Fletcher pushes for investment, not repaying debt

A Fletcher Building construction site in downtown Auckland. File photo / Natalie Slade

Fletcher Building chairman Ralph Waters says the company will focus on further investment, not repaying debt and Mark Adamson, chief executive has told how 300 houses built annually will be trebled.

Waters told about 200 shareholders at Eden Park this morning that the company was not focused on reducing its gearing.

"While there is potential to further reduce gearing, we will prioritise investing in the growth parts of our business rather than simply further reducing debt, given we already have a conservative balance sheet," said Waters who is about to retire as chairman.

However he also acknowledged less impressive aspects of the business.

"The total return to shareholders for the year to 30 June 2014 was 9 per cent representing a combination of dividends and share price appreciation. Whilst this is a satisfying return on an annual basis, it is somewhat overshadowed by the 51 per cent return delivered in the prior year.

"Shareholders will, I am sure, comprehend that these are single point in time measurements and that looking at returns over a longer timeframe provides a better assessment of performance," Waters said.

Mark Adamson, chief executive, said the FBUinte cost reduction programme had delivered $25 million in benefits. But one of his biggest priorities was pursuing "organic growth across our businesses" and he said that had been achieved via market share growth, margin expansion, product innovation and geographic expansion.

The company had historically built and sold about 300 houses annually but a new approach had seen Fletcher broaden the types of houses it offered to the market to include apartments and terrace houses, as well as stand-alone dwellings, Adamson said.

"We are creating a pathway to an annual rate of one thousand homes sold each year. to meet this goal we need to increase our investment in land and we have successfully negotiated a number of land purchases in the past year. We are mindful of the need to generate strong returns from our residential business through the cycle and the property purchases we have carried out have been achieved at valuation which we believe are product and will allow the requisite returns to be generated," Adamson said.

Adamson also told shareholders how the company had a construction backlog of work of $1.8 billion at the end of last month, up from $1 billion a year earlier.

"Recent innovations in the market have included the advent of public-private partnerships and we have developed in-house capability to allow Fletchers to participate in these projects," Adamson said.

Waters also indicated disappointment with multi-billion dollar acquisitions, Formica and Crane.

"We made two acquisitions that didn't quite meet the economic case on which the acquisitions were made, first formica and then we had 2008 on our doorstep and the second one Crane - we have not really had the economic circumstances in Australia on which that acquisitions was predicated," Waters said.

See the latest Fletcher Building financial presentation released in August here: