By BRIAN GAYNOR
Fletcher Challenge's profit announcement on Wednesday was dominated by two main issues: the faux pas over the early release of the figures and the group's restructuring.
Chairman Dr Roderick Deane was clearly embarrassed by the release of the announcement by the Australian Stock Exchange on Tuesday evening and his address lacked its usual enthusiasm and energy.
Dr Deane dug himself a deep hole as he struggled to explain the botched profit release. The amateurish attempt to cover up the mistake later in the day reinforced the view that the separation of the three letter stocks is in the best interest of shareholders.
On Tuesday at 7.37 pm New Zealand time a fax was sent from Fletcher Challenge to the ASX containing the profit figures for the Building, Energy and Forests divisions for the year ended June 30.
The release was stamped with the word embargo but the ASX immediately released the information to the market. This was consistent with ASX listing rule 15.8 which is headed "No Embargo" and contains the brief sentence, "ASX does not recognise an embargo on a document given to it for public release."
The rule came into force on July 1, 1996. The results had already been reported on the front page of the Business Herald when media representatives arrived for a lock-up at Fletcher Challenge headquarters at 7 am on Wednesday. Attendees were handed the full announcement and ushered into a secured room.
Dr Deane started his address at 8 and after the announcement was released to the New Zealand Stock Exchange at 9 journalists were free to leave.
When questioned about the early release Dr Deane said there had been an embargo agreement with the ASX in previous years but it had not worked this time. He also said that the figures sent to the ASX on Tuesday evening were not supposed to be released because a subcommittee of the board only ratified them at 7 am on Wednesday.
Later that day the company put out a press release that quoted Dr Deane: "A misunderstanding with the Australian Stock Exchange, combined with a move to daylight saving in Australia last weekend, meant that the process we had adopted to assist the Stock Exchange itself, and used over the past several years, did not deliver the outcome sought."
The statement about Australian daylight saving was bizarre. The ASX is open to receive announcements until 8.30 pm, eastern Australian time. Fletcher Challenge sent its release at 6.37 (7.37 New Zealand time) which would have been 5.37 before daylight saving.
How could the change to daylight saving have contributed to any misunderstanding with the ASX?
An ASX spokesman said there was no prior agreement with Fletcher Challenge for an embargo and its no-embargo rule was strictly enforced. He also said that the latest release from Fletcher Challenge had embargo stamped on it but none of the previous ones had.
The ASX representative concluded that the proposed merger between the Australian and New Zealand Stock Exchanges would have interesting implications for our companies because they would have to comply with more rigorous listing rules and enforcement regime on the other side of the Tasman.
The botched profit announcement and attempted cover-up were embarrassing for two reasons. It meant that Dr Deane was poorly advised and a number of his statements were inconsistent with ASX rules and the group's historical reporting procedures with the ASX.
It also showed that continual cost-cutting and loss of senior staff at Fletcher Challenge is having a negative impact on the group's effectiveness. In the past few months several people have been in charge of the group's communications division.
Enormous pressure has been placed on a small number of individuals and mistakes were inevitable. Thus the latest blunder can be attributed to an institutional weakness rather than individual culpability.
This fiasco, which follows last year's leaked internal document on the group's restructuring and Kerry Hoggard's insider trading, is a further indication that the group's traditional high standards have lapsed.
The other topic raised by the embargo issue is whether journalists, analysts or any other outside party should be given the profit announcement before anyone else.
Journalists, particularly those from the wire services, argue that a lock-up allows them to file detailed stories to coincide with the profit release. They argue that this enables a wider range of investors to be better informed.
The flip side to this is that there is an opportunity for early leaks because participants may have access to cellphones or wireless operated laptops. In addition the investor relations department may only invite journalists and analysts who have a favourable view of the company and who will comply with the company's spin on the result.
The ASX, and most of the world's main stock exchanges, are totally opposed to the early release of information to a select group. An ASX official argued that if the Fletcher Challenge result contained a time bomb on page 95 of the 130-page release then those who attended the lock-up and had the opportunity to question executives would be in a privileged position.
There are strong arguments on both sides of this debate but some clear guidelines need to be established. In recent weeks a small group was invited by Advantage Corporation to its profit release lock-up but were given only selective figures. A week later this columnist was refused access to a telephone conference call between analysts and Telecom chief executive Theresa Gattung immediately after the group's profit announcement.
In the United States a closed meeting of this nature would be frowned upon even though a recording of the meeting was later posted on Telecom's internet site.
Notwithstanding the early release to the ASX, the main discussion at Fletcher Challenge's briefing was the separation of the three remaining letter stocks.
The body language of Dr Deane and the group's senior executives reminded one of the Bank of New Zealand in the early 90s. Morale at Fletcher Challenge has been severely dented by the events of the past few years and the sale of the three divisions appears to be the priority.
The Fletcher Challenge board, like the BNZ directors in 1992, seem to have little enthusiasm for the continued listing of the three divisions as predominantly New Zealand-owned companies.
This is consistent with Dr Deane's statement that the main objective of the board is to maximise shareholder value. In the short term at least this can best be achieved through a takeover offer.
Assuming this is correct, Fletcher Building and Fletcher Forests will be interesting takeover plays over the next six months.
Fletcher Energy is more difficult to assess. In the past two months the stock has risen sharply because of the strong performance of Capstone Turbine Corporation on the Nasdaq Stock Exchange.
Fletcher Energy owns 8,123,131 shares or 10.8 per cent of the California-based company which develops, designs and assembles micro turbines for the electricity generation industry.
The Capstone investment cost only $50 million but at Thursday's closing price of $US92.31 it was worth $1.7 billion or 59 per cent of Fletcher Energy's total market capitalisation.
As this represents an enormous percentage of Fletcher Energy's value, Capstone will continue to have a significant influence on the division's share price performance.
*Disclosure of interests: Brian Gaynor is a shareholder of all three Fletcher Challenge letter stocks.
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