Fletcher Building brings home bacon

By Nick Stride

Friday 13th February 2004

If Fletcher Building chief executive Ralph Waters comes knocking with a chequebook in his pocket watch out.

The company this week turned out another record net profit ebit (earnings before interest and tax) up 35% to $216 million and confirmed full year ebit would exceed $400 million.

The result included a full six months from Australia-based Laminex and three months from Tasman Building Products, acquired 10 months later in September 2003.

Both acquisitions initially spooked the market partly because of New Zealand companies' dire track record for Australian expansion, and partly because they were bought "at the top of the cycle."

Both, however, have turned in earnings that exceeded even Mr Waters' fondest hopes, making the prices paid look positively niggardly. Tasman's contribution was more than double what was assumed for the acquisition proposal.

The latest result, he said, would have been better still had several divisions not been running up against capacity constraints.

However, these would insulate the company from earnings damage when he conceded it is no longer a matter of if the house building boom on either side of the Tasman slows down.

Tasman, for instance, makes lightweight steel roofing tiles that are in hot demand in Japan but Fletcher Building can't deliver the volumes needed. If Australian demand falls off, Japan will fill the gap.

A similar situation applies to the South Australian sink-exporting business, which can't meet demand from the US.

Mr Waters said the focus for the second half was reducing costs in anticipation of the slowdown.

But no decisions had been taken and, he insisted, the media should dwell instead on the company's strong position.

"Not too many building materials companies are making a 23.6% return on average equity.

"Our pre-tax cost of capital is around 13.5%."

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