Tuesday 21st October 2014
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Fletcher Building wants to triple the pace of home building in New Zealand to capitalise on strong demand for housing, particularly in Auckland and Christchurch, the construction and building materials company told shareholders at their annual meeting.
Auckland-based Fletcher has historically built and sold around 300 houses a year and has now set a goal of achieving an annual rate of more than 1,000 homes sold each year, it told shareholders in Auckland. It will broaden the types of homes it offers from apartments to terrace houses to stand alone dwellings.
“To meet this goal we need to increase our investment in land and we have successfully negotiated a number of land purchase in the past year,” said chief executive Mark Adamson.
The company was mindful it needed to generate strong returns from its residential division through the cycle and the prices paid for the property it had purchased were at valuations which it believed were “prudent” and would allow requisite returns to be generated, he said.
It is also pursuing partnership opportunities with government agencies to improve the quality of social housing.
Departing chairman Ralph Waters said the earnings outlook for the 2015 financial year was a forecast of earnings before interest, tax and significant items to between $650 million and $690 million. Operating earnings were expected to be broadly flat in the first half of the financial year second half were expected to be significantly ahead.
The company came under fire from some shareholders over the lower return they received last year and a downturn in company performance since 2005.
Waters said the company has faced substantially more competition since 2006 and the global financial crisis had also had an impact but he admitted they had made two acquisitions – Formica and Crane – which didn’t meet the expected returns the decision to buy them had been made on.
“They’re both going to be valuable assets in the long-term. The early implementation work on Crane was not as good as it should have been but Mark and his team have spent an enormous amount of time in Australia on Crane in the past year.”
Following the first three months of trading in the new financial year, the company has seen continued volume growth and improved trading results, although monthly results were volatile, Waters said.
In New Zealand, strong activity levels from last year were expected to continue with the positive trend in residential housing consents in the second half of last year likely to flow through to housing construction, he said. However in Australia the outlook is more patchy with residential housing consents positive but non-residential less rosy. Waters said the company didn’t expect a marked improvement in commercial construction in the next year with declining private sector mining investment and relatively low levels of government expenditure on core road and rail projects.
The company also expects a moderation in the rate of increase in new housing construction in North America and a sustained upturn on commercial construction activity, the biggest driver of Formica’s revenues, remained elusive, he said.
The business transformation programme, FBUnite, delivered $25 million of benefits in the past year, offset partly by increased operating costs of $10 million, and it is expected to deliver a further $25 million reduction in costs in the current financial year.
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