Fletcher Building

Directors cash in, but it's still better overseas


Some directors got bumper pay rises in recent years and others got nothing - but the average still vastly outstripped rises for other workers.

A study by Institutional Shareholder Services found the average fee for a non-executive director rose nearly 25 per cent from $49,253 in 2004 to $61,416 last year.  Telecom and Fletcher Building chairman Roderick Deane was the highest-paid director last year, at $665,500.  Wayne Boyd was second with $392,961 for his role on the Telecom board and his chairmanships of Auckland International Airport and Freightways.  Third was Keith Smith with $345,000 for his seat on the PGG Wrightson board and chairing Skellerup, Warehouse Group and Tourism Holdings.

The rate of pay increase for directors over the period was more than three times that of inflation - based on a consumer price index rise of 6.9 per cent - and four times the 5.9 per cent growth in wages as measured by the Labour Cost Index.

But ISS lead analyst Martin Lawrence said there was a two-tier market for director pay.  "There are some big companies where director fees appear to be tracking the increases in Australia, albeit at a slower rate, and then there is a large group of companies, some big and some small, where director fees aren't increasing at a rapid rate," Lawrence said.

Of 177 directors who, for the entire period, sat on a board of one of the top 48 listed New Zealand companies surveyed, 20.3 per cent did not get a pay rise, and 12.4 per cent got a raise of at least 50 per cent, the study said.  "It is unheard of in most markets to have directors whose fees have not moved for three years," Lawrence said.

Australia and the UK had shown a substantial growth in fees after corporate collapses in 2001, with non-executive director fees for the top 100 listed Australian companies rising on average 81 per cent between 2001 and 2006.  Some New Zealand firms were following the overseas trend but not as rapidly.  "It seems to be explained by some New Zealand-specific facts, some of which are probably cultural."

Another was that New Zealand did not have the company collapses in 2001 and 2002 which increased attention to corporate governance.  International comparison on pay levels was more relevant for companies with overseas operations and markets, although Lawrence said he was startled by generally how much lower director fees were in New Zealand.

The best paid directorships were relatively concentrated.  Last year 28 directors on 35 boardroom seats each received at least $100,000 a year from a company. Five directors held two of these seats and one had three.

Many larger New Zealand firms did not pay the same as similar-sized operations in Australia.  "That seems to suggest there's some cultural factor that says because Australian directors are paid a lot doesn't mean that we will be," Lawrence said.

Some companies towards the bottom end of the pay rise scale had long established boards with powerful strategic shareholders, he said.  "In that kind of scenario director and executive pay doesn't tend to increase very fast."

The 22 directors whose pay rose by at least half between 2004 and 2006 were associated with seven companies - two of which had profit grow at a faster rate than fees and one of which had a drop in profit.  Fees in New Zealand had remained relatively constant as a proportion of operating cash flow and net profit, although pay did not seem to be necessarily related to company performance, Lawrence said.

"You could argue that directors fees shouldn't be directly related to performance, that they should be sufficiently divorced from the swings and roundabouts of the company so that they're not making decisions with an eye on what their fee will be this year," he said.  "You want them to be saying, 'Well this might hurt the company this year but in three years it'll be worth it for everybody involved'."

Des Hunt from the New Zealand Shareholders' Association said there had to be a relationship between directors fees and the average salary within the company and living standards.  "Living in Sydney is a lot more expensive than, say, living in Auckland," Hunt said.  Comparing companies was not a good guide, he said. "It's where a company is trying to head, the sort of skills required ... the performance of the company would have a bearing on how these people should be rewarded."

Institute of Directors chief executive Nicki Crauford was happy to have performance-based pay for directors, although it was hard to make it work.  "You're wanting directors to consider the business over time, in many cases a substantial period of time, because you want them to grow the business in the medium term," Crauford said.  "So short term financial targets can be misleading."

New Zealand directors were very poorly paid which was a concern.  "If we're going to want quality directors to run quality businesses then we have to pay them accordingly."

Top paid directors 2006

  • Roderick Deane: $665,500 - chairman Telecom, Fletcher Building.
  • Wayne Boyd: $392,961 - chairman Auckland International Airport, Freightways; director Telecom.
  • Keith Smith: $345,000 - chairman Skellerup Holdings, Warehouse Group, Tourism Holdings; director PGG Wrightson.
  • Rod McGeoch: $309,889 - chairman SkyCity Entertainment; director Telecom.
  • Gary Paykel: $297,469 - chairman Fisher & Paykel Appliances, Fisher & Paykel Healthcare.

Changes 2004-2006

  • 24.7 per cent rise in average director pay to $61,416.
  • That's four times faster than the growth in wages.
  • And three times faster than inflation.
  • 12.4 per cent of directors given more than a 50 per cent rise.
  • 20.3 per cent of directors saw no increase.

FBL 2007 Annual Results


Name of Listed Issuer: Fletcher Building Limited
For Year Ended: 30 June 2007

This report has been prepared in a manner which complies with generally accepted accounting practice and gives a true and fair view of the matters to which the report relates and is based on audited accounts.  The amounts as presented have been prepared in a manner which complies with New Zealand accounting standards which comply with International Financial Reporting Standards (IFRS).



Current Year NZ$'M; Up/Down %; Previous Corresponding Year NZ$'M

Total operating revenue: $5,926m; up 7%; $5,520m.

Unusual items for separate disclosure: 5; n/a; 0

OPERATING SURPLUS BEFORE TAX: $616m; up 5%; $587m.

Less tax on operating profit: $113m; down 40%; $189m.
Less minority interests: $19m; no change: $19m.
Extraordinary items after tax attributable to Members of the Listed Issuer: 0: n/a: 0.

Earnings per share: 101.9 cps; up 25%: 81.3 cps
Final Dividend: 23 cps
Record date: 21 September 2007
Date Payable: 11 October 2007

Tax credits on latest dividend: 100% for New Zealand comprising through the attachment of imputation credits, and fully franked for Australian tax purposes.
Refer attached press release for further detail.


Auckland, 8 August 2007 - Fletcher Building today announced record results for the year ended 30 June 2007. Net profit after tax and minority interests was $484 million, compared to $379 million in the previous year. The increase of $105 million includes the $70 million one-off taxation benefit previously advised to the market.

Operating earnings (earnings before interest and tax) were $703 million, including a net $5 million of unusual items, and an increase on the $675 million of operating earnings in the previous year, which had no unusual items. The increase of 4 percent on the 2006 year reflected some benefits from acquisitions, ongoing productivity improvements and the unusual items, with some offset due to more difficult market conditions.

The lift in earnings has enabled the eleventh consecutive dividend increase, with a final dividend of 23 cents per share, with full New Zealand and Australian tax credits. The total dividend for the year increased from 40 cents to 45 cents per share. Total shareholder return for the 12 months ended 30 June 2007 was 42 percent.

Divisional results (excluding unusuals) reflected the mixed operating environment, with increases in three divisions more than offsetting the decreases in the other two. Infrastructure's operating earnings were $271 million (previously $255 million), Distribution's $80 million (previously $75 million) and Laminates & Panels' $131 million (previously $116 million). Operating earnings from Building Products were $141 million (previously $142 million), and Steel $80 million (previously $93 million).

Chief Executive Officer, Jonathan Ling said the increase in operating earnings in a softer trading environment provided further validation of the group's strategy to build earnings reliability. "The balance of exposures between different geographical regions and market sectors is serving us well. All our divisions have performed well in the market conditions applying to them. At the same time we have been successful in further implementing our strategic objective to internationalise the company and provide a wider range of growth options, following the recent acquisition of Formica Corporation".

Results highlights
- Operating earnings up 4 percent to $703 million.
- Group net earnings, including unusual items, up 28 percent to $484 million.
- Group net earnings, excluding unusual items, up 5 percent to $399 million.
- Final dividend of 23 cents per share with full New Zealand and Australian tax credits for a total dividend for the year of 45 cents per share.
- Cashflow from operations was $483 million.
- Interest cover at 9.8 times.
- Basic earnings per share were 101.9 cents and 84.0 cents on a normalised basis, both up from the 81.3 cents in the previous year.

Jonathan Ling Bill Roest
Chief Executive Officer Chief Financial Officer
Ph: +64 9 525 9169 Ph +64 9 525 9165

Fletcher building profit up a whopping 28 per cent


Construction giant Fletcher Building has reported a full year net profit after tax and minority interests of $484 million, up 28 per cent from $379 million the previous year. 

The increase of $105 million for the year to June 30 included a $70 million one-off taxation benefit previously advised to the market, the company said.  Operating earnings - before interest and tax - were up 4 per cent to $703 million, including a net $5 million of unusual items.  The increase reflected some benefits from acquisitions, ongoing productivity improvements and the unusual items, with some offset due to more difficult market conditions, the company said.

The lift in earnings had enabled the eleventh consecutive dividend increase, with a final dividend of 23 cents per share, with full New Zealand and Australian tax credits. The total dividend for the year increased from 40cps to 45cps.

Chief executive officer Jonathan Ling said the increase in operating earnings in a softer trading environment provided further validation of the group's strategy to build earnings reliability.  "The balance of exposures between different geographical regions and market sectors is serving us well," he said.  "All our divisions have performed well in the market conditions applying to them.  At the same time we have been successful in further implementing our strategic objective to internationalise the company and provide a wider range of growth options, following the recent acquisition of Formica Corporation."

Fletcher building looking good


The market is expecting positive news from Fletcher Building's annual result tomorrow, with predictions of a big surplus that could take net after-tax profit to between $462 million and $493 million.

Fletcher is also picked to give a better-than-expected forecast for next year, because rising interest rates are having little effect on its fortunes. 

Rob Mercer, analyst at Forsyth Barr Research, released a report predicting Fletcher's profits would jump 22 per cent, from last year's $379 million to $462 million this June year.  In March, Fletcher said it was happy with the consensus of analysts' forecasts of $388 million net profit after tax for the full year.  Mercer said he expected the company would issue a highly positive forecast for next year.  "We expect Fletcher Building to confirm a positive outlook, despite the rising interest rate environment. We expect that there should be evidence of a pickup in residential building activity, which is supported by the strong improvement in residential building consents, being up 14.3 per cent for the six months to June 30.  "Fletcher's core earnings have been flattish over the past couple of years on the back of subdued building activity in New Zealand and Australia. We expect the second half-year performance to confirm a rebound in New Zealand residential building activity and a more positive outlook for non-residential building activity.  "Fletcher has expanded its global earnings through the acquisition of Formica, which became effective from July 1. While the interest rate environment is attempting to impact on residential house prices, we remain confident that volume-based building activity will positively surprise."  Mercer valued Fletcher's shares at $14.45 and recommended investors to buy because the shares were trading at around $12.50.

The building products division would reflect a resilient residential market and would show strong earnings in the second half, he said. The PlaceMakers result would be more modest. The laminates and panels division would hold on to earnings, despite difficult conditions in Australia.  Pacific Steel and Pacific Wire had a difficult second half-year period. Fletcher's insulation operations performed poorly in the first half and Mercer was not sure if there had been an improvement in the second half.

First NZ Capital is expecting Fletcher's Formica acquisition to have a big benefit, but said there would be two unusual items on the accounts which would give a massive one-off gain.  "Comments regarding the Formica acquisition will be important. The successful execution of this transaction should be a key growth driver over the next 12 months," First NZ said.

It forecast net after-profit tax would hit $493 million but said that would contain $94 million from the insurance payout after the Taupo fire and a one-off tax gain. Stripping that $94 million out would reduce the figure to $399 million.  "We assume historically high levels of non-residential building activity combined with a sizeable forward order book of infrastructure projects help to offset weaker residential activity on both sides of the Tasman.  "Although New Zealand residential activity has declined, it has held up relatively well, in spite of rising interest rates and increased building costs."

Jonathan Ling, Fletcher's chief executive, will release the result in Auckland tomorrow morning.


Fletcher Building has five divisions:
* Infrastructure
* Building products
* Steel
* Distribution
* Laminates/panels

Residents living near wood plant will soon breathe easy


Decades of acrid burning odours coming out of Fletcher Building's Penrose wood plant are about to come to an end to the relief of residents in the area.  Fletcher chief executive Jonathan Ling said on Friday the hardboard and softboard plant on O'Rorke Rd would be shut after an investigation found an upgrade to control the smell would cost between $2 million and $4 million.

The closure brings to an end many years of complaints from residents in the area running from Penrose to One Tree Hill.  Auckland Regional Council's air pollution team discussed taking legal action after advice that there were sufficient grounds for prosecution.  ARC experts said the plant had major ongoing issues.

A One Tree Hill resident has disliked the smell for the 30 years she has lived in the area.  "It used to be so bad, you couldn't have your windows open," she said, although it had been less offensive lately.  Other residents said the smell was so bad it had forced them to to sell houses and move.

In 2001, Fletcher said it would control the odour by installing a bio-filter but the ARC had doubts about the efficiency of the equipment.  Mr Ling said smell was not the only issue. The Laminex plant had been losing money for the past three to four years so any upgrade was out of the question. He cited discussions with the ARC about emission controls and said investigations of how to fix problems and reduce the smell had been central to the plant's future.

The high exchange rate and the plant's non-profitability were other reasons for the decision to close the production facility.  "The odour comes when they heat up the processed wood fibre. It's a burning smell," Mr Ling said.  The plant operated five days a week on 24-hour shifts and staff had tried to control the smells by making only hard boards on day shifts.

"You get an odour when you're making hardboard because of the higher temperatures, so we've tried not to make that board on the night shift. We've tried to manage the odour situation but have had no complaints from residents.  We've been in discussions with the ARC on the odour for some time. We had agreed a plan of approach as to how we'd tackle the issues and that has led us to understand how much it would cost us to fix it."

The plant, known by long-time locals as the NZ Forest Products plant, had been operating for many decades and had employed 65 people.  Ling said the company would try to place as many people as possible within Fletcher's other business units but he expected some people would consider redundancy.

About 60 per cent of the plant's product was exported to Australia, North America and Asia where it was used in furniture and building. The softboard had been used for display noticeboards. The hardboard was used among other furniture in cabinets.  But Mr Ling said demand for the materials had dropped considerably and the hardboard had been largely replaced by other products.


  • Air pollution problems at a Penrose plant partly forced closure.
  • 50 complaints since 1999 prompted Auckland Regional Council action.
  • ARC has issued seven infringement notices in the past eight years.
  • Three abatement notices were issued during that time too.
  • ARC demanded Fletcher improve emission controls at the plant.
  • Prosecution was an option if offensive odours did not stop.


Ana Ofa knows all too well the smells from Fletcher Building's Penrose factory - she's lived a couple of streets away all her life.  "It smells like an incinerator, ashy," says the 27-year-old, whose memories of the odour go back to when she was aged 3.  It hasn't been as strong during the past few years and her most recent memory of a truly pungent reek was the night Princess Diana died a decade ago.

Neighbours say the aroma is hard to describe, their accounts ranging from "dry and woody" to a chemical stench.  "It used to annoy me," says Rosemary Lyon. "It was irritating on my nostrils."

For Bill Berwan, news that the factory is shutting is welcome relief.  "I'm happy," says the Rockfield Rd resident of 25 years. Mr Berwan's four children cried out about the "gas" smell when they were younger but the family would not move house.

While others try not to open windows or dry washing on the line when the smell is at its worst, Ms Ofa "got over it" years ago. She said the factory had an upside for the suburb, providing jobs for many residents.  Her grandfather worked there, as did several other family members.  But the last, her cousin Casa Hala, was made redundant this year after more than a decade with the company.