Fletcher's Subdued Outlook

  A gloomy look into the next year to 18 months from the chairman and CEO of Fletcher Building, New Zealand's biggest building & #160;products group.In fact the company made it clear it will be looking to benefit from government spending in New Zealand and Australia, especially on infrastructure, to drive much of the business in the next year or so.It won't be all that profitable or vibrant for Fletcher which is also & #160;the world's biggest laminated products group.And, it also won't be a good way to mark its centenary year, but as chairman, Rod Deane said in the annual report, that company has & quot;outlasted' many others in the past century.In his outlook statement, Mr Deane said the outlook for the 2010 financial year is subdued, and most markets are expected to record continuing low levels of activity relative to recent years.He said this & #160;will be particularly noticeable in the first half, where comparisons with the prior year will reflect the more favourable conditions that were seen for the Formica business & #160;in Europe, in Steel, and across the Australian businesses in 2009, all of which have deteriorated markedly since the first half of 2009.In New Zealand, the government's commitments to accelerate spending on infrastructure should continue to provide opportunities for the construction, concrete and long steel operations.However, this will only partly ameliorate the effects of lower private sector commercial construction activity and continued subdued demand in the residential market.Furthermore, a lag is anticipated until the government's proposed acceleration of infrastructure work gains traction.Similarly the insulation business in Australia and New Zealand will continue to benefit from the household insulation incentives introduced recently as part of broader economic stimulus measures.In Australia, while infrastructure spending is expected to benefit the concrete products business, this will only offset in part the lower demand for rolled steel products from the commercial sector.The outlook for residential building is uncertain, but lower levels of activity are anticipated in Queensland and Western Australia.Volumes in the North American market are expected to continue at low levels, particularly in non-residential, while all segments in Europe are likely to see volumes at significantly lower levels than in 2009.Parts of Asia are expected to show reasonable growth, but this is likely to be patchy and there is a risk that growth rates will slow relative to last year.The past year has been a difficult one but we are satisfied with the progress we have made.While our results were impacted significantly by the slow-down in building activity around the world, we have ended the year in fundamentally good shape, having both the financial strength and the appropriately sized manufacturing capacity we need to meet demand over the medium term.The CEO, Jonathon Ling said in the annual report that may continue for & quot;some time & quot; in the company's key markets and businesses.The & #160;downturn in construction markets around the world has meant that growth in earnings has not been achievable in the 2009 year, and lower levels of construction activity may be ongoing in many of its key markets for some time.Consequently the immediate focus is to ensure that all parts of the group are able to operate profitably during this period of subdued economic & #160;activity, and manufacturing capability is optimised in the context of significantly lower activity levels.That will mean & #160;capital expenditure will be reduced in the 2010 year, but Mr Ling & #160;said the company was still on the lookout for acquisitions, preferably in Australasia and in the building sector.For the year ended 30 June 2009, Fletcher had & #160;net earnings after tax, before unusual items, of & #36;NZ314 million, compared with & #160; & #36;NZ467 million in the previous year. Operating earnings (earnings before interest and tax) before unusual items were & #36;NZ558 million compared with & #36;NZ768 million in the previous year.But after loses and one off items the company plunged to an accounting loss.As announced in April 2009, unusual items of & #36;360 million were incurred for the year, giving rise to a net loss of & #36;46 million. Unusual items comprised charges for restructuring and manufacturing capacity reduction initiatives, and the impairment of certain assets.Fletcher shares rose 9 cents to & #36;6.80. & #160;  

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