Fletcher Building Limited (FBU) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is Peter Crowley. I'm the Chair of Fletcher Building. Before we begin, there's a little bit of housekeeping. The first of the fire evacuation procedure. In the event of an emergency during the function, an alarm will be sounded and the duty manager or supervisor will announce over the PA that all guests should leave through the marked exits. [ Wait and bar ] staff will evacuate guests from the main entrants while kitchen staff will evacuate through the rear of the venue. The evacuation points are the front entrance over there, alternate through the loading bay of the rear. The assembly point is outside Wildfire restaurant or below at Saint [indiscernible] over the viaduct car park. Toilets are located at the front of the building by the main entrants. Vaping is permitted, there you go I'm [indiscernible] but please make outside the main entrance down the [indiscernible] didn't vape there, frankly. But on that note, [Foreign Language], and good morning, everyone. On behalf of the Board, it's my pleasure to welcome you all to the Fletcher Building's 2026 Annual Shareholder Meeting. To note today's meeting is being held both in person and online via the Computershare online meeting platform. We therefore, welcome our shareholders, proxies and guests both those here in the room and those joining us online. Before we start the formal business of the meeting, I would like to ask people in the room to ensure their mobile phones are on silent mode. Ladies and gentlemen, as the quorum is present and due notice of this meeting has been given. The meeting is duly constituted, and I declare it open. I'll now introduce my fellow directors on the stage with me. James Miller, our Deputy Chair; Andrew Reding, our Managing Director and Group Chief Executive Officer; Sandra Dodds; Carty Quinn; tony Dragicevich and Jacqui Coombes. Finally, our Company Secretary, Haydn Long. Setting the agenda for the day, I'll begin with an overview of the year and the progress we have made. I'll then hand over to Andrew, who will provide an update of the turnaround plan and the group's operating performance. We will then take any questions on those presentations. After that, we will move to the resolutions of the meeting. And I'll ask Sandra to speak to her reelection and Jacqui to speak to the remuneration road. The resolutions will be decided by poll. Questions on a resolution will be dealt with before the resolutions are voted upon. At the conclusion of the formal business, we will take the opportunity for any final general questions or other business from the floor and online. Please note that questions will be modified to avoid repetition and to summarize lengthy questions. I might add that the intent of the question will remain unchanged, won't be modified in that respect. We won't address questions that are considered not reasonable in the context of the meeting, that repeat questions or otherwise may restrict all shareholders having a fair chance to have their questions heard. For those attending online, you can start submitting your questions now. Thank you also to the shareholders who have submitted their questions in advance. Andrew and I will speak to a number of these in our addresses. Finally, if for some reason, we don't have the opportunity to answer your question, we will look to answer it in due course via e-mail. At the conclusion of the meeting, we invite those in the room to stay and join us for light -- some light refreshments. So let me start the Board update. The Board's composition remains stable in financial year 2016, with a capable and diverse group of directors contributing a broad range of experience and expertise to Fletcher Building. Our directors bring a mix of skills to their role. Around the Board table, we have deep experience in building materials, manufacturing, distribution, combined with expertise in the capital markets, legal, finance and audit. We have large-scale transformation and governments of listed companies on both sides of the Tasman as part of their skills as well. That blend of sector knowledge and broader commercial experience mean the Board can challenge and support management in equal measure from operational performance through the capital allocation and portfolio decisions. In December 2025, James Miller was appointed to the newly created role of Deputy Chair. Having a New Zealand-based deputy chair further strengthens the Board connection to our New Zealand operations, and allows for more on-ground engagement by our people, customers, government and local stakeholders. Looking back on financial year '26. The Board's assessment is Fletcher Building made tangible progress in stabilizing and reshaping the group. There's a lot -- there's more work to do, but the foundations are now much stronger than they were a year ago. I would like to highlight 5 key outcomes for the year. First, we achieved steady financial and operating performance in a tough macro environment. Activity across our residential and commercial markets remain relatively subdued on both sides of the Tasman. Despite that, our business has held their ground, manage costs tightly and continue to serve their customers well. Second, we progress the execution of our strategy. Management has delivered on the priorities set out at our Investor Day, simplifying the portfolio and sharpening our focus as a building products, manufacturing and distribution company. Third, we've built a more resilient balance sheet with net debt now in our target range. This gives us a greater financial flexibility and the capacity to manage through the cycle with confidence. Fourth, the group return on investment improved in financial year '26. Returns are moving in the right direction, but they are not yet where the Board expects them to be. Lifting returns remains a priority for the Board and the group. And finally, the group's operating cash flows was strong in financial year '26 as our core businesses performed relatively well. However, however, they continue to be impacted by costs associated with legacy projects as we look to manage those matters to resolution. We are pleased with the progress made during financial year '26. Taken together, these outcomes showed business that is more focused, more disciplined and better positioned to benefit when our markets recover. However, we will remain ambitious for further progress to be made as quickly as we can. Turning to our financial results for financial year '26. Group revenue for the year was $6 billion from continuing operations, and that's 7.3% higher than the prior year. Earnings before interest tax, before significant items was $414 million, $85 million higher than the financial year '25. Property sales contributed $49 million of that increase. Our EBIT margin grew to 6.9% and up from 5.9%, and we reported net earnings of $228 million compared to a net loss of $419 million in financial year 2025. This return to positive net earnings was very important and reflects the benefit of tighter execution and the actions taken to reset the cost base. Even more significant, though was the substantial progress the group made in strengthening the balance sheet, a reduction in net debt from $1 billion at the 30th of June 2025 balance date down to $637 million at the end of financial year '26. Together with operating cash flow of $715 million, this greatly improves our financial position and also creates greater financial flexibility going forward. Capital expenditure totaled $288 million, $146 million of which relates to the new [ Laminex ] oriented strand board plant at Taupo and was managed with a sharper focus on returns and within disciplined capital allocation framework. Return on invested capital or ROIC improved to 5.3% from 4.1%. That's progress but is not yet an acceptable end point. The Board expects capital discipline and improved returns to remain central to decision-making and assessments of our performance going forward. Taking into account the progress made to date, and the work still to do that the Board has determined not to declare a dividend for the financial year 2026. As previously advised, the group's dividend policy will be reset and communicated to shareholders once the group is both operating at the lower end -- of a lower half of our net debt target range and generating sustainable positive free cash flow. The Board acknowledges the importance of dividend to shareholders, and we are determined to return to being a dividend-paying company. However, the returned dividends must be prudent, sustainable and capable of being maintained through the cycle. Overall, Fletcher Building ended the year as a simpler and financially stronger group, better able to navigate current conditions and also better placed to benefit when the market activity levels recover. During the Investor Day in June 2025, we outlined 4 key priorities which the group has been executing on. The first was urgent action. The group has taken decisive action after a portfolio review, leading to the divestment of the Construction division as well as our reinforcing and wire business. The property portfolio was also optimized during the year with some significant sales of surplus land. Andrew will expand on some of these actions shortly. Second, delivering high performance. As mentioned before, return on invested capital, or ROIC is now the key measure at group divisional and business unit levels, and we have set targets across each of these in the company. Expectations are also reflected in our remuneration framework so that our incentives are aligned to performance expectations. Third, we set out to empower our leaders and decentralize the structure. I'm happy to say the senior leaders are engaged exceptionally well with employee Net Promoter Scores improving by 21 points since October 2025 to plus 59. And finally, a more resilient capital structure with net debt in the middle of our net debt target range, our focus is now on delivery of sustainable free cash flows. Alongside the material progress we have made during financial year '26 on our strategic goals, we continue to work on improving our operational performance and I'll turn to that now. Improvements in our operations -- improvements to our operations strength into operations strengthen the group's strategic position and is pathway to higher and more sustainable returns. I'll highlight 4 examples from FY '26 that are particularly relevant to sustainable shareholder value. The first is Cavendish Drive. This is our new frame and truss plant in Auckland and it's now operational. And it gives us technology, no one else in the New Zealand market has. We've been selling frame and trust to meet the market but the margins were not acceptable. The Canvendish Drive plant will enable us to do this in more efficient and economically sustainable ways. The second is the new -- is the opening of first new batching plant in [ Penrose ]. This represents a significant investment in ready-mix concrete capacity in Auckland and positions the business well for future growth. The third is The Urban Quarry. Our network of metro collection sites for dealing with demolition waste. We opened a new site at [indiscernible] here during the year, and our overall tonnage of 938,000 tons relating to Winstone Aggregates is up 28% in financial year '25. This is the start of a real position for us in the circular economy. And as springboards off the capability the Golden Bay Cement already has in using alternative fuels, including waste products in its Portland cement manufacturing plant. Finally, in recent news, the [ Honua quarry ] application has been approved, securing the long-term position of the quarry within the Auckland market, and Andrew will talk to you more about that in detail. There are other examples on the screen of operating highlights from financial year '26, but they are amongst many great things that happen across our business. I'm now going to pass over to Andrew to discuss the group's financial year '26 operating performance in more detail. Over to you, sir.

Thank you, Peter, and good morning, shareholders. Peter has spoken about progress against some of our key strategic goals. We've broken out those goals into a turnaround plan that includes a range of important tasks and actions ahead. As we discussed at our Investor Day in June last year, they're outlined again on this slide, and as you can see, we have ticked a number of them off during FY '26. I want to touch on a few key items from our turnaround plan. As we previously mentioned, the portfolio work is well in train. With the construction divestment completing sooner than our own expectations alongside the sales of our reinforcing and wire businesses and our interests in X2 and CSP. The cost out and group structure work is well advanced. The New Zealand International Convention Center has been handed over and the 15-or-so remaining legacy projects are provisioned for, and we are working methodically through them with the goal of closing them out. Clearly, the major initiative for the year was the Construction division divestment. And no one should underestimate what coming out of that business does for our ability to perform as a group. Beyond the financial drain, construction was consuming a great deal of the organization's time and attention, monitoring its risk profile, managing the projects and resolving disputes with significant distractions from our core business. That focus is now back where it belongs. I know you'll be interested in the strategic review of our Residential and Development division that we previously announced. All I can say is that we are working through the options to get the best outcome for shareholders, and we will update you when we have news to share. One more thing in the future [indiscernible] it says further decentralized corporate functions. There is still more to do, but we are getting closer to an optimal balance. The reality is that whilst our preference is to have businesses choosing and owning the functionality, some centralized corporate functions do carry real economies of scale, which we may not want to forgo. But I can assure you, we are running the ruler over everything. Overall, I'm proud of what the team has achieved. As no single item on the list has got us here rather it is the combined progress against all of them. Turning to the divisions. The important message is that whilst there was some uneven performance, fundamentally, the core manufacturing businesses delivered a creditable and resilient outcome in what was still a challenging market. The priority now is to convert operational improvement into consistently stronger returns across the full portfolio. On ROIC, light building products is strongest at 7.2%, and heavy building materials is at 5.1%. Distribution at 1.4% has for this to go. Starting on the left of the table. Light Building products earnings grew 22%. Additions in alterations volume and activity in the rural sector offset weaker construct residential construction activity in the North Island, while the South Island and Australia performed relatively well. Winstone Wallboards grew volumes by 4% and again delivered double-digit returns, while insulation also performed well, including double-digit ROIC in Australia. We also saw continued volume recovery through the second half across many of the light building products businesses, a result of improving activity in some of our end markets. In Heavy Building materials, earnings grew 8% versus the prior year. Winstone Aggregates improved materially in the second half, delivering double-digit ROIC through stronger project activity and Urban Quarry share growth. First, benefited from lower energy costs and stronger late year volume momentum. However, we know that the concrete planning market where we have a large share in Auckland has seen delays in project commencement. In distribution, full year earnings were lower at GBP 12 million, down from GBP 19 million. However, performance improved materially in the second half of the year with the division returning to profitability. Going forward, the structural cost of the division will benefit both from labor -- will benefit from both labor productivity improvement from the new Cavendish Drive plant, helping us gain greater share of wallet in further sales as well as a flatter organizational structure. A further lever for growth is our regional joint venture branch model, which we've reestablished this year, commencing with 4 branches in Southland. In residential and development, the Auckland market remains subdued with elevated inventories and pricing pressure, while Canterbury remained resilient. The charts show volumes for our main businesses indexed to 100 at the end of FY '19. We -- Light Building products on the left and Heavy Building materials and Frames & Truss on the right. Each line is a rolling 12-month average. The group has made a better start to FY '27 with quarter 1 sales volumes ahead of the same period last year in most business units. Growth was broad-based across Light Building products, Heavy Building materials and distribution, supported by residential infrastructure and commercial activity and market share gains. Compared with quarter 4 FY '26, volumes largely followed normal seasonal patterns. The exception was pipelines as customers work through stock board ahead of our quarter 4 FY '26 price increases. Residential and development remained challenging, particularly in Auckland. Let me update you on how market conditions have developed since the full year results and what that means for the year ahead. I'll start with New Zealand. First, the residential market. Building consents are back above 40,000 for the first time since 2023, and our volumes have lifted a bit for the second half of FY '26 and into quarter 1 FY '27. What's interesting is that those consents are not converting into activity as clear as they normally would. [indiscernible] is that uncertainties causing people to hold off already consented projects especially given high inventory levels. That said, additions and alterations activity is providing a welcome offset and remains strong. Commercial construction remains weak. We're not seeing much improvement there. There are strong indication that uncertainty driven by a mix of geopolitics, interest rate hikes and local election sentiment are causing projects to be laid. However, infrastructure was the offset with activity just starting to bubble. Major roading in social infrastructure work is commencin. For example, the second Ashburton Bridge, the Hawkes Bay Bridge Program, Northern Corridor, River link, [indiscernible] to North Levin, no [ Fornara, Nelson and Dunedin ], a Christchurch prison and a program of school [indiscernible] around the country. Now for Australia. Population growth and underlying housing demand are supportive of our markets. Interest rates and affordability are not. Also, the picture there is more than usual by state. Renovation activity, however appears more robust, similar to what we're seeing in New Zealand. Meanwhile, commercial construction is being supported by health, education and data center demand concentrated in New South Wales. This is partly offset by a contraction in office, retail and industrial projects. And in terms of infrastructure, there is a strong pipeline, including the 2032 Brisbane Olympics. Growth is expected to be concentrated in energy transmission, water and social infrastructure. On infrastructure in both countries, it's worth noting that our exposure to this sector is smaller than our exposure to residential and commercial. So while it's encouraging, it won't move the dial for group all on its own. The reason the last few years have been so hard is that residential, commercial and infrastructure construction activity all came down at the same time in both countries. They are now moving again, albeit at different speeds, but we don't need all 3 sectors to turn up once for us to make progress from here. So we're not waiting for the markets to turn around to improve our performance while proactively continuing with our strategic plan and program of self-improvement to deliver in any environment. Before discussing anything else on safety, I want to acknowledge the tragic loss of Max. Our team member who passed away following a [indiscernible] incident in [indiscernible] in July last year. The loss of Max is totally unacceptable and reinforces the scale of commitment to safety required across the entire organization. Whilst overall, our Protect program has delivered real improvements in our safety outcomes over the last 7 years, these serious and tragic events remind us that we must remain vigilant and continue to improve. We've reviewed all 339 of our locations across Australia and New Zealand as part of our ongoing focus on improving our safety performance. And moving forward, we're conducting a further safety system review and refreshing our Protect framework for leaders in the business. Our customers remain at the heart of everything we do. We are proud of the role we play in enabling infrastructure, housing and community development across New Zealand and Australia. The projects highlighted on this slide are just examples our latest projects spanning a huge range of work, from pouring concrete for wind farms and laying pipe for our urban infrastructure to fitting out a flagship clinic and rewarding customers through [ Placemakers Plus ]. We're proud of our community partnerships. We have a role to play in both the New Zealand and Australian societies and we try to do our bit to make a positive impact. On this slide, you will see just a small subset of examples of the good work our teams are doing across our many locations. From supporting children living with critical illnesses to helping sports hubs raise roofs, to providing support to communities experiencing food insecurity. Moving to the environment. We remain committed to our environmental targets because it is simply good business. And 76% of our revenue currently comes from sustainably certified products. Scope 1 and 2 carbon emissions are 21% below our FY '18 baseline, and 86% of our waste is diluted from landfill. Golden Bay cement is among the top quartile of low-carbon cement producers globally and received the Carbon Reduction Award of the 2025 Concrete Meeting Conference Awards. Initiatives such as The Urban Quarry are further examples of our circular economy ambition. Turning now to further good news for Winstone Aggregates and for Auckland. On the 15th of October, the expert panel approved the development of our [indiscernible] quarry under the Fast Track Approvals Act, granting the main content we need to expand and deepen the existing quarry. Humes is one of Auckland's largest cores, producing around 3 million tonnes of aggregates a year, roughly 20% to 25% of the region's supply. This approval lifts our reserves of around 40 million tonnes, roughly 10 to 15 years of supply to around 225 million tonnes of high-quality gray Waki. That supports more than 50 years of quarrying with output able to rise to around 5 million tonnes a year as demand requires. Aggregate underpins New Zealand's road, housing and commercial building. a long-term source close to Watkins main markets, secure supply and keeps transport distances short, benefiting our customers in the region and giving us a long life asset with room to grow. The approval comes with a comprehensive set of conditions, and we're committed to meeting them. We'll keep working constructively with [indiscernible], our neighbors and the local community as the project moves forward. As I finish with the operational update, I want to leave you with this. We have delivered a robust performance in a tough operating environment and made good progress on our strategic plan. We have progressed with the portfolio simplification. We have put the focus on performance and made ROIC a discipline in our business, and we've moved quickly and decisively, and we now have a fitter, leaner organization. The next stage is in front of us and the job now is proving out where the growth comes from inside the core and exploring opportunities to further simplify the portfolio. I would like to say thank you to all of our teams for performing under both major organizational change and a challenging macro environment. I will now pass back to Peter with a conclusion.

Thank you, Andrew. To wrap up, let me return to the 5 takeaways for financial year '26 that I set out at the start of my presentation. We delivered a steady performance in a tough macro environment. We executed against our strategy. We have strengthened the balance sheet with net debt in our target range. Group ROIC improved, but there's more to do. And operating cash flows were strong, albeit still impacted by some legacy project. That progress was achieved during a period of considerable organizational change, a difficult trading conditions. Financial year '26 was an important transition year for Fletcher Building. The task ahead is clear to simplify our portfolio, stronger balance sheet and low cost base into sustainable improvement in returns and long-term value for our shareholders. On behalf of the Board, I thank our people for their commitment and professionalism and I thank our shareholders for your continued support. Ladies and gentlemen, with that, we'll now take questions on these -- on my presentation and Andrews, after which we will move to dealing with the resolutions for the meeting. If you're in the room, I invite you to please raise your hand and a microphone will be handed to you. Please, before you ask a question, could you state your name. Okay. Thanks, Alan.

My name is Alan Best, and I'm the proxy holder for maybe the New Zealand Shareholders' Association today, also a shareholder from way back. So patient. In last year's meeting, you suggested that you wouldn't be paying a dividend until we get down to the lower end of the target range? And I wondered if you could just update us on that. You've ended the year at about $637 million of net debt. How have you been going against that?

Well, yes, we ended pretty much in the middle of that target net range, which is $400 million to $900 million. We're still about that. We think the year coming would probably be a little better. We've got a couple of projects we're working our way through at the moment. So I think I don't anticipate we're going to move -- we're certainly going to not move in the wrong direction against that number.

Okay. The second thing that you did suggest last year was that you could [indiscernible] $130 million of reductions in cost. I would think, looking at the accounts, you managed that pretty well. So congratulations. But how did it appear in the books this year against that?

We took out certainly in excess of $30 million in costs. I'm just trying to recall, I think it was about $20 million in corporate. $30 million corporate, yes and some more in the divisionals. But yes, it's in excess of $30 million.

Right. The last one actually is a question from way back. I remember asking [indiscernible] just about R&D. And I got most unsatisfactory answer. How does the Board keep a track of this? Because actually, there's a lot of research to show that R&D input represents future dividends for shareholders. And we want to make sure as long-term investors that our interest in R&D are there.

Well, I'm going to have a crack at that, but I'll -- well, unless maybe I'll do the overview on the details of my colleague here. Our product innovation is really where we're talking here. We are really, really active in this front. And I can give you as 2 guys sitting right here. [indiscernible] has been driving the oriented strand Board investment. I [indiscernible] a lot of business -- light business like Building Products division. So 1 of the big new product areas we're working in, and we're tipping in a lot of cash, a lot of investment into this is oriented strand board. It is a product -- it is a new product. It will be a new product to the market. It's not a new product to the world. In fact, it's been a strongly growing again, supply wood and things like this around the world. So it's a proven product. But it's new to this market. I think it offers huge opportunities we talk about growth prospects and Fletchers, I think there [indiscernible] board plant in Taupo, which is new product. It's new. It's a function of really precedent will drive a lot of upside going forward. But it is -- it could be a replacement for plywood. It could even have structural applications. It could be a replacement for like a hardy plant type product. So the time will tell. But it's new, but it's not so new to the world that everyone is going, we don't know how to ininal this product. So I think the there's a huge opportunity there. We talk about other new products. So Golden Bay Cement has been continually introducing new products over time to decarbonize. So we're still making clinker. We still got the big kill running. And -- but we see opportunities to add what I would call cement extenders, but other people call them supplementary cementitious materials to effectively increase our capacity while putting in less capital over time to get the capital increase, but the real positive environmentally is less carbon dioxide is produced as we gain those extra tonnes. So this -- the market is certainly adopting it in concrete. So again, it's new product. There has been investment into it. And it's out there in the market, and it's a highly regarded and understood product. The other bit of research and development. The 2 examples I've given you are about kind of new products, there's a bit of sort of scientific stuff. But the other one is The Urban Quarry. what we talked about. We handle nearly 1 million tonnes of demolition waste through that plant. That is a new business area for us. We've a plan at [indiscernible]. We've got a plant at Henderson, and we've just opened a Tamari. And I think that, that provides us a great growth opportunity as we go forward and certainly fits into the story that we're very passionate about telling about the fact that we are a contributor to a better environment through a circular economy. Alan, is that help?

Yes. Thanks very much.

Okay. Okay. There's a gentleman over here.

Hello, Gordon, shareholder. Well, the 2 front rows are from Fletchers, are they? We haven't heard from them. That was all I'm just wondering how many shareholders are here because the meetings have been at the same time as Sky City and this has been really forthcoming. I'm so pleased that -- thank you for the Board and Reding. Look, I can't believe the change in, well, the amazing the amount of restructuring you've been doing is incredible. Because I still want to live another year and hopefully get a part of a dividend.

Me too.

I'm not worried about you, but a couple of things was, of course, the election doesn't help as we know. But I know a few people in construction and a lot of these sites or government projects as well, they're just not [indiscernible] off. I'm amazed how well you've done to hold on for these projects because all of a sudden, there will be a rush and then hopefully, you've got staff or whatever that you've been able to hold on to that we can do this work. But no, that's all really was to thank you for such a turnaround. And let's hope we see you next year.

Thank you. And I just -- I just -- the work that Andrew and his team have put in to position this, it's the usual thing that people don't see it, but the effort, their commitment is just fantastic. Just to your point, we mentioned earlier, we built this big plant at Penrose, this big concrete plant. We've got quarries now, a new quarry for the future. That in terms of an important thing is just incredible. We've got Golden Bay bedded down. So we've got the assets. They're there, they're ready to ramp it at the people to run them. And when the -- when things pick up, [indiscernible] miss a beat, we'll be in there and we'll be really getting our share. Anymore in the room? Otherwise, I'll go to the -- okay. We'll just see if there's any online.

[indiscernible] you're considering selling any further business units.

Look, Andrew and the team, and I think we've all been pretty clear on the fact that we've been working through our way to our portfolio, and there was certainly 2 assets. One was construction which we have -- we've sold, and I think we've got a good price for that business. The other one which we've been reviewing and we're continuing to review as our residential and development business, that's the house and land business we run as to whether that fits with this in the long term. The outcome of that will be dependent on whether we think it's the right outcome for our shareholders in terms of other business issues over time, if we're not getting performance out of certain businesses where we're not achieving ROIC targets, we will consider whether we keep them or whether we sell them. But again, it's contingent on if we're getting the right price.

No further questions, online.