Fletcher Building says bad weather has hurt trading, profits

Monday, 13 February 2023

Fletcher Building’s Brian Civil Perry team was on hand to help Auckland International Airport clear water from the terminal and unblock drains following last month’s flooding. (File photo)

Fletcher Building says its profitability has been dented by the extreme weather over summer.

The building supplies and construction company lowered its expectation for full-year operating profit to between $800 million and $855m, from its previous forecast for at least $855m. The forecast excludes significant one-time items. That’s still ahead of the $756m operating profit it reported last year.

“While the underlying performance of the business is strong, trading in New Zealand in January-February has been heavily impacted by the adverse weather events,” chief executive Ross Taylor said in a statement to the NZX.

Shares in Fletcher Building fell 6.3% to $5.08 in early afternoon trading on the NZX.

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Northern New Zealand is being buffeted by Cyclone Gabrielle with heavy wind and rain warnings, just weeks after torrential rain inundated Auckland and the northern North Island.

The January 27 storm broke all previous rainfall records and caused widespread damage. January was the region’s wettest month in history, smashing the previous record set in 1869.

A slowing property market is expected to reduce volumes at Fletcher Building’s materials and distribution businesses.

Immediately following last month’s flooding, Fletcher Building said that a few of its manufacturing plants had been closed temporarily to ensure safety and some clean up was required on site, but all major sites were still ok to keep running.

Its construction teams had been hard at work supporting the cleanup.

Brian Civil Perry staff were on site at the flooded Auckland International Airport complex to help clear water from the terminal and unblock drains, while Higgins road maintenance crews had worked across Auckland, the Coromandel and Bay of Plenty to safely maintain road access and to manage road closures.

“I want to acknowledge the great efforts of all our Fletcher Building people, particularly those who sprang into to action following recent and ongoing significant weather events in the North Island of New Zealand,” Taylor said.

“Our teams quickly mobilised and did an outstanding job repairing vital infrastructure and securing our sites, in very challenging conditions. Through their efforts, they have made a real difference for our customers, people and communities who have been impacted by the flooding.”

Taylor said market activity and house sales would be the key driver of the company’s result for the remainder of its financial year to June 30.

Fletcher Building expects the softening of residential property markets to continue into next financial year for both New Zealand and Australia.

The slowdown was likely to reduce volumes by 10% to 15% in its materials and distribution businesses compared to the first six months of the financial year to the end of December.

Fletcher Building makes building materials such as Pink Batts, Gib, Laminex, Formica, Iplex plastic pipes, Humes concrete pipes and steel and aluminium roofing, and its distribution businesses include PlaceMakers, Mico and Tumu.

House sales at Fletcher’s New Zealand residential development business were expected to be at similar levels next financial year to what it expects to deliver this year, Taylor said.

Commercial and infrastructure markets were expected to be more robust, he said.

Taylor said Fletcher Building was actively managing variable costs, overheads and capital to ensure it held profit margins next year close to this year’s levels and kept its balance sheet and cashflows healthy.

The company is scheduled to report its first-half profit on Wednesday.

It expects first-half revenue to rise 5% to $4.28 billion, an 8% increase in operating profit before one-time items to $360m, and a lift in operating margin to 8.4% from 8.2%.

Taylor said Fletcher’s materials and distribution divisions had led the improvements, with an $83m lift in operating profit to $339m, and a 150 basis point improvement in operating margin to 8.9%.

That was partly offset by lower earnings in the company’s residential and development division, which reported a drop in operating profit to $49m from $112m due to lower housing sales following two years of strong growth.

First-half net profit is expected to slide 46% to $92m because of a cost blowout on SkyCity Entertainment’s fire damaged international convention centre in Auckland which is expected to cost $150m more than its insurance cover.