Fletcher Building Ltd, one of the biggest building products group in Australasia, is extremely cautious about the outlook and is worried that it faces another year of profit pressures if there’s not a sustained rebound in construction activity in its major markets.
Shareholders were told at the AGM in the NZ city of Dunedin yesterday that without the desired rebound, full-year profit could fall by up to 17%.
Net income before one-time items may be at the bottom end of analysts’ expectations ranging from $NZ261 million to $NZ340 million, the company said in a presentation for AGM
That was after a $NZ314 profit before one time items in the year to June.
Fletcher reported a full-year net loss of NZ$46 million in August after it cut asset values by $NZ500 million as construction markets slumped in Australasia, the US, Europe and Asia.
Chairman, Rod Deane told the meeting that Fletcher has yet to see any “significant” signs of recovery even as volumes increased in most markets.
He warned that full-year profit will likely be at the lower end of analyst expectations “without a sustained recovery in volumes”.
"Based on current trading performance, and assuming no further deterioration in key markets, net earnings should fall within this range. However, without a sustained recovery in volumes, net earnings would likely be at the lower end of the range," Mr Deane told the meeting.
"We remain cautious with respect to trading conditions for the balance of 2010.
"While volumes in most markets have been relatively stable over the past few months, we have yet to see any significant signs of a recovery in any of our markets.
"Moreover, we believe that any recovery will be gradual rather than rapid. It should be noted that some of the countries in which we operate continue to exhibit severe vulnerabilities including unusually large fiscal deficits, high unemployment, and in some cases huge balance of payments current account deficits.
"In Building Products we anticipate stronger earnings from the insulation business due to the impacts of the government stimulus programmes in Australia and New Zealand, which should more than offset weaker volumes in plasterboard.
"Distribution will continue to trade at subdued levels whilst the market for new residential dwellings in New Zealand remains at present levels.
"Any pickup in the level of house building activity should lift performance commensurately.
"The Infrastructure division continues to see good work flows from government sponsored engineering and construction projects in New Zealand.
"However weaker residential and commercial construction markets will continue to impact negatively on concrete and related product volumes.
"In Australia, the picture is similar and the performance there will depend on how the residential and commercial construction markets perform.
"In Laminates & Panels, we expect to see an improvement in operating earnings due to the benefit of capacity rationalisation and other cost reduction initiatives.
"In Australia, Laminex expects demand to remain subdued in the commercial sector while the outlook for residential is uncertain.
"For Formica, volumes in North America are anticipated to remain at low levels in both commercial and residential, and Europe is expected to stabilise but not improve materially.
"We do expect to see further growth this year in Formica’s Asian operations.
"For Steel, we have previously indicated that earnings will be lower this year compared with last year, due to lower volumes and prices," Mr Deane told shareholders.
Fletcher owns bench-top makers Formica Corp. and Laminex Group.
It’s also the world’s biggest maker of steel roof tiles and the largest maker of fibreglass insulation in New Zealand and Australia.
For the moment, shareholders will still get something form the company, but should be aware the situation could change.
"It is the board’s present intention to pay a total dividend for the year of twenty eight cents (NZ) per share, being the annualised rate of the second half dividend in the 2009 year of fourteen cents per share," Mr Deane told the meeting.
"However, this will be subject to the financial outturn for the year as a whole."
Fletcher shares finished down 4 cents in Australia at $6.34.
