Fletcher Building posts solid profit
The country's biggest listed company, Fletcher Building, plans to ramp up its residential housing efforts in Auckland and Christchurch after posting a solid full-year result.
Strong construction and infrastructure work in New Zealand helped the company make a 4 per cent rise in profit after tax of $339 million in the year to June, up 4 per cent on last year.
That was despite a 1 per cent fall in revenue as the company encountered mixed fortunes in the slower Australian economy.
The profit was also dragged down by $32m in significant items, principally from the difference between the sale price and valuation of its Pacific Steel and Hudson Building Supplies businesses.
Shares in Fletcher Building were up 6 cents to $9.15 in early-afternoon trading.
Mark Lister, of Craigs Investment Partners, said that although sales and revenue were down in many divisions, operating earnings were rosier.
Net profit before significant items was $362m, which was "a little shy of what we were expecting but it's still 11 per cent higher than the prior year".
"I wouldn't say it's an outstanding result, but it's solid," he said.
Shareholders will receive a final dividend of 18c a share, up 1c on last year, bringing the total dividend for the year to 36c a share.
Fletcher Building's operating profit before significant items was $624m, up 10 per cent on the previous year and within previous guidance of $610m to $650m.
In New Zealand it was up 27 per cent to $363m, while revenue rose 5 per cent to $4.03 billion.
In Australia, revenue was down 10 per cent to $3.64b and profit before significant items fell 16 per cent to $171m.
Profits in the rest of the world were less affected by the New Zealand dollar, with earnings up 14 per cent to $91m on virtually flat revenue of $1.04b.
Observers are looking closely at Fletcher's progress in Australia and whether its rebuild work in Christchurch has hit a peak.
Chief executive Mark Adamson said that underlying growth was strong, but Australian profits had been mixed and suffered when they were translated back into New Zealand dollars.
"We would have met the top end of our guidance range had the New Zealand dollar not strengthened the way it has over the past year."
Adamson said he sensed that the company's Australian market was turning a corner, with second-half earnings being better this year than last year.
Asked whether the Christchurch rebuild had peaked, Adamson said he was still positive about it, with a strong pipeline of infrastructure and commercial projects.
However, it would take 20 years to complete and, earnings-wise, it was not the biggest part of the business.
"There are other issues that are of equal importance financially as Christchurch."
Adamson told journalists that Fletcher Building was looking to push more into the residential building sector to make the most of its considerable Auckland land bank.
He felt the prospects of residential housing were strong and the company was now committed to building 1500 lots, with a longer-term target of 3000 houses.
Most would be in Auckland, but the company had made a cautious start in the Christchurch market.
He ruled out Fletcher's involvement in prefabricated housing, saying housing costs could be better lowered by large-scale developments.
In its infrastructure business, Fletcher's learnt lessons from its unsuccessful public-private partnership to build Wellington's Transmission Gully motorway.
Adamson said he thought the company had "missed it on PPP margins" but believed public-private partnerships would become more prevalent and the company was gearing up to greet that trend.