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Fletcher Building has signalled another strong year ahead despite softening in the New Zealand and Australian residential housing markets and weakness in the United States affecting its newly acquired Formica business.
The construction giant announced a net earnings increase of 28 per cent to $484 million, boosted by a one-off tax benefit of $70 million, at its annual general meeting yesterday.
Chairman Rod Deane told shareholders it was too early to make a firm prediction on next year's results, but the company was comfortable with analyst's predictions which put net earnings after tax and before unusual items within a range of $450 million to $460 million.
That prediction would add between $51 million and $61 million to this year's normalised net earnings - a minimum increase of 13 per cent.
Deane said the company anticipated a decline in new housing consents in New Zealand but expected this to be countered by a backlog of housing work and unsatisfied demand for alterations and additions. Commercial construction and infrastructure remained strong, and the backlog in construction was at a record level of more than $1 billion.
The backlog had increased significantly since the end of the company's financial year in September.
The company had been awarded further contracts to build the Manukau Harbour second crossing, a major Wellington office block and the New Lynn rail trench.
In Australia, Deane said the residential markets varied state to state, although the Sydney residential market was expected to pick up next year, compensating for the slow-down in New Zealand. The non-residential market was expected to remain flat.
In the markets in which Formica operates, Deane said Europe and Asia remained in good health but the well-publicised weakness in the United States continued.
The company has had to rationalise its US Formica operations since buying the business in July by closing down its California factory and is aiming to double production at its Ohio factory.
Chief executive Jonathan Ling said the project had taken longer than expected because of labour and quality problems, but he believed the worst was now behind the company.
The problems in the Unites States are also likely to affect the sum of up to $50 million that Fletcher Building would have to pay to the seller of Formica if it fails to meet certain performance conditions over its first year.
Ling said it would be unfair to speculate what the drop in payment might be as there was still another seven months to run.
However, both Deane and Ling said they remained happy with the acquisition of Formica.
Ling said the company had concerns over the Government's proposed carbon emissions trading scheme.
Ling said it would affect its operations in several ways with Golden Bay Cement and Pacific Steel required to buy carbon credits to counter their carbon dioxide emissions and all operations facing increased energy costs.
"We are concerned that the scheme, if not implemented well, could have a significant adverse impact on the competitiveness of New Zealand manufacturing."
But Ling said there were ways for the Government to avoid this.
Fletcher Building's share price closed up 12c to end the day on $11.30.
It will pay a dividend of 45 cents per share for the 2007 financial year, up 5c on the previous year.
