Fletcher Building steeling its nerves amid metals slowdown
First Union tries to shame Fletcher into dialling down restructuring plans
Fletcher Building is a favoured whipping boy. The high-profile construction and building materials firm has a national footprint and vertical integration that some of its rivals would kill for, while its uncanny knack for poor decisions can be counted on to attract scorn from market commentators, be it the wrong acquisition, such as Crane, or vastly underestimating building costs for any number of projects.
Little wonder First Union has jumped on the bandwagon in its public campaign as it tries to shame Fletcher into dialling down restructuring plans for its Easysteel distribution business, accusing the firm of mismanagement and its executives of being greedy.
Steel stumbles
One could opine at length as to whether those claims were true, but there’s no doubt the steel market is stumbling.
Fletcher itself pointed to postCovid destocking in steel networks as weighing on its building products division in the six months ended December 31, while also writing $4 million off the value of its steel inventory due to falling prices.
Earnings before interest and tax (ebit) at the building products unit’s metals businesses slumped to $14m in the six months ended December 31 from $32m in the prior period, outpacing the decline in light building products, which fell to $67m from $84m.
In fact, Vulcan Steel — whose chief executive, Rhys Jones, had once been an executive of the 95-year-old Easysteel division — said the market was the toughest it’s faced since 2008 and the Australasian steel and aluminium company shed 157 staff in the six months ended December 31, leaving it with 1283 across its transtasman operations at the start of the year.
Likewise, Steel & Tube Holdings noted the headwinds facing the sector when reporting a halving in first-half profit in February. The steel distributor went through some hefty restructuring in recent years that’s seen its head count shrink to 851 as at June 30 last year, from 1003 in the June 2019 year, but is probably better placed now than it has been for a long time.
Cold comfort
That will be cold comfort for the 280 people working at Easysteel, of whom 50 are First or E tū members. The unions bid up Easysteel’s 2.75 per cent pay hike offer to a 3.5 per cent rise in their latest negotiations, having won an 8.75 per cent increase in 2023 to avert a strike at the Fletcher unit’s Auckland and Christchurch sites.
They’re now focused on the restructuring proposal, with consultation set to end on May 3 and a decision coming on May 17.
What’s baffling is how this didn’t come up before March 15.
After all, Fletcher has been investing in its wider steel business for a few years now, including $10m on its steel Hunua consolidation through the tail-end of last year on top of the $30m it paid for a new purpose-built distribution and processing site for its Auckland steel operations.
When signalling the move in 2022, Fletcher wanted to boost its handling capacity and improve its efficiency, with a new steel purlin mill to be commissioned early this year and the rest of the site to be completed by the June 2026 year.
In the 2021 June year, the building materials group had rationalised its Fletcher Steel sites in the South Island and relocated its Easysteel and Dimond units in Wellington to a new site.
Those are all signals that the times they are a-changing. Especially when a recession hits and building activity sours.
Firing line
Fears that other Fletcher brands might be in the firing line probably aren’t unfair. After all, the group employs more than 14,900 people with an annual wage bill of some $1.58 billion in the June 2023 year.
It’s hard to wrap your head around, but to put it into perspective with some of the public sector cuts we’re seeing, the Department of Corrections — the Government’s biggest employer — had more than 9600 staff in the June 2023 year with an annual wage bill of $932m, and it’s trying to trim $100m from its $2.15b budget.
Hopefully First and E tū want to work with Fletcher in finding new jobs within the wider group rather than simply rail against the imagined evils of a mismanaged and uncaring behemoth laying off people during a recession.
To be fair, it’s harder to follow Fletcher’s local steel businesses since the Easysteel, Fletcher Reinforcing, CSP Pacific, Fletcher Wire Products, Dimond Roofing, Dimond Structural and Pacific CoilCoaters brands were bundled into the wider building products division in the June 2020 year.
Before the amalgamation, Fletcher’s entire steel business contributed $555m of the group’s $9.09b of revenue in 2019 and $33m of its $549m of underlying operating earnings. In 2020, the local steel business posted a loss before interest and tax of $14m, turning to earnings of $40m, $56m and $63m in the following years.
Doldrums
The recent first-half result doesn’t bode well for the business in the current financial year, with the building sector still in the doldrums as residential intentions remain soggy and the outlook for commercial construction unclear given the tightening Government purse strings.
Both Vulcan and Steel & Tube are optimistic the sector will perk up in the latter half of this year, and the prospect of building much-needed infrastructure should provide a boost, if it ever appears.
Meanwhile, BlueScope-owned New Zealand Steel — which runs the Glenbrook steel mill — expects to bounce back from a 70 per cent slump in first-half earnings to A$25.5m when it was beset by a series of unplanned outages, even as the soft residential housing market saps demand for flat steel products.
The clock’s ticking for the Easysteel workers in what’s shaping up to be a tough year. People can vent as much as they like, but it’d be nice to see workers’ representatives be a little more malleable when trying to save people’s jobs rather than simply spouting hot air.