New Fletcher CEO Adamson to extend cost review in face of tepid outlook
By Jonathan Underhill
Aug. 22 (BusinessDesk) - Mark Adamson, who takes over as chief executive of Fletcher Building on Oct. 1, will extend the company’s strategic review of its businesses, with a particular focus on long-run steel, as it tries to drive down costs in the face of a tepid outlook for trading.
Adamson joined current chief Jonathan Ling and chief financial officer Bill Roest at an analyst briefing following the release of the Auckland-based company’s full-year earnings, which fell 12 percent before one-time charges. The company said it would need a “marked improvement” in residential and commercial construction in New Zealand and Australia to achieve earnings growth in 2013.
“I personally can’t see that based on the data we have to date,” said Adamson, who is currently chief of the Laminates & Panels division. There would be “no departure from the path we’re on” and the strategic review “will be characterised by evolution rather than revolution.”
He wouldn’t rule out “small divestments of non-core assets” but would wait until he had his feet under his desk before making any firm decisions.
But the company did signal long-run steel is headed for change after earnings tumbled 58 percent to $5 million in the year ended June 30, even as volumes rose 3 percent.
“Steel will definitely be on the horizon” for review, Adamson said. Ling added that the company “has some idea in the pot” for long-run steel. That business will “come under fairly intense scrutiny over the next year or so.”
Shares of Fletcher fell 4.4 percent to $6.37 after the results were released, showing earnings before one-time items fell to $317 million, from $359 million a year earlier.
Sales rose 20 percent to $8.87 billion, with Australian pipe maker Crane Group, acquired last year, providing the single-biggest contribution. Analysts had forecast reported profit before one-time items of $315.5 million on sales of $8.95 billion.
Net profit in the latest year tumbled to $185 million from $283 million and included $132 million of charges to restructure its Laminex business, close a Formica plant in Spain and write down the value of its Australian insulation business after the government abandoned a subsidy scheme.
In answer to analyst questions on the progress of work rebuilding Christchurch, Ling said it would be “a long, slow, hard road.” Fletcher’s home building work in the region had been running at an annual $3 billion before the quakes, with 2,000 to 3,000 homes a year.
“We’re at a fraction of that at the moment,” Ling said. “It will take quite some time before we get back even to that.”
Earnings at its Placemakers distribution chain fell 31 percent to $27 million in the latest year while sales declined 5 percent to $813 million. The weak housing market was reducing volumes through the stores and in a New Zealand market with four competitors, the battle for sales “is being fought on prices” especially with the Bunnings and Carters chains, Ling said.
“Price competitiveness is higher, or more severe than I’ve ever seen in my tenure,” Ling said. Placemakers was holding its market share “but at the cost of margin.”
New Zealand home building activity would see a modest improvement, though commercial construction wouldn’t pick up materially. In Australia, there was a risk of further decline in home building and commercial work outside of mining would “remain subdued”, Ling said. Trading in North America would be “flat to slightly positive” and no recovery was seen in Europe. China and Southeast Asia would experience growth.
Fletcher will pay a final dividend of 17 cents a share on Oct. 17, making 34 cents for the year, up from 33 cents in 2011.
Revenue from Crane, the pipe-maker Fletcher acquired last year, was $2.39 billion in its first full year, from a part-year contribution of $623 million in 2011. Crane earnings jumped to $106 million from $11 million on the same basis. The results were driven by a 31 percent jump in earnings from pipelines after it won two coal-seam gas projects in Queensland.
Building products posted an operating loss of $7 million, from a year-earlier profit of $31 million. Earnings fell across the board for New Zealand plasterboard, insulation, roof tiles, sinkware and aluminium products. It took a $74 million charge against its Australian insulation business to write down goodwill, write off stock and cut the value of its brands.
Earnings from concrete rose to $130 million from $125 million with New Zealand’s contribution unchanged at $56 million and Australia’s pipeline and quarry businesses lifting earnings by $5 million to $74 million. Construction earnings dropped 17 percent to $50 million while the backlog of construction work climbed to $1.09 billion at the end of June from $764 million a year earlier.
Laminates and panels earnings tumbled 59 percent to $65 million and included $74 million of restructuring charges. Revenue fell 4 percent. Steel earnings fell 42 percent to $48 million.