Fletcher 1H profit gain held to 5% by strong kiwi, full-year guidance affirmed

Mark Adamson
Fletcher Building 12-month price history (NZX.com)

Fletcher Building [NZX: FBU], the biggest company on the NZX 50 Index, posted a 5 percent gain in first-half profit as sales growth was constrained by a high kiwi dollar. Fletcher affirmed its guidance for the full year.

Profit was $154 million, or 22.4 cents a share, in the six months ended Dec. 31, from $146 million, or 21.3 cents, a year earlier, the Auckland-based construction and building products group said in a statement. Sales fell 2 percent to $4.27 billion.

Operating earnings grew 7 percent to $262 million in the first half, driven by a 35 percent improvement from its New Zealand operations. Australian earnings fell 27 percent to $77 million, with the decline exacerbated by the strong kiwi against the Australian dollar, which turned a 1 percent gain in sales across the Tasman into a 10 percent decline to $1.7 billion in NZ dollar terms.

All up, Fletcher attributed $206 million of revenue decline to adverse for exchange movements, more than offsetting a $99 million gain in underlying sales.

Full-year earnings before interest, tax and significant items would be $610 million to $650 million, chief executive Mark Adamson said, affirming guidance given at the annual meeting in October. The shares fell 2.8 percent to $9.45 and have gained 14 percent this year.

Fletcher lifted its interim dividend to 18 cents from 17 cents.

Results from Australia were mixed, Adamson said, with a decline in steel and concrete pipe sales, steady sales of insulation, laminates and panels and a pickup in plastic pipes and quarry sands. The Tradelink distribution business lifted earnings.

Revenue in New Zealand rose 3 percent to $2 billion and operating earnings lifted to $167 million as the company benefited from rising housing construction, repairs and rebuilding work in Canterbury and demand for housing in Auckland.

In Australia, Fletcher noted an improvement in the New South Wales residential market and "more subdued" activity in other states. Commercial construction activity was "flat" and the results also reflected reduced state spending on infrastructure and "depressed mining activity."

"The impact of margin declines and restructuring costs were partially compensated by the positive effects from efficiency initiatives, savings in headcount and other controllable costs," Fletcher said.

The 'rest of the world' segment posted a 4 percent gain in revenue to $541 million and a 16 percent gain in operating earnings to $37 million, with a pickup in North America activity, where earnings rose 21 percent and flat activity levels in Europe. While volumes rose in North America and Asia, competition hurt prices, it said. In Asia, the company incurred costs associated with a new plant in Jiujiang, China and margin pressure, slicing Asia earnings by 14 percent.

Of Fletcher's six divisions, only construction managed to increase sales in the first half - up 6 percent to $648 million and contributing to a 51 percent increase in operating earnings to $56 million.

The company had a construction backlog of about $1.6 billion as at Dec. 31, up from $1.19 billion a year earlier.

"Overall market conditions were positive in both residential and non-residential sectors, particularly residential activity in Auckland and Christchurch," the company said.

For infrastructure products, Fletcher's largest business, sales fell 1 percent to $1.04 billion and earnings slipped 6 percent to $96 million. Results in the latest half included $9 million of restructuring costs, up from $3 million a year earlier, and a foreign exchange impact of $6 million, it said.

Within infrastructure, cement, concrete and aggregates earnings climbed 26 percent to $39 million, while concrete pipes and products posted a 29 percent drop to $20 million, largely due to lower Australian pipe volumes. Earnings at Iplex and Crane Copper Tube fell 37 percent to $19 million on rivalry and one-time costs. Steel earnings rose 38 percent to $18 million.

The building products division lifted earnings by 9 percent to $61 million as sales fell 6 percent to $657 million. Plasterboard lifted volume on steady market share, insulation earnings fell by $4 million and earnings from roll-forming, roof tiles and coated steel rose 8 percent to $26 million.

Laminates and panels had a 2 percent decline in sales to $866 million while operating earnings rose 4 percent to $53 million. Laminex Australia had unchanged earnings of $25 million, held back by the currency effect, while Laminex New Zealand earnings rose by $3 million. Formica earnings gained rose 9 percent to $25 million, reflecting sales growth in Asia and North America.

Distribution in New Zealand, the Placemakers and Mico Plumbing chains, had a 4 percent drop in sales to $582 million and a 56 percent jump in earnings to $25 million. The revenue decline reflected the sale of the Corys Electrical business while Placemakers lifted sales by 10 percent, the company said.

In the Australian Tradelink and Hudson Building Supplies businesses, sales fell 10 percent to $476 million and earnings rose 14 percent to $8 million. The currency impact eroded what was a 40 percent earnings gain in Australian dollar terms.

(BusinessDesk)

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