Fletcher Building chiefs to go as losses hit $NZ120m

Fletcher Building is in turmoil as its CEO and chairman are exiting, earnings are downgraded and a key unit finds itself on the chopping block.

Outgoing Fletcher Building boss Ross Taylor, top right, and chairman Bruce Hassall.

Construction giant Fletcher Building has plunged to a shock $NZ120m ($113m) loss and downgraded its earnings outlook, with the crisis claiming both chief executive Ross Taylor and chairman Bruce Hassall.

Mr Taylor’s departure had been expected after the company flagged on Monday he was considering his position, but Mr Hassall’s exit points to further boardroom ructions.

The chief executive has given notice he will retire but could remain in his post for up to six months, while Mr Hassall will step down at Fletcher’s annual meeting later this year.

“The board, Ross and I believe it is in the best interests of the business and the team that he handover to a new leader and that I hand over to a new chair at the time of the ASM in October,” Mr Hassall said.

Big investors had demanded an overhaul of the company’s top ranks after its disappointing performance and it will kick off an international and domestic search for a new CEO shortly.

Fletcher appears to have dodged a rescue equity raising but has stung investors by not paying an interim dividend, blaming current market conditions and the hit from legacy cash outflows.

The company took a $NZ122m non-cash impairment and writedown on its Tradelink Australia unit and flagged it would be sold off in a potential first step to a broader corporate break-up.

“We have concluded that whilst we believe there is a compelling opportunity for Tradelink, further ownership of the business is not in line with the strategic objectives of Fletcher Building. Consequently, we intend to commence a divestment process for Tradelink shortly,” Mr Taylor said. Tradelink is one of the country’s oldest plumbing supply retailers, with a 150 year history, but has under-performed, and Fletcher insisted other divisions were not on the block.

In a tense investor call after the revelations, share market analysts took the company to task for a series of costly write-downs which they said pointed to a communication breakdown as bad news took too long to filter up to senior management.

“The disappointing execution in a relatively reasonable operating environment has cost the CEO and chairman their positions,” Citi analyst Samuel Seow said. He said the half year was as “poor a result as we’ve seen”, despite the better than expected NZ housing environment. “However, bad execution has seen a string of provisions, regulatory overhangs, and now balance sheet concerns, which will likely result in a soft result today,” Mr Seow said. The company’s shares plunged by 32c to close at $3.38, near their 2020 lows.

Mr Taylor defended the company, saying it had only been able to progressively deal with problematic legacy projects and they required unique solutions. He admitted it had been frustrating fixing up issues and explained his sudden departure.

“I felt I needed to take accountability, so I have,“ he said.

Mr Taylor will leave the role within six months.

Investors had demanded management change after Fletcher went into a botched trading halt on Monday, warning its forecasts were materially different from analyst expectations and it delivered disappointing guidance on Wednesday.

Fletcher said it expected fiscal 2024 earnings before interest and tax before significant items to be in a range of $NZ540m to $NZ640m, with the midpoint assuming a continuation of current market conditions this financial year.

The company is closer to fixing up construction legacy projects and is working on an industry-level fix for a dispute over pipes supplied in Perth to BCG. It is taking a hard line on that dispute, with Mr Taylor saying testing and expert reports showed leaks were caused by installation failures and there was no manufacturing defect.

The loss included $NZ180m of legacy provisions flagged this week and the Tradelink writedown, in a sharp reversal of its $NZ92m profit in the first half of last year.

Mr Taylor also blamed “materially weaker” trading conditions, particularly in the NZ residential sector where volumes declined 20 per cent, but said group revenue of $NZ4.2bn was in line with the prior period,

Earnings before interest and tax before significant items dropped to $NZ264m, from $NZ360m in the prior period. Fletcher was hit by the $NZ165m provision on the New Zealand International Convention Centre it announced this month.

In NZ, revenue for the materials and distribution divisions slipped by 8 per cent but Fletcher said this was better than the overall market, which was off by 15 per cent as the residential sector stalled. Mr Taylor called out the “more challenging” trading environment for the NZ materials and distribution divisions but said margins remained intact.

He said the house sales market was a relative bright spot in NZ, with improved buyer activity, especially first-home buyers, and a stabilising of house prices after 18 months of decline.

Mr Taylor praised the performance of the Australian division which delivered earnings and margins broadly in line with the first half of last year, with margins up and costs down.

The group remains under pressure with cash flows from operating activities resulting in an outflow of $NZ126m but this is an improvement on the $NZ203m outflow in the first half of last year. utgoing Fletcher Building boss Ross Taylor.