Fletcher Building chairman Ralph Waters. Photo / Jason Oxenham
Fletcher Building has forecast an 11 per cent operating earnings uplift by as much as $66 million this financial year but some shareholders still expressed dissatisfaction at yesterday's AGM in Auckland.
Ralph Waters, retiring chairman, told about 200 shareholders at Eden Park that earnings before interest, tax and significant items was expected to be in the $650 million to $690 million range for the June 2015 year, up 11 per cent from $624 million in the June 2014 year.
Waters says the company will focus on further investment, not repaying debt and Mark Adamson, chief executive, told how 300 houses built annually will be trebled.
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"While there is potential to further reduce gearing, we will prioritise investing in the growth parts of our business rather than simply further reducing debt, given we already have a conservative balance sheet," Waters said.
Adamson said a cost reduction programme had delivered $25 million in benefits. But one of his priorities was pursuing "organic growth across our businesses" and he said that had been achieved via market share growth, margin expansion, innovation and geographic expansion.
"We are creating a pathway to an annual rate of 1000 homes sold each year.
"To meet this goal we need to increase our investment in land and we have successfully negotiated a number of land purchases in the past year."
A shareholder, Lynne Webber, raised concerns at the meeting.
"I don't think Fletcher Building has performed well," Webber said, referring to its 2005 statistics.
While the asset base had doubled since then, earnings per share had fallen from 77c to 49c and she encouraged the board led by incoming chairman Sir Ralph Norris to examine its strategy.
Waters said her observations were accurate and Fletcher once had returns of more than 20 per cent but the global financial crisis had taken its toll, those big returns could not continue and he indicated issues with the Formica and Crane acquisitions.
"We have had two acquisitions that didn't meet the returns we thought they would and they have lowered the returns we would like," Waters said.
"We made two acquisitions that didn't quite meet the economic case on which the acquisitions were made.
"The first was Formica and then we had 2008 [global financial crisis] on our doorstep," he said.
"The second was Crane. We have not really had the economic circumstances in Australia that we predicated that acquisition on."
Adamson and his senior management team had spent an enormous amount of time on the Crane business "and we're seeing results of that", Waters said.
Webber also said payments to top executives were continuing to rise but Waters defended the pay and said PwC provided extensive consultation on remuneration. Other shareholders expressed concern about the share price, low returns, lack of improvement in productivity per employee and a lack of investment in marketing Fletcher's brands.
But Waters said marketing had nothing to do with the share price and shareholders had enjoyed a 60 per cent return in the last two years - 9 per cent in the June 2014 year and 51 per cent return in the June 2013 year.
Fletcher continued to out-perform its peers, he said.
Des Hunt of the Shareholders Association asked about Fletcher's geographic spread in Australia and how it coped with different state regimes but Waters said the company was fairly evenly spread across the country.
• Chairman Ralph Waters retires, Sir Ralph Norris takes over.
• Company forecasts operating earnings up from 2014's $624m to $690m.
• Shareholder returns 60% over 2 years: 9% last year, 51% previous year.
• Canterbury housing rebuild due to finish early next year.
• By around April, 70,000 places will have been fixed.
• Construction backlog was $1b, now $1.8b.
• Organic growth planned, growing existing businesses.
• 300 new house-build to balloon to 1000 places annually.