Fletcher Building cashes in as market booms

Fletcher Building’s full-year profit has jumped 42% as the country’s largest integrated manufacturer and distributor of building supplies benefits from a strong construction market.

Net profit rose to $432 million in the year to June 30, from $305m last year, the company said. Revenue rose 5% to $8.5 billion.

Fletcher Building estimates it lost $300m in revenue and took a $100m hit to operating profit in its first quarter because of the impact of Covid-19 lockdowns, which saw almost all New Zealand businesses shut down for up to five weeks.

Still, it benefited from a construction boom coming out of lockdown and expects a backlog of work to continue to sustain the market.

‘‘Our performance highlighted our ability to deal with a dynamic operating environment, while remaining focused on delivering long-term, sustainable growth,’’ chief executive Ross Taylor said.

In the coming year, ‘‘we expect to see ongoing profit growth, as there continues to be a solid pipeline of committed work in our end markets, and there is unlikely to be another Covid-19 forced shutdown of our operations’’.

Taylor said the past year ‘‘has not been without its challenges’’ as global and national supply chain disruptions continued into the third year of the pandemic.

Fletcher’s Winstone Wallboards unit, which holds 94% of the plasterboard market with its Gib product, has come under fire for failing to keep up with the surge in demand coming out of lockdowns, causing a construction bottleneck and stress for builders and the wider industry.

‘‘Surging plasterboard orders following the first quarter lockdown outstripped our ability to supply, despite our manufacturing facilities running at record levels,’’ Taylor said.

‘‘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 our reserve stocks, importing additional product and establishing an emergency supply pool.’’

Taylor reiterated that he expected the plasterboard market to return to ‘‘equilibrium’’ by October. The company’s new $400m manufacturing facility in Tauranga, scheduled to begin operations in May next year, would more than meet current and future demand for plasterboard, he said.

Fletcher posted an operating profit before one-time items of $756m, up 13% from the previous year and ahead of its forecast for about $750m. It reiterated its forecast for operating profit of at least $850m in the coming year.

Taylor said forward indicators were pointing to strong volumes across all the company’s sectors and he expected similar market

activity levels this year to the second half of last year. Housing consents were running at an annual rate of 50,000, which was ahead of the country’s capacity to build between 35,000 to 40,000 homes a year, and demand through the company’s PlaceMakers building supplies retail chain suggested builders would be busy through to the middle of next year clearing the backlog, Taylor said.

While Fletcher faced cost inflation of 5% to 10%, which it passed on, he said homeowners were seeing bigger increases because tradespeople were busy and pricing jobs at higher rates.

‘‘As the volumes start to ease they’ll need work more, and that might start to take some of the heat out of that a little bit in nine to 12 months’ time,’’ he said.

Fletcher’s operating profit margin lifted to 8.9% from 8.2% the previous year. The strong 9.5% margin in the second half of the year provided ‘‘good momentum’’ heading into the current year.

The improved performance saw Taylor’s pay package for the year increase 34% to $6.6m. That included his base remuneration of $2.1m, benefits such as superannuation and health insurance of $131,000, short-term incentives accrued during the year but payable in September of the following financial year of $3.3m, and a oneoff share-based retention award of $971,000. He was also granted longterm incentive shares worth $1.7m.

Taylor noted 70% of his pay was related to performance.

‘‘If I perform, I do better, if I don’t perform I do worse,’’ he said. ‘‘If you look at what we have achieved as a company through this year, it has performed well, so therefore I get a better pay. It’s as simple as that – the buck stops here, I get the good with the bad.’’

Fletcher will pay shareholders a final dividend of 22 cents per share, taking the full-year dividend to 40c, up from 30c the previous year. The company’s shares rose 2.6% to $5.62 in mid-afternoon trading on the NZX.

‘‘If you look at what we have achieved as a company through this year, it has performed well, so therefore I get a better pay. It’s as simple as that – the buck stops here, I get the good with the bad.’’ Ross Taylor Fletcher Building chief executive