Fletcher Building’s (FBU) AGM was told yesterday that the strong New Zealand dollar is proving a significant headwind, but it expects increased construction activity across the country to boost its 2014 operating earnings.
But it isn’t seeing anything positive from Australia, where it also has a major presence. The repair of houses and infrastructure in Christchurch will continue to boost activity levels, according to chairman Ralph Waters.
Fletcher is benefiting from the NZ$40 billion rebuilding in Christchurch after the two damaging earthquakes in late 2010 and early 2011. Mr Waters told the annual general meeting, "We expect a further increase in construction activity levels across most sectors in New Zealand in the 2014 financial year."
"Increased building consents for the first three months of this financial year are already impacting activity, particularly in Auckland and Christchurch," Mr Waters said.
But no such confidence about Australia with the chairman telling the meeting that, "There has been no noticeable improvement in volumes since the new financial year began and our prognosis for the year is for relatively flat conditions.
"Our prognosis for the year is for relatively flat conditions. Some variation in performance by state is likely, and we note in particular that activity levels in New South Wales appear to be improving while Victoria remains subdued. It is hoped that the change in government and policy reform will lead to a more positive business environment over time.
"However, declining investment in the mining and resources sectors will be a potential near term drag on activity levels.
"In North America, increases in new housing construction will benefit Formica, although only 15 per cent of its revenues are derived from new housing construction, and the commercial market which has remained flat so far will have the biggest impact.
"Most parts of Europe remain difficult, particularly Spain, and we are targeting to break even in this region overall this year.
"South East Asia is expected to continue to grow satisfactorily while markets in northern Asia and China may be more subdued," Mr Waters said.
But the big message from the meeting was the Fletcher sees New Zealand looking promising because of increased building construction "almost across the board".
For that reason the forecast modest profit increase should come from its NZ businesses.
FBU YTD – Christchurch rebuild boosts Fletcher
Mr Waters told the meeting yesterday the company expects earnings before interest and tax of between $NZ610 million and $NZ650 million. That compares with operating earnings of $NZ569 million in the 2013 financial year.
Mr. Waters warned, however, that the strong New Zealand dollar against the Australian dollar could cost it around NZ$15 million if the current exchange rate is maintained. The Kiwi is up 11% this year.
Shareholders were also told the company was not focusing on large-scale acquisitions this financial year and the company will depend on its existing businesses remaining competitive.
Mr Waters also told shareholders that he intends to retire from the board before the end of 2014. He said that although he is seeking re-election to the board this year, he wanted to retire from the role before its tenure ends in March 2015.
Mr Waters has been with the construction company for 12 years, and became chairman in 2010 on the retirement of Sir Roderick Deane. He was also CEO of the company.
Fletcher Building has begun a search for a new director to fill Mr Waters’ seat, and he said that the new director would also be able to seek the role of chairman.
Mr Waters stepped down from the board of dairy giant Fonterra earlier this year because of a possible conflict of interest after he was named chairman of giant retailer Woolworths.
Fletcher shares rose 10c to $8.29 on the ASX yesterday.
