Published 15 November 2006
Fletcher Building Ltd’s net earnings for the first 4 months of the new year were slightly ahead of the previous year’s, chairman Rod Deane told the company’s annual meeting in Auckland yesterday.
Based on these results, the expected successful resolution of the insurance arrangements for the fire-damaged Taupo MDF plant and the Pacific Steel transformer failure, directors were comfortable with the consensus of analysts’ forecasts. That consensus was for $388 million net earnings, up only $9 million on the previous year.
Mr Deane said earnings from the commercial building & infrastructure markets should offset the continuing softening in housing markets in New Zealand & Australia.
New chief executive Jonathan Ling said Fletcher Building’s portion of sales to customers outside New Zealand had risen from 3% in 2001 to 42% and the company was now looking more seriously at potential acquisitions outside Australia & New Zealand.
He said the construction forward workload was $802 million at balance date, including work on the Wellington Hospital, Stamford Plaza refurbishment and Northern Busway extension.
“With a healthy backlog and continued strong market conditions, it is likely that workload will remain strong in the commercial building operations. Sales in the engineering division will be dependent to some extent on success in securing infrastructure projects during the year.”
The workload figure didn’t include any allowance for work on a new stadium.
Among candidates for re-election, Hugh Fletcher recounted his appointment as deputy chief executive in 1976 at the tender age of 29. Since then, he said, the compound after-tax return was 19%/year, 17% for the last 10 years. At 19%, earnings were twice the cost of capital.
“There is a long history of sustained exceptional returns to shareholders. There is no reason to believe the next 10 years should see worse returns than the preceding decades.”
Mr Fletcher added a note on performance & perception: “One of the reasons we have fewer listed companies is that independent valuations of takeover offers assume the target companies will not achieve value-adding growth.”
Asked by Shareholders’ Association chairman Bruce Sheppard what lessons he had learnt, Mr Fletcher said that his 20 years as deputy or chief executive “I would have made 20-25 major decisions/yearâ€¦. My view is I probably got 70-80% of them right. I think we do a great disservice to New Zealand business if we selectively criticise people for their mistakes and do not look at a balanced scorecard, and the best scorecard is a sustained number of years.”
Mr Fletcher said he would encourage the company to look at its mistakes as much as its successes.
“I’ve learnt that the structure of an industry is much more important than quality of management. Put the best of management with the worst of industries, it’s always the industry that emerges with its reputation intact.”
And, he said, “We were right to sell Paper. It is very debatable if we were right to sell Energy. No one gets it right all the time. You try to relate your lessons & experiences to a new situation that unfolds.”
Mr Sheppard responded: “Size for the sake of size is a mistake. Growth without focus is a mistake. Complexity without simplicity is a mistake. Too much debt is a mistake. And they were hallmarks of your stewardship.”
Mr Deane felt these comments were unkind & unproductive and said Mr Fletcher had been such a good non-executive director because he’d learnt from his mistakes.
Mr Sheppard also commented on the proposal to include a million share options in the payment to Mr Ling, saying the Shareholders’ Association would be far happier for a company that can afford to pay cash to do just that.
Mr Sheppard added that Fletcher offshoot Rubicon, where Mr Fletcher was a director, had introduced tracking units, which had tax advantages. Mr Deane took note of the suggestion but said the motion of offering options was there to be voted on. The fine print of the Fletcher Building options indicates that the structure, while different from those at Rubicon, will achieve much the same effects.
Despite Mr Sheppard’s criticisms, all resolutions put to the meeting were passed, including director re-elections and the options scheme.
Attribution: Annual meeting, story written by Bob Dey for this website.