Fletcher announces 'gear change' after tough year

Fletcher Building chief executive Ross Taylor says the company's five year strategy is a "gear change", coming after it racked up nearly $1 billion of losses on major construction contracts.

"It's been an intense seven months but it's good to get to this point," said Taylor.

Fletcher in Sydney today announced a major overhaul of its multi-billion dollar business that will see it will leave Europe, Asia and North America and trade only in Australia and New Zealand.

The new five-year strategy was a four-pronged plan, he stressed.

"First we will focus on our core businesses and defend our positions," he said citing a new investment in a $262 million Winston Wallboards Auckland plant, probably at Drury as well as a $15m new panelisation plant to be developed in Auckland and take annual residential construction to above 1000 places.

"Second, we've got to get construction fixed and position and grow that particularly in infrastructure" he said referring to finishing large jobs like the NZICC and Commercial Bay.

Third, "we need to get Australia performing well," he said citing low 4 per cent margins compared to 10 to 11 per cent NZ margins.

Fourth, Fletcher is selling Formica and the Roof Tile Group and that meant a focus solely on Australia and NZ, he said.

Shareholders warmed to the news, closing up 4.24 per cent at $6.88.

As part of the strategy change, Fletcher Building is also restructuring to cut costs of $30 million a year.

The new model will cost between $85m and $95m to introduce.

Josh Wilson, senior portfolio manager and NZ Funds, said there was potential for improved earnings arising from today's changes.

"A pared down and simplified company will allow management to focus on running Fletcher Building's market-leading businesses to their full potential, something that eluded previous management," he said.

"This offers the potential for meaningful earnings upside."

Fletcher Building's valuation sits 25 per cent below its Australasian peers, reflecting the turmoil at the company over the last year.

"With no further construction losses announced and a sensible strategy finally in place, we expect the market to take heart and this gap to close," Wilson said.

New investments

Losses of nearly $1b over two years from difficult construction jobs have not deterred Fletcher Building from examining new ways to drive more revenue from profitable areas of its operations.

Fletcher announced a $262m investment in a new wallboard factory which might be built at Drury and chief financial officer Bevan McKenzie told investors and analysts in Sydney that would be the largest planned capital expenditure.

Fletcher will spend money on a panelisation factory which is will build in Auckland to make components for 300 to 350 new residences annually.

But the wallboard plant is a much larger investment.

The new Winston Wallboard factory in Auckland would employ 190 to 200 people and the business said it was New Zealand's only manufacturer of plasterboard.

The new factory will replace existing operations spread over various sites.

"This is the same number (of people) currentLy employed across the Auckland manufacturing and four distribution sites," the business said today.

Fletcher said that imported wallboard product was available in New Zealand.

However analysts have noted Fletcher's dominant role in the market and its trade distribution channel via its Placemakers outlets.

Negotiations on the Drury site have not been concluded yet, the business said. But the new plant could be operating by 2021 or 2022. A resource consent application has already been lodged with Auckland Council, Fletcher said.

A larger factory is needed to meet more capacity and the existing Auckland facilities need updating, it said.

- Anne Gibson travelled to Sydney with assistance from Fletcher Building.