Fletcher Building annual profit falls 46% after convention centre costs escalate

Wednesday, 16 August 2023

Fletcher Building’s annual profit was hit by one-time items. (File photo)

Fletcher Building’s annual profit fell 46% after it faced extra costs related to the troubled international convention centre in Auckland.

Net profit fell to $235 million in the year to June 30, from $432m the previous year, the company said in a statement to the NZX on Wednesday. The result included $301m of one-time costs, largely due to $255m in provisions for the convention centre and related Hobson St hotel project.

Fletcher Building is losing money on the convention centre being built for SkyCity Entertainment Group after a fire in October 2019 resulted in extensive damage which delayed the project and escalated costs.

Excluding one-time costs, the building supplies and construction company lifted operating profit 6% to $798m, in line with its forecast for about $800m. Revenue slipped 0.3% to $8.5 billion.

Fletcher Building chief executive Ross Taylor noted the higher operating profit had been achieved despite softer residential housing markets in New Zealand and Australia, and major weather events in New Zealand in the second half of the financial year when the country was buffeted by Cyclone Gabrielle, just weeks after torrential rain inundated Auckland and the northern North Island.

“Against a backdrop of a softening residential market and extreme wet weather events in New Zealand, we delivered a strong year across our businesses,” Taylor said.

“The disappointment however was in provisions we needed to book on the convention centre - cost forecasts to complete the project post the 2019 fire event move well beyond the insurance cover which is in place.”

Still, Taylor said the company was making good progress on completing the project with all the carpark levels in the hotel expected to be completed in the next six months, and the full project by the end of calendar year 2024.

The company expects to receive further insurance payments from the project and is getting closer to having all legacy construction work firmly in its rearview mirror, he said.

Fletcher Building’s operating profit margin lifted to 9.4% from 8.9% the previous year, which Taylor said was a good performance in a slowing market.

Taylor highlighted the improved performance from the company’s materials and distribution businesses, which together produced an 18% or $104m lift in operating profit.

“This improvement offset the tougher year our residential and development business had as it weathered the softer New Zealand housing market,” he said.

Operating profit at the residential and development business fell 32% to $147m while the profit margin slipped to 24.2% from 31.4% reflecting lower house prices and higher build costs.

The company sold 617 residential units, down from 670 the previous year, with its residential margin slipping to 20% from 28%.

Taylor said Fletcher Building is expecting material and distribution volumes to fall 8% this year and the margins may soften.

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“We remain very focused on being prepared for a softer upcoming 12 months and ensuring we perform well through the coming year,” he said. “We have shown we are well equipped to continue performing solidly through the cycle.”

Fletcher Building has flagged an $800m investment programme over the three years to 2026, including the Laminex Taupo wood panels plant, Comfortech insulation, a new frame and truss plant, and the acquisitions of Tumu and Waipapa Timber.

Taylor said the investments would progressively mature over the coming couple of years and by the 2027 financial year the company expects they will add about $120m in operating profit.

The company’s new $400m Gib plasterboard manufacturing and distribution facility in Tauranga has now started production and would be fully operational by the end of October, he said.

Fletcher Building’s funding costs doubled to $94m from $46m as it increased debt for investment and faced higher interest costs.

The company will pay shareholders a final dividend of 16 cents per share, taking the full-year dividend to 34c, down from 40c the previous year.

That equates to a payout ratio of 59% of earnings before one-time items, at the lower end of its 50% to 75% target as it preserves cash for its legacy construction projects.

The company’s shares fell 7.1% to $5.10 in midday trading on the NZX.