Fletcher Building has today projected a 315 per cent improvement in earnings before interest and tax, forecasting to meet the top end of its $650 million to $665m earnings guidance this financial year.
Ross Taylor, Fletcher chief executive, presented online to shareholders, telling how well the business was doing - and performance was a major prompt for today's $300m ASX and NZX share buyback scheme announcement.
In unexpected news, the business will enter the retirement village sector as an option for people to downsize within Fletcher residential developments.
Fletcher made Ebit of $549m in 2019, but only $160m last year partly due to the pandemic and lockdown. So making $665m is a major recovery, partly from record building work activity and materials demand here and in Australia.
Last decade, the company recorded losses of nearly $1b from a single division during an unfortunate two years shortly after Taylor started.
"We're very much fighting fit. We're in good shape," Taylor said today, telling how the company employed 14,500 people and had revenue of about $8b, of which $5.2b is from New Zealand, $2.8b from Australia and the rest from the South Pacific.
Fletcher made a $196m net loss after tax for the year to June 30, 2020 but Forsyth Barr projects net profit after tax of $415.5m for the June 30, 2021 year, $414.5m in 2022 and $404.9m in 2023.
"Just over half our revenue is exposed to the residential sector," said Taylor, whose vivid green tie matched the company's logo, a boss upbeat about residential growth here and in Australia.
The NZX and ASX listed business had operations which "generally" hold number one positions in their field, he said, referring to divisions including building products and distribution which includes PlaceMakers and in Australia, Tradelink.
Taylor's five-year plan was providing "solid outcomes", he said. That plan was announced in Sydney in 2018 and is due to conclude in 2023, with the company aiming to be the leading Australian and Kiwi building products and solution business.
Before trading opened today, Fletcher announced it would return up to $300 million to shareholders through an on-market share buyback next month.
Taylor said the balance sheet was in a strong position, with leverage expected to remain below its target range in the medium term.
"This position provides us with the capacity to recommence capital management and distribute up to $300m to shareholders, with the most effective method being an on-market share buyback," he said.
In 2018, the company was in poor shape: one unit lost almost a $1b in a two-year period. The Buildings + Interiors division lost $292m in the June 30, 2017 year but posted a further $660m of losses in 2018.
So Taylor's five-year strategy has been an heroic turnaround move. It included:
• Quitting vertical high-rise jobs after Fletcher Construction lost millions building the new $1b Commercial Bay and the $750m NZ International Convention Centre;
• Selling less profitable parts of the business;
• Focusing on more highly profitable areas to drive up margins, investing in those divisions and businesses. Examples include spending $400m on the new Winstone Wallboards plasterboard plant at Tauriko in the Bay of Plenty. That is due to open in two years.
Bevan McKenzie, chief financial officer, said the company wanted to lift margins by 10 per cent by 2023.
The construction order book had been "totally re-set" to meet rising margins, he said, from 2 per cent in 2021 projected to be up to up to 5 per cent by 2023, partly due to a "forward order book replacing nil margin legacy work".
Residential development was a key growth area, with Fletcher long hoping to build more than 1000 new residences annually. Margins above 15 per cent were targeted in that sector, McKenzie said.
A new "retirement offer" was also planned in the residential area, he said. "Growth opportunities: off-site manufacturing, apartments, retirement offer in existing communities," McKenzie's slide said.
On the buyback, McKenzie said it is "prudent balance sheet management". The buyback of shares listed on the ASX and NZX would start in June, he said. Trading conditions in the second half of the June 30, 2021, financial year were broadly in line with the first half, although supply chain constraints had put some pressure on trading.
In the June 30, 2021 year, building products are projected to make EBIT of $190m-$195m, distribution $125m-$130m, concrete $110m-$115m, residential and development $145m-$150m, Australia $100m-$105m, construction only $25m-$30m and corporate will make a $55m loss, McKenzie's slide showed.
Taylor showed a share buyback slide saying "forward indicators point to ongoing robust volumes with industry operating at or near capacity". The management expects the board to declare a final dividend in August.
Asked by one analyst about economic "easing" in both countries, Taylor said infrastructure investments plans here and in Australia would keep the momentum going for a while. Residential "just feels like it will go for a while too, I don't know how long."
Hamish McBeath, building products chief executive, said the business was "very comfortable" with the Commerce Commission investigating his sector. "We don't have any concerns. We welcome it."
Having local manufacturing plants meant his division had benefited when overseas supply chains were challenged, he said, referring to progress on the $400m Winstone development at Tauriko.
Steve Evans, residential and development chief executive since 2014, said his division had current possession of zoned sites where 3173 places could be built "including cafes, retail, childcare, terraced and multi-dwelling".
Around 900 homes would be built in Auckland and Christchurch next year, then more than 1000 annually, Evans said. Off-site manufacturing meant components for 100 new homes were developed annually, he said. Components for about 200 homes would be made in 2022.
Retirement village homes are planned at Manukau's Waiata Shores and Red Beach on the Hibiscus Coast "and looking to grow delivery through FY24-25 to 100 units," Evans said. These plans were in response to older people who wanted to stay in such communities struggling to find one, two or three-bedroom retirement homes.
"Based on an established occupation rights agreement structure but with a differentiated deferred management fee of 15 per cent plus sharing of capital gains with residents," Evans' slide said on retirement village developments.
That is a big challenge to six major sector giants who charge 20 to 30 per cent deferred management fees and hand over zero capital gains to owners.
Construction division chief executive Peter Reidy said that the business had a $3.3b forward order book of which 67 per cent was "medium risk contracts". Improving gender diversity was being implemented, he said.
Fletcher had $1.2b of work on for Watercare and $240m for Auckland Transport. The division wanted to build capacity around growth customers, he said referring to infrastructure creation.
Shares on the NZX are trading 117 per cent up annually, from $4.06 to $7.44. On the ASX, it trades around A$6.94.
Industrial projects dominate new supply, the study found, comprising 65% of new stock.