Fletcher Building says the lockdown resulted in it losing $55 million in New Zealand during April; sees residential building consents plummeting by 30% over the next year

Fletcher Building says it's going to cut 10% of its New Zealand workforce, meaning 1000 jobs will go. This news comes as the company predicts that residential building consents will plummet by about 30% over the next year.

The company made the announcement on Wednesday to the NZX, at which time it also said it would cut 500 jobs in Australia, while it also said the lockdown in New Zealand had resulted in it losing about $55 million during April. Also, the company is predicting a 15% fall in commercial building work over the next year.

Fletcher CEO Ross Taylor said: "While we looked at all parts of our business to remove costs, regrettably we believe we will not be able to support the same number of people.

"We have to make some very difficult decisions which include looking at reducing the number of people we employ by approximately 10%.

"This will equate to around 1000 positions across New Zealand."

Taylor said that Covid-19 would likely have a significant impact on the group’s markets in both New Zealand and Australia.

“While there is a lot of uncertainty over the economic outlook, we expect Covid-19 will lead to a sharp downturn in FY21 and potentially beyond. Looking to the next financial year, we are planning for an environment that will see a shrinking economy, substantially reduced customer demand across all our businesses and sustained lower levels of productivity."

In New Zealand, residential consents at the time of the Level 4 lockdown were tracking at all-time highs of around 37,000 per annum, Taylor said.

"As we look ahead, our base case estimate for residential consents in New Zealand is that they will drop by around 30% to c25,000 in the year to June 2021.

"We expect New Zealand commercial building activity to be impacted by a reduced project pipeline in the private sector, with our base case factoring in a c15% decline in the value of commercial work put in place in FY21.

"Meanwhile we expect the New Zealand Government commitment to infrastructure spend to support our businesses exposed to that sector, however we expect work put in place to decrease by c10% in FY21 as new projects take time to ramp-up."

Taylor said that in Australia, residential approvals prior to Covid-19 had been showing signs of renewed growth from a base of around 150,000.

"Our base case is that we now expect approvals to fall by a further c15% to c129,000 in FY21. In commercial and infrastructure, we expect a similar dynamic to that of New Zealand with the value of work done declining by similar percentages in both sectors.

“These are our base case estimates for FY21, though we acknowledge that there is a lot of uncertainty over the outlook and that actual activity levels may be materially different. We will be looking hard at the trends in activity over the next few months and will be ready to respond if needed.”

Back on the job losses, Taylor said that in Australia Fletcher was are undertaking a comprehensive review of our operations and expect this would result in a workforce reduction in the order of 500.

"I acknowledge this news will be hard to hear and that this is an unsettling time for all involved. Moving ahead as proposed would mean losing talented and hard-working people from Fletcher Building. Any of our people affected will have made a difference to our company, their teammates and our customers; these decisions are not a reflection of their value or contribution."

Consultation starts in NZ this week

Taylor said the company was beginning consultation "with some of our people and unions this week".

"In New Zealand, we will honour our obligations under the Government Wage Subsidy scheme by retaining our people through the 12-week subsidy period ending 26 June 2020."

(Fletcher received $68 million from the Government through the scheme.)

"We are committed to supporting our people as they leave us and will endeavour to do what we can to help them secure their next opportunity.

"This will include every permanent employee leaving Fletcher Building being paid their redundancy entitlement under the terms of their employment or a payment equivalent to 4 weeks’ base salary, whichever is higher, to recognise and support our people given the exceptional circumstances. We will also be providing a comprehensive range of outplacement and other support services."

Taylor said other cost cutting measures had included looking hard at the company's "operational footprint", exiting some offices to make better use of the space it had in places like the group’s Penrose (Auckland) headquarters, making improvements to the efficiency of its supply chains so that it needed fewer warehouses and depots, and ceasing some unprofitable product lines.

"We will also reduce spend in discretionary areas such as external fees, marketing and travel and we will not be paying any short-term incentives across our businesses for FY20. Reductions of 30% to Board and CEO pay will remain in place through to the end of September 2020."

Costs and debt position

Taylor said the redundancy and restructuring activities would result in some one-off costs yet to be determined but which would be disclosed as part of the group’s full-year results announcement in August.

The company had continued to focus on preserving cash and liquidity through not only the lockdown period but also looking ahead, Taylor said.

"In addition to the already cancelled interim dividend payment and suspension of the on-market share buyback programme, the group has revised its capital expenditure outlook.

"In the fourth quarter of FY20, capex has been reduced by c$60 million, which means total expenditure for FY20 is now expected to be $240 million compared to a pre-COVID-19 expectation of c$300 million.

"In FY21 the Group expects its core capex envelope to be in a range of $125 million to $150 million, focused on only the most important investments in safety, maintenance and key strategic initiatives. In addition, $50 million will be invested in the new Winstone Wallboards plant in Tauranga in FY21.

"As at 30 April the Group’s (unaudited) net debt was c$650 million and the Group’s leverage ratio (net debt/EBITDA) was 0.8 times, compared to a target range of 1.0-2.0 times.( ) At 30 April the Group had (unaudited) cash on hand of $970 million and undrawn credit lines of $525 million, providing total liquidity of c$1.5 billion. The average maturity of the Group’s debt facilities is currently 3.7 years."