Business

Fletcher Building expects Gib supply 'equilibrium' by October

13:24 pm on 22 June 2022

Fletcher Building expects the plasterboard market will come back into "equilibrium" by October, the company said, a day after a taskforce on the widespread shortage was announced.

Photo: 123rf

The company, which has a near monopoly on the plasterboard market, has come under increasing scrutiny from investors, the construction industry and the government, due to widespread shortages of the building material.

Minister for Building and Construction Megan Woods has set up a ministerial taskforce to address the shortages, and one of its members, Naylor Love chief executive Rick Herd, is confident it will lead to more imported products becoming available.

In documents released ahead of its investor day, Fletcher Building said it had been adequately meeting market demand up until August 2021, when the Auckland lockdown hit.

"Following the Auckland lockdown, industry shortages across a range of key building supplies including timber, insulation, and plasterboard caused customers to bring forward their orders to ensure they had stock," it said.

Order volumes subsequently doubled through November 2021 to February 2022, which was approximately twice the industry's current capacity to build, Fletchers said.

"We were able to meet some extra demand through this period by drawing down on inventory below normal levels and by importing some additional volume out of Australia."

But this avenue of supply was paused in November 2021, due to high demand in Australia, it said.

The company was now expecting equilibrium to return to the market by October 2022, after announcing a range of moves which should lift supply by 10 percent.

This included reconfiguring its factory, increasing imports, and granting royalty-free trademark licenses to allow other companies to import plasterboard.

"In the interim PlaceMakers (and other merchant customers) will run an emergency allocation fund to alleviate smaller customer hardship issues."

Fletcher Building said its new plasterboard factory, which was being built near Tauranga, would open in May 2023 and should add an extra 30 percent of supply to the market.

Earnings forecast

Fletcher Building is forecasting earnings before interest and tax of around $750 million for the current financial year.

This was based on an increase in its margins and improved return on its funds.

It was expecting to add another $100m to those earnings in the coming year and as much as $300m over the medium term.

Some of the other financial nuggets disclosed in this morning's investor day presentation include an order book with more than $3 billion worth of work and its residential land holdings valued as much as $450m above the book value.