Fletcher Building expects $196m net loss because of Covid-19

Tuesday, 11 August 2020

Fletcher Building is expecting a loss for the year to June of $196 million, due predominantly to the impacts of Covid-19.

Earlier this year the company announced it would cull 1000 jobs in New Zealand and 500 jobs in Australia.

Ahead of its full annual results, which will be released next week, the construction company told its shareholders the Covid-19 lockdown led to “significant” revenue loss, lower productivity leading to additional provisioning on the legacy construction projects and one-off restructuring costs as the company prepared for reduced market activity.

Fletcher Building chief executive Ross Taylor said that before the lockdown the business was trading in line with expectations and making good progress with operating efficiencies.

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Fletcher Building expects a loss for the year ended June 30, 2020, of $196m, due mostly to the impacts of Covid-19.

“As Covid-19 crossed New Zealand and Australian borders, we moved quickly to protect our people and ensure we are well positioned to successfully navigate the market uncertainty in FY21 and beyond.

“Our people have done an exceptional job of serving our customers, safely managing our operations, and resetting the business through a period of considerable disruption.”

Taylor said the decision to cut jobs was “tough but necessary” due to the lower market activity anticipated ahead.

Fletcher Building chief executive Ross Taylor says the decision to cut 1500 jobs was “tough but necessary” due to the lower market activity anticipated.

“We expect them to deliver a permanent reduction in our cost base in FY21 of $300m.”

Despite lower earnings, the company’s cash flow performance and balance sheet position remained strong, the company said.

Operating cash flows were expected to increase in FY20 to $410m, driven particularly by effective working capital management through the Covid-19 disruptions.

Capital expenditure was expected to be $232m, below its initial market guidance of $275m to $325m. The group’s net debt at June 30, 2020, was expected to be $497m and liquidity was expected to be $1.6 billion, including $1.1b of cash on hand.

Taylor said the construction division had continued to make progress in working through its legacy, loss-making projects.

“The value of legacy buildings and infrastructure work to complete has been reduced from approximately $2.2b in February 2018 to approximately $0.6b currently.

“The division’s forward order book outside the legacy projects has been rebuilt to comprise around $2.4 billion of work with a materially better margin outlook, and significantly lower and more appropriate risk profile.”

Taylor said the company was watching the market closely as the environment remained uncertain.

“We also believe it will provide opportunities for growth, and the business is in a good position to capitalise on those.”