Construction giant Fletcher Building (FBU) is reiterating that it expects the plasterboard market to return to 'equilibrium' by October and acknowledges this has "been a difficult time" for many of its end customers.
Earlier this year Fletcher found itself at the centre of a media and public firestorm over shortages of its GIB plasterboard product as it moved to ration supplies of it.
Chairman Bruce Hassall said the company was confident that the steps it had taken to increase manufacturing output and sourcing its own imports "will see the market return to equilibrium by October 2022".
"The board acknowledges that this has been a difficult time for many of our end customers. We have learned a lot through the supply challenges over the past two years and the board, along with management, will ensure the lessons learned are embedded in our operational and risk management processes into the future."
The company on Wednesday reported a 42% rise in after tax profits to $432 million for the June year. The company's earnings before interest and tax (EBIT) was $756 million. For the year ahead to June 2023, the company is targeting "$100 million+" growth in the EBIT figure. Stock market participants liked the result and outlook forecast, sending the Fletcher share price up 19 cents in early trading to $5.67.
Its residential construction arm Fletcher Living reported operating (before tax) earnings to $176 million in the year to June 2022, up 73% on last year's profit.
Fletcher said during the year its residential and development division increased its "land pipeline" to about 5,600 lots, comprising about 2,700 residential lots and two rural properties held on balance sheet, 2,000 units of both zoned and future zoned land under unconditional contracts and a further 900 units under conditional contracts.
"The division maintains a disciplined approach to investing in land, with the current market value of the land portfolio assessed at $350 – $400 million higher than book value," the company said.
The current land holding was sufficient to support "at least the next three years of house volumes", with two larger land parcels also held outside the present urban boundary for longer-term development, it said.
Fletcher Building provided these highlights:
- Revenue $8,498 million, up 5% from $8,120 million in FY21
- Net Profit After Tax $432 million, up 42% from $305 million in FY21
- Earnings before interest and tax (EBIT) before significant items $756 million, up 13% from $668 million in FY21
- Return on Funds Employed before significant items 19.3%, compared to 18.8% in FY21
- Cash flows from operations of $592 million, compared to $879 million in FY21
- Fully imputed final dividend 22 cents per share, bringing full-year FY22 dividend to 40 cps
- Completed $274 million total share buyback programme
Fletcher chief executive Ross Taylor said the year "has not been without its challenges".
"Global and national supply chain disruptions have continued into the third year of the Covid-19 pandemic. In New Zealand, surging plasterboard orders following the first quarter lockdown outstripped our ability to supply, despite our manufacturing facilities running at record levels.
"In recognition of our key role as a local manufacturer in keeping the market supplied, we carried out a range of measures to address the shortage including operating production lines 24/7, running down inventory, importing additional product, and establishing an emergency supply pool.
"In the longer term, our new $400 million manufacturing facility in Tauranga is scheduled to begin operations in May 2023 which will more than meet current and future demand levels."
Taylor noted that the New Zealand Commerce Commission recently publicised its interim market study report into residential building supplies.
"The final report and recommendations will be published in December 2022 and in the meantime we will continue to work collaboratively with both the commission and the Government."
Further detail provided on the residential and development division included that it reported gross revenue of $692 million, a decrease of 6% compared to the prior year.
EBIT (operating earnings) for the division of $217 million was $63 million, or 41%, higher than the prior year.
Fletcher Living delivered EBIT of $176 million, 73% higher than the prior year’s $102 million, with 670 units "taken to profit" compared with 836 the prior year.
The company said the 20% lower volumes were a result of Covid-19 lockdowns and "broader industry capacity constraints leading to construction and consenting delays".
"Countering this, strong house sale pricing across both the Auckland and Canterbury markets resulted in Fletcher Living revenues growing 5% year-on-year. House prices appreciated materially during FY22, more than offsetting the increased land and build costs experienced through the year. As a result, Fletcher Living’s EBIT margin expanded from 17% in FY21 to 28% in FY22."
The company said Clever Core™, the division’s panelisation business, made an EBIT loss of $5 million having delivered 105 homes in the year.
"The first sales to an external customer were made in the second half, with a second shift also introduced in the manufacturing operation as the business scales its volumes to profitability.
"Apartments made an EBIT loss of $2 million on revenue of $6 million, reflecting the first settlements of apartments in Auckland offset by fixed costs associated with building a new team to deliver larger volumes in future years."
10 Comments
Hopefully they have shot themselves in the foot and the industry has cottoned on to the fact these guys are crooks. The best thing to come out of this will be that builders and Council's accept and use alternatives moving forward to loosen the strangle hold Fletchers has in NZ.
And yet Fletcher's stock price is less than half what it was 15 years ago.
I'd really like some insight in to how they are managed to understand that, given their product pricing has gone through the roof: it looks like their margins have collapsed, suggesting their costs are out of control.
I wonder what will happen to the plaster board pricing when equilibrium returns?
There is a form of vertical integration regarding plasterboard with the the large building supply outlets not keeping the competitions products or storing them out of site.
Possibly due to available space but there maybe some contractual arrangement that does not fall foul of anti-competitive legislation.
Fletcher Living delivered EBIT of $176 million, 73% higher than the prior year’s $102 million, with 670 units "taken to profit" compared with 836 the prior year.
Does that mean they had an average margin of 262 k per unit(dwelling) delivered (sold)?
No wonder everyone and their dog is knocking up townhouses in Auckland at the moment. Small firms with lower cost structures than Fletchers must be able to achieve similar margins. Even if they pay more for materials. They don't have the armies of middle managers skimming off the revenue.
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