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The rebuilding of Fletcher

Has Fletcher Building boss Mark Adamson succeeded in turning around the sharemarket giant? Anne Gibson reports
Mark Adamson at Fletcher's 2012 AGM, shortly after taking the top job. Photo / Steven McNicholl
Mark Adamson at Fletcher's 2012 AGM, shortly after taking the top job. Photo / Steven McNicholl

On October 1, 2012, when a plain-speaking northern Englishman strode into the Penrose world headquarters of Fletcher Building, he arrived with big plans.

The son of a Newcastle policeman, Mark Adamson was already well-regarded by analysts who had seen him perform overseas, and who wanted a new management style and major shake-up of the business.

At the time, Fletcher was threatened by cheap imports of building materials, low residential building levels here and in Australia, a flat-lining share price and a Christchurch rebuild that was taking far too long.

And while the company had been ambitious in expanding overseas through some big acquisitions, particularly in Australia, the scale of those deals was not matched by a similar boost to the bottom line.

Adamson arrived with a lot of credit, having achieved the seemingly impossible: rescuing the basket case company Formica - which was not long out of Chapter 11 bankruptcy in the US when former Fletcher chief executive Jonathan Ling bought it in 2007 - and converting it into Fletcher's best performer.

Four years after Adamson's arrival, his boss, Fletcher chairman Sir Ralph Norris, is feeling chipper: "I have been very impressed with Mark and the executive team's commitment to making Fletcher Building a great place to work for a global workforce of more than 20,000," says Norris.

He ticks off Adamson's achievements, including an increase in staff engagement; a 73 per cent increase in the number of women in senior leadership roles since 2012; a youth employment and development strategy; employee learning programmes; and leading-edge human resources technology.

"The enthusiasm of employees, many whom I have personally met, clearly demonstrates the positive culture that has been created by Mark and the broader leadership team," Norris says.

"The area that Mark has driven with real passion and purpose is bringing executive focus on improving diversity across the business. He has taken a strong personal leadership position, chairing the diversity council and ensuring real progress is made."

Watch: Mark Adamson on Fletcher profit:

Video

Share analyst and portfolio manager Shane Solly, of Harbour Asset Management, says that under Adamson, Fletcher "has got its mojo back again, delivering solid returns in its home market and improving in Australia, refocused into areas building on traditional strength with good returns."

Adamson and the management team have grabbed some thorny business nettles, says Solly, taken some hard decisions and are turning around some challenged businesses - particularly in Australia.

The numbers back up Solly's view. Adamson last month announced a 71 per cent gain in full-year profit, up from $270 million to $462m - and drew headlines for netting a 17 per cent pay rise this year, to $4.72m.

Mark Lister, head of private wealth research at Craigs Investment Partners, is not so impressed.

"He's done a reasonable job, but it's still been very much a disappointing performer in my mind. Things seem to be back on track now, but the last few years have been pretty mediocre. We've had a very strong economy, a domestic construction boom and the Christchurch rebuild going on for a few years now. Fletchers should've been capitalising on all of those things, but they haven't. It's had a great run in 2016, but for the six years preceding that it was an awful investment.

The enthusiasm of employees, many whom I have personally met, clearly demonstrates the positive culture that has been created by Mark and the broader leadership team.

"Back in 2007 the share price got as high as $13.27, so while it's rebounded strongly this year, at $10.27 it's still almost 20 per cent below the pre-GFC high. Auckland Airport, Ryman, F&P Healthcare and Mainfreight have all doubled since then, so it hasn't been a very good performer at all compared to its peers, or the market in general. Net profit in 2007 was $484m for the year and in 2016 it was $462m, so again, they still have a way to go."

Chris Gaskin, of Devon Funds Management, takes issue with the idea of a turnaround. "Fletcher is a cyclical business and so the cycle will dominate everything else to a certain degree," he says. "That said, the stock has recently responded well to the improvement in operating earnings in Australia evident in the full-year result, and I think you have to give the management team credit for this."

As Adamson sees it, Fletcher "is not a business that you can run. You have to lead it. It is simply too complex and diverse to manage like you would a smaller or less complex business.

"I think folks looked at my private equity background and thought I'd come for a short term turnaround. I knew going into the role that there was a lot to do and that it would take years, not months. My family and I are fully committed to New Zealand - house, cars, schools, everything. I knew I was going to have to ask a lot of people, both those I've recruited and those already in the business, and I couldn't look them in the eye if I wasn't in it for the long haul."

Fletcher Building CEO Mark Adamson.
Fletcher Building CEO Mark Adamson.

The 50-year-old Adamson has a BA in business finance from Northumbria University and past jobs have included financial controller of the pharmaceutical company GlaxoSmithKline, then a number of positions with the Formica Group, which he joined in 1998 as chief financial officer of its European division. He was then appointed managing director, UK and Eire, became Formica Europe president in 2004 and in 2008 was appointed chief executive of Formica Corporation.

Previously based at Formica in Cincinnati, remote from the culture of the wider Fletcher group, when he arrived in AUckland Adamson found "a strong, almost zealous belief that by leaving businesses alone to manage themselves, performance would be maximised.

"This philosophy can work but you need a rigid strategic framework, strong performance management and a superb talent management system. We have had to work very hard in recent years to bring these three things to the business."

The most enjoyable part of his job is "encouraging the business to look at every decision through the lens of the customer, the employee, the communities where they operate, and the investor. I particularly enjoy my interaction with employees, investors and customers. You learn a lot by listening to their concerns, desires and beliefs.

"I am really fortunate to have a job that finds me opening a plant in China one week, visiting customers in Western Australia the next and presenting at our annual shareholder meeting the week after. With this in mind, I don't enjoy the parts of the role that aren't focused on our people and customers. I don't consider myself a career CEO and I'm not good at schmoozing or self-promotion".

I am really fortunate to have a job that finds me opening a plant in China one week, visiting customers in Western Australia the next and presenting at our annual shareholder meeting the week after.

Adamson sees his biggest success as the "turnaround, halting the downward momentum is the hardest thing to do. In addition to doing this, we have built what I consider to be one of the best management teams in this part of the world. An enormous amount of effort has gone into creating this cohesive and strong management team. I am really proud of the people I get to work with every day".

Adamson and the board got a hard time at last year's annual meeting at SkyCity, where shareholders were vocal in criticising writedowns in the value of company assets. When he was later congratulated on the sale of Rocla Quarry Products and a A$100m one-off profit, Adamson quipped via email: "I'm from a council house in northern England, I've spent a lifetime proving people wrong."

The shareholders were complaining about $78m in writedowns - $32m off the value of insulation, building and interiors business Forman Group, $30m off Australia's Stramit, which is a major manufacturer of roll-formed steel building products, a further $15m off Tasman Insulation, which makes Pink Batts, and $1m off Humes Pipeline Systems, the largest pipeline systems supplier to New Zealand's infrastructure market.

But Adamson had a plan, even if it was an unpopular one at the time: "I'm sitting here ... very confident. We're in a consolidation phase," Adamson said then, explaining how a list had been drawn up of companies with problems. "This is the dark before the dawn."

Fletcher CEO Mark Adamson (right) and apprentice carpenter Luke Thomas. Photo / Ted Baghurst
Fletcher CEO Mark Adamson (right) and apprentice carpenter Luke Thomas. Photo / Ted Baghurst

Asked now about the legacy he plans to leave, Adamson says it's not about him: "Every job I've ever taken, my principal objective is to make myself irrelevant. By that I mean the strategy and structures within the business are strong and the leadership and people engagement is such that the business doesn't need the routine intervention of the CEO that has marked the last few years.

"I would feel proud if people understood what Fletcher Building stands for today, for Fletcher Building to be known as an efficient and internationally successful business that delivers great service and products to its customers and value to its shareholders, for current and potential employees to understand this is a business that rewards engaged and high-performing people and is also inclusive and committed to fair play."

Occasionally, he can be a bit too blunt for some people. He wouldn't have endeared himself to Australians this year when he said "no one wants to live in Sydney". Adamson explains now that his "northern roots have blessed me with a direct style of speaking that's not always suited to public life. I really enjoy Sydney, have spent a lot of time there, and think it is a great city. In this case I was comparing Auckland and Sydney in terms of the cost of living, traffic congestion. I spend a lot of time in Oz and have had a lot of good-hearted ribbing as a result of that headline."

On speculation that the Fletcher behemoth could be broken up, he says: "I come from a private equity background where you make the right decisions for the shareholders and not the management teams. Portfolio businesses like Fletcher Building must be agnostic to which businesses they own and not get too emotionally attached to them.

I came to grow a business and feel Fletcher Building is now in a position to be more aggressive with both organic and acquisitive growth.

"I initiated a review of the value of the group as separate business units not long after I started. The work supported keeping Fletcher Building together. We run that piece of work annually and each time it comes up with the same answer. As we extract more and more value from the assets through Fletcher-wide performance improvement programmes, it is highly unlikely a case could be made for a break-up of the group."

Adamson appears grateful to Norris. "Sir Ralph has certainly had a big influence since coming on board," he says. "We have a very good relationship and share the same beliefs around the importance of people and creating an atmosphere of fairness. I've appreciated his support in terms of supporting our customer leading initiatives.

"I think, however, my biggest influence has been our people. I have gained an appreciation of the importance of the individual efforts of the 20,000 people that work with us. You can have the best strategy, systems and leadership but they are the ones who go the extra mile to serve the customer, make and ship the product or make the sale, and that is what ultimately delivers superior business."

After four tough years addressing issues built up over the past, Adamson says the company has "great momentum".

"I didn't come to NZ to spend my time turning around a business. I could have stayed in the US and done that.

"I came to grow a business and feel Fletcher Building is now in a position to be more aggressive with both organic and acquisitive growth."

Under Adamson, Fletcher Building has:

• Sold Pacific Steel to BlueScope for NZ$120m in 2014.

• Sold Rocla Quarry Products to Hanson Construction Materials last year, making a A$100m one-off gain.

• Completed in July the $315m purchase of NZ's third biggest roading/road maintenance business, Higgins Group.

• Restructured Laminex and Iplex, many divisions and top management teams.

• Introduced FBUnite a cost-cutting programme that aims to save $75m-$100m annually.

• Ramped up housing development, buying land for thousands of new homes in Auckland and Christchurch.

• Faced opposition to its residential development plans for Auckland's Three Kings quarry and beside Mangere's Ihumatao Stonefields.

• Overseen construction growth, winning a $471m contract for the $700m NZ International Convention Centre in Auckland and one to build the $681m Commercial Bay development on the city's waterfront.

• Built up a $2.7b construction order book, the largest since it was formed in 2001.

- NZ Herald

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