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 16 to 24.

Back to topUnusual items

Unusual items after tax totalling $76 million were incurred during the year. These relate to costs associated with the acquisition and restructuring of Crane; inventory, fixed assets and goodwill write-downs in the Australian and New Zealand insulation businesses, and adjustments to the carrying value of O'Brien's, the residential bench-top business.

The inventory, fixed assets and goodwill write-offs in the Australian insulation business are due to the significant disruption in the market since the Australian government's insulation retrofit scheme was terminated in February 2010. In New Zealand, the DVS home heating business which is part of the insulation group, and O'Brien's, have been adversely impacted by the slowdown in new residential house building activity.

The unusual tax benefit of $13 million is a partial reversal of the increased provision for deferred tax of $29 million which was recognised in 2010. This provision arose as a result of changes in New Zealand taxation law including the elimination of depreciation on buildings for tax purposes, and a reduction in the corporate taxation rate from 30 percent to 28 percent.

A detailed explanation of the unusual items can be found in note 4 of the financial statements.

Back to topCashflow and capital expenditure

Cashflow from operations was $402 million compared with $522 million in the prior year. Working capital increased by $148 million due to increases in inventory and debtors, and a reduction in creditors.

Capital expenditure for the period, excluding the acquisition of Crane, was $307 million, up from
$191 million in the prior year. Of this total, $200 million was for stay-in-business capital projects,
$51 million was for new growth initiatives, and $56 million was for the acquisition of new businesses. Significant investments during the period included the acquisition of Australian Construction Products, and the expansion of the Laminex high pressure laminate plant in Queensland.

The acquisition of Crane was partly funded through the issue of 67.3 million ordinary shares to Crane shareholders for $586 million, and partly through the payment of cash to Crane shareholders for
$451 million which was financed using cash and existing bank debt facilities.

$202 million was distributed to shareholders and minority interests.

Back to topCapital management and funding

The group's gearing¹ at 30 June 2011 was 33.8 percent compared with 26.8 percent at 30 June 2010. The increase was due to the acquisition of Crane in March 2011. The gearing figure remains well below the target range of 40 to 50 percent, and for so long as world economies remain volatile the group will continue to position gearing below the bottom of this range.

The group had total available funding of $2,499 million as at 30 June 2011. Of this, approximately
$492 million was undrawn and there was an additional $115 million of cash on hand. The main increase in available funding was due to the establishment of a new Australian bank debt facility of AU$120 million. Bank debt facilities represented 54 percent of total available funding, US private placements 28 percent and capital notes 18 percent.

During the period a major portion of the group's syndicated bank debt facility was refinanced. Debt requiring refinancing within the next 12 months is $166 million. Current debt includes $63 million of capital notes subject to interest rate and term reset, $76 million of expiring drawn facilities and
$27 million of expiring undrawn facilities.

The average maturity of the debt is four years and the currency split is 61 percent Australian dollar;
25 percent New Zealand dollar; 10 percent US dollar; 3 percent Euro; and 1 percent Pounds Sterling.

Approximately 66 percent of all borrowings have fixed interest rates with an average duration of 3.4 years and a rate of 7.3 percent. Inclusive of floating rate borrowings the average interest rate on the debt is currently 6.6 percent. All interest rates are inclusive of margins but not fees.

Interest coverage² for the period was 5.1 times compared with 4.9 times in the previous 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 1,126 members and pensioners and investments of
$280 million at 31 March 2011. The investments in all plans totalled $690 million at 30 June 2011.

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, $87 million of net losses were to be accounted for in future periods.

During the year the company contributed $22 million towards funding these plans. The group expects to contribute $22 million to its overseas defined benefit plans during the year to June 2012. 

1. Interest bearing net debt (including capital notes) to interest bearing net debt (including capital notes) and equity.

2. EBIT before unusual items to total interest paid including capital notes interest.