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22/6/2018 — General
Fletcher treads softly on market recovery
By Simon Hartley

Fletcher Building Ltd (NZX & ASX: FBU) has alerted the market to $95 million of costs associated with its wide-ranging restructuring, and signalled the likelihood of further asset writedowns.

Despite the mounting costs - expected to be offset by asset sales and $30 M annual savings in overheads - Fletcher retained its full year guidance of delivering earnings before interest and tax (ebit) in a range of $680 M-$720 M.

The ebit is being kept separate from the restated estimated loss from Building + Interiors division of $660 M this financial year; which over two years is expected to amount to total $952 M.

At a conference in Sydney yesterday, Fletcher's new chief executive Ross Taylor said a decision had been made to focus Fletcher's portfolio by divesting its Formica and Roof Tile Group businesses, and focusing capital and capability within the New Zealand and Australian markets.

“While we don't expect these markets to experience the same levels of growth they have seen in recent times, we do expect them to remain stable. With only a 15% share of the New Zealand market and 1% in Australia, there's plenty of opportunity to deliver more from our existing operations,” Taylor said.

Divisional changes include all businesses in Australia coming under one division, newly created divisions of Concrete and Steel, and largely unchanged Residential, Construction and Distribution divisions.

Chief financial officer Bevan McKenzie reiterated the unchanged full year financial guidance, scheduled for release on August 22, saying only there “may be some slight changes.”

Fletcher recently completed raising $750 M and renegotiated its lending terms.

In NZ, Taylor said the focus would be growing core operations in building products and distribution, leveraging its strong positions in the concrete value chain and residential construction, and returning construction to sound operating performance.

That would be achieved by completing the outstanding Building + Interiors (B+I) projects within contractual provisions, and profitably growing Fletcher's infrastructure and roading businesses.

He said an example was Fletcher's planned $15 M-$20 M investment in a new Auckland panelisation plant to deliver homes more efficiently for the supply-constrained market, within a year.

An Auckland site was yet to be found for the panelisation plant, which would boost Fletcher's annual output from 700 Auckland homes a year to more than 1,000, which could eventually see build timeframes cut from 22 weeks to nine weeks. Once proven, Taylor said that model could be taken into the Australian market.

In Australia, Taylor said Fletcher was targeting a significant improvement in the operating and financial performance of existing businesses, and in time, and expand its portfolio as had been done in New Zealand through targeted acquisitions.

He wanted to “recapture” lost market share from Australia in recent years.

In the conference call, Taylor was quizzed on the need for more offshore acquisitions, which had not always gone to plan.

He said Fletcher was not “going on a buying spree,” and would be disciplined, but noted there were opportunities out there, for “bolt-on, (earnings) accretive” companies for consideration.

Taylor declined to talk about individual B+I projects, citing commercial sensitivity. He did say of the 16 B+I contracts; most of which were taken on fixed price contracts, seven had been completed, five more would be by the end of the year and four would be completed next year, including the Auckland conference centre; which had one of the largest cost blowouts.

Similarly, he declined to talk specifics of the Formica and Roof Tile Group sale. Analysts earlier speculated the $700 M Formica asset values could potentially be in the $1.3 billion-$1.5 B range, if time were taken to sell Formica.

Fletcher has sworn off large commercial construction projects.

“We're comfortable to go after and bid for infrastructure projects,” Taylor said.

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

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