From prey to predator

By ANNE GIBSON

House finish, man die, a Chinese proverb says.

The renovated, shining and spruced-up Fletcher Building "house" is far from finished.

That's even after three years under the control of popular chief executive Ralph Waters, whose efforts at the building products company have earned him the moniker "Mr Fix-it".

The Australian raised in a strict Baptist household who first cut costs then let loose with almost $1 billion of acquisitions, still reckons there's "plenty of puff" left.

Four years ago, as Fletcher floated on the stock exchange at $2.23 a share, dire predictions were made about this remarkable company.

Few believed that the group, once untangled from the dysfunctional behemoth Fletcher Challenge, would survive.

Most bet on a sale to Australians or its gradual breakup.

Now it is exceeding analysts' expectations and for three years has defied the ongoing chorus of predictions that it would stumble and trip.

Only last month Waters disclosed Fletcher's spectacular rise in annual profit from $168 million to $240 million. Sales soared by a quarter to $4 billion.

The 52-week share-price "low" was $3.41, but last month the stock shot to $4.80, then piled on 18c in a week, rising to an all-time high of $5.65 this month.

The most recent rise coincided with a two-day investor and analyst briefing by the four operation chief executives: Mark Binns of Fletcher's construction and concrete arm, Jonathan Ling of the laminates and panels group, Andrew Reding of the building products group and David Worley of the distribution group.

When taken to the factories, shown the impressive manufacturing and distribution networks and treated to an insider's view, the investors and analysts liked what they saw.

"If half of what they're saying is true, that's good enough," said an impressed ABN Amro Craigs analyst Dennis Lee.

Some found the tour breathtaking.

Take this example: Binns disclosed a backlog of projects worth almost $500 million in Fletcher's commercial, civil and industrial infrastructure, building and engineering divisions.

The construction division is the smallest contributor to group profit. But its size belies its importance as its workload creates demand for products produced by the other three.

The order book also shows how robust the building sector remains.

Another example: the building products division is so large that if it were listed as a standalone company, it would rank in New Zealand's top 10.

Analysts and investors predict that a house-building downturn, sparked partly by a plunge in immigration, will be more than compensated for by a vast rise in infrastructure spending in the next five years.

Brokers are expecting the excellent performance to continue.

"Analysts are valuing the company higher than the current share price and, if the company performs better than expectations in this financial year, the share price will continue to rise," said Lee, who reckons the shares could go as high as $6.

These expectations show inherent confidence from the brokers in Fletcher's ability to turn out even better profits next year and deliver more value.

Ditching its global desires, the company has concentrated on Australasia. Added to a regional focus has been an ability to integrate its businesses so when Fletcher Construction wins a job it can use materials produced by its own subsidiaries such as Golden Bay Cement or Pacific Steel.

Waters has signalled his intention to buy more businesses and expand existing ones.

Precast concrete manufacturer Stresscrete is developing new products; Winstone Aggregates is being streamlined; Golden Bay Cement will expand manufacturing and distribution to meet demand; the metal roofing tile market has huge untapped potential and Pacific Coilcoaters will open a new research and development area in February.

Reding showed how revenue from building products had grown $374 million in two years, from $756 million in 2002 to $1.13 billion this year.

Acknowledging record building levels, Reding said competent management, a focus on performance, acquisitions, divestments and some plant closures were also keys to the growth of his division.

Waters set the example, ditching fancy consultant-speak and answering his own phone.

His turnaround has left some in Auckland business scoffing, saying the market has treated him so well that he could not miss.

But riding a building market on a 30-year high, spending $754 million buying Australian wallboards manufacturer Laminex, then last year $260 million on Tasman Building Products, Waters has made the company a dominant Australasian force.

A force that looks set to continue to deliver.