Fletcher Building says strong trading, high vaccination rates, should offset Covid impacts

Tuesday, 19 October 2021

Fletcher Building says trading outside of lockdowns has been “very solid”.

Fletcher Building expects its performance to improve this year as it benefits from strong trading conditions and less impact from Covid-19 lockdowns.

The country’s biggest construction firm was forced to close almost all its business operations across the country for two weeks through August and September, and in the Auckland region for five weeks, chief executive Ross Taylor said in notes prepared for the company’s annual meeting of shareholders on Tuesday.

Still, he said trading either side of the lockdowns was “very solid”, and above last year’s levels.

“Provided New Zealand stays at these present lockdown levels or better, we would expect the trading conditions to remain above last year,” he said.

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In Australia, lockdowns had slightly subdued trading levels across most of the company’s businesses, he said.

However as the states of New South Wales and Victoria started to open up with increasing vaccination levels, Fletcher Building expected trading to improve quickly and to levels above last year, he said.

Fletcher Building chief executive Ross Taylor says both the New Zealand and Australian markets are “looking solid”.

“With strong vaccination levels in both New Zealand and Australia we are increasingly confident we will see less impacts on our business from full or partial Covid lockdowns,” Taylor said.

“This should then allow the present strong trading conditions to flow uninterrupted through our businesses for the balance of (the 2022 financial year) and beyond.”

Last year, the building company reported a $305 million profit, a turnaround from the previous year when it posted a $196m loss after it restructured its business which was disrupted by the pandemic.

In his comments to shareholders on Tuesday, Taylor said the business was now in better shape.

“Our operating disciplines and business settings are in good shape, which leaves us well positioned in this environment to drive ongoing performance improvements and growth,” he said.

Throughout the lockdowns, all Fletcher Building staff were fully remunerated and their health and wellbeing was supported through various programmes and initiatives, Taylor said.

The construction industry is running hot, with consents for buildings at record highs amid a shortage of housing. Fletcher Building is benefiting from the strong demand, supported by a favourable macroeconomic environment of low unemployment and low interest rates.

Taylor said both the New Zealand and Australian markets were “looking solid” into the medium term.

“The New Zealand market continues to see strong residential consenting levels and high planned levels of Government infrastructure spend,” he said.

Still, supply chain and labour constraints meant the construction sector was at, or near capacity so building activity was likely to remain high through the current financial year and beyond, he said.

In Australia, residential construction remained resilient while commercial and civil sectors were stabilising, he said.

The company’s profit margin in the first half of this year would be impacted by lockdowns, but was expected to improve in the second half, he said.

Fletcher Building is targeting a profit margin of about 10 per cent in its 2023 financial year, up from 8.2 per cent in 2021, 2.2 per cent in 2020, and 7.2 per cent in 2019.

It expects to lift its Australian margins into the 5 to 7 per cent range, lift its construction margin to above 3 per cent, drive margin expansion across its core New Zealand businesses, and benefit from growing residential house sale volumes.

Shares in Fletcher Building were up 1.8 per cent to $7.29 in midday trading on the NZX, and it was the biggest stock traded by value.