Fletcher Building is returning to paying dividends after announcing an $NZ89 million interim profit for the six months to the end of December.
But while it is about to put its big losses from a series of contracts in New Zealand behind it, it is now having to come to terms with the slowdown in the Australian building and construction sectors, a situation that will see cost cuts, job losses and no doubt, write-downs and an impact on the bottom line.
The $NZ89 million profit compares to a loss of $NZ273 million for the first half of 2017- 18.
The interim dividend has been set at 8 NZ cents a share and more is promised for the current second hand with proceeds of the sale of the Formica business to come into the accounts once regulatory approvals are completed.
“Given the expected settlement timing of the Formica sale, the FY19 dividend will be weighted towards the final dividend. No New Zealand imputation credits or Australian franking credits will be attached to the interim dividend.
“The dividend reinvestment plan will not be operative for this dividend,” the company said yesterday.
Given the return to dividends you would have thought investors would have wanted the shares, but the fell more than 5% to $4.77 on the ASX as the warnings about Australia took the eyes of traders and analysts.
Fletcher said earnings before interest and tax (EBIT) and significant items was $NZ285 million compared with a loss of $NZ322 million in the prior period.
Half-year earnings were 8% lower when compared with EBIT before significant items (adjusted for provisions) of $NZ309 million for the first half of FY18.
Fletcher Building CEO Ross Taylor said: “We are pleased to deliver a result in line with the earnings guidance provided at the AGM and to be able to reinstate dividend payments.
“In the first half, we have made good progress on our strategy to refocus Fletcher Building on its core in New Zealand and Australia. In particular, we have completed the divestment of Roof Tile Group and signed an agreement to sell Formica for US$840 million, which we expect to complete by the end of the financial year.
“Our operating results across our core New Zealand businesses have been solid in the first half, and we are on track to close-out the B+I projects within the current provisions,” Mr. Taylor said.
He warned though of the changing situation in Australia “In Australia, we have been impacted by the sharp decline in the residential market as well as higher input costs.”
“We are focused on setting the Australian business up for improved performance from FY20, which will include a reset of the cost base,” he said. In other words, cost cutting and job losses and perhaps even asset sales.
Fletcher’s Australia revenue was steady, but its earnings slid 38% to $NZ33 million.
Three-quarters of the company’s Australian business is tied to the residential and commercial markets where consents have slumped by 20% over the past year (including apartments).
Mr. Taylor expected problems in Australia to continue into 2020, triggering deeper competition among suppliers and distributors of building materials.
But its infrastructure business in Australia was stable and that sector remains the best performing of the wider building and construction industries.
The company said Group EBIT (excluding significant items and assuming a full year of Formica earnings) for FY19 is expected to be in the range of $NZ650 million to $NZ700 million.
“This compares to the earnings guidance of $NZ630 million to $NZ680 million provided at the ASM.
“The $NZ20 million increase in earnings guidance is due to the treatment of the Formica business as ‘held for sale’ and hence the assets are not subject to depreciation in the second half of FY19,” the company said yesterday.
