Fletcher looks to build in Asia

Jonathan Ling says Fletcher is growing its business in Africa. Photo / Dean Purcell

Fletcher Building's Formica business is showing strong growth in Asia, putting New Zealand's largest construction firm on the lookout for acquisitions in that part of the world.

Formica plants in China and Thailand were running near full capacity, chief executive Jonathan Ling said after yesterday's annual shareholder's meeting.

To keep up with demand, the company planned to either acquire or build a new factory in Southeast Asia - possibly in Malaysia - as well as an additional facility in China, he said.

Ling said that while growth in Asia was promising, the region only represented about 5 per cent of Fletcher's sales.

"But [Asia] is one of the fastest growing parts of our empire at the moment," he said. "Strategically, it's quite important to us."

Ling said Formica, which was acquired by Fletcher three years ago, was also developing markets in areas such as Russia, India and Mexico.

Fletcher was also having success in Africa, growing its roof tile exports into countries such as Nigeria, Tanzania and Kenya, he said.

"We've found a niche where the product is very popular with a rapidly growing middle class [in Africa]."

Ling said the company was placing emphasis on organic growth opportunities in its existing businesses in Australia and New Zealand, and investigating smaller acquisition opportunities in "adjacent businesses".

Capital expenditure was projected to reach $322 million in the 2011 financial year, up from $191 million in 2010.

Fletcher Building chairman Ralph Waters said the firm's performance in the first four months of 2011 was in line with its budget and ahead of the same period in both the first and second halves of 2010.

While Asian markets were showing growth, those in Europe, North America and Australasia remained relatively subdued.

Waters said net earnings after tax were expected to be within the range of analysts' forecasts - $311 million to $405 million, with an average of $357 million - for the current financial year.

Forsyth Barr analyst Rob Mercer said his forecast was in the upper part of that range, and the fact that many of Fletcher's markets remained sluggish in the near term was not a matter of concern. His evaluation was based on the expectation that Fletcher's earnings would improve during the 2012 calender year, provided a pickup in private and commercial building activity took place over the next 12 months. Waters said the company expected New Zealand residential construction activity to increase from the weak levels seen a year ago, but to remain below the long-term average for up to two more years.

"A recovery in commercial construction activity is expected to lag behind any pickup in the residential market," he said.

Waters said "impetus for growth" in New Zealand would come from rebuilding activity following the Canterbury earthquake.

Fletcher Construction has been selected by the Earthquake Commission to project manage more than 50,000 repairs to homes damaged by the quake.

In addition, the company has entered a joint venture with McConnell Dowell and is negotiating with Christchurch City Council to undertake infrastructure repairs in three damaged areas of the city.

Ling said the council estimated the value of the infrastructure repairs - including wastewater pipes, sewer mains, lighting, footpath and road repairs - to be $190 million.

Fletcher's share price closed up 7c at $8.01 last night.

FLETCHER BUILDING

$311m to $405m: analysts' forecast net earnings after tax for 2011
$322m is the projected capital expenditure for 2011
$190m estimated value of Canterbury infrastructure repairs