Fletcher aims to build on record

Reliance on housing has been reduced as the company goes on the acquisition trail

As it delivered yet another record result yesterday, Fletcher Building signalled it could continue to grow profits despite a slowing economy.

The company reported net earnings increased 9 per cent from $347 million to $379 million in the year to June.

New chief executive Jonathan Ling predicted the strength of the non-residential construction and infrastructure markets in New Zealand and Australia would enable "another satisfactory result" next year.

Ling said Fletchers had a three-pronged strategic agenda, focused on earnings reliability, internal and external growth. To achieve earnings reliability, it would continue with its geographic and sector diversification.

About 40 per cent of Fletchers' revenue came from outside New Zealand and it would continue to expand its infrastructure, non-residential and commercial activities, to decrease its dependency on the housing market, Ling said.

Fletchers would spend about $300 million in the next year on internal investments.

Ling and outgoing chief executive Ralph Waters said that though no major buys had been made in the last 12 months, that was about to change.

Fletchers was looking in New Zealand, Australia and elsewhere to expand the business, Ling said.

The best-performing division was infrastructure, where earnings rose from $196 million to $255 million, followed by building products ($227 million to $235 million) and laminates and panels ($107 million to $116 million).

Earnings dropped in distribution (which holds the PlaceMakers retailing network) from $81 million last year to $75 million.

The 7 per cent drop was blamed on the slowing residential markets and heightened competition in New Zealand.

But Waters defended any criticism of PlaceMakers or its result.

"That $75 million is about a 60 per cent return on funds and I challenge people to find a distribution business around the world of this size with returns that high. It's a result we're more than happy with," he said.

Infrastructure's sales and earnings increased for the fifth consecutive year. Sales were up 27 per cent to $1.8 billion and operating earnings rose 30 per cent to $255 million. The major upgrade at Golden Bay Cement would be finished next month but sales volumes were already up.

Fletchers' revenue of $5.5 billion, up from last year's $4.6 billion, included a full year's contribution from the Amatek group for the first time. Operating earnings (before interest and tax) were $675 million, up on last year's $612 million.

Directors approved a dividend increase from 32c to 40c, the ninth consecutive dividend increase.

Analysts yesterday said the result was slightly better than expectations, and showed how diverse Fletcher had become and how its earnings base now allowed it to weather downturns in sectors such as housing.

They were particularly heartened by the performance of infrastructure, saying it was now clear Fletcher had steered its future away from housing and more towards building big government jobs, working on roads, bridges and hospitals.

They expected the increasing diversification into infrastructure to help push up next year's earnings.

Fletcher Building shares closed at $8.51 yesterday, up 2c.