Production up in Fletcher's China plant

Fletcher Building says its 5ha Formica plant is the largest factory investment by a New Zealand company in China and can produce 45 million square metres of laminate a year.

Formica factory employing 300 people and filling Europe and China demand.

Fletcher Building's new $77 million hi-tech Formica Group plant in China is running at close to half-capacity, two years after it opened.

The plant is in Jiujiang, a city of about 4.6 million people a 90-minute flight inland and southwest of Shanghai.

Fletcher's investor relations general manager, Philip King, said it was yet to reach half capacity because it had been running for only about 17 months.

"It's approaching 50 per cent capacity utilisation," he said. "It's still very early days."

The plant with an indoor floor area of 5ha was officially opened in November 2013, although it was turning out initial products in September of that year.

At the time of its opening, Fletcher said the plant was the largest factory investment by a New Zealand company in China.

It houses 10 production presses capable of producing 45 million square metres of laminate annually.

Fletcher says the factory is the only facility in China able to produce high pressure 14ft by 6ft, for which there is high demand from China and Europe.

The local government supported Fletcher's development, making land available, and providing the roads, gas and electricity services for the project. About 300 people work at the plant, making materials for kitchens, benchtops, cupboards, tables, doors, walls, desks, furniture and cabinetry in a market becoming increasingly sophisticated.

The plant is one of the largest of the American-headquartered Formica, and doubles the company's capacity in China.

Formica has been in China for more than 20 years and last decade built a new plant in Qing Pu, on the outskirts of Shanghai.

Fletcher chief executive Mark Adamson said China was a global player in production, consumption and export of decorative materials.

The new Jiujiang plant set a benchmark for sustainable production in the decorative materials industry, he said. On Wednesday, Fletcher reported a December half-year net profit after tax of $114 million, down from $154 million, although revenue was marginally up.

It referred to a fall in demand in China when it reported on its international laminates and panels business.

"Revenue in Asia was up 4 per cent in domestic currencies," it said in a review. "However operating earnings were down 35 per cent."

Earnings had been affected by competitive pressure on margins from slowing demand and market activity in China as well as the cost of increasing operations at the Jiujiang plant.

Nikko Asset Management portfolio manager Michael Sherrock said that was what he expected.

"Strength in the New Zealand business was no surprise," he said.

"The Australian result was weak and the leverage really shows with revenue down 3 per cent and earnings off 34 per cent in local cur-rency.

"Fletcher has guided towards the bottom of its earnings range, and to get there it needs to deliver $360 million ebit in the second half.

"While achievable it will be a risk given what is happening within a number of its Australian businesses exposed to the resource sector and infrastructure spend," he said.

UBS has a buy on the stock up to $9.75, but said the result from plastic pipes was particularly poor although New Zealand earning's strength offset that.

"The flagging of future write-downs and a soft Australia outlook will probably worry investors," it said.

"Key risks to Fletcher earnings include domestic residential and non-residential construction cycles in New Zealand and Australia. Other risks include integration risk relating to acquisitions, exchange rate movements and selected commodity price movements."