NZ share of Fletcher profit seen to fall to near 50%

By NZPA

Wednesday 8th August 2007

Fletcher Building is expecting the New Zealand share of its profits to drop to close to half the total in the coming year, as a result of the purchase of Formica Corporation.

The company today reported group net earnings, excluding unusual items, up 5% to $399 million for the year to the end of June.

Total net profit after tax and minority interests was up 28% to $484 million, with the $105 million increase from the previous year including a $70 million tax benefit, and insurance from a fire at an MDF plant in Taupo.

Revenue for the year was up 7% to $5.93 billion.
Chief executive Jonathan Ling said Fletcher had demonstrated its geographic and product diversification strategies continued to deliver improved earnings in softer and tougher markets.

Despite that, 67% of operating earnings, before unusuals, came from this country in the latest year, up from 65% the previous year. Australia accounted for 31% of operating earnings in both years.

When he announced the Formica purchase in May, Ling said it provided Fletcher with the opportunity to establish a truly global laminates platform, and to significantly increase the geographic diversity of Fletcher's earnings exposure.

The Formica acquisition for a little over a billion dollars was completed on July 2, and it would generate a little over a billion dollars in revenues, Ling said today.

As a result of the acquisition he expected the share of Fletcher's profit out of this country to drop to a percentage in the low-50s, while the share from Australia stayed the same, with the balance from Asia, Europe and North America.

And while Fletcher's main focus for now was Formica, if new compelling opportunities for acquisitions were to arise, he would be interested, he said.

Formica had a strong business in Europe with factories in Britain, Spain and Finland and distribution centres throughout the continent.

"If opportunities were to emerge that were a bolt-on, or an add-on, to that particular business, yes of course we'd look at those quite carefully," Ling said.

Fletcher was "well armed" to take advantage of acquisition opportunities, with its debt to debt plus equity ratio at 41.3% following the Formica purchase. That was at lower end of Fletcher's 40 to 50% target range.

While it was too early to make a prediction for results in the current year, he expected them to be satisfactory.

"Even though the markets in which we operate are cyclical, we have a culture of not going backwards and we certainly believe that culture has served us well in past years and we don't see any key differences in the current year," he said.

Residential markets in Australia and New Zealand were expected to continue to soften, on top of softening in the past two years.

Non-residential and infrastructure markets would be flat but at reasonably healthy levels.

For Formica, it was expected Europe and Asia would continue to be strong, as they had been in past year or so, while there would be some weakness in the US.

Fletcher announced a 23 cents per share final dividend, with full tax credits in this country and Australia. That takes the total dividend for the year to 45cps, a 13% increase on the previous year's 40cps.

Fletcher Building shares were down 21c to $12.39 around 2pm today, having ranged between $8.25 and $13.42 in the past year.

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