Reporting Season - Former Fletcher letter stocks struggle on

Friday 24th August 2001

By Nick Stride

The two former Fletcher Challenge letter stocks this week shrugged off the past but are struggling to make headway.

Fletcher Building reported a buoyant June quarter with earnings before unusuals at two-thirds of the total for the "pro forma" year.

Chief executive Ralph Waters said half-year earnings would be "comfortably ahead" of last year but only if the economy didn't turn down and if the country's electricity problems were resolved.

Electricity costs for June were $1.5 million above last year.

Building's steel mill was especially hungry but wood panels and concrete operations were also energy-intensive.

The company was currently about 50% hedged.

It was negotiating with power suppliers and expected to be close to 100% hedged "imminently" for a period of about 12 months.

Building reported June-quarter earnings before interest, tax, and unusuals of $42 million and a net profit of $19 million.

Mr Waters said the two big challenges were the Peru and Bolivia operations - which took a $70 million write-down last year - and the New Zealand steel operation.

He will fly to South America this weekend to assess the situation. The operations lost $15 million in the full year but were now trading better.

"South America won't sink Fletcher Building even if we can't find a solution," he said.

The company also expected to find a solution to steel by the end of the financial year.

Building produces less than 200,000 tonnes a year of low-grade reinforcing steel.

BHP Port Kembla, for instance, produces six million tonnes "and they're only a mid-sized producer," Mr Waters said.

Some parts of the business were profitable and Mr Waters said he would like to retain them. But if Building had to part with them as part of a deal "we'll want our pound of flesh for them."

Fletcher Challenge Forests chief executive Terry McFadgen said yesterday he expected to book a profit for the June 2002 year but only before forest revaluations.

Forests' $749 million loss exceeded market expectations of a deficit of around $500 million.

The big-ticket items were write-offs of the value of the investment in Central North Island Forest Partnership and revaluations of other forests.

"By any measure we are delivering unsatisfactory returns on our asset base," chief financial officer John Dell said.

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