Profit plunges at Fletcher Building

By Phil Boeyen, ShareChat Business News Editor

Wednesday 28th February 2001

A drop in earnings and a slew of unusual losses has forced Fletcher Building (NZSE: FLB) to take a dive into the red to the tune of $46 million - a dramatic turnaround on the previous interim profit of $41 million.

Excluding unusual items profit after tax was $8 million, still well below the previous year's result.

The company says it suffered from depressed conditions in most markets with very difficult trading conditions in New Zealand, particularly for businesses exposed to the residential construction sector where building consents fell approximately 30% compared to the previous corresponding period.

Interim chief executive, Michael Andrews, says in Australia, Peru and Bolivia the economic downturn has been more broadly based with all construction activity particularly weak.

"Most of our businesses experienced lower demand and, in addition, weaker prices were recorded for aggregates, cement, steel, and residential housing, compared with the previous corresponding period.

"A number of businesses incurred downsizing and restructuring costs in the period and the construction operations have provided for further costs and losses on long outstanding claims in Australia."

FLB took a hit of $56 million in unusual losses for the period, including a provision of $25 million for a dispute in respect of construction co-generation plants in Australia.

Restructuring parts of its concrete business took a charge of $8 million while properties in Auckland were written down by $11 million.

The company also spent $12 million in relation to the dismantling of the Fletcher group's targeted share structure. The total cost to Fletcher Building of the separation process is forecast to be $45 million.

Michael Andrews says the outlook for the construction industry in New Zealand overall is negative, and the sector is also softening in Australia, which is expected to lead to more competitive pricing pressure for the company's products there.

Overall sales revenue fell from $1.23 billion the previous year to $1.08 billion, with earnings lower over many of the company's divisions.

Building Products earnings before interest and tax fell $5 million, Steel fell $9 million, Housing was down $3 million and Distribution halved to $2 million.

Market conditions in Peru and Bolivia were also very weak during the period and the business recorded a loss at the EBIT level of $8 million compared to a $4 million loss previously.

Although business activity in Peru is expected to improve Mr Andrews says the economic conditions in Bolivia have deteriorated significantly during the calendar year 2000, and the short-term outlook is uncertain.

"As previously announced Fletcher Challenge Building is currently conducting a full strategic review of its operations. As part of this process it is highly likely that there will be a realignment of Fletcher Challenge Building's existing portfolio of businesses."

Mr Andrews says the company expects to make an announcement by late April on the outcome on the review.

Management expects to make an announcement by late April regarding the outcome of the strategic review. It is paying an interim dividend of 6 cents per share.

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