Fletcher Building shares drop on $273m first-half net loss

Fletcher Building chief executive Ross Taylor says excluding B+I, the company is performing to guidance. (Photo: Jerry Yelich-O'Connor)

Fletcher CEO Ross Taylor on results, CFO Bevan McKenzie on banks.

0
0:00 0:10

Fletcher Building [NZX: FBU] shares touched their lowest levels in more than five years after the company's first-half results, which were clouded by losses at its Building + Interiors unit but also showed soggy demand at its most profitable businesses over the next 12 months. The stock recently traded down 2 percent at $6.72, having sunk as low as $6.50 after the results.

The $273 million loss for the six months ended December compares with a $187 million net profit in the same six months a year earlier and follows its B&I unit posted an operating loss of $631 million as previously forecast by the company last week.

Fletcher says an extra $29 million of overhead and transition costs are expected for B+I in the second half, taking the unit’s total annual loss to the $660 million figure reported last week.

The construction and building materials company says revenue in the six months was up 6% to $4.9 billion and that, excluding B+I’s losses, operating earnings were down 13% from the year-earlier six months at $309 million.

“Outside the challenges experienced in B+I, the broader Fletcher Building business continues to perform to guidance,” chief executive Ross Taylor says.

“While it is pleasing to see an increase in sales revenues, operating earnings have decreased due to lower profits in the construction division, outside of B+I, as well as the building products division,” he says.

“In the Infrastructure and South Pacific businesses of our construction division, we are rolling off major projects from the 2017 financial year, and we are only in the early stages of new ones.

“In building products, we have seen gross margins compress as a result of higher input costs and costs associated with increasing supply chain capacity to meet increased demand.”

The building products division lifted gross revenue 13% but operating earnings fell 9% to $118 million.

“This was driven by additional costs incurred by various businesses to alleviate capacity constraints, increased energy costs, one-off redundancy costs in Fletcher Insulation Australia and a fire at Humes’ Penrose site.”

Earnings in the international division were largely flat while the distribution and residential operations continued to post strong growth.

“Following a record performance in full-year 2017, the distribution division remained a standout, with gross revenues increasing 7% to $1.76 billion and operating earnings up 6% to $89 million,” Mr Taylor says.

The distribution division continues to benefit from strong momentum across its PlaceMakers, Mico and steel distribution businesses while the turnaround of Tradelink is progressing to plan, he says.

Growth supported, but limited
The residential and land development division posted gross revenue of $236 million, up from $163 million in the previous first half, while operating earnings rose 57% to $47 million.

Growth was supported by an increase in unit and land development sales, Mr Taylor says.

The international division increased gross revenues 4%, with strong performances from Formica and robust Laminex sales across the eastern seaboard of Australia but operating earnings were “consistent” with the previous first half at $69 million.

Fletcher Building reiterated its expectation that 2018 financial year group operating earnings excluding B+I will be between $680-720 million.

Commenting on the market outlook, Mr Taylor says residential, commercial and infrastructure activity levels across Fletcher Building’s core markets of New Zealand and Australia are in line with expectations. Growth in activity in the second half is expected to be limited, particularly with the New Zealand building sector operating at or near capacity.

“In New Zealand, residential consents are up 3% and, while there has been some softening of house price growth, we believe this is a sign of the market normalising,” Mr Taylor says.

“In Australia residential activity is declining but standalone approvals remain resilient. Growth in the infrastructure and commercial sectors remains robust in all states outside Western Australia.”

As announced last week, Fletcher will pay no first-half dividend.

RELATED VIDEO: Sir Ralph Norris speaking at last week's press conference (Feb 15)

(Additional reporting BusinessDesk)

All content copyright NBR. Do not reproduce in any form without permission, even if you have a paid subscription.


8 · Got a question about this story? Leave it in Comments & Questions below.


This article is tagged with the following keywords. Find out more about MyNBR Tags

Post Comment

8 Comments & Questions

Commenter icon key: Subscriber Verified

With the value of development sites softening, wait until revaluation time for these.

Fletcher Building wont be alone in recording book losses or book gains on land purchases, with the retirement sector going to be impacted the same way.

Reply
Share
  • 0
  • 0

The cost to build a house in Auckland is now around $3000 a square meter. So a 300m2 house costs $900,000 land at least $600,000 for a 500m2 section which equalls $1.5million.

Reply
Share
  • 0
  • 0

Love to know how they are still worth $6.50. I would struggle to buy the shares at $5.00.

Reply
Share
  • 1
  • 0

They should have gone up with Norris resigning as at least some confidence can come back to the company after the dismal results of late

Did anyone notice how this was at one point the Ralph and Ralph show? Norris & Waters swapping the old school boys clubs jobs between the 2 of them !

Guess good old Ralph after blowing a billion here on the Board won’t be doing the borrow from the tax payer like he managed to do at Air NZ!

In fact with Norris it was Ansett a billion , then Air NZ $885m

Wow quite the run .........

Reply
Share
  • 0
  • 0

He was on board at Fonterra ---- my guess he can take some credit for Beingmate ---- stand to be corrected if my dates are out.....but another $ 1 billion up in a puff of smoke.....or washed away down a sewer.

Reply
Share
  • 0
  • 0

Norris was pretty quick to exit Fonterra I note. Another spectacular fail.

Amazes me the PR he some how had along the way - guess it’s all unravelled at the legacy phase - still I guess he will be remembered in the right way.

Reply
Share
  • 0
  • 0

I can't understand the compressed margins in building products.Surely if demand increases (boom times ) why not increase sale prices (hence net profit ) till demand matches what you can deliver and let the bottom line increase rather than chase revenue for revenues sake.Once things are back to normality the extra capacity may not be warranted anyway.

Reply
Share
  • 2
  • 0

Its not compressed margins that have destroyed capital in Fletcher, it is signing contracts where not all the facts were known at the time and there are onerous terms (fixed price, no escalation, liquidated damages if delivery is late).

The compressed margins will be with all the sub trades who are being shafted to try and mitigate the losses causes solely by the decision of Fletcher to get certain contracts at any cost. Fletcher got their wish, and the poor stock holders are taking the bad (they had the good for a while).

What you can not escape is the Board Governance allowed many huge Contracts with high risk to be taken at the same time. Systemic failure seems a good descriptor.

Reply
Share
  • 0
  • 0

Post New comment or question

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
CAPTCHA
This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.