Fletcher Building Confirms Big Losses
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Troubled NZ-based building products and construction group, Fletcher Building revealed an operating earnings loss of $322 million for the six months ended 31 December 2017 in the wake of the huge losses on a total of 16 building contracts across NZ.
The loss compares to a $310 million profit before significant items for the December-ending months of 2016.
As announced earlier this month, the company suspended the payment of an interim dividend. The Australian-listed shares fell 5% to $6.10.
The expected losses of $NZ660 million from the company’s black hole (AKA its Building & Interiors division (B&I) division) saw Fletcher Building chairman Sir Ralph Norris to resign, though he will remain in the role until a successor can be found.
The losses result directly from 16 large construction projects undertaken by B&I, including the New Zealand International Convention Centre in Auckland, and Christchurch's Justice Precinct.
The company repeated its expectation that full year (to June 30) group operating earnings, excluding B&I, would be between $NZ680 million and $NZ720 million.
FBU CEO, Ross Taylor said: “Outside the challenges experienced in B&I, the broader Fletcher Building business continues to perform to guidance. While it is pleasing to see an increase in sales revenues, operating earnings have decreased due to lower profits in the Construction Division, outside of B&I, as well as the Building Products Division."
Taylor said a strategic review of the whole business, including possible "portfolio" changes, which could signal that some asset sales could take place.
There had been a rise in "central costs" in the business, he said, which presented an opportunity.
Excluding B+I, Taylor said: "The rest of the Fletcher business we can improve, but it is performing pretty solidly. It's how we can focus it and move it forward more strongly."
"I'm quite optimistic we will be able to move with pace," Taylor said.
Discussions are continuing with Fletcher’s lenders in New Zealand and overseas following breaches of its lending covenants brought about by B+I’s losses. These are expected to finish by the end of March.
Commenting on the market outlook, Taylor said residential, commercial and infrastructure activity levels across Fletcher Building’s core markets of New Zealand and Australia remained in line with expectations, but he saw little growth as with the New Zealand building sector was operating at, or near, capacity.
"In New Zealand residential consents are up 3 per cent, and while there has been some softening of house price growth we believe this is a sign of the market normalising," he said.
"In Australia residential activity is declining, but standalone approvals remain resilient. Growth in the infrastructure and commercial sectors remains robust in all states outside Western Australia."
Could the Australian infrastructure boom help save Fletcher?
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.