Fletcher’s widening from N.Z. base

Press, 15 September 1988, Page 34

Fletcher’s widening from N.Z. base

By

NEILL BIRSS

Fletcher Challenge is racing ahead as New Zealand’s first true multinational company. It is “globalising” its shareholding as New Zealand's share of its sales declines. The company yesterday announced for the year ended June 30 the first half-billion-dollar profit by a New Zealand company. The bottom-line result was $532.3 million. Of this $277M was contributed by business with headquarters in New Zealand (compared with S2OBM the previous year). Some of those profits were on exports and on businesses overseas run from N.Z. Mr Hugh Fletcher, the chief executive officer, said 58 per cent of the earnings came from international activities, including North America, which contributed $255.5M. The overseas business is noticeably more profitable. The foreign profits were 40 per cent of the group’s sales. The tremendous cash flows of Fletcher Canada were the basis of this year’s record result, and permitted the group’s aggressive expansion, Mr Fletcher said. The group now has a billion-dollar cash flow. The internationalisation of Fletcher Challenge has been rapid. In 1982, when the Government began relaxing controls on overseas investment, nearly all of its assets, employees, cash flow and

profits were New Zealand based. Six years later more than half of its revenues come from overseas. The “Fortune’ 500 ranking of top companies outside the United States now lists Fletcher Challenge as sixtieth in earnings (about the same as Ford of Britain), and ninetieth in assets (about the same as Mazda of Japan or Alcan of Canada). In all the economies where the group operates the outlook is for economic growth. "The directors expect strong growth in earnings in 1988-89,” Mr Fletcher said. Demand is expected to increase for market kraft paper, light-weight coated paper, and the newsprint demand is expected to stabilise. A “significant” contribution is expected from Petrocorp. Debt is now 59 per cent of liabilities, and equity makes up 41 per cent of that side of the balance sheet. This is over the targeted ratio of 59:41, and is despite equity (including minorities) of $4.3 billion compared with $3.7 billion the previous year. However, Mr Fletcher is confident the big cash flow will restore the ratio to target within the next three years. Petrocorp, with four months contribution, provided 10 per cent (SS3M) of the group’s earnings. Methanol prices (up from SUSBS a tonne to $240), “reasonable” oil prices and higher output from the McKee and Waihapa fields boosted income. Mr Fletcher said it must be reasonably estimated that Petrocorp’s contribution to the group would equal that of newsprint or pulp. Fletcher Challenge has taken its losses in Challenge Meats on the chin. It has written off S6SM from this investment after an operating loss of S3IM. This makes up the great proportion of the extraordinary losses listed in the result. Challenge Meats suffered from poor returns from sheep meats and

fewer animals for slaughter. Late in the financial year it was sold to Waitaki International. Wrightson was left trading at break-even levels by cuts in farm spending. However, it is expected to make a profit, though inadequate, in the current financial year. In New Zealand, forestry and wood products was the biggest earner for the group. Tasman Forestry’s result was down after' S3IM of damage from Cyclone Bola. Fletcher Panel Industries, whose medium density fibre board plant is now running “above capacity,” had an excellent run-up, Mr Fletcher said. The high Kiwi dollar had held earnings to normal levels. Tasman Lumber, after its second year of losses, was disposing of four regional sawmills and installing an advanced Rainbow mountain sawmill. This had paid off with a profit in July. Fletcher Construction had a record year, and overseas, Pacific Construction had its

best result. Tasman Pulp and Paper returned to profitability with earnings of $32.6M. This was the result of the good prices for newsprint and pulp. The steel sector found trading in New Zealand tough, with exports reduced and home prices cut by import competition. The earnings of the building materials sector fell substantially “despite good performances by Firth and Fletcher Residential.” In total, the Fletcher Challenge result is an excellent result of a remarkably fast and large diversification by a company which in 1982 made half of its earnings and cash flow of S9OM from Kawerau. The company still accounts for about 13 per cent of New Zealand exports, and with expectations of a stimulated economy from the October tax cuts, ’and what Mr Fletcher suggests is the soundest New Zealand economic base for 30 years, a strong home performance is likely in the current year.

earnings FCL, subsidiaries ($NZM) year ended June 30 1988 1987 Turnover 9174.0 5822.4 Earnings: Trading 1088.1 680.9 Investment 188.0 41.6 Funding (416.8) (238.8) Pre-tax profit 859.3 483.7 Taxation (164.1) (100.9) Trading profit 695.2 382.8 Minorities (133.8) (60.6) Pre-extra earnings 561.4 322.2 Equity earnings 28.2 24.8 Group net profit 589.6 347.0 Extraordinary items (70.6) 0.5 Net earnings 519.0 347.5 Prop, revaluations 16.3 18.0 Rev. depreciation (3.0) (10.4) Total profit 532.3 355.1