Fletcher Challenge Ltd. History

Company Perspectives:

"Fletcher Challenge is a New Zealand headquartered corporation devoted to creating superior shareholder value by taking resources to customers better in pulp and paper, energy and building industries. Fletcher Challenge strives for excellence in everything it does through industry leadership in fulfillment of customer needs and dynamic utilization of human skills and financial and material resources. Fletcher Challenge operates with integrity and a people oriented management style which stresses openness, communication, commitment, innovation and co-ordinated decentralization of authority, responsibility and accountability."

Company History:

Fletcher Challenge Ltd., New Zealand's largest group of companies, specializes in transforming resources into value-added products that are marketed both domestically and around the globe. The company was formed on January 1, 1981, by the merger of Challenge Corporation Ltd., Fletcher Holdings Ltd., and Tasman Pulp and Paper Company Ltd. In March 1996 Fletcher Challenge was reorganized into a group consisting of four separate publicly traded companies. Fletcher Challenge Building is a leader in New Zealand in building materials, notably concrete, steel, plasterboard, lumber, wood fiber-based panel products, and aluminum extrusion. It is also involved in residential and commercial construction. Fletcher Challenge Energy maintains petroleum exploration, production, and distribution operations in New Zealand and Canada and has utilities operations in New Zealand. Fletcher Challenge Forests is a world leader in solid wood plantation forestry and manages plantation forests in New Zealand, Chile, and Argentina. Fletcher Challenge Paper is a leading maker of communications papers and specialty pulp.

Challenge Corporation Ltd.

The origins of Fletcher Challenge Ltd. can be traced to the 19th century. Its history began when John T. Wright and Robert M. Robertson set up a business partnership called Wright, Robertson & Company as a merchant, stock and station agent, and woolbroker in Dunedin in 1861. Four years later John Stephenson joined the partnership and in 1868, when Robertson retired, the business was renamed Wright Stephenson & Company. It was floated as a public company in 1906 and opened its first overseas branch in London that year. An office was opened in Wellington in 1908. By 1916 the company was already expanding rapidly when it took over W. & G. Turnbull & Company of Wellington and W. Gunson & Company of Auckland. Many more mergers and acquisitions followed and the company continued to grow. In 1920 Wright Stephenson & Company became one of the first companies in New Zealand to diversify into fertilizers, and shortly afterward it further expanded its range with the establishment of a bloodstock and studstock department.

In 1927 the company began to expand out of the stock and station business. It started to trade in motor cars and subsequently added the retailing of electrical appliances, land development, and department stores to its range of activities. In 1962 it acquired Morrison Industries Ltd., marking the company's first major involvement in manufacturing motor mawers and bicycles.

Wright Stevenson opened its first office in Australia in 1938 and expanded during the next 30 years, with branches being opened all over New Zealand. In 1972 Wright Stephenson merged with the National Mortgage Agency of New Zealand Ltd. National Mortgage, too, had grown through acquisition since its beginnings in the mid-19th century. The takeover brought Wright Stephenson an increased range of activities, including extensive fishing and meat exporting operations.

With this merger a new name was sought that would be synonymous with both the united and diversified character of the company. The name chosen was Challenge Corporation Ltd. The company's chairman between 1970 and 1981 was Ronald Trotter. By 1980 Challenge Corporation had assets of NZ $7.6 billion.

Fletcher Holdings Ltd.

Fletcher Holdings Ltd. began when James Fletcher, a carpenter and joiner by trade, emigrated from Scotland to New Zealand in 1908. Recalling this period, James Fletcher wrote, "I arrived in Dunedin on a Tuesday. Conditions in the building trade in 1908 were bad, and starting on the morning I arrived, I canvassed practically every job in the city, including house building and alterations, without success. I got a job on Friday evening with a firm called Crawford and Watson, the first firm I had called on on the Tuesday. Watson was rather amused at my persistence in coming back a second time within a matter of three days, but he gave me the job."

Within a year Fletcher and another immigrant, Bert Morris, set up as builders and won their first contract&mdashø build a house. On completion they were paid £375, of which just NZ $3.6 was profit. Four years later Morris sold his share of the partnership to Fletcher for £500. Fletcher's brother, William, arrived from Scotland to join him and the company became Fletcher Brothers Ltd. By 1919 two more Fletcher brothers, John and Andrew, had joined the company. Its name was changed to the Fletcher Construction Company Ltd. and the headquarters moved to Wellington. Over the next ten years Fletcher Construction continued to expand. To service its building growth the company acquired several joinery factories, quarries, and brickyards, and also set up its own steel fabricating yard.

By the 1930s the effects of the worldwide depression began to be felt in New Zealand, and Fletcher Construction's work slowed down for the first time. Undaunted, James Fletcher toured the country, encouraging the building of large-scale projects. He argued that building when costs were low made economic sense, helped the economy, and also boosted morale. Although the company's rate of expansion declined, it won tenders, or bids, for several important contracts, including the National Art Gallery, the Post Office in Dunedin, and the railway station in Wellington, the latter being then the largest individual building contract ever awarded in New Zealand.

In 1937 the New Zealand government launched its public housing scheme. Fletcher Construction had the foresight to consult architects and draw up specifications in advance of tenders being invited, thus enabling the company to respond extremely rapidly to the government's plans. Fletcher was awarded contracts for houses in Wellington and Auckland. Within two years it was a major builder for the government and had regained its former impetus. With the outbreak of World War II in 1939, Fletcher Construction realized that a regular supply of essential materials from overseas was likely to be placed in jeopardy. To counter this shortage, the company set up enterprises in sawn timber, plywood, and door manufacturing.

Further expansion continued, and in 1940, the company went public with the formation of Fletcher Holdings Ltd. James Fletcher, who served in the honorary post of commissioner of defense construction and later as the first commissioner of works, received a knighthood in 1946. His son, James C. Fletcher, was appointed managing director of the company in 1942 at the age of 28. Under the guidance of James C. Fletcher the company began to expand its horizons. Fletcher traveled widely and recognized the value of new methods. An early example was his bringing two leading U.S. construction companies into a partnership with Fletcher, to undertake the expansion of Auckland's wharves. James C. Fletcher is also remembered as a pioneer of welfare schemes for his employees. Among other benefits he introduced the first wholly subsidized superannuation scheme for construction workers and a medical scheme for employees before general medical insurance had been introduced.

After the war the Fletcher group continued to acquire established companies in the construction industry. It also diversified into new industries such as readymix concrete, long-run roofing (the production of preformed roof trusses that needed no additional carpentry on installation), and galvanizing. The company had a major influence on the New Zealand steel industry through the development of Pacific Steel Ltd. and New Zealand Wire Ltd., and it also diversified into merchant banking and financial services.

Tasman Pulp and Paper Company Ltd.

In 1951 the New Zealand government showed an interest in using the country's natural resources to establish a paper, pulp, and newsprint industry. Fletcher Holdings offered to build a pulp and newsprint mill if the government provided the infrastructure that such a large-scale project needed. The result was the Tasman Pulp and Paper Company, which was formed the following year with shares held by the government, Fletcher Trust and Investment Ltd., and the public. By 1955 the pulp mill and the newsprint machine were brought into production and the sawmill came on line in 1956. From the beginning the company had targeted the export market, and so Tasman Pulp and Paper (Sales) Ltd. was established in Australia. By 1962 Tasman Pulp and Paper had commissioned a second newsprint machine and in 1970 there was further expansion of the pulp mill with the aim of producing enough pulp for a third machine plus a surplus for sales elsewhere. In 1975, under an arrangement made with the Union Steam Ship Company, Tasman Pulp and Paper had sole operation of two ships to transport its products to South Island and to Australia. The government sold its shares in the company in 1979. By 1980 Fletcher Holdings owned 56.46 percent and Challenge Corporation owned 28.23 percent of Tasman Pulp and Paper.

Fletcher Challenge Forms in 1981

James C. Fletcher received a knighthood for services to industry in 1980. Following the formation of Fletcher Challenge Ltd. in 1981, he was appointed president of the new company and Sir Ronald Trotter of Challenge Corporation was appointed chairman. Since its inception, Fletcher Challenge has grown from being an exclusively New Zealand-based company to an industrial group with its headquarters in New Zealand. It was assisted in this expansion by the relaxation of New Zealand's capital laws in the early 1980s, which encouraged overseas investment.

The company's international expansion started in Canada with the acquisition of Crown Forest Industries in British Columbia in 1983. The main activities of this company were pulp and paper, wood products, packaging, and merchandising. By 1987 Fletcher Challenge acquired a majority share of British Columbia Forest Products Ltd., one of Canada's largest producers of forest products. In the following year these two companies were combined to form Fletcher Challenge Canada Ltd. Fletcher Challenge also acquired pulp and paper interests in South America and Australia. In 1989 the company was adversely affected by a huge fall in pulp and paper earnings as a result of lower newsprint prices and a strong Canadian dollar. The company was able to overcome these setbacks, however, owing to strong performances from its other operations.

Fletcher Challenge extended its construction business into the United States by acquiring companies in Seattle, Washington; Los Angeles; and in Hawaii in the latter half of the 1980s. The company became a leading building contractor in the United States as well as in southeast Asia and the South Pacific.

Fletcher Challenge also expanded its activities in New Zealand. In 1988 it bought the Petroleum Company of New Zealand (Petrocorp) from the government and thus became the country's largest oil, gas, and petrochemicals company. It has built on this diversification into energy by making a considerable investment in further oil and gas exploration. Also in New Zealand, Fletcher Challenge bought the Rural Bank from the government in 1989, which consolidated its leading position in the provision of finance and services to New Zealand's large agricultural community.

In 1990 Fletcher Challenge made its first big move into the European market with the takeover of the British fine-paper manufacturer, UK Paper. The company aimed to expand production and increase exports to continental Europe. UK Paper also would be used as a convenient base for acquiring similar interests in Europe. UK Paper had been bought out by its management in 1986 and consequently had a tradition of strong employee involvement. Fletcher Challenge, which was virtually unknown to the British work force, took steps to get to know its new employees. Garry Mace, chief executive of the forest industries division, spent two weeks visiting all of the U.K. manufacturing sites and ensured that every employee was given an opportunity to attend one of the many seminars that he ran to explain the objectives of the Fletcher Challenge organization.

In 1991 the chief executive of Fletcher Challenge Ltd. was Hugh Fletcher, grandson of the founder of the Fletcher group. Fletcher joined the company in 1969 at the age of 22 and attained the chief executive position in October 1987. He had been at the forefront of Fletcher Challenge's expansionist activities.

Hugh Fletcher quickly gained a reputation as a dealmaker. In October 1990 he acquired the New Zealand gas production interests of British Petroleum in the Maui Field. Production from the Maui Field was equivalent to 30 million barrels of oil a year, or more than half of New Zealand's total demand at the time. It was anticipated that production will continue until at least the year 2020. The timing of the deal was extremely fortunate for Fletcher Challenge as it was negotiated three months before the Persian Gulf crisis, when oil prices were relatively low. As a result of this acquisition, Fletcher Challenge dominated the New Zealand oil and gas sector.

Interviewed in the Financial Times on October 31, 1990, Hugh Fletcher likened his aspirations for the company's expansion to "the Hannibal instinct to go over the next mountain range," and it was clear that Fletcher Challenge's strategy for the 1990s was to continue to expand worldwide. At the same time, the company was prepared to sell off any subsidiaries that would not play a part in international expansion. Consequently, Fletcher Challenge sold its Fletcher Fishing subsidiary to Carter Holt Harvey of New Zealand. Fletcher Fishing, a profitable company with export markets in the United States, Japan, and France, held 18 percent of the New Zealand fish quota, but Fletcher Challenge was unable to acquire any compatible overseas companies with which to merge Fletcher Fishing.

Divestment Plan Launched in 1992

By 1992, however, the continuing burden of a high debt load--the result of the numerous acquisitions of previous years&mdash′oved to be too much of a drag on company earnings and its stock. Although Fletcher Challenge's debt-to-equity ratio had fallen from 194 percent in June 1990 to 134 percent in June 1992, it was still considered much too high and contributed to a fiscal 1992 after-tax loss of NZ $157.5 million and to a drop in Fletcher Challenge stock from NZ $3.53 on June 30, 1992 to NZ $2.33 on August 14--a fall of more than one-third in just six weeks.

The company responded in August 1992 by announcing a divestment plan through which it hoped to shed up to NZ $2.6 billion (US $1.3 billion) in assets and thereby reduce the debt-to-equity ratio to 100 percent by the end of 1993. These goals were soon met. In 1992 Fletcher Challenge sold Crown Packaging, which had been part of Crown Forest Industries; one-third of Natural Gas Corp., New Zealand's monopoly natural gas distributor, to the public; and Rural Bank, acquired only three years earlier, to National Bank of New Zealand. The following year the company sold Wrightson Limited, the leading rural servicing company in New Zealand, and agreed to merge its methanol subsidiary, Fletcher Challenge Methanol, into Methanex Corp. of Canada. In the latter deal Fletcher Challenge ended up with a 47 percent stake in the newly bolstered Methanex and NZ $480 million (US $250 million) in cash.

At the conclusion of the asset sales Fletcher Challenge had essentially reduced itself to four main areas of operation: plantation forestry, pulp and paper manufacturing, energy, and building materials and construction. Along with what it called its newfound "focused diversity," Fletcher Challenge was also able by fiscal 1995 to reduce its debt-to-equity ratio to 35 percent. The company returned to profitability in fiscal 1993 and posted healthy earnings of NZ $464 million by fiscal 1995.

With its financial health improving, the mid-1990s saw Fletcher Challenge expand internationally, with Asia its main destination, a logical choice for a company with a strong position in New Zealand and Australia. In 1995 Fletcher Challenge took a 20 percent stake in a US $300 million project to construct a newsprint plant in fast-growing Malaysia. Other Asian investments were made in China and India.

Restructuring in the Mid-1990s

The mid-1990s were also highlighted by significant structural changes. In late 1993 Fletcher Challenge floated its forestry division into a separate publicly traded company, Fletcher Challenge Forests, still under the control of Fletcher Challenge. Then in March 1996 Fletcher Challenge codified its four-division structure when it split its main stock into three more separate publicly traded companies, all remaining part of Fletcher Challenge: Fletcher Challenge Paper, Fletcher Challenge Energy, and Fletcher Challenge Building. The company stated that these moves would enable investors to target their stock purchases more precisely, and they were made in response to another drop in Fletcher Challenge's main stock (which ceased trading following the 1996 split).

Later that year, in July, Fletcher Challenge Building began a major restructuring when it decided to scale back considerably its construction activities outside New Zealand (its building materials manufacturing operations were not affected by this downsizing). As a result, three U.S. operations were sold, offices in Kuala Lumpur and Jakarta were closed, and operations in Western and South Australia were divested.

Meanwhile, in August 1996 Fletcher Challenge Forests was part of a consortium that purchased Forestry Corporation of New Zealand from the New Zealand government for NZ $2.026 billion (US $1.395 billion), forming the CNI (Central North Island) Forest Partnership. The partnership, which gained cutting rights to 188,000 hectares (464,000 acres) of mainly pine plantation forests via the purchase, consisted of Fletcher Challenge Forests, with a 37.5 percent stake; Citifor, a subsidiary of the China International Trust and Investment Corporation, also with 37.5 percent; and Brierly Investment Limited, with 25 percent. Fletcher Challenge Forests was to manage the entire estate, which was adjacent to its own 117,000 hectares (289,000 acres) of plantation in the Central North Island.

Fletcher Challenge's history is rife with strategic shifts, but it seemed no period could compete with the enormous changes of the early and mid-1990s. The year 1997 was also destined to be significant since Hugh Fletcher announced early in 1997 that he intended to retire later in the year, after serving as a company executive for 20 years. By this time, however, the company appeared to be content to fine-tune its four-division structure and, perhaps, finally enter a more stable period in its history.

Principal Subsidiaries: Fletcher Challenge Industries Overseas Limited; Fletcher Challenge Industries Limited; Fletcher Challenge Finance Limited; Fletcher Challenge Acceptances Australia Pty. Limited; Fletcher Challenge Discounts (Australia) Pty. Limited; Fletcher Challenge Industries Australia Limited; Fletcher Challenge Capital Canada Inc.; Fletcher Challenge Finance Canada Inc.; Fletcher Challenge Industries Canada Inc.; Fletcher Challenge Finance Netherlands B.V.; Fletcher Challenge Finance UK Limited; Fletcher Challenge Forest Industries Plc (U.K.); Fletcher Challenge Finance USA Inc.; Fletcher Challenge Industries USA Limited; Tasman Pulp and Paper Company Limited; Tasman Asia Shipping Company Limited (70%); Endeavor Papers Pty. Limited (Australia; 80%); PISA - Papel de Imprensa S.A. (Brazil; 51%); Fletcher Challenge Canada Limited (51%); Papeles Bio Bio S.A. (Chile; 51%); Tasman Asia B.V. (Netherlands; 70%); Guppy Paper Limited (U.K.); UK Paper Plc; Blandin Paper Company (U.S.A.; 51%); Fletcher Merchants Limited; Fletcher Building Products Limited; Scott Panel & Hardware Limited; Plyco Doors Limited; Winstone Wallboards Limited; Fletcher Homes Limited; Duroid Limited; Residential Mortgages Limited; Fletcher Wood Panels Limited; Challenge Properties Limited; The Golden Bay Cement Company Limited; Firth Industries Limited; Winstone Aggregates Limited; Firth Certified Concrete Limited; Fletcher Construction New Zealand and South Pacific Limited; The Fletcher Construction Company Limited; Fletcher Challenge Steel Limited; Fletcher Aluminum Limited; Fletcher Challenge Forests (Manufacturing) Limited; Hikurangi Forest Farms Limited; Tarawera Forests Limited; Tasman Forestry (Nelson) Limited; Fletcher Challenge Forests Limited; TFL Gisborne Limited; Fletcher Construction Company North America (U.S.A.); Fletcher Challenge Industries Finance USA Limited; Petrocorp Exploration Limited; Petrocorp Offshore (No.7) Ltd.; Kapuni Gas Contracts Limited; Fletcher Challenge Petroleum Investments Ltd.; Fletcher Challenge Petroleum Limited; Fletcher Challenge Petroleum Marketing Ltd.; Southern Petroleum No Liability; Power Supply Corporation Ltd.; Fletcher Challenge Utilities Investments Ltd.; Fletcher Challenge Petroleum Borneo Ltd. (Brunei); Fletcher Challenge Petroleum Inc.; Petrocorp Exploration Indonesia Ltd.; Fletcher Challenge Petroleum U.S.A. Corp.

Principal Divisions: Fletcher Challenge Paper; Fletcher Challenge Energy; Fletcher Challenge Building; Fletcher Challenge Forests.

Further Reading:

• Baldo, Anthony, "A Challenge Down Under: Acquisitions Have Made New Zealand's Fletcher Challenge a Global Force," Financial World, February 20, 1990, p. 60.
• Bywater, Marion, "Company Profile: Fletcher Challenge Surfs the Pacific Rim," Paper & Packaging Analyst, February 1997, p. 35.
• Du Bois, Peter C., "A Kiwi Tree Saga," Barron's, December 6, 1993, p. 60.
• Hargreaves, Deborah, "Fletcher Challenge Extends Its Global Reach," Financial Times, November 3, 1995, p. 24.
• James, Colin, "A Challenge Confronted: New Zealand's Fletcher Nears Asset-Sales Goal," Far Eastern Economic Review, February 18, 1993, p. 56.
• ------, "Dinosaur No More: New Zealand's Fletcher Challenge Sidesteps Asia in Its Growth," Far Eastern Economic Review, September 29, 1988, p. 116.
• ------, "Divided We Stand: New Zealand's Fletcher Challenge Splits Its Stock," Far Eastern Economic Review, April 18, 1996, p. 80.
• ------, "Slimmer Yet: New Zealand's Fletcher Challenge To Shed Assets," Far Eastern Economic Review, September 3, 1992, pp. 50, 52-53.
• Norman, James R., "Head Up Down Under," Forbes, December 10, 1990, pp. 80-83.

Source: International Directory of Company Histories, Vol. 19. St. James Press, 1998.

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