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Opinion: Swansong looms for Fletcher Building's Ralph Waters

By Rachel Pannett of NZPA

Friday 12th May 2006

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New Zealand this week lost one of its finest chief executives.

Fletcher Building's Ralph Waters, 57, announced he would return to his native Australia in August after five years at the helm.

Since 2001, Waters has transformed the firm from a corporate ugly duckling into the third-largest stock on the exchange, with a market capitalisation of $4.5 billion.

Fletcher Building's share price hit an all-time-high of $9.80 on Tuesday as offshore investors relocated cash from regulation troubled Telecom - putting Building within spitting distance of market number two, Contact Energy, on $4.58b.

The stock has gained around 30% this year, almost trebling the performance of the benchmark top-50 index.

That is a far cry from 2000 when the firm was cast from the nest in the split of the Fletcher Challenge conglomerate.

While its siblings, Fletcher Forests and Fletcher Energy fetched $5b apiece in trade sales, management were chastised for reportedly declining an offer of around $3-a-share for Fletcher Building, valuing the company at under $1b.

At the time, Fletcher Building was the dominant player in the New Zealand building products and construction market, but its outlook was dim.

The construction industry had been in the doldrums for the best part of a decade - a hangover from the 1980s' boom.

The residential property market was notoriously volatile and big commercial projects were few and far between.

Cue the entry of Waters.

He decided that what Fletcher Building needed was to reduce its dependence on New Zealand, and embarked on a $1b spending spree across the Tasman, buying steel, panels and insulation businesses.

While Australia has proved a death trap for many New Zealand companies, including Telecom, with AAPT, and The Warehouse's disastrous Yellow Sheds foray, Mr Waters' 17-year stretch at Australian metals and appliance maker Email gave him the inside knowledge to spare him from any folly.

On the home front, Fletcher Building won more infrastructure and commercial construction contracts - including Auckland's Grafton Gully motorway interchange, the PricewaterhouseCoopers building on Auckland's waterfront and Sky City's Grand Hotel - insulating it from the effects of an economic slowdown.

Waters was also renowned for his Australian optimism - striking out against the doomsday attitude adopted by fellow corporates and once saying New Zealand was the "most pessimistic" business environment he had ever encountered.

It is hard to find anyone in the investment community who would speak ill of him, with tributes flowing freely from analysts, shareholder advocates and even the Government - who have never been seen as particularly sympathetic to big business.

It seems Waters' only hiccup in New Zealand was buying a 13-year-old Auckland home for which - rather ironically as head of a construction firm - he spent over $400,000 fixing as a victim of the leaky homes fiasco.

The Shareholders' Association last year gave Waters a Beacon award for excellence in leadership.

The Beacon - awarded far less often than the infamous Golden Glob for corporate villainy - recognised Waters' common sense, clarity, performance and integrity, association chief Bruce Sheppard said.

Finance Minister Michael Cullen said Waters would be missed.

"He made a valuable contribution to the business community."

Independent analyst Brian Gaynor ranked Waters among the top-five ceos in the country and credited him with doing a stellar job of bringing new talent up through the ranks.

Gaynor said the Fletcher Building ceo would often bring half a dozen junior executives along to profit briefings. Waters would sit in the back row and let his progenies front up to investors.

"The impression you got is that he had created real depth in the organisation," Gaynor said.

Of those progenies there were three strong internal candidates for Waters' job - Andrew Reding, head of building products; Mark Binns, head of construction and concrete; and the ultimate winner, Jonathan Ling, head of the Melbourne-based laminates and panels business.

Reding was the market favourite - with his division seen as most resembling the overall Fletcher group.

It was Ling who came out on top - selected from a range of local and international candidates; a decision attributed to his international experience with Pacifica, Visy and Nylex before joining Fletcher Building in 2003.

"The business is obviously going to grow more outside New Zealand," Gaynor said.

"He strikes me as someone who really knows the scene outside New Zealand very well, which will be very important in future."

Turnover at Ling's panels business - boosted by the 2002 purchase of the Laminex Group - has almost doubled in the past two years.

Market commentators expect a seamless transition when he takes over the top job on September 1.

"It should be painless, I hope," Sheppard said.

An emotional Waters said his time in New Zealand had "exceeded expectations".

He was torn between family obligations and the thrill of the chase, with Fletcher Building poised for further deals in future.

"I do have some responsibities other than shareholders and the glory of running a company like Fletcher Building," Waters said, adding that he had "hardly given (his family) a day" in the past five years.

"I think the company would benefit from the enthusiasm and energy of a ceo who has to make his own reputation and make his own mark," he said.

Ling has promised "evolution not revolution" - indicating few big changes.

Perhaps the biggest risk to the company is that, having made the transition from ugly duckling to swan, it is too beautiful to resist, now being mooted in some circles as a potential takeover target.

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