CORONAVIRUS COVID-19 PANDEMICGENERAL PROPERTY

Lay-offs at Fletcher Building, materials demand fall

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REDUNCANCIES of 1,500 workers and costs associated with COVID-19 have taken dual listed building products company Fletcher Building to a NZ$196 million annual loss.

Revealing key details of its results more than a week ahead of their scheduled release, Fletcher Building said it has made moves to deliver a permanent reduction its cost base by $300 million each year from FY2021 in anticipation of lower market activity.

It announced the lay-off of 1,000 staff in New Zealand and 500 in Australia after taking a $51 million loss in April, as 400 operating sites were shut down in New Zealand during the height of country’s lockdown, incurring “significant” revenue losses.

Chief executive officer, Ross Taylor said actions to reset the cost base of the business have also included closure of some supply chain and manufacturing facilities; ceasing of some unprofitable product lines; and a reduction in office space.

Significant items charges in FY20 in respect of these actions will be $187 million. Together with asset impairments of $59 million in the Rocla business that it has put up for sale, and $30 million of costs on its early exit of USPP 2012 notes, FY20 significant items are expected to total $276 million.

An additional $90 million of significant items is expected in FY21 as the final cost-out actions are completed.

Operating cash flows are expected to increase in FY20 to $410 million. FY20 capital expenditure is expected to be $232 million, below initial market guidance of $275 to $325 million. Net debt is $497 million and liquidity is expected to be $1.6 billion, including $1.1 billion of cash on hand. Leverage ratio at is expected to be 0.9x, below the target range of 1.0x to 2.0x.

Taylor said the business was trading in line with expectations and making good progress with operating efficiencies prior to March, and was now making progress working through legacy, loss-making projects. The value of legacy buildings and infrastructure work to complete has reduced from approximately $2.2 billion in February 2018 to about $0.6 billion 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 and more appropriate risk profile”, Taylor said.

Fletcher Building will increase provisions to complete its historical construction projects, and is expected to reduce FY20 EBIT result by $150 million. Increased provisions are due to reduced productivities on key legacy projects, including ongoing challenges in FY21 across supply chains and project resourcing, issues that have arisen in some completed projects, and risk provisions across its legacy work.

James Hardie weathers early storm

Meanwhile, ASX-listed James Hardie has weathered the pandemic. The building products group posted a net operating profit for the first quarter of US$89.3 million on the prior corresponding period, and group adjusted EBIT was steady at US$124.9 million.

The North America segment recorded a 15% increase in adjusted EBIT and 29.0% adjusted EBIT margin. Exteriors volume growth of between 7% and 11% is expected and an adjusted EBIT margin between 27% and 29% for the North America segment in Q2.

In the Asia Pacific, the segment delivered adjusted EBIT margin of 24.4%, up 140 basis points despite the impact of government imposed shutdowns of two of its three core markets, New Zealand and the Philippines. Its Australian business delivered 1% volume growth and an adjusted EBIT margin comparable to the North America segment.

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