Fletcher plans house building surge

Fletcher Building chief executive Mark Adamson says the company is preparing for a house-building surge, particularly in the Auckland area. Photo / Northern Advocate

NZX-listed construction giant aiming for five-fold increase to 1500 new homes a year

New Zealand's biggest listed company is planning a five-fold surge in house building, concentrating mainly on Auckland, where it is negotiating to buy a big site in the city's northwest.

Fletcher Building chief executive Mark Adamson said yesterday the business now builds about 300 residences annually but he is projecting an annual 1500 residences to be built.

"We've put a programme together and the challenge I had to Ken [Lotu-Iiga, Fletcher Residential general manager], Steve [Evans, its chief operating officer] and the team is a residential pipeline of 3000 to 4000 lots, drawing down on 1500 lots a year," Adamson said.

Fletcher had a land bank able to take about 1500 residences at its Three Kings quarry site and already owned the Manukau Golf Course, land at Orewa's Peninsula Golf Club and was still building at Mt Wellington's Stonefields, he said.

Fletcher appointed Evans recently but Adamson said an investigation into a house-building factory was abandoned because potential cost savings did not justify the outlay.

"We need scale and we don't think there's the size of demand for prefabs that would justify our investment," he said. "The way to reduce building costs is to do it in scale. More and more developments are of scale and that's the way to keep costs down."

Adamson also revealed $40 million building plans for the company's Penrose headquarters, planning a new single-level block to connect the seven-level Fletcher House at 810 Great South Rd to Fletcher Construction's Jack Smith House at 816 Great South Rd, providing more office space and conference and meeting rooms.

The company had repurchased Fletcher House from a Tauranga-based investor and would make the additions, then resell its HQ, Adamson said.

Fletcher yesterday announced $339 million of net earnings for the June 2014 year, up on the previous year's $326 million, and net profit after tax (before significant items) up 11 per cent on last year's $326 million at $362 million.

Sydney Deutsche Bank analyst Emily Smith said Fletcher's reported net profit after tax of $362 million was ahead of her $366 million forecast and the consensus of analysts' forecasts of $357 million but the dividend was 18c a share when she had expected 20c a share.

JPMorgan analysts Jason Steed and Keith Chau said the result was marginally above their estimates.

Earnings before interest and tax at $624 million were 2.3 per cent above their forecast.

"Lower-than-projected corporate costs and slightly better-than-predicted performances from construction and infrastructure account for the bulk of the difference. In terms of outlook, management has pointed to an expectation 'for further earnings growth will be achieved in the year ahead'," they said.

Fletcher was up to $9.17 on the NZX yesterday and A$8.34 on the ASX.

6 things about Fletcher's result

• Net earnings up by $13m annually.
• NZ the standout performer, Australia good, China and Thailand not so great.
• No big new acquisitions planned but existing operations being
fine-tuned.
• Big new house-building initiative in Auckland where 1500 residences to be built annually.
• CEO Mark Adamson's trump card, FBUnite, produced $25m annual cost savings.
• That programme to produce $100m cost savings by 2018.

See the latest Fletcher Building financial presentation here: