Fletcher posts $305 million profit

by | Aug 19, 2021

Fletcher BuildingNew Zealand’s biggest construction firm, Fletcher Building, expects to see an extended period of “solid building activity” throughout 2021 and beyond, according to a recent stuff.co.nz report.

The prediction comes after the building company reported a $305 million profit for the year ended June 30, quite the turnaround from last year when it posted a $196 million loss after restructuring its business to lower its cost base, reducing staff, products and facilities as it downsized to cope with COVID disruptions, according to the report.

The construction industry continues to run hot amid a shortage of housing, with building consents at record highs. However, the increased demand is placing continued pressure on building materials and labour, already short due to the pandemic.

Fletcher Building Chief Executive, Ross Taylor said, he believes that the economic trends in key markets remain supportive for further growth particularly with strong residential demand across both new builds and renovations being supported by a favourable macroeconomic environment of low unemployment and low interest rates.

Mr Taylor said supply chain and labour constraints mean the residential sector is already currently at or near capacity, which is likely to mean an extended period of building activity beyond the current financial year.

“In New Zealand, the activity pipeline continues to look ‘stronger for longer,’ especially in the residential sector. With ongoing supply chain and labour constraints having the effect of smoothing the recent sharp rises in building consents over a longer period, this is likely to mean an extended period of solid building activity,” Mr Taylor said in the report.

Fletcher posted an operating profit of $669 million, ahead of its forecast for $650 million to $665 million, with the company’s profit margin lifted to 8.2 per cent in the latest year, from 2.2 per cent in 2020 and 7.2 per cent in 2019. It attributed the gain to efficiency programmes and targeted investments in growth and the company is targeting a profit margin of about 10 per cent in its 2023 financial year, according to the report.

Shares in Fletcher Building lifted 1.4 per cent to $7.86 following the result. The stock has gained 134 per cent over the past year.

The company said it had also improved its pricing disciplines with escalating electricity, freight and raw material input cost increases passed on in the second half of its financial year.

The company’s residential and development business sold 836 units, up from 666 units the previous year, with the average unit price eight per cent higher. Revenue rose 58 per cent to $734 million due to a strong market driven by low mortgage rates and a combination of new and well-established development locations.

The construction division returned to profit, posting pre-tax earnings of $31 million, following a loss of $147 million in 2020. The firm has narrowed its focus to lower risk projects with better margins after being burnt on big construction projects in the past.

Mr Taylor said it was hard to gauge the impact of the latest Covid-19 level 4 lockdown which started on August 18.

 “It does have an impact, but it is just too hard to define yet. A short, sharp lockdown will be obviously less than if it is extended,” he said.

Fletcher has about 9000 employees and while some could work from home, most would be stood down, he said.

“The ultimate impact will depend on how long it takes to get the virus under control,” he said in the report.