Construction giant Fletcher Building [FBU] is seeking partners for its residential development business as the company reports a $227 million loss for the financial year ending June 2024.
In announcing the financial results for the year Fletcher gives only sparse mention of the plans to bring in partners for its residential business, which suggests the initiative is very recent.
In a presentation of the results. acting chief executive Nick Traber said the company thinks it is the right time to "explore capital partnership options for residential and development, to invest in and drive the next phase of the business’s success".
"Consequently, we have engaged [investment and advisory group] Jarden to explore partnership options with both local and international investors."
Fletcher says it has "acquired land effectively" and controls a pipeline of around.4,200 lots, "and is recognised for building high-quality master- planned communities".
It says the market valuation of land on balance sheet at June 2024 is about.$265 million higher than book value.
In the annual report (page 42) Fletcher said the Residential and Development division reported gross revenue of $796 million, 31% higher than the prior year.
Earnings before interest and tax (EBIT) were $100 million compared to $147 million in the prior year on gross margins that were 21.9% down from the prior year’s 33.3%.
"Following a challenging FY23, New Zealand housing market conditions showed initial signs of improvement through HY24.
"In the second half, record market house listings, elevated interest rates and broader economic uncertainty adversely impacted buyer sentiment and urgency. Despite this challenging backdrop, Fletcher Residential delivered strong sales volumes, continuing to leverage its high-quality, customer-centric reputation, with a focus on lower price points in the most active part of the market. 886 units were taken to profit in FY24, compared to 617 in the prior year," the company said.
The company doesn't give any timeframe for when it plans to bring financial partners on board.
In terms of the Fletcher business as a whole, the announcement of the annual results to NZX on Wednesday confirmed the tale of woe that has been coming out of the company for much of the year.
Fletcher saw both its chairman Bruce Hassall and chief executive Ross Taylor quit in February.
Taylor has officially been on "garden leave" - and yes, the company uses that term, since then prior to officially leaving on August 23, 2024. According to information in the annual report Taylor has continued to be paid and has received $2.3 million in respect of the 2023-24 financial year, down from $3.7 million in the previous year. However, the table of earnings in the annual report indicates that Taylor has received a total of $4.38 million in the year - some of which will be in respect to incentives earned in prior years.
On Tuesday Fletcher announced as new CEO former Fletcher executive Andrew Reding, who more recently held senior positions in the various business interests of NZ billionaire Graeme Hart and was also chairman of the NZ Shareholders Association. Reding joins as a Fletcher director this week and starts as CEO on September 30.
In looking at the year past, acting CEO Traber, who's departing to head back to Switzerland shortly, said market volumes had "declined materially" in the year.
"In New Zealand, market volumes fell 25% and, in Australia, market volumes fell 15%, each compared to the first half of FY23, resulting in substantial revenue declines in our materials and distribution businesses."
He said that "disappointingly" the company had reported "significant items" (IE losses) for continuing operations of $333 million.
"This was primarily due to a $117 million non-cash impairment and write-down in the carrying value of the Higgins business, and the $180 million additional provisions required on our legacy Construction projects announced at HY24."
Those legacy projects include the troubled International Convention Centre in Auckland, which the company says is expected to be finished by the end of the 2024 calendar year, with commissioning and handover in early 2025. However the company says "risks will remain until the project is completed".
Including writedowns on the now-sold Tradelink Australian subsidiary, the company had total significant items of $488 million in the 2023-24 year.
On the write-down of the Higgins civil business, acting Fletcher chair Barbara Chapman said "disappointingly", a full review of the business at the financial year-end led to the write-downs.
"We have tasked management to deliver on the credible path it has to drive the business forward," she said.
The company's Iplex subsidiary has been embroiled in a leaky pipes dispute in Western Australia.
Traber says the company remains focused "on reaching a pragmatic industry response to the plumbing matters in Perth".
"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."
Earlier this year Fletcher renegotiated its banking covenants to give itself more breathing space as the financial position deteriorated.
One consequence of that is that is not paying dividends.
As for the new year now in progress, Traber said he is expecting it to "remain challenging, with macro-economic pressures likely to persist through the year.
"At this point, we are planning for FY25 market volumes in our materials and distribution businesses to be 10% to 15% 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 cash flows. We will also focus on protecting our people, delivering on our promise to customers and positioning our businesses well for when our markets return to growth."
A short time ago the Fletcher share price was down 20c at $3.20. It is down 35% in the past 12 months.
13 Comments
"Fletcher says it has "acquired land effectively" and controls a pipeline of around.4,200 lots"
"Landbanking?"
Something needs to be done about landbanking but I doubt if the Nats will do anything. Developer mates inlfuence. Labour had six years to do something but did nothing.
Who in their right mind would become a capital partner for FBU without a complete change of management as only a first step in the marathon of rebuilding the company. I'll bet that's not negotiable, though.
Although, a partnership with someone with enough money and muscle to force change might achieve something. That said, why would anyone like that bother?
How do you give a company like Fletcher's an incentive to get effective and efficient when there is essentially no competition?
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