Fletcher Building announces half-year loss of $322 million

Wednesday, 21 February 2018

Fletcher Building has announced an operating earnings loss of $322 million for the six months ended 31 December 2017.

The loss compares to a $310m profit before significant items for the last six months of 2016.

Earlier this month Fletcher Building flagged its growing losses, and said the board had suspended the payment of an interim dividend.

The expected losses of $660m from the Building & Interiors division (B&I) division led Fletcher Building chairman Sir Ralph Norris to resign, though he will remain in the role until his successor is found.

**READ MORE:

* Angry and hurt: Fletcher Building chairman Ralph Norris speaks out in his own defence

* 'Incompetence' behind Fletcher Building's woes, admits

* Roll call of Fletcher Buildings' massive loss-making projects

* The Fletcher Building debacle**

The losses result directly from 16 large construction projects undertaken by B&I, including the New Zealand International Convention Centre in Auckland, and Christchurch's Justice Precinct.

Fletcher's chief financial officer Bevan McKenzie said, however, that in the last six months of 2017, the company got a tax benefit of $117m as a result of the massive B+I losses.

The remainder of the B+I losses falling in the remainder of 2018, 2019 and 2020 were expected to be tax deductible in the coming years, he said.

In an announcement to the NZX on Wednesday, Fletcher Building said revenue for the first half was $4.9 billion, up 6 per cent on a year earlier. 

The company repeated its expectation that full year group operating earnings, excluding B&I, would be between $680m and $720m.

Taylor told media earlier this month he did not expect B&I's losses to increase any further.

Chief executive Ross Taylor said: 'Outside the challenges experienced in B&I, the broader Fletcher Building business continues to perform to guidance. 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.'

Taylor said a strategic review of the whole business, including possible 'portfolio' changes, which could signal that some asset sales could take place.

There had been a rise in 'central costs' in the business, he said, which presented an opportunity.

Excluding B+I, Taylor said: 'The rest of the Fletcher business we can improve, but it is performing pretty solidly. It's how we can focus it and move it forward more strongly.'

'I'm quite optimistic we will be able to move with pace,' Taylor said.

Discussions continued with Fletcher's lenders in New Zealand and overseas following breaches of its lending covenants brought about by B+I's losses.

McKenzie expected them to conclude by the end of March.

Taylor revealed that big losses on individual projects were not limited to B+I.

The company's Residential and Land Development Division posted strong growth, he said, but revealed a loss of $12m as a result of costs blowing out on the Atlas Quarter apartment development in Christchurch, combined with the individual apartments selling for less than expected.

The residential property business was seeing a softening of prices in Christchurch, and at the top end of the price spectrum in Auckland, said Taylor.

The majority of houses built by Fletchers in Auckland sell for between $750,000 and $1m.

Commenting on the market outlook, Taylor said residential, commercial and infrastructure activity levels across Fletcher Building's core markets of New Zealand and Australia remained in line with expectations, but he expected little growth as with the New Zealand building sector was operating at, or near, capacity.

'In New Zealand residential consents are up 3 per cent, and while there has been some softening of house price growth we believe this is a sign of the market normalising,' he said.

'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.'

Taylor also addressed the possibility of Fletcher taking legal challenges to the B+I contracts in a bid to reduce its losses.

He said Fletchers was reviewing the contracts, but it wasn't going to adopt a threatening stance to clients.

'You've either got a legitimate claim or you haven't,' Taylor said.

'It won't be a model of being provocative and thumping our chest.'