CORRECT: Fletcher puts strategy under microscope seeking $70M annual gain, will shed jobs
(Adds dropped millions in fifth paragraph)
Feb. 20 (BusinessDesk) – Fletcher Building chief executive Mark Adamson, in the job for just four months, has embarked
on a review of the company’s business model aiming to find $70 million a year in additional earnings from centralising
operations.
Adamson got approval from his board yesterday for the plan that is likely to see hundreds of jobs cut across Australia
and New Zealand. He wants to find ways for the company’s 50-odd independent and autonomous business units to share
everything from office space to core support functions and purchasing.
“I believe we’re leaving money on the table,” he said on a conference call.
The first step will be the creation of a shared services centre, likely to be based in Auckland using office space freed
up by the rationalisation of Fletcher’s Laminex business and containing accounts, human resources and ICT for the whole
group.
Group procurement will be centralised to try to trim the $800 million a year Fletcher spends with indirect
third-parties. Adamson also aims to cut the $250 million a year spent on property by co-locating businesses and
renegotiating leases.
The improvement in earnings won’t become apparent until the 2015 year because of the cost of the changes including
redundancies. Fletcher employs 19,200 people across the world, of which some 6,500 are in Australia and 8,500 in New
Zealand, according to its November sustainability report.
Adamson announced the review after Fletcher posted first-half earnings that rose just 1 percent, missing some analyst
estimates in the face of declining earnings from Australia.
The shares tumbled 5.3 percent to $8.83 on the NZX today, dragging the NZX 50 Index lower.
Profit rose to $146 million in the six months ended Dec. 31, from $144 million a year earlier, the Auckland-based
company said today. Sales rose 3 percent to $4.38 billion.
Fletcher reiterated the guidance given at its annual meeting for full-year operating earnings of $560 million to $610
million. It sees no improvement in Australian trading in the second half while all of its New Zealand businesses should
show gains, underpinned by increased home building, infrastructure projects and continued strong reconstruction activity
in Canterbury.
“The pace of new residential construction in New Zealand has improved substantially over the past six months in both
Canterbury and Auckland,” Adamson said in the statement. “By contrast, in Australia, weak market conditions have
continued in the residential and commercial construction sectors.”
The biggest deterioration came from Crane Group, the Australian pipe manufacturer and distribution company acquired in
early 2011with the aim of diversifying Australian earnings.
Fletcher's Adamson said weak conditions in residential and commercial construction in Australia led to a 12 percent
decline in earnings from operations across the Tasman while in New Zealand, rising residential building activity,
especially in Auckland and Christchurch, lifted local earnings by 31 percent.
Operating earnings from Crane’s pipeline business rose 7 percent to $31 million while at the Tradelink distribution
business, earnings tumbled 59 percent to $9 million, reflecting the weak Australian residential housing market.
Tradelink would take several years to turn around, Adamson said today.
(BusinessDesk)