Building giant gets back on the job

The Manukau Harbour Crossing is one of Fletcher Construction's projects. Photo / Dean Purcell

As shareholders in the country's largest NZX-listed company prepare for next month's annual meeting, Fletcher Building's fortunes are up - after taking a hammering last year.

The company's share price rallied from $5.13 in March this year to $8.17 yesterday, though it is still a fair way off highs above $11 at the beginning of 2008.

It has been a big week for the building giant, which will mark its centenary at the meeting on November 11.

This week an in-depth financial analysis was completed by Forsyth Barr's Rob Mercer predicting operating revenue of $500 million and new earnings guidance at next month's meeting.

Yesterday, Fletcher flagged the possibility of issuing 79.4 million new shares to strengthen its balance sheet and it will seek approval at the AGM.

During the week Fletcher hosted 50 analysts and investor reps, including 20 from Australia, looking at the new Humes pipe plant at Papakura, the Golden Bay Cement plant, and Winstone Aggregates' Hunua quarry.

And on Wednesday the company released divisional investor presentations on three major parts of the business: Formica Group, Laminex Group and building products.

All indications are of Fletcher's recovering fortunes, particularly in the insulation business where it dominates both sides of the Tasman and is gaining from Australian and New Zealand Government incentives to warm up houses.

Philip King, investor relations manager, said: "Things have bottomed out in most of our markets. We think the worst times are over."

Chief executive Jonathan Ling concurs. "The share price on separation from Fletcher Challenge in 2001 was $2.26 and is now around $7.92.

Total shareholder return is 545 per cent for the period or an average annual shareholder return of 25 per cent per annum for eight years despite the worst global recession in decades.

"In 2001 the majority of shareholders were New Zealanders. Now, New Zealand shareholders own 40 per cent of the business and Australians 35 per cent. Overall [it's] a pretty good phoenix-like recovery and performance that included navigation through the worst global recession in decades."

This optimism is a far cry from in 2001, when the old Fletcher Challenge empire was being carved up and sold.

The sole remaining building business was making big losses and the Fletcher name seemed almost in danger of vanishing. The Herald at the time said the break-up signalled the end of a family empire that spanned a century.

Now, Fletcher Building is a corporate behemoth. Its market capitalisation of $4.9 billion was yesterday higher than Telecom's.

Even the company's much-criticised $960 million Formica deal seems destined to finally yield some cash, according to projections from chief executive Mark Adamson.

As Paul Goldsmith writes in his book Fletchers: A Centennial History of Fletcher Building, the company with a miserable ranking of 17 on the NZX when it listed in 2001 has turned out to be a phoenix.

On November 11, shareholders will mark the centennial year by meeting in Dunedin where the firm was started by James Fletcher in 1909.

The company's history is intimately intertwined with this country's, from the construction of state houses to reconstruction after Napier's 1931 earthquake and more recently building the Sky Tower and today working at Eden Park.

Fletcher built many iconic government and public buildings like the Civic, University of Auckland clock tower and Wellington railway station.

But its roots are humble.

Fletcher Bros started as a house-building partnership between James Fletcher and Albert Morris when they won their first contract to build an Otago house. That renovated place is run by the Fletcher Trust and is open to the public.

"James Fletcher arrived in New Zealand in 1908 from Scotland. A fifth-generation stonemason and builder, he quickly secured a job in Dunedin with its predominance of stone buildings. With Albert Morris, an English-born joiner, James built a wooden villa in 1909 which is now known as the Fletcher House, at Broad Bay on the Otago Peninsula," the trust says.

Right from the early years, the company's political links gave it strength but also brought it criticism. Goldsmith writes about one of the Fletcher bosses seeing PM Michael Savage drive past and how the businessman "hopped out of the car and arranged to meet the Cabinet to deal with an issue".

By 1929, the company had won the contract to build the Chateau Tongariro, promising a free suit to workers who stayed for the whole job.

Its bosses made a few enemies, as Goldsmith reveals. Allegations were that Fletchers ramped up prices on state contracts and that it had creative accounting methods.

Robert Muldoon was said to have had little respect for the Fletcher family, seeing them as having an easy ride for too long and nursing the notion they were Labour sympathisers.

In 1981, the merger of Fletcher Holdings, Challenge Corporation and Tasman Pulp and Paper created the massive Fletcher Challenge, a multi-national corporation with construction, forestry, building, and energy businesses and by far the country's largest business for many years.

Goldsmith's anecdotes about Fletcher energy head Michael Andrews deciding to dominate the world's methanol market illustrate its power. In 1993, Andrews mounted a "complicated series of transactions" via Cape Horn Methanol and Canadian-listed Methanex. He took Fletcher to the point where it could manage supplies sufficiently to influence world prices.

Expanding into China's steel industry in 1994 and oil and gas exploration in Brunei lost money for the group, and Goldsmith reports Andrews as telling the board by 1999 the company had been "convincingly thrashed".

The Fletcher Challenge empire was ultimately doomed, extending too far, too fast throughout the world, all masterminded from Penrose.

Fletcher Challenge lasted only 20 years. "Brilliant, thrilling at times but ultimately disappointing" is how Goldsmith sums up the ignominious end, noting allegations of insider trading directed at chairman Kerry Hoggard and his 1999 resignation.

Hugh Fletcher, still on Fletcher Building's board today, recalled at centenary celebrations at Eden Park a few months ago some of the great follies. During 2000 and 2001 Fletcher Challenge sold the paper and energy divisions, and established separate companies. But one part of the business was to endure - construction, that core business established by the Scottish migrant. And from that sprang today's big company.

"Fletcher Building was formed to manage the businesses at the heart of the Fletcher tradition - the manufacture and distribution of building products and construction materials, and the construction of commercial, residential and infrastructure developments," the company says.

In March 2001, Fletcher Building listed on the NZX and ASX.

Under Australian mechanical engineer Ralph Waters, the business became huge. Goldsmith notes how ex-chairman Rod Deane knew within minutes of meeting Waters that he was the right man. Waters had his critics, with some staff staying he was too grim during the good times.

But it was under his hand that Fletcher Building spent $1.6 billion on Australia acquisitions: Laminex in 2002 for $759 million, Tasman Building Products a year later for $260 million, Amatek Holdings for $581 million.

Ling's big deal was Formica, the US high-pressure laminates business. Ling had been hired by Waters to run Fletcher's laminates and panels division in Australia.

Goldsmith reveals how Waters was initially not keen on the Formica purchase, holding off "figuring it was better to wait until the company's reorganisation had been completed".

Asked to explain that this week, Ling said: "Goldsmith's quote ... relates to the time when I was chief executive of Laminex, Ralph was chief executive of Fletcher Building and I was exploring the Formica acquisition. Our decision to wait until Formica's reorganisation was complete refers to Formica's reorganisation as it came out of Chapter 11 in 2004 and 2005. When we bought the business in 2007 the board including Ralph were unanimous in their support and approval."

Goldsmith notes Fletcher Challenge's breakup brought Hugh Fletcher sadness. But he concludes that after taking all the world could throw at it, Fletcher remained a "rare example of resilience and reinvention".

INSULATION GAINS

Big Government stimulus packages

AUSTRALIA
* A$3.9b for 2.7 million houses.
* Offers free insulation worth up to A$1600 for houses with little insulation.
* Runs from July 2009 to December 2011.

NEW ZEALAND
* $323m for 180,000 houses.
* Offers 33 or 66 per cent subsidy (depending on income) for ceiling and underfloor insulation for pre-2000 houses that are below EECA standards.
* Runs from October 2009 to August 2013.

HISTORIES OF BUILDER TO THE NATION

The history of the Fletcher business and its importance to New Zealand are being marked by a flurry of new books.

Two major works have just emerged: Paul Goldsmith's Fletchers, a Centennial History of Fletcher Building (David Ling Publishing, $49.99) and No Job Too Big, a history of Fletcher Construction volume 1 1909-1940 by Jack Smith (Southern Publishers Group $44.99). A second volume from Smith is due out next year and a third could follow.

In December, Pride of Place, A History of The Fletcher Construction Company by Peter Shaw will be released. Fletchers said yesterday Shaw's book would be published by Fletcher Construction.

"The dust jacket refers to the aim being for employees and past employees to read with pride and for others to gain an insight into the extent of Fletcher's involvement in building this country and the nations of the South Pacific," said Fae Carrie at Fletcher Construction.

Smith had written a comprehensive history based on the archives and his recollections, she said.

"The company book was planned to be a single, readable book that gives a distilled overview of the company's first hundred years."

Goldsmith's book covers all aspects of Fletcher, not just construction.

His book follows the late Bruce Wallace's Battle of the Titans: Sir Ronald Trotter, Hugh Fletcher and the Rise and Fall of Fletcher Challenge (Penguin, $34.95).