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UPDATE: Fletcher Building reports loss but expects to resume dividends in FY19

Wednesday 22nd August 2018

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Fletcher Building reported a full year loss but expects to resume paying dividends this year after overhauling the business in the wake of steep losses in its Building + Interiors unit. 

The Auckland-based company said in a statement its net earnings loss was $190 million for the 12 months to June 30 compared to a profit of $94 million in the prior year.  The result was weighed by $114 in impairment charges and $91 million of restructuring costs. 

Operating earnings before significant items - excluding Building + Interiors - were $710 million, within the $680 million to $720 million range it forecast. The B+I losses were maintained at $660 million, as forecast in February when it announced further provisions of $486 million.  

The losses in the B+I unit, which includes some of New Zealand's most complex and expensive vertical construction projects on its books, had been well signalled to the market after cost overruns on major projects like the Auckland-based International Convention Centre, the Commercial Bay development, and Christchurch’s Justice Precinct. In July the company restructured into seven divisions from its previous five, including a standalone Australia unit. 

"We are pleased to finish the financial year meeting earnings guidance and containing B+I losses within the provisions we announced to the market in February this year," said chief executive Ross Taylor. 

The company reiterated that its focus remains firmly on divesting the Roof Tile Group and Formica businesses as it concentrates on its core markets of Australia and New Zealand. Both transactions are expected to complete in FY19. 

No final dividend was declared but the company expects "subject to satisfactory trading performance, to be in a position to resume dividends in FY19,"  said Taylor. 

The market was likely to be cheered by that and the fact the company met its guidance. "The good news is there is no new bad news," said David Price, a broker at Forsyth Barr.

Revenues lifted 1 percent on the year to $9.47 billion, driven by a solid sales performance across its core businesses in Australia and New Zealand, offset by lower construction revenue. 

Looking ahead Fletcher said group ebit - excluding B+I and significant items -  is expected to be broadly stable in FY19, except for Land Development earnings which are likely to be lower.

Investors, however, have signaled concern about the company as construction activity eases in both its key markets.  

Fletcher Building said activity in New Zealand's residential sector is expected to decline slightly in the current financial year, reflecting a modest decline in the number of new residential consents. Activity in non-residential, commercial and infrastructure sectors, however, is expected to increase modestly as large roading contracts are completed and the backlog of significant commercial projects unwinds. 

In Australia, residential activity is forecast to decline as a result of a sharp slowdown in multi-unit dwellings, tightening of bank lending and restrictions on foreign ownership. Infrastructure on the Eastern Seaboard looks set to benefit from large state and federal funded infrastructure projects. 

The stock last traded at $6.90 and is down 13.7 percent over the past 12 months. 


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