New work delays, declining sector outlooks, longer timeframes on existing construction projects and pandemic response restrictions - effectively a perfect storm for Fletcher Building as it proposes 1500 layoffs here and in Australia.
These four factors, chief executive Ross Taylor said, are influencing Fletcher's preparation and response for a shrinking economy, reduced demand and lower levels of productivity due to Covid-19 and the Government's response to the pandemic.
Residential consents are forecast to drop 30 per cent to 25,000 in New Zealand and 15 per cent in Australia to 129,000 in Fletcher's June 30, 2021 year.
Meanwhile, the pipeline of new commercial work is expected to drop 15 per cent and infrastructure 10 per cent here and in Australia.
Citing an example of delayed projects, Taylor said work at Auckland International Airport would be delayed due to that business being heavily affected by the pandemic, the lockdowns and travel restrictions.
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The Fletcher Construction-headed workforce of 1800 on Auckland's $1 billion Commercial Bay site was now restricted to only about 800 people due to social distancing measures, he said, with staggered lunch breaks and avoiding staff bottlenecks.
On the $703m NZ International Convention Centre, Taylor said that work was ongoing but the completion date had been extended by the Government and SkyCity: "We're very committed to that project."
The possible 1500 job losses would be "across the whole organisation - office workers, frontline workers" and Fletcher has not named divisions or geographic areas where people will go.
Grant Swanepoel, an institutional analyst, said: "The Government shut Fletcher down entirely for a whole month in New Zealand, whereas in Australia, that Government didn't kill the industry. The wage subsidy scheme helped but there were other costs. With the Global Financial Crisis, there were job losses but these losses have come a lot quicker. Normally, in a downturn you can't clearly see the fallout but this is a lot sharper or quicker."
Swanepoel said businesses like Fletcher's PlaceMakers were clearly hurt, given Bunnings decided to shut down seven stores and try to move staff, and a Mitre 10 store has shut at Whangaparaoa as well.
"The real question [for investors] now is whether Fletcher will pay a second-half dividend," Swanepoel said.
Taylor indicated the business was also examining its physical footprint. He cited the Penrose headquarters, distribution centres throughout New Zealand, warehouses and depots, "getting costs out of our overall supply chains".
Asked how much the redundancies would cost Fletcher, Taylor said he was not giving any guidance or being that specific. But the Government's wage subsidy "has been appreciated", he said referring to Fletcher receiving $67 million to support staff through such a difficult time.
Joe Gallagher, E tū negotiation specialist, said his organisation had no consultation before today's announcement and the first he knew of it was when Fletcher issued its press release. Fletcher workers were in a number of unions but Gallagher's has around 380 workers and he expressed shock and surprise as well as disappointment about today's announcement.
Gallagher said New Zealand needed to keep and create jobs.
"This means secure employment especially for the critical infrastructure workers we desperately need to recover our economy."
Taylor said the layoffs were about resetting the business for the future.
"Like any business facing much lower revenue ahead, we need to reduce our spending to prepare for these tough times. Our first goal has been to implement cost-saving measures that would allow us to retain as many of our people as possible. These include looking hard at our operational footprint, exiting some offices to make better use of the space we have in places like the group's Penrose headquarters, making improvements to the efficiency of our supply chains so that we need fewer warehouses and depots, and ceasing some unprofitable product lines."
Taylor said New Zealand businesses are currently trading at around 80 per cent of forecasted revenues in May, while Australia continues to trade at around 90 per cent of pre-Covid-19 expectation.
Fletcher's infrastructure business is estimated to decline by 10 per cent in 2021 then grow steadily. Taylor said that government spending on infrastructure was welcomed but new projects would take time to ramp up and the firm's greater exposure to the residential market had driven its broader thinking.
Fletcher's manufacturing and distributions businesses are expected to record positive Ebit before significant items across May and June, but at lower levels than normal.
The company said its net debt was $650m at the end of April, with its leverage ratio at 0.8 times operating earnings, which is below the bottom end of its target range.
The company had cash on hand at $970m and undrawn credit of $525m.
Fletcher said it has reduced its capex by about $60m, which means total expenditure for the 2020 financial year is now expected to be $240m compared to a pre-covid-19 expectation of about $300m.
Core capex in the 2021 financial year will range from $125m to $150m, focused mostly on safety and maintenance.
Shares in the company were down by 2.7 per cent after opening at $3.40 and have lost 35 per cent this year.
- Additional reporting by BusinessDesk