Wednesday, February 13, 2008

Fletcher Building raises profit through canny management

Fletcher Building Ltd [FBU.NZ] had a profit announcement today that was "inline" with market expectations and given current market uncertainties, the share price was savaged by NZ 28c, down to $8.87 on big volume of over 2.3 million shares.


Chart for Fletcher Building Limited Ordin (FBU.NZ)

1d 5d 3m 6m 1y 2y 5y max

Today's FBU chart tells the story after
a positive result out today.



To be fair the proceeding 6 months have been excellent, with a 22% rise in net profit of $235 million and a revenue increase of 19% to just over $3.5 billion. Costs clearly have been contained when you look at those two figures and compare.

Jonathon Ling has done well at his first full year as CEO and the previous head, Ralph Walters, has structured the company in such a way that revenues are diverse and able to push the company forward during economic downturns.

All Fletcher's business units increased profit.

Looking forward, Fletcher Building has over a billion dollars worth of work on backlog in New Zealand and things look positive in the infrastructure arena where governments of both colours look to build more roads and other public works.

The likes of the proposed $2 billion plus tunnel through Helen Clark's electorate of Mt Albert and the Eden Park redevelopment for the 2011 world cup could only be handled by the likes of a company Fletcher's size, so the likelihood of them getting the bulk of those contracts is in their favour.

CEO Jonathon Ling has managed Fletcher
Building well during his first hear. His
challenge now is to try and replicate that
during tougher times.


On the downside though, residential house building is currently facing a slump, while the future for that sector looks bleak in the short to medium term. Fletchers are big residential builders in New Zealand and Australia and supply substantial volumes of building products to other big contractors and small builders alike.

The acquisition last year of American Formica Corp, for close to NZ $1 billion, seems to have folded into the mixture of Fletcher's businesses well but for a slower than expected restructuring of the business and associated costs and a 10% drop in new US housing starts having an affect on laminate sales.

It will be very interesting to see how Formica do if the downturn is as severe and as long as some predict.

In retrospect it wasn't a good time for Fletchers to buy when they did last year. The purchase price and timing of the market would have been such that a lower sticker price would have been the order of the day.

As we know though it is hard to pick markets.

I personally don't think todays announcement warranted the canning the share price took and one would have to say it doesn't bode well for the NZX during this profit season if a company can report a 22% lift in after tax earnings and have "Mr Market" knock more than 3% off company capitalisation.

I give this result a 9.5 out of ten. Good effort, excellent results and great management.


Disclosure:
I own FBU shares


Fletcher Building @ Share Investor

Fletcher House built on hard times
Fletcher Building down tools in the short term
Why did you buy that stock? [Fletcher Building Ltd]
A solid foundation for the future
Fletcher's got game


Related Reading

Fletcher Building History - Auckland University

Fletcher Building Financials


Related Amazon Reading

Project Management in Construction (McGraw-Hill Professional Engineering)

Project Management in Construction (McGraw-Hill Professional Engineering) by Sidney M. Levy
Buy new: $71.96 / Used from: $60.71
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c Share Investor 2008



The full NZX /Fletcher Building press release:


FBU
13/02/2008
HALFYR

REL: 0900 HRS Fletcher Building Limited

HALFYR: FBU: FBU Half Year Results Announcement

Name of Listed Issuer: Fletcher Building Limited

For Half Year Ended: 31 December 2007


This report has been prepared in a manner which complies with generally
accepted accounting practice and gives a true and fair view of the matters to
which the report relates and is based on unaudited accounts.
The amounts as presented have been prepared in a manner which complies with
New Zealand accounting standards which comply with International Financial
Reporting Standards (IFRS).

CONSOLIDATED OPERATING STATEMENT FOR THE HALF YEAR ENDED 31 DECEMBER 2007

Unaudited

Current Half Year NZ$'M; Up/Down %; Previous Corresponding Half Year NZ$'M

Total operating revenue: $3,547m; up 19%; $2,980m.

OPERATING SURPLUS BEFORE UNUSUAL ITEMS AND TAX: $327m; up 11%; $295m.

Unusual items for separate disclosure: 0; n/a; 0

OPERATING SURPLUS BEFORE TAX: $327m; up 11%; $295m.

Less tax on operating profit: $83; down 10%; $92m.

OPERATING SURPLUS AFTER TAX BUT BEFORE MINORITY INTERESTS: $244m; up 20%;
$203m.

Less minority interests: $9m; down 10%; $10m.

OPERATING SURPLUS AFTER TAX ATTRIBUTABLE TO MEMBERS OF LISTED ISSUER: $235m;
up 22%; $193m.

Extraordinary items after tax attributable to Members of the Listed Issuer:
0: n/a: 0.

OPERATING SURPLUS (DEFICIT) AND EXTRAORDINARY ITEMS AFTER TAX ATTRIBUTABLE TO
MEMBERS OF THE LISTED ISSUER: $235m; up 22%; $193m.

Earnings per share: 47.0 cps; up 14%: 41.1 cps

Interim Dividend: 24 cps

Record date: 21 March 2008

Date Payable: 10 April 2008

Tax credits on latest dividend: 100% for New Zealand comprising imputation
credits.

Non New Zealand tax payers can benefit from the partial refund of the New
Zealand tax credits as outlined in the attached press release.

SUMMARY

Directors today announced the group's unaudited interim results for the six
months ended 31 December 2007. Net earnings were $235 million, compared to
$193 million in the previous corresponding period. This is an increase in
earnings per share from 41 cents to 47 cents.

Operating earnings (earnings before interest and tax) and after Formica
restructuring costs of $16 million were $394 million, compared to $340
million in the previous corresponding period. The increased earnings are due
to the Formica acquisition, ongoing operational improvements and some small
acquisitions.

The interim dividend of 24 cents per share is an increase of 2 cents per
share over the previous interim dividend and is the twelfth consecutive
dividend increase by the company. Total shareholder return was negative 4
percent for the half-year, influenced heavily by the uncertainty in equity
markets internationally.

The 22 percent increase in net earnings reflects strong operating
performance, with all divisions recording higher earnings than in the
previous corresponding period. Laminates & Panels' earnings increased on a
like-for-like basis, and also benefited from the acquisition of Formica
Corporation on 2 July 2007.

The Chief Executive Officer, Mr Jonathan Ling, said: "This is a pleasing
performance which reflects the group's ability to deal with variable and
sometimes difficult operating conditions. Across our businesses, commercial
and infrastructure markets are still strong, which is best exemplified in New
Zealand with a construction backlog of over $1 billion. While there is some
weakness in residential markets and provided there is no significant change
in economic conditions, we remain comfortable with our earnings prospects for
this financial year".

Key Points

- Group net earnings up 22 percent to $235 million
- Operating earnings up 16 percent to $394 million
- Cashflow from operations up from $227 million to $245 million
- Earnings per share up from 41 cents to 47 cents
- Interim dividend of 24 cents per share with full New Zealand tax credits -
the 12th consecutive dividend increase
- Acquisition opportunities being evaluated

Contact:
Jonathan Ling Bill Roest
Chief Executive Officer Chief Financial Officer
Phone: +64 9 525 9169 Phone: +64 9 525 9165
Fax: +61 9 525 9032 Fax: +64 9 525 9032