Updated: A loss, but flow of red ink stops at Fletcher Building

Published 22 August 2018, updated with return comparisons:
Fletcher Building Ltd has stemmed the flow of red ink.

After a tumultuous 2 years of losses in the construction section of its Building & Interiors division, the company said today it made a $190 million net loss for the June 2018 year, compared to a $94 million profit in 2017.

The company’s $710 million of operating earnings before significant items, and excluding Building + Interiors (B+I), was at the high end of the $680-$720 million guidance issued when it reported its half-year result in February.

Fletcher Building chief executive Ross Taylor.

Chief executive Ross Taylor said today Fletcher Building had maintained B+I losses at the $660 million announced in February.

Revenue rose 1% to $9.471 billion, which Mr Taylor said was driven by a solid sales performance across core businesses in New Zealand & Australia, offset by a reduction in construction revenues.

Cashflow from operations rose $153 million to $396 million, reflecting improved working capital management, offset partly by continued outflows on the B+I projects.

In New Zealand, Mr Taylor said the Residential & Development division performed strongly, growing revenue & earnings and significantly increasing the volume of units sold to 714 (499 the previous year).

Mr Taylor said raw material & supply chain cost pressures offset revenue growth in a number of businesses in the Distribution, Building Products, Concrete & Steel divisions.

In Construction, outside B+I, revenue & earnings growth remained strong in Higgins, while the Infrastructure and South Pacific businesses experienced declines due to the roll-off of a number of major projects.

Gross revenue increased in Australia, where all businesses achieved positive sales growth on a $NZ basis. Mr Taylor said performance improvements gathered momentum at Iplex Australia & Tradelink. “Despite this, operating earnings before significant items decreased, as the majority of businesses were impacted by increased input costs, particularly in energy & resins.”

Internationally, difficult trading conditions in a number of Roof Tile Group export markets offset a positive performance by Formica in North America & Asia.

In summary, Mr Taylor said: “We have seen volume & revenue growth across a number of our New Zealand & Australian businesses, but these gains have been more than offset by increased costs and our need to invest ahead of plan to meet higher than anticipated market demand.

“With a new strategy in place, we have started the new financial year with clear priorities & an operating model that will support us to deliver against them. Our focus in the 2019 financial year will be on growing our core businesses, continuing to stabilise our construction division and completing the divestment of non-core businesses Formica & Roof Tile Group.

“In both New Zealand & Australia we expect activity in the residential sectors to decline slightly, while activity in the non-residential, commercial & infrastructure sectors is likely to increase. In Australia this will be most pronounced on the eastern seaboard, which is expected to benefit from large state- & federal-funded projects in rail, road & pipelines.”

Significant items for FY18 included a charge of $168 million, which comprised group restructuring charges of $91 million & impairment charges of $114 million, offset by gains on divestments of $37 million. Mr Taylor said the restructuring costs & business divestments were as a result of the implementation of the new group strategy announced on 21 June.

In line with the company’s dividend policy to pay dividends in the range of 50-75% of net earnings before significant items, no final dividend was declared in the 2018 financial year. Mr Taylor said the company expected, to be in a position to resume dividends in the 2019 year, subject to satisfactory trading performance.

The company will issue its 2019 earnings guidance at its annual meeting.

Key results (2017 results in brackets):

Total revenue, up 1% to $9.471 billion ($9.399 billion)
Operating earnings before significant items, down 90% to $50 million ($525 million)
Building + Interiors, loss of $660 million ($292 million loss)
Operating earnings (excluding B+I) before significant items, down 13% to $710 million ($817 million)
Significant items, 33% improvement to $168 million loss ($252 million loss)
Operating earnings (ebit – earnings before interest & tax), $118 million loss ($273 million profit)
Pretax earnings, $275 million loss ($162 million profit)
Net earnings, $190 million loss ($94 million profit)
Basic earnings/share, 25.5c loss (13.5c profit)
Dividends declared, zero (39c/share)

Links:
Media Release
Management commentary
Results presentation
2018 Annual Report

Earlier stories:
1 July 2018: Fletcher Building exits Sims recycling joint venture
22 June 2018: Hassall to chair Fletcher Building, 4 new directors named
22 June 2018: Australia the next big focus for Fletcher, offsite construction an innovation example
21 June 2018: Fletcher Building strategy amounts to a spring clean – board announcement tomorrow
20 April 2018: Institutional bookbuild puts $1.35 premium on Fletcher shares
18 April 2018: Big Fletcher fundraiser plus divestments intended to stabilise construction’s fallen giant
4 April 2018: Lenders give Fletcher Building 2-month waiver extension
2 March 2018: Fletcher gets US waiver, still negotiating funding terms
21 February 2018: Fletcher half-year loss $322 million
14 February 2018: Another $486 million of losses for Fletcher Building, and Norris resigns
8 February 2018: Fletcher Building warns of worse to come
19 January 2018: Regulator clears Fletcher Building of continuous disclosure breach
27 October 2017: Sheppard turns Fletcher meeting into “absolution or exorcism” exercise
25 October 2017: Fletcher issues guidance, names new chief executive
21 September 2017: 
A year on, Fletcher board still has ‘construction nous vacancy’ pencilled in
17 August 2017: 
‘Fessed up, time to move on, says an unconvincing Fletcher boss
21 July 2017: 
Fletcher Building takes axe again to construction earnings, Adamson ousted
20 March 2017: 
Fletcher Building cuts earnings guidance by $110 million
19 March 2017: 
Fletcher Building to explain construction loss Monday morning
22 February 2017: 
Fletcher Building net up 2% after site closures

Attribution: Company release.

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