Fletcher posts $273 mln 1H loss on B+I; construction, building product profits fall
By Jonathan Underhill
Feb. 21 (BusinessDesk) - Fletcher Building reported a first-half loss, reflecting losses at its Building + Interiors unit and said profit was down at its other construction businesses and in building products.
The loss was $273 million in the six months ended Dec. 31, from a profit of $176 million a year earlier, the Auckland-based company said in a statement. Sales rose 6 percent to $4.89 billion. The results show a loss of $322 million on an operating earnings basis, which included B+I losses of $631 million, from a profit of $294 million a year earlier.
The company unveiled further provisions at B+I last week, which amount to two-year losses of $952 million for a business that has some of New Zealand's most complex and expensive vertical construction projects on its books, on which it has faced significant cost blowouts. It signalled its withdrawal from that sector and won't bid for new contracts. But today's results show weaker earnings in building products, its biggest business, its panel and roofing tile international division, and in construction outside of B+I.
"Outside the challenges experienced in B+I, the broader Fletcher Building business continues to perform to guidance," said chief executive Ross Taylor. "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."
Building products recorded a 13 percent gain in revenue to $1.25 billion although operating earnings fell 9 percent to $118 million. The company said the decline "was driven by additional costs incurred in various businesses to alleviate capacity constraints, increased energy costs, one-off redundancy costs in Fletcher Insulation Australia and a fire at Humes’ Penrose site."
Construction, ex-B+I, recorded an 83 percent drop in earnings before interest and tax to $12 million. Taylor said its infrastructure and South Pacific businesses are "rolling off major projects from FY17, and we are only in the early stages of new ones." Total revenue in the construction division fell 13 percent to about $1 billion.
Sales in the international division, which includes Laminex, Formica and its steel roofing tile business, rose 4 percent to $1.05 billion while operating earnings fell 1 percent to $69 million.
Its remaining two division continued to post sturdy results. Distribution, which includes the PlaceMakers hardware chain, recorded a 7 percent increase in sales to $1.76 billion and earnings rose 6 percent to $89 million.
"The division continues to benefit from strong momentum across its PlaceMakers, Mico and steel distribution businesses, while the turnaround of Tradelink is progressing to plan," Taylor said.
Sales at residential and land development jumped 45 percent to $236 million and earnings gained 57 percent to $47 million, which the company said was "supported by an increase in unit and land development sales."
Fletcher Building reiterated its guidance for full-year earnings excluding B+I of between $680 million and $720 million.
Taylor said residential, commercial and infrastructure activity levels across Fletcher Building’s core markets of New Zealand and Australia "remained in line with expectations."
Growth in activity in the second half "is expected to be limited, particularly with the New Zealand building sector operating at or near capacity."
The results show the blowout in the company's debt ratios that put it outside its lending agreements. Net debt to ebitda, on a rolling 12-month basis, soared to 20.4 times from 2.2 times. Excluding B+I, the ratio was unchanged from a year earlier at 2.2 times. Cash flow from operating activities was an outflow of $67 million compared with an inflow of $110 million a year earlier.
Fletcher shares last traded at $6.86 and have dropped 32 percent in the past 12 months.