KEY POINTS:
Fletcher Building's annual meeting tomorrow could raise some thorny issues, especially over the company's ill-fated United States investment.
Matt Henry, Goldman Sachs JBWere analyst of Auckland, expects the meeting to give shareholders some guidance on future profit but he said Formica in the US had done poorly since Fletcher bought it last July for $1 billion.
About 400 people usually attend the meetings, held at The Langham, Auckland hotel on Symonds St.
Fletcher board members expected to front up to shareholders this week are chairman Rod Deane, chief executive Jonathan Ling, former chief executive Ralph Waters and directors Paul Baines, Hugh Fletcher, John Judge, Geoff McGrath, Sir Dryden Spring and Kerrin Vautier.
Sir Dryden is the oldest, aged in his late 60s, while Judge and Ling are the youngest, both listed at 54 in Fletcher's annual report. Henry ranks Fletcher a "buy' with a 12-month price target of $7.60 and a 12-month total return of 39.8 per cent.
Fletcher closed yesterday at $5.76, up 8c.
Formica's poor performance was due to market conditions which were worse than expected in North America and a failed execution of a big restructuring programme, he said.
"A marked deterioration in market conditions, particularly in Formica's three largest markets - US, Britain and Spain - will provide a significant offset to the operational improvements," Henry said.
Formica is confident it can fix its North American operating issues next year.
About 55 per cent of its revenue came from commercial work which remained relatively robust.
"House-building in the US peaked in March 2006 and has halved since then.
"It is unlikely the outlook will improve quickly; the US is tumbling towards recession with all supports weakening - house prices continue to fall, unemployment is rising and industrial production and consumer confidence are declining," Henry said.
"Goldman Sachs expects the weakness to be weighted in the sectors to which Formica is exposed: commercial [retail, warehouses] and office.
Both are highly exposed to credit availability, weak economic growth and declining prices."
Goldman estimated US commercial real estate prices could decline by 21 per cent to 26 per cent, Henry said.
In this year's annual report, Deane pointed to tough times ahead.
"We face very difficult markets in New Zealand, the United States, the United Kingdom and Spain, deteriorating markets in Australia and softening markets in Asia.
"There is little doubt that we are in for a tougher year than the one just experienced," Deane warned.
Fletcher faces a mixture of economic and market conditions which made it hard to predict the level of profitability in the June year.
* Fletcher Building's annual meeting is 10am tomorrow at The Langham, Auckland.
TOP THREE
NZ companies by market capitalisation:
Contact Energy: $4.2 billion.
Telecom: $4.1 billion.
Fletcher Building: $2.8 billion.
LING ONE OF BIG EARNERS
Jonathan Ling, the Australian who is Fletcher Building's chief executive and executive director, is one of New Zealand's highest paid executives.
He is on an annual base salary of $1,756,450, according to the company's annual report.
Short-term incentive payments of $480,000 are included in his pay and those are for achieving company profitability targets and individual performance goals.
When he became chief executive in September 2006, he got an added incentives: 500,000 options in the company's stock. The latest report says by last October, he had taken up 23,073 of those options.
"Directors are satisfied they have received independent advice that Mr Ling's terms of employment provide an appropriate remuneration package for the role of chief executive," the company said.
