24 LISTENER MARCH 10 2018
found to have created $4.8 billion of wealth
for its shareholders”.
In the past five years, Fletcher stock has
fallen 26%, at the same time as the S&P/NZX
50 index has climbed 96%. The enterprise
that Deane and Waters built into the largest
local company by market value today ranks
seventh, at about $4.6 billion, or about half
A2 Milk’s capitalisation.
That coincides with Adamson’s appoint-
ment in 2012, and an era in which the
company became too sprawling, investors
say.
“Fletcher Building is an iconic New Zea-
land business and an important member of
our stock exchange,” says Slade Robertson, a
portfolio manager at Devon Funds Manage-
ment. “Over the years, through a number
of acquisitions, the complexity of this com-
pany has increased and the challenges of
managing it have similarly evolved.”Robertson acknowledges he is being cir-
cumspect in his comments so as not to be
seen to add to Fletcher’s whipping-boy status
on the local bourse.
“We have been disappointed with its
operating performance in recent years,
but believe that Ross Taylor has the skills
and experience necessary to drive an
improvement in shareholder outcomes
and business sustainability,” Robertson
says. Taylor’s recent allowance for ongoing
B+I losses “appears comprehensive, and the
strategic review that he is performing across
the group should result in improvements
being made in the business’s structure”.
Adamson left last July in the wake of the
unprofitable B+I contracts. The chairman
of the board that oversaw his departure, Sir
Ralph Norris, resigned in February after it
became clear the company hadn’t provi-
sioned enough for B+I.
Based on reported email leaks and
unsourced anecdotal reports, Adamson
had been frustrated with executives in B+I
and construction as a whole and may haveNEWSPIX
MONEY
chased out its experienced operators and
left it with a relatively inexperienced team.
Taylor calls it “the wrong team”.
Unless the economics of vertical con-
struction improve, Fletcher’s construction
division is winding down B+I. All the
remaining financial pain is recognised in the
current year, and the market appears to have
confidence that Taylor has now accounted
for unprofitable B+I contracts that are still
running.STOCK RATED A “HOLD”
First NZ Capital analyst Kar Yue Yeo has
slashed his forecast for Fletcher’s full-year
2018 earnings before interest and tax by
93% to $540 million, but he has left his
forecasts for 2019 and 2020 pretty much
intact. Morningstar analysts rate the stock a
“hold”, not a sell, and noted on February 14
that the shares now look “attractive”.
Hawkins, Fletcher’s biggest competitor
in vertical construction, is keeping its head
down and declining to comment. Hawkins
was acquired by Australian infrastructure
and mining firm Downer EDI for A$55.4
million ($60 million) last year – a deal that
was announced in early March, just weeks
before Fletcher first slashed its 2017 earn-
ings forecast. It was Downer’s entry into
vertical construction, less than a year before
Fletcher signalled its retreat. Hawkins is part
of Downer’s engineering, construction and
maintenance division, and in its first-half
results, the company says it “has been per-
forming well since its acquisition in March
2017”.
Arrow’s Forrest says he is “cautiously opti-
mistic” that the construction industry will
remain buoyant in the foreseeable short
term. “We’ve been in the market for more
than 40 years and it’s not our first rodeo;
we have learnt to be nimble in variable
markets,” he says. “There certainly is life
in commercial construction, and today’s
market presents an opportunity to look for
better margins.”
The challenge for the industry is one of
supply to meet current high demand. The
industry “is heavily fragmented, which
tends to result in lower-margin business
overall, and the Fletcher news may be an
indicator of how that can play out,” he says.
Taylor says he balked at the margins on
offer in some recent vertical-infrastructure
tenders. “I’m quite comfortable we could
reposition B+I to do $200-300 million of
vertical construction [contracts]. But for
Fletcher, it’s just madness to have $200-300Fletcher “was found
to have created $4.8
billion of wealth for
its shareholders”.
From top, Fletcher Building CEO Ross Taylor,
former chairman Sir Ralph Norris and former
CEOs Mark Adamson and Ralph Waters.