Fletcher carves up steel unit in tough trading environment

BUSINESSDESK: Fletcher Building, New Zealand's biggest listed company, has carved up its steel unit, which has struggled in a tough trading environment, to better reflect the industry's changing market demands.

The Auckland-based company's long steel and distribution units, comprising of Pacific Steel, CSP Coating Systems, Fletcher Easysteel and Fletcher Reinforcing, will be joined with Fletcher's concrete division in a newly-named infrastructure products business, it says in a statement.

The coated steel business, made up of Stramit Building Products, Dimond, Pacific Coil Coaters and Gliderol, will join the building products division.

"In grouping these businesses in this way, we will be looking to leverage existing channels to market and to better serving our customers with total solutions for their needs," chief executive Mark Adamson says.

The new structure, effective from today, reflects different end markets for the different products, he says.

Fletcher's steel unit posted a 42% decline in annual earnings to $48 million on a 5.3% fall in sales to $1.15 billion. That was about 13% of Fletcher's total revenue.

The company says the unit's long steel volumes rose 3% in the year ended June 30, though margins were squeezed by a strong New Zealand dollar and tougher price competition from imported rivals.

Coated steel volumes were down in the period and margins were reduced from stiffer competition.

Fletcher's building products posted an operating loss of $7 million, from a year-earlier profit of $31 million, with sales down 3.2% to $670 million. Earnings from concrete rose to $130 million from $125 million, with revenue up 5% to $958 million.

The company will come under officials' gaze as the government embarks on a study of the construction sector's cost structure as part of its wide-ranging response to making housing more affordable to see if the market is working correctly.

The shares fell 1.6% to a month-low $6.96 in trading today and have gained 16% this year. The stock is rated an average "outperform" based on 11 analyst recommendations compiled by Reuters, with a median target price of $6.90.