Fletcher unveils yet more losses
New Fletcher CEO reveals $90m more in losses, with more writedowns to come on its Rocla and Roof Tile units. Board cleanout due on Friday.
Fletcher Building chief executive Ross Taylor said the company expects to take restructuring charges of $85 million to $95 million in its 2018 results as it moves to a decentralised operating model with more divisions and will also write down the value of its Rocla and Roof Tile businesses.
Taylor plans to restructure the company into seven operating divisions from five currently, saying a move to a decentralised operating model will cut annual overheads by $30 million. Today's announcement is the result of a strategic review led by Taylor, who started last November. Under the new operating model, effective from July 1, all the Australian businesses will sit in their own division while in New Zealand, the concrete and steel operations will also be created as new divisions.
Taylor's strategic review leaves Fletcher's executive team virtually intact although in new roles. Dean Fradgley, currently head of distribution, will become CEO for Australia and Placemakers general manager Bruce McEwen will become CEO of Distribution New Zealand which includes the Mico chain. GBC Winstone manager Ian Jones is promoted to CEO of Concrete, which includes Golden Bay Cement, Winstone Aggregates and Firth, and Hamish McBeath, now manager of Fletcher Steel, becomes CEO of Steel.
Other roles remain intact. Michele Kernahan continues as CEO of construction, Steve Evans as chief of Residential and David Thomas as interim CEO of Building Products. The only departure is Francisco Irazusta, who was head of International, which is being disestablished with the planned sale of its Formica and Roof Tile businesses. Macquarie Group has been hired to advise on the Formica sale.
Irazusta had been acting chief executive of the company after former boss Mark Adamson was sacked last year. In February, chair Ralph Norris announced his departure in the wake of further losses at the company's Building + Interiors unit. The company said it would announce further changes to its board tomorrow. Its 2018 results will be released on Aug. 22.
At an operating level, Taylor kept Fletcher's 2018 forecasts unchanged. Group earnings before interest and tax, excluding B+I and significant items, was reiterated at $680 million to $720 million and the B+I ebit loss was affirmed at $660 million.
"The new operating model will be introduced on 1 July 2018 and will reduce overheads across the group by $30 million per annum, empower businesses at the front line and deploy a new divisional structure that will align businesses to the new strategy," Taylor said today.
As a result of the restructuring, Fletcher expects to incur one-time charges of $85 million to $95 million in its results for the year ending June 30. Other items in the 2018 results would include a gain of about $12 million from the sale of 20 percent of a wallboard operation and "a likely impairment of the carrying values of the Rocla and Roof Tile Group businesses," Taylor said in a statement. "With successful implementation of the strategy we aim to deliver above-market revenue growth and improved operating margins over the medium term."
In terms of timing, he said, the focus for 2019 will be in stabilising and turning around existing businesses while shedding Formica and Roof Tile Group. "By FY20 we should be well positioned to deliver solid performance across the portfolio, and from FY21 onwards we want to be achieving strong revenue and earnings growth year on year."
Under Taylor, Fletcher has moved to strengthen its balance sheet with a $1.25 billion refinancing plan including a deeply discounted offer to shareholders to raise $750 million and renegotiated lending terms.
Fletcher shares last traded at $6.60. They have underperformed the S&P/NZX 50 Index in the past five years, falling 15 percent while the benchmark index climbed 102 percent, but in the past three months, Fletcher has traded more in line with the NZX 50, rising 4.9 percent to the index's 5.8 percent.
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