Virus Deconstruct Dividends At Fletcher, James Hardie

Similar results from two building giants yesterday – Fletcher Building, the Kiwi company, and James Hardie, the Australian-US business.

Fletcher reported a loss of $NZ 196 million for the June 30 year, Hardie, reporting for its first quarter – the three months to June, saw an 89% slump in earnings to just $US9.4 million.

Both results showed impacts from COVID-19 lockdowns and reduced demand for their products and services.

Both companies will not be paying a dividend for the June 30 period or for the immediate future.

But Hardie shares jumped more than 6% to $32.22 while Fletcher shares eventually rose 1.2% to $A3.26.

Hardie said sales for the quarter fell 5% to $US626.3 million from $US656.8 million achieved in the June quarter a year ago because of weaker activity in European and Asia-Pacific markets.

Adjusted net operating profit which excludes (among other things) a $US63.7 million asbestos-related adjustment was line ball at $US89.3 million.

Looking to the year to March 31, 2021, Hardie expects adjusted net operating profit in the range of $US330 million to $US390 million. The 2019-20 comparable figure was $US352.8 million, so the midpoint of this guidance range suggests 2% growth.

Management is confident that US housing is improving and will continue to do so into 2021. That’s why the shares jumped yesterday

Meanwhile, Fletcher said in a pre results update (they are out next week) that the net earnings loss for the year ended to June 30 of $196 million, was “due predominantly to the impacts of COVID-19.

These impacts include significant lost revenues, especially during the New Zealand lockdown and start-up period; lower productivity leading to additional provisioning on the legacy construction projects; and one-off restructuring costs as the Company prepares for reduced market activity. ”

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

The group’s net debt at June 30 will be $NZ497 million and liquidity will be $NZ1.6 billion, including $NZ1.1 billion of cash on hand.

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

“Anticipating lower market activity ahead, we have taken some difficult but decisive actions to reset the cost base of the business. This has included the closure of some supply chain and manufacturing facilities; ceasing of some unprofitable product lines; a reduction in office space; and, regrettably, a planned reduction in our workforce by around 1,500 positions.

“These have been tough but necessary decisions to right-size our business, and we expect them to deliver a permanent reduction in our cost base in FY21 of c$300m p.a.

“We expect that FY20 significant items charges in respect of these actions will be $187 million. Together with asset impairments of $59 million in the Rocla business that we are divesting, and $30 million of costs on our early exit of the USPP 2012 notes, we expect total FY20 significant items to be $276 million.

“An additional c$90 million of significant items is expected in FY21 as the final cost-out actions are completed,” Mr Taylor said.

“Through the FY20 year-end process we have decided to increase the provisions to complete our historical construction projects. This is expected to reduce our FY20 EBIT result by $150 million. Three factors have led to these increased provisions.

“Around 50% is due to reduced productivities on key legacy projects, which were significantly disrupted by COVID-19 in FY20, and we expect ongoing challenges in FY21 across our supply chains and project resourcing. Around 20% of the additional provisions are due to issues that have arisen on a handful of historically completed projects. The final 30% consists of a prudent risk provision across our portfolio of legacy work.”

The Company has maintained a strong cash flow and balance sheet position through the COVID- 19 disruption.

Operating cash flows in FY20 are expected to be $410 million, supported particularly by effective working capital management. FY20 capital expenditure is expected to be $232 million, substantially below the initial market guidance for FY20 of $275 to $325 million,“ he said.

Glenn Dyer

About Glenn Dyer

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.

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