New Zealand’s largest construction company and controversial owner of the disputed Ihumātao land near Auckland airport has made a $164m profit, a big turnaround from its losses last year. Business editor Maria Slade analyses what it all means.
What has Fletcher Building announced?
The construction and building products company with operations on both sides of the Tasman has made a profit of $164 million for 2019. This is a much happier result than the $190m it lost last year. Fletchers had a grim time of it in 2018, with $660m of red ink in its building and interiors division, big jobs like Auckland’s international convention centre and the Justice Precinct in Christchurch causing major headaches, and chairman Ralph Norris falling on his sword.
This year it’s a different story. The company has pared back its operations, selling kitchen worktop maker Formica for $1.2b and Roof Tile Group for $59m and reducing its $1.3 billion debt to $325m. It’s also paying its shareholders a dividend of 23 cents per share, compared with nothing last year.
So is it back on track?
Sort of. Chief executive Ross Taylor says 2019 was an important transition year and he’s “pleased with the work we carried out to stabilise and refocus the company”.
But only two of its seven divisions have improved their earnings. One of these was residential and development, where building consent numbers in the seemingly irrepressible New Zealand housing market are at their highest levels since the 1970s and Auckland is the jewel in the crown. In contrast, Fletcher’s Australian business is looking decidedly un-flash thanks to the downturn in the housing market there.
What did it have to say about the dispute over Ihumātao?
Ross Taylor was asked about it at the media briefing, of course. He reiterated the company line that it was staying out of it. “The prime minister with iwi wanted us to down tools a few weeks ago to allow iwi and government to work through a way forward on that. And we’re very respectfully allowing them that space to do that.
“We’re not involved in those conversations, so we’re waiting for that direction to emerge so we can then work out how to engage and react to it.
“It is a complex situation, and we do want to give everyone, all the parties, the breathing space to come up with the way forward that they want to take. So we’ll continue not to make any comment.”
How big a deal is Ihumātao for Fletchers financially?
In monetary terms the project is small beer. Auckland Council currently values the 33 hectare site at $36m, less than a quarter of Fletcher’s $164m annual profit. QV records show the company bought the land in 2014 for $19m when its council valuation was only $11.8m. Once Fletchers got the go-ahead to develop a subdivision the land’s value increased significantly, and that’s also when the long-running protest over its ownership stepped up to the next level.
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When you consider that Fletcher’s revenue was $8.3b last year, $36m is a mere ripple. The high profile stoush didn’t even rate a mention at the investors’ briefing following the results announcement, indicating shareholders aren’t losing any sleep over how the company’s bottom line might be affected.
When asked at the earlier media briefing whether the hold-up in developing the land would cost the company, Taylor said it would not. “I mean, we’ve been through a planning process over four years so providing this breathing space is not a problem at all.”
But surely all the headlines are embarrassing for Fletchers?
It depends on your point of view. Morally maybe yes, and undoubtedly it’s a headache for company executives to deal with. Corporates have proved themselves notoriously immune to protest action, however. A 480-home subdivision potentially not going ahead is a setback but it’s unlikely to affect Fletcher’s share price, and should it ultimately fall over the company will simply write off the costs and move on to the next project.
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