Fletcher full-year profit rises 4% as currency impact, charges mask earnings growth
By Jonathan Underhill
Aug. 20 (BusinessDesk) - Fletcher Building, the biggest company on the NZX 50 Index, posted a 4 percent gain in full-year profit, saying strong underlying earnings growth was masked by the impact of a high kiwi dollar and one-time charges against assets sales.
Profit was $339 million, or 49.3 cents a share, in the 12 months ended June 30, from $326 million, or 47.6 cents,a year earlier, the Auckland-based company said in a statement. Sales fell 1 percent to $8.4 billion, in line with a forecast from brokerage Forsyth Barr. The shares slipped about 1 percent to $9 after the results were released and have fallen 6.8 percent this year.
The construction and building products company is benefiting from rising construction activity, including rebuilding work in Canterbury and demand for the company's housing developments. By contrast in Australia, conditions "remained mixed" in the latest year, with a pick-up in home building offset by flat commercial construction, less state government spending on infrastructure and weaker resource sector spending. Fletcher is partway through its FBUnite programme to wring out cost savings and expects to lift earnings in 2015.
“We would have met the top end of our guidance range had the New Zealand dollar not strengthened the way it has over the past year," said chief executive Mark Adamson. In New Zealand "volumes tracked the strong activity levels experienced across the residential, commercial and infrastructure sectors," while volumes stabilised in Australia and "operating earnings in the second half in Australia were higher than for the same period in the prior year."
Fletcher expects a continuation of strong activity levels in New Zealand in 2015, while in Australia it saw improvement in those businesses exposed to home building, a modest improvement in commercial construction and subdued engineering activity.
"It is expected that further earnings growth will be achieved in the year ahead, with a strong construction backlog in New Zealand and further benefits from FBUnite," it said.
The company said the decline in revenue included $428 million due to adverse foreign exchange movements, which more than offset a $312 million gain in underlying sales growth. In local currency terms, sales rose 2 percent in Australia and 5 percent in the rest of the world.
Operating earnings before interest and tax rose 4 percent to $592 million and included $32 million of charges on the sale of the company's Pacific Steel facilities in Otahuhu, Auckland, its Fijian rolling mill and cement businesses and its Hudson Building Supplies unit in Australia to reflect the gap between sale proceeds and carrying values.
Sales at the company's infrastructure products division, which includes cement, concrete, aggregates, pipes, copper tube and steel, fell 2 percent to $2.05 billion, while operating earnings at its biggest business fell 6 percent to $209 million, reflecting $20 million of one-time charges.
Building products recorded a 5 percent decline in sales to $1.29 billion while operating earnings gained 11 percent to $135 million, which it attributed to economic recovery in New Zealand and efforts to fatten margins. Laminates & panels posted a 2 percent decline in sales and a 3 percent gain in operating earnings to $124 million.
New Zealand distribution, which covers the PlaceMakers stores and Mico Plumbing, lifted sales by 2 percent to $1.17 billion and increased earnings by 21 percent to $51 million, after opening two PlaceMakers branches and reporting a pickup in volumes. Australian distribution sales fell 7 percent to $927 million and operating earnings dropped 38 percent to $5 million as one-time charges of $12 million offset a $113 million gain in underlying earnings.
In Australian dollar terms, sales rose 5 percent and operating earnings fell 17 percent.
Construction sales rose 5 percent to $1.26 billion and earnings gained 21 percent to $105 million. The company had a record construction backlog of $1.8 billion at June 30, from about $1 billion a year earlier.
The company will pay a fully-imputed final dividend of 18 cents a share, up from 17 cents a year earlier.