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.”