Fletcher Building bounces back

By Phil Boeyen, ShareChat Business News Editor

Wednesday 13th February 2002

Fletcher Building (NZSE: FBU) has reported a strong turnaround in fortunes in its six-monthly result with nearly all divisions improving their earnings.

The building company made a profit of $41 million for the six months ended December and $1.45 billion in sales.

The result compares with the previous year's loss of $41 million on sales of $1.083 billion, however the latest revenue result includes consolidation of the jointly owned PlaceMakers stores. On the same basis for the comparative period last year, revenue was $1.313 billion.

Fletcher Building's bottom line was boosted by a $6 million pre-tax gain on the sale of assets. Net profit after tax and before unusual items was $37 million compared with $8 million previously.

The company reports that most of the revenue increase came from its construction division, partly as a result of stronger demand although more from improved margins through price movements, operational efficiency gains and reduced overheads

"Nearly all businesses improved earnings over the comparative period, but the most significant improvers were construction, aided particularly by the Varnsdorf co-generation plants in Australia, Firth's Ready-Mixed Concrete, South American operations and Upstream Steel," the company says.

In the building products division Winstone Wallboards, Plyco Doors and Scott Panel & Hardware all met or exceeded earnings expectations, but Aluminium and Wood Panels had disappointing results.

A much better result from the company's concrete group was helped by improvements in South America and in the concrete and concrete product businesses in New Zealand.

"While the South American operations continue to experience very difficult trading conditions, both Peru and Bolivia have been cashflow positive as the businesses benefited from the management changes last year and the subsequent major restructuring.

"In New Zealand, while rural activity has been a significant contributor to the result, most major urban markets, and roading in particular, were subdued. Prices have improved marginally in a number of key products."

FBU says its construction group performed strongly during the period and both the New Zealand and the Australian commercial building businesses had significantly increased billings. Fletcher Residential also had a strong lift in sales.

In the distribution group sales rose 10% at wholly owned retail stores but the company says the key to improved half year profit performance has been ongoing internal productivity gains, category enhancement and the continuing competitive strength of the PlaceMakers Joint Venture Partnerships.

During the half-year non-core asset sales realised $30 million during the half year and although improved earnings from South American operations have reduced the urgency for asset sales there, they remain a priority.

"Since taking over 100% ownership and operational responsibility for the co-generation plants in Australia, there has been consistent improvement in output and the plants were comfortably profitable during the period. This should assist the planned sale of these non-core assets during the second half.

"Steel manufacturing also improved, and was around $8 million trading cash positive for the half year. Whilst the company has no strategic requirement to be in steel making long term, there is no case for closure or a heavily discounted sale of these assets while generating these cash flows."

FBU is picking a satisfactory second half result with a continuation of reasonable demand in New Zealand, although export and South American markets will remain difficult.

"With the company returning to acceptable operational performance, the major strategic priorities are to ensure earnings reliability through the economic cycle, and to achieve value creating growth."

An interim dividend of 6 cents per share has been declared which, after providing for $8 million interest net of tax on capital notes, represents a payout ratio of 63%.

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