Construction giant Fletcher Building has taken the most unusual step of announcing what its financial result will be, just eight days before it officially releases that result.
The company says after taking a $276 million hit to earnings - largely due to the impacts of Covid-19 - it will record a net loss for the year to June 2020 of $196 million.
Earlier this year Fletcher said it was cutting 1500 jobs.
The statement from Fletcher to the NZX released on Tuesday said the staff cuts had been "tough but necessary decisions to right-size our business", and it was expected the moves would deliver a permanent reduction in the company's cost base in the next financial year of about $300 million.
The company didn't give any reason for why it was putting out news of its loss little more than a week ahead of the official announcement, which is still set for August 19.
This is the full statement from the company:
Fletcher Building today announced key aspects of its expected FY20 annual results, which will be released in full on 19 August 2020.
The result, which remains subject to final audit sign-off and approval by the Board, is expected to be a net earnings loss for the year ended 30 June 2020 of $196 million, due predominantly to the impacts of COVID-19. These impacts include significant lost revenues, especially during the New Zealand lockdown and start-up period; lower productivity leading to additional provisioning on the legacy construction projects; and one-off restructuring costs as the Company prepares for reduced market activity.
Despite lower earnings, the Company’s cash flow performance and balance sheet position has remained very strong. Operating cash flows are expected to increase in FY20 to $410 million, driven particularly by effective working capital management through the COVID-19 disruptions. The Group’s leverage ratio at 30 June is expected to be 0.9x, below the target range of 1.0x–2.0x.
Fletcher Building Unaudited FY20 Annual Results (NZ$ million)
EBIT before Significant Items and before Construction Provisions: 310
Construction Provisions: (150)
EBIT before Significant Items: 160
Significant Items:(276)
EBIT:(116)
Net Loss:(196)Cash Flows from Operating Activities: 410
Capital Expenditure: 232
Net Debt: 497
Liquidity: 1,629
Leverage (Net Debt / EBITDA): 0.9xFletcher Building CEO Ross Taylor said: “Prior to March, the business was trading in line with expectations and making good progress with operating efficiencies. As COVID-19 crossed New Zealand and Australian borders, we moved quickly to protect our people and ensure we are well positioned to successfully navigate the market uncertainty in FY21 and beyond. Our people have done an exceptional job of serving our customers, safely managing our operations, and resetting the business through a period of considerable disruption.”
“Anticipating lower market activity ahead, we have taken some difficult but decisive actions to reset the cost base of the business. This has included closure of some supply chain and manufacturing facilities; ceasing of some unprofitable product lines; a reduction in office space; and, regrettably, a planned reduction in our workforce by around 1,500 positions. These have been tough but necessary decisions to right-size our business, and we expect them to deliver a permanent reduction in our cost base in FY21 of c$300m p.a. We expect that FY20 significant items charges in respect of these actions will be $187 million. Together with asset impairments of $59 million in the Rocla business that we are divesting, and $30 million of costs on our early exit of the USPP 2012 notes, we expect total FY20 significant items to be $276 million. An additional c$90 million of significant items is expected in FY21 as the final cost-out actions are completed.”
Mr. Taylor said that the Construction division had continued to make progress in working through its legacy, loss-making projects. “The value of legacy Buildings and Infrastructure work to complete has been reduced from approximately $2.2 billion in February 2018 to approximately $0.6 billion currently. The division’s forward order book outside of the legacy projects has been rebuilt to comprise around $2.4 billion of work with a materially better margin outlook, and significantly lower and more appropriate risk profile.”
“Through the FY20 year-end process we have decided to increase the provisions to complete our historical construction projects. This is expected to reduce our FY20 EBIT result by $150 million. Three factors have led to these increased provisions. Around 50% is due to reduced productivities on key legacy projects, which were significantly disrupted by COVID-19 in FY20, and we expect ongoing challenges in FY21 across our supply chains and project resourcing. Around 20% of the additional provisions are due to issues which have arisen on a handful of historically completed projects. The final 30% consists of a prudent risk provision across our portfolio of legacy work.”
The Company has maintained a strong cash flow and balance sheet position through the COVID-19 disruption. Operating cash flows in FY20 are expected to be $410 million, supported particularly by effective working capital management. FY20 capital expenditure is expected to be $232 million, substantially below the initial market guidance for FY20 of $275 to $325 million. The Group’s net debt at 30 June 2020 is expected to be $497 million and liquidity is expected to be $1.6 billion, including $1.1 billion of cash on hand. The Group’s leverage ratio of Net Debt to EBITDA is expected to be 0.9x, below the target range of 1.0x – 2.0x.
Mr. Taylor concluded that the Company remains in a strong position to continue driving its strategy and performance improvement. “Our focus in the past few months has been on the safety and well-being of our people, and acting quickly to preserve profitability and balance sheet strength. We have ensured our cost base is set for expected lower market activity, and kept cash flows and liquidity strong. We will watch the market closely, as the environment does remain uncertain, but we also believe it will provide opportunities for growth and the business is in a good position to capitalise on those.”
33 Comments
I wonder how they are valuing all the unsold new builds they have. Mark to market or some
Fanciful wishing thinking. They have hundreds of empty units across a number of our major cities - units that just don’t appeal to New Zealanders not used to living in rabbit hutches.
Its true Fritz , the days of such firms having fancy offices with fancy C-suites , with eye-watering salaries for the C-suite, are long gone .
Fletcher Group has not moved with the times , they rely on rigged over- pricing of Government work due to their cozy arrangement with the Ministries , and playing the Kiwi-owned card with alarming frequency, getting all indignant when a Chinese or Aussie South African company offers a competitive price and gets the work ( like the Kiwirail contract that went to some South Africans )
Let me tell you that if South Africans can do civil and infrastructure work for less the Fletchers , then its a big wake-up call
I have always been wondering why NZ does not import building services from overseas, especially for large scale infrastructure work
I am sure if the cost of hiring a NZ company with bloated employees on any sites, constant delaying, and questionable quality must outweigh the benefit of hiring an overseas company.
If a Chinese company were building the transmission Gully, people would be able drive on it in 2018.
When I lived in Dubai they built a bridge on Sheik Zayed road over the newly proposed creek flow. This is an elevated section of road for two kilometres on a 6 lane highway. Took them 4 weeks if I recall correctly, either way it was rapid. Lived there for three years and don't recall seeing roadworks at all and the surface quality was excellent. Good enough that an enforceable speed limit of 140km was enjoyed by myself.
I'll drink to that. Infrastucture went up almost overnight, overpasses, brdges. Those Bangladeshis and Nepalese worked, man! Ate a sh*t sandwich for 5 years, earned enough to build a house back home, and home they went. That's why the MidEast attracts them all. Foreigners can't buy their land either. Arabs know what's up. Came back here to roadcone city and endless smoko breaks with people having an endless b*tch about this or that. Local government in NZ made me a fan of petromonarchy.
Not as good as you think Xingmo.
https://new.engineering.com/story/ever-see-a-12-story-building-just-fal…
The last large scale Chinese investment in construction was Mainzeal. Look how that ended - financially stripped and abandoned with losses of over $100m pushed to its suppliers. Add in a certain very large dam that while impressive in scale, it is being reported as having potential load failure issues, which if true would devastate millions. Then there is the fraud that appears endemic when building fail with incorrectly made concrete and tack of quality reinforcing.
So mass Chinese construction in NZ.... noooo thanks.
Another sound goverment financial decision by Wong Key and his National henchmen. Its okay though, a high number are now on chinese management boards enjoying a great salary together with their generous government superannuation plan. Life has never been better for this bunch of cronies.
I am amazed Bolger has come out today saying no political party is advocating an age rise for NZ Super. Doesn't he know parliament debated super changes,just before closure, restricting kiwis from receiving super if they haven't lived here in 20 year blocks. He must have chinese amneisure.
Fletcher's is an MBA case study waiting to be written. The stock price was $11 13 years ago, today it is $3 and change. And this despite having a virtual monopoly on the supply of building products during the most rapid population expansion and property price growth in NZ history.
Yep. The level of mismanagement and complacency that must have been in place boggles the mind.
Our construction industry is cooked, from top to bottom. The 'normal' management processes of the industry are irrational and bizarre by the standards of other industries, from the Fletchers level to the one-apprentice-and-a-dog level. More pre-fabs and sensible regs would help, but progress is really limited by the structure of the industry.
Not long after the revelation of the huge losses of the construction division, resignation of Norris, we were unlucky enough to be staying at an Auckland hotel where that same Fletcher division was having a conference. The boorish, inconsiderate and arrogant behaviour was an utter disgrace, overcrowded the bar/restaurant, couldn’t hear yourself think.The abysmal result and Norris’s parting shot had hardly sobered anything up, quite the opposite. A celebration, no expenses spared. That is the culture and our subsequent experience of their supply and service, of a new house build within our family was no different. The customer is just fair game, like it or lump it, they know full well that anyone as Joe Public, cannot afford to take them on legally. The building supply industry is an unaccountable, uncontrolled rort, and unfortunately there is a preponderance of builders who are wilfully a party to that too. The public need for more protection from these predators than the MBIE provides.
No, no.
The Government will assist with a $900 million Stand-By Debt Facility to ensure they keep going.
Sure, a few thousand real workers might get the chop, but business as usual ( share price and senior management salaries) will be maintained.
Seems to be the mode of operation for such crucial businesses.
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