Fletcher Building Ltd confirmed its revised strategy today, but will make another announcement about board changes tomorrow.
The key part of today’s strategy announcement is a rejigging of senior executive jobs, including more appointments to the top tier, the executive team.
The company has already said it will sell 2 businesses, Formica & Roof Tile Group. It’s appointed Macquarie Capital Ltd as advisor on selling Formica.
The “strategy” amounts to a spring clean for an outfit that likes to gather businesses as it goes along, then finds it’s a structural mess.
The strategy statement: Fletcher Building confirms diversity out, simpler & leaner in with focus on NZ, Australia
Fletcher Building Ltd chief executive Ross Taylor said today the company had confirmed its strategy, “which is designed to improve financial & operating performance by focusing its portfolio on the New Zealand & Australian markets and introducing a simpler & leaner operating model”.
Mr Taylor said: “Fletcher Building is currently one of the most diversified building materials companies in the world, with operations spanning multiple geographies, sectors, value chains & product lines.
“As we announced to the market in April, we have made the decision to focus our portfolio by divesting our Formica & Roof Tile Group businesses and focusing our capital & capability behind the New Zealand & 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, and with only 15% share of the New Zealand market & 1% in Australia, there is plenty of opportunity to deliver more from our existing operations.
“In New Zealand our focus will be on growing our core operations in building products & distribution, leveraging our strong positions in the concrete value chain & residential construction, and returning construction to sound operating performance by closing out remaining Building + Interiors (B+I) projects within provisions, and profitably growing our infrastructure & roading businesses.
“We will leverage global trends in product, service & channel innovation to deliver more value for our customers right across our portfolio. Taking one example, with our planned investment in a new panelisation plant in Auckland, we will aim to deliver homes more efficiently for a supply-constrained market.
“In Australia we are targeting a significant improvement in the operating & financial performance of our existing businesses and, in time, we will seek to expand our portfolio as we have done in New Zealand through targeted acquisitions.
“We see the strategy being delivered over 3 broad stages. In the 2019 financial year (to June 2019) we will focus on stabilising & turning around our existing businesses, while divesting Formica & Roof Tile Group. By the 2020 financial year we should be well positioned to deliver solid performance across the portfolio, and from the 2021 financial year onwards we want to be achieving strong revenue & earnings growth year on year.
“With successful implementation of the strategy, we aim to deliver above-market revenue growth & improved operating margins over the medium term.”
Mr Taylor said that, to enable the new strategy, Fletcher Building would:
- target investment behind its most strategically important & highest returning businesses
- increase its focus on innovation
- pursue improvements in procurement, operational efficiency & working capital, and
- introduce a simpler & leaner decentralised operating model.
The company will introduce the new operating model on 1 July and aims to:
- reduce overheads across the group by $30 million/year
- empower businesses at the front line, and
- deploy a new divisional structure that will align businesses to the new strategy.
The changes to structure have resulted in a number of new appointments to the Fletcher Building executive team , which will also be effective from 1 July:
- Dean Fradgley, distribution chief executive, has been appointed to the newly created role of chief executive Australia. All Australian businesses will now sit within this one division
- Bruce McEwen, PlaceMakers general manager, will join the executive team as chief executive of distribution NZ, which includes PlaceMakers & Mico
- Ian Jones, GBC Winstone general manager, will join the executive team as chief executive of the newly created Concrete Division, which includes Golden Bay Cement, Winstone Aggregates & Firth
- Hamish Mcbeath, Fletcher Steel general manager, will join the executive team as chief executive of the newly created Steel Division, which includes all the company’s New Zealand steel businesses
- David Thomas will continue as interim chief executive of the revised Building Products Division, while a permanent replacement is recruited
- Steve Evans will continue as chief executive of the Residential Division
- Michele Kernahan will continue as chief executive of the Construction Division
- Claire Carroll has been permanently appointed as the chief people & communications officer
- All other corporate function executive roles remain unchanged.
There is no change to the estimated 2018 financial year ebit (earnings before interest & tax) for the group (excluding B+I & significant items) of $680-720 million and no change to the estimated B+I ebit loss of $660 million announced on 14 February.
Mr Taylor said the 2018 result was likely to include a number of significant items, including:
- restructuring charges associated with the implementation of the new operating model (a charge of between $85-95 million)
- a gain on the sale of Fletcher Building’s 20% stake in the Dongwha processing plant through Laminex NZ (a gain of about $12 million), and
- a likely impairment of the carrying values of the Rocla & Roof Tile Group businesses.
Fletcher Building will announce its financial results for the year ending next week (30 June) on Wednesday 22 August.
Attribution: Company release.