Fletcher Building posts $120m first half loss, CEO to retire

Wednesday, 14 February 2024

Fletcher Building's chief executive and board chairperson will step down after the company reported a $120 million first half loss after tax.

In an announcement released with its financial results for the first half of the 2024 financial year, the company said chief executive Ross Taylor would be retiring in six months.

It also announced that the board’s chairperson, Bruce Hassall, would step down at the company’s annual shareholders’ meeting later this year.

Fletcher Building’s first-half year results were disappointing, revealing an after tax loss of $120m, compared to a net profit after tax of $92m in the same period last year.

The loss was attributed to $180m in flagged legacy provisions and a $122m non-cash write-down on its Australian Tradelink business, which it now planned to sell.

The company’s earnings before interest, tax, and depreciation (Ebit) were down 27% to $264m from $360m, and its Ebit margin was 6.2%, down from 8.4%.

Revenue was $4.248 billion, down 1% from $4.284b, it said.

Fletcher Building chief executive Ross Taylor said underlying trading cash flows were robust, and good working capital management was offset by legacy cash impact

But the results had led the board to “make the prudent decision” not to pay a dividend in order to maintain its balance sheet settings.

Taylor said the results came against the backdrop of materially weaker trading conditions, particularly in the New Zealand residential sector where volumes declined 20%.

The result was heavily impacted by the $165m blowout on the New Zealand International Convention Centre announced last week, and the Tradelink write-down, he said.

“In New Zealand, revenue for the materials and distribution divisions was 8% lower than the same period last year. However, this compares to overall market volumes which were 15% lower.

“The market decline was driven primarily by the residential sector, which weakened by around 20%, to which these divisions have a 60% exposure.”

In a more challenging trading environment, the New Zealand materials and distribution divisions performed solidly, and gross margins remained robust at 29.3% compared to 30.3%, Taylor said.

“A particular highlight of the half was the performance of the Australian division which delivered Ebit and Ebit margin broadly in line with the same period last year, despite a softer market.”

Taylor also addressed the company’s Western Australia plumbing issues, and said testing and expert reports on causation showed the leaks were caused by installation failures and there was no manufacturing defect.

“We remain committed to developing a workable and appropriate industry solution.”

The company’s shares have been in a trading halt since Monday, and would remain in one until 12.30pm on Wednesday. Its shares last traded at $4.16, down 17% on a year earlier, giving it a market capitalisation of $3.3 billion.

In a post-results media briefing, Taylor said having to make provision for the Convention Centre cost escalations was disappointing, and he and Hassall believed it was important that, as leaders of the business, they accepted accountability.

“It is important to set the tone and culture of the organisation, and lead from the top, so the buck stops with us. But we want to leave the company well-positioned for the future, and get a good transition in place.”

He said the Convention Centre was on track for completion this year.

Looking ahead, Fletcher’s expected group Ebit for the full financial year to be in a range of $540m to $640m, assuming a continuation of current market conditions for the rest of the year.

It said market volumes would remain under pressure for next six to 12 months, but conditions in the New Zealand housing market were improving.

There would be an ongoing focus on managing trading cash and remaining committed to balance sheet settings, it said.