Earnings fall for Fletcher Building

By Phil Boeyen, ShareChat Business News Editor

Wednesday 22nd August 2001

Fletcher Building (NZSE: FBU) is claiming a strong start to its new corporate life but at the same time has warned that subdued markets and electricity costs are clouding the outlook.

The company has released figures from March 24 - when it separated from under the Fletcher umbrella - to the end of June, which show it had earnings before interest and tax of $42 million before unusual items, and net earnings of $19 million, for the period.

CEO, Ralph Waters, says the results are an encouraging start to FBU's existence as a standalone listed company.

"In the initial trading period, improved operating performance and some recovery in demand led to significant increases in both earnings and cash flow.

"Using the pro forma 12 months accounts as a basis for assessment, about 45% of the year's earnings at the ebit level, and 63% of the year's cash flow, were generated in that period of just over three months."

Mr Waters says the good result evidences better operational performance with some recovery in demand, and is predicting earnings before interest, depreciation and tax for the half year should be comfortably ahead of the same period last year.

However the company's directors have also warned that they expect demand in the major markets of New Zealand and South America to remain subdued for at least the remainder of this calendar year.

There are also concerns about electricity costs.

The company is 50% hedged for its electricity supply but says the current significant increases in electricity costs in the energy intensive businesses of Steel, Aluminium and Cement will continue to affect earnings.

"In addition, earlier oil price rises continue to affect transport and resin costs. However, the backlog in Construction is very satisfactory and the improvements of the last quarter will benefit the next half year," says Mr Waters.

For comparison purposes FBU has provided proforma accounts for the year ended June which show a loss of $272 million after unusuals of $181 million, and a $125 million write-off of taxation benefits arising from the separation of the operations from Fletcher Challenge group.

Revenues for the period were $2.273 billion, 4% down on the previous 12 months.

The company says all its building products business units all experienced a difficult year owing to the drop in residential activity in New Zealand and the even sharper fall in Australia.

"While some benefit was derived from an increase in activity in the last three months of the year, increased energy costs offset some of this gain," says Mr Waters.

Winstone Wallboards maintained market share but had a 12% drop in sales volume while Fletcher Wood Panels was adversely affected by falling international MDF prices, increasing resin and transport costs.

The company says Fletcher Aluminium experienced a drop in market share owing to the difficulties experienced in introducing a new door and window suite, and a further drop in sales due to lower residential activity.

Overall, building products revenues declined by 5% and Ebit by 22% for the 12 months to 30 June 2001.

Steel volumes were at a record high as export orders increased, aided by a weaker NZ dollar, however domestic prices were weak and high energy prices in the last quarter of the year affected margins. Overall, steel revenue increased by 3% while Ebit declined 55%.

Revenue in the distribution division fell by 5% and construction revenues also fell, by 7%.

FBU says whilst some of the benefits of separation are already apparent, the period leading up to separation was disruptive and contributed to the poor earnings in the nearly nine months period to 23 March 2001.

"Since March, operational improvements have been aided by stability and certainty, a board of directors totally focused on operational performance and strategy, and a new chief executive leading management's drive to reduce costs and working capital, and to hone the diverse business portfolio," the company says.

A final dividend of 6 cents per share has been declared, bringing the year's total to 12 cents.

Comments from our readers

No comments yet