Financial review

The financial statements have been prepared in accordance with New Zealand standards that comply with International Financial Reporting Standards (NZ IFRS).

Back to topResults

The results for the year are set out in the highlights section at the beginning of this report and commentary is provided at the group level in the reviews by the chairman and chief executive. Segmental results and operating information are set out in the divisional reviews on pages 8 to 13.

Back to topUnusual items

As indicated in June, an unusual tax expense of NZ$29 million was incurred in the financial results for the year ended 30 June 2010. The unusual expense arises from the significant taxation announcement by the New Zealand Government in its budget in May 2010. The changes include the elimination of depreciation on buildings for tax purposes, and a reduction in the corporate taxation rate from 30 percent to 28 percent, both with effect from 1 July 2011.

Based on a review of its future tax obligations in the light of these changes, the company has assessed that it is required to increase its provision for deferred tax by NZ$29 million. The increased provision is a one-off accounting entry that is non-cash in nature and it has not affected underlying profitability or the dividend payout in respect of the 2010 financial year. Whilst the recognition of the deferred tax liability is non-cash in nature, the elimination of the tax deductibility on buildings will result in a small increase in future income tax payments.

Back to topProforma earnings

The net earnings for the year, before unusual items, are as follows:

Back to topCashflow and capital expenditure

Cashflow from operations was $522 million compared with $533 million in the prior year. The continued strong positive cashflow was driven by the ongoing focus on tight working capital management and a reduction in capital expenditure. It is expected that cashflow from operations will be negatively impacted by increasing inventory and debtor levels as sustained market growth emerges.

Capital expenditure for the year was $191 million compared with $289 million in the prior year. Of this, $137 million related to "stay-in-business" capital expenditure, and $54 million to new growth initiatives. Significant projects included completion of the new port cement facility in Auckland; the upgrading of the Laminex MDF plant in Queensland, and the insulation plant investment in Victoria.

$164 million was distributed to shareholders and minority interests.

Back to topCapital management and funding

The balance sheet continued to be strengthened during the year with positive operating cashflows used to further reduce debt levels. Gearing at 30 June 2010 was 26.8 percent compared with 31.1 percent at the end of the prior financial year. It is intended to maintain a low level of gearing until a sustained improvement has been seen in the liquidity and accessibility of both domestic and international debt markets.

The group had total available funding of $2,349 million as at 30 June 2010 including capital notes, of which $1,130 million was undrawn. Debt facilities from banks account for 50 percent of total available funding, US private placement 33 percent, and capital notes 17 percent. Debt requiring refinancing within the next 12 months is very low at approximately $116 million. This includes $68 million of capital notes subject to interest rate and term reset, $18 million of expiring drawn facilities, and $30 million of undrawn facilities.

The average maturity of the drawn debt of $1,219 million is over 5 years and the currency split is 52 percent Australian dollar; 18 percent New Zealand dollar; 23 percent US dollar; 5 percent Euro; and 1 percent Pounds Sterling.

Approximately 93 percent of all borrowings have fixed interest rates with an average duration of 4.4 years and at a rate of 7.5 percent. Inclusive of the floating rate borrowings the average interest rate on debt is currently 7.3 percent. All interest rates are inclusive of margins but not fees.

Interest coverage for the year was 4.9 times and represents a further improvement on the 4.0 times for the prior year.

Back to topRisk management

The company has an integrated programme to manage risk associated with movements in interest rates, commodity prices and exchange rates. This aims to ensure a base level of profitability and reduces volatility of earnings. Further details are provided in note 27 of the financial statements.

Back to topRetirement plans

The company operates a number of defined benefit retirement plans for its employees. The largest of these is the New Zealand plan, which has 1,180 members and pensioners and investments of $277 million at 31 March 2010. The total assets in all plans totalled $659 million at 30 June 2010.

The plans are accounted for in accordance with NZ IAS 19 Employee Benefits, which has the effect of smoothing volatility in returns by amortising the difference between expected and actual returns over the remaining life of the members. At balance date, $123 million of net losses were to be accounted
for in future periods.

During the year the company contributed $24 million towards funding these plans. The group expects to contribute $22 million to its overseas defined benefit plans during the year to June 2011.