Big costs once more torpedo Fletcher Building forecasts

Tuesday, 24 June 2025

Newly disclosed costs will total between $573m and $781m over the 2025 year, Fletcher Building has told investors.

Fletcher Building investors have been told the company expects new restructuring and impairment costs of between $300 million and $500m over the 2025 financial year.

A presentation released to the NZX for the company’s investor day on Tuesday laid out its outlook for the year to June, and within that it disclosed new losses.

Fletcher Building said it expected its earnings before interest, tax and significant items to be in the range of $370m to $375m.

But the total cost of the significant items would be between $573m and $781m, and of those items only $263m to $266m have already been announced.

The bulk of the newly disclosed costs related to restructuring and redundancy costs, goodwill and brand impairments, closure costs and provision for onerous contracts associated with enterprise resource planning.

Fletcher Building expects it earnings before interest, tax and significant items to be between $370m and $375m.

They came from additional non-cash significant Items of between $250m and $440m, and cash significant Items of between $50m and $60m.

A further $10m to $15m would go towards defending construction legacy and the response to the Western Australia leaky pipe issues involving Fletcher’s subsidiary Iplex.

The company previously announced costs of $251m for the Western Australia leaky pipe problems, and the sale of another subsidiary, Tradelink, in its half year results. More recently, it said the cost of completing the NZ International Conference Centre had increased by $12m to $15m.

Fletcher Building chief executive officer Andrew Reding said that given ongoing market volatility the outlook was subject to market conditions for the remainder of the month.

The purpose of the investor day was to update stakeholders on the company’s strategic focus, medium term strategies and actions it had taken and would be taking to drive performance going forward, he said.

In the presentation documents, the company’s chair, Peter Crowley, acknowledged “past unacceptable performance”, and said lessons had been learnt, and a major turnaround was underway.

The balance sheet had been reset, with the $700m capital raise and the $170m sale of Tradelink for helping to reduce debt and improve financial resilience, he said.

Additionally, a strategic review had been completed, significant cost reductions had been made, and short and medium term profit improvement plans had been identified.

There is significant potential to help rejuventate the business, Fletcher Building’s Andrew Reding says.

He said the company was heading towards being a simplified business, operating with capital and operational discipline, with growth in earnings driven by sustainable competitive advantages.

It had a net debt target of $400m to $900m, and no dividends would be paid until the target was met, he said.

In the presentation documents, Reding said there was a “significant opportunity to help rejuvenate a business with substantial latent potential”, and detailed how the company planned to do that.

That would include a focus on high performing businesses, simplifying the company’s portfolio by reducing it to five divisions, and empowering operational leaders with a new decentralised model.

Operating volumes continued to be subdued, and that was impacting operating leverage and profitability, he said - but he indicated market fundamentals were more positive.

“We operate in structurally attractive markets, with higher population growth and infrastructure deficits driving demand for infrastructure and the materials required to construct it.”

New Zealand’s economic cycle was poised for improvement driven by falling interest rates, a pro-investment Government, an undersupply of residential dwellings and an infrastructure deficit, he said.

While Fletcher Building recently told the NZX it was fielding interest in parts of its business from potential buyers, the presentation documents did not include any further details on the inquiries it had received.

But the turnaround plan indicated the company would look at the sale of surplus real estate assets in the short term.

Possible future divestments and surplus land disposals would provide capital release to support balance sheet target and capex, it said.