Fletcher Building reports big first half loss

Wednesday, 19 February 2025

Fletcher Building reported a $134 million first half loss to the NZX on Wednesday.

Challenging business conditions have left Fletcher Building announcing a $134 million first half after tax loss, and it comes off the back of sharp declines in profit last year.

The company revealed the loss, which was down on a $120m loss over the same period last year, in its financial results for the first half of the 2025 financial year, released to the NZX on Wednesday.

At $3.6 billion revenue was down 7% from $3.8b at the same time last year, while the company’s earnings before interest, tax, and depreciation (Ebit) was $167m, down $96m from $263m in the first half of 2024.

An $170m provision for the industry response to the leaky pipe problems in Western Australia involving Fletcher’s subsidiary Iplex, and the sale of another subsidiary, Tradelink, which reflected a $58m loss, also impacted on the financial results.

Fletcher Building chief executive Andrew Reding said very difficult trading conditions continued across all the company’s segments across the first half of the year.

Fletcher Building chief executive Andrew Reding says difficult trading conditions have impacted on the company.

That included a broad-based slowing of demand, intense competitive forces and persistent inflationary pressures, he said.

“Market volumes continued to decline in the half, particularly in businesses more heavily exposed to the residential sector. In the New Zealand materials and distribution divisions, volumes were down 5 to 10% half year on half year.

“But some businesses benefited from major projects like the Auckland Airport expansion. In Australia, market activity continued to decline, down 15% half year on half year.”

The lower market volumes for the materials and distribution divisions were the most significant driver of the earnings reduction, contributing $80m lower EBIT before significant items, the company said in its release.

But the construction division performed well with revenue up 16%, with higher work volumes arising from key infrastructure projects and construction EBIT before significant items was up $21m half on half.

Reding said performance in the residential and development division reflected the overall housing market in New Zealand, with 115 fewer units contracted and sold compared to the previous period, and average market prices also down about 2% on that period.

“However, some tentative signs of improvement began to appear post the first OCR cut late in 2024, with sales up 17% between September-December 2024, as compared to July-August 2024.”

The International Convention Centre in Auckland is going to have the single largest exhibition hall in the country.

The company’s $700m capital raise in September had been used to reduce debt to $1.1b from $1.8b in the 2024 financial year, and it remained focused on improving cash flow.

Meanwhile, legacy projects were on-track for completion, and the fire-delayed International Convention Centre in Auckland was in its final stages, with handover scheduled by June 30, 2025.

In a post-results media briefing, Reding said the first half of the year had been significantly more difficult than the previous period, and July to August were some of the worst months some of the company's business units had ever experienced.

The market had fallen far more quickly and deeply than anyone had expected, and that had impacted the company significantly, he said.

“We are not alone in feeling the effects of the macroeconomic climate, but we are particularly exposed to residential construction, with 50% of our revenue rated across it in New Zealand and Australia.”

In New Zealand residential square meterage consented had declined 39% from the post-Covid market peak by December, a greater fall than experienced in the GFC, he said.

“There has also been a slowdown in the commercial and infrastructure sectors. In past cycles, they might have been expected to provide some support. But that has not been the case in this cycle.”

Fletcher Building expects materials and distribution market volumes to be 10% to 15% lower over the full year to June 2025.

Fletcher Building’s struggles over recent years, which included the 2019 fire at the convention centre and a sharp decline in profits, led to the resignation of its former chief executive, Ross Taylor, and board chairman Bruce Hassall last year.

But the company now has new leadership, following Reding’s appointment as chief executive in August, and the appointment earlier this year of a new board chairman, Peter Crowley.

Reding said macroeconomic pressures were expected to persist and economic activity to remain subdued at below mid-cycle levels for the remainder of the financial year.

The company expected materials and distribution market volumes over the full year to June 2025 to be 10% to 15% lower than in 2024, and it would not be paying shareholders dividends, he said.

“But despite the noise and distractions, the long term fundamentals of our business remain sound and we are well-positioned to deliver them.”

Forsyth Barr senior analyst Rohan Koreman-Smit said there were a lot of moving parts in the results, with some divisions, such as construction, performing well, and others not so well.

While some forward looking indicators were starting to strengthen for the residential market, the non-residential market remained more volatile, he said.

“Fletchers were hesitant to provide quantitative guidance around full year earnings, with the market bouncing along the bottom.”

The market was hoping for more colour on forward strategic direction, given the company had a new chief executive, chair and CFO, but it was probably too soon to provide a full strategic response, he said.

“They confirmed that by only answering questions on strategy at a high level. They’ve got a lot to work through, and whether it means asset sales, or changes to capital structure to lower debt remains to be seen.”