Fletcher Building faces ‘challenging’ year after posting loss

After a tumultuous 12 months weighed down by a sluggish building sector, a wave of executive departures and a looming class action, Fletcher Building has warned of another “challenging” year ahead after booking a net loss after tax of $NZ227m ($207m) for FY24.

Shares in the New Zealand-based dual-listed construction materials supplier, which made a net profit after tax of $NZ235m in FY23, closed 2.6 per cent lower at $3.01.

Fletcher recorded revenue from continuing operations of $7.7bn, which was on par with FY23, with higher revenues in residential, and development and construction offset by significantly lower revenues in materials and distribution divisions.

Acting chief executive Nick Traber said Fletcher showed resilience against the backdrop of slowing demand and inflationary and competitive pressures.

“We expect the year ahead to remain challenging, with macro-economic pressures likely to persist,” he said.

“At this point, we are planning for FY25 market volumes in our materials and distribution businesses to be 10 per cent to 15 per cent lower year-on-year compared to FY24. However, we remain vigilant to further market weakness.

“In this environment, we have a continued focus on tightly managing costs and cashflows.”

Mr Traber said total significant items for continuing operations for FY24 were “disappointingly” $NZ333m, which affected the net earnings result.

That was primarily due to a $NZ117m non-cash impairment and writedown in the carrying value of the Higgins business, and $NZ180m additional provisions required on its legacy construction projects announced at the HY24 results.

Also factored in was the discontinued operation of Fletcher Building’s Australian plumbing supplies and distribution business Tradelink, which was sold for $170m to Metal Manufactures, a subsidiary of the US-based Blackfriars Corporation.

The company’s return on funds employed before significant items was 10 per cent, compared to 17.1 per cent in FY23.

Mr Traber said market volumes declined materially in FY24.

“In New Zealand, market volumes fell 25 per cent and in Australia market volumes fell 15 per cent, each compared to the first half of FY23, resulting in substantial revenue declines in our materials and distribution businesses’ he said.

“Offsetting this, despite a tough housing market this year, our New Zealand residential business sold 886 units, compared to 617 in FY23.”

The company announced no dividend.

Mr Traber said the company was focused on reaching a “pragmatic industry response” to class action launched against Iplex Pipelines Australia, a subsidiary of Fletcher, over alleged defective pipes that were believed to have caused flood damage to thousands of homes.

“Constructive negotiations continue and Iplex is intent on trying to reach an agreement in principle with the government and key parties in the near term,” he said.

Mr Traber is returning to Switzerland after leading the business over the past six months after long-term chief executive Ross Taylor quit. He is being replaced by Andrew Reding who will earn $NZ1.45m ($1.32m) a year as a base salary plus short-term and long-term incentives each worth up to 150 per cent of the base salary.

Mr Taylor was not awarded short-term incentives this year.

Others to leave the board this year were chairman Bruce Hassall and chief financial officer Bevan McKenzie.

A Citi analyst note described the results as “messy”.

It said the results were in line with a trading update provided in mid-May.

“Leverage is expected to increase again in 1H25. Additionally, no guidance provided, but FBU planning for volume declines of 10 per cent to 15 per cent,” it said.

“We estimate if this eventuates, this may result in numbers below the MSD (moving standard deviation) declines forecast by FY25 consensus.”