Sam Trethewey: Milford Asset Management Portfolio Manager on Fletcher Building reporting a multi-million dollar net loss

A grim warning from New Zealand's largest construction company.

Fletcher Building is reporting a group net-loss-after-tax of $227 million dollars, following a $235 million profit last year.

Its residential building arm has been doing well, but it's had losses from its civil business Higgins and Australian plumbing company, Tradelink.

Milford Asset Management's Sam Trethewey unpacks a tough financial year for the construction sector. 

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Episode Transcript

Speaker 1 (00:09):
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Speaker 2 (00:16):
Fletcher Building today announced a two hundred and twenty seven
million dollar net loss after tax. Not going well. It's
already warning of a challenging year ahead. Sam Trathuiz from
Milford Assett Management OSAM good evening. Either did the company's
performance meet the investor expectations or not?

Speaker 3 (00:32):
I think it would be fair to say investor expectations
were not at all high going to the result, given
what has been going on in the economy and also
within Fletcher itself. So look, the headline numbers reported were weak.
If you strip down the business and look at the
core profitability, looking at earnings before interest, tax and all
the big one offs that are going on within Fletcher's

(00:54):
it was just above five hundred million, So that's down
nearly three hundred million on the prior year. There were
a few new big one offs in there, one hundred
million dollar impairment against the Higgins runing business, but fortunately
no new issues arising from some those legacy construction projects.
I think the outlook was probably the key area of
interest and the reasons that shares. The share price of

(01:15):
Fletcher's did trade lower today initially, so they indicated that
they are planning for volumes in the year ahead to
be down ten to fifteen percent across their materials and
distribution businesses. That's getting worse on last year, essentially signaling
that the weakness there is more weakness to come, there's
more earnings pressure in the year ahead.

Speaker 2 (01:36):
Do you think Fletcher's management has just been conservative here
or do you reckon they are being realistic about what's
going on.

Speaker 3 (01:43):
Often when there is significant management change in listed companies,
it's pretty common to see a clearing of the decks.
So essentially a reset of investing expectations or very conservative
guidance statement or outlook statement going forward that is really achievable.
But in this case, I think it is a realistic
of view rather than that conservative statement. Fitcher's CFO Bevn

(02:05):
McKenzie indicated that they really are seeing those volumes lines
at present over the last month or so compared to
last year of that ten to fifteen percent range, and
its products at the earlier stage of the building cycle,
so rather than those finishing trades. So the challenge for
investors the market is to think about how that could change.
Is that say like that all yeh? And the key

(02:27):
there really being what impact will the OCR cuts, the
interest rate cuts from the Arvin's you'd have on the business,
on the residential market, the construction market, and how quickly
will that come through?

Speaker 2 (02:38):
Heither Sam the new CEO incoming obviously not there yet,
Andrew reading, what do you expect his priorities are going
to be?

Speaker 3 (02:46):
Look for Andrew, he was actually part of Fletcher's old
Guard you could call back in the early two thousands
before doing some time at Graham Heart's Rant Group. He
knows the business, but I think initially there's a decent
list of issues still requiring a big fix, and it
came through pretty clearly today that at the top of
that list will be the balance sheet or the debt

(03:07):
that they have. And the company has received several waivers
on its banking covenants and spending is being pulled back,
but it's very much at the top end of where
they would like it to be. So they're thinking about
what business units can be sold or perhaps capital taken
out of. Maybe something like the Fletcher Living Home to
building division could be one that is sort of prime

(03:29):
for that opportunity, so that's number one issue for him.
Number two is probably sorting out IDEX pipes, so the
faulty pipes over in Western Australia that they are facing
a few problems with, so plenty for him to fix
before he can really get onto thinking about growing and
returning the business to what it will used to be.

Speaker 2 (03:46):
So right, Hay, Sam, thank you very much appreciated mate.
As always, samra Thu, we have Milfed Asset Management.

Speaker 1 (03:51):
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