That Fletcher Building has had to go cap in hand to the government for $60 million speaks to how far they have fallen, writes Simplicity Managing Director Sam Stubbs.

The Government has recently announced $60m of financial support to keep the Golden Bay cement manufacturing plant, owned by Fletcher Building, open. The reason cited by owners, Fletcher Building, was an uncompetitive cost environment due to the costs of offsetting carbon, vs imported products that don’t have to.

To me that sounds like a possible reason, but it is hard to know if that really is the case. One reason is because Fletcher Building has been one of the worst governed companies in recent memory. The numbers say it all. In the past 10 years its total return to shareholders has been -37% vs the New Zealand top 50 sharemarket index return of 96%.

And while chronically underperforming its listed peers, its directors were consistently amongst the highest paid. During the ‘Gib crisis’ of 2021-22, Fletcher’s directors were each paid from $170,000 to $344,000. While earning investors D- returns, they were paying themselves A+ fees. While most directors subsequently resigned, two who contributed to this governance debacle still remain on the Board, including the Chair.

Recent changes in management and Directors at Fletcher Building have been an improvement. But - to my mind - the strategy they’ve adopted is the only one left, sell anything they can. It’s desperate, but necessary. In a down market, a well run company should be buyers of stressed assets, not sellers of them.

I am no fan of corporate welfare. Capitalism is the best system we have for weeding out the weak and rewarding the strong. But I find myself agreeing with the Government in supporting the bailout of Fletcher’s cement business. 

Why? Because supply chain resilience is necessary for critical materials, and cement certainly is one. We have just seen the consequences of shutting down Marsden Point during a new Gulf War. With cement, we would find ourselves very much at the end of the global supply chain. And without it, much would not be built. Even the ‘greenest’ construction almost always sits on concrete foundations.

The Government has been wise to negotiate financial clawbacks from Fletcher Building. The payback of those would assume the long term sustainability of cement manufacture here. 

If Fletcher Building had been properly governed, none of this may have been necessary. For a company, once so strong, to go cap in hand to the Government for a mere $60 million speaks to how far they have fallen. In a normal world, the taxpayer money would have been better spent on hospitals and schools. But here we are anyway, with a Hobsons choice that should be made in favour of supply chain resilience. We would do it for fertiliser, we should do it for cement.