Fletcher's Turnaround of Its Australia Division Is on Firmer Footing in Late Fiscal 2021

Fletcher Building’s diversified suite building materials businesses possess many strong brands and dominate key product categories in New Zealand, where it generates healthy returns on investment. At the group level, however, returns are below the cost of capital, as the firm has made poor acquisitions in adjacent segments and new geographies and suffered execution issues in the construction division. This has overwhelmed the positive impact of an unprecedented building cycle in Australia and New Zealand which peaked in 2018. Following the substantial losses sustained in its construction segment, Fletcher has taken corrective action--divesting its global Formica business and backing away from commercial construction projects which led to significant losses. But we’d like to have seen a more comprehensive restructure, involving a marked reduction in the group’s level of diversification. We’d advocate for Fletcher to re-focus the group’s attention on its businesses which are well positioned competitively. The potential for management to create value for shareholders is maximised when it's free from the distraction that comes with the ownership of a plethora of disparate businesses.