Strategy & outlook

Strategy

Fletcher Building’s long term strategy continues to be to improve earnings reliability through geographical and product diversification, to maintain and improve internal capabilities, and to pursue acquisition opportunities where these meet key investment criteria.

In New Zealand, the focus will continue to be on maintaining and growing existing businesses and pursuing means of strengthening distribution capability.

Australia remains the key geography for pursuit of the group’s growth aspirations. The strategy will continue to be one of building on existing positions in the building products and construction materials sectors over time.

Beyond Australasia, the priority remains developing the laminates business, particularly with regard to extending Formica’s footprint in Asia. While Australasia is the principal area of focus, Fletcher Building is committed to maintaining a leading position globally in laminates through Formica and Laminex.

Outlook

The improvement in residential building approvals in New Zealand and Australia will, if sustained, assist those parts of the group with exposure to residential construction.

Offsetting this, however, is a continued deterioration in new commercial building activity in both countries. Government stimulus measures coupled with increased spending on infrastructure are expected to continue at a similar rate in the short to medium term in both markets, and this is helping to underpin volumes and operating results.

In North America, sustained economic growth and a reduction in housing inventory will be required before any recovery is evident in new housing construction. Commercial construction activity is expected to lag any pick up in residential markets. In Europe, the outlook continues to be subdued with little evidence that a recovery in volumes is imminent. Asian markets are expected to perform satisfactorily overall.

The divisional outlook for the second half of the 2010 financial year is as follows:

• The Building Products division will see lower earnings in the second half due to the termination of the insulation stimulus package in Australia. Higher activity levels in new residential construction in New Zealand and Australia are expected, however, export markets are likely to remain mixed.
• Distribution will largely track the progress of the new residential market in New Zealand. A sustained improvement in the rate of new housing construction would positively impact the financial results of this division.
• The Infrastructure division will continue to benefit from publicly-funded construction work in New Zealand, although the timing of large projects will impact results in the second half. The concrete businesses in both New Zealand and Australia are expected to perform satisfactorily, with infrastructure spending and an improved residential construction outlook offset in part by weak commercial construction activity levels.
• In Laminates & Panels, the cost reduction programmes will assist profitability even though the outlook is for continued low volumes in North America and Europe. Australia and New Zealand are anticipating the improved volumes in residential being offset by continued weakness in commercial markets. Asia is expected to perform in line with the first half.
• Steel markets are expected to remain difficult with low demand impacting volumes and depressed pricing for manufactured long steel products.

Roderick Deane
Chairman of Directors

Jonathan Ling
Managing Director