Scoop has an Ethical Paywall
Work smarter with a Pro licence Learn More

Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

UPDATED: Fletcher to cut costs, protect margins in 2015

UPDATED: Fletcher cost cutting, margin protection to help drive 2015 earnings growth

By Jonathan Underhill

Aug. 20 (BusinessDesk) - Fletcher Building is counting on cost savings and a backlog of construction work in New Zealand to help drive earnings growth in 2015, which started from a lower base after the sale of assets and completion of major contracts.

The biggest company on the NZX 50 Index is coming to the end of its Stonefields residential development in Auckland and its Earthquake Recovery programme in Christchurch. At the same time, it won't have earnings from Pacific Steel or Australia's Hudson Building Supplies, sold in the latest year. All up earnings before interest and tax from continuing operations start at a base of $583 million in 2015, down $41 million from 2013.

Profit in 2014 rose 4 percent to $339 million, even as sales fell 1 percent, and Auckland-based Fletcher said earnings growth would have been greater if not for $428 million in adverse foreign exchange movements, which more than offset a $312 million gain in underlying sales.

The company sees further earnings growth this year, helped by some $25 million from its FBUnite programme, which is cutting costs though centralised procurement, property, financial services and IT. Total benefits of the programme are expected to be $100 million by 2018. The company will also benefit from a construction backlog that reached a record $1.8 billion as at June 30. Fletcher needs to lift activity because its pricing isn't keeping pace with inflation.

Advertisement - scroll to continue reading

Are you getting our free newsletter?

Subscribe to Scoop’s 'The Catch Up' our free weekly newsletter sent to your inbox every Monday with stories from across our network.

"It's going to be tough. We're not predicating earnings growth on price," chief executive Mark Adamson said on a conference call. "We will continue to prevent margin erosion of pricing."

Adamson expects to see "continued improvement from all business units in New Zealand" and a stronger performance in Australia, which showed a pickup in the second half of the year with a jump in Ebit to A$86 million from $68 million in the first half. While the components may change, similar Australian growth could be achieved in 2015, he said.

Sales fell 1 percent to $8.4 billion across the group and even its strongest market of New Zealand revenue growth was only 5 percent, although Adamson said that partly reflected the lag effect with the build up of construction contracts from a historically low level of demand.

Operating earnings before interest and tax rose 4 percent to $592 million in 2014, or $624 million excluding $32 million of charges, beating analyst expectations of $622 million. On that basis, analysts had been expecting earnings of $694 million for 2015, meaning Fletcher needs to grow earnings by some $70 million or lower expectations when it gives guidance at its annual meeting later this year.

"That's a big kick-up when you're starting from a base that's $40-odd million lower," said Rickey Ward, NZ equities manager at JBWere New Zealand. "It is still highly competitive in some of its sectors" and earnings gains appeared to be the result of "cost out and efficiency in the business."

The shares rose 0.6 percent to $9.14 on the NZX and have gained 7.4 percent this year, just behind the NZX 50's 8.7 percent gain. Before today's announcement the stock was rated a 'hold' based on the consensus of 10 analysts, with a median price target of $9.70.

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.

“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," Adamson said in releasing the results. 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."

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.

(BusinessDesk)

© Scoop Media

Advertisement - scroll to continue reading
 
 
 
Business Headlines | Sci-Tech Headlines

 
 
 
 
 
 
 
 
 
 
 
 

Join Our Free Newsletter

Subscribe to Scoop’s 'The Catch Up' our free weekly newsletter sent to your inbox every Monday with stories from across our network.