24 Aug 2012

Slowdown cuts Fletcher Building's profit

8:30 am on 24 August 2012

Fletcher Building's profit has fallen by a third due to weak building activity in New Zealand and a sharp slowdown in residential and commercial construction in Australia.

Shares in Fletcher Building slid more than 5% after it warned of a tough year ahead with no sign of a strong pick-up in the Australasian housing markets.

New Zealand's largest listed company made $185 million in the financial year to the end of June - a decrease of 35% compared with the previous year.

Profit before one-off and unusual items fell 12% to $317 million, the lower end of Fletcher's guidance range given in June.

One-off charges included a $74 million writedown in the value of its Australian insulation business, a $38 million restructuring of its Laminex operations, and another $20 million on closing one of its two Formica plants in Spain.

Fletcher Building is the biggest building products firm in Australasia and has struggled because of weak home building in New Zealand and Australia.

Pace of Christchurch rebuild slowly picking up

Analysts expect higher earnings from the rebuilding of earthquake-hit Christchurch in coming years, which Fletcher Building is spearheading and a general recovery in New Zealand's construction sector.

Outgoing chief executive Jonathan Ling says the pace of rebuilding Christchurch is slowly picking up.

He says the company is completing around 2000 house repairs and $50 - $70 million of work each month.

Mr Ling says Fletcher Building is employing round 1100 contractors and nearly 10,000 tradesmen and 500 permanent employees.

He says the building of new houses is slower than desirable but it is starting to gain momentum.

Mr Ling says the commercial rebuild is slowwith demolition work still taking place in the central business district.

Housing market crucial to earnings

Fletcher says the company posted better-than-expected profits in the second half of the year, but says it needs a marked improvement in Australasia's housing markets to lift future earnings.

Mr Ling says the recovery in New Zealand is slow, while Australia has experienced a deterioration.

He says residential house building in New Zealand is still at very low levels despite a slight improvement, at the same time infrastructure spend in New Zealand is starting to slow down.

"On top of that, over the last four years we've had a relatively strong Australia, where as Australia now in the last few months is starting to show significant decline in activity".

Mr Ling says a rise profits will depend heavily on a pickup in the construction market, which is increasingly difficult to predict.

He says there needs to be an improvement in demand for a significant impact on the group.

Mr Ling says if the market stays tough there could be a further reduction in employee numbers, but it will not be as large as at the start of the global financial crisis when Fletcher Building shed around 3000 people.

Fletcher Building's shares fell 34 cents to $6.32 on Wednesday.