Fletcher share price rallies following leaky pipes agreement

Analysis: Fletcher Building shareholders will be feeling somewhat relieved the company has finally reached a multi-million dollar settlement over the issue of leaky pipes that has resulted in significant damage for hundreds of affected homeowners in Western Australia.
Establishing responsibility for the leaky pipes has been a point of contention between the parties involved in the dispute since the issue first came to light last year.
The pipes are manufactured by Fletcher’s Iplex subsidiary, which Perth-based building firm BGC has blamed for the bursting and leaking pipes while Fletchers has blamed the problem on poor installation.
In a statement to the NZX on Friday the company advised that it would set aside A$155 million (NZ$168m) in its next financial statement to cover the settlement. The Western Australia government has agreed to pay to A$30m (NZ$32.5m) towards the remediation efforts.
The proposed settlement requires builders undertaking the necessary repair work to sign up to an agreement, on condition they are not involved in legal action. In addition, Iplex has also agreed to supply leak detection monitors to the affected homeowners.
Fletcher Building acting chief executive Nick Traber said a joint industry approach with state government backing was the best solution.
“As we have said for some time, it is in all parties’ interests, as a first priority, to undertake a comprehensive response which remediates the plumbing issues in a timely and pragmatic way.”
A product recall was not the best response to the failures, the company said.
In October last year, Fletcher Building released the findings of a detailed rebuttal, backed by multiple Australian laboratories and international scientific experts, which the company said “exposed critical inaccuracies and inadequacies in claims levelled by BGC about the cause of the plumbing failures.
We reaffirm that evidence to date clearly points to installation as the cause of the plumbing failures – with no evidence suggesting manufacturing is at fault.”
The announcement of the agreed settlement appears to be a pragmatic outcome to an issue that has dogged the company while also weighing heavily on its share price.
Fletcher Building said that while all participants in the joint industry response had agreed to a “no sue” provision, meaning they will not bring actions against each other in relation to the plumbing failures, each party is, however, not restricted from acting in its own interest in defending or responding to any claim brought by a person who is not party to the agreed response.
It noted that the Western Australia Government has reserved its rights in relation to future actions if based on information obtained by it after the date of the joint response.
In addition, BGC has filed a claim against Iplex Australia making similar claims regarding the pipe not being of acceptable quality or fit for purpose and seeking a wide range of damages, including for rectification work done to date.
“While this matter is afoot, BGC is not eligible to join the joint industry response. However, Iplex Australia would welcome BGC into the joint industry response on the same terms as all participating builders for the benefit of its homeowners,” Traber said.
At BGC’s request, Iplex Australia has said it will participate in ongoing discussions about BGC joining the agreed response in the future though Fletcher’s said the outcome of those discussions is uncertain at this time.
However, it said Iplex Australia intends to defend the existing legal proceedings.
Fletcher Building shares gained almost 10 percent following the announcement reaching an intraday high of $3.18 on Friday, though by the close they ended the day up 7 percent at $3.07.
The Reserve Bank’s recent decision to cut the official cash rate last month for the first time since March 2020 has been met with a euphoric reaction from businesses, according to the latest ANZ Business Confidence survey.
Confidence in August soared to a 10-year high of 50.6 in August, a dramatic rise from the 27.1 reading recorded in July and a low of 6.1 in June, though it appears the bounce was already well under way before the Reserve Bank surprised many market participants by making the cut at its most recent meeting.
ANZ chief economist Sharon Zollner pointed to the large increases in confidence and activity expectations (including employment and investment intentions) that were already evident in the responses gathered at the very beginning of August. “The roughly one third of responses that came in after the Reserve Bank cut the OCR didn’t change the results a great deal” she said.
However, Zollner was also quick to highlight that some of the euphoria may be misplaced.
“Not to be a killjoy, but it remains the case that the hurdle for expecting better times ahead is very low: reported past activity, which has a good correlation to GDP over its short history, barely lifted, and at -23 remains very weak.
“Smoothing through the monthly volatility with a 3-month average shows the variation between sectors is stark, with construction the weakest by quite some margin, followed by retail.”
Agriculture was the only sector reporting higher activity than a year ago, which Zollner said may be attributable to the weather as much as anything else.
So is this burst of (relative) euphoria justified, will it be sustained, and more importantly will it actually impact business decisions?
“We will be closely watching indicators such as housing auction clearance rates, job ads, Performance of Manufacturing Index and Performance of Services Index new orders, and card transactions. And the Reserve Bank will be too.
“Just as the pace of monetary tightening varied considerably, the speed with which interest rates come down will also be data dependent,” Zollner concluded. “There is light at the end of the tunnel, but some firms are going to struggle to make it out.”
Earnings for the second week of the season continued to produce a mixed bag of results with company bosses describing the operating environment as “challenging” in multiple earnings results.
Of the 18 listed companies reporting results last week, only five managed to report a lift in profitability compared to the previous year, bringing the combined total for this earnings season to 14 out of 38 companies reporting a lift in profitability and 24 (63%) reporting a fall.
Restaurant Brands was one of the week’s best performers after the fast food operator reported a surprise lift in both its net profit and revenues for the year with new store openings contributing to the growth in sales.
Net profit after tax (NPAT) for the year grew significantly to $12.6 million, up 476 percent or $10.4m compared to 1H 2023, while total revenue lifted 7.3 percent to $687.2m, compared to $640.2m in 1H 2023.
Chairman José Parés Gutiérrez said he was proud of the group’s result given the current market conditions and the steps the company had taken in recent months to improve its performance.
“Initiatives including cost control measures, operational efficiencies, and price programmes continue to deliver value for money for customers and have also helped offset rising labour costs and consumer pressures.”
Gutiérrez  singled out its performance in New Zealand and Hawaii as being particularly noteworthy saying that both regions had shown significant improvements with solid growth in the first half of the year.
Restaurant Brands shares ended the week up 8.5 percent on Friday closing at a 3-month high of $3.47.
On the flip side, Air New Zealand shares ended the week down 3.5 percent at 54c after the airline reported a 65 percent fall in its annual operating profit.
Chief executive Greg Foran said the tougher economic backdrop had driven a noticeable deterioration in domestic demand in the second half, particularly for corporate and government segments.
Additionally, accelerated maintenance requirements for the airlines Pratt & Whitney PW1100 engines worldwide had meant that up to six of the airline’s newest and most efficient Airbus neo aircraft had been out of service at times impacting profitability.
Foran also noted that while average jet fuel prices were slightly lower for the year, total fuel costs increased by around $190m, driven by capacity growth across the network, while  non-fuel operating cost inflation of approximately $225m had been a significant drag on the airline’s financial performance.
Given the uncertainties it faces the airline opted not to provide guidance for the coming year only saying that it expected trading conditions to remain “broadly similar” throughout the first half of the 2025 financial year.
The world’s most well-known share investor has received a fitting present for his 94th birthday after Berkshire Hathaway, the US based multinational conglomerate Warren Buffett controls, reached the remarkable milestone of achieving a one trillion dollar valuation last week, becoming the first non-technology business to achieve this new status.
Hailed as one of the most successful investors of all time, Buffett made his first stock purchase at just 11 years old in Omaha, Nebraska, and now boasts a net worth of over US$148 billion, according to the Bloomberg Billionaires Index.
Aside from his successful investing strategy over his lifetime, Buffett’s longevity is perhaps all the more surprising given his notoriously unhealthy diet.
“I eat like a six-year-old,” the nonagenarian CEO famously told Fortune magazine in 2015, describing his love for “Utz” potato sticks and his intake of five 12-ounce Coca Cola’s as a regular daily habit.
“If I eat 2,700 calories a day, a quarter of that is Coca-Cola. I do it every day” Buffett said.
In a 2017 a documentary titled Becoming Warren Buffett, the billionaire revealed he stops at McDonald’s every day for a breakfast made up of one of three items: two sausage patties, a sausage, egg and cheese, or a bacon, egg and cheese. Which he, of course, enjoys with a Coke. 
But then, when you’re a major investor in the world’s most well-known soft drink beverage, Buffett no doubt justifies his questionable eating habits as ultimately contributing positively to its bottom line.
Fellow billionaire Bill Gates, a close friend of Buffett, can attest to the investor’s child-like eating habits from personal experience. In a 2017 Reddit ‘Ask Me Anything’ post, Gates recounted how Buffett once stayed at his house and had Oreos for breakfast.
“He mostly eats hamburgers, ice cream, and Coke,” the Microsoft founder wrote. “He may set a poor example for young people, but it’s a diet that somehow works for him.”
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