Aussie shake-up in wind for Fletcher Building

Analyst expects an update on asset sales, particularly Formica

An overhaul of Australian business operations to increase revenue is on the cards from Fletcher Building when it announces its five-year plan, due out on Thursday morning in Sydney.

Fletcher has invited investors and analysts to join chief executive Ross Taylor for the launch of its new longer-term strategy announcement and briefing in the New South Wales state capital.

It seems no accident that Sydney was picked for Taylor’s speech. After re-engineering the business away from any new disastrous loss-making high-rise construction contracts, Taylor is said to be working on an overhaul of the company’s Australian building products operations.

Those generate around A$3 billion in annual sales. He told the Australian Financial Review in April that he would appoint one executive to oversee the entire Australian business.

That person would oversee a reorganisation of the Tradelink plumbing and bathroom supplies, Iplex pipes, Rocla concrete, an insulation business and Stramit steel products in a substantial structural revamp, all bought last decade.

“We will run Australia as one business,” Taylor told the AFR in the April article when he also said he was aiming to get returns across the Tasman of nearer to 8 to 10 per cent instead of the existing 3 to 4 per cent.

Shane Solly of Harbour Asset Management indicated that Fletcher has to do more than just shake up Australia. “Investors will be looking for a rebasing of the business — what are the go-forward business streams and what is non-core?”

Solly expects an update on asset sales, particularly Formica. Fletcher is selling the iconic Americanheadquartered Formica and its roof tiles business which have been put at around $700 million.

Fletcher, with 37,800 shareholders, has been reported as hiring Macquarie Capital to sell Formica.

Taylor also indicated earlier this year that job losses would be announced in June. He told the Herald the business expected to announce lay-offs to trim overheads and said he was deeply disappointed about that prospect.

A replacement for Fletcher chairman Sir Ralph Norris, who revealed he would stand down in February, is also yet to be announced.

Norris’ resignation followed the business revealing it expected to lose nearly $1 billion on major construction contracts including the SkyCity International Convention Centre and Christchurch’s Justice and Emergency Services Precinct.

The company expects that, in the financial year to June 30, its earnings before interest and tax will be in the range of $680m to $720m, with the loss from its Building & Interiors unit affirmed at $660m.

In February, Forsyth Barr projected a net loss after tax for the 2018 year of $49.1m.

If that occurs, it will be the first time since the company listed on the NZX in 2001 as a stand-alone business that it has made a loss. However, Forsyth Barr’s Matt Henry has the business returning to the black to make a net profit after tax of $408.5m in the 2019 year and $371.8m in the 2020 year.