KEY POINTS:
Construction giant Fletcher Building is forecasting tighter times ahead, as the long-term effects of the credit crunch continue to bite on the cyclical nature of the building industry.
"Events in the global economy have had a significant influence on Fletcher Building's operating profit", said CEO Jonathan Ling at
this morning's annual meeting of the company at the Langham Hotel in Auckland.
Chairman Roderick Deane said the slowdown in the residential housing market was the chief driver in a much-reduced profit forecast for the second-largest company on the New Zealand stock exchange.
He said analysts' range of forecasts were for annual profit in the range of $289m - $354m in the year to June 2009.
This is well down on the $467 million the company made in the year to June 2008, which itself was down from $484 million in 2007.
"If current trading conditions were to be maintained throughout the remainder of the year then net earnings should be within this range," Dr Deane said.
"This spread is not unreasonable given the significant level of uncertainty in New Zealand and Australia and around the world."
Dr Deane said lower earnings were expected in building products and distribution and infrastructure, while the steel division was performing strongly.
In laminates and panels the company expected an improved performance by Formica North America would be offset by weakness in demand across most regions.
The company had not given its profit forecast for the year when it announced its 2008 result in August, citing uncertain market conditions.
Fletcher Building has seen its share price drop in the past year but Dr Deane said this was a reflection of market conditions rather than that of the company.
"From an internal perspective there is not a significant difference between the Fletcher Building that traded in excess of $13 per share in June last year and the one that is currently trading at under $6," he said.
"The principal change is in the external environment."
Dr Deane said the board intended to maintain its dividend at the same cents per share rate as for the past year, but that this would be subject to the financial result for the year as a whole.
Despite the reduced profit outlook, CEO Jonathan Ling was upbeat in his message.
"The Group's fundamentals remain strong", Ling said today, and the balance sheets were "sound". He said the company had entered into long-term financial arrangements, rather than short-term, which in itself gave a degree of stability.
He said the company had initiated a freeze on the employment of new staff, since June, and through "some redundancies", plus attrition, the optimum staffing levels were being reached.
Ling warned that the obligations of the proposed Emissions trading scheme, coming into effect in 2010, would mean that some of the companies in the Group - Golden Bay Cement and Pacific Steel - would face increased costs.
He reminded the audience that the building industry is one which is particularly sensitive to the prevailing economic conditions.
The US sub-prime crisis had a negative impact on the residential market in the United States, and hence on Fletchers' newly-acquired Formica company.
Questions from the floor reflected critical views on the Formica purchase, which one shareholder called "ill-advised".
Sales were down across the board in the US laminates market, Ling admitted.
Locally, the New Zealand residential market had softened markedly over the last 12 months, said Ling, but the commercial and industrial market held firm.
Fletcher Building shares bounced in early trading, with the company saying it intended to keep its dividend at the same level as the past year.
After being down 5c early, Fletcher shares rebounded to be up 15c to $5.75.
- additional reporting by NZPA