21 Nov 2018

Fletcher Building drops first half profit outlook by 10 percent

8:57 am on 21 November 2018

Fletcher Building has dropped its first-half profit outlook, due to challenges in the Australian business and the timing of house sales in the residential division.

Fletcher Building announces a $486 million increase in the projected losses for Fletchers' troubled Building and Interiors (B&I) division on 16 major construction projects.

Fletcher Building chief executive Ross Taylor hopes the company can begin paying divdends to shareholders again shortly. Photo: RNZ / Dan Cook

New Zealand's largest construction company said in an update ahead of its annual meeting today that underlying profit would be 10 percent down on expectations, excluding significant one-off items and losses associated with the failed building and interiors business.

Otherwise, the company said it was still tracking to its full year underlying profit guidance of between $630 million and $680m.

It said the full year result would be hit by a four-week outage at the Golden Bay Cement plant, which was expected to cost between $8m and $11m.

In a presentation to shareholders, chief executive Ross Taylor said trading conditions in Australia had been challenging in recent months, with the residential market accounting for about 40 percent of its business there.

He said there had been a sharp contraction in new residential consents in the most recent quarter, particularly in the apartment or multifamily portion of the market.

"This is currently impacting our Australian businesses, particularly Stramit, Laminex and Tradelink, and feels like a medium-term trend that has some distance to run yet.

"The combination of continuing input price rises and the cooling residential sector, have placed pressure on both margins and volumes across our Australian businesses," he said, adding that the company was looking to take appropriate actions to ensure costs were aligned with market conditions.

Housing market in New Zealand still robust

Closer to home, he said New Zealand's residential consents were down slightly on the year earlier, but activity remained robust, particularly in Auckland, but that was expected to change.

"But we think this is now plateauing and there are signs that the Auckland market will pull back slightly," he said, adding that continuing supply imbalances, a solid economy, with steady immigration levels would sustain the market in the medium term.

"In our other New Zealand markets, infrastructure and commercial construction activity remain solid."

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Fletcher Building says the housing market in Auckland is levelling off but there will be a strong demand for new housing. Photo: 123RF

He said there was no change to the expected losses associated with the building and interiors work, which included the ongoing construction of the SkyCity development in Auckland.

The company was aiming to begin paying dividends again, with an update early next year when it announces it first-half result ending in December.

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