Fletcher's new operating model to incur one-off $85-95m cost

Fletcher Building says its new operating model, coming into force from July 1, will reduce costs by $30 million a year.

This new operating model will add $85-95 million in one-off costs to the results for the year ending this month.

The results will also include a one-off gain of about $12m from the sale of Fletcher's 20% stake in the Dongwha processing plant and an unspecified impairment in the carrying values of the Rocla and Roof Tile Group.

The Roof Tile Group and Formica are still earmarked for sale and Macquarie Capital has been appointed to advise on the Formica sale.

Otherwise, the company says there's no change to its estimated earnings before interest and tax (ebit) between $680-720 million for the year ending June 30, excluding one-off costs and results from the Building + Interiors unit, which is expected to lose $660m as previously forecast.

Changes to the board will be announced tomorrow. Chairman Sir Ralph Norris said in February that he would resign before this year's annual shareholders' meeting.

“Fletcher Building is one of the most diversified building materials companies in the world, with operations spanning multiple geographies, sectors, value chains and product lines,” says chief executive Ross Taylor who took on the top job from November last year.

“As we announced to the market in April, we have made the decision to focus our portfolio by divesting our Formica and Roof Tile Group businesses and focusing our capital and capability behind the New Zealand and Australian markets,” Mr Taylor says.

“While we don’t expect these markets to experience the same levels of growth they have seen in recent times, we do expect them to remain stable and, with only 15% share of the New Zealand market and 1% in Australia, there is plenty of opportunity to deliver more from our existing operations.”

Devon Funds' Mark Brown says it's possible that the current rally in Fletcher's share price - up 4.39% in today's trading to $6.89 - is a case of  “no news is good news”.

"The combination of a sound rational strategy and the reaffirmation of prior guidance seems to have given the market confidence that things have finally turned around at Fletcher’," he says. "Additionally the confirmation of asset sales means that this already well capitalised business will become even stronger, giving it greater optionality with respect to its future strategy."

Harbour Asset Management's Shane Solly says Fletcher has been the best-performer on the sharemarket, recovering some ground lost in the past couple of days. The overall market is up with several stocks rallying. He thinks investors were relieved not to see more provisioning for losses in the troubled B&I division and the narrower strategy has also been well-flagged by management.

The one-off costs associated with the restructure were on the high side, but management may just be giving themselves "plenty of runway", he says.

The line-up
From July 1, all of Fletcher's Australian operations will become a single division led by Dean Fradgley, presently chief executive of distribution.

A new distribution division will be headed by Bruce McEwen, presently general manager of PlaceMakers.

GBC Winston general manager Ian Jones will join the executive team as chief executive of the newly created concrete division, which includes Golden Bay Cement, Winstone Aggregates and Firth.

Fletcher Steel general manager Hamish Mcbeath will join the executive team as chief executive of the newly created steel division, which includes all the company’s New Zealand steel businesses.

David Thomas will continue as interim chief executive of the revised building products division while a permanent replacement is recruited.

Steve Evans will continue as chief executive of the residential division.

Michele Kernahan will continue as chief executive of the construction division.

Claire Carroll has been permanently appointed as the chief people and communications officer.

All other executive roles at the corporate level remain unchanged.