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Sharemarket darling Fletcher Building delivered slowing profit growth yesterday, but reassured shareholders it was on target to meet full-year earnings forecasts.
Fiji's coup and other problems hurt its biggest division - infrastructure - and the company is yet to settle insurance issues after last year's disastrous fire at its Taupo fibreboard plant.
At his first media results presentation yesterday, chief executive Jonathan Ling was upbeat, saying the company was on target to meet the $388 million full-year result which was the consensus of analysts' forecasts.
That would be up just 2 per cent on last year's $379 million net profit, compared with 9 per cent profit growth the year before.
Shares in Fletcher Building fell 25c to $11.10.
The company reported a first-half net profit of $193 million, up just 2 per cent on the year before, and increased its interim dividend by 3c to 22c.
"This is the tenth consecutive dividend increase," Ling said.
But he then detailed problems with the infrastructure division, where operating earnings - earnings before interest and tax - fell from $125 million in the six months to December 2005 to $122 million in the latest half-year. Infrastructure includes Fletcher Construction, Fletcher Residential and the cement operations.
Fletcher Construction has a number of large jobs in Fiji and Ling explained the earnings drop as being partly caused by the coup and political instability, combined with a softening residential building market here and in Australia, and the Golden Bay Cement upgrade.
But Fletcher Construction had won work worth $690 million for the next couple of years, Ling said.
That did not include Eden Park's upgrade for the Rugby World Cup.
"There's no stadium in that figure," he said. "The $690 million is the backlog of work and we're very comfortable with that."
Emily Smith, of Deutsche Bank's equity research division, said the result was lower than forecast although she expected a better result for the second half of the year, partly due to strong demand for infrastructure work.
Rob Mercer at Forsyth Barr said the result was slightly lower than expected. He had picked around $199 million.
"Operationally, this was a solid result with the only area of disappointment being the lower than expected earnings from the infrastructure division."
He had forecast full-year earnings of $406 million, but was considering lowering it.
Operating earnings from the building products division fell from $77 million a year ago to $72 million but Ling emphasised rising earnings from distribution, laminates and panels and the steel division. He blamed building products' 7 per cent fall on the residential market here and in Australia and said the plasterboard, aluminium and insulation businesses all had reduced earnings.
Fletcher's insurance claim at Taupo was yet to be settled on its medium-density fibreboard plant and Ling refused to say when the large plant would open, who the insurers were or what issues were revolving around the claim.
"A decision has not been made and won't be made until insurance negotiations are completed," he said. However, Pacific Steel in Otahuhu had a new transformer, after a breakdown there late last year.
The acquisition outlook remains unknown. Ling said Fletcher was competing with private equity for new acquisitions but provided few details.
He mentioned the possible expansion of Fletcher's Malaysian roof tile operations further into that region and his desire to see Laminex push into Asia.
"Acquisition opportunities are being evaluated," Ling said.
The company's divisional chiefs had changed lately, Ling said, noting his own role change, Andrew Reding's departure from Fletcher (where he was chief executive of the building products division) and David Worley's shift from heading Placemakers to becoming chief executive of the laminates and panels division.
"There's a new hunger with a new set of eyes," he said.
With the softer residential building and materials markets, Ling said growth this year would come from other sectors and particularly infrastructure, where the company had contracts for government businesses.
