Fletcher Building returns to profit, but no 2011 guidance

Photo / NZ Herald

Fletcher Building , the biggest company on the New Zealand stock exchange, returned to profit while warning that commercial construction remains subdued and offering no guidance for 2011.

Net income was $272 million in the 12 months ended June 30, from a loss of $46 million a year earlier, when it took one-time charges of $360 million for writedowns and plant closures. Sales fell 4.3 per cent to $6.8 billion in the latest year, the construction and building materials group said in a statement.

Chief executive Jonathan Ling described the result as "strong" given mixed market conditions. Of the company's six operating units, building products and laminates recorded a jump in earnings while profit sank in infrastructure and steel. The results included a one-time charge of $29 million for changes to tax rules on depreciation.

"Caution is required in formulating an outlook for the current year," Ling said in the statement. "With the effects of the global financial crisis still being felt around the world, there continues to be uncertainty around the timing and pace of a recovery in economic activity."

New Zealand's residential market is "expected to continue a slow and gradual recovery in new building activity, albeit remaining below mid-cycle levels" with the central bank raising interest rates likely to constrain growth in new housing starts, the company said. At the same, commercial construction activity "is expected to remain at very low levels throughout 2011" with a decreased volume of government-funded work.

Australia's rebound in residential activity is expected to continue, with strong government infrastructure spending helping to make up for weaker commercial building work. The insulation business, which suffered from the federal government's "abrupt termination" of its incentive scheme, needs to work through high inventory levels.

Trading in North America and Europe remains "uncertain" and "no recovery of significance is expected in these markets in the near term," the company said.

Markets in China, South-East Asia and Taiwan should continue growing, it said.

The company said it would provide an update on the outlook for 2011 at its annual shareholders' meeting on November 17.

Operating earnings at its building products division rose 8 per cent to $114 million, helped by growth in sales of insulation, while plasterboard and roof tile sales fell. Distribution earnings climbed to $38 million from $30 million.

Infrastructure earnings dropped to $144 million from $185 million and steel fell to $82 million from $154 million.

Property operating earnings rose to $20 million from $18 million and earnings from laminates and panels jumped to $141 million from $74 million.

Fletcher will pay a final dividend of 15 cents a share and won't offer its dividend reinvestment plan for the payment "in view of the group's strong balance sheet and low level of gearing." It paid a final dividend of 14 cents last year.

Shares of Fletcher rose 0.4 per cent to $7.21, having sunk to a 12-month low yesterday. They have declined 9.5 per cent this year.