 branches from New Plymouth to
Nelson in October 2017 and then
expanded to the rest of the country
in April 2018. Reusable bags and boxes
have been made available for customers
to use as alternatives.
Mico estimates that the change will
prevent around 168,000 plastic bags
from entering either our rubbish tips or
the environment each year. The team is
also looking at ways to reduce shrink wrap
on pallets by 30%.
PlaceMakers is also progressively phasing
out single-use plastic bags and will be
plastic bag free by 1 September 2018.
Reducing waste is also a key focus in our
product innovation. Leading the charge, in
2016 Formica’s designers commissioned
the development of a special technical
paper called Paper Terrazzo®, which is
made from paper off-cuts. These small
fragments of post-production solid colour
paper are being diverted from landfill and
instead reused to create a new paper
sheet. The final product is 30% reclaimed
material. Formica North America and
Formica Asia launched Paper Terrazzo®
late 2017. Laminex Australia and Formica
Europe will launch Paper Terrazzo® in
Spring 2018 and August 2018, respectively.
Some of our manufacturing processes
have even been able to incorporate
100% of the product waste created
during production back into the
production line. Tasman Insulation
New Zealand, which manufactures
Pink® Batts®, recycles off-cuts from
the process back into the product and
Firth’s new masonry plant recycles
waste blocks back into production.
48
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Contribution to
the NZ Economy
Fletcher Building is one
of New Zealand’s largest
companies, both in terms of
revenue and employment,
but previously its contribution
to the New Zealand
economy had not been
measured. During the year
the New Zealand Institute of
Economic Research (NZIER),
an independent economic
consultancy, was engaged
to undertake an analysis
of Fletcher Building’s FY17
audited financial statements
to determine our contribution
to New Zealand’s Gross
Domestic Product (GDP)1.
NZIER’s analysis estimated that Fletcher
Building contributed $1.5 billion to
New Zealand’s 2017 GDP of $264.7 billion,
which translates to 0.6% of national GDP.
This included $1.317 billion of value
through our earnings, the taxes and GST
we pay and the salaries paid to the more
than 10,000 New Zealanders who work for
us. The remaining $195 million was
contributed through tax on commodities.
NZIER concluded that Fletcher Building
makes a strong contribution to
New Zealand’s overall economic
performance, and growth in our activities
would provide a significant boost to the
economy by increasing economic activity,
real wages and household consumption.
The positive impacts would be largely
seen in retail (motor vehicle and motor
vehicle parts, fuel, non-traditional retail
formats, and commission), owner-
occupied property operation, personal
services, construction services, banking
and financing and central government
administration services.
49
$1.5bFletcher Building
contributed
$1.5 billion to
New Zealand’s
2017 GDP.
1 Current state GDP contribution was evaluated. The
GDP contribution was estimated by summing EBITDA,
employee short-term costs and long-term benefits,
tax expenses and tax on commodities.
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The factory will initially be used to service
Fletcher Living’s extensive Auckland
house building programme, including
our desire to participate in KiwiBuild. It is
estimated that the plant would be able
to deliver around 300 homes a year in
the short term.
Once factory production is proven and
meeting Fletcher Living’s targets, demand
from other builders for the purchase of
panels will be investigated.
SELF-CLEANING ROOF
Researchers at Fletcher Steel and
University of Auckland’s Biocide Toolbox
unit have begun developing a ‘self-
cleaning roof’.
The research aims to extend the design
life, reduce the cost of maintenance, and
help prevent bacteria and fungal growth
through new developments in roof
coatings technology.
The collaboration marks a new direction
for Fletcher Building, partnering with the
top ranked university to bring academic
rigour to our innovation programme.
It will use $93,000 of funding from
Callaghan Innovation, the Government’s
science and research funding agency,
and is due to be finished in 2021.
We think this solution shows huge
promise and we aim to bring any
research-proven technology to
market as soon as possible.
Business Sustainability
Innovation
INNOVATION IN HOME BUILDING
During FY18 we developed and proved a
panelisation solution for Fletcher Living,
which significantly cuts down build time
for residential housing. Panelisation is the
use of premanufactured wall, floor and
roof sections that are assembled at the
building site.
Primarily, panelisation is about getting
more homes to market quicker. The level
of automation enabled by panelisation
means labour scarcity will have less
impact on house building. Build days lost
to bad weather are also significantly
reduced owing to construction in an
enclosed factory environment.
Additionally, moving construction
activities into a controlled environment
will support safer construction, reduce
waste and enhance the quality of the
final product. The main challenge in
delivering this style of build is
waterproofing the buildings early.
Significant focus and attention has
been paid to roof design, wall and
floor connection details and safety.
During the year prototypes were tested
under a number of scenarios. In August
2017 Fletcher Living speed tested building
a panelised duplex at its Hobsonville Point
development. Once the panels were
manufactured offsite, both homes in
the two-storey duplex home were
completed to a weather-tight state in
just three days, compared with around
50 days for a similar home built using
standard methods. The second half of
the home was completed in just one
day indicating a two-day timeframe
could be achieved for a duplex.
Based on the success of these trials,
Fletcher Building will be investing in a
panelisation plant in Auckland during
FY19. Negotiations on a lease for premises
are underway and the first panels are
planned to come off the line in calendar
year 2019.
Innovation is critical to the
success of our business,
and we plan to increase
our investment in future
years. When we talk about
innovation we are referring to
both continuous improvement
initiatives and taking larger
leaps to leverage global
trends and drive innovative
change in our industries.
Our continuous improvement
initiatives are owned by our
individual businesses and
we then have a designated,
central innovation unit that
partners with our businesses
to develop and commercialise
larger innovations.
In FY18 we proved our house building
panelisation concept, enabling
investment in a new plant in FY19
Speed tested building at the
Hobsonville Point development
with panels manufactured offsite
3 days
For two, two-storey duplex homes to
be completed to a weather-tight state,
compared to a standard 50 days
9 weeks
To completion, compared with
22 weeks for a conventional build
(excludes site works and foundation
construction)
50
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CONTINUOUS IMPROVEMENT AND
EXCELLENCE INITIATIVES
Our business is about our customers and
clients – it’s as simple as that. We strive to
be customer leading and better every day,
seizing opportunities to improve what we
do, what we make and how we deliver it.
• Winstone Wallboards is expanding its
deliver-to-site service, which is a GIB®
handling service where experts unload
and carry the right products to the
right rooms of new builds, enabling
faster installation. It is currently offered
in Auckland, Hamilton, Tauranga and
Christchurch and will be expanded into
new regions this year.
• Tasman Insulation has introduced an
online workflow system that effectively
links merchant, installer and customer
service for the PinkFit® network, our
national network of insulation installers.
• Dimond Roofing has developed a 3D
online roof design tool that showcases
different roof profiles and colour
schemes on a home.
• Brian Perry Civil is using advanced
modelling and instrumentation
technologies to develop a crane
platform that will be safer and
cheaper to construct than using
current techniques.
• Laminex New Zealand and Winstone
Wallboards have teamed up with
Fletcher Living to develop and test a
wooden light-weight flooring system
for the medium density housing market
with superior acoustic and fire ratings.
• Snappy is a new brand which
Distribution has established as part
of a multi-brand strategy in market,
utilising a lean start-up approach to
launch a digital-first brand and general
merchant in the hardware sector.
NEW WALLBOARDS FACTORY
TO ENSURE SUPPLY
Winstone Wallboards, New Zealand’s
only manufacturer of plasterboard,
has begun preparatory work towards
building a new, larger, more efficient
wallboard factory and distribution
centre in Auckland. The new facility
will employ the latest technology in
a bid to meet supply and demand
for the next 50 years. It is anticipated
the new facility will be completed in
calendar 2022.
The new larger operation is a
significant capital investment to meet
future capacity requirements, enable
new products to be manufactured and
will also reduce double-handling by
bringing manufacturing and the four
distribution sites together in one
location. It will also provide room for
growth, which is not possible at the
current location.
New efficient factory and
distribution centre – Auckland
New Zealand’s
only manufacturer
of plasterboard
New centre expected
to be completed
2022
Winstone Wallboard’s GIB® Trade Finish Lite compound is
measured into containers for distribution
51
Fletcher Building Limited Annual Report 2018Our PeopleOur CommunitiesHealth and SafetyEnvironmentContribution to NZ EconomyOur Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceBACKHOME Trend statement
Trend Statement
NOTES
Financial performance
JUNE
2018
JUNE
2017
JUNE
2016
JUNE
2015
JUNE
2014
JUNE
2013
JUNE
2012
JUNE
2011
JUNE
2010
JUNE
2009
2
1
NZ$M
NZ$M
NZ$M
NZ$M
NZ$M
NZ$M
NZ$M
NZ$M
NZ$M
NZ$M
Operating sales/revenue
9,471
9,399
9,004
8,661
8,401
8,517
8,839
7,416
6,799
7,103
Earnings before interest and
taxation (EBIT)
Net earnings
Cash flow from operations
Earnings per share – basic (cents
per share)
Dividends for the period (cents
per share)
Return on average funds (%)3
Return on average equity (%)4
Financial performance – before
significant items
Earnings before interest and
taxation (EBIT)
Net earnings
Earnings per share – basic (cents
per share)
Return on average funds – before
significant items (%)3
Return on average equity – before
significant items (%)4
Balance sheet
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Capital
Reserves
Minority equity
Total equity
Total liabilities and equity
Other financial data
Total shareholders return (%)5
Net tangible assets per share ($)
Gearing (%)6
Leverage (%)7
(118)
(190)
396
273
94
243
719
462
660
503
270
575
592
339
489
569
326
559
403
185
448
492
283
402
521
272
522
159
(46)
533
(25.5)
13.5
67.0
39.2
49.3
47.6
27.2
45.0
44.9
(8.7)
0
39.0
(2.2)
(5.2)
4.9
2.5
39.0
13.4
12.4
37.0
9.6
7.7
36.0
11.7
9.9
34.0
10.8
9.4
34.0
7.4
5.2
33.0
10.6
8.2
29.0
12.7
9.1
38.0
3.4
(1.6)
50
(60)
525
321
682
418
653
399
624
362
569
326
556
317
596
359
521
301
558
314
(8.1)
46.3
60.6
58.0
52.7
47.6
46.5
57.1
49.7
59.7
0.9
9.4
12.7
12.5
12.3
10.8
10.2
12.8
12.7
11.9
(1.7)
8.7
11.6
11.3
10.5
9.4
9.0
10.4
10.0
10.8
4,120
3,419
4,412
4,254
8,532
7,673
2,480
1,996
1,910
2,097
4,390
4,093
3,425
2,678
693
24
4,142
8,532
878
24
3,580
7,673
(6)
2.85
23.5
4.8
0
2.70
35.3
2.7
3,222
4,045
7,267
1,997
1,557
3,554
2,650
1,041
22
3,713
7,267
11
2.87
27.3
1.6
3,272
4,229
7,501
1,947
1,844
3,791
2,633
1,050
27
3,710
7,501
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
3,104
4,388
7,492
1,700
2,092
3,792
2,553
1,113
34
3,700
7,492
(3)
2.80
31.8
2.0
9
2.60
32.3
2.0
51
2.61
33.5
2.3
(27)
2.65
37.4
2.6
14
2.71
34.3
2.4
2,317
3,397
5,714
1,384
1,307
2,691
1,912
1,077
34
3,023
5,714
24
2.90
26.8
1.5
2,255
3,550
5,805
1,313
1,508
2,821
1,895
1,057
32
2,984
5,805
14
2.80
31.1
1.8
1 The Crane group was acquired with an effective acquisition date of 28 March 2011.
4 Net earnings to average shareholders' funds.
2 The June 2012 balance sheet has been restated following revisions to IAS 19 Employee
5 Share price movement in year and gross dividend received, to opening share price.
Benefits adopted by the group.
6 Net debt (borrowings less cash and deposits) to net debt and equity.
3 EBIT to average funds (net debt and equity less deferred tax asset).
7 Net debt to EBITDA
52
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Consolidated income statement
For the year ended 30 June 2018
Sales
Cost of goods sold
Gross margin
Selling and marketing expenses
Administration expenses
Share of profits of associates and joint ventures
Other gains and losses
Significant items
Earnings before interest and taxation (EBIT)
Funding costs
Earnings/(loss) before taxation
Taxation benefit/(expense)
Earnings/(loss) after taxation
Earnings attributable to non-controlling interests
Net earnings/(loss) attributable to the shareholders
Net earnings/(loss) 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, 22 August 2018
Sir Ralph Norris
Chairman
Bruce Hassall
Director
NOTES
Year ended
June 2018
NZ$M
Year ended
June 2017
NZ$M
9,471
(7,775)
1,696
9,399
(7,319)
2,080
(927)
(717)
26
(28)
(168)
(118)
(157)
(275)
96
(179)
(11)
(190)
(25.5)
(25.5)
745
745
(903)
(680)
20
8
(252)
273
(111)
162
(57)
105
(11)
94
13.5
13.5
694
694
0.0
39.0
25
5
4
14
28
6
6
7
The accompanying notes form part of and are to be read in conjunction with these financial statements.
53
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Financial Statements 2018
Consolidated statement of comprehensive income
For the year ended 30 June 2018
Net earnings/(loss) attributable to shareholders
Net earnings attributable to non-controlling interests
Net earnings/(loss)
Other comprehensive income
Items that do not subsequently get reclassified to profit or loss:
Movement in pension reserve
Items that may be subsequently reclassified to profit or loss:
Movement in cash flow hedge reserve
Movement in currency translation reserve
Other comprehensive income
Total comprehensive income/(loss) for the year
Year ended
June 2018
NZ$M
Year ended
June 2017
NZ$M
(190)
11
(179)
10
10
2
129
131
141
(38)
94
11
105
44
44
(7)
(17)
(24)
20
125
The accompanying notes form part of and are to be read in conjunction with these financial statements.
54
Fletcher Building Limited Annual Report 2018BACKHOMETrend statementIndependent auditor's reportRemuneration reportGovernanceStatutory disclosuresCorporate directoryOur Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceFinancial statements Consolidated statement of movements in equity
For the year ended 30 June 2018
e
v
r
e
s
e
r
s
t
n
e
m
y
a
p
d
e
s
a
b
-
e
r
a
h
S
M
$
Z
N
e
g
d
e
h
w
o
l
f
h
s
a
C
e
v
r
e
s
e
r
M
$
Z
N
M
$
Z
N
l
n
o
i
t
a
s
n
a
r
t
y
c
n
e
r
r
u
C
e
v
r
e
s
e
r
M
$
Z
N
e
v
r
e
s
e
r
n
o
s
n
e
P
i
M
$
Z
N
g
n
i
l
l
o
r
t
n
o
c
-
n
o
N
s
t
s
e
r
e
t
n
i
M
$
Z
N
M
$
Z
N
l
a
t
o
T
y
t
i
u
q
e
l
a
t
o
T
M
$
Z
N
i
s
g
n
n
r
a
e
d
e
n
a
t
e
R
i
l
a
t
i
p
a
c
e
r
a
h
S
M
$
Z
N
S
E
T
O
N
2,650
1,399
13
5
(269)
(107)
3,691
22
3,713
Fletcher Building Group
Total equity at 30 June 2016
Total comprehensive income for the year
94
(7)
(17)
44
114
Movement in non-controlling interests
Issue of shares
Dividends paid to shareholders of the parent
Movement in treasury stock
Total equity at 30 June 2017
23
7
23
31
(3)
(277)
31
(277)
(3)
2,678
1,216
13
(2)
(286)
(63)
3,556
24
3,580
Total comprehensive income/(loss) for the year
(190)
2
129
10
(49)
11
(9)
125
(9)
31
(277)
(3)
11
(11)
(38)
(11)
736
(132)
(4)
11
736
(132)
(4)
11
(157)
(53)
4,118
24
4,142
Movement in non-controlling interests
Issue of shares
Dividends paid to shareholders of the parent
Movement in share-based payment reserve
Movement in treasury stock
Total equity at 30 June 2018
23
7
23
736
11
(132)
3,425
894
(4)
9
The accompanying notes form part of and are to be read in conjunction with these financial statements.
55
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Financial Statements 2018
Financial Statements 2018
Consolidated balance sheet
As at 30 June 2018
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
Retirement plan assets
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 2018
NZ$M
June 2017
NZ$M
8
28
16
9
10
20
21
22
25
29
16
28
11
12
28
16
13
15
11
12
29
28
16
15
23
24
665
72
6
1,629
1,748
4,120
2,241
1,085
601
149
88
1
86
161
4,412
8,532
219
15
8
1,525
1,652
3,419
2,206
1,069
617
146
71
2
91
52
4,254
7,673
1,547
1,406
89
26
7
626
185
70
30
7
214
269
2,480
1,996
38
25
38
37
19
1,753
1,910
4,390
3,425
693
4,118
24
4,142
8,532
36
25
38
47
48
1,903
2,097
4,093
2,678
878
3,556
24
3,580
7,673
The accompanying notes form part of and are to be read in conjunction with these financial statements.
56
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For the year ended 30 June 2018
NOTES
Year ended
June 2018
NZ$M
Year ended
June 2017
NZ$M
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
Cash in subsidiaries acquired
Total applied
Net cash from investing activities
Cash flow from financing activities
Issue of shares
Net debt draw down
Issue of capital notes
Total received
Net debt repayment
Repurchase of capital notes
Treasury stock purchased
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
9,810
18
9,828
9,189
158
85
9,432
396
19
15
42
76
304
304
(228)
727
221
948
483
55
15
123
676
272
440
219
6
665
9,303
11
9,314
8,847
125
99
9,071
243
26
3
29
319
321
(4)
636
(607)
476
35
511
19
3
14
246
282
229
(135)
356
(2)
219
23
7
The accompanying notes form part of and are to be read in conjunction with these financial statements.
57
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Financial Statements 2018
Financial Statements 2018
Reconciliation of net earnings to net cash from operating activities
For the year ended 30 June 2018
Cash was received from:
Net earnings/(loss)
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 2018
NZ$M
Year ended
June 2017
NZ$M
(190)
11
(179)
214
180
(32)
(181)
(36)
145
(34)
430
396
(56)
(58)
11
396
137
430
94
11
105
203
232
(66)
(42)
(13)
314
419
(176)
243
(103)
(62)
(99)
74
14
(176)
The accompanying notes form part of and are to be read in conjunction with these financial statements.
58
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1. Statement of accounting policies
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 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 consolidated financial statements comprise the income
statement, statement of comprehensive income, statement of
movements in equity, balance sheet, statement of cash flows, and
statement of 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 certain 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 below, "Changes in accounting policies".
Accounting policies are disclosed within each of the applicable
notes to the financial statements and are marked with this icon.
Critical accounting estimates and judgements
The preparation of financial statements in conformity with NZ IFRS
requires the directors to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of sales 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 have been disclosed with the relevant notes
in the financial statements are marked with this icon, or
where applied to the financial statements as a whole, are
detailed below.
59
Basis of consolidation
The consolidated financial statements comprise the Group
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.
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.
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.
Sale of goods
Revenue is recognised when the significant risks and rewards of
ownership have been transferred to the customer, recovery of the
consideration is probable, the associated costs and possible return
of goods can be estimated reliably, there is no continuing
management involvement with the goods and the amount of
revenue can be measured reliably. Revenue is measured net of
returns, trade discounts and volume rebates. The timing of the
transfer of risks and rewards varies depending on the individual
terms of the sales agreement. For most sales, the transfer usually
occurs when the product is delivered to the customer; however,
for some international shipments the transfer occurs on loading
the goods onto the relevant carrier at the port. Generally, for such
products the customer has no right of return.
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Notes to the Financial Statements 2018
1. Statement of accounting policies continued
Construction Contracts
Earnings on construction contracts (including sub-contracts)
are determined using the percentage-of-completion method.
Earnings on construction contracts (including sub-contracts)
are determined using the percentage-of-completion method.
Earnings are not recognised until the outcome of the contract can
be reliably estimated. The Group uses its professional judgement
to assess both the physical completion and the forecast financial
result of the contract. When a contract is identified as loss-making,
a provision is immediately made for estimated future losses on the
entire contract (refer to Note 13).
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 2017.
NZ IFRS 9 Financial Instruments
NZ IFRS 9 replaces the provisions of NZ IAS 39 that relate to the
recognition, classification and measurement of financial assets
and financial liabilities, derecognition of financial instruments,
impairment of financial assets and hedge accounting. The impact
of adopting NZ IFRS 9 is summarised below:
• NZ IFRS 9 introduces new classification and measurement
requirements for financial assets and liabilities that are within
the scope of NZ IAS 39. There have been no changes to the
classification or carrying amounts of financial assets and
financial liabilities in the statement of financial position
under NZ IFRS 9.
•
• The hedge accounting rules in NZ IFRS 9 align hedge
accounting more closely with the Group’s risk management
activities and allows for the hedging of aggregated exposures.
The effectiveness test has been replaced with the principle of
establishing an economic relationship between the hedging
instrument and hedged item rather then applying the bright
line test that existed under NZ IAS 39. The adoption of NZ IFRS
9 did not result in significant changes to the Group’s hedge
accounting relationships as at 1 July 2017. The Group has
elected to apply the hedge accounting requirements on a
retrospective basis from the date of initial application where
permitted under NZ IFRS 9.
• The NZ IFRS 9 impairment requirements are based on an
expected credit loss model, replacing the incurred loss
methodology under NZ IAS 39. The Group has applied
the simplified approach for trade and other receivables,
with the impact of NZ IFRS 9 being immaterial.
Standards not yet effective or early adopted
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 15 Revenue from Contracts with Customers
NZ IFRS 15 ‘Revenue from Contracts with Customers’ replaces NZ
IAS 18 Revenue and NZ IAS 11 Construction Contracts and
is effective for the Group from the period beginning 1 July 2018.
60
The new standard is based on the principle that revenue
is recognised when control of a good or service transfers
to a customer. Revenue derived from sources other than
construction contracts will continue to be recognised at a point in
time. Revenue earned through construction contracts will
continue to be recognised over time; principally using an input
method. The Group has the current intention to adopt NZ IFRS 15
using the retrospective approach.
The following matters are relevant to the Group under
NZ IFRS 15:
Construction
i) Performance obligations
• The Group has assessed construction contracts to identify
performance obligations to be delivered to customers.
The assessment completed did not identify any construction
contracts which required the unbundling of multiple
performance obligations and as such under the adoption
of NZ IFRS 15 there will not be a material impact on the
recognition of revenue with existing contracts.
ii) Variable consideration
• Where revenue recognised is not stipulated within the
contract and therefore variable in nature, the Group
estimates the amount of revenue to which it is entitled.
Under NZ IFRS 15 variable consideration is recognised to the
extent that it is highly probable not to result in a significant
reversal in future periods. The adoption of NZ IFRS 15 will not
have a material impact on the recognition of revenue within
existing contracts.
iii) Pre-contract costs
• NZ IAS 11 previously allowed, in certain circumstances, for the
capitalisation of expenditure incurred in securing a contract.
NZ IFRS 15 restricts the capitalisation of such costs to those
that it would not have incurred if the contract had not been
obtained. At 30 June 2018, the Group had costs capitalised
of $2 million that would be expensed under NZ IFRS 15.
iv) Loss making contracts
• Loss making contracts will now be accounted for under
NZ IAS 37 rather than under NZ IAS 11. This will not have an
impact on the Group’s recognition of revenue.
Residential
i) Recognition
• NZ IFRS 15 requires the recognition of revenue when the
customer obtains control of a good or a service, instead of
when risks and rewards transfer under NZ IAS 18. NZ IFRS 15
leads to a change in timing of recognition for residential house
sales, such that revenue from the sale of housing inventory is
recognised at a point in time when control has passed to the
customer (generally when title has passed). At 30 June 2018,
the Group recognised $88 million of revenue and $20 million
of EBIT from housing sales that would not be recognised
under NZ IFRS 15. At 30 June 2017, the Group recognised
$47 million of revenue and $13 million of EBIT from housing
sales that would be recognised in the year ended 30 June
2018 under NZ IFRS 15.
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i) Variable consideration
• Some contracts with customers offer variable consideration
such as trade discounts, volume rebates, or loyalty schemes.
The Group's assessment did not identify any material impact
on the recognition of such arrangements on adoption of
NZ IFRS 15.
ii) Warranties
• Warranties currently offered by the Group will continue to be
accounted for under NZ IAS 37 Provisions, Contingent
Liabilities and Contingent Assets.
Disclosure requirements
• NZ IFRS 15 disclosure requirements are more detailed than
under current NZ IFRS, particularly with respect to the
judgements made and contract asset and liability balances
outstanding at period end. The Group is in the process of
drafting the disclosures required to be reported for the period
ending 31 December 2018 and the year ending 30 June 2019.
NZ IFRS 16 Leases
NZ IFRS 16 was issued in February 2016 and will be effective for
the Group from the period beginning 1 July 2019. The standard
sets out the principles for the recognition, measurement,
presentation and disclosure of leases for both lessees and lessors.
NZ IFRS 16 replaces NZ IAS 17 and the related interpretations.
For lessees, NZ IFRS 16 removes distinctions between operating
leases and finance leases and introduces a single lessee
accounting model. Under this new model, right-of-use assets
and lease liabilities are recognised for all lease contracts except for
short-term leases and leases of low value assets.
The Group is currently in the process of performing an assessment
of the impact of NZ IFRS 16, including:
• Undertaking a modelling exercise to quantify the impact of
transition options;
• Developing an approach to key accounting judgements;
• Understanding and documenting the requirements for data
collection and validation;
•
Identifying an appropriate system solution which will capture
and store all lease data and calculate the required NZ IFRS 16
adjustments and ongoing accounting transactions.
The Group has not yet concluded on a transition approach and as
such it is not possible to fully quantify the impact of NZ IFRS 16 at
this stage, however, the impact on the Group financial statements
is expected to be significant. For the year ended 30 June 2018, the
Group had an operating lease expense of $187 million and had
expected future undiscounted minimum payments on non-
cancellable leases of $1,057 million.
2. Material events during the year
These financial statements include the impact of a number
of material events that occurred during the year, including the
recognition of additional construction loss provisions, the breach
of certain funding covenants, renegotiation of key terms of lending
arrangements, the issue of new shares by way of an entitlement
offer, the subsequent repayment of borrowings, and a new Group
strategy announced on 21 June 2018.
In February 2018 the Group announced the recognition of
additional provisions associated with the Building + Interiors (B+I)
business unit in the half year financial statements such that a loss
for the six months ended 31 December 2017 was reported of
$631 million (refer to Note 13 for the judgements applied in
accounting for construction contracts).
As a result of these additional provisions, the Group was in breach
of certain covenants in relation to its Syndicated
Facility Agreement and its US Private Placement debt (together
‘borrowings’) as at 31 December 2017. This breach was an event
of default under the agreements governing those borrowings.
The Group obtained temporary waivers in respect of the covenant
breaches while negotiating with its debt holders to agree revised
terms for the agreements governing the borrowings. Revised
terms for all funding arrangements were concluded in May 2018
with new covenant terms agreed (refer to Note 15 for details).
The Group incurred additional funding costs associated with the
renegotiation of these funding arrangements (refer to Note 14).
With the additional B+I provisions and resulting funding
negotiations, the Group moved to strengthen the Balance Sheet in
support of its new strategy. In April 2018 the Group raised a total
of $750 million through an entitlement offer of 1 share for every
4.46 shares held. The costs of the transaction of $23 million were
offset in equity in line with NZ IFRS, resulting in a net increase in
share capital of $727 million (refer to Note 23).
Also in April 2018, the Group announced its intention to divest the
Formica and Roof Tile Group businesses. The divestment
processes commenced during the year and will continue
into FY19.
The proceeds from the issue of share capital were used primarily
to repay borrowings (refer to Note 15) and led to significantly
reduced leverage and gearing ratios for the Group.
In June 2018 the Group announced its new strategy. Along with
the planned divestment of the Formica and Roof Tile Group
businesses (as noted above), the Group reorganised its divisional
structure and restructured the Corporate office. As a result, there
have been a number of one-off costs incurred in the current year.
These are outlined in Note 4 Significant Items.
61
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Notes to the Financial Statements 2018
The notes to the financial statements have been grouped into the
following sections to allow related notes to be viewed together.
Note
Note description
Financial Review
Note 3
Note 4
Note 5
Note 6
Note 7
Segmental information
Significant items
Other gains and losses
Net earnings per share
Dividends and shareholder tax credits
Working Capital Management
Note 8
Note 9
Note 10
Note 11
Note 12
Note 13
Cash and deposits
Debtors
Inventories, including land and developments
Creditors, accruals and other liabilities
Provisions
Construction contracts
Funding & Risk Management
Note 14
Note 15
Note 16
Note 17
Note 18
Note 19
Funding costs / (income)
Borrowings
Financial instruments
Capital expenditure commitments
Lease commitments
Contingent liabilities
Long-term Investments
Note 20
Note 21
Note 22
Property, plant and equipment
Goodwill
Intangible assets
Group Structure & Related Parties
Note 23
Note 24
Note 25
Note 26
Capital
Non-controlling interests
Investments in associates and joint ventures
Related party disclosures
Other information
Note 27
Note 28
Note 29
Note 30
Income statement disclosures
Taxation
Retirement plans
Share-based payments
62
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This section explains the results and performance of the Group, including the segmental analysis, details of significant items,
earnings per share and dividends.
3. Segmental information
Segmental information is presented in respect of the Group’s industry and geographical segments based on the new divisional structure
announced on 21 June 2018. 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.
June 2018
NZ$M
Gross sales
June 2017
NZ$M
Gross sales
June 2018
NZ$M
External sales
June 2017
NZ$M
External sales
764
1,530
532
812
575
1,685
3,076
1,177
108
8
745
1,519
491
781
420
2,246
2,858
1,120
78
9
613
1,490
411
545
575
1,605
2,973
1,151
108
589
1,470
378
507
420
2,085
2,771
1,101
78
10,267
10,267
9,471
9,399
(796)
9,471
(868)
9,399
9,471
9,399
EBIT before
significant
items and B+I
EBIT before
significant items
and B+I
Significant items
in EBIT (Note 4)
Significant items
in EBIT (Note 4)
132
104
49
90
136
52
114
65
13
(45)
710
(660)
(168)
(118)
152
104
54
113
130
88
119
79
8
(30)
817
(292)
(252)
273
(3)
(8)
(17)
(5)
(49)
(57)
37
(66)
(168)
(251)
(1)
(252)
Industry segments
Year ended
Building Products
Distribution
Steel
Concrete
Residential and Development
Construction
Australia
Formica and Roof Tile Group
Divested businesses
Other
Group
Less: intercompany sales
Group external sales
Building Products
Distribution
Steel
Concrete
Residential and Development
Construction
Australia
Formica and Roof Tile Group
Divested businesses
Corporate
Group
Building + Interiors (B+I)
Significant items (Note 4)
Earnings before interest and taxation (EBIT) per income statement
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Notes to the Financial Statements 2018
Notes to the Financial Statements 2018
3. Segmental information continued
Building Products
Distribution
Steel
Concrete
Residential and Development
Construction
Australia
Formica and Roof Tile Group
Divested businesses
Corporate
Group
Building Products
Distribution
Steel
Concrete
Residential and Development
Construction
Australia
Formica and Roof Tile Group
Divested businesses
Corporate incl debt & tax
Group
June 2018
NZ$M
Depreciation,
depletion and
amortisation
expense
June 2017
NZ$M
Depreciation,
depletion and
amortisation
expense
June 2018
NZ$M
Capital
expenditure
June 2017
NZ$M
Capital
expenditure
13
9
5
45
20
62
41
3
16
13
8
4
40
20
62
40
2
14
19
20
14
62
1
33
79
61
2
13
16
16
16
87
28
70
62
4
20
214
203
304
319
Funds*
Funds*
494
264
184
628
604
(238)
1,804
1,244
27
(869)
4,142
489
256
184
621
547
174
1,778
1,174
31
(1,674)
3,580
* Funds represent the external assets and liabilities of the Group and are used for internal reporting purposes.
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Year ended
New Zealand
Australia
North America
Asia
Europe
Other jurisdictions
Group
Significant items (Note 4)
Earnings before interest and taxation (EBIT) per income statement
New Zealand
Australia
North America
Asia
Europe
Other
Debt and taxation
Group
June 2018
NZ$M
June 2017
NZ$M
External sales
External sales
June 2018
NZ$M
EBIT before
significant
items
June 2017
NZ$M
EBIT before
significant items
5,220
3,018
465
314
316
138
5,381
2,766
459
296
300
197
9,471
9,399
Non-current
assets+
Non-current
assets+
1,517
1,420
319
458
315
48
1,577
1,426
298
425
271
43
4,077
4,040
(172)
123
43
38
(6)
24
50
(168)
(118)
Funds*
2,006
1,810
350
492
270
199
(985)
4,142
282
120
48
38
37
525
(252)
273
Funds*
2,428
1,787
306
466
354
61
(1,822)
3,580
+ Excludes deferred tax assets, retirement plan surplus and financial instruments.
* Funds represent the external assets and liabilities of the Group and are used for internal reporting purposes.
Description of industry segments
The following is based on the Group's new divisional structure announced on 21 June 2018.
Building Products
The Building Products division is a manufacturer, distributor, and marketer of building products used
both commercially and in residential markets in New Zealand.
Distribution
Steel
Concrete
The Distribution division consists of building and plumbing distribution businesses in New Zealand.
The Steel division consists of steel manufacture and distribution businesses in New Zealand.
The Concrete division includes the Group's interests in the concrete value chain, including extraction
of aggregates, and the production of cement and concrete. The division operates in New Zealand.
Residential and Development
The Residential and Development division operates in New Zealand and is both a residential home
builder and develops and sells mainly commercial sites within the Group's property portfolio which
are surplus to operating requirements.
Construction
Australia
Formica and Roof Tile Group
The Construction division is a builder and maintainer of commercial buildings and infrastructure
across New Zealand and the South Pacific.
The Australia division manufactures and distributes building materials for a broad range of industries
across Australia.
Formica is a leading provider of branded, designed surfacing solutions in North America, Europe, and
Asia, while Roof Tile Group manufactures metal roof tiles, under the Gerard and Decra brands across
the world.
Divested businesses
Divested businesses comprise the Group's 50% interest in Sims Pacific Metals and 20% interest in
Dongwha New Zealand Limited both of which were divested during the year.
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Notes to the Financial Statements 2018
4. 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.
Fletcher Building Group – June 2018
Restructuring
activity (1)
NZ$M
M&A
Activity (2)
NZ$M
Impairments (3)
NZ$M
Distribution
Steel
Concrete
Construction
Australia
Formica and Roof Tile Group
Divested businesses
Corporate
Total significant items before taxation
Tax benefit / (charge) on above items
Total significant items after taxation
2018
(1) Restructuring activity
(3)
(8)
(9)
(5)
(66)
(91)
23
(68)
(17)
(5)
(40)
(52)
(114)
15
(99)
37
37
37
Total
NZ$M
(3)
(8)
(17)
(5)
(49)
(57)
37
(66)
(168)
38
(130)
The Group has recognised a charge of $81 million for costs, $66 million of which is in Corporate, associated with the restructure of
the Group’s operating model, including headcount reductions in corporate functions. The restructuring includes redundancies and
exit costs, as well as $20 million of impairments of various Corporate and Business Unit IT systems and associated external advisory
costs incurred.
In addition, the Group has recognised a charge of $7 million for costs associated with the integration of the Calder Stewart business
into the Steel division. Following the acquisition in FY17, the Division’s manufacturing and distribution footprint has been rationalised
in the current year, including a number of site closures.
The Formica US Pension Plan was terminated during the year, leading to the de-recognition of approximately US$80 million
of pension plan assets and defined benefit obligations from the Group’s balance sheet. The termination led to a charge of
NZ$3 million to the Group income statement.
(2) M&A activity
On 29 June 2018, the Group divested its 50 per cent interest in the Sims Pacific Metals joint venture to Sims Metals Management for
$42 million. The purchase price is subject to a working capital adjustment which will be finalised post completion. Based on current
estimates, total proceeds of the divestment are expected to be approximately $60 million. A net gain on sale of $25 million has been
recorded.
On 30 April 2018 the Group divested its 20 per cent stake in Dongwha New Zealand Limited to Daiken New Zealand Limited for $17
million. A net gain on sale of $12 million has been recorded.
(3) Impairments
During the year, the Group has recognised a $114 million impairment charge, relating to businesses where the carrying amount
exceeded the recoverable amount:
• $40 million relating to the Rocla Products business where goodwill of $11 million, brands of $21 million and inventories of
$8 million have been impaired to estimated recoverable values, on a value in use basis. Offsetting the impairment of brands
is a $7 million reversal of the associated deferred tax liability through tax expense.
• $52 million relating to the Roof Tile Group business where goodwill of $15 million, brands of $4 million, property, plant and
equipment of $29 million, and working capital of $4 million have been impaired on a fair value less costs of disposal basis.
Following the Group’s announced plan to divest the Roof Tile Group business, the Group has estimated the fair value less costs
of disposal based on its discussions to date with interested parties.
• $5 million relating to the Forman Contracting brand asset, reflecting a revision in expected medium-term revenues and earnings.
In addition, the Group has recognised a charge of $17 million relating to the impairment of $12 million and associated provision of $5
million for disposal costs in respect of a quarry within the Winstone Aggregates business unit. The quarry had previously
been mothballed and during the year the Group determined, following a strategic review, that it no longer has the intention to
recommission quarrying activities at the site. As a result, asset carrying values were no longer viewed as being recoverable through
use and have been impaired to expected fair value less costs of disposal, including restoration obligations.
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Australia
Corporate
Total significant items before taxation
Tax benefit / (charge) on above items
Total significant items after taxation
Business
acquisition
expenses (1)
NZ$M
Site closure
costs (2)
NZ$M
Impairments (3)
NZ$M
Other (4)
NZ$M
(1)
(1)
(1)
(17)
(222)
(17)
5
(12)
(222)
16
(206)
(12)
(12)
4
(8)
Total
NZ$M
(251)
(1)
(252)
25
(227)
2017
(1) On 29 July 2016, the Group acquired Higgins Group Holdings Limited (“Higgins”). Costs of $1 million associated with the transaction
were incurred in the year.
(2) The Group recognised a charge of $17 million for costs associated with site closures;
• $10 million relating to the closure of Fletcher Insulation's Homebush site in New South Wales; and
• $7 million relating to two site closures in the Rocla Pipeline Products business.
(3) The Group recognised a $222 million impairment charge relating to businesses where the carrying amount exceeded the recoverable
amount:
• $69 million relating to Iplex Pipelines Australia where goodwill and brands were impaired;
• Offsetting the impairment of brands is an $11 million reversal of the associated deferred tax liability through tax expense; and
• $153 million relating to Tradelink where goodwill and other intangibles were impaired.
(4) The Group recognised a charge of $12 million relating to the costs associated with prolonged industrial action at a Fletcher Insulation
site.
5. Other gains and losses
Other gains and losses includes gains from sale of assets, redundancy and restructuring costs and other gains and losses other than those
disclosed in note 4 Significant Items.
Fletcher Building Group
Other gains and (losses) include the following:
(Loss)/Gain on sale of assets
Redundancies and restructuring costs1
Residential inventory provisions
Other
1 Other than those classified as significant items.
Year ended
June 2018
NZ$M
Year ended
June 2017
NZ$M
(1)
(10)
(12)
(5)
(28)
13
(8)
3
8
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Notes to the Financial Statements 2018
6. Net earnings per share
Earnings per share is the portion of a company's profit allocated to each outstanding ordinary share and is calculated by dividing the earnings
attributable to shareholders by the weighted average of ordinary shares on issue during the year excluding treasury stock. Earnings per share
serves as an indicator of the Group's profitability.
The diluted net earnings per share calculation uses the weighted average number of shares as determined for basic net earnings per share,
adjusted for dilutive securities. Capital notes and options are convertible into the company's shares and may therefore result in dilutive
securities for purposes of determining the diluted net earnings per share. Fletcher Building may, at its option, purchase or redeem the capital
notes for cash at the principal amount plus any accrued but unpaid interest.
Fletcher Building Group
Net earnings per share (cents)
Basic
Diluted
Numerator
Net earnings/(loss)
Numerator for basic earnings per share
Dilutive capital notes distribution
Numerator for diluted net earnings per share
Denominator (millions of shares)
Denominator for basic net earnings per share
Conversion of dilutive capital notes
Denominator for diluted net earnings per share
Year ended
June 2018
Year ended
June 2017
(25.5)
(25.5)
13.5
13.5
NZ$M
NZ$M
(190)
(190)
(190)
745
745
94
94
94
694
694
The Group issued additional shares during the year through an entitlement offer (refer to Note 2). The effect of the entitlement offer on
net earnings per share for the comparative year is as follows:
Net earnings (NZ$M)
Adjusted denominator (millions of shares)
Restated net earnings per share (cents)
Supplementary Non-GAAP disclosures:
The following supplementary Non-GAAP disclosures have been made to provide additional, useful information.
Year ended
June 2017
94
722
13.0
The effect of the losses recorded in Building + Interiors and of significant items (refer Note 4) on
earnings per share is as follows:
Net earnings/(loss) after taxation per income statement
Add back: Significant items after taxation (Note 4)
Add back: Building + Interiors after taxation
Net earnings before significant items and Building + Interiors
Net earnings per share before significant items and Building + Interiors (cents)
Net earnings per share - as reported (cents)
Year ended
June 2018
NZ$M
Year ended
June 2017
NZ$M
(190)
130
475
415
55.7
(25.5)
94
227
210
531
76.5
13.5
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7. Dividends and Shareholder tax credits
Dividends
Dividends of 19 cents per share paid to shareholders in October 2017 (October 2016: 20 cents
per share)
There was no interim dividend paid to shareholders in April 2018 (April 2017: 20 cents per share)
Year ended
June 2018
NZ$M
Year ended
June 2017
NZ$M
132
132
139
139
278
In line with the Company's dividend policy, the Board determined that it would not declare an interim or final dividend for the 2018
financial year.
Shareholder tax credits
Imputation and franking credits allow the Company to transfer the benefit from the tax it has paid in New Zealand and Australia respectively to
its shareholders when it pays dividends.
Fletcher Building Group
Imputation credit account
Imputation credits at the beginning of the year
Taxation paid
Imputation credits attached to dividends paid
Franking credit account
Franking credits at the beginning of the year
Taxation paid
Franking credits received
June 2018
NZ$M
June 2017
NZ$M
4
33
(37)
29
53
(78)
4
June 2018
A$M
June 2017
A$M
27
5
32
26
(2)
3
27
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Notes to the Financial Statements 2018
Notes to the Financial Statements 2018
Working Capital Management
This section provides details of the key elements of working capital which includes cash, receivables, inventories and
short term liabilities
8. 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.
Cash and deposits include the Group's share of amounts held by joint operations of $31 million (2017: $28 million).
At 30 June 2018, approximately $70 million (2017: $72 million) of total cash and deposits were held in subsidiaries that operate in
countries where exchange controls and other legal restrictions apply and are not immediately available for general use by the Group.
Fletcher Building Group
Cash and bank balances
Contract retention bank balances
Short-term deposits
9. Debtors
June 2018
NZ$M
June 2017
NZ$M
227
13
425
665
201
5
13
219
Debtors are recognised initially at their fair value which is represented by their face value and subsequently valued at its estimated net
realisable value to adjust for impairment losses. Estimates are used in determining the level of receivables that may not be collected.
A provision for impairment is established when there is evidence that the Group will not be able to collect all amounts due. All known
losses are written off to earnings in the period in which it becomes apparent that the debts are not collectable. Trade debtors normally
have 30 to 90 day terms.
June 2018
NZ$M
June 2017
NZ$M
1,158
1,100
208
31
(21)
1,376
253
1,629
221
25
(19)
1,327
198
1,525
1,166
1,107
155
23
53
(21)
165
26
48
(19)
1,376
1,327
Fletcher Building Group
Trade debtors
Contract debtors
Contract retentions
Less provision for doubtful debts
Trade and contract debtors
Other receivables
Current
0 – 30 days over standard terms
31 – 60 days over standard terms
61+ days over standard terms
Provision
Trade and contract debtors
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Inventories are valued at the lower of cost or net realisable value, determined principally on the first-in, first-out basis. Cost includes direct
manufacturing costs and manufacturing overheads at normal operating levels.
Included in inventories are land and developments which are stated at the lower of cost and net realisable value. Cost includes the cost of
acquisition and development. Costs incurred after completion of development are expensed as incurred.
Fletcher Building Group
Raw materials
Work in progress
Finished goods
Consumable stores and spare parts
Inventories held at cost
Inventories held at net realisable value
June 2018
NZ$M
June 2017
NZ$M
562
247
884
55
478
283
849
42
1,748
1,652
1,609
139
1,748
1,524
128
1,652
Land and developments to the value of $563 million are included above (June 2017: $540 million) of which $189 million is expected
to be held for greater than 12 months (2017: $198 million).
The Group also has conditional commitments for the purchase of land to be used for residential construction totalling $275 million (June
2017: $254 million), of which $98 million is expected to be delivered in the period to 30 June 2019
11. Creditors, accruals and other liabilities
Trade creditors and other liabilities are stated at cost or estimated liability where accrued.
Employee entitlements include annual leave which is recognised on an accrual basis and the liability for long service leave which is measured
as the present value of expected future payments to be made in respect of services provided by employees.
Assumptions in determining long service leave relate to the discount rate, estimates relating to the expected future long service leave
entitlements, future salary increases, attrition rates and mortality.
Fletcher Building Group
Trade creditors
Contract retentions
Accrued interest
Other liabilities
Employee entitlements
Workers' compensation schemes
Current portion
Non-current portion
Carrying amount at the end of the year
June 2018
NZ$M
1,073
43
34
214
212
9
June 2017
NZ$M
994
46
32
152
206
12
1,585
1,442
1,547
38
1,585
1,406
36
1,442
The non-current portion of creditors and accruals relates to long service employee entitlement obligations and deferred land payments.
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Notes to the Financial Statements 2018
12. Provisions
A provision is recognised when the Group has a current obligation and it is probable that an economic benefit will be required to settle it.
The following are the significant categories of provisions held by the Group:
Restructuring
Restructuring provisions are recognised when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal
detailed plan. Costs relating to ongoing activities are not provided for.
Warranty & Environmental
Warranty provisions represent an estimate of potential liability for future rectification work in respect of products sold and services provided.
Environmental provisions represent an estimate for future liabilities relating to environmental obligations.
Other
Other provisions relate to miscellaneous matters, across the Group, none of which are individually material.
Management consults with legal counsel on matters related to litigation. In respect of all claims and litigation, the Group provides for
anticipated costs in line with the accounting policy stated above. Reference should also be made to note 19.
Restructuring
NZ$M
Warranty &
environmental
NZ$M
Other
NZ$M
Total
NZ$M
June 2018
Carrying amount at the beginning of the year
Currency translation
Charged to earnings
Settled or utilised
Released to earnings
June 2017
Carrying amount at the beginning of the year
Currency translation
Charged to earnings
Settled or utilised
Released to earnings
Fletcher Building Group
Current portion
Non-current portion
Carrying amount at the end of the year
8
28
(6)
30
13
10
(14)
(1)
8
34
1
21
(16)
(1)
39
28
17
(11)
34
53
1
27
(33)
(3)
45
50
26
(21)
(2)
53
95
2
76
(55)
(4)
114
91
53
(46)
(3)
95
June 2018
NZ$M
June 2017
NZ$M
89
25
114
70
25
95
During the year the Group utilised $6 million (30 June 2017: $14 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 are expected to be utilised over the next three years.
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13. Construction contracts
Earnings on construction contracts (including sub-contracts) are determined using the percentage-of-completion method and represent the
value of work carried out during the year, including amounts not invoiced. Costs are recognised as incurred and revenue is recognised on the
basis of the proportion of total costs at the reporting date to the estimated total costs of the contract. Estimates of the final outcome of each
contract may include cost contingencies to take account of specific risks within each contract that have been identified. The cost
contingencies are reviewed on a regular basis throughout the contract life and are adjusted where appropriate. However, the nature of the
risks on contracts are such that they often cannot be resolved until the end of the project.
Margin on the contract is not recognised until the outcome of the contract can be reliably estimated. The Group uses its professional
judgement to assess both the physical completion and the forecast financial result of the contract. When a contract is identified as loss-
making, a provision is made for estimated future losses on the entire contract.
Revenue in respect of variations to contracts and incentive payments is recognised when it is probable it will be agreed by the customer.
Revenue in respect of claims is recognised when negotiations have reached an advanced stage such that it is probable that the customer will
accept the claim and the probable amount can be measured reliably.
Profit for the year may include the benefit of claims settled in the year on contracts completed in previous years.
Construction work in progress is stated at cost plus profit recognised to date, less progress billings and any provision for future 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.
Estimates and judgements are made relating to a number of factors when assessing construction contracts. These primarily include the
programme of work throughout the contract period, assessment of future costs after considering changes in the scope of work, maintenance
and defect liabilities, expected inflation (for unlet sub-trades) and performance bonuses or penalties.
The significant judgements inherent in accounting for the Group’s most material construction projects are:
• The extent to which a project progresses in line with the complex project programme and timetable previously formed and the resulting
impact of any programme delays or gains on project costs, especially project overheads (preliminary and general costs) and any
liquidated or other damages;
• Sub-contractor cost, in particular cost that is yet to be agreed in scope or price (including inflationary pressures) or that relating to
programme prolongation;
• Future weather and ground conditions.
Estimates made are inherently more uncertain earlier in the project’s life and on larger, more complex projects. A summary of the Group’s
major construction projects and their approximate stage of completion is shown below.
Fletcher Building Group
Gross construction work in progress plus margin/less provisions for losses
Progress billings
Construction contracts with cost and margin in advance of billings
Construction contracts with billings in advance of cost and margin
Provision for future net cash outflows on loss-making contracts
Carrying amount at the end of the year
June 2018
NZ$M
June 2017
NZ$M
5,878
(6,504)
(626)
38
(184)
(480)
(626)
5,877
(6,091)
(214)
62
(114)
(162)
(214)
The provision for future net cash outflows on loss-making contracts at 30 June 2018 is expected to be realised in cash outflows of $343
million in the year ending 30 June 2019, and $137 million thereafter.
Included in sales is $1,605 million of contract revenue (June 2017: $2,081 million).
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Notes to the Financial Statements 2018
13. Construction contracts continued
Status of construction projects ( > $200 million original contract value) as at 30 June 2018:
Commercial Bay – Fixed price contract
NZICC – Guaranteed maximum price and fixed price contract
Business Unit
B+I
B+I
Puhoi to Warkworth – Fixed price contract (Public Private Partnership)
Infrastructure
Auckland East Prison – Fixed price contract (Public Private Partnership)
B+I
Hamilton City Edge Expressway – Alliance contract
Peka Peka to Otaki Expressway – Fixed price contract
Infrastructure / Higgins
Infrastructure / Higgins
Revenue Backlog by Business Unit as at 30 June 2018:
Building + Interiors
Infrastructure
Higgins
South Pacific
Percentage of
completion
(% cost)
Forecast
completion
45%
37%
32%
99%
61%
21%
2019
2019
2021
2018
2020
2020
Current
Revenue
Backlog
NZ$M
Top 5 projects
as a % of
Revenue
Backlog
741
596
376
71
1,784
83%
75%
37%
52%
N/A
Revenue backlog refers to the level of construction work the Group is contracted to but is not yet complete at year end.
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This section includes details on the Group's funding and outlines the market, credit and liquidity risks that the Group is exposed
to and how these risks are managed, including the use of derivative financial instruments.
14. Funding costs/(income)
Net funding costs and funding income include interest expense, interest income, amortisation of prepaid expenses and gains/losses on certain
financial instruments that are recognised in earnings. Interest expense and income is recognised on an accrual basis in profit or loss using the
effective interest method.
Fletcher Building Group
Interest income
Cash and deposits
Total interest income at amortised cost
Interest expense
Loans and derivatives
Capital notes
Other
Total interest expense at amortised cost
Changes in fair value relating to:
Borrowings designated in a hedging relationship
Derivatives designated in a hedging relationship
Total changes in fair value
Bank fees, registry and issue expenses
Funding costs
Year ended
June 2018
NZ$M
Year ended
June 2017
NZ$M
(3)
(3)
91
29
8
128
(31)
31
32
157
(2)
(2)
85
24
(5)
104
9
111
Included in interest expense is the net settlement of the Group's interest derivatives. This consists of $48 million of interest income and
$47 million of interest expense (2017: $37 million interest income; $40 million interest expense). For items applying fair value hedges the
gains or losses on the hedging instrument and on the hedged item net to zero.
Included in bank fees, registry and issue expenses are one-off costs incurred in relation to breach of bank covenants.
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Notes to the Financial Statements 2018
Notes to the Financial Statements 2018
15. Borrowings
Interest bearing borrowings are initially recognised at fair value on transaction date, less directly attributable transaction costs, and
subsequently measured at amortised cost using the effective interest rate method.
Fletcher Building Group
Private placements
Other loans
Capital notes
Current borrowings
Bank loans
Private placements
Other loans
Capital notes
Non-current borrowings
Carrying value of borrowings (as per balance sheet)
Less: impact of debt hedging activities (included within derivatives)
Borrowings after impact of hedging activities
Add: fair value adjustment included in borrowings
Borrowings excluding derivative adjustments
Total available funding
Unutilised banking facilities
The undrawn facilities have a weighted average maturity of 3.1 years (June 2017: 3.0 years).
June 2018
NZ$M
June 2017
NZ$M
35
150
185
97
1,181
59
416
1,753
1,938
(92)
1,846
31
1,877
2,705
828
139
59
71
269
389
1,123
62
329
1,903
2,172
(42)
2,130
2,130
2,666
536
June 2018
NZ$M
June 2017
NZ$M
Fletcher Building Group
Net Debt
Cash and cash equivalents
Current borrowings
Non-current borrowings
Net Debt
Movement in net debt
Net debt as at 1 July 2017
Cash flows
Currency translation
Other non-cash movements
(including derivatives)
Cash and cash
equivalents
NZ$M
219
440
6
Bank Loans
NZ$M
(389)
292
Net debt as at 30 June 2018
665
(97)
665
(185)
(1,753)
(1,273)
Private
placements
NZ$M
Other loans
NZ$M
Capital notes
NZ$M
(1,262)
147
(97)
31
(1,181)
(121)
44
(17)
(400)
(166)
(94)
(566)
219
(269)
(1,903)
(1,953)
Total
NZ$M
(1,953)
757
(108)
31
(1,273)
Change in covenant terms
As a result of the recognition and additional provisions associated with the B+I business unit, the Group was in breach of certain financial
covenants in relation to its borrowings (refer to Note 2) as at 31 December 2017. This breach was an event of default under the
agreements governing those borrowings.
The Group obtained temporary waivers for the breach of these covenants and in May 2018 reached agreement with its commercial
banking syndicate and USPP noteholders on revised terms of its lending arrangements. The key terms agreed are as follows:
• Previously announced B+I losses will be excluded from covenant calculations;
• Revised financial covenants: senior leverage ratio <3.25x; senior interest cover >3.00x; total interest cover >2.00x;
• Until the earlier of 30 June 2019 or the date on which the senior leverage ratio (including the previously announced B+I losses) is less
than 1.75x for three consecutive months:
– an additional margin will be payable of 1.25%; and,
– proceeds from disposals of assets above a threshold must be first offered for repayment of senior debt.
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After 30 June 2019 or when the senior leverage ratio (including
the previously announced B+I losses) is less than 1.75x for three
consecutive months: pricing for one of the three Syndicated
Facility Agreement ('SFA') tranches reverts to pricing applicable
as at December 2017 and pricing for the other SFA tranches
reduces to market pricing (rather than the previous pricing level,
which was below market pricing); and pricing for all USPP notes
reverts to pricing applicable as at December 2017.
At 30 June 2018 there has been no prepayment of any USPP
notes, all existing facilities have been maintained and there is no
change to the maturity of these facilities. There is also no change
to the underlying margin payable on USPP notes, other than the
1.25% additional margin which will cease to be payable no later
than 30 June 2019.
Bank loans
At 30 June 2018 the Group had a $925 million syndicated
revolving credit facility on an unsecured, negative pledge and
borrowing covenant basis, with ANZ Bank New Zealand Limited,
MUFG Bank Limited, Bank of New Zealand, Commonwealth Bank
of Australia, Citibank N.A., The Hongkong and Shanghai Banking
Corporation Limited, Bank of China (New Zealand) Limited,
China Construction Bank (New Zealand) Limited and Westpac New
Zealand Limited. The funds under this facility can be borrowed in
United States, Australian and New Zealand dollars. At 30 June
2018, the Group was in compliance with the applicable covenants.
Private placements
The Group has borrowed funds from private investors (primarily US
& Japanese based) on an unsecured, negative pledge and
borrowing covenant basis. These borrowings comprise A$99
million, US$583 million, C$15 million, EUR41 million, GBP10 million
and YEN10,000 million with maturities between 2019 and 2028.
At 30 June 2018, the Group was in compliance with the applicable
covenants.
Other loans
At 30 June 2018 the Group had $44 million (June 2017: $1 million)
of loans that are secured against specific subsidiaries' own balance
sheets or against specific assets and had unsecured loans at
30 June 2018 of $50 million (June 2017: $120 million) some of
which were subject to the negative pledge. Other loans include
bank overdrafts, short-term loans, working capital facilities,
financial leases and amortising loans.
Capital notes
At 30 June 2018 the Group had issued $416 million capital notes
to retail investors (June 2017: $400 million) and $150 million
capital notes to institutional investors. 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.
Listed capital notes
Listed capital notes are long-term fixed rate unsecured
subordinated debt instruments that are traded on the NZDX.
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 of Fletcher Building Limited, at approximately 98 per cent
of the current market price. Instead of issuing shares to holders
who choose to convert, Fletcher Building may, at its option,
purchase or redeem the capital notes for cash at the principal
amount plus any interest.
Under the terms of the capital notes, non-payment of interest
is not an act of default although unpaid interest is accrued and
is interest bearing at the same rate as the principal of the capital
notes. Fletcher Building Limited has covenanted not to pay
dividends to its shareholders while interest that is due and payable
on capital notes has not been paid.
The weighted average interest rate on the listed capital notes
is 5.43% (30 June 2017: 5.82%).
If the principal amount of the listed capital notes held at
30 June 2018 were to be converted to shares, 60 million
(June 2017: 50 million) Fletcher Building Limited shares would
be issued at the share price as at 30 June 2018, of $6.95
(June 2017: $7.99).
As at 30 June 2018, the Group held $84 million (30 June 2017:
$100 million) of its own capital notes.
Unlisted capital notes
On the 6 December 2017 Fletcher Building issued a total of
$150 million of unlisted capital notes which are not listed on
the NZDX. Fletcher Building can redeem the unlisted capital notes
for cash at par after 18 – 30 months depending on the tranche
and otherwise in certain defined circumstances. If the notes are
not repaid by Fletcher Building, the holder has the right to request
conversion of the capital notes into ordinary shares of Fletcher
Building Limited at 95 per cent of volume weighted average share
price calculated over a period before the time of conversion.
If the unlisted capital notes are not redeemed or converted
after 18 – 30 months, these rights of redemption and conversion
arise on each subsequent quarterly interest payment date.
If the principal amount of the unlisted capital notes held at 30 June
2018 were to be converted to shares, 23 million Fletcher Building
Limited shares would be issued.
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 Group has not sought and does not hold a credit rating from
an accredited rating agency.
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 2018 the Group had
debt subject to the negative pledge of $1,253 million (June 2017:
$1,650 million).
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Notes to the Financial Statements 2018
16. Financial instruments
Fletcher Building Group
Reconciliation of derivatives to the balance sheet:
Derivatives classified as current assets in the balance sheet
Derivatives classified as non-current assets in the balance sheet
Derivatives classified as current liabilities in the balance sheet
Derivatives classified as non-current liabilities in the balance sheet
Net derivatives
June 2018
NZ$M
June 2017
NZ$M
6
86
(7)
(19)
66
8
91
(7)
(48)
44
Derivative financial instruments
Derivative financial instruments, including foreign exchange contracts, interest rate swaps, foreign currency swaps, cross currency
interest rate swaps, options, forward rate agreements and commodity price swaps are utilised to reduce exposure to market risks.
The Group policy specifically prohibits the use of derivative financial instruments for trading or speculative purposes.
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.
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 by the board. 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.
Derivative financial instruments and hedge accounting
All the Group’s derivative financial instruments are held to hedge risk on underlying assets, liabilities and forecast and committed trading
and funding transactions. Derivatives are initially recorded at fair value and are then revalued to fair value at balance date with the
resulting gain or loss on re-measurement recognised in the income statement unless the derivative is designated into an effective hedge
relationship as a hedging instrument, in which case the timing of recognition in the income statement depends on the nature of the
designated hedge relationship. 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 is documented from inception of the hedge. 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.
The Group may designate derivatives as:
• Fair value hedges (where the derivative is used to manage the variability in the fair value of recognised assets and liabilities);
• Cash flow hedges (where the derivative is used to manage the variability in cash flows relating to recognised liabilities or forecast
transactions); or
• Net investment hedges (where borrowings or derivatives are used to manage the risk of fluctuation in the translated value of its
foreign operations).
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 that the instrument hedges no longer exists, in which case early termination occurs.
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 on the derivative (hedging instrument) is recognised directly in earnings, together with any changes in the fair value of the hedged
risk (hedged item).
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 (FCTR) within equity.
An amount of $0.4 million has been recognised through FCTR as at 30 June 2018 (June 2017: Nil).
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The forward elements of foreign exchange forwards and swaps are excluded from designation as the hedging instrument and the foreign
currency basis component of cross-currency interest rate swaps are separately accounted for and recognised in other comprehensive
income as cost of hedging.
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.
Risks and mitigation
(a) Foreign currency risk
(i) 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.
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 from the reporting date.
Cash flow hedge accounting is applied to forecast transactions. The Group designates the spot element of foreign exchange forwards
and swaps to hedge its currency risk and applies a hedge ratio of 1:1. The forward elements of foreign exchange forwards and swaps are
excluded from designation as the hedging instrument and are separately accounted for as a cost of hedging. The Group's policy is for the
critical terms of the foreign exchange forwards and swaps to align with the hedged item. 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 2018 was $379 million (June 2017: $434 million).
(ii) Currency translation risk
Currency translation risk arises from net investments in foreign operations. It is the Group's policy to hedge this foreign currency
translation risk by borrowing in the currency of the asset in proportion to the Group's long-term debt to debt plus equity ratio.
This reduces the variability in the debt to debt plus equity ratio due to currency translation. Where the underlying debt in any
currency does not equate to the required proportion of total debt, debt derivatives, such as foreign exchange forwards, swaps and cross
currency interest rate swaps are entered into for up to 11 years. Net investment, cash flow and fair value hedge accounting is applied to
these instruments.
The Group’s exposure to foreign currency risk on foreign currency borrowings including hedging is summarised as follows:
Fletcher Building Group
Australian dollar
Euro
British pound
United States dollar
Indian rupee
Canadian dollar
Fijian dollar
Currency translation risk – Foreign currency borrowings
New Zealand dollar
June 2018
NZ$M
June 2017
NZ$M
668
89
42
238
6
21
14
1,078
799
1,877
729
68
36
221
11
16
13
1,094
1,036
2,130
Borrowings denominated in foreign currency
The Group’s policy is to maintain its net exposure to a foreign currency within predefined limits.
To manage the net exposure to foreign currency borrowings, the Group enters into cross currency interest rate swaps (CCIRS). CCIRS are
used to manage the combined foreign exchange risk and interest rate risk as they swap fixed rate foreign currency borrowings and
interest payments into equivalent New Zealand dollar-denominated or Australian dollar-denominated amounts of principal with floating
interest rates.
The Group applies hedge accounting to foreign currency denominated borrowings that are managed by CCIRS. The hedge ratio applied
is 1:1. The hedge relationship may be designated into separate cash flow hedges and fair value hedges to manage the different
components of foreign currency and interest rate risk:
•
fair value hedge relationship where CCIRS are used to manage the interest rate and foreign currency risk in relation to foreign
currency denominated borrowings with fixed interest rates.
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Notes to the Financial Statements 2018
16. Financial instruments continued
• cash flow hedge relationship where CCIRS are used to manage the variability in cash flows arising from interest rate movements
on floating interest rate payments and foreign exchange movements on payments of principal and interest.
The Group determines the existence of an economic relationship between the hedging instrument and hedged item based on the
currency, reference interest rates, tenors, repricing dates and maturities and the notional amounts. The Group assesses whether the
derivative designated in each hedging relationship is expected to be effective in offsetting changes in the fair value of the hedged item
using the hypothetical derivative method.
In these hedging relationships, the main sources of ineffectiveness are:
• changes in counterparty credit risk and cross currency basis spreads which are not reflected in the change in the fair value of the
hedged item; and
• differences in repricing dates between the cross currency interest rate swaps and the borrowings.
The effect of the Group’s hedge accounting policies in managing both its foreign exchange risk and interest rate risk related to borrowings
denominated in foreign currency is presented in the table below.
Nominal
amount of
the hedging
instrument
NZ$M
Carrying
amount
NZ$M
Change
in value
used for
calculating
hedge
ineffectiveness
NZ$M
Hedging
(gain) or loss
recognised
in other
comprehensive
income
NZ$M
Fair value
hedge
(income
statement)
(gain)/loss
NZ$M
371
(18)
11
1
(22)
296
76
134
6
3
8
10
69
(9)
16
Hedge type
Cash flow hedging and fair value hedging
Cross-currency interest rate swaps
USD denominated borrowings
Maturity: 97-121 months
Weighted average interest rate: floating
Weighted average NZD/USD exchange rate: 0.7055
USD denominated borrowings
Maturity: 42-66 months
Weighted average interest rate: floating
Weighted average AUD/USD exchange rate: 1.0082
JPY denominated borrowings
Maturity: 104 months
Weighted average interest rate: floating
Weighted average AUD/JPY exchange rate: 82.1950
64
22
2
63
There was no hedge ineffectiveness recognised in profit or loss during the year.
(b) 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% to 80% and at 30 June
2018 the Group was within the range at 56% fixed (June 2017: 44% 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, 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. The Group applies a hedge ratio of 1:1.
The Group determines the existence of an economic relationship between the hedging instrument and hedged item based on the
reference interest rates, tenors, repricing dates and maturities and the notional amounts.
The Group assesses whether the derivative designated in each hedging relationship is expected to be effective in offsetting changes
in the fair value of the hedged item using the hypothetical derivative method.
In these hedging relationships, the main sources of ineffectiveness are:
•
the effect of the counterparty and the Group's own credit risk on the fair value of the interest rate swaps which is not reflected in the
change in the fair value of the hedged item; and
• differences in repricing dates between the interest rate swaps and the borrowings.
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amount of
the hedging
instrument
NZ$M
Carrying
amount
– derivative
assets/
(liabilities)
NZ$M
Change
in value
used for
calculating
hedge
ineffectiveness
NZ$M
Hedging
(gain) or loss
recognised
in other
comprehensive
income
NZ$M
Hedging
(gain) or
loss
recognised
in income
statement
NZ$M
Hedge type
Cash flow hedging
Interest rate swaps – NZD borrowings
Maturity: 17-45 months
Weighted average interest rate: 5.98%
Interest rate swaps – AUD borrowings
Maturity: 10-12 months
150
(1)
Weighted average interest rate: 4.13%
141
(2)
Fair value hedging
Interest rate swaps – USD borrowings
Maturity: 15 months
Weighted average interest rate: Floating
118
4
1
There was no hedge ineffectiveness recognised in profit or loss during the year.
(1)
3
(5)
(3)
1
2
3
5
5
Interest rate repricing
The following tables set out the interest rate repricing profile of interest bearing financial assets and liabilities. The Group's overall
weighted average interest rate (based on year end borrowings) excluding fees is 6.23% (June 2017: 4.76%).
Fletcher Building Group
Floating
Fixed up to 1 year
Fixed 1-2 years
Fixed 2-5 years
Fixed over 5 years
Total financial liabilities
Floating financial assets
June 2018
NZ$M
831
242
278
376
150
1,877
(665)
June 2017
NZ$M
1,192
100
237
462
139
2,130
(219)
(c) Commodity price risk
Commodity price risk arises from committed or highly probable trade and capital expenditure transactions that are linked to traded
commodities. Where possible the Group manages its commodity price risks through negotiated supply contracts and, for certain
commodities, by using commodity price swaps and options. The Group manages its commodity price risk depending on the underlying
exposures, economic conditions and access to active derivatives markets. There is a hedge ratio of 1:1 for commodity hedges. Cash flow
hedge accounting is applied to commodity derivative contracts. Ineffectiveness is only expected to arise where the index of the hedging
instrument differs to that of the underlying hedged item. The average hedge price for 2018 was NZ$/MWh 75 (June 2017: NZ$/MWh 77).
(d) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations. 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 customer's financial statements, trade references, bankers' references
and/or credit agencies' reports to assess credit worthiness. These limits are reviewed on a regular basis. Owing to the Group’s industry
and geographical spread at balance date, there were no significant concentrations of credit risks in respect of trade receivables.
Refer to Note 9 for debtor balances and 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.
In assessing credit losses for trade receivables, the Group applies the simplified approach and records lifetime expected credit losses
(“ECLs”) on trade receivables. Lifetime ECLs result from all possible default events over the expected life of a trade receivable. The Group
considers the probability of default upon initial recognition of the trade receivable, based on reasonable and available information on
the customers.
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Notes to the Financial Statements 2018
16. Financial instruments continued
In assessing ECLs on trade receivables the group considers both quantitative and qualitative inputs. Quantitative data includes past
collection rates, industry statistics, ageing of receivables, and trading outlook. Qualitative inputs include past trading history with
the Group.
(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 that 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.
(e) 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 2018
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
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
150
35
185
200
195
15
410
97
566
1,212
94
1,969
710
(802)
(92)
97
216
193
2
508
62
(85)
(23)
485
824
42
866
648
(717)
(69)
797
Total principal cash flows
1,877
185
410
Contractual interest cash flows
558
113
91
191
163
Total contractual cash flows
2,435
298
501
676
960
Fletcher Building Group – June 2017
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
389
400
1,262
121
2,172
1,041
(1,083)
(42)
2,130
71
139
59
269
374
98
3
475
269
475
15
231
363
19
628
60
(80)
(20)
608
Over
5 Years
NZ$M
760
40
800
981
(1,003)
(22)
778
Contractual interest cash flows
542
100
87
178
177
Total contractual cash flows
2,672
369
562
786
955
82
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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 $219 million (June 2017: $190 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 2017: $11.9 million).
(iii) Commodity price risk
It is estimated a 10% increase in the New Zealand electricity spot price at balance date would not materially impact the Group's earnings
or equity position.
(g) Fair Values
The estimated fair value measurements for financial assets and liabilities compared to their carrying values in the balance sheet,
are as follows:
Fletcher Building Group
Financial assets
Cash and liquid deposits
Debtors
Classification
Amortised cost
Amortised cost
Forward exchange contracts – fair value through profit
or loss
Fair value
Forward exchange contracts – cash flow hedge
Fair value – hedging instruments
Cross currency interest rate swaps – cash flow hedge Fair value – hedging instruments
Cross currency interest rate swaps – fair value hedge Fair value – hedging instruments
Interest rate swaps – fair value hedge
Fair value – hedging instruments
Electricity price swaps – cash flow hedge
Fair value – hedging instruments
June 2018
June 2017
Carrying
Value
NZ$M
Fair Value
NZ$M
Carrying
Value
NZ$M
Fair Value
NZ$M
665
665
219
219
1,453
1,453
1,536
1,536
3
3
1
81
4
3
3
1
81
4
5
2
3
79
9
1
5
2
3
79
9
1
2,210
2,210
1,854
1,854
Total financial assets
Financial liabilities
Creditors and accruals
Bank loans
Private placements
Other loans
Capital notes
Amortised cost
Amortised cost
Amortised cost
Amortised cost
Amortised cost
1,114
1,114
1,259
1,259
97
97
389
389
1,181
1,238
1,262
1,322
94
566
94
584
121
400
121
411
Forward exchange contracts – fair value through
profit or loss
Fair value
4
4
Forward exchange contracts – cash flow hedge
Fair value – hedging instruments
Cross currency interest rate swaps – cash flow hedge
Fair value – hedging instruments
Cross currency interest rate swaps – fair value hedge
Fair value – hedging instruments
Interest rate swaps – cash flow hedge
Fair value – hedging instruments
18
4
18
4
5
2
4
38
6
5
2
4
38
6
Total financial liabilities
Total financial instruments
3,078
3,153
3,486
3,557
(868)
(943)
(1,632)
(1,703)
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Notes to the Financial Statements 2018
16. Financial instruments continued
Fair value measurement
All of the Group's derivatives are in designated hedge relationships and are measured and recognised at fair value.
All 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 1.70% and 7.00%
(June 2017: 1.69% and 9.98%) including margins, for both accounting and disclosure purposes.
(i) 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 and 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 a through-the-cycle net debt to net debt plus equity ratio (gearing) and net debt to EBITDA
ratio (leverage). The target gearing ratio range is 30 – 40%. The target leverage ratio range is 1.5 to 2.5 times. It is intended that the Group
will not be materially outside the target gearing and leverage ratio ranges on a long-term basis.
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Capital expenditure commitments are those where future expenditure has either been committed or has received board approval at year-end,
but not provided for in the financial statements.
Fletcher Building Group
Committed at year end
Approved by the directors but uncommitted at year end
18. Lease commitments
June 2018
NZ$M
June 2017
NZ$M
68
47
115
79
64
143
Leases under which a significant proportion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.
Payments made under operating leases (net of any incentives received) are recognised as an expense in the Income Statement on a straight-
line basis over the term of the lease. Expenditure arising from operating leasing commitments is written off to earnings in the period in which
it is incurred.
Expected future minimum lease payments on non-cancellable leases:
Fletcher Building Group
Within one year
Within two years
Within three years
Within four years
Within five years
After five years
June 2018
NZ$M
June 2017
NZ$M
200
175
149
119
98
316
1,057
188
139
114
99
78
265
883
Operating lease commitments relate mainly to occupancy leases of buildings.
During the year the Group commenced a project to identify the impact of the adoption of NZ IFRS 16 Leases. As part of this process the
Group identified a number of leases not previously recognised as part of the future commitment disclosures. The comparative balances
have been restated to ensure consistency between years and has had no impact on the presentation of the primary financial statements.
19. Contingent liabilities
Contingent liabilities are subject to uncertainty or cannot be reliably measured and are not provided for. Disclosures as to the nature of any
contingent liabilities are set out below. Judgements and estimates are applied to determine the probability that an outflow of resources will be
required to settle an obligation. These are made based on a review of the facts and circumstances surrounding the event and advice from both
internal and external parties.
Provision has been made in the ordinary course of business for all known and probable future claims. Contingent liabilities arise in respect
of the following categories:
Fletcher Building Group
Contingent liabilities with respect to guarantees extended on trading transactions, performance
bonds and other transactions
Letters of credit
June 2018
NZ$M
June 2017
NZ$M
402
14
389
9
85
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Notes to the Financial Statements 2018
Long-term Investments
This section details the long-term assets of the Group including Property, Plant and Equipment and Intangible Assets.
20. Property, plant and equipment
Property, plant and equipment comprises the following categories:
• Land
• Buildings
• Plant and Machinery
• Fixtures and equipment
• Resource extraction
• Leased assets (leased under a finance lease arrangement)
Land, buildings, plant and machinery, finance leased assets and fixtures and equipment are stated at cost, less accumulated depreciation.
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.
Resource extraction assets are held at historic cost and depleted over the shorter of the life of the site or right to use period. Site development
costs incurred in order to commence extraction are capitalised as resource extraction assets.
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 inflows 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.
Finance leases
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.
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 the income statement 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.
Depreciation of property, plant and equipment and amortisation of definite lived intangible assets are calculated on the straight line method.
Refer to note 22 for details of intangible assets. Expected useful lives, which are regularly reviewed, typically range between:
Buildings
Plant and machinery
Fixtures and equipment
Leased assets capitalised
Intangible assets, including software (note 22)
30-50 years
5-15 years
2-10 years
3-30 years
5-15 years
86
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Gross value at 1 July 2017
Additions
Transfer of assets to inventory
Disposals
Currency translation
Gross value at 30 June 2018
Land
NZ$M
Buildings
NZ$M
Plant &
Machinery
NZ$M
Fixtures &
Equipment
NZ$M
Resource
Extraction
NZ$M
274
1
(21)
(8)
10
256
483
21
(10)
(10)
20
2,640
183
(93)
77
504
2,807
Leased
Assets
NZ$M
43
Total
NZ$M
4,029
270
(31)
(214)
115
97
15
(5)
107
43
4,169
(13)
5
(12)
(10)
(1)
(1,823)
172
3
(41)
(188)
(51)
(2)
492
50
(98)
8
452
(319)
85
(1)
(30)
(6)
Accumulated depreciation at 1 July 2017
(162)
(1,328)
Disposals
Transfer of assets to inventory
Impairments in the income statement (note 4)
(1)
Depreciation expense
Currency translation
5
3
(8)
(16)
(6)
77
(19)
(130)
(39)
Accumulated depreciation at 30 June 2018
(1)
(184)
(1,439)
(271)
(30)
(3)
(1,928)
Net book value at 30 June 2018
255
320
1,368
181
Gross value at 1 July 2016
Additions
Acquisitions
Disposals
Currency translation
Gross value at 30 June 2017
272
4
(3)
1
274
469
24
4
(11)
(3)
483
2,419
190
91
(52)
(8)
2,640
Accumulated depreciation at 1 July 2016
(155)
(1,244)
Disposals
Impairments in the income statement (note 4)
Depreciation expense
Currency translation
8
(16)
1
52
(4)
(135)
3
Accumulated depreciation at 30 June 2017
(162)
(1,328)
470
49
3
(31)
1
492
(315)
25
(30)
1
(319)
77
67
22
13
(5)
97
(11)
3
(5)
40
2,241
1
42
3,698
327
115
(102)
(9)
43
4,029
(1)
(1,726)
88
(4)
(186)
5
(13)
(1)
(1,823)
Net book value at 30 June 2017
274
321
1,312
173
84
42
2,206
As at 30 June 2018 property, plant and equipment includes $167 million of assets under construction that are not depreciated until they
are commissioned and brought into use (June 2017: $226 million).
87
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Notes to the Financial Statements 2018
21. Goodwill
Goodwill arises when the Group acquires another business and reflects the excess of the cost of the acquisition over the fair value of the
assets and liabilities of the acquired business. Fair values are assigned to the identifiable assets and liabilities of subsidiaries and associates of
the Group at the date they are acquired.
Goodwill is stated at cost, less any impairment losses. Goodwill is allocated to cash-generating units (CGUs) and is not amortised but is tested
annually for impairment, and when an indication of impairment exists. Goodwill in respect of associates is included in the carrying amount of
associates. Any discount on acquisition is recognised directly in earnings.
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.
Assessing the carrying value of goodwill requires management to estimate future cash flows to be generated by the related cash-generating
unit. 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.
Goodwill was tested for impairment in June 2018. Each CGU that carries goodwill is valued on a value-in-use or fair value less costs
of disposal basis using a discounted cash flow model. Management has used its past experience of sales 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 five year strategic plan approved by the directors. 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% (2017: 2.5%-3%), with the majority of
the business units using 2.5% (2017: 2.5%).
The cash flows are discounted using a nominal rate after tax of 9.0% (2017: 9.5%) for New Zealand, 8.5% (2017: 8.5%) for Australia, 7.0%
(2017: 7.0%) for Europe, 8.0% (2017: 8.0%) for North America and 9.0% (2017: 9.0%) for Asia, reflecting the risk profile of each business
and 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.
Impairment charge recognised
Rocla Products
The Rocla Products business unit has underperformed during the year. The business faces an uncertain outlook in terms of returning
to targeted levels of profitability. Management's previous expectations of improvement in earnings justified the prior carrying values.
Management has revised its expectations as to the business unit’s sustainable mid-cycle earnings as well as the time now expected
to attain the required improvement in earnings. This has led to a reduction of the value-in-use of the business unit, based on a 8.5%
nominal, after tax discount rate. An impairment of assets of $40 million has been recorded, including $11 million of goodwill, resulting in
no goodwill or brands balances remaining. Management has identified a number of strategies and initiatives to achieve an appropriate
improvement in EBIT. If this improvement does not eventuate, there may be a need for further impairment.
Roof Tile Group
The Group announced during the year that a divestment process was underway for the Roof Tile Group. The Group considers it
appropriate to record a $15 million impairment of goodwill, a $4 million impairment of brands, and a $33 million impairment of
other specific asset balances to bring the carrying values of the regional businesses of the Roof Tile Group in line with expected
divestment values.
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The impairment assessment confirmed that, for all other business units, the recoverable amounts exceed carrying values as at
30 June 2018. With the exception of Formica Europe , management considers that no reasonably possible change in assumptions would
cause the carrying amount to exceed the recoverable amount.
For Formica Europe, which has goodwill of $91 million, and brands of $15 million, a 28% reduction in the expected level of terminal EBIT
or a 1.5% increase in the post-tax discount rate would result in the elimination of the $146 million excess of recoverable amount over
carrying amount.
Goodwill acquired at cost
Accumulated currency translation
Accumulated impairment
Goodwill at the end of the year
Goodwill at the beginning of the year
Acquired during the year
Impairments in the income statement (Note 4)
Currency translation
June 2018
NZ$M
June 2017
NZ$M
1,527
9
(451)
1,085
1,069
1
(26)
41
1,085
1,526
(32)
(425)
1,069
1,083
159
(171)
(2)
1,069
Goodwill by significant cash generating units (CGUs)
The goodwill allocated to significant CGUs accounts for 82% (2017: 81%) of the total carrying value of goodwill. The remaining 'other'
CGUs, which comprise 22 (2017: 23) in total, are each less than 5% of total carrying value.
Formica Asia
Higgins
Laminex Australia
Iplex New Zealand
Formica Europe
Stramit
Tradelink
Other
22. Intangible assets
June 2018
NZ$M
June 2017
NZ$M
270
144
154
105
91
67
62
192
1,085
250
144
154
105
83
65
60
208
1,069
Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangibles are carried at cost
less any accumulated amortisation and accumulated impairment losses.
Intangible assets with indefinite useful lives are not amortised but are tested for impairment annually, either individually or at the cash-
generating unit level. Definite lived intangible assets are amortised on a straight-line basis.
Expenditure on research activities is recognised in earnings as incurred. Significant development expenditure is recognised as an asset if
certain criteria, relating to technical feasibility and future economic benefits, are met. All other development expenditure is recognised in the
income statement as incurred.
Fletcher Building Group
Brands
Other intangible assets
89
June 2018
NZ$M
June 2017
NZ$M
451
150
601
461
156
617
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Notes to the Financial Statements 2018
22. Intangible assets continued
Brands
Brands for which all relevant factors indicate that there is no limit to the foreseeable net cash flows are considered to have an indefinite useful
life and are held at cost and are not amortised but are subject to an annual impairment test.
Brands are considered to have an indefinite useful life as there are no factors which indicate that there is a limit on their capacity to generate
foreseeable cash flows. Factors considered before arriving at this conclusion are whether the businesses which own the brands are going
concerns, whether there is any evidence of obsolescence due to changes in either technology or regulatory conditions, whether the
businesses are trading profitably and whether there are any other market based indications.
Assessing the carrying value of indefinite life brands requires management to estimate future cash flows to be generated by the related brand.
The key assumptions used in the value in use models include the expected rate of growth of revenues and earnings, the terminal growth rate
and the appropriate discount rate to apply.
Fletcher Building Group
Brands at the beginning of the year
Acquired during the year
Impairments in the income statement (Note 4)
Currency translation
June 2018
NZ$M
June 2017
NZ$M
461
(30)
20
451
478
21
(36)
(2)
461
Brands have been tested for impairment in June 2018. Each CGU which carries a brand value, and determined to be not separately
identifiable, has prepared a discounted cash flow of the CGU on a value in use or fair value less costs of disposal basis as described in
note 21. The impairment review confirmed that, for all intangible assets (excluding certain goodwill, brands and other intangibles for
which impairments are disclosed in this note and note 21), the recoverable amounts exceed carrying values as at 30 June 2018.
Sensitivity analysis was performed on the key assumptions used in the value in use and fair value less costs of disposal calculations and
further disclosure has been made for certain CGUs in note 21.
The following significant brand assets account for 71% (2017: 66%) of the total carrying value of brands. The remaining 'other' brand
assets are each less than 9% of total carrying value (2017: 9%).
Brands
Formica Corporation
Laminex Australia
Tradelink
Other
Other intangible assets
Other intangible assets at cost
Currency translation
Accumulated amortisation
Other intangible assets at the end of the year
Other intangible assets at the beginning of the year
Additions
Impairments in the income statement (Note 4)
Amortisation expense
Currency translation
June 2018
NZ$M
June 2017
NZ$M
145
124
52
130
451
298
(2)
(146)
150
156
34
(20)
(26)
6
150
134
120
51
156
461
264
(8)
(100)
156
154
34
(15)
(17)
156
As at 30 June 2018 other intangible assets includes $23 million of assets being developed (June 2017: $22 million).
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This section details the Group's capital, non-controlling interest of subsidiaries, investments in associates and joint ventures and
information relating to transactions with other Group entities.
23. Capital
Ordinary shares are classified as shareholders’ funds. Costs directly attributable to the issue of new shares or options are shown in
shareholders’ funds as a reduction from the proceeds. Where a member of the Group purchases the Company’s share capital, the consideration
paid is deducted from equity. Acquired shares are classified as treasury stock and presented as a deduction from share capital under the
treasury stock method, as if the shares are cancelled, until they are reissued or otherwise disposed of.
Fletcher Building Group
Reported capital at the beginning of the year including treasury stock
Issue of shares
Reported capital at the end of the year including treasury stock
Treasury stock
June 2018
NZ$M
June 2017
NZ$M
2,711
736
3,447
(22)
3,425
2,680
31
2,711
(33)
2,678
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:
June 2018
June 2017
Number of shares on issue at the beginning of the year
695,921,174
692,501,249
Shares issued under the accelerated entitlement offer during the year
156,306,701
Shares issued under the dividend reinvestment plan
Total number of shares on issue
Less shares accounted for as treasury stock
1,119,266
3,419,925
853,347,141
695,921,174
(2,820,341)
(4,129,695)
850,526,800
691,791,479
The Group completed an entitlement offer to shareholders of new shares in May 2018 resulting in the issue of approximately 156 million
ordinary shares. The offer raised $750 million of additional equity which was offset by $23 million of transaction fees.
24. Non-controlling interests
Non-controlling interests are allocated their share of profit for the year in the income statement and are presented separately within equity in
the balance sheet. The effect of all transactions with non-controlling interests that change the Group’s ownership interest but do not result in
a change in control are recorded in equity.
Fletcher Building Group
Share capital
Reserves
June 2018
NZ$M
June 2017
NZ$M
13
11
24
13
11
24
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Notes to the Financial Statements 2018
25. Investments in associates and joint ventures
Investments in associates are measured using the equity method. The equity method has been used for associate entities over which the
Group has significant influence but not control.
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.
Fletcher Building Group
Carrying amount of associates/joint ventures:
Carrying amount at the beginning of the year
New investment in associates/joint ventures
Share of profits of associates/joint ventures
Sale of investment in associates/joint ventures
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
Altus NZ Limited
Other
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:
Sales – 100%
Earnings before taxation – 100%
Earnings before taxation – Fletcher Building share
Taxation expense
Earnings after taxation – Fletcher Building share
92
June 2018
NZ$M
June 2017
NZ$M
146
26
(7)
2
(18)
149
48
20
62
19
149
253
(82)
171
86
59
4
149
509
82
33
(7)
26
135
2
20
(1)
1
(11)
146
45
19
56
26
146
314
(126)
188
86
56
4
146
429
37
22
(2)
20
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The disclosures below sets out transactions and outstanding balances that Group companies and other related parties have with each other.
Transactions with related parties are conducted on normal business terms.
Key management personnel are defined as the Executive Committee and Board of Directors.
Trading activities with related parties
Fletcher Building Group – 2018
Wespine Industries Pty Limited and Hexion Australia Pty Ltd
Dongwha Pattina NZ Limited
Fletcher Construction Alliances
Fletcher Building Group – 2017
Wespine Industries Pty Limited and Hexion Australia Pty Ltd
Dongwha Pattina NZ Limited
Fletcher Construction Alliances
Fletcher Building Group
Key management personnel compensation
Directors' fees
Executive committee remuneration paid, payable or provided for:
Short-term employee benefits
Share-based payments
Termination benefits
Sales to related
parties
NZ$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$M
78
6
36
15
34
72
14
12
1
2
2
June 2018
NZ$M
June 2017
NZ$M
2
15
3
2
13
3
Fletcher Building Retirement Plan
As at 30 June 2018, Fletcher Building Nominees Limited (the New Zealand retirement plan) held $2.8 million of shares and $7.5 million of
capital notes in Fletcher Building (June 2017: $2,600,000 of shares; $15,000,000 of capital notes).
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Notes to the Financial Statements 2018
Other information
This section provides additional required disclosures that are not covered in the previous sections.
27. Income statement disclosures
Fletcher Building Group
The following items are specific disclosures required to be made and are included within the income
statement:
Net periodic pension cost
Employee related short-term costs1
Other long-term employee related benefits
Research and development expenditure
Amortisation of intangibles
Bad debts written off
Donations and sponsorships
Maintenance and repairs
Operating lease expense
1 Short term employee benefits for the executive committee included in the above is disclosed in note 26.
Auditor's fees
Auditor's fees and expenses payable for:
Audit and review of the financial statements – EY
Other Services – EY
Tax advisory and compliance
Assurance services associated with capital raise
Other
Total other services – EY
28. Taxation
Taxation expense
Year ended
June 2018
NZ$M
Year ended
June 2017
NZ$M
5
1,791
71
2
26
8
2
160
187
10
1,727
66
3
17
4
2
149
183
NZ$000's
NZ$000's
4,883
3,689
600
175
51
826
518
54
572
Income tax expense comprises current and deferred tax.
The provision for current tax is the estimated amount due for payment during the next 12 months by the Group. The provision for deferred tax
has been calculated using the balance sheet liability method.
Deferred tax is recognised on tax losses, tax credits and on the temporary difference between the carrying amount of assets and liabilities and
their taxable value where recovery is considered probable. Deferred tax is not recognised on the following temporary differences:
• The initial recognition of goodwill
• The initial recognition of asset and liabilities in a transaction that is not a business combination and, at the time of the transaction, affects
neither the accounting profit nor taxable profit or loss
There are no significant deferred tax liabilities in respect of the undistributed profits of subsidiaries and associates.
Judgements are required about the application of income tax legislation. These judgements and assumptions are subject to risk and
uncertainty as there is a possibility of future changes in the interpretation and/or application of tax legislation. This may impact the amount of
current and deferred tax assets and liabilities recognised in the balance sheet and the amount of other tax losses and temporary differences not
yet recognised. In such circumstances, some or all of the carrying amounts of recognised tax assets and liabilities may require adjustment,
resulting in a corresponding credit or charge to the income statement.
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June 2018
NZ$M
Year ended
June 2017
NZ$M
(275)
162
(77)
3
(27)
22
5
(4)
2
(5)
(15)
(96)
(58)
(38)
(96)
(87)
(9)
(96)
72
(26)
46
(15)
87
(120)
4
5
85
46
45
(4)
(20)
50
5
(1)
(18)
57
82
(25)
57
56
1
57
15
(30)
(15)
(24)
(56)
(42)
4
4
99
(15)
Below is the reconciliation of earnings before taxation to taxation expense:
Fletcher Building Group
Earnings/(loss) before taxation
Taxation at 28 cents per dollar
Adjusted for:
Difference in tax rates
Non-assessable income
Non-deductible expenses
Tax losses for which no deferred tax asset was recognised
Utilisation of previous unrecognised tax losses
Tax in respect of prior years
Effects of changes in US tax legislation
Other permanent differences
Tax on earnings before significant items
Tax benefit on significant items
Total current taxation (benefit)/expense
Total deferred taxation (benefit)/expense
Current tax assets/(liabilities)
Included within the balance sheet as follows:
Current tax assets
Current tax liabilities
Opening provision for current tax assets/(liabilities)
Currency translation
Taxation expense
Transfer to deferred taxation
Non-controlling interest share of taxation expense
Tax recognised directly in reserves
Net tax payments
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Notes to the Financial Statements 2018
28. Taxation continued
Fletcher Building Group
Provision for deferred tax assets/(liabilities)
Included within the balance sheet as follows:
Deferred tax assets
Deferred tax liabilities
Opening provision for deferred tax assets/(liabilities)
Taxation (expense)/benefit
Deferred tax on acquisitions
Transfer from current tax
Tax recognised directly in reserves
Composed of:
Provisions
Inventories
Debtors
Property, plant and equipment
Brands
Tax losses
Pensions
Other
Year ended
June 2018
NZ$M
Year ended
June 2017
NZ$M
161
(37)
124
5
9
120
(10)
124
232
21
5
(74)
(120)
62
(2)
124
52
(47)
5
(34)
(1)
(7)
42
5
5
154
18
4
(74)
(138)
40
(1)
2
5
The Group has recognised certain tax losses available in Australia, USA and Germany 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 set out in the companies' strategic
plans. The Group reviews future loss utilisations at each reporting period.
The Group has unrecognised tax losses in France, Spain, Sweden, UK, India and China of $136 million representing $485 million of gross
tax losses (June 2017: $124 million, $445 million gross losses).
29. 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 Formica US Pension Plan was terminated during the year, leading to the de-recognition of approximately US$80 million of pension
plan assets and defined benefit obligations from the Group’s balance sheet. The termination led to a charge of NZ$3 million to the Group
income statement, as outlined in Note 4.
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.
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.
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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.
Principal assumptions made in the actuarial calculation of the defined benefit obligation relate to the discount rate, rate of salary inflation and
life expectancy.
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.
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
2018
%
2.53
2.69
2017
%
2.79
2.43
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.
During the year the Group contributed less than $1 million (2017: less than $1 million) in respect of its Australian defined benefit
plans and $10 million (2017: $29 million) in respect of its Formica defined benefit and medical plans. It contributed $71 million
(2017: $66 million) in respect of its defined contribution plans worldwide, including Kiwisaver.
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 is completed in accordance with NZ IAS 26 Retirement Benefit Plans. At 31 March 2018, the value
of the plan assets was 155% of the actuarial liability and the funded surplus was $101 million
(31 March 2017: 146%, $88 million).
The Group expects to contribute at least $16 million to its overseas defined benefit plans during the year to 30 June 2019.
Fletcher Building Group
Net periodic pension cost
Service cost
Net interest cost
Net periodic pension cost – recognised in earnings before interest and taxation
Recognised net asset/(liability)
Assets of plans
Projected benefit obligation
Funded surplus/(obligation)
Asset ceiling effect
Recognised net asset/(liability)
Recognised net asset/(liability) by jurisdiction:
New Zealand plan
Australian plans
Retirement plan assets – recognised within non-current assets
Other overseas plans
Retirement plan liabilities – recognised within non-current liabilities
Recognised net asset/(liability)
June 2018
NZ$M
June 2017
NZ$M
7
(2)
5
756
(694)
62
(12)
50
66
22
88
(38)
(38)
50
8
2
10
827
(793)
34
(1)
33
54
17
71
(38)
(38)
33
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Notes to the Financial Statements 2018
29. Retirement plans continued
Fletcher Building Group
Movement in recognised net liability
Recognised net liability at the beginning of the year
Currency translation
Actuarial movements for the year
Net periodic pension cost
Employer contributions
Recognised net liability
Assets of the plans
Assets of plans at the beginning of the year
Actual return on assets
Total contributions
Settlement of USA plan
Benefit payments
Currency translation
Assets of the plans consist of:
Australasian equities
International equities
Property
Bonds
Cash and short-term deposits
Other assets
Projected benefit obligation
Projected benefit obligation as at the beginning of the year
Service cost
Interest cost
Member contributions
Actuarial loss arising on changes in demographic assumptions
Actuarial loss arising on changes in financial assumptions
Actuarial gain arising on other assumptions – experience adjustments
Benefit payments
Settlement of USA plan
Currency translation
98
June 2018
NZ$M
June 2017
NZ$M
33
2
10
(5)
10
50
827
45
13
(117)
(48)
36
756
59
310
24
262
63
38
756
(793)
(5)
(19)
(2)
4
(5)
48
117
(39)
(694)
(32)
2
44
(10)
29
33
783
87
32
(59)
(16)
827
65
311
35
314
55
47
827
(812)
(10)
(22)
(3)
10
(26)
(6)
59
17
(793)
Fletcher Building Limited Annual Report 2018BACKHOMETrend statementIndependent auditor's reportRemuneration reportGovernanceStatutory disclosuresCorporate directoryOur Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceFinancial statements 30. Share-based payments
Executive share scheme
The Group has a long-term share-based performance incentive scheme targeted at selected employees (invited to participate at the
discretion of the Company) most able to influence the results of the Group.
The long-term share scheme allows scheme participants to acquire shares in the Company at market price, funded by an interest-free
loan from the Group. The scheme participants 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 scheme participants by the Trustee, Fletcher Building Share Schemes Limited.
For shares granted in and prior to 2016 vesting of half of any entitlement under the executive long-term share scheme is dependent upon
the Group achieving a total shareholder return (TSR) that is equal to the TSR of the comparator group of companies at the point that the
cumulative market capitalisation of that comparator group exceeds 50% of the total market capitalisation of the comparator group TSR
index over a three year restricted period. Vesting of the other half of any entitlement is dependent upon the Group achieving an earnings
per share target. However, for shares granted in 2017 all of the entitlement under the scheme is dependent upon the Group's TSR
exceeding the 51st percentile of the TSR of the comparator group over a three year restricted period. Additionally, in respect of the
entitlement which is dependent on the Group's TSR, the three year restrictive period is automatically extended for an additional year if the
minimum vesting threshold is not met. Scheme participants can elect to extend the restrictive period for an additional year if the Group's
TSR means that the vesting level is between the 51st and 75th percentile of the comparator group. No extension is permitted for the
entitlement that is dependent upon achieving an earnings per share target.
At the end of the restrictive period or any extension, the Group will pay a bonus to the executives to the extent that performance hurdles
have been met, the after-tax amount of which will be generally sufficient for the scheme participants to repay the balance of the loan in
respect of the shares which are to be transferred. Owing to the integrated nature of the scheme, for accounting purposes the Group
accounts for the incentive scheme as being equity-settled. If the performance hurdles are not met or are only partially met, the trustee will
acquire the beneficial interest in some or all of the relevant shares. The loan provided in respect of those shares which do not transfer to
the scheme participants (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 hurdles based on TSR are not met and the shares do not transfer to the scheme participants, 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 scheme participants,
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 scheme participants or beneficial ownership of the shares transfers to the
trustee.
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Notes to the Financial Statements 2018
30. Share-based payments continued
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
Number of shares:
Number of shares originally granted
Less forfeited over life of scheme
Less vested over life of scheme
2017
Award
2016
Award
2015
Award
2014
Award
1 November
2017
1 October
2016
1 October
2015
1 October
2014
890,0751
905,211
3,208,083
815,164
$7.85
$10.61
$6.89
$8.79
$6,985,959
$9,604,289
$22,103,692
$7,165,291
30 June
2020
30 September
2019
30 September
2018
30 September
2017
890,075
905,211
3,208,083
(85,739)
(415,950)
(1,799,372)
(906)
(20,501)
815,164
(658,245)
(17,479)
139,440
Number of shares held at 30 June 2018
804,336
488,355
1,388,210
1
Includes 182,561 shares granted at $7.43 to Ross Taylor as Chief Executive Officer. The benchmark share price for all participants is $7.43.
Total fair value expense in year for executive performance share scheme
Amount recognised at year end for related bonus payable
Fair value has been determined using Monte Carlo valuation methodology.
June 2018
NZ$M
June 2017
NZ$M
8
14
12
20
Share options
The Company had previously issued 1,000,000 options in two separate tranches in 2012 and 2015 for the benefit of Mark Adamson. All
1,000,000 options were forfeited when his employment as Chief Executive Officer and Managing Director ceased on 20 July 2017, as
disclosed in the 2017 annual report.
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 re-invested 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.
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Independent Auditor’s Report
To the Shareholders of Fletcher Building Limited
REPORT ON THE FINANCIAL STATEMENTS
OPINION
We have audited the financial statements of Fletcher Building Limited and its subsidiaries (together “the Group”), on pages 53 to
100, which comprise the consolidated balance sheet of the Group as at 30 June 2018, and the consolidated income statement,
consolidated statement of comprehensive income, consolidated statement of movements in equity and consolidated statement
of cash flows for the year then ended of the Group, and notes to the consolidated financial statements including a summary of
significant accounting policies.
In our opinion, the consolidated financial statements on pages 53 to 100 present fairly, in all material respects, the consolidated
financial position of the Group as at 30 June 2018 and its consolidated financial performance and its cash flows for the year then
ended in accordance with New Zealand equivalents to International Financial Reporting Standards and International Financial
Reporting Standards.
This report is made solely to the Company's shareholders, as a body. 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.
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (New Zealand). Our responsibilities under those
standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.
We are independent of the Group in accordance with Professional and Ethical Standard 1 (revised) Code of Ethics for Assurance
Practitioners issued by the New Zealand Auditing and Assurance Standards Board, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Ernst & Young has provided transaction advisory, tax advisory, tax compliance and other assurance services to 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. We have no other relationship with, or interest in, the Group.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated
financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial
statements as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each
matter below, our description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the audit of the financial statements section of
the audit report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to
respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures,
including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying
consolidated financial statements.
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Independent Auditor’s Report
Key audit matter
How we addressed the key audit matter
RECOGNITION OF CONSTRUCTION CONTRACT REVENUE
A substantial amount of the Group’s revenue relates to
revenue from construction contracts. Where these
contracts have a long-term duration, revenue and
margin are recognised based on the stage of
completion of individual contracts. This is calculated
on the proportion of total costs incurred at the
reporting date compared to the Group’s estimation of
total costs of the contract. We focused on these types
of contracts due to the high level of estimation
involved, in particular relating to:
•
•
•
forecasting total cost to complete, including
the estimation of cost contingencies for
contracting risks;
revisions to total forecast costs for certain events
or conditions that occur during the performance
of the contract, or are expected to occur to
complete the contract; and
the recognition of variations and claims, based on
an assessment by the Group as to whether it is
probable that the amount will be approved by the
customer and therefore recovered.
Refer to note 13 of the financial statements.
In obtaining sufficient appropriate audit evidence:
• We evaluated the Group’s process regarding accounting for
contract revenues. We tested controls such as:
– the preparation, review and authorisation of monthly project
reports, which involves management assessing key contract
KPIs; and
– the project reviews undertaken by the Group’s Project
Management Office and management governance
committee;
• We used a risk assessment tool to select a sample of contracts
for testing based on a number of quantitative and qualitative
factors. These factors included contracts with significant
deterioration of margin and/or completion dates, significant
variations and claims, and factors which indicate a greater level
of judgement was required by the Group when assessing the
revenue recognition based on estimates developed for current
and forecast contract performance. For the contracts selected,
where relevant:
– we read the contract terms and conditions to evaluate
whether the individual characteristics of each contract were
reflected in the estimate;
– we undertook sites visits (to both contract sites and
commercial offices) to understand the nature of risk elements
of the contracts;
– we tested a sample of costs incurred to date through
agreement to supporting documentation;
– we tested the estimated costs to complete by checking key
forecast cost assumptions to underlying evidence such as
subcontractor quotes, tender information, historical invoicing
and employment records and agreements with
subcontractors;
– we considered the Group’s ability to forecast margins on
contracts by analysing the accuracy of previous margin
forecasts to actual outcomes;
– we tested variations and claims, both within contract revenue
and contract costs, to supporting documentation and by
reference to underlying contracts; and
– for the most significant contracts by size and complexity
we used our construction and real estate specialists to
evaluate the overall appropriateness of forecast project
outturn. Our construction and real estate specialists have
significant international experience and credentials to advise
on such projects.
• we evaluated the Group’s legal and external experts’ reports
received on contentious matters to identify conditions that may
indicate the inappropriate recognition of variations, claims or
liquidated or other damages. We checked the consistency of
this to the inclusion or not of amounts in the estimates used for
revenue recognition;
• we evaluated contract performance in the period since year
end to audit opinion date to confirm the Group’s year end
judgements in respect of revenue recognition and forecast
costs to complete; and
• evaluated the associated disclosures in the financial statements.
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Key audit matter
How we addressed the key audit matter
GOODWILL AND OTHER INTANGIBLE ASSETS IMPAIRMENT ASSESSMENTS
The Group holds goodwill and other intangible assets
which are carried at $1.7 billion at 30 June 2018.
The recoverable amount of goodwill and other
intangible assets is determined each reporting period
by reference to valuations prepared using discounted
cash flow models (‘DCF models’).
DCF models contain significant judgement
and estimation in respect of future cash flow
forecast, discount rate and terminal growth rate
assumptions. Changes in certain assumptions can
lead to significant changes in the assessment of the
recoverable amount.
Notes 21 and 22 of the financial statements disclose
the key assumptions adopted and the sensitivity to
reasonably possible changes in key assumptions
which would reduce the recoverable amount and/
or create additional impairments at certain cash
generating units (‘CGUs’).
TREASURY – DERIVATIVE VALUATION AND HEDGE ACCOUNTING
The Group manages its economic risks through the
use of derivative financial instruments (‘derivatives’)
which primarily consist of interest rate swaps, foreign
exchange contracts and cross currency interest rate
swaps.
Fair value movements in the derivatives are driven by
movement in the financial markets.
Note 16 of the financial statements discloses the fair
value of the Group’s derivative assets and liabilities
outstanding at balance date.
In performing our audit procedures we:
• understood the Group’s goodwill impairment assessment
process and identified controls;
• assessed the Group’s determination of CGUs based on our
understanding of the nature of the group’s business units;
• obtained the Group’s DCF models and agreed forecasts to a
combination of the board approved FY19 budget and the
FY19- FY23 strategic plan;
• assessed key inputs to the DCF models including forecast EBIT,
capital expenditure, discount rates and terminal growth rates;
• assessed the accuracy of previous Group forecasting to inform
our evaluation of forecasts included in the DCF models;
•
involved our valuation specialists, for those CGUs with a higher
risk of impairment, to recalculate the group’s discount rates.
Valuation specialists were also involved in assessing the DCF
models for valuation methodology, including the treatment of
assumptions for capital expenditure, working capital, terminal
value and the net present value calculation;
• performed sensitivity analysis on higher risk CGUs in two main
areas being the discount rate and forecast earnings; and
• evaluated the associated disclosures in the financial statements,
particularly focusing on the disclosure of the CGUs which are
sensitive to reasonably possible changes in assumptions.
In performing our audit procedures we:
• understood the Group’s processes and identified its controls for
recording, managing and reporting of its derivatives;
•
involved our treasury specialists to evaluate the accuracy with
which the Group revalues derivatives;
• confirmed the existence of derivatives directly with
counterparties at balance date;
• assessed fair value movements on derivatives during the year
to identify whether these movements were appropriately
recognised in the Income Statement or the Statement of
Comprehensive Income in accordance with NZ IFRS 9 Financial
Instruments;
• performed hedge effectiveness testing across a sample of the
hedged portfolio; and
• evaluated the associated disclosures in the financial statements.
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Independent Auditor’s Report
INFORMATION OTHER THAN THE FINANCIAL STATEMENTS AND AUDITOR’S REPORT
The directors of the Company are responsible for the Annual Report, which includes information other than the consolidated
financial statements and auditor’s report.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained
in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
DIRECTORS’ RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS
The directors are responsible, on behalf of the entity, for the preparation and fair presentation of the consolidated financial
statements in accordance with New Zealand equivalents to International Financial Reporting Standards and International Financial
Reporting Standards, 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.
In preparing the consolidated financial statements, the directors are responsible for assessing the group’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards
on Auditing (New Zealand) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated financial statements.
A further description of the auditor’s responsibilities for the audit of the financial statements is located at External Reporting Board’s
website: https://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-report-1/. This description
forms part of our auditor’s report.
The engagement partner on the audit resulting in this independent auditor’s report is Simon O’Connor.
Chartered Accountants
Auckland
22 August 2018
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Fletcher Building seeks to ensure that it remunerates directors and management fairly and responsibly.
Directors’ remuneration
The current total directors' remuneration pool approved by shareholders in 2011 is $2,000,000 per annum. Directors receive
remuneration determined by the board on the recommendation of the Nominations Committee. Remuneration must be within the
aggregate amount per annum approved by shareholders. There are no schemes for retirement benefits for non-executive directors.
Information of directors’ holding of securities is set out on page 118.
On 24 October 2017, the directors considered the appropriateness of current fee levels in light of the Company’s performance and resolved
to reduce all directors fees by 20% for the next 12 months effective from the date of the 2017 annual shareholders’ meeting. Directors’ fees
for the FY19 financial year were reviewed and approved by the board in June 2018. The new remuneration scale applies from the end of the
12-month period continuing the 20% fee reduction. The remuneration scale for directors is outlined below:
Position
Chairman1
Non-Executive Director
Chairman
Member
Chairman
Member
Chairman
Member
Chairman
Member
Board of Directors
Audit and Risk Committee
Remuneration Committee
Nominations Committee
Safety, Health, Environment and
Sustainability Committee
Non-vouchable expense
reimbursement allowance
Overseas based directors travelling
allowance
Remuneration for the period
1 July 2017
to 24 October 2017
25 October 2017
to 24 October 2018
25 October 2018
to 30 June 2019
$440,000
$166,000
$46,000
$23,000
$35,000
$17,500
–
$10,000
$35,000
$17,500
$352,000
$132,800
$36,800
$18,400
$28,000
$14,000
–
$8,000
$28,000
$14,000
$360,000
$140,000
$37,000
$19,000
$28,000
$14,000
–
$8,000
$28,000
$14,000
$5,000
$5,000
$5,000
$18,000
$18,000
$18,000
1 No additional fees are paid to the board chairman for committee roles.
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 capital notes. Directors' fees exclude
GST, where appropriate. In addition, board members are entitled to be reimbursed for costs directly associated with carrying out their
duties, including travel costs.
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Details of the total remuneration received by each Fletcher Building director for FY18 are as follows:
Directors
Sir Ralph Norris
(Chairman)2
Board Fees
$379,677.42
Audit
and Risk
Committee
Nominations
Committee1
Remuneration
Committee
Safety, Health,
Environment
and
Sustainability
Committee
$0
(Chairman)
Antony Carter3
$143,241.94
$13,859.77
$8,629.03
$15,100.81
Non-vouchable
expense
reimbursement
allowance
$5,000.00
$5,000.00
$5,000.00
Overseas
based
directors
travelling
allowance
Total
Remuneration
$384,677.42
$185,831.55
$189,330.64
Bruce Hassall4
$143,241.94
$32,459.67
(Chairman)
$8,629.03
Alan Jackson
$143,241.94
$8,629.03
$30,201.61
(Chairman)
$15,100.81
$5,000.00
$202,173.39
John Judge5
$52,566.67
$14,566.67
$3,166.66
$1,586.02
$71,886.02
Kate Spargo6
$41,500.00
$5,750.00
$2,500.00
$8,750.00
$1,250.00
$4,500.00
$64,250.00
Cecilia Tarrant7
$143,241.94
$19,846.77
$8,629.03
$25,111.57
(Chairman)
$5,000.00
$201,829.31
Steve Vamos
$143,241.94
$19,846.77
$8,629.03
$15,100.81
$5,000.00
$18,000.00
$209,818.55
Total
$1,189,953.79
$106,329.65
$48,811.81
$60,403.23
$48,962.38
$32,836.02
$22,500.00 $1,509,796.88
1 All non-executive directors are members of the Nominations Committee.
2
Inclusive of committee fees.
3 Appointed member of the Audit and Risk Committee effective 20 September 2017.
4 Appointed chairman of the Audit and Risk Committee effective 25 October 2017.
5 Retired from the board on 25 October 2017.
6 Ceased to be director effective 20 September 2017.
7 Appointed chairman of the Safety, Health, Environment and Sustainability Committee effective 20 September 2017.
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, to
support our vision of being the undisputed leader in New Zealand and Australian building solutions – with Products and Distribution at
our core.
Total remuneration is comprised of three elements - fixed remuneration, a short term variable incentive, and a long-term share scheme.
Our remuneration strategy and frameworks are supported by a Remuneration Committee that oversees remuneration policies, and the
performance, remuneration, development and succession planning of executives and senior management. 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 and benchmarked 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 the year. A New Zealand and Australian peer group comprised of companies
comparable in size, complexity and industry is used to benchmark executives based in New Zealand and Australia. An additional global
peer group was considered in respect of the chief executive officer role, which included comparable companies from other regions,
geographies or countries where Fletcher Building has operations.
Fixed remuneration
Fletcher Building’s policy is to set 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 employee is located. Participation in retirement savings plans is made
available to employees as required by remuneration practices in relevant jurisdictions.
Short-term variable incentive (STI)
STI’s are designed to incentivise earnings performance and operating cash targets by rewarding employees’ performance against
financial and individual goals. Participation in the STI plan is by annual invitation at the discretion of the Company, and comprises both
financial and personal targets.
Financial targets
For the chief executive officer, corporate executives and senior management, the financial target is based on the Group EBIT and
operating cash. For operating executives and senior management, the financial target is based on their own division/business unit EBIT
or EBIT/Funds and operating cash or working capital depending on the business’ priorities, with a proportion also based on the Group
EBIT (and Group operating cash for divisional roles) to incentivise alignment across the Group.
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above which the STI paid will remain constant. For FY18 the financial threshold is set at achieving 90% of target, with the exception of
the Group EBIT threshold, which was set at 94% of target. The maximum financial level is set at 110% of target for the chief executive
officer, executives and corporate senior management and 120% of target for operating senior management. Achievement of maximum
performance against the financial targets can result in a payment of 150% of the relevant financial component of the STI.
Personal targets
Personal targets for the executives and senior management include people engagement, safety and customer net promotor score.
In consideration of the refocus of the business in FY18, the chief executive officer’s objectives included people engagement, safety
and business strategy and were approved directly by the chairman.
Achievement of maximum performance against the personal targets can result in a payment of 150% of the relevant personal component
of the STI, with the exception of the safety lead indicator targets which can result in a maximum payment of 100%. If the threshold
financial (EBIT) target is not met, no personal component of the STI is payable.
Target levels of STI opportunity range from 25% to 100% of base salary depending on the role. For the chief executive officer the target
STI opportunity is set at 100% of base salary.
In the event of a fatality or serious injury, the board has the discretion to adjust any or all of the STI payment. The board also has the
discretion to require repayment of an employee’s STI for a period of up to three years where the Company’s financial statements were
incorrectly reported, there is misconduct that causes a financial trading loss that has not been taken into account in the STI calculations
or an error or misstatement has resulted in a material overpayment.
Long-Term Share Scheme
Long-term performance incentives are designed to align employee remuneration with financial outcomes for shareholders over the
longer term. The Company has an employee long-term share scheme (ELSS), targeted at the employees most able to influence these
financial outcomes. The scheme is a share-based scheme except in circumstances where, due to regulatory requirements, employees
cannot participate fully or at all by way of shares. In such circumstances, the employee receives an equivalent economic entitlement
which is paid partially or fully by way of a cash bonus entitlement. 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 commencement of the three year restrictive period. The shares are held by a trustee on behalf
of participants until the end of that three year restrictive period. Where the performance criteria includes a relative total shareholder
return (TSR) measure, the restrictive period is extended by twelve months when the criteria is not met at the end of the initial three
year 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 are
forfeited and the proceeds used to repay the interest-free loan.
Performance criteria
The sole performance criteria for the 2017 ELSS grant is relative TSR. TSR performance is determined by benchmarking, by way of
percentile ranking, the TSR performance of the group against the TSR performance for the same period of a comparator group.
The comparator group used for the 2017 offer comprises Adelaide Brighton, Amcor, BlueScope, Boral, Brickworks, CSR, Downer EDI,
GWA International, James Hardie, CIMIC, Reece, Sims Group, Spark and Steel & Tube.
The TSR performance and resulting vesting entitlements are set out below:
TSR percentile
Percentage vesting entitlement
< 50
50
50 – 75
> 75
Nil
50
50 – 100 linear pro-rata
100
The board has the discretion to determine the extent to which any shares held in the ELSS should be transferred in any takeover,
merger or corporate reconstruction.
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Vesting and forfeiture history
Prior to 2017, the ELSS performance criteria consisted of both relative TSR and an earnings per share (EPS) target. The vesting and
forfeiture of shares (due to failure to meet performance criteria) over the last five years is set out in the following table:
Date of grant
October 2017
October 2016
October 2015
October 2014
October 2013
Shares granted1
Shares vested
Shares forfeited
EPS Target
890,075
905,221
3,208,083
815,164
771,038
0%
50%
50%2
50%3
50%
N/A
70.1 – 76.3
67.1 – 73.1
61.0 – 66.4
55.1 – 63.4
1 Of the shares granted 1,061,652 shares were forfeited on Mark Adamson’s cessation of employment.
2 The October 2015 EPS tranche was forfeited in 2018.
3 The 2014 EPS tranche was forfeited in 2017 and the TSR tranche was extended to 30 September 2018.
Minimum shareholding requirement
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.
The Company believes this shareholding requirement 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.
In addition, for the chief executive officer and his direct reports, if at the time of appointment to an executive role, the greater of the
market value or cost of the individual’s shareholding is less than the value of 10% of their base remuneration, the executive is required
to apply no less than 25% of the after-tax value of any STI payment to acquire shares in the Company on or before 31 March of the
following financial year. This requirement applies for the first two years of employment as an executive.
FBuShare
FBuShare is a broad-based employee share plan that aims to promote employee engagement and retention. Employees acquire shares
in the Company and, if they continue to be employed after a three year qualification period, they 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). Directors are not eligible to participate in FBuShare.
Chief executive officer’s remuneration1
Ross Taylor’s annual base salary as at 30 June 2018 was $2,000,000. The remuneration he received for the period 22 November 2017 to
30 June 2018 comprised:
Base remuneration
Other benefits*
*
Includes relocation and medical insurance premium.
$1,219,743
$45,917
The following short-term variable incentive was accrued in the current year:
Short term variable incentive (STI) FY18 – accrued and payable in September 2018
$1,463,885
The following long-term variable incentive was granted during the year:
Executive long-term share scheme (ELSS) 2017
182,5612
$2,000,000
Refer above under ‘Executive and Senior Management Remuneration’ for details of the STI and ELSS.
1 Details of the remuneration paid in FY18 to Mark Adamson, whose employment as chief executive officer ceased on 20 July 2017, are contained in the Company’s 2017 annual
report (total $2,936,387). In addition, Francisco Irazusta performed the role of interim chief executive officer from 24 July 2017 until 21 November 2017. In recognition of Francisco’s
additional responsibilities during the interim period, he received an acting allowance as part of his base remuneration. The financial and individual targets for Francisco Irazusta’s
STI during this period were also aligned to Fletcher Building Group targets, and his STI target opportunity was adjusted accordingly to reflect the additional accountability for
that period.
2 Based on a share price of NZ$7.34, being the volume weighted average price for the five business days following the 2017 annual shareholders’ meeting on 25 October 2017.
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Section 211(1)(g) of the 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 $10,000.
These amounts are included below and include all applicable employees or former employees of Fletcher Building worldwide.
The remuneration amounts include all monetary amounts and benefits actually paid during the year, including redundancies and
the face value of long-term incentives vested.
From NZ$ to NZ$
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
International
business
activities
New Zealand
business
activities
Total
From NZ$ to NZ$
International
business
activities
New Zealand
business
activities
Total
510
451
343
249
174
132
128
72
75
64
63
43
37
25
28
13
9
18
18
19
8
9
14
6
10
8
1
0
6
1
2
1
5
457
371
268
232
177
125
97
76
65
56
41
49
35
33
21
22
13
9
11
13
7
8
4
4
1
3
4
2
3
3
2
2
0
967
822
611
481
351
257
225
148
140
120
104
92
72
58
49
35
22
27
29
32
15
17
18
10
11
11
5
2
9
4
4
3
5
430,000 – 440,000
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
560,000 – 570,000
570,000 – 580,000
580,000 – 590,000
600,000 – 610,000
620,000 – 630,000
630,000 – 640,000
640,000 – 650,000
650,000 – 660,000
660,000 – 670,000
750,000 – 760,000
770,000 – 780,000
780,000 – 790,000
860,000 – 870,000
960,000 – 970,000
1,090,000 – 1,100,000
1,150,000 – 1,160,000
1,240,000 – 1,250,000
1,260,000 – 1,270,000
2,210,000 – 2,220,000
3
6
6
3
3
4
1
1
3
1
2
4
0
2
3
2
2
2
1
2
1
1
0
0
1
1
0
0
0
0
0
1
3
3
2
1
2
0
1
1
0
4
1
1
1
0
1
0
1
2
0
1
0
0
1
1
1
0
1
1
1
1
1
0
6
9
8
4
5
4
2
2
3
5
3
5
1
2
4
2
3
4
1
3
1
1
1
1
2
1
1
1
1
1
1
1
2,598
2,247
4,845
An additional 616 employees are included in this table (above the total number disclosed in the 2017 annual report), predominantly in the
remuneration brackets of between 100,000 to 150,000. The additional number disclosed can be attributed in part to currency rate
changes inflating remuneration in New Zealand dollar terms, one-off restructuring costs and an increase in performance from FY16 to
FY17 (resulting in consequential incentive payments) within some business units in the international Business division.
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The Board is committed to ensuring that Fletcher Building has appropriate corporate governance
arrangements in place that are consistent with the size and nature of the Company’s operations.
Those arrangements should be disclosed in a meaningful way to maximise transparency and
investor confidence.
At Fletcher Building, governance is about creating a strong and principled ethics-based culture, where accountability and transparency
improve the quality and clarity of decision-making within the Company. The primary objective is to create and adhere to a corporate
culture that is open and transparent, develops capabilities, and identifies opportunities to create value for our stakeholders.
This governance statement is current as at 30 June 2018 and was approved by the board on 21 August 2018.
Key corporate governance highlights this year include:
• Appointment of Ross Taylor as chief executive officer in November 2017. Ross has a wealth of construction experience, expertise
and leadership capability to lead Fletcher Building into a new phase of growth and opportunity.
• NZX Regulation report on Fletcher Building’s compliance with continuous disclosure obligations released in January 2018, which
concluded that the Company released information relating to earnings forecast downgrades in 2017 promptly and without delay,
as required under the NZX Listing Rules, and acknowledged the Company’s processes to track developing information relating to
the group financial results, and to assess the impact of new information as it became available. Board documentation processes
relating to continuous disclosure were described as best practice.
• Comprehensive due diligence process underpinning the successful NZ$750 million capital raising in April/May 2018.
• Refreshed board with Bruce Hassall succeeding Sir Ralph Norris as chairman and the appointment of Barbara Chapman,
Rob McDonald, Douglas McKay and Cathy Quinn on the board effective 1 September 2018, to support Fletcher Building as
it enters a new phase of stability and opportunity.
• Rigorous implementation of a new bidding process and new bid criteria for construction projects.
• A new strategy which is designed to improve the Company’s financial and operating performance by focussing its portfolio in
New Zealand and Australian markets and introducing a simpler and leaner operating model.
•
Improvements in non-financial focus areas, including a reduction in health and safety incidents and an increase in employee
engagement and customer satisfaction.
The Company’s corporate governance framework is informed by the principles, guidelines, recommendations and requirements of
the NZX Listing Rules and the NZX Corporate Governance Code 2017, and the Financial Markets Authority’s ‘Corporate Governance
in New Zealand Principles and Guidelines.’
The Company is required to disclose the extent to which its corporate governance practices materially differ from the principles
and recommendations set out in the NZX Corporate Governance Code. The Company’s approach to applying the principles and
recommendations outlined in the NZX Corporate Governance Code is set out below (including where practice materially differs
from the Code). The Company’s constitution, the board and committee charters, code and policies referred to in this statement
are available to view on our website at www.fletcherbuilding.com/investor-centre/corporate-governance.
Principle 1 – Code of Ethical Behaviour
“Directors should set high standards of ethical behaviour, model this behaviour and hold management accountable for these
standards being followed throughout the organisation.”
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 documents minimum standards of ethical behaviour and the Company’s expectations on loyalty and conflicts
of interest, insider trading, holding of offices in another Company or public office, intellectual property and misconduct.
In addition, the Company has a written Anti-bribery and Corruption Policy, which provides for a zero-tolerance approach to bribery and
corruption, whether in the private or public sector anywhere in the world. All Fletcher Building personnel must adhere strictly to the
requirements of this policy. The policy also sets out expectations around giving and receiving gifts, political and charitable donations
and dealings with business partners.
Fletcher Building has a free phone and online service (“FBuCall”) that can be used by any Fletcher Building staff member to report
suspected unacceptable, unethical or illegal behaviour in the workplace. This service is operated by external providers, who act as an
independent third party to ensure calls are kept anonymous.
Securities Trading Policy
The Company has a policy that applies to all directors and employees (including any secondee, consultant, adviser or contractor) who
are in possession of material information that is not available to the market and who intend to trade, or advise or encourage others to
trade, in listed securities of Fletcher Building or any of its subsidiaries.
The policy employs the use of blackout periods to restrict persons covered by the securities trading policy who are likely to have knowledge
of, or access to, inside information from trading. This group of personnel must also obtain the written consent of the Group General
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Computershare Investor Services Limited (Computershare), we actively monitor trading in Fletcher Building shares by our personnel.
Principle 2 – Board Composition and Performance
“To ensure an effective board, there should be a balance of independence, skills, knowledge, experience and perspectives.”
Board’s roles and responsibilities
The role of the board is to provide overall strategic guidance and effective oversight of management for the purposes of protecting
and enhancing the value of Fletcher Building assets in the best interests of the Company. The board has statutory responsibility for the
affairs and activities of the Company, which in practice is achieved through delegation to the chief executive officer who is charged
with the day-to-day leadership and management of the Company.
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. Under the board charter, the
Group General Counsel and Company Secretary is secretary to the board and accountable directly to the board, through the
chairman, on all matters to do with the proper functioning of the board.
Nomination and appointment of directors
Procedures for the appointment and removal of directors are governed by the Company’s constitution. 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.
Before a person is appointed to the board, checks as to the person’s character, experience, education, criminal record and
bankruptcy history are conducted. Each director receives a letter formalising their appointment. That letter outlines the key terms
and conditions of their appointment, including Fletcher Building’s expectations for the role of director, and is required to be
countersigned confirming agreement.
Director independence
The Company acknowledges the importance of having independent directors, ensuring it has the correct balance of skills to optimise
the financial performance of the Company and maximise returns to shareholders.
The test of “independence” is governed by the requirements of the NZX Listing Rules. The board currently comprises of six directors,
with a wide range of skills and experience. The qualifications and experience of each of the directors, including length of service, is set
out in “Our Board” section on pages 12 and 13. Directors are required to inform the board of all relevant information which may affect
their independence, and the board confirms the independence status of its members annually. The board considers all the current
directors as at 30 June 2018 to be independent.
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. In addition, the chairman of the Audit and Risk Committee
is not the chairman of the board, and under its charter all members of this committee must be non-executive and independent directors.
Diversity Policy
Fletcher Building has a Diversity Policy, which is available on the Company’s website. The Remuneration Committee reviews progress
against diversity initiatives developed by the Company to deliver outcomes against the Policy. Further information on diversity
initiatives can be found in “Our People” section on pages 38 to 41.
The board is satisfied with the initiatives being implemented by the Company and its performance with respect to the Diversity Policy.
The policy does not currently include a requirement for the board (or a committee) to set measurable objectives for achieving diversity
(as is recommended by the NZX Corporate Governance Code), as the board has considered diversity outcomes can be achieved
without measurable objectives. However, the policy does require the Company to regularly benchmark the Company’s diversity
standpoint, status and objectives against appropriate external comparators – which we have done in relation to key target areas.
Following the restructuring of the Company’s operational divisions undertaken during the past financial year, the board will review and
adopt a new Diversity Policy during the 2019 calendar year for implementation as part of the new strategic settings, which will include
measurable objectives for achieving further diversity.
The numbers and proportion of women and men within Fletcher Building as at 30 June 2018 are set out in the table below.
Board of directors
Executive committee
Senior management¹
All employees
2018
2017
Women
Men
Women
1 (17%)
3 (27%)
5 (83%)
8 (73%)
2 (22%)
2 (20%)
Men
7 (78%)
8 (80%)
15 (25%)
46 (75%)
16 (26%)
45 (74%)
22%
78%
22%
78%
1 Senior management for these purposes includes any person who reports to a member of the executive committee.
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Governance
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.
Industry
Geography
Expertise
Building products industry
Construction industry
Distribution industry
Australian business experience
International business experience
Strategy
Management
Finance/Accounting
Legal/Governance
Marketing
Information technology
Supply chain
Diversity
Gender
Director induction and professional development
The board conducts induction and continuing professional development for directors, which includes visits to 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.
Board performance
Reviews of the performance of the board and individual directors are carried out regularly to ensure the board as a whole and
individual directors are performing to a high standard.
The board carried out a review of its performance and of the committees in mid-2016, with the assistance of an independent
consultant Propero Consulting Limited. The review process included an online survey, a range of director and management team
interviews, an observation of a board meeting, a review of board packs and a board discussion and feedback session. A refreshed
board will be in place from 1 September 2018 and with new appointees to be voted on by the shareholders at the forthcoming annual
shareholders’ meeting. A performance review of the board and its committees will be undertaken in 2019.
Principle 3 – Board Committees
“The board should use committees where this will enhance its effectiveness in key areas, while still retaining board responsibility.”
In accordance with the board Charter, various committees have been set up to enhance the board’s effectiveness in key areas, while
still retaining overall responsibility. As at 30 June 2018 the standing board committees are:
• Audit and Risk Committee
• Nominations Committee
• Remuneration Committee
• Safety, Health, Environment and Sustainability Committee
Each committee is governed by a charter setting out its roles and responsibilities. The charter for each committee is available on the
Company’s website. Committees do not take action or make decisions on behalf of the board unless specifically mandated by prior
board authority to do so. Employees only attend meetings of the Audit and Risk Committee and Remuneration Committee at the
invitation of the particular committee.
From time to time, the board may create ad hoc committees to examine specific issues on its behalf. In FY18, the board established
a Due Diligence Committee to oversee and coordinate the due diligence process for the accelerated pro-rata entitlement offer of
ordinary shares in the Company. The Due Diligence Committee was comprised of Bruce Hassall (chairman), Sir Ralph Norris and
Tony Carter.
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Role
Members
Audit and Risk
Committee (ARC)
The role of the ARC is to advise and assist the board in discharging the
responsibilities with respect to external financial reporting, internal control
environment, internal audit and external audit functions, and risk
management practices.
Bruce Hassall (Chairman)
Antony Carter
Cecilia Tarrant
Steve Vamos
Nominations
Committee
Remuneration
Committee
The committee’s role is to identify and recommend individuals to the board
for nomination as members of the board and its committees and the terms,
if any, of such membership.
The principal role of the committee is to oversee and regulate compensation
and organisation matters affecting the Company, including remuneration and
benefits, policies, performance and remuneration of the Company’s senior
executives, management development and succession planning of the
chief executive officer and his direct reports.
Safety, Health,
Environment and
Sustainability
Committee (SHES)
The role of the committee is to assist the board to provide leadership and
policy for SHES management within Fletcher Building. The committee will
focus on compliance with legislative and regulatory requirements and the
promotion of good SHES governance.
All non-executive directors
are members of the
Nominations Committee
Sir Ralph Norris (Chairman)
Alan Jackson (Chairman)
Antony Carter
Steve Vamos
Cecilia Tarrant (Chairman)
Alan Jackson
Attendance at Board and Committee meetings
The table below shows directors’ attendance at the board, standing committee and Due Diligence Committee meetings during
the year ended 30 June 2018. In addition, the board constituted ad-hoc sub-committees to review and make recommendations on
major projects.
Audit
and Risk
Committee
Board
Nominations
Committee1
Remuneration
Committee
Safety, Health,
Environment
and
Sustainability
Committee
Due Diligence
Committee
20
20
19
19
20
5
3
20
20
5
5
3
5
1
1
5
5
3
3
3
3
3
1
1
3
3
4
4
4
4
4
3
2
3
1
3
7
7
6
7
1
1
1
Number of meetings held
Sir Ralph Norris (Chairman)2
Antony Carter3
Bruce Hassall4
Alan Jackson
John Judge5
Kate Spargo6
Cecilia Tarrant7
Steve Vamos
1 All non-executive directors are members of the Nominations Committee.
2 Sir Ralph Norris attended all committee meetings in an ex officio capacity, excluding his attendance as chair of the Nominations Committee.
3 Appointed member of the Audit and Risk Committee from 20 September 2017.
4 Appointed chairman of the Audit and Risk Committee from 25 October 2017.
5 Retired from the board on 25 October 2017.
6 Ceased to be director on 20 September 2017.
7 Appointed chairman of the Safety, Health, Environment and Sustainability Committee from 20 September 2017.
Takeover protocols
The board has established detailed protocols that set out the procedure to be followed if there is a takeover offer for the Company,
including any communication between Company insiders and the bidder.
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Governance
Principle 4 – Reporting and Disclosure
“The board should demand integrity in financial and non-financial reporting, and in the timeliness and balance of
corporate disclosures.”
Continuous disclosure
Fletcher Building is committed to ensuring that all of our investors have timely access to full and accurate material information about
the Company. Our Market Disclosure Policy sets out the internal processes designed to ensure that the Company complies with the
disclosure obligations of the stock exchanges on which its securities are listed. The board has adopted this policy, which applies to
members of the board, all employees in the Fletcher Building Group, and contractors, consultants and other service providers to the
Group, where they are under a relevant contractual obligation. The Market Disclosure Policy is available on the Company’s website.
Directors formally consider at each board meeting whether there is relevant material information which should be disclosed to
the market.
Disclosure of codes and charters
All of our key governance documents (including the Code of Conduct, key corporate policies and board and committee charters) are
available on our website at www.fletcherbuilding.com/investor-centre/corporate-governance, other than the Company’s remuneration
policy. The Company currently does not comply with the NZX Corporate Governance Code recommendation to publish its remuneration
policy, as this policy is currently being reviewed in light of the new organisational structure and will be published on our website
subsequent to adoption.
Safeguarding integrity in financial reporting
The Audit and Risk Committee oversees the accounting and internal control systems, policies and procedures to ensure compliance
with the legal requirements, in respect of accounting policies, financial reporting, internal control, external audit and environmental
regulation in all jurisdictions in which the Fletcher Building Group operates.
In addition, prior to approving the full year financial statements, the board received from the chief financial officer a declaration that,
in his opinion, the financial records of the Company 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 Company and that the
opinion has been formed on the basis of a sound system of risk management and internal control that is operating effectively.
Business Sustainability
The Business Sustainability section on pages 38 to 51 discusses non-financial focus areas for our business, including environmental,
economic and social matters. The board and executives recognise that sustainability is critical to Fletcher Building's success, which is
why it has been included as a key enabler of our new strategy. In FY19 we will recruit a head of sustainability to lead the development
and execution of an overarching sustainability strategy for Fletcher Building, which will include improvement targets that we will report
on annually. Further sustainability information can be found on the Company’s website at www.fletcherbuilding.com.
Principle 5 – Remuneration
“The remuneration of directors and executives should be transparent, fair and reasonable.”
Fletcher Building remuneration structure is designed to attract, reward and retain high performing directors, executives and
employees who are able to enhance the Company’s performance.
The remuneration framework is managed by the Remuneration Committee in line with its charter, which is available on the
Company’s website.
The ‘Remuneration Report’ on pages 105 to 109 outlines in detail the remuneration framework of Fletcher Building, as well as the
remuneration of the directors, the chief executive officer and other executives, and senior management. This includes a discussion
on share-based remuneration.
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“Directors should have a sound understanding of the material risks faced by the issuer and how to manage them. The board
should regularly verify that the issuer has appropriate processes that identify and manage potential and material risks.”
Risk
In FY18, the Company refreshed its group-wide risk management framework that supports risk management in the Fletcher Building
Group. The purpose of the risk management framework is to ensure that the key risks faced are identified, assessed, controlled,
monitored and reported so that the Company can achieve its objectives and protect its people, customers and reputation.
The refreshed Fletcher Building risk management framework is based on a three lines of defence model as set out below. This starts
– and operational accountability ultimately rests – with the managers in the individual business units and the divisional chief executives.
Our risk management and assurance processes support this through our Group functions and is ultimately overseen by the board
and executive team, with a dedicated internal audit team which takes a risk-based approach to auditing key business activities and
reports directly to the Audit and Risk Committee.
3rd Line of Defence:
Board, Executive and
Internal Assurance
2nd Line of Defence:
Group Functions
Internal Audit
FBU Board
ARC
Executive Committee
Legal
People
Finance
Group
Risk
EHS
Property
IT
1st Line of Defence:
Operating Units
Division
Division
BU
BU
BU
BU
As part of its risk management responsibility, the Audit and Risk Committee receives regular reports of the material, emerging and
existing key risks, the current and target risk ratings, and the measures in place to mitigate the risks.
The Fletcher Building risk management framework provides a consistent framework for the management of risk, ensuring the
alignment with strategy, business processes, corporate knowledge and technology. The Company’s approach aligns with the
international risk management framework as established under the International Organisation for Standardisation (ISO)
ISO31000:2009 Risk Management – Principles and Guidelines.
Risk capture and reporting
An additional key development in FY18 was the implementation of a new EHS incident and risk management tool “RADAR” as a
group-wide system for self-reporting, capturing, disseminating and tracking information on commercial risks and non-EHS risks
(along with safety incidents).
The Group is also increasing the cadence of operational risk reporting through business unit operations reviews, with reported
operational risks captured and tracked through RADAR.
This allows the Group to see where decisions are regularly being made when assessing risk in implementing the business strategy
and to understand how different risks affect different parts of the business.
Health and safety
Fletcher Building has a health and safety management framework called Protect. Management of health and safety risks is discussed
in more detail on pages 43 to 44.
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Principle 7 – Auditors
“The board should ensure the quality and independence of the external audit process.”
The Audit and Risk Committee performs an annual performance assessment of the external auditor to ensure ongoing quality and
effectiveness. EY is our external auditor.
The Auditor Independence Policy includes requirements for the rotation of external audit engagement partners. The Auditor
Independence Policy is available on our website. In addition, the policy covers the provision of non-audit services by the Company’s
auditor. Auditor’s fees and expenses paid to EY are presented within Note 27 of the Group financial statements included in this annual
report. The other work performed by the external auditors beyond the statutory audit was pre-approved in accordance with the policy
and is not considered to compromise independence as the services did not constitute material sums of money.
Representatives from EY attend Fletcher Building’s annual shareholders’ meeting each year, where they are available to answer
questions from shareholders relevant to the audit.
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. During FY18, the internal audit team has been restructured and strengthened to provide increased
focus on areas of higher risk in the Group. 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.
Principle 8 – Shareholder Rights and Relations
“The board should respect the rights of shareholders and foster constructive relationships with shareholders that encourage them
to engage with the issuer.’
Communicating with shareholders
Fletcher Building maintains a website, which includes information about Fletcher Building’s financial performance, operational
activities, corporate governance and other information of specific relevance to investors and stakeholders. 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. The chairman meets with major shareholders of the Company in New Zealand and Australia on an annual basis. The chief
executive officer and chief financial officer attends an analysts’ and investors’ call after release of the interim and full year results and
answer questions raised by analysts and investors. The board also obtains annually research on the perceptions that the New Zealand
and Australian investment community have of the Company, management and performance.
Electronic communications
Shareholders have the option to receive communications from, and send communications to, Fletcher Building in electronic form.
Shareholders are actively encouraged to take up this option.
Shareholder voting
Major decisions that may change the nature of Fletcher Building business are presented as resolutions at the annual shareholders’
meeting and voted on by shareholders. There have been no major decisions made during the year which would change the nature
of Fletcher Building and which would require shareholder approval.
Annual shareholders’ meeting
All shareholders are entitled to attend the Company’s annual shareholders’ meeting, either in person or by representative. Resolutions
at shareholder meeting are usually by way of a poll, where each shareholder has one vote per share. Fletcher Building encourages
shareholders to ask questions in advance of the meeting, to encourage further engagement with the Company and provide
management with a view of the concerns of the Company’s shareholders.
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DISCLOSURE OF INTERESTS BY DIRECTORS
The following are particulars of general disclosures of interest by directors holding office as at 30 June 2018, pursuant to section 140(2) of
the Companies Act 1993. The director will be regarded as interested in all transactions between Fletcher Building and the disclosed entity.
Changes to entries disclosed during the year to 30 June 2018 are noted in brackets, for the purposes of section 211(1)(e) of the Companies
Act 1993.
Sir Ralph Norris
Contact Energy Limited (will retire effective 31 August 2018)
Fletcher Building Industries Limited
RANQX Holdings Limited
Southpark Corporation Limited (resigned 11 December 2017)
New Zealand Treasury Advisory Board (ceased)
NZ Olympic Advisory Committee (creased)
Juvenile Diabetes Research Foundation Advisory Board
University of Auckland Council
Business Mentors New Zealand
Antony Carter
Air New Zealand Limited
Fisher & Paykel Healthcare Corporation Limited
Blues LLP
ANZ Bank New Zealand Limited
Avonhead Mall Limited
Fletcher Building Industries Limited
Independent Selection Panel for Fonterra
Maurice Carter Charitable Trust
Bruce Hassall
The Farmers' Trading Company Limited
Prolife Foods Limited
Bank of New Zealand
BNZ Insurance Services Limited (resigned 2 August 2018)
BNZ Life Insurance Limited (resigned 2 August 2018)
Fletcher Building Industries Limited
Fonterra Co-operative Group Limited (appointed 2 November 2017)
The University of Auckland Business School Advisory Board
Alan Jackson
New Zealand Thoroughbred Racing Inc.
Aurora Vineyard Limited
Broadway Operations Limited
Broadway Racing Breeding Partnership
Delegat Group Limited
Fletcher Building Industries Limited
5 Vines Pty Limited
Cecilia Tarrant
Government Superannuation Fund Authority
Annuitas Management Limited
Fletcher Building Industries Limited
Payments NZ Limited
Seeka Limited
The University of Auckland Council
The University of Auckland Foundation
Chairman
Director
Director
Director
Director
Member
Member
Member
Trustee
Chairman
Chairman
Chairman
Director
Director
Director
Member
Trustee
Chairman
Chairman
Director
Director
Director
Director
Director
Member
Chairman
Director
Director
Director
Director
Director
Director
Chairman
Director
Director
Director
Director
Member
Trustee
Steve Vamos
Xero Limited (appointed 1 April 2018)
Chief Executive Officer
eGeneration Investments Pty Limited
Fletcher Building Industries Limited
Telstra Corporation Limited (will resign effective 16 October 2018)
Divvy Parking Pty Limited (resigned 2 January 2018)
The University of Technology Sydney Business School Advisory Board
Director
Director
Director
Director
Member
There were no specific disclosures made during the year of any interests in transaction entered by Fletcher Building or any of
its subsidiaries.
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INFORMATION USED BY DIRECTORS
There were no notices from directors of the Company requesting to disclose or use Company information received in their capacity
as directors.
INDEMNITY AND INSURANCE
In accordance with section 162 of the Companies Act 1993 and the constitution of the Company, Fletcher Building has continued
to indemnify and insure its directors, executives and employees acting on behalf of the Company, against potential liability or costs
incurred in any proceeding, except to the extent prohibited by law. The insurance does not cover liabilities arising from criminal actions.
DIRECTORS HOLDING OF SECURITIES
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. This shareholding can be acquired at any time prior to the annual shareholders'
meeting at which they are first subject to re-election. Non-executive directors do not participate in any Company share or option plan.
Disclosure of Directors' interests in securities
Securities of the Company in which each director has a relevant interest at 30 June 2018:
Director
Sir Ralph Norris (Chairman)
Antony Carter
Bruce Hassall
Alan Jackson
Cecilia Tarrant
Steve Vamos
Ordinary Shares
Capital Notes
150,000
32,626
67,019
12,242
30,606
31,530
15,915
Disclosure of Directors' interests in share transactions
Directors disclosed, pursuant to section 148 of the Companies Act 1993, the following acquisitions and dispositions of beneficial/
non-beneficial relevant interests in Fletcher Building shares during the year ended 30 June 2018:
Sir Ralph
Norris
Antony
Carter
Bruce
Hassall
Alan
Jackson
Cecilia
Tarrant
Steve
Vamos
Transaction
On-market purchase of shares on 2 November 2017
at a consideration of $52,734.
On-market purchase of shares on 15 November 2017
at a consideration of $70,800.
Off-market purchase of shares on 20 November 2017
at a consideration of $34,900.
Off-market purchase of shares on 13 December 2017
at a consideration of $6,970.
Acquisition of shares under the Dividend Reinvestment
Plan (DRP) on 11 October 2017 at a DRP issue price of
NZ$7.8950.
78
Number of shares
10,000
5,000
7,500
1,000
550
Acquisition of new shares on 18 May 2018, at an issue
price of NZ$4.80 per new share or A$4.51 per new
share, under the retail entitlement component of
an accelerated 1 for 4.46 pro rata entitlement offer
announced by Fletcher Building on 17 April 2018.
5,795
12,275
2,242
5,606
5,409
2,915
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Fletcher Building's ordinary shares are listed and quoted on the Main Board of NZX Limited and the Australian Securities Exchange
(ASX) under the company code 'FBU'. Fletcher Building's listing on the ASX is as a Foreign Exempt Listing. Fletcher Building must
comply with the NZX Listing Rules, but is exempt from almost all of the ASX Listing Rules. For the purposes of ASX Listing Rule 1.15.3,
Fletcher Building confirms that it continues to comply with the NZX Listing Rules.
In addition, Fletcher Building Limited maintains a sponsored Level 1 American Depositary Receipt (ADR) program with Deutsche Bank
Trust Company Americas (Deutsche Bank). The ADRs trade over the counter in the United States of America (US) under the ticker
code 'FCREY', with each ADR representing two ordinary Fletcher Building shares. US investors may prefer to purchase ADRs rather
than ordinary shares in Fletcher Building's home market because ADRs trade, clear and settle according to US market conventions.
EXERCISE OF NZX DISCIPLINARY POWERS
Neither NZX or ASX has taken any disciplinary action against Fletcher Building during the financial year ended 30 June 2018.
In particular there was no exercise of powers by NZX under NZX Listing Rule 5.4.2 (relating to powers to cancel, suspend or censure
an issuer) with respect to Fletcher Building during the reporting period.
NZX WAIVERS
On 16 April 2018, NZX Regulation granted Fletcher Building a waiver from NZX Listing Rule 7.11.1 in respect of the 1 for 4.46 accelerated
pro rata entitlement offer announced by Fletcher Building on 17 April 2018 (the Offer), to enable Fletcher Building to allot the new shares
under the institutional entitlement offer six business days after the close of the institutional entitlement offer. Fletcher Building also
relied on the NZX class waiver for accelerated entitlement offers, dated 13 June 2017, in respect of the Offer.
DISTRIBUTION OF SHAREHOLDERS AND HOLDINGS AS AT 30 JUNE 2018
The total number of voting securities of Fletcher Building at 30 June 2018 was 853,347,141 fully paid ordinary shares, each conferring
on the registered holder the right to one vote on a poll at a meeting of shareholders.
Size of holding
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
Number of
shareholders
% of
shareholders
Number of
ordinary shares
% of
ordinary shares
16,069
14,450
3,283
2,224
140
36,166
44.43
39.95
9.08
6.15
0.39
100.00
6,881,556
34,517,637
23,064,336
48,365,077
740,518,535
853,347,141
0.81
4.04
2.70
5.67
86.78
100.00
SUBSTANTIAL PRODUCT HOLDERS
According to notices given under the Financial Markets Conduct Act 2013, the following persons were substantial product holders of
the Company as at 30 June 2018. The total number of voting securities of Fletcher Building Limited at 30 June 2018 was 853,347,141
fully paid ordinary shares.
Substantial product holder
Perpetual Limited and subsidiaries
Ellerston Capital Limited
Commonwealth Bank of Australia
Schroder Investment Management (Australia) Limited
Number of ordinary shares in which
relevant interest is held
67,738,370
35,786,943
Date of notice
15 May 2018
13 April 2018
41,967,254
19 March 2018
32,150,024
28 November 2017
119
Fletcher Building Limited Annual Report 2018BACKHOMETrend statementFinancial statementsIndependent auditor's reportRemuneration reportGovernanceCorporate directoryOur Year in ReviewStrategyOur LeadershipDivisionsBusiness SustainabilityFinancials and GovernanceStatutory disclosures Statutory Disclosures
20 LARGEST SHAREHOLDERS AT 30 JUNE 2018
Holder Name
New Zealand Central Securities Depository Limited
HSBC Custody Nominees (Australia) Limited
JP Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
National Nominees Limited
FNZ Custodians Limited
BNP Paribas Nominees Pty Ltd
UBS Nominees Pty Limited
BNP Paribas Noms Pty Ltd
Citicorp Nominees Pty Limited
JBWere (NZ) Nominees Limited
Southern Steel Group Pty Limited
New Zealand Depository Nominee Limited
PT (Booster Investments) Nominees Limited
CPU Share Plans Pty Limited
Investment Custodial Services Limited
Fletcher Building Share Schemes Limited
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