Coronavirus: Fletcher Building job cuts paint grim picture of economy, analyst says

Wednesday, 20 May 2020

Fletcher Building reported a profit after-tax of $164 million last year.

Fletcher Building's plans paint a dark picture of the future of New Zealand's economy, an investment analyst says.

Fletcher Building has proposed to cull 1000 jobs in New Zealand and 500 in Australia, which equates to about 10 per cent of its workforce.

Forsyth Barr's David Price said considering Fletcher Building's balance sheet was in good shape, its plans raised concerns about the country's recovery from Covid-19.

'Fletcher Building's plans will only have a knock-on effect on other businesses. We're likely to see more restructures as we come out of the lockdown levels,' Price said.

Price said the economy had been sluggish before the Covid-19 alert level 4 lockdown, which had made it even more difficult for businesses to operate post-lockdown.

* Coronavirus: Fletcher Building staff pay uncertain during month-long lockdown

* Coronavirus: Fletcher Building cancels dividend as projects close down

Fletcher Building chief executive Ross Taylor says 'no part of the business would be immune to the cuts'.

'While we've been in our bubble we've been in a state of suspended animation. Now that we're out of our cocoons we'll see how the businesses are going to adapt and survive,' Price said.

'House prices will fall. It's not a matter of if, it's a matter of by how much they will.'

Amalgamated Workers Union national secretary Maurice Davis said workers were nervous about the future of their jobs.

'Given that construction is meant to be the vehicle to drive back the economy, we've got New Zealand's largest construction companies doing this,' Davis said.

'The last industry workers didn't think would fall over was construction. That doesn't bode well for confidence of the future.'

Fletcher Building chief executive Ross Taylor said if the situation worsened more jobs could be lost.

Taylor said it was a 'sombre day'. He said Fletcher Building was not interested in financial support from the Government.

'It is really important for New Zealand to have strong independent companies and it's not sustainable for all the companies in New Zealand to be dependent on government subsidies for the long term. It just doesn't work. It is important we are independent and on our own two feet.'

Taylor said 'no part of the business would be immune to the cuts'.

The impact of the Covid-19 restrictions over the past two months was “significant”, Taylor said, especially in New Zealand as a result of the level 4 lockdown.

“Our New Zealand businesses were closed throughout Level 4, except for small parts of the distribution and construction divisions which were asked to provide essential services. We shut down over 400 operating sites at the end of March,” he said.

Fletcher had suffered a roughly $55 million loss in April in New Zealand and roughly broke even in Australia. However, Taylor said as at April 30, Fletcher Building had $1.5 billion in liquid assets.

Taylor said the residential market would shrink by about 30 per cent, to 25,000 consents per annum.

He said work on Auckland Airport's domestic jet terminal and the SkyCity International Convention Centre (NZICC) would be affected.

The NZICC project was given a new long stop date of January 2, 2025 earlier this month, and while the project could be completed within that time frame, Taylor said there may be some delays.

Taylor did not give specifics on which other projects would be impacted.

'We're impacted on our pipe-line projects.'

He said social distancing restrictions under level 2 had impacted productivity at its Commercial Bay building project.

'Before [level 4 lockdown] we could have about 1800 people now its more like 800 now.

Fletcher Building is in charge of major projects including the NZ International Convention Centre which was damaged by fire last October.

'You just cannot get as many people as your staff implement social distancing. On bigger projects people are generally working on big broad areas so less of an issue.'

Steve Evans, chief executive of the Fletcher's residential development business, said its housing developments in Christchurch, some of which form part of the central city rebuild, would not be affected.

Fletcher Building received $67.68m for 9694 workers from the government wage subsidy scheme.

Through the lockdown, it implemented a 12-week pay plan, where staff who were not working, or working part-time would receive 65 per cent of their salaries for two weeks until April 22. Then salaries would drop 50 per cent for the next month, and by 70 per cent the following month.

Fletcher's proposal would have seen senior staff including chief executive Ross Taylor take a 15 per cent cut, but that was increased to a 30 per cent cut after staff said they were bearing the brunt of the financial impacts of Covid-19.

“We are beginning consultation with some of our people and unions this week,' Taylor said.

'In New Zealand, we will honour our obligations under the Government wage subsidy scheme by retaining our people through the 12-week subsidy period ending June 26, 2020.

'We are committed to supporting our people as they leave us and will endeavour to do what we can to help them secure their next opportunity.

'This will include every permanent employee leaving Fletcher Building being paid their redundancy entitlement under the terms of their employment or a payment equivalent to four weeks’ base salary, whichever is higher, to recognise and support our people given the exceptional circumstances,' Taylor said.

'We will also be providing a comprehensive range of outplacement and other support services.'

“The redundancy and restructuring activities will result in some one-off costs which are yet to be determined but will be disclosed as part of the group’s 2020 full-year results in August,” he said.

“As a major employer, we need to ensure our business is resilient and can support economic growth in the longer-term, just as we have done for more than 100 years. While this has meant having to make tough decisions, we want to thank all of our people for their valuable contribution to Fletcher Building,” Taylor said.