Fletcher Building back in the black - quiet on Ihumātao

Wednesday, 21 August 2019

Fletcher Building's Ōruarangi development at Ihumātao will feature 480 homes should it go ahead.

Fletcher Building chief executive Ross Taylor said he is standing by to hear the outcome of discussions between mana whenua over the Ihumātao occupation.

He was announcing Fletcher Building's turnaround by posting an annual profit after-tax of $164 million, compared with the $190m loss last year.

'Recently, the prime minister requested that we hold on our development to provide more time for all parties to reach a solution, and that's what we did. The situation at Ihumātao is complex and we want a peaceful resolution,' he said.

Fletcher Building chief executive Ross Taylor.

The NZX-listed company has been planning Ōruarangi - a housing project on a 32 hectare site in Mangere, on the edge of the Manukau Harbour a half hour drive south from downtown Auckland.

The land, which was until recently a privately owned farm for 150 years, sits next to the 100ha Ōtuataua Stonefields Historic Reserve as well as the small village of Ihumātao.

* Fletcher Building downgrades profit after selling Formica

* Fletcher Building back in the black but feeling the heat in Australia**

It planned to start earthworks last month but the development stalled after protesters blocked heavy machinery from moving in.

Taylor, who received a pay rise of $50,000 to $2.05m, said it had been an important transition year stabilising the company.

The profit was achieved on marginally higher revenue, up 1 per cent to $9.3 billion for the year ending June 2019.

The share price had fallen from $7 a year ago to $4.45 but the immediate aftermath of the latest profit announcement saw it bounce back up to $4.57.

The homes at Fletcher's planned development would feature elements of Te Aranga Māori design principles.

'In New Zealand our core building products and distributions businesses delivered good results, maintaining strong market positions and revenues despite operating in a highly competitive environment.

'The construction division stabilised which led to a return to profitability, and we are on track to complete the remaining legacy Building and Interiors projects within the provisions we set in February 2018,' Taylor said.

In Australia, the performance reflected tough market conditions, rising costs and poor operating disciplines in some areas.

'Turnaround plans are well underway to reset these businesses and deliver growth.'

Residential building activity remained high with a continued shift to apartments, and stable prices between $650,000 to $1m in Auckland.

Residential revenue was up 13 per cent to $526m, and land development revenue up 5 per cent to $113m.

Pania Newton has been leading protests, on behalf of Save Our Unique Landscape, at Ihumātao.

The company sold 735 dwellings and 20 sections compared with 613 dwellings and 101 sections last year.

In the lower margin market of Christchurch there were strong sales of Atlas Quarter apartments, higher Awatea development sales, and the first sales in One Central precinct.

Commercial construction was at historically high levels with $8b of work in place. There were four remaining Building and Interiors projects to complete this year and two next year.

Australian residential and commercial construction sharply contracted, with revenue down 2 per cent to $3b, and earnings before interest and tax down by half to $57m.

Australian operations were being restructured, sites closed, properties consolidated, and some divisions merged.

Infrastructure work was also at historical highs, driven by large roading projects, although the pipeline of projects slowed in the past 12 months as Government priorities shifted towards safety upgrades.

Mico Plumbing and Placemakers grew strongly with a new Placemakers opened in Rotorua. Some gains were offset by costs of the new Snappy DIY stores.

The steel division revenue from roofing increased but manufacturing activity was subdued earnings declined overall as a result of intense competition.

Concrete was solid with higher ready mix sales in Auckland than Christchurch but revenue was down marginally due to a mill outage.

Cement supply chain improvements included coastal shipping to New Plymouth, additional barge capacity between Portland and Auckland, and completion of an ready-mix plant near Auckland airport to boost the network of the Firth subsidiary.

Taylor confirmed the recently proposed return of $300m to shareholders by way of a share buy back, which will begin after today.

Taylor said Fletcher Building was continuously assessing its balance sheet and investment opportunities.

'Following the completion of the Formica sale for $1.2b, we have considered a few key factors for allocation of the sale proceeds.

He said the company's debt levels were well below targets, and better than previously forecast.

'We have around $600m of debt that we will repay over the next 12 months.

'And we have around $250m of cash to complete the legacy Building and Interiors projects, and we remain confident that these projects will be completed within the current provisions.'

The dividend policy had a targeted pay-out ratio of 50 per cent to 75 per cent of net profit after tax before significant items.

The company reinstated dividend payments this year with a total dividend for the year of 23 cents per share.

Taylor said the forecasts for the 2020 year were for earnings before interest, tax and significant significant items (EBIT) of $620m to $650m, compared with $631m this year.

Fletcher Building's injury rate improved slightly and so did staff engagement. It also improved its carbon emission targets.