Fletcher Building lifts first-half profit 48%; pays dividend

Wednesday, 17 February 2021

Fletcher Building is starting to see the benefits of a restructuring, lifting its first-half profit.

Fletcher Building first-half profit jumped 48 per cent as the country’s biggest construction firm trimmed down its business to make it more profitable.

Net profit rose to $121 million in the six months to the end of December, from $82m in the same period last year, the company said. The profit includes $33m of one-time charges for restructuring at Iplex Australia and a $51m write down of its Australian Rocla concrete business which it’s preparing for sale.

Chief executive Ross Taylor has been turning around the business since he took over in late 2017 after it lost millions on major construction projects under the watch of previous chief Mark Adamson. However that turnaround was dealt a setback by Covid-19 disruptions last year, which prompted Taylor to reduce the size of its business, cutting 1500 jobs and posting a $196m annual loss.

Taylor said on Wednesday that the business outlook is now improving.

Fletcher Building chief executive Ross Taylor says the company is on track to reduce costs by $150m this financial year.

* Fletcher Building back in the black - quiet on Ihumātao

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

”Our strong (first-half) results reflect good progress made on our strategy to drive consistent performance and growth,” he said. “The improved earnings and profitability are the outcome of initiatives undertaken over the past three years to improve operating disciplines and efficiencies across the group.”

Fletcher’s operating profit rose 47 per cent to $323m, exceeding its forecast for 305m to $320m. The company expects full-year operating profit of $610m to $660m.

Market factors, including volume, share and price, contributed 15 per cent to the profit improvement, but the large share of the gains was a result of strategic improvements in operating efficiency, Taylor said.

Its operating profit margins lifted to 8.1 per cent from 5.5 per cent, with improvement across all operating divisions. Its core New Zealand business, which includes building products, distribution and concrete, lifted margins to 11.3 per cent from 8.8 per cent. In Australia, the margin edged up to 3.7 per cent from 2.4 per cent.

Fletcher Building says growth in the New Zealand residential sector is offset by softer demand in commercial sector, and mixed conditions in infrastructure in both New Zealand and Australia.

Taylor attributed the improvement to price disciplines, targeted market share gains, consolidation and automation of manufacturing and supply chains and a more efficient overhead cost base.

He said the company is on track to reduce costs by at least $150m for the full year.

Fletcher improved its balance sheet in the first half. It generated $416m of spare cash, from just $12m in the same period last year, and paid down $228m of debt over the six-month period.

Revenue edged up 1 per cent to $3.99 billion.

“We have seen a broadly stable market environment,” Taylor said. “Growth in the New Zealand residential sector has been offset by softer demand in commercial and mixed conditions in infrastructure in both New Zealand and Australia.”

Taylor said the economic environment across New Zealand and Australia seemed “pretty solid,” and looked like it would stay robust, which boded well for the business.

In contrast to its previous guidance that dividends wouldn’t restart until the end of the financial year, Fletcher said it would pay a first-half dividend of 12 cents per share on March 24 after its improved result allowed it more favourable conditions with its lenders.

The company didn’t pay dividends last year to preserve funds as part of an agreement with its lenders as construction projects were impacted by Covid-19 lockdowns. The board also expects to pay a final dividend, it said.

Fletcher Building was paid $67.7m in government wage subsidies last financial year for 9694 employees. Taylor said that despite the rebound in profit in the first half of this year, the company wouldn’t repay the subsidy.

Other companies which repaid the subsidy had traded well through the shut down and made good profits in the 2020 financial year, but Fletcher Building was completely shut down, had zero revenue, took months to build up again through May and June, and posted a $196m annual loss, he said.

”The impacts on our business were enormous,” he said. “We felt it was well used, it went to every employee, none of it went to Fletcher Building, and we had so many impacts that we felt it’s absolutely justified not to pay it back.”

Fletcher Building shares slipped 0.2 per cent to $6.44 in mid-afternoon trading on Wednesday.