Fletcher Building has issued a grim outlook for the Australian construction sector, saying a downturn in residential building and weak approval levels for commercial construction are unlikely to improve in the immediate future.
The company reported a rise of 1% in first-half profit on Wednesday and says it is sticking with its full-year earnings forecast.
Profit for the six months to the end of December rose to $146 million after a pickup in domestic building and earthquake rebuilding projects in Canterbury.
The company, which makes building products, formica and laminates, roof tiles and insulation, said on Tuesday that its New Zealand earnings rose by nearly a third.
Sales fell to $4.3 billion, due partly to the sale of several businesses.
Fletcher is sticking with its forecast of a full year profit of $560 - $610 million for the June year.
Fletcher Building chief executive Mark Adamson said continuing weak market conditions have hurt earnings in Australia, which accounts for nearly half the company's revenue.
Mr Adamson said the company suffered somewhat from a slight mining sector decline last year, but the main effect has been from low demand in the the residential housing sector on the East Coast, which was not likely to radically improve in the next six months.
Costs also rose due to further restructuring in a number of businesses including Laminex and Stramit in Australia, and a plant closure in Spain.
Mr Adamson said the company is centralising operations which will bring long-term savings of $70-$80 million a year from 2018.
He said Fletcher Building has looked at some of the low-value transactional processes such as running payrolls, supply, invoices, IT and desktop services.
"We currently do that 50 times in New Zealand at all of our business unit levels (and) we think we can do that more effectively once at a shared service level."
Mr Adamson said these operations for its Australasian businesses will be carried out in Auckland.
Mr Adamson expects the programme to be cost neutral in 2014 and any benefits to come in 2015 and beyond.
It will pay shareholders an interim dividend of 17 cents a share.
Fletcher Building's shares fell 45 cents to $8.87 each on Wednesday.
