Fletcher Building : A solid foundation for the future

Fletcher Building Ltd's [FBU.NZ] results today were solid and as expected.

The after tax profit of $NZ 484 Million Dollars represents an increase of 28% over 2006 and excluding abnormals $399 M , representing an increase of 5% over last years $379 M.

All divisions showed strong growth except building products and steel and total revenue increased 7% to almost 6 Billion.

The recent purchase of the Formica Corporation looks to add to the strong showing in coming years, that Fletcher expects from their laminates and panels division which this year showed excellent growth.

The current slowdown in housing will affect FBUs' profit growth over the next few years, as wasteful Government spending comes home to roost with the resultant effects of high interest rates meaning less spending on house renovations and new home building.

Other Fletcher divisions look likely to help bolster profit going forward though.

Infrastructure spending on New Zealand roads, public transport and the Auckland Football Stadium are set to help FBU smooth out probable drops in other areas. With little sign of infrastructure spending showing a slowdown this division will likely be the star over the next 2-3 years.

Commercial construction will also likely take up some of the slack left by lower housing starts.

The general election will have a material effect on profit for Jonathan Ling and his management. It is likely that a probable National Government in 2008 will allow more Kiwis to keep their own money due to lower taxes and this will clearly stimulate a tired and crumbling economy.

Management have been diligent in keeping costs down while helping allay possible divisional downturns by broadening Fletcher's focus. With a now larger footprint offshore and a more multifaceted local offering FBU will be able to smooth out the normal economic cycles that the building sector has.

The outlook for the coming year profit wise looks good for a moderate increase barring any major meltdown of the global economy.

FBU shares were down by more than 3% today.


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]
Fletcher Building raises profit through canny management
Fletcher's got game


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• Related Securities
• Half Year Results Presentation.pdf ( 1.00 KB )
  

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c Share Investor 2007

Fisher & Paykel Appliances: In a Spin over nothing

Given the recent increase in the Kiwi dollar since this article about Fisher & Paykel Appliances [FPA.NZ] was written in May and published elsewhere, I thought I would update it.

In May the scenario was as follows.

So Fisher and Paykel(FPA) are moving their NZ washing division to Thailand and closing down their operation in South Auckland. So what.

It is very sad that semi-skilled workers in a low wage area no longer have work and that a New Zealand company long imbued with a kiwi badge will now be slapped together by a man or woman that may have paddled a boat or cycled to to work. Is it really a surprise or something out of the ordinary? Well, quite frankly no.

While the left of Lenin media and every two-bit polly and union rep have a go with their own wide of the mark opinion, blaming the F & P move on a high dollar and high costs the fact is that F & P have never been competitive but are now being forced to by the market reality of cheap well constructed and better designed appliances coming from the very places that Fishers are now moving to.

There may be incentives layed at the feet of companies like F & P to go to far flung areas where labour is cheaper than a life but it is just a market reality that this kiwi company has finally faced. You cannot compete with huge white ware companies on the small scale that F & P do. You are either a niche player with a product that commands a premium and those days are now over for Fishers or you ramp up production and compete on cost. F & P don't have scale so they will struggle in that market as well.

It is a natural progression in any capitalist nation for a business to want to cut costs at every opportunity. If that means moving the business to another town or across the world to another country then must needs must.

While it is clear that Government has driven up the dollar with wasteful and profligate spending it is also even clearer that govt could do one thing to not only keep current industry here but bring more manufacturing from abroad. No tax breaks from govt lackeys trying to pick winners, no incentives for this and that. Cut corporate tax to 10%.

The Irish have found for the last 10 years that this works. In a similar sad position themselves, as we are now, 1 million kiwis living overseas and the same amount on welfare, the far scattered Irish came back home and the success of their economy is the stuff of legend.

The moaners need to stop moaning. Central and local govt need to butt out of business and that means stealing well needed capital through high taxes and compliance costs must end. Govt is not the answer to the problem here ,it is the reason

It would behove the mass business media to focus on the real story here. The answer is not more welfare, this time for business, the answer is lower costs, regardless of a "high dollar".


Three months on, in August, Fisher and Paykel's share price has dropped further and margins will have been squeezed even more.

The good news for the company though is that the factory in Thailand will be closer to completion and therefore we will see a more competitive base for them to compete with the high volume producers.

Likewise the Kiwi dollar looks to be on a turn and with in conjunction with the cheaper production costs the savings will go straight to the bottom line.

Of course steel and other commodity prices have risen further still but Gary Paykel's shift to Asia means this will have less of a consequence than if they had remained bogged down in South Auckland.

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Government Market Manipulation - AIA/DAE Airport Deal

The comment today by Phil Goff, that his Labour Government was not in favour of Auckland International Airport(AIA)being merged with Dubai Aeronautical Enterprise(DAE) was either cunning or utterly moronic.

Regardless of motivation, the result was almost 5% being wiped off the share price today.

Institutions with this sort of sway, especially Governments, would be wise not to meddle in markets of any kind. We know this always ends in disaster.

Recent Government meddling in the New Zealand Share Market has seen "inopportune" comments made to markets by Prime Minister Helen Clarke, then one of her ministers, over Air New Zealand(AIR)and at least two ministers regarding Telecom (TEL) with resultant losses for New Zealand Share Holders.

New Zealands' Minister of Finance, Micheal Cullen (incidentally a Dr of History not economics)has also tried to influence the Kiwi Dollar by making negative comments about our economy. In tandem with Cullen our Reserve Bank thought they knew more about trading Forex than the likes of Warren Buffett, they tried to undermine our currency by selling the Kiwi and lost millions and the dollar increased by more than 5c against the Greenback within weeks and Buffetts' warchest got just bigger.

Today's negative comments about AIA and the Governments lack of backing were at best reckless naivety and at worst designed to lose market speculators in AIA stock money.

New Zealand doesnt own the Airport, it is owned by shareholders, Auckland and Manukau City Councils own a minority stake and like individual shareholders it is up to them whether they sell their property. Not those in Government who don't know or care about business and private property rights.

To use its privileged position to influence markets to their desired outcome/s is not only dishonest but shows a complete disregard for the way markets are supposed to work.Governments opposition to the AIA/DAE deal should have been made at the appropriate time, that is, at the conclusion of the Commerce Commissions decision. Never before.

Individuals and those in the Financial Industry, if caught, face penalties for market manipulation. Phil Goff should face censure and fines brought on it by the NZX or the Commerce Commission or both but is, as usual, unlikely to face any censure.

Mainstream Media have been, as usual, quiet on the subject.

Time for Retirement?

Two new Retirement Home Village operators are going to list on the NZX in the next few months. Last week AMP announced the floating of their Retirement unit and today ING have announced that their two village's are on the block for a float to the public.

When these two operators are listed it will bring the number of listed retirement home operators to four.

These IPOs' are part of a wave of activity sweeping the retirement village sector.

CVC Partners said last month that it was looking at selling Guardian Healthcare and Goldman Sachs JBWere's private equity unit is rumoured to be looking to float, sell or raise new capital for its Vision Senior Living group.

The two IPO's also have a connection of sorts. NZ First Capital, who are floating Summerset and Forsyth Barr, who is floating ING's retirement unit, got together to float the abysmal IPO failure, Feltex, a few years ago. Reminders of overvaluations , high debt and creative accounting still resound in the investment community from that fiasco.

The ING groups' village's are by far the smallest by number of units at around 150 with only two properties, while AMPs' Summerset has 11 village's and over 1500 occupants.

ING are asking for $NZ100m while AMP are looking at 300m.

Ryman Healthcare [RYM.NZ], the biggest listed Retirement operator, has a market cap of over 1B and Metlifecare[MET.NZ]around 700m.

Ryman Healthcare has today just reiterated its profit growth for the current year at around 20%. It has been growing at this rate for many years and seems confident that it will grow at this rate for years to come.

At first glance AMP's Summerset looks like a great opportunity to get into this industry, which is growing rapidly as the population gets older. How good the offer really is will only become fully apparent as we get a look at the prospectus in a few weeks time. Until then we can reserve judgement.

On the other hand the ING offer I have some problems with. While ING is a highly reputable company, the track record of some of the participants may give cause for some restraint before plunking down your moola. Colin Reynolds was the head of the pyramid "property development" company Chase Corp which went bust in the 1980s, while Robin Congreve was involved with Fay Richwhite during the Winebox tax fiasco. Beware.

One of their villages is also 20 years old so may need some capital to fix up the paintwork and spruce up the surroundings and decor for the 21st century.

The retirement sector looks set for good growth for some years to come. With good margins and rapidly increasing and also affluent population. The baby boomers, when they do decide to relinquish their hold on the rest of us, will provide a mini-boom in this industry in 10-15 years.

The added bonus of consolidation as the players in this sector get more numerous is an added attraction. Currently the majority of retirement home living is being done by individual owners of villages, that is, operators owning just one village. Good assets are always up for sale.

Of course no investment is without risk and the retirement sector, like every other one, cannot continue to grow unabated the way it has. It will have its ups and downs.

Post prospectus of AMPs' Summerset, if the figures and management look good, I am going to buy as much as I can. If it is the golden egg that I think it is then demand is going to far outstrip supply.

Burger Fuel eat your heart out.

DISCLOSURE I own Ryman Healthcare shares

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c Share Investor 2007