Covid crunch: Fletcher Building drops annual result bombshell, flags $196m loss

Fletcher Building is constructing New Zealand International Convention Centre in downtown Auckland that was ravaged by a fire last year. Photo / Greg Bowker

Fletcher Building will make a $196 million loss due to the effect the pandemic has taken on the business, a reversal of fortunes after last year's $164m profit.

Chief executive Ross Taylor this morning updated the market ahead of next Wednesday's full-year result to June 30, 2020.

He cited three factors which would reduce operating earings by $150m:
• Half the losses are due to reduced productivities from key legacy projects "significantly disrupted" by Covid-19;
• 20 per cent due to issues from "a handful of historically completed" projects;
• 30 per cent due to "a prudent risk provision" across the portfolio of legacy work.

"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 $196m, due predominantly to the impacts of Covid-19," the company's statement said.

"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," it said.

Despite lower earnings, the company's cash flow performance and balance sheet position has remained very strong, it said.

"Operating cash flows are expected to increase in FY20 to $410m, 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–2.0," it said.

Before March, Fletcher was trading in line with expectations, Taylor said, but the pandemic had changed all that.

Earlier this year, Fletcher said that it was laying off 1000 people in New Zealand and about 500 in Australia.

Today, Taylor said the construction division was working through its legacy, loss-making projects.

"The value of legacy buildings and infrastructure work to complete has been reduced from approximately $2.2b in February 2018 to approximately $0.6b currently. The division's forward order book outside of the legacy projects has been rebuilt to comprise around $2.4b of work with a materially better margin outlook, and significantly lower and more appropriate risk profile," Taylor said.

Fletcher had decided to increase its provisions for construction division losses, cutting FY20 EBIT by $150m, he announced.