Fletcher Building Ltd said yesterday it expects to make a $196 million loss for the year to June, due predominantly to the impacts of Covid-19.
The company’s chief executive, Ross Taylor, went online to expand on the projection 9 days ahead of the formal release of the company’s annual result.
Pre-Covid-19, Fletcher’s net earnings were already down for the December half-year by 8% to $82 million, and before significant items they were down 33% to $107 million.
The full-year result remains subject to final audit sign-off & board approval.
On the full-year result, Mr Taylor said: “These impacts include significant lost revenues, especially during the New Zealand lockdown & startup period; lower productivity leading to additional provisioning on the legacy construction projects; and one-off restructuring costs as the company prepares for reduced market activity.”
However, he said the company’s cashflow & balance sheet position remained very strong: “Operating cashflows are expected to increase in the 2020 financial year to $410 million, driven particularly by effective working capital management through the Covid-19 disruptions. The group’s leverage ratio at 30 June is expected to be 0.9x, below the target range of 1.0–2.0x.”
The unaudited annual result (2019 annual results in brackets):
Net loss, $196 million ($164 million profit)
Earnings before interest & tax (ebit), $116 million loss ($397 million positive earnings)
EBIT before significant items & Construction division provisions, $310 million ($631 million excluding Construction provisions)
Construction provisions, $150 million
EBIT before significant items, $160 million
Significant items, a $276 million charge
Cashflows from operating activities, $410 million
Capital expenditure, $232 million
Net debt, $497 million
Liquidity, $1.629 billion
Leverage (net debt/ebitda), 0.9x
Expanding on the result, Mr Taylor said: “Prior to March, the business was trading in line with expectations and making good progress with operating efficiencies. As Covid-19 crossed New Zealand & Australian borders, we moved quickly to protect our people and ensure we are well positioned to successfully navigate the market uncertainty in the 2021 financial year & beyond. Our people have done an exceptional job of serving our customers, safely managing our operations and resetting the business through a period of considerable disruption.
“Anticipating lower market activity ahead, we have taken some difficult but decisive actions to reset the cost base of the business. This has included closure of some supply chain & manufacturing facilities; ceasing of some unprofitable product lines; a reduction in office space; and, regrettably, a planned reduction in our workforce by around 1500 positions.
“These have been tough but necessary decisions to right-size our business, and we expect them to deliver a permanent reduction in our cost base in the 2021 financial year of about $300 million/year.
“We expect that 2020 financial year significant items charges in respect of these actions will be $187 million. Together with asset impairments of $59 million in the Rocla business that we are divesting, and $30 million of costs on our early exit of the USPP 2012 notes, we expect total the 2020 financial year significant items to be $276 million. An additional about $90 million of significant items is expected in the 2021 financial year as the final cost-out actions are completed.”
Forward order book rebuilt
Mr Taylor said the company’s Construction division had continued to make progress in working through its legacy lossmaking projects: “The value of legacy Buildings & Infrastructure work to complete has been reduced from about $2.2 billion in February 2018 to about $600 million currently.
“The division’s forward order book outside of the legacy projects has been rebuilt to comprise around $2.4 billion of work with a materially better margin outlook, and significantly lower & more appropriate risk profile.”
“Through the 2020 financial year-end process we have decided to increase the provisions to complete our historical construction projects. This is expected to reduce our 2020 financial year EBIT result by $150 million.
“3 factors have led to these increased provisions. Around 50% is due to reduced productivities on key legacy projects, which were significantly disrupted by Covid-19 in the 2020 financial year, and we expect ongoing challenges in the 2021 financial year across our supply chains & project resourcing.
“Around 20% of the additional provisions are due to issues which have arisen on a handful of historically completed projects. The final 30% consists of a prudent risk provision across our portfolio of legacy work.”
Mr Taylor said Fletcher Building had maintained a strong cashflow & balance sheet position through the Covid-19 disruption: “Operating cashflows in the 2020 financial year are expected to be $410 million, supported particularly by effective working capital management. 2020 financial year capital expenditure is expected to be $232 million, substantially below the initial market guidance of $275-325 million. The group’s net debt at 30 June 2020 is expected to be $497 million and liquidity is expected to be $1.6 billion, including $1.1 billion of cash on hand. The group’s leverage ratio of net debt:ebitda is expected to be 0.9x, below the target range of 1.0–2.0x.”
Summing up the group’s state of health, Mr Taylor concluded that it remained in a strong position to continue driving its strategy & performance improvement: “Our focus in the past few months has been on the safety & wellbeing of our people, and acting quickly to preserve profitability & balance sheet strength. We have ensured our cost base is set for expected lower market activity, and kept cashflows & liquidity strong.
“We will watch the market closely, as the environment does remain uncertain, but we also believe it will provide opportunities for growth and the business is in a good position to capitalise on those.”
Link to yesterday’s presentation:
Expected FY20 annual results presentation
20 May 2020: Updated: Fletcher Building loses $55 million in April, jobs to go
19 February 2020: Fletcher Building earnings cut
29 November 2019: The Fletcher Building mood – outlook highly positive
26 November 2019: Fletcher says insurers to cover convention centre fire costs
21 August 2019: Fletcher Building returns to profit
22 August 2018: Updated: A loss, but flow of red ink stops at Fletcher Building
21 February 2018: Fletcher half-year loss $322 million
14 February 2018: Another $486 million of losses for Fletcher Building, and Norris resigns
21 September 2017: A year on, Fletcher board still has ‘construction nous vacancy’ pencilled in
16 August 2017: Fletcher – the bald results
Attribution: Company release.