Fletcher back in black, feels heat in Australia
Having largely doused the fire in its commercial construction engine room, Fletcher Building admits it’s now feeling heat from Australia’s housing slowdown.
Fletcher Building announced an interim profit of $89 million after tax, compared with a loss of $273m in 2018.
It was a welcome return to profitability after suffering a fullyear loss last year of $190m.
The main cause was a $660m loss in its building and interiors (B&I) division, but chief executive Ross Taylor said the company was well on the way to finishing those projects.
Although the company saw overall revenue ease by $135m to $4.75 billion, its New Zealand businesses were largely steady despite rising material costs.
Fletcher’s Australia revenue also held firm, but its earnings slid 38 per cent to $33m.
Three-quarters of the company’s Australian business is tied to the residential and commercial markets where consents have dived 10 per cent in recent months. Taylor expected that to continue until 2020, triggering fiercer competition among suppliers and distributors of building materials.
Its infrastructure business in Australia was stable.
Looking ahead, Taylor said he would be focused on resetting the Australian arm ‘‘for its new market reality’’.
‘‘In New Zealand we feel the market will remain robust but will equally stay competitive and increased cost pressures will continue,’’ he said.
‘‘In Australia we expect the residential and commercial markets to continue to contract, during a higher degree of competitive intensity, and this is likely to be exacerbated by continued input cost pressure.’’
Back home, lower margins on sales in the flat Christchurch market took the edge off Fletcher Residential’s earnings. But Taylor said demand in Auckland was making up for that.
‘‘We expect a stronger second half as our housing stock is weighted to this half, as are our larger land development sales.’’
A chief bugbear for Fletcher continues to be project delays as its B&I division winds up its order book. Its New Zealand construction revenues fell 13 per cent to $866m as the company refused to take on new work.
Taylor said half of the B&I division’s 16 big projects were now finished, while seven were due to be completed this year and one would be done in 2020.
Although he did not say so, this is thought to be SkyCity Entertainment Group’s $700m Auckland convention centre project, which was originally due to open this year.
Precinct Properties’ Commercial Bay office and retail tower is also running six months late, now due to open in December.
Precinct and SkyCity have stated they will penalise Fletcher by as much as $54m in total for missing deadlines.
However, SkyCity confirmed last week that part of the delay was because it had asked Fletcher to remove aluminium composite panels from the centre’s exterior.
Fletcher shareholders have been on a rollercoaster ride since 2016, when the company’s shares hit a high above $11, to a low of $4.56 in December last year.
They were rewarded yesterday with a resumption of dividend payouts, but that was not enough to prevent the share price falling 23 cents to $5.05 in early afternoon trading.
Fletcher is forecasting better days, giving guidance of group profit before tax at about $650m to $700m, depending on the timing of the sale of its Formica business.
Formica has sold for US$840 million (NZ$1.2b) and, as long as it clears regulatory hurdles, should settle later this year.
Shane Solly, an analyst with Harbour Asset Management, said the money would leave Fletcher well capitalised for the future.
Although some parts of the business were ‘‘not there yet’’, he said the latest figures were ‘‘a better result and it shows they’re rebuilding the business.’’