Bad business purchases here and in Australia hit Fletcher Building's bottom line result yesterday, leaving some shareholders keen to sell.
Chief executive Mark Adamson said a $32 million writedown in the value of New Zealand's Forman building systems, insulation and interiors group of companies was Fletcher's biggest hit in the $66 million incurred from writedowns and factory closures during the six months ended December 31.
"Forman has struggled since it was acquired to justify the return on the price paid," Adamson said. "We don't need to own it as a stand-alone business unit," he said, adding the Forman branding had all but disappeared.
A further $19 million writedown came from a Crane copper-tube factory closure in Sydney, $6 million from a Stramit panel plant closure in Sydney's Penrith, $6 million from the Humes pipe plant closure at Rolleston and a further $3 million from the Tasman Insulation plant closure in Christchurch.
Matt Goodson at Salt Funds said the New Zealand result was generally solid, particularly businesses with residential exposure.
"The main problem was Australia, with their infrastructure exposures and especially their coal-seam gas-exposed plastic pipes businesses going backwards, and they are yet to hit bottom," Goodson said.
"The earnings outlook for the full year is at the bottom end of original guidance and the share price has had a good run in recent days, so today's move is understandable."
We need to be a lot harder and tougher at both acquiring and divesting
Emily Smith, of Deutsche Bank, said underlying net profit after tax of $171 million was ahead of her company's $146.1 million forecast but it was hard to compare divisional performances because Fletcher changed its segment reporting.
"We believe the performance in the construction segment was very positive," Smith said, referring to its heavy workload in New Zealand.
Other investment specialists said Australian institutions were deeply unhappy with Fletcher and were selling.
Adamson also said the result for the full year to June 30 would come in at the lower end of the $640 million to $690 million range.
Fletcher is the second largest NZX-listed stock after Spark NZ, which reports today.
Smith said Deutsche Bank would retain its buy rating on Fletcher "given significant potential upside from the New Zealand recovery as well as strategic initiatives".
Adamson did not criticise previous chief executives for their big-spending strategies, despite their not having paid off.
"We need to be a lot harder and tougher at both acquiring and divesting," Adamson said.
New chief financial officer Gerry Bollman, in the job since November, was less bearish.
"There's nothing we need to sell," Bollman said.
Fletcher will even sell its Penrose headquarters, possibly for about $80 million, to be leased back.
Fletcher Building's shares closed down 44c yesterday, or 5.03 per cent, at $8.30.
Anne Gibson: CEO plans diet of restraint for company
Fletcher Building chief executive Mark Adamson has slimmed down by about 6kg since around Christmas.
Sporting a black watch-like fitbit on his right wrist, which showed he had covered 4006 steps by 11.50am yesterday, he explained how he had lost weight, was taking the stairs instead of the lift and that it was all deliberate.
"This is hard work night and day, with the business all around the world and the phones never stop so you have to be fit and on top of your game," said the chief two years into the job.
Fletcher's bottom line also looked somewhat slimmed down yesterday, the half-year profit plunging from $154 million to $114 million, with $66 million of significant items due to value writedowns and plant closures.
You wouldn't say Adamson was proud of that but that's the outcome of dealing with difficult parts of the business, which employs 19,000 people.
Adamson follows a line of big-buying chief executives and the company developed a reputation on the acquisition trail.
Now the quick-witted man from northern England is changing that image and taking some particularly hard decisions. "CEOs love to go out and buy stuff. My reign will not be a sexy one but getting more out of what we've got," he explained.
When asked what his dad did, Adamson's son once said he fired people, but throughout the Australia and New Zealand writedowns and closures only about 200 jobs have been lost.
The on-market raid then takeover of Australia's Crane Group last decade was one of the more exciting phases of the Penrose-based business, but now it is quitting areas where it can't make money.
Adamson is clear about the direction: "M&A is hard and aggressive, on-market transactions place increased pressure and they're the hardest to make work."
Expect more restraint as Adamson's slimmed-down vision pans out.