Fletcher Building has put Australian operations on notice that more divestments could be in store for underperforming assets.
While subsidiary company sales have occurred on both sides of the Tasman recently, Fletcher chief executive Mark Adamson highlighted tough economic times in Australia, compared with more buoyant and profitable conditions in New Zealand.
''Many of our businesses in Australia faced tougher economic conditions, compounded by excess manufacturing capacity and market oversupply,'' Mr Adamson said at the company's annual shareholder meeting in Auckland yesterday.
Fletcher's priorities for the year ahead were to keep gaining growth from New Zealand's cyclical construction upturn, and in Australia, seek a boost to earnings, despite the mixed market conditions, Mr Adamson said.
He highlighted the strong lift in New Zealand earnings, for the year to June, and the strength of the New Zealand businesses, despite the high New Zealand dollar and and competition from the increase in imported materials.
Two of the challenges faced by Fletcher's Australian businesses were reduced demand and a weak pricing environment.
''With such a backdrop, we have increasingly focused our attention on our Australian businesses, to determine what more we can do to lift our performance and which businesses might have a higher value under different ownership,'' he said.
Fletcher's construction business had expanded, with a record $1.8 billion work backlog, up from $1 billion last year, and a large swath of Canterbury infrastructure repair work was under way, plus the start of work for the Christchurch justice and emergency services precinct.
Mr Adamson predicted the Canterbury home repair programme would end in a few months, having completed 59,000 temporary repairs and almost 70,000 home repairs, in four years.
On managing the business portfolio, Mr Adamson said the most significant development during the year was the sale of Fletcher's Pacific Steel to New Zealand Steel, the local subsidiary of BlueScope.
''The review showed that, on average, returns from Pacific Steel were lower than our cost of capital,'' Mr Adamson said.
Fletcher could see significant cash costs coming up in the medium term with extensive reinvestment required to keep the Otahuhu steel plant going.
Fletcher did an assessment of the Hudson Building Supplies subsidiary, deciding it did not fit with its plumbing distribution business in Australia, selling Hudson to a Woolworths subsidiary in Australia.
Since balance date, for the year to June, Fletcher made the ''tough decision'' to close its copper tube manufacturing at Crane Cooper Tube in Sydney, Mr Adamson said.
Any subsidiary divestments are part of a broader four-point set of strategic priorities, which include garnering more savings from the FBUnite restructuring programme, organic growth opportunities, and focus on in-house employee training, to lift capability and build employee engagement.
While business acquisitions are not off the radar, Mr Adamson said said it was ''fair to say that high-quality opportunities, priced where we could see value, have been scarce'' and Fletcher felt ''no particular pressure'' to pursue acquisitions.
''We will continue in the year ahead to actively review the portfolio and are likely to divest of further non-core businesses if conditions are sufficiently favourable,'' he said.
