FLE122 Annual Report 2018

Our Year in Review Strategy

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Residential and Development

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Formica and Roof Tile Group

Divisions

Gross Revenue $575m 2017  $420m ▲ 37% EBIT $136m 2017  $130m ▲ 5% EBIT % 24% 2017  31% ▼ 7ppts

Residential and Development 175+ 5 

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.

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.

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.

In Christchurch, after significant preparatory work and resource

Homes delivered in FY18 714

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.

30 Fletcher Building Limited Annual Report 2018

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