Fletcher Building on tenterhooks for $1.5 billion of work

Fletcher Building will find out on Friday whether it has won its bid for the construction of Auckland’s Waterview Tunnel project – a potential $1.2 billion boost to its infrastructure backlog.

The company, which today reported a 4% gain in full-year net profit to $283 million, said it was also in line for the Wiri Prison build in South Auckland, estimated to be worth $300 million.

Chief executive Jonathan Ling said if the company was to win one or both of those jobs it would change the outlook for the Fletcher’s construction business “quite considerably”.

The tenders are potential good news stories amid a mixed result and outlook reported today.

The company said market conditions had been tougher than expected at the start of the year, with no recovery evident in New Zealand and Australia showing clear signs of having slowed in the second half.

"We remain uncertain around the timing and pace of a recovery in the New Zealand construction industry, but are well positioned for the upturn when it comes."

Net earnings before unusual items were $359 million compared with $301 million in the previous year.

Unusual items totaled $76 million including costs associated with its takeover of Australia's Crane Group and equipment and goodwill write-offs in the Australian and New Zealand insulation businesses.

Total revenue was $7.42 billion, up from $6.79 billion in 2010 with operating revenue up from $521 million at $596 million.

Revenue in New Zealand was mixed, with growth in concrete products and residential house sales but lower sales in most other building products, steel, and construction.

Christchurch rebuild gaining momentum
Many businesses were impacted by the disruption to trading following the Christchurch earthquakes, Mr Ling said.

The Christchurch rebuild, where Fletcher Building was project-managing repair work, had been slower than expected but was gaining momentum.Anecdotal evidence suggested seismic activity is starting to stabilise, he said.

“Providing that continues that’s a good thing for the rebuild. As that stabilises we expect the releasing of new insurance will also help.“I have to say it’s been slower than initially expected but everything is in place for the rebuild to gain momentum quite quickly.”

In Australia, revenues were significantly down in the Australian insulation business as a result of the sudden termination of the government’s insulation retrofit scheme.

The company took a $70 million write down on inventories and goodwill of its insulation businesses.

"The inventory and goodwill write-offs in our Australian insulation business are disappointing. We've seen significant disruption to the market since the termination of the government's retrofit insulation scheme last year and no sign of any improvement. As such, we have had to confront the financial reality and adjust asset values accordingly", Mr Ling said.

Formic performs well in Asia
On the good news side of the ledger Mr Ling said Formica had reported good growth from its Asia operations and North American earnings despite flat volumes in that market.

Crane contributed $623 million in sales for the three months ended June 30 and $29 million of earnings.

Laminates & Panels, Fletcher's biggest division, had a 2.5% increase in revenue to $1.98 billion, lifting operating earnings by 19% to $168 million.

Revenue from Infrastructure was flat at $1.9 billion but earnings climbed 12% to $161 million.Steel revenue rose 3.6% to $1.2 billion, with earnings up 1.2% to $83 million.

Fletcher Building said it will pay a final dividend of 17 cents a share versus 15 cents a year ago.

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