Fletcher Building cost cut of $75m

Fletcher Building is expected to take a dip between 4% and 8% in after-tax profits - or $157 million to $146.6 million for its first-half results - but backed up with $75 million of cost-cutting measures in place.

Given the collapse of Mainzeal into receivership and heightened expectations of work taking off in Christchurch, Fletcher's outlook comments will be keenly scrutinised by the market today when it reports its half-year to December result.

Craigs Investment Partners broker Peter McIntyre expects new chief executive Mark Adamson to announce cost savings of up to $75 million from now until full-year 2015.

''Cost cuts will likely come from the creation of `centres of excellence' to improve costs, a reduction in distribution and logistics costs, development of shared services to reduce costs and by improving digital capability,'' he said.

Craigs had factored in cost-cutting of $20 million this financial year, $50 million in 2014 and $75 million in 2015.

Forsyth Barr broker Peter Young said he expected ''flat'' earnings before interest and tax, at $278 million, with after-tax profit down 4% on a year ago at $157 million.

''The most important aspect of Fletcher's result will be its near-term outlook statement, which we believe will be cautiously optimistic,'' he said.

Since a low of $5.77 last July, Fletcher shares had steadily gained to hit a five-year high of $9.40 earlier this month, but had since eased and were yesterday trading around $9.19.

Fletcher is the lead contractor in the rebuilding of Christchurch. Many tenders have been let in recent months and contractors are expecting work to ramp up this year to more profitable levels.

Mr McIntyre said there was ''significant potential'' for restructuring in Fletcher's TradeLink, Laminex and Distributions, which should amount to $50 million to $100 million, or the equivalent of up to 1% of sales during full-year 2013.

''We believe New Zealand housing is showing strong signs of recovery,'' Mr McIntyre said.

He forecast 20% growth, or 18,800 homes, during 2013, with 13% growth in 2014 to 21,300 residences.

Canterbury was forecast to provide Fletcher with about 8% of earnings before interest and tax for the three full years 2013-15, and 3.5% in 2016, but with a further boost from ''major civic projects'', he said.

Mr Young highlighted that while restructuring costs of around $20 million had already been signalled, there was a risk of additional costs.

''The collapse of Mainzeal is a timely reminder that [construction] activity is still low, and the operating environment challenging,'' Mr Young said.

- simon.hartley@odt.co.nz

ODT/directory - Local Businesses

CompanyLocationBusiness Type
Shirley Walls Consulting LimitedDunedinConsultants
Enliven Day Programme (Maybank)DunedinCommunity Groups
Bramin Design - Natwood Homes LtdYour TownArchitects & Architectural Designers
Punavai O Le Atamai Pre SchoolDunedinChildcare & Kindergartens