Fletcher Building has forecast the 2025 year to be “challenging” with a 10% to 15% volume drop from its materials and distribution businesses after it announced a $227 million after-tax net loss following last year’s $235m profit.
“We expect market conditions to remain challenging. The OCR [Official Cash Rate] reduction is a great first step. However, we expect it will take time to see the flow-through to consenting and actual work starting. So that’s why we’re taking a cautious, prudent outlook here. We can’t see any pick-up in the market in 2025. But any cycle comes to an end,” said Traber, who is returning to Switzerland.
In reaction to the result, Craigs Investment Partners cited Fletcher’s outlook statement and the 10-15% drop in material and distribution business volumes.
Senior research analyst Cameron Parker noted 1H24 volumes were down 15% in New Zealand and 8% in Australia.
“A further 10-15% decline is likely to pull Fletcher’s Ebit down to around the $450m mark in FY25. This was always going to be a tough result for the company as it has been working through considerable uncertainty relating to leadership, legacy/Iplex and down-cycle impacts,” Craigs said.
On a positive note, FY24 guidance had been achieved and uncertainties are slowly dissipating, Craigs said.
On legacy projects, Fletcher had achieved full works completion on the Pūhoi to Warkworth motorway, with New Zealand International Convention Centre and remedial works on the Wellington International Airport carpark on track for completion in the 2025 year.
Nick Traber is the acting CEO of Fletcher Building. Photo / Fletcher Building
“There is no outcome on Iplex yet with Fletcher focusing on a practical industry response, however, it does note a decline in leak rates [$15m provision expected to be exhausted by September 2024], with its class action outstanding. Note the $117m non-cash impairment on FBU’s Higgins sale in Fiji. All in all, the ship is steady-ish, with what we expect will be a slow bottoming of the cycle,” Craigs said.
Traber said Fletcher had engaged Jarden to explore options for its Fletcher Living housing division. Local and international investors would be considered, he said.
An investor presentation said it was the right time to explore capital partnership options for residential and development, to invest in and drive the next phase of the business’ success.
Acting Fletcher Building chair Barbara Chapman.
Acting chair Barbara Chapman cited losses from construction legacy jobs, particularly the convention centre, and issues with plumbing in Perth homes hitting the company’s reputation and performance.
In the annual report for the year to June 30, 2024, she said: “The requirement to announce additional legacy construction cost provisions over the course of the year, together with the ongoing plumbing issues in Western Australia, have negatively affected both the company’s reputation and its financial performance.”
Steel replacement on the convention centre was cited in the result and pipes in Perth homes, an issue some have blamed on Fletcher’s Iplex which manufactured pipes although ex-Fletcher CEO Ross Taylor has blamed poor installation.
Time and cost risks remained for Fletcher which is yet to finish the convention centre, Chapman said, although the new Horizon Hotel also built by Fletcher had been opened.
SkyCity's new Horizon Hotel, now due to open on August 1, 2024. Photo / Jason Oxenham
On Perth pipe issues, she said: “Our testing and expert reports on causation showed that the leaks are caused by installation failures and that there is no manufacturing defect.
“We have been working through developing and implementing a workable and appropriate industry solution. Builders have continued to draw down on the A$15 million fund we established to remediate repairs for their customers. We acknowledge the class action proceeding filed in the Federal Court of Australia and served on Iplex Pipelines Australia in August 2024. Iplex intends to defend the proceedings. As per our detailed disclosure notes, risks remain on this matter.”
In the annual result, Fletcher said construction legacy projects cost it $180m but it took a further $100m hit from Higgins NZ impairment and $141m loss from discontinued operations at Australian plumbing business Tradelink.
Significant items from continuing operations were $333m due to a $117m non-cash impairment and writedown in the carrying value of Higgins and $180m in provisions for its legacy construction projects including the NZ International Convention Centre.
No dividend will be paid for the full year, whereas last year the company paid 34cps.
Anne Gibson has been the Herald’s property editor for 24 years, written books and covered property extensively here and overseas.
