Fletcher Building boss says he feels shareholder pain

Fletcher Building’s managing director says one sign his company is on the road back to health is that he’s no longer finding businesses within the group that he’d never heard of before.

“I’ve stopped finding new businesses,” Ross Taylor told the New Zealand Shareholders’ Association’s annual conference in Christchurch.

He was answering a question about whether he was sure he had opened all Fletcher’s closets and found all of its skeletons since taking the top job in November 2017.

In February 2018, Taylor announced provisions of $660 million for expected losses by Fletcher’s highrise construction arm, Building + Interiors, taking that unit’s losses since early 2017 to nearly $1 billion.

The market took the view that he had “kitchen sinked” B+I’s losses and Taylor has repeatedly assured the market there are no more surprises there, but the share price’s decline suggests doubt creeping in.

The shares closed on Friday at $4.44, off their low earlier this month at $4.28 but down more than 30 per cent from a year ago and down 52 per cent since February 21, 2017, the day before Fletcher gave investors the first inkling that there was a problem within its construction division.

One reason for those doubts is that the finish dates keep getting pushed out for two major projects, the Sky City convention centre and hotel and the Commercial Bay development at the bottom of Auckland’s Queen St.

Not long before Taylor joined the company, Fletcher’s board was holding out Commercial Bay as an example of how such projects should be managed but the latest news is that the project’s owner, Precinct Properties, is withholding $34m from Fletcher because of the delays.

But Taylor assured NZSA members that he feels their pain: when he joined Fletcher, he invested $1m in the company, paying $6.90 per share.

Fletcher’s net profit for the year ended June 30 was $164m, compared with a net loss of $190m the previous year, although underlying earnings from most businesses within the group were down. One questioner asked whether Taylor — who is Australian — would depart like so many chief executives of New Zealand companies hired from overseas, leaving a financial mess behind.

Taylor protested that assertion was “just unfair” and that he wasn’t about to “cut and run” with the shares trading where they are currently.

Taylor has considerably slimmed down the company, selling the Formica and Roof Tiles businesses for $1.2b and focusing the business on building products and distribution in New Zealand and Australia.

He had stabilised the construction division and put disciplines in place to ensure management stays focused on Fletcher’s customers, Taylor said.

“We’re pragmatic enough to say we’re not going to get it all done in . . . one year,” Taylor said, adding that the 2019 financial year “was all about staying focused on New Zealand”, where Fletcher earns about 90 per cent of its profits, at the same time as intervening in Australia to put that business on track to improve margins from about 1 per cent currently.

Taylor is aiming to get Australian margins up to 7 per cent within the next few years.

He said Fletcher’s earnings should start growing again from the 2021 financial year and cited one milestone he’s achieved, that of reinstating the dividend.

Fletcher will pay a final dividend of 15 cents per share for the year ended June in September, taking the annual payout to 23 cents per share.

However, one NZSA member complained about the dividend being unimputed.

That’s because of the construction losses and the company should probably be able to start paying imputed dividends in 2021, Taylor said.