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Fletchers suffers as construction slumps

UPDATE 10.20am: Fletcher Building sees the stagnant Australian construction sector as making no steps forward in the coming year, with New Zealand experiencing only very modest growth.

The slumping construction industry has prompted Fletcher Buildings to reassess cost structures at subsidiary Laminex.

Restructuring at Laminex cost $21 million in the six months to December, and Fletcher’s half-yearly results flagged up to $50 million more spent retooling the business in the coming year. Possible changes include cutting product lines and merging parts of the business with Formica.

Chief executive Jonathan Ling said the sudden decision by the Australian government to terminate its insulation subsidy scheme two years ago had prompted a strategic review of insulation businesses on both sides of the Tasman.

“The dislocation of the industry could not have happened at a worse time, with the strong Australian dollar undermining the competitiveness of domestically manufactured product.” he said.

Fletcher Building shares [NZX:FBU] were down 3.31% to $6.42 in early trading. 

Fletcher Building 12-month chart courtesy CapitalIQ.


Fletcher Building’s profits declined 15%, and revenue excluding acquisitions dropped 5%, in the second half of 2011.

In six-month accounts to December 31 posted to the NZX, the listed construction firm posted net earnings after tax of $144 million, down from $166 million in the prior period.

The results were in line with expectations and had earlier been signaled by the company.

Revenues for the group increased 30%, but factoring out the acquisition of Crane the increase turned into a 5% drop.

Chief executive Jonathan Ling said depressed economic conditions contributed to the results.

“Earnings have been negatively impacted by low levels of activity in the New Zealand construction industry. This is particularly the case with new house building activity, with approvals in 2011 the lowest in the 46 years since records began. Australia was already slowing at the start of the year, and there has been a pronounced decline in new residential construction there over the past six months,” Mr Ling said.

“Consequently, all our businesses exposed to the residential markets in both countries have experienced lower volumes and reduced earnings.”

More by Matt Nippert

Comments and questions
7

You dont have to be a rocket scientist to see that this was going to happen. We voted National into power to get this economy moving, all whats happening is the welfare cheque is growing, not the growth as National promised.Blame Europe as usual.

What? The govts favourite, chosen 1st, head of the queue and near as dammit annointed cant make a buck. Whats the place coming to?

This shows how vulnerable our economy is, if Fletcher's with all its favored position in it's chosen industry, is struggling. Not good

Bollard, Treasury and National Party all use the same rose tinted glasses. News like this may just dampen our gravity defying dollar.

Perhaps all should look beyond the short term. Christchurch rebuild has not started. residential building slow. According to analysts Fletcher’s price has already factored in the slow economy. Its still a great company. PS their result would be the same no matter the government. Those comments are just ill-informed. All this without rose tints

Average result and yet Ling is disperate to do more deals - Formica and Crane have been a disaster.
About time Fletchers focus's on the dividend.
They can't help the economy but they can stop wasting shareholders cash

This is a problem of their own making.....the stranglehold control of every aspect of CHCH rebuild is beyond their capability.
Classic case of an over-outsourced company...which the Harvard boffins thought up for their latest five-year trick....and, like most of their crap is coming home to roost globally.
Sadly, leaky homes, which they were party to, big time, in their earlier life, is keeping them alive.