FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMBER 2014 Fletcher Building Group Consolidated income statement (unaudited) 6 Months Dec 2014 6 Months Dec 2013 Year ended June 2014 4,327 4,273 8,401 (3,268) (3,198) (6,294) Gross margin 1,059 1,075 2,107 Selling and marketing expenses (453) (485) (929) Administration expenses (320) (298) (563) 12 12 24 - - 1 NZ$m Notes Sales Cost of goods sold Share of profits of associates and joint ventures Other investment income Other gains/(losses) 3 (8) (23) (16) Significant items 4 (66) - (32) Earnings before interest and taxation (EBIT) 224 281 592 Funding (costs)/income (66) (72) (130) 158 209 462 (40) (50) (111) Earnings after taxation 118 159 351 Earnings attributable to non-controlling interests (4) (5) (12) Net earnings attributable to the shareholders 114 154 339 Basic 16.6 22.4 49.3 Diluted 16.6 22.4 49.2 Basic 688 686 687 Diluted 688 696 714 Dividends declared per share (cents) 18.0 18.0 36.0 Earnings before taxation Taxation expense 5 Net earnings per share (cents) Weighted average number of shares outstanding (millions of shares) The accompanying notes form part of and are to be read in conjunction with these interim financial statements. 1 Financial Statements continued Fletcher Building Group Consolidated statement of comprehensive income (unaudited) NZ$m 6 Months Dec 2014 6 Months Year ended Dec 2013 June 2014 114 154 339 4 5 12 118 159 351 - 1 9 - 1 9 Movement in cash flow hedge reserve 10 12 9 Movement in currency translation reserve 21 (176) (245) 31 (164) (236) 31 (163) (227) 149 (4) 124 Net earnings attributable to shareholders Net earnings attributable to non-controlling interests Net earnings Other comprehensive income Items that do not subsequently get reclassified to profit or loss: Movement in pension reserve Items that may be reclassified subsequently to profit or loss in the future: Income and expense recognised directly in equity Total comprehensive income for the period The accompanying notes form part of and are to be read in conjunction with these interim financial statements. 2 Financial Statements continued Fletcher Building Group Consolidated statement of movements in equity (unaudited) Share capital Retained earnings Share-based payments reserve Cash flow hedge reserve Currency translation reserve Pension reserve Total 2,606 1,078 1 (31) (55) (80) 3,519 35 3,554 Total comprehensive income for the period - 154 - 12 (176) 1 (9) 5 (4) Movement in non-controlling interests - - - - - - - (7) (7) 17 - - - - - 17 - 17 Dividends paid to shareholders of the parent - (117) - - - - (117) - (117) Movement in share-based payment reserve - - 10 - - - 10 - 10 Movement in treasury stock 1 - - - - - 1 - 1 Total equity at 31 December 2013 2,624 1,115 11 (19) (231) (79) 3,421 33 3,454 Total equity at 30 June 2013 2,606 1,078 1 (31) (55) (80) 3,519 35 3,554 Total comprehensive income for the year - 339 - 9 (245) 9 112 12 124 Movement in non-controlling interests - - - - - - - (12) (12) 17 - - - - - 17 - 17 Dividends paid to shareholders of the parent - (240) - - - - (240) - (240) Movement in share-based payment reserve - - 10 - - - 10 - 10 Movement in treasury stock 1 - - - - - 1 - 1 Total equity at 30 June 2014 2,624 1,177 11 (22) (300) (71) 3,419 35 3,454 Total comprehensive income for the period - 114 - 10 21 - 145 4 149 Movement in non-controlling interests - - - - - - - (17) (17) Dividends paid to shareholders of the parent - (124) - - - - (124) - (124) Movement in share-based payment reserve - - 1 - - - 1 - 1 2,624 1,167 12 (12) (279) (71) 3,441 22 3,463 NZ$m Total equity at 30 June 2013 Issue of shares Issue of shares Total equity at 31 December 2014 The accompanying notes form part of and are to be read in conjunction with these interim financial statements. Noncontrolling interests Total equity 3 Financial Statements continued Fletcher Building Group Consolidated balance sheet (unaudited) NZ$m Notes Dec 2014 Dec 2013 June 2014 Cash and deposits 124 145 134 Current tax assets 44 53 55 Derivatives 10 7 6 1,283 1,214 1,401 1,411 1,380 1,362 Assets held for sale 43 - - Total current assets 2,915 2,799 2,958 2,131 2,153 2,126 1,099 1,158 1,122 Intangible assets 478 487 474 Investments in associates and joint ventures 135 127 133 Other investments 63 42 62 Derivatives 83 53 41 Deferred tax assets 21 24 25 Total non-current assets 4,010 4,044 3,983 Total assets 6,925 6,843 6,941 Assets Current assets: Debtors Inventories Non-current assets: Property, plant and equipment Goodwill The accompanying notes form part of and are to be read in conjunction with these interim financial statements. 4 Financial Statements continued Fletcher Building Group Consolidated balance sheet (unaudited) NZ$m Notes Dec 2014 Dec 2013 June 2014 1,118 1,141 1,234 Provisions 63 54 54 Current tax liabilities 16 18 22 Derivatives 15 17 18 108 77 130 302 174 138 1,622 1,481 1,596 Creditors and accruals 49 43 66 Provisions 14 18 14 Retirement plan liabilities 75 77 79 Deferred tax liabilities 51 36 50 Derivatives 39 47 38 1,612 1,687 1,644 Total non-current liabilities 1,840 1,908 1,891 Total liabilities 3,462 3,389 3,487 2,624 2,624 2,624 817 797 795 3,441 3,421 3,419 22 33 35 Total equity 3,463 3,454 3,454 Total liabilities and equity 6,925 6,843 6,941 Liabilities Current liabilities: Creditors and accruals Construction contracts Borrowings 6 Total current liabilities Non-current liabilities: Borrowings 6 Equity Share capital Reserves Shareholders' funds Non-controlling interests The accompanying notes form part of and are to be read in conjunction with these financial statements. On behalf of the Board, 18 February 2015 Sir Ralph Norris Chairman of Directors Mark Adamson Managing Director 5 Financial Statements continued Fletcher Building Group Consolidated statement of cash flows (unaudited) 6 Months Dec 2014 6 Months Dec 2013 Year ended June 2014 4,399 4,326 8,323 7 4 12 4,406 4,330 8,335 4,168 4,053 7,642 Interest paid 63 66 131 Income tax paid 29 32 73 4,260 4,151 7,846 146 179 489 Sale of property, plant and equipment 8 9 13 Sale of investments - - 1 Sale of subsidiaries/businesses 21 - 21 Total received 29 9 35 Purchase of property, plant and equipment and intangible assets 116 97 260 - 4 4 116 101 264 (87) (92) (229) 73 47 25 - - 13 73 47 38 - - 43 19 8 14 Dividends 124 100 224 Total applied 143 108 281 Net cash used in financing activities (70) (61) (243) Net movement in cash held (11) 26 17 Add opening cash and liquid deposits 134 123 123 1 (4) (6) 124 145 134 NZ$m Cash flow from operating activities Receipts from customers Interest received Total received Payments to suppliers, employees and other Total applied Net cash from operating activities Cash flow from investing activities Purchase of subsidiaries/businesses Total applied Net cash used in investing activities Cash flow from financing activities Net debt drawdown Issue of capital notes Total received Repurchase of capital notes Distribution to non-controlling interests Effect of exchange rate changes on net cash Closing cash and deposits The accompanying notes form part of and are to be read in conjunction with these interim financial statements. 6 Financial Statements continued Fletcher Building Group Reconciliation of net earnings to net cash from operating activities (unaudited) 6 Months Dec 2014 6 Months Dec 2013 Year ended June 2014 114 154 339 4 5 12 118 159 351 103 104 203 Significant items 60 - 22 Provisions and other adjustments (11) (15) (34) 11 18 38 1 1 (1) Non-cash adjustments 164 108 228 Cash flow from operations before net working capital movements 282 267 579 (136) (88) (90) 146 179 489 100 75 (108) (5) (83) (76) Land and developments (57) (4) (28) Assets held for sale (43) - - Contracts (23) (22) 32 Creditors (108) (54) 90 (136) (88) (90) NZ$m Cash was received from: Net earnings Earnings attributable to non-controlling interests Adjustment for items not involving cash: Depreciation, depletions, and amortisation Taxation (Gain)/loss on disposal of businesses and property, plant and equipment Net working capital movements Net cash from operating activities Net working capital movements Debtors Inventories The accompanying notes form part of and are to be read in conjunction with these interim financial statements. 7 Financial Statements continued Fletcher Building Group Breakdown of financial performance (unaudited) NZ$m 6 Months Dec 2014 6 Months Dec 2013 Year ended June 2014 1,055 1,167 2,274 681 673 1,312 Gross sales Heavy Building Products Light Building Products Laminates & Panels 909 875 1,731 Distribution New Zealand 879 823 1,650 Distribution Australia 447 477 928 Construction 741 669 1,301 3 4 7 Total 4,715 4,688 9,203 Intercompany sales (388) (415) (802) External sales per income statement 4,327 4,273 8,401 Heavy Building Products 863 950 1,859 Light Building Products 601 597 1,166 Laminates & Panels 904 866 1,710 Distribution New Zealand 780 725 1,462 Distribution Australia 446 476 927 Construction 733 659 1,277 4,327 4,273 8,401 Heavy Building Products 74 90 214 Light Building Products 51 51 116 Laminates & Panels 57 53 124 Distribution New Zealand 43 41 84 6 8 17 79 56 106 Other (20) (18) (37) Total 290 281 624 Significant items (66) - (32) Earnings before interest and taxation (EBIT) per income statement 224 281 592 Other External sales External sales per income statement EBIT before significant items Distribution Australia Construction 8 Financial Statements continued Fletcher Building Group Breakdown of financial performance (unaudited) NZ$m Dec 2014 Dec 2013 June 2014 1,676 1,719 1,719 614 647 637 1,785 1,746 1,702 Distribution New Zealand 309 318 332 Distribution Australia 395 421 406 Funds * Heavy Building Products Light Building Products Laminates & Panels Construction Other (including debt and taxation) Total 190 134 141 (1,506) (1,531) (1,483) 3,463 3,454 3,454 During the period, there were changes to the organisational structure which resulted in two new divisions - Heavy Building Products and Light Building Products - being formed. In addition to these two new divisions, a number of business units have been incorporated into the Distribution New Zealand division. Prior period data has been re-presented. * Funds represent the external assets and liabilities of the Group and are used for internal reporting purposes. 9 Notes Notes to the consolidated financial statements 1. Basis of presentation The condensed consolidated interim financial statements presented are those of Fletcher Building Limited and its subsidiaries (the “group”). Fletcher Building Limited is a company domiciled in New Zealand, 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. The condensed consolidated interim 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 comply with NZ IAS 34 Interim Financial Reporting and should be read in conjunction with the 30 June 2014 annual report available on the group website at www.fbu.com. 2. Changes in accounting policies There have been no changes in accounting policies in the six months ended 31 December 2014, however, certain comparatives have been re-presented to conform with the current period’s presentation. 3. Other gains and losses 6 Months Dec 2014 6 Months Dec 2013 Year ended June 2014 3 - 2 Redundancies and restructuring costs (7) (20) (18) Other gains/(losses) (4) (3) - (8) (23) (16) Site closure costs (1) Impairment of goodwill (2) Total Heavy Building Products division 25 - 25 Light Building Products division 9 - 9 Distribution New Zealand division - 16 16 Construction division - 16 16 Total significant items before taxation 34 32 66 Tax (benefit)/charge on above items (9) - (9) Total significant items after taxation 25 32 57 NZ$m Other gains/(losses) include the following: Sale of assets 4. Significant items Six months ended 31 December 2014 NZ$m (1) In the six months ended 31 December 2014 the group has recognised a charge of $34 million for costs associated with closing a number of sites: • $19 million relating to the closure of the Crane Copper Tube factory in Penrith, due to a decision to exit the copper tube manufacturing business; • $6 million relating to the closure of Stramit’s insulated panels plant; • $6 million relating to the closure of the Humes Rolleston pipe plant as part of a strategic review; and • $3 million relating to the insulation manufacturing plant in Hornby, following a consolidation of operations in New Zealand. 10 Notes continued 4. Significant items continued (2) In the six months ended 31 December 2014 the group has recognised a $32 million impairment charge, which relates to a write-down of goodwill in the Forman business. Since the annual impairment review in June 2014 changes in forecasts have led management to conclude that the recoverable amount of the Forman business had declined and that the carrying value of goodwill was no longer supported. The decline in forecasts was principally due to lower long-term earnings expectations as a result of challenging industry conditions. The recoverable amount of Forman was determined based on value in use and, other than forecast cash flows, all other valuation assumptions remain consistent with the group’s June 2014 impairment review. Six months ended 31 December 2013 There were no items or transactions separately disclosed as significant items in the six months ended 31 December 2013. Year ended 30 June 2014 Business disposal income and expenses Impairment of Property, plant and equipment Total 5 15 20 12 - 12 17 15 32 Tax (benefit)/charge on above items (5) (4) (9) Total significant items after taxation 12 11 23 NZ$m Heavy Building Products division Distribution Australia division (1) (2) Total significant items before taxation (1) The group sold parts of the Pacific Steel Group to BlueScope Steel Limited in June 2014 in a transaction with sale proceeds of $60 million and a further consideration for net working capital of $52 million. The gain on sale, offset by transaction costs, amounted to a $4 million charge. In addition, there was a $15 million adjustment to retained asset carrying values. Included in Other receivables at 30 June 2014 was an amount of $82 million relating to deferred consideration. In a separate transaction, a $1 million loss was recorded on the sale of the group’s investment in Fiji Industries Limited, a concrete business. (2) In June 2014 the group entered into an agreement to sell its Hudson Building Supplies business to HTH Stores Pty Limited. Due to the anticipated loss on sale of $12 million, the group recorded an impairment charge against goodwill of $8 million and provided for $4 million of other charges related to the disposal. 11 Notes continued 5. Taxation expense 6 Months Dec 2014 6 Months Dec 2013 Year ended June 2014 158 209 462 44 59 129 Higher/(lower) tax rate in overseas jurisdictions (1) (1) (1) Non assessable income (4) (3) (9) Non deductible expenses 11 1 5 Tax in respect of prior periods 2 2 7 Tax losses not recognised 2 3 3 (14) (11) (23) 40 50 111 Tax on earnings before significant items 49 50 120 Tax benefit on significant items (9) - (9) 40 50 111 Dec 2014 Dec 2013 June 2014 302 174 138 Borrowings - non-current 1,612 1,687 1,644 Carrying value of borrowings (as per balance sheet) 1,914 1,861 1,782 (28) (10) 5 1,886 1,851 1,787 (33) (17) (25) Borrowings excluding derivative adjustments 1,853 1,834 1,762 Total available funding 2,396 2,451 2,378 543 617 616 NZ$m Earnings before taxation: Taxation at 28 cents per dollar Adjusted for: Other permanent differences 6. Borrowings NZ$m Borrowings - current Less impact of debt hedging activities (included within derivatives) Borrowings after impact of hedging activities Less fair value hedge adjustment included in borrowings Unutilised banking facilities In addition the group had $124 million of cash on hand at 31 December 2014 (31 December 2013: $145 million; 30 June 2014: $134 million). 7. Goodwill The Group tests goodwill for impairment annually and considers indicators of impairment at each interim reporting date. As part of our impairment tests, each business unit which carries goodwill prepares a discounted cash flow on a value-in-use basis, using past experience of sales growth, operating costs and margin, and external sources of information where appropriate, to determine expectations for the future. These cash flow projections are principally based on the group’s three year strategic plan approved by the directors, which has been extended for a further two years. 12 Notes continued 7. Goodwill continued The group operates in cyclical markets, which face uncertain market conditions that make it difficult to predict future profitability. Residential markets are still below long-term averages in many jurisdictions, however, there has been a continued improvement experienced in New Zealand and USA. The group has identified certain business units where the review indicated the recoverable amount was only marginally in excess of the carrying amount. Management has implemented a number of strategies and initiatives to achieve an appropriate improvement in earnings. To the extent that these strategies and initiatives do not eventuate, or if there are adverse longer-term impacts from the underlying economies in which the group’s businesses operate, this could lead to future impairments being recognised. Moreover, given current challenging trading conditions in some of the group’s businesses in Australia, to the extent that these conditions are either prolonged, or decline further, this could lead to future asset impairments. If so, such impairments would be non-cash and treated as significant items for the purposes of financial reporting. The Group will continue to monitor its long-term forecasts and estimates in assessing the value in use of its businesses. 8. Fair value measurement Financial instruments are measured at fair value using the following fair value measurement hierarchy: (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). Financial instruments measured and recognised at fair value are derivatives that are designated in hedge relationships. The fair value of base metal price swaps is based on the quoted market prices of those instruments and are measured under level 2. All other derivatives are level 2 valuations based on accepted valuation methodologies. Forward exchange fair value is calculated using quoted forward exchange rates and discounted using yield curves derived from quoted interest rates matching maturity of the contract. The fair value of electricity price swaps are 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. Fair value disclosures The fair values of borrowings used for disclosure are measured by discounting future principal and interest cash flows at current market interest rates plus an estimated credit margin that are available for similar financial instruments. The interest rates across all currencies used to discount future principal and interest cash flows are between 1.37% and 9.42% (December 2013: 1.18% and 11.03%; June 2014: 1.17% and 10.04%) including margins. 9. Contingencies and commitments Provision has been made in the ordinary course of business for all known and probable future claims to the extent they can be reliably measured. There have been no material movements in capital expenditure commitments, lease commitments, contingent liabilities or contingent assets to those disclosed in the 2014 annual report. 10. Subsequent events On 18 February 2015 the directors declared a dividend of 18 cents per share, payable on 15 April 2015. 13 Financial Highlights (unaudited) Fletcher Building Group 6 Months Dec 2014 6 Months Dec 2013 Year ended June 2014 Return on average funds employed (% annualised) (1) 8.6 11.0 11.7 Return on average equity (% annualised) 6.5 8.9 9.9 Earnings per share (cents) 16.6 22.4 49.3 Dividends per share (cents) 18.0 18.0 36.0 Gearing (%) (3) 34.1 33.1 32.3 Leverage (times, annualised) (4) 2.3 2.2 2.0 Interest cover (times) (5) 4.4 3.9 4.8 (2) EBIT after significant items to average funds (net debt and equity less deferred tax asset). Net earnings attributable to shareholders after significant items to average shareholders’ funds. (3) Interest bearing net debt (including capital notes) to interest bearing net debt (including capital notes) and equity. (4) Interest bearing net debt (including capital notes) to EBITDA before significant items. (5) EBIT before significant items to total interest paid including capital notes interest. (1) (2) 14