Reconditioned Fletcher Building delivers profit

By Nick Stride

Friday 16th August 2002

Fletcher Building delivered a $93 million June-year net profit, slightly above market expectations and a massive turnaround on last year's performance.

Earnings before interest, tax, and unusuals were $205 million, nearly twice last year's. In 2001 a swag of one-off writedowns followed Building's separation from the Fletcher Challenge group, resulting in a $288 million bottom line loss.

Chief executive Ralph Waters said the result represented a 16.9% return on average equity and 23.1% on average funds employed, well ahead of its cost of capital.

The shares lost 6c in immediate post-announcement trading after a weak session on Wall Street and a strong run up in recent weeks.

Chairman Rod Deane said the company had had a tail wind from a sound economy "but the improvement goes way beyond that."

The company had lifted margins, reduced overheads, and boosted operational efficiency.

Mr Waters said the distribution division was now operating at its potential. The division's ebit (earnings before interest and tax) contribution was $34 million, up from $18 million a year ago. The building products and steel division's ebit was up 47% at $85 million and concrete contributed $60 million, up from $31 million.

The strongest gain was in construction, which posted ebit of $30 million, compared with just $5 million a year ago.

But Mr Waters warned the extra earnings from construction "won't necessarily be there every year." Additional earnings came from the Australian co-generation and Australian construction businesses, both since sold, "so ongoing earnings are probably around $20 million."

Mr Waters strove to dispel perceptions Building was a construction company.

Construction was only 10% of the assets, compared with 70% for concrete and building products and 20% for distribution. He preferred "a building materials manufacturer with two special channels to market."

These were the Placemakers building supply chain, "a cost-effective distribution medium with 35% of the market and not necessarily available to competitors," and construction, which uses 100% Fletcher Building materials where it can.

Dr Deane said the company had reduced debt by $126 million and now had a strong and simplified balance sheet.

Mr Waters declined to name units that may yet be sold.

"There are some businesses we'd consider exiting if the right opportunity arose. But there is no business with a profit bottom line that puts pressure on us to sell."

The sale this week of the Bolivian operations reduces Building's investment in South America to the profitable Peruvian ready-mix concrete and aggregates business at $16 million.

A year ago $150 million was invested in South America.

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