Fletcher Building upgrades profit forecast

By NZPA

Tuesday 11th June 2002

Fletcher Building today flagged a rise in earnings for its June year, and said the outlook was good for the construction company.

Fletcher Building's interim results announcement in February highlighted the substantial turnaround in performance in its first complete half-year since separation from Fletcher Challenge, with earnings before interest and tax (ebit) of $78 million.

In 2001 Fletcher Building posted a $34 million June-year net profit, before unusual items, and a $19 million profit for its first three months as a stand alone company.

BT Funds Management equities manager Andrew South said the outlook was favourable for Fletcher Building, which has a market capitalisation of almost $950 million.

"I guess we'll have to wait for the (second) half year to decide how much of that increase in expectations is due to cyclicality, and how much is due to better operating conditions within the business.

"It will be a mixture of both, but at this stage we think conditions in the medium term are still very favourable for the stock," Mr South said.

As part of its transformation Fletcher Building, which separated from the Fletcher Challenge conglomerate in March 2001, appointed Australian fix-it man Ralph Waters as chief executive last year.

Since Mr Waters' arrival, the company has sold non-core assets and cut costs.

"The expectation of reasonable demand in New Zealand enabled the company to signal that a satisfactory second half year result should arise as well," Mr Waters said today.

"Based on unaudited management accounts for the year to date, the company now expects to exceed these earlier indications.

"As a result of improved underlying performance in most operations supplemented by recent favourable trading conditions, the company would report a full year ebit, before unusual items, of around $200 million."

According to Multex Global Estimate the consensus of net profit is $76.1 million, although ebit earnings are expected to be higher than net profit.

Fletcher Building chief financial officer Bill Roest told NZPA the domestic housing and non-residential construction markets were performing well.

According to Statistics New Zealand, residential building work rose by 1.5 percent in the first three months of this year, with home building up 2.4 percent for the year, worth more than $4 billion.

The Australian housing market had retreated slightly, although activity was still at reasonably high levels and was forecast to recover, Mr Roest said.

`Fundamentally, the bulk of our earnings come from New Zealand and so the bulk of our earnings will mirror the New Zealand construction, residential, and infrastructure cycles.

"The forecasters would say they will remain at current levels or slightly improve to the end of this year then taper off for the 2003 year. We do follow those cycles and it's whether those cycles come to pass or not."

Fletcher Building shares jumped 10 cents to $2.87 after the announcement, before settling to close at $2.81, up 4c.

The company flagged that it would change its accounting policies in its annual result to re-classify capital notes as debt, rather than as capital funds. As a consequence interest paid on the capital notes will now be shown as a $15 million reduction to net profit after tax, rather than as a shareholder distribution.

After allowing for this change in accounting policy the projected net profit after tax and minorities, but before any unusual items, is around $85 million.

This does not include the $14 million after tax gain from the recent sale of the Australian co-generation business which will be reported as an unusual item.

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