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20/6/2018 — General
Fletcher’s new blueprint on Thursday
By Simon Hartley

Fletcher Building Ltd (NZX & ASX: FBU) is unveiling its five year restructuring plan in Sydney on Thursday, with the likelihood Australian operations are in for an overhaul.

What may, or may not, be on the chopping block and any update on the mounting losses will be eagerly awaited by analysts and the industry.

Beleaguered Fletcher project-managed its way into $952 million of actual and accumulated losses over two years in its Building + Interiors division, prompting the need to launch a $750 M recapitalisation, successfully completed a month ago.

Fletcher is also selling its US-based divisions Formica and Roof Tile, estimated to worth more than $US700 M.

To secure its share of work around New Zealand, Fletcher went into 16 mainly fixed price contracts, including the international convention centre and hotel in Auckland and Christchurch's justice precinct; both of which accounted for the lion's share of subsequent losses.

It cost former chief executive Mark Anderson his job, followed by the resignation of chairman Sir Ralph Norris, whose replacement is is yet to be announced. While committed to completing the troubled B+I projects by the end of next year, Fletcher has pulled out of tendering for large commercial construction projects.

Fletcher's new chief executive Ross Taylor will host the briefing in Sydney and a month ago, on completion of the $750 M entitlement offer, said the company could now “significantly reduce” group debt and improve its capital structure.

“This puts us in a stronger position to focus our portfolio and pursue a new group strategy,” Taylor said at the time.

As a diversified building company, Fletcher has more than 30 businesses with operations spanning the entire building supply chain.

Craigs Investment partners broker Peter McIntyre said it was possible Fletcher could sell Formica for $NZ1.2 billion to $NZ1.5 B, noting it was purchased for $US700 M ($NZ1 B), back in 2007.

“That would solve all its debt, banking covenants and US (lender) issues,” he said.

While McIntyre did not rule out sale of Australian assets, he believed it was unlikely, given Fletcher wanted to refocus its efforts in NZ and Australia.

He said exiting some areas such as the US, Europe and Asia could come at a cost to growth, given those places were considered “growth areas.”

The key risk for Fletcher, and priority question for analysts, would be Fletcher's outlook on the respective Australian and New Zealand construction cycles.

“The building cycles in New Zealand and Australia are mature, there's limited potential for growth,” McIntyre said.

On Thursday, the market was also expecting an update on Fletcher's $2.3 B of forward work, at last December, as infrastructure accounted for about $680 M. Fletcher's Australian building products operations generate about $A3 B ($NZ3.2 B) in annual sales.

Taylor told the Australian Financial Review in April he would appoint one executive to oversee the entire Australian business, the NZ Herald reported.

There is expected to be a reorganisation of the Tradelink plumbing and bathroom supplies, Iplex pipes, Rocla concrete, an insulation business and Stramit Steel products in a substantial restructuring of the companies, which were all purchased during the past 10 years.

*Simon Hartley is senior business reporter and assistant chief reporter for the Otago Daily Times.

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Fletcher Building’s Ross Taylor. Photo: Australian Financial Review.