Fletcher Forests shifts focus with new products

By PAULA OLIVER

A heartening results announcement from debt-ridden Fletcher Forests last week is the first strong indication that the company's shift of focus towards high-margin products is working.

Forests returned a profit of $81 million, a significant increase on last year's effort of $55 million.

Driving the increase was growth in high-margin value-added product sales, which climbed to 53 per cent of overall sales.

Forests have seized upon the value of processing logs into products for export, rather than just selling the log.

Chairman Dr Roderick Deane proudly pointed to Forests as being "a very different company from the forestry organisation of some years ago," and much less susceptible to the vagaries of commodity pricing.

Certainly Dr Deane has a lot of evidence to back his transformation claim.

Forests' Taupo mouldings plant increased its production by 22 per cent over the past year, to cope with a growing export market for high-margin products in the United States.

Finishing products for repairs and remodelling make up most of the US sales, which have been captured through taking a stake in two distribution firms that supply the do-it-yourself (DIY) chain Home Depot.

Significant investment has been made in kilns to dry timber and give it more stability, while a new product, Origin I-beam, was successfully launched this year.

The results come two years after a collapse in commodity prices hit Forests hard during the Asian economic downturn.

Log prices slumped, and spokeswoman Ginny Radford said that Forests was fortunate it had already begun a push for value-added products.

"There has been a total shift in our strategy, and we have a much more focused approach now," she said.

"We had already begun the change before the Asian crisis, and for Forests it made the difference between being knocked around by Asia or being devastated."

Ms Radford said the Japanese home-building market presented a great opportunity for Forests, and a plant at Kawerau was heavily involved in developing specific products that met stringent Japanese building requirements.

"They have an extremely careful market, and all products must be certified. We've got that accreditation at the Waipa sawmill, and we are able to manufacture things like the mouldings to go around doorways."

The potential of the US market is the reason Forests has actively pursued certification from the Forest Stewardship Council, a world body pushing for sustainable forest practices.

Two large DIY stores in the US have announced that from 2002 they will not take wood products which are not certified - resulting in Forests leading the charge for the standard.

"We haven't got the certification yet, but all the surveys have been done and we are awaiting the result," said Ms Radford.

"The consumer markets in the US are particularly aware, and that's why we moved quickly down the certification path."

New Zealand remains the greatest market for Forests' manufactured products, making up 48 per cent of sales. But overseas markets are growing, and Ms Radford said tremendous opportunities existed in the US.

A swift marketing programme has ensured the Origin brand name is being recognised worldwide, while the company's biotech interests in growing smart trees should see further development of value-added products.

Dr Deane said: "The product solutions strategy designed to counter the log commodity cycle has been highly effective.

"It is particularly encouraging to see our strategies paying off and bearing fruit."

Fletcher Building also revealed evidence of a transformation at last week's results announcement, unveiling tremendous growth in sales for its specialised Gib board range and high-density particleboard.

Chief executive Terry McFadgen said the conscious shift towards high-margin products was what had lifted profits despite a drop in sales.

As speculation about a Forests sale grows, its present owners will be heartened by the results of its strategy so far.