KEY POINTS:
Fletcher Building is still on the hunt for new acquisitions, chief executive Jonathan Ling said yesterday as he delivered another record result.
Fletcher announced it had pushed up net after-tax profit by 28 per cent, from last year's $379 million to $484 million.
Ling said the company was
now on the lookout for "bolt-on" acquisitions to existing operations.
This comes after the $1 billion buy announced in May of United States laminate company Formica Corp which lifted Fletcher to the world number one spot in laminates production and sales.
The perceived risk around new acquisitions was probably one reason the market reacted so negatively to the strong result, said Macquarie Equities investment director, Arthur Lim.
Fletcher Building shares dropped 42c yesterday to close at $12.18.
There were also concerns about the flattening of the New Zealand building market, which still accounted for about half of revenue, Lim said.
Fletcher Building's board said it would make another "satisfactory" result next year but it was too early to predict how much.
This year's result does not include earnings from Formica because the deal only settled last month, Ling said. But Formica's acquisition and synergies achieved with the integration of the Laminex business would have a positive impact on earnings per share.
The result did include insurance payouts from the fire at its Taupo medium-density fibreboard plant and power failure at Pacific Steel, and a $70 million one-off tax benefit previously advised to the market. Excluding unusual items, group after-tax net earnings were up 5 per cent to $399 million.
Analysts had forecast Fletcher would make $462 million to $493 million and Forsyth Barr had a target price on the shares this week of $14.45, even though they were trading at $12.50 at the time.
Ling said Fletcher still had the ability to buy more businesses because its debt-to-equity ratio was just 41.3 per cent and the balance sheet was strong.
"Our main focus is Formica but if new opportunities arose, we would take them. We've only owned Formica for five weeks," he said.
Bill Roest, Fletcher's chief financial officer, said the high dollar had hurt the business, particularly when funds were translated from Australian to New Zealand dollars. But hedging had given the company some protection.
Ling said 67 per cent of Fletcher's profit had come from New Zealand but that would soon sink to under 50 per cent after the Formica buy.
This year's earnings lift had enabled the company to make its eleventh consecutive dividend increase and shareholders would get 45c a share, up from last year's 40c. Total shareholder returns for the last year were 42 per cent, Ling said.
Boston Consulting Group had ranked Fletcher New Zealand's "top value creator" for delivering what it called a stand-out performance.
Ling said Fletcher's exposure to diverse markets was a plus, with businesses in Australasia, Europe, North America and Asia. "The balance of exposures between different geographical regions and market sectors is serving us well," he said.
By 2009, Fletcher will open a roof tile plant in Hungary, Ling said. Through Formica, Fletcher also had a big presence in Spain, Britain and Finland.
The international credit squeeze and potential decline of private equity's influence after the US mortgage market's slump would not harm Fletcher, he said. About 70 per cent of Formica's business was in the commercial sector and just 30 per cent in residential, he said.
"Its dependence on new houses is relatively small," Ling said.
Although most divisions pushed up earnings, results from building products and steel were down. Ling blamed the building products earnings drop on flat conditions in the residential market here and the ongoing decline of building activity in Australia. The high dollar had hurt margins on exports from the AHI Roofing plant in Auckland.
The drop in steel came from an unprecedented rise in scrap raw material input costs and the high kiwi. But Ling said the announcement that this division had bought Fair Dinkum Homes and Sheds of Australia marked a significant investment.
BUILDING BLOCKS
* Fletcher Building employs 20,000 people globally
* NZ's second-largest company after Telecom
* Europe, Asia, North America and Australasian bases
* Market capitalisation of $6.1 billion
FLETCHER BUILDING
12 months to June 30
Revenue
2007 - $5.9b
2006 - $5.5b
Ebit
2007 - $859m
2006 - $854m
Net profit
2007 - $484m
2006 - $379m
Dividend
2007 - 45 cps
2006 - 40 cps
Auckland or Melbourne plant to go
Fletcher Building is on the verge of closing one of its large laminate plants, laying off about 100 staff.
Jonathan Ling said yesterday the company would soon shut either its Auckland or Melbourne plant. No decision had yet been made which plant would go.
The move comes just after Fletcher announced last week it would close its Penrose hardboard and softboard plant which is unprofitable and needs a $3 million to $4 million upgrade to control offensive odours. About 65 staff work there.
Ling told the Business Herald of the imminent high-pressure laminate plant closure before yesterday's results presentation and said it was part of a wider company strategy to review businesses.
Fletcher will not re-build its Taupo medium-density fibrebroard plant which burnt down last year and was a major employer in the area. The company already makes high-pressure laminates in Asia. Ling said the labour savings and volumes of production from Asia made rationalisation inevitable.
