Fletcher Building Faces $134m Loss, WA Plumbing Provision as Market Slows
Fletcher Building reported a challenging HY25 with a 7% revenue decline and a net loss of NZ$134 million, while executing a $700 million equity raise to strengthen its balance sheet and advancing significant cost reduction initiatives.
- HY25 revenue down 7% to NZ$3.583 billion amid subdued residential and Australian markets
- EBIT before significant items fell 37% to NZ$167 million, impacted by lower volumes and inflation
- Net loss after tax widened to NZ$134 million, including a NZ$170 million provision for WA plumbing failures
- Successful $700 million equity raise reduced net debt to NZ$1.1 billion and leverage to 1.4x
- Construction division revenue up 16%, supported by key infrastructure projects and improved margins
- Sustainability milestones include over 55% coal substitution at Golden Bay cement plant and 21% reduction in greenhouse gas emissions since FY18
Market Headwinds and Financial Performance
Fletcher Building Limited has released its half year results for the six months ended 31 December 2024, revealing a tough trading environment marked by a 7% decline in revenue to NZ$3.583 billion. The downturn was driven primarily by weaker market volumes, especially in the residential sector and Australian operations, where activity fell by approximately 15% year-on-year. EBIT before significant items dropped 37% to NZ$167 million, reflecting the combined pressures of volume declines, inflationary cost increases, and competitive pricing.
The Group recorded a net loss after tax of NZ$134 million, a deterioration from the NZ$120 million loss in the prior period. This result was notably impacted by a NZ$170 million provision related to the Western Australian plumbing failures involving Typlex Pro-Fit pipes, a legacy issue that continues to weigh on the company’s financials.
Capital Raise and Balance Sheet Strengthening
In response to the challenging market conditions and to bolster financial resilience, Fletcher Building successfully completed a NZ$700 million equity raise during the period. The capital raise, comprising a fully underwritten institutional placement and an accelerated entitlement offer, was applied to repay NZ$511 million in bank debt and reduce US Private Placement notes by NZ$169 million. This deleveraging effort lowered net debt to NZ$1.1 billion and reduced the Group’s leverage ratio to 1.4 times EBITDA before significant items, down from 2.0 times at FY24.
The strengthened balance sheet provides the Group with enhanced flexibility to navigate ongoing market volatility and invest prudently in strategic initiatives.
Operational Highlights and Cost Reduction Progress
Despite the headwinds, Fletcher Building’s Construction division delivered a robust performance, with revenue rising 16% to NZ$814 million and EBIT before significant items improving to NZ$20 million from a prior period loss. This growth was underpinned by increased work volumes on key infrastructure projects such as Auckland Airport expansion, Eastern Busway, and major roading contracts.
The Materials and Distribution divisions faced volume declines of 5-10% in New Zealand and 15% in Australia, which contributed to an $80 million EBIT reduction. However, the Group’s cost-out program exceeded expectations, delivering $91 million in gross savings during HY25, ahead of the full-year target of $180 million. These savings were achieved through overhead reductions, site rationalisations, and operational efficiencies, partially offsetting inflationary pressures on raw materials and energy costs.
Sustainability and Legacy Project Updates
Fletcher Building continues to advance its sustainability agenda, notably achieving over 55% coal substitution at its Golden Bay cement plant through the use of wood waste, end-of-life tyres, and other alternative fuels. This initiative contributed to a reduction of approximately 50,000 tonnes of CO2 emissions compared to traditional coal use. Since FY18, the Group has reduced its greenhouse gas emissions by 21% and carbon intensity by 20%, reflecting ongoing efforts to minimize environmental impact.
On legacy issues, the New Zealand International Convention Centre project is nearing completion, with major construction works finished and commissioning underway. The project is on track for handover by 30 June 2025. Meanwhile, the Group has finalised an Industry Response plan with the Western Australian Government to address plumbing failures, although litigation risks remain.
Governance Reset and Strategic Outlook
The company completed a governance reset with the appointment of Peter Crowley as Chair and the addition of new independent directors, alongside key executive appointments including a new CFO and Chief People Officer. CEO Andrew Reding emphasised the Group’s focus on operational excellence, cost discipline, and customer service amid subdued economic activity expected to persist through FY25.
Looking ahead, Fletcher Building plans to share further details of its strategic review at an Investor Day scheduled for June 2025, aiming to position the business for growth once market conditions improve.
Bottom Line?
Fletcher Building’s HY25 results underscore the challenges of a downcycle but reveal a company actively reshaping its balance sheet and operations to emerge stronger.
Questions in the middle?
- How will the Western Australian plumbing Industry Response evolve, and what are the potential financial implications if litigation risks materialize?
- What strategic portfolio changes might Fletcher Building announce at its June 2025 Investor Day to drive growth beyond the current market slump?
- Can the Group sustain its cost reduction momentum and operational improvements to offset ongoing volume declines and inflationary pressures?
