Fletcher Challenge Ltd.

Fletcher Challenge House
810 Great South Road
Penrose
Auckland
New Zealand
(9) 590-000
Fax: (9) 525-0559

Public Company
Incorporated: 1981
Employees: 40,000
Sales: NZ$13.32 billion (US$7.83 billion)
Stock Exchanges: Auckland Sydney London Toronto Montreal Vancouver Frankfurt

Fletcher Challenge Ltd., New Zealand’s largest company, is a fast-growing international organization with bases in 12 countries. Its main business activities are in building and construction, pulp and paper, rural servicing industries, and energy. 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.

CHALLENGE CORPORATION LTD.

The origins of Fletcher Challenge Ltd. go back 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., the company’s first major involvement in manufacturing motor mowers 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 which 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—to 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. In order 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 and 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. However, 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 pre-formed roof trusses which 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% and Challenge Corporation owned 28.23% of Tasman Pulp and Paper.

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 as 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. However, the company was able to overcome these setbacks 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 aims to expand production and increase exports to continental Europe. UK Paper will also 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 the U.K. manufacturing sites and ensured that every employee was given an opportunity to attend one of the many seminars which 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, who joined the company in 1969 at the age of 22 and attained his current position in October 1987. He has been at the forefront of its expansionist activities.

Hugh Fletcher has a growing 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 is equivalent to 30 million barrels of oil a year, which will supply more than half of New Zealand’s total demand. It is 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 dominates 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 is clear that Fletcher Challenge’s strategy for the 1990s is to continue to expand worldwide. At the same time, the company is prepared to sell off any subsidiaries which will not play a part in international expansion. Consequently Fletcher Challenge has 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% of the New Zealand fish quota, but Fletcher Challenge was unable to acquire any compatible overseas companies with which to merge Fletcher Fishing.

In the 1980s Fletcher Challenge expanded selectively, at the same time divesting many of its smaller business enterprises. At the beginning of the 1990s the company was a world leader in pulp and paper, energy, and construction, with well-established operations in Australasia, the Pacific Basin, North and South America, and Europe. The next decade is likely to see the company’s continued growth with an emphasis on expansion in North America and Europe.

Principal Subsidiaries

Fletcher Challenge Financial Service Limited; Fletcher Challenge Industries Limited; Fletcher Challenge Capital Canada Inc.; Fletcher Challenge Equities Canada Inc.; Fletcher Challenge Finance Canada Inc.; Fletcher Challenge Industries Finance USA Limited; Fletcher Challenge Industries USA Limited; Fletcher Challenge Investments Inc. (North America); Fletcher Challenge Investments II Inc. (North America); Fletcher Challenge Australia Limited; Fletcher Challenge Finance Netherlands B.V.; Fletcher Challenge Financial Services Netherlands B.V.; Fletcher Challenge Finance UK Limited; Fletcher Challenge Forest Industries Plc; Tasman Pulp and Paper Company Limited; Crown Forest Industries Limited (North America); Fletcher Challenge Canada Limited (72%); Australian Newsprint Mills Limited (50%); Papel de Imprensa S.A. (South America) (50.3%); Tasman Chile S.A.; UK Paper Plc; Challenge Properties Limited; Firth Industries Limited; Fletcher Building Products Limited; The Fletcher Construction Company Limited; Fletcher Industries Limited; Fletcher Merchants Limited; Fletcher Panel Industries Limited; Fletcher Residential Limited; Pacific Steel Limited; Tasman Forestry Limited; Tasman Lumber Limited; Winstone Industries Limited; Crown Forest Industries Limited (North America); Dinwiddie Construction Company (North America); Fletcher Challenge Canada Limited (72%); Pacific Construction Co. Limited (North America); Wright Schuchart Incorporated (North America); Jennings Group Limited (Australia) (54%); Tasman Chile S.A.; Rural Banking and Finance Corporation of New Zealand Limited; Wrightson NMA Limited; Natural Gas Corporation of New Zealand Limited; N.Z. Synthetic Fuels Corporation Limited; Offshore Mining Company Limited; Petrocorp Exploration and Production Limited; Petralgas Chemicals NZ Limited; Petroleum Corporation of New Zealand Limited; Petrocorp Exploration (Canada) Limited; Fletcher Challenge Energy Finance B.V.

—Susanna Wilson