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Fletcher posts 11% drop in first-half earnings

Wednesday 17th February 2010

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Fletcher Building posted a 10.5% decline in first-half earnings on lower sales of steel and laminates and said full-year profit will be eroded by weak commercial construction.

Net income fell to $154 million, or 25.4 cents a share in the six months ended December 31, from $172 million, or 31.9 cents, a year earlier, the Auckland-based company said in a statement today. Sales fell about 10% to $3.39 billion. The shares climbed 2.9% to $7.86 after the results, which beat some analyst estimates. First NZ Capital had forecast a profit of $135 million.

Fletcher responded to the global economic downturn by bolstering equity capital and selling under-performing assets last year. The slide in first-half earnings is milder than the year-earlier 27% slump, when demand rapidly dwindled in North America and Europe. Fletcher had $146 million cash on hand at Dec. 31 and $1.1 billion of undrawn debt facilities, giving it plenty of resource to repay the $112 million of debt maturing in the next 12 months.

“Tough economic conditions in most of the markets in which the group operates negatively impacted our results, although government stimulus measures have helped to offset the worst effects of the recession,” chief executive Jonathan Ling said in the statement.

“The group is in a very strong financial position and well placed for the future,” he said.

Full-year profit, excluding one-time items, will be $278 million to $303 million, down 11% from a year earlier, the company said. The company cut its first-half dividend to 14 cents a share as it had flagged at its annual meeting in November, down from 24 cents for the same period a year earlier.

Operating earnings from building products before one-time items rose 23% to $76 million, driven by a surge in demand for insulation products in Australia and New Zealand, where homeowners have benefited from government incentives to make their homes more energy efficient.

Demand in Australia was so strong that Fletcher was forced to import product at lower margins, though sales had started to abate toward the end of the first half as Australia tightened compliance rules. Plasterboard sales fell 15%, reflecting “continued weakness in the New Zealand residential construction market.”

Earnings from distribution fell 11% to $17 million. Infrastructure earnings sank 27% to $75 million, with weaker demand for cement and concrete products. Construction earnings will continue to be underpinned by government contracts, helping offset weaker commercial building work. As at Dec. 31, the company had a $1.1 billion backlog of construction work, of which 80% is for government contracts.

Operating earnings from laminates and panels climbed 46% to $70 million, partly reflecting a $10 million gain on the sale of a Western Australia MDF plant site and $5 million of savings from other plant closures.

Earnings from Formica jumped 67% to $10 million.Steel operating earnings tumbled 57% to $42 million, reflecting weaker prices and volumes.

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