Update: Fletcher Building (FBU.NZX, FBU.ASX, FCREY.US:OTC)
Annual Accounts to 30th June, 2022 (Four Year Analysis)
Note:
All amounts in New Zealand dollars (NZ$) unless otherwise stated.
Data Download
For this article the accounts are in an attached document rather than listed under the individual headings as in previous postings.
This was done because for many people without accounting knowledge the complexity of the accounts and their recasting will not easily be understood.
Those with an interest in some or all of the numbers can download the 19 page PDF below.
The data set contains all the recast accounts and horizontal and vertical analyses.
Listed Securities
Shares
FBU has issued the following equity securities.
NZX:
Ordinary shares (FBU)
ASX:
Ordinary shares (FBU)
US:OTC:
American depository receipts (FCREY) Ratio 1:2 ADR:Ordinary
Bonds
Fletcher Building Industries (FBI), formally known as Fletcher Building Finance issued the fixed interest securities on behalf of FBU.
FBI owns 20 per cent of the shares in Fletcher Building Holdings New Zealand Limited, which in turn owns the shares in Fletcher Building’s New Zealand operating subsidiaries. Its investment in the company is equity accounted.
NZX:
Capital notes (FBI170, FBI180, FBI190, FBI200, FBI210)
(FBI = Fletcher Building Industries)
(FBF = Fletcher Building Finance)
Overview
FBU’s published financial statements have a simplified presentation which is pleasing. The accounts are more understandable than those of most other large listed companies.
However, there are no breakdowns of operating expenses such as selling, general & administrative expenses in the notes to the accounts .
The company restated its earnings in FY21 and the restated and non-restated formats are shown in the data set.
The company published the following ‘at a glance’ table in their 2022 annual report. Companies mostly put their best numbers in this kind of annual report presentation.
Recast Revenue Statement
Revenue was up 4.7% in FY22 at $8,498m as published by the company.
Gross profit increased 7.1% and the gross margin was up a little to 29.5%. EBIT was $723m as against the company’s published $756m above.
Expenses were up by 5.5% which was more than the revenue change.
Operating profit after tax was $460m. The significant items were redistributed to extraordinary items and unrealised items. In addition, the discontinued operations item is placed at the bottom of the income statement.
The underlying earnings which are often referred to in company accounts is basically the recast operating profit after tax. The figure of $460m is obviously better than the company’s headline result.
Total earnings were $432m as published and up 41.6% on the previous year. The total earnings were 5.1% of revenue as against 3.8% in the prior year.
Significant Items:
Significant items were separated out and allocated to various revenue statement accounts under both extraordinary and unrealised items. A full breakdown of this category is in the data set.
Discontinued Operations:
The only discontinued items in the notes to the accounts were in FY19 and consisted of an $82m loss.
Recast Balance Sheet
Shareholders’ funds were up a meagre 0.8% while interest bearing debt increased by 21.4%.
Cash & short-term investments were down 47.3% to $351m.
The equity ratio declined to 44.3% from the previous year’s 46.8%.
Fixed assets increased 12.8% to 1,800m.
The company is carrying $717m of goodwill and $289m of brands on its books which are significant but in the context of the total assets of $8,421m is not unusual or concerning.
Inventories are up by 19.4% to $1,799m and this may be because of a need to hold more inventory due to ongoing Covid-19 supply-related issues.
Recast Movements in Shareholders' Equity
The return of the payment of significant dividends used up a big chunk of the total earnings of the company.
Recast Cash Flow Statement
Operating cash flows dropped 79.0% to $119m in FY22 from the prior year. Both dividends paid and lease liabilities are included in operating items in the cash flow statement.
The reasons can stated here.
The company’s published operating cash flow was $592m for FY22 which differes dramatically from the recast figure.
Significant fixed asset purchases of $399m and share buybacks of $250m were financed by the operating cash flow surplus, $321m of cash & cash equivalents and an increase in interest bearing debt of $178m.
Ratio Analysis
Funding cost cover has improved from 6.0 times in FY21 to 7.0 times in FY22. The company had basic total earnings per share (EPS) of 53.5 cents in FY22 as published which resulted in a price earnings (P/E) ratio of 11.9 times.
On a diluted basis the EPS was 49.1 cents and the P/E ratio was 13.0 times.
However, on the recast measure of underlying earnings, operating profit after tax, the underlying EPS could be as high as 57.0 cents.
FY22 P/E ratio figures are based on the FY22 balance date share price of $6.36.
The company had an EBIT return on shareholders’ funds of 19.2% compared to its total earnings return on shareholders’ funds of 11.5%.
The company has a NTA/share of $3.41 at the FY22 balance date indicating real assets in support of its share price.
The FY22 dividends totaling 40.0 CPS is 33.3% higher than FY21 and carries with it imputation credits and a supplementary dividend (unlike the previous year).
Both market capitalisation and enterprise value fell YoY at the balance dates. At the end of FY22 the market capitalisation was $4,948m while the enterprise value was $5,637m (not including lease liabilities).
Segmental Analysis
Industry Segments:
Concrete and residential & development increased their returns as measured by EBIT to funds employed in FY22. They were 21.4% and 33.3% respectively.
Both building products and distribution declined in returns in FY22 posting 20.5% and 55.7% respectively.
Building products, however was a stand out with a 14.7% increase in revenue.
Geographical Segments:
There was a significant increase in the funds employed in New Zealand which increased 26.2% to $2,788m.
The return on funds employed using EBIT was 20.1% which is slightly higher than the company published.
New Zealand has the highest EBIT before significant items/funds employed return of 21.3% while Australia returns 10.7%.
Summary
The company has near monopoly positions in some New Zealand industries such as the wall-cladding product GIB.
FBU has a history of making poor decisions with some of its investments such as the purchase and subsequent sale at a loss of Formica. It has made some poor choices in markets where it doesn’t benefit from its relative size and monopoly/oligopoly position.
Around 65.0% of its revenue is in New Zealand while 33.1% is in Australia.
The much higher returns available in New Zealand than in Australia reflect the size and importance of the company in its home markets and also its political connections.
Future earnings are hard to predict and also have little stability. This obviously makes it hard to forecast the company's future results with any degree of certainty.
FBU seems to have put the worst of the Covid-19 crisis behind it and is making money.
The decline in operating cash flow and the reduction in cash are a little concerning.
But, the company has been buying back shares so the directors may think that the business is on a solid footing and will continue to make profits over the next few years.