Fletcher Building posts steady profit, sees 'green shoots' in NZ housing market

Fletcher Building says the underlying profit for the first half of the financial year is expected to be in line with last year's report, despite a softer market.

The outlook aligns with an underlying profit, before significant items, of $360 million in the six months ended in December 2022.

In the 2023 financial year, Fletcher Building delivered strong underlying earnings of $798m, but net earnings dropped to $235m, partly due to fire provisions on the NZ International Convention Centre.

Fletcher chief executive Ross Taylor told shareholders this morning the Australian division was trading well and the New Zealand housing market was beginning to turn around.

However, increased competition meant profit in the New Zealand materials and distribution business was lagging behind expectations, Taylor said.

"For our New Zealand materials and distribution businesses, the infrastructure and commercial sectors remain robust, while volumes in the residential sector are around 5 percent softer than our prior guidance," he said.

"Encouragingly we are seeing 'green shoots' in the New Zealand housing market."

Sales in the residential and development division were tracking well, averaging 20 to 25 per week so far this year, Taylor said.

"House prices have stabilised and are starting to trend up slightly."

If the momentum continued, the company could exceed its 700 to 800 unit full year sales target, though those gains would be weighted to the second half of the financial year ending in June, he said.

"On our construction legacy projects, we are on track to finish physical works on the final three projects through the 2024 calendar year."

However, there were cost risks to manage, with work needed to secure claims and insurance recoveries, as well as any additional issues that could arise, which would probably take until the 2025 and 2026 financial years to finalise, Taylor said.

Cash flows were expected to be robust through to the end of this financial year, though net debt would be at the upper end of the range, he said.

"However, we are committed to remaining within this target range."

Taylor also briefly addressed the ongoing [https://www.rnz.co.nz/news/national/500244/fletcher-building-shares-expected-to-fall-after-manufacturing-flaw-allegations plumbing issues in Western Australia. One building firm has blamed faulty manufacturing by Fletcher subsidiary Iplex.

"We will work with the industry and regulators to help develop an effective solution," he said.

Committed to growth

Taylor said the company was committed to developing growth opportunities.

"We are very advanced on our $800m of committed growth projects, which we are confident will be delivered well, and will set us up for significant extra earnings in the next two to three years," he said.

"There remain plenty of other growth opportunities, which we can take advantage of once we have a firmer sense of when the cycle is returning to growth."