September 27, 1989

Article at Reuters

Fletcher eyes targets in Europe and the Americas

Hugh Fletcher, chief executive of Fletcher Challenge

By Wilson da Silva

TORONTO – Fletcher Challenge Ltd, the world’s second-largest newsprint producer, is predicting a three-year slump in forestry and newsprint markets, but is still considering acquisitions in Europe and the Americas.

Fletcher chief executive Hugh Fletcher told Reuters that Fletcher Challenge, New Zealand’s largest company, was eager to expand its world presence.

Oversupply in newsprint will lead to a shake-out in the industry which could offer it opportunities, he said.

“The industry will be under some pressure over the next few years, but I think we’re a bit too early into that phase now. The thing is, there are a lot of people looking to buy too, so maybe if we wait for the classically right time, we will have waited too long,” he said.

Fletcher said he saw good expansion prospects for newsprint and forestry in Portugal, Spain and South America, particularly Brazil.

“One of the reasons we have gone into Brazil is the recognition that it is going to be one of the world’s significant low-cost producers,” he said.

“But I would not rule out Portugal and Spain ... (they) are positioned to become good low-cost producers, and they have access to a unified European market the size of the U.S.,” Fletcher said.

The New Zealand company is widely respected by share analysts for its well-researched forecasts and planning.

It has interests in construction, agriculture, oil and gas, property and banking, and is the world’s eighth- largest forestry company.

In the financial year ended June 30 net profits were US$372.9 million on revenues of US$6.6 billion.

“The main advantage we will have (against competing buyers) is our diversity. We have good cash flows coming out of oil and gas, for instance, that enable us to be more aggressive in buying counter to the cycle (in forestry and newsprint),” Fletcher said.

He told a meeting of financial analysts on Tuesday that the world newsprint market was headed for a glut between 1990 and 1992, despite projected two to three percent growth in North American consumption and strong demand growth elsewhere.

Despite U.S newsprint consumption showing no growth for some time, the industry plans to increase capacity over the next three years, he told the analysts.

This offers a window of opportunity for Fletcher Challenge in both the United States and Canada, where the company is studying a number of mills.

Fletcher said: “You can, particularly in the U.S., get a good feel of the cost structures because of disclosure requirements. So you can build up a model of a mill and be pretty accurate.”

But Fletcher said his company is unlikely to be interested in high-cost lumber and paper producers, even if they come on the market at cheap prices.

“The culture of our company is to pay a little more for a low-cost mill rather than to buy a high-cost mill...and the lower-cost producers tend to be the most recent mills in the U.S. south and southeast.

“But in the acquisition game, a lot of it is a question of opportunity, and that may not come along.”

Fletcher said he saw good expansion prospects for newsprint and forestry in Portugal, Spain and South America, particularly Brazil. “One of the reasons we have gone into Brazil is the recognition that it is going to be one of the world’s significant low-cost producers,” he said.

“But I would not rule out Portugal and Spain ... (they) are positioned to become good low-cost producers, and they have access to a unified European market the size of the U.S.,” Fletcher said.

The New Zealand company is widely respected by share analysts for its well-researched forecasts and planning. It has interests in construction, agriculture, oil and gas, property and banking, and is the world’s eighth-largest forestry company.

In the financial year ended June 30 net profits were US$372.9 million on revenues of US$6.6 billion.

“The main advantage we will have (against competing buyers) is our diversity. We have good cash flows coming out of oil and gas, for instance, that enable us to be more aggressive in buying counter to the cycle (in forestry and newsprint),” Fletcher said.

He told a meeting of financial analysts on Tuesday that the world newsprint market was headed for a glut between 1990 and 1992, despite projected two to three percent growth in North American consumption and strong demand growth elsewhere.

He said FCL was studying a number of mills in the U.S. and Canada for possible purchase.

“You can, particularly in the U.S., get a good feel of the cost structures because of disclosure requirements. So you can build up a model of a mill and be pretty accurate.”

But Fletcher said FCL is unlikely to be interested in high-cost lumber and paper producers, even at cheap prices.

“The culture of our company is to pay a little more for a low-cost mill rather than to buy a high-cost mill...and the lower-cost producers tend to be the most recent mills in the U.S. south and southeast.”

But he added: “In the acquisition game, a lot of it is a question of opportunity, and that may not come along.”