Fletcher Building to spend up as constraints bite

By Nick Stride

Friday 13th August 2004

Fletcher Building plans to spend hundreds of millions expanding and upgrading its capacity to meet booming demand.

"A number of our key businesses are capacity constrained," chief executive Ralph Waters said at a results briefing on Wednesday.

"We can invest in our own expansion, we don't have to make acquisitions."

Investments expected to be approved would total "$100 million more than depreciation," which last year came to $111 million, "although that will be spent progressively over this and subsequent years as the projects are completed."

The company is negotiating to buy a roofing tile maker in Malaysia and said increasing Asian exports might prompt it to strengthen its distribution there. If made, the acquisition will expand capacity by 70%.

The first stage of the $70 million Golden Bay Cement upgrade was commissioned in July and the remainder is expected to be complete by July next year.

Golden Bay experienced the highest demand ever last year and Fletcher Building had to import 100,000 tonnes of comment. Capacity will be expanded 25%.

Waters said the company would earn higher margins once output from the upgraded capacity replaced imports.

The Placemakers distribution outlets are also being upgraded.

Another insulation line will be added in Australia at a cost of $10-15 million, expanding capacity by 30%.

Tasman Building Products, which the company owned for nine months of the year, contributed ebitda (earnings before interest, tax, depreciation, and amortisation) of $56 million on an annualised basis.

Waters said the purchase price of $272 million was 4.8 times that figure.

"Obviously the vendor didn't expect it to do this well. We didn't expect it to do this well."

Waters' slide presentation predicted residential construction in Australia and New Zealand will slow this financial year the word "will" was underlined.

The apparent strength of the June building consents data was misleading. The introduction by several councils on July 1 of a significant "development consent charge" had pushed forward a number of consent applications.

Despite the housing slowdown, compensating strength in non-residential construction and the restructuring of the company over the last few years to make it more resilient in a downturn, led Waters to predict the 2005 profit would match last year's $240 million.

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