Thursday, August 19, 2010

Fletcher Building Ltd: 2010 Full Year Profit Analysis

The 2010 full year profit for Fletcher Building Ltd [FBU.NZ] is a solid result considering the recession has hit the building sector so hard over the last year.

Small and big building companies are going to the wall faster than you can say "rip that drywall out before the receivers come in" so the fact that FBU is still here and in good health is positive. The worry for FBU shareholders is surely what levels of work lay ahead for the company in the 2011 financial year and will they survive if they don't win future big Government infrastructure projects which they have an 85% reliance on for revenue.

Australia makes a big infrastructure contribution to Fletcher's revenue take as well.

While the 2010 net profit of $272 million (after the one-off government tax changes for 2010) was up strongly on the 2009 $46 million loss, due to asset writedowns in the Formica division, it was on revenue down 4% to NZ$6.8 billion.

Key Points

•Net earnings before unusual items $301 million.

•Unusual items of $29 million due to NZ tax changes.

•Net earnings $272 million

•Operating earnings¹ of $521 million.

•Cashflow from operations $522 million.

•Revenues down 4% to $6.8 billion

•Higher insulation and construction revenues

•Lower sales volumes in most business

•Adverse impact from exchange rate movements

•15 cents per share final dividend, 29 cents for the year

•Dividend reinvestment plan not operative for final dividend

The Formica division, bought for nearly NZ$ 1 billion in 2007 has still failed to fire and continues to drag on overall company performance. It is probably around break even net profit-wise so the money borrowed to finance the purchase continues to drag on the bottom-line with interest payments sucking out cashflow from the balance sheet. I don't see this dog paying back long-term, if at all, for a considerable time.

Like the fortunes of Steel & Tube Ltd [STU.NZ], FBU's steel division sales are well down and needs the commercial sector, which has impacted all areas of their commercial businesses, to turn the slump around.

Management say their residential building sector in New Zealand, Australia and North America shows some promise but it is only small and has so far failed to show any sort of sustainable pattern and could be just a blip on an otherwise downtrend - my emphasis.

Interestingly there is commentary that the emissions trading scheme passed last month will have an impact on the company and its bottomline. Management say a small dent currently but it will be much higher as we descend into the madness of this rort on business and the average Kiwi.

The company is understandably vague about 2011 with no profit indications or expectation, but in New Zealand they see a gradual continuing recovery in residential building activity, with commercial construction expected to remain weak.

Like my good self they see infrastructure spending likely be down in 2011 before growing in 2012.

A similar outlook is expected for Australia with their businesses in Europe, Asia and North America having a level of diminishing expectations from their Australasian business units.

2011 is going to be a difficult year for FBU.

FBU 2010 Profit in detail

Listen to audio of profit presentation - 18/08/10
Presentation in PDF - 18/08/10

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