Coronavirus: Fletcher Building likely to emerge weaker from Covid-19, analysts say
Fletcher Building, which has proposed mass layoffs due to the coronavirus pandemic, may emerge from the downturn weaker than it went in, say analysts at Forsyth Barr.
The construction company was badly hit by the lockdown and planned to cull 1000 jobs in New Zealand and 500 in Australia, or about 10 per cent of its workforce.
"Unfortunately, FBU [Fletcher Building] did not enter the crisis in fighting shape. NZ margins have long been under pressure," Forsyth Barr analysts said.
Fletcher had suffered a roughly $55 million loss in earnings April in New Zealand, despite $22 million in wage subsidies and a $12 million saving from wage reductions, and roughly broke even in Australia.
Fletcher Building may emerge from the downturn weaker than it went in, Forsyth Barr analysts say.
However, Fletcher Building chief executive Ross Taylor said as at April 30, Fletcher Building had $1.5 billion in liquid assets.
Last year, Fletcher Building turned around a $190 million loss to post an annual profit after tax of $164 million.
However, Australian turnaround efforts had not delivered a reward, and necessary reinvestment in the business had also increased capital spending, Forsyth Barr said.
The company was facing strong competition in New Zealand, and its Australian businesses were low quality.
"The risk is this downturn is not only cyclical, but leads to a further erosion in the business's underlying quality."
Fletcher Building's revenue was minimal during alert level 4, but activity had since recovered to about 80 per cent of post-Covid-19 forecasts.
Forsyth Barr estimated Fletcher Building's annual earnings before interest and tax between $275 million and $300 million, compared with $631 million last financial year.
The company was expecting the coronavirus to cause a decline of up to 30 per cent in construction in New Zealand and Australia, with government infrastructure projects likely to take some time to start. To offset that, Fletcher Building hoped to save about $235 million a year, including in job cuts, Forsyth Barr said.
"Construction is a later-cycle industry. We anticipate activity and FBU's revenue will bounce once lockdown restrictions are fully lifted, but fade as current projects are completed and the pipeline empties.
"There is risk both around the magnitude of the downturn, and, more significantly, of further underlying deterioration in FBU's businesses.
"Competition may continue (or compound) margin pressures. Falling demand exacerbates the challenges of executing on turnaround initiatives. And a pullback in capex [capital expenditure] may starve the business of necessary investment.
"Our concern is FBU may emerge from the downturn weaker than when it went in."
Article Supplied by Melanie Carroll at Stuff