Shares in Fletcher Building Ltd [ASX:FBU], the New Zealand building products and construction company, continued a week-long downward trend, dropping a further 10% on Wednesday to $6.40.
Fletcher Building announced on Wednesday that chairman Sir Ralph Norris will step down no later than the firm’s upcoming annual general meeting.
Mr Norris has been Fletcher’s Chairman Norris since 2014, and was formerly the chief executive of Commonwealth Bank Australia from 2005–2011. In a statement Norris said:
‘As chairman of Fletcher Building, our shareholders place significant faith in me to act in their best interests. This has always been my priority. I also know shareholders expect accountability from the board for all aspects of the company’s performance’.
What caused this move?
The move comes after Fletcher admitted to provisional losses of NZ$486 million in its building and interiors (BI) division, which amounted to a total predicted loss for BI of NZ$660 million EBIT (Earnings Before Interest and Tax) in FY2018. Fletcher also announced that shareholders would not receive an interim dividend.
It has been a turbulent time for Fletcher recently. On Monday, Fletcher extended a trading halt on its shares until this morning.
The firm then released a trading update, revealing the previously-mentioned losses, and reporting that the losses had resulted in Fletcher breaching financial covenants given to its commercial banking syndicate and US Private Placement (USPP) noteholders.
This banking syndicate includes ANZ Bank New Zealand, HSBC, Westpac, Bank of New Zealand, Citibank, Commonwealth Bank of Australia and Tokyo-Mitsubishi UFJ. The banks have agreed to continue to fund the company while Fletcher renegotiates terms.
Fletcher’s chief executive, Ross Taylor stated that for the meantime the company would concentrate on finishing existing construction projects rather than bidding on new projects.
Cost blowouts on major projects such as the SkyCity international convention centre in Auckland, and Christchurch’s Justice Precinct have contributed to the firm’s losses.
On the upside, projected FY18 EBIT for the Fletcher Building Group (excluding the troubled building and interiors division) remains strong at NZ$680–$720 million.
Fletcher currently has a market capitalisation of AU$4.49 billion. The company boasts 38,000 shareholders and employs 21,000 worldwide.
Could Fletcher Building Ltd be one of the ‘Five Fatal Stocks You Must Sell Now’? Read Vern Gowdie’s free report to find out.
Editor, Markets & Money