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The party's slowing down, Waters warns

By Nick Stride

Friday 14th February 2003

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Fletcher Building chief executive Ralph Waters on Wednesday presented a triumphant first-half earnings result but warned demand for the company's products may peak this quarter.

Earnings before interest and tax (ebit) for the six months to December more than doubled to $160 million as the company reaped the benefit of strong housing starts and busy public and commercial construction schedules.

But Mr Waters said it would be a big ask to get earnings from the second half ­ traditio nally Building's strongest ­ to match the first.

The rising kiwi dollar was likely to depress local currency earnings from Australia, power price rises and supply issues were threats, and housing starts in both countries were showing signs of slowing down.

The recent outages at Maui, the country's largest gas field, had forced Building to shut down its steel mill and the Taupo wood panels operation on several occasions. "I don't look forward to the next two or three years of this, if this is what we're going to see for industry," Mr Waters said.

While housing consents might peak this quarter, he said, the effects on Building would not show through until the next financial year as the company supplied materials during the actual construction phase. Laminex, the Australian building products division bought for $750 million last October, contributed ebit of $8 million.

Mr Waters said Building had assumed full-year earnings before interest, tax, depreciation and amortisation of $90 million when negotiations to buy the company were taking place.

The owners insisted $105 million was possible and Building agreed to pay a top-up $20 million if $95 million was achieved. Mr Waters said he fully expected it would be.

He also emphasised the strength of Building's balance sheet. While some analysts had concluded the Laminex acquisition would leave Building "a bit stretched," interest cover following last year's capital raisings was 8.8 times, compared with 5.8 times pre-Laminex.

The building products division contributed ebit of $66 million, concrete $44 million, and distribution $25 million. Construction added $16 million.

Mr Waters said Building was now earning double its cost of capital, accounting for the recent strong rise in the share price.

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