Houses keep Fletcher on firm footing

Bill Roest. Photo / Michael Bradley

International house-building markets have strengthened for Fletcher Building but the immediate outlook for non-residential work is weaker, the company says.

Bill Roest, chief financial officer, gave an update to international investors showing how New Zealand's largest listed company had enjoyed better residential markets here, in Australia and the United States.

New US house-building rose from 430,400 houses/units in the June 2009 year to 508,700 in the June 2010 year, in Australia from 132,968 to 166,029 and in New Zealand from 14,175 to 16,022.

But non-residential building work in the US was down in the same period from US$131.9 billion ($180 billion) to US$110.7 billion. In Australia it was up marginally from A$32.9 billion ($42 billion) to A$35.6 billion and in New Zealand from $6.2 billion to $6.3 billion.

Roest also showed how half Fletcher's earnings come from New Zealand, an aspect chief executive Jonathan Ling is keen to change by shifting the balance towards Australia and Asia for better earnings reliability.

The highest number of Fletcher investors (30 per cent) are in Australia.

Philip King, Fletcher investor relations general manager, is travelling with Roest to Australia, Singapore, Hong Kong, Europe and North America, going to conferences, updating major institutional investors and promoting the business to new investors.

Macquarie in Asia, Goldman Sachs in London and Merrill Lynch in the United States and then the international headquarters of Fletcher subsidiary Formica in Ohio are on the agenda.

Fletcher has a 53 per cent exposure to residential markets, 29 per cent to commercial and 18 per cent to infrastructure.

Fletcher has 16,000 employees, a market capitalisation of about $4.5 billion, is ranked first on the NZX, 62nd on the ASX and has $6.7 billion in annual revenue, the bulk from infrastructure (30 per cent), laminates and panels (28 per cent), steel (17 per cent), PlaceMakers (13 per cent) and building products (12 per cent).

Roest told how the emissions trading scheme was extended to cover industrial and transport from July 1.

"Most of our operations that merit CO2 from fossil fuel combustion do not directly participate in the scheme but are subject to higher energy costs, passed on by energy suppliers. Our cement and steel manufacturing operations operations are direct participants in the ETS because of process emissions and emissions from imported coal .

"These operations also meet the threshold tests for emissions-intensive, trade-exposed industries. Both will receive a free allocation of emission units, to partly offset their increased costs. Overall the ETS will impose a small additional cost on New Zealand operations," Roest said.

Caution was required in formulating outlook for the June 2011 year. New Zealand had a slow recovery in residential building activity but its commercial construction activity was expected to remain at very low levels, Roest said.

Australian residential building activity was expected to be sustained and commercial markets there were likely to remain subdued.

Gradual improvement was likely in North America and Europe. Most Asian markets had reasonable growth prospects, he said.

Fletcher shares closed up 11c at $8.36.

Fletcher earnings:

* NZ: 50 per cent
* Australia: 31 per cent
* North America: 7 per cent
* Europe: 6 per cent
* Asia: 4 per cent
* Elsewhere: 2 per cent

Fletcher shareholders:

* Australia: 30 per cent
* NZ: 23 per cent
* Retail: 19 per cent
* North America: 16 per cent
* Europe: 6 per cent
* Asia: 5 per cent

- Source: Investor presentation, September 2010, Fletcher Building