Archive | Fletcher Building

Sheppard turns Fletcher meeting into “absolution or exorcism” exercise

Angst laid on thick, the introduction of monthly reviews (as if they weren’t once the norm), an unprecedented voluntary 20% cut in directors’ fees, an annual meeting chaired with aplomb & eventually giving space to the voices of protest.

Fletcher Building Ltd chair Sir Ralph Norris apologised on Wednesday to the hundreds of shareholders in the Auckland War Memorial Museum event centre for the performance of the company’s construction division, and the losses incurred on major projects by that division’s building & interiors business (B+I).

Father Bruce

Shareholders Association founder Bruce Sheppard chose priest’s garb to deliver his message.

Shareholders Association founder Bruce Sheppard turned up in priest’s garb to perform rites on the company, providing the elan that his successors never manage. Rising to speak to a director’s re-election, Mr Sheppard told Sir Ralph: “Big is not beautiful” and “Too much debt always kills business”.

Then he went on to explain his garb: “This is an A&E meeting, and I don’t mean accident & emergency. I mean absolution & exorcism.”

Boards at big listed companies are innately secure – they mostly hire people they’re going to get along with, they mostly have the votes tied up and it’s rare for a director to be elected on less than 98% support.

But, turning to the assembled shareholders at the museum before the vote on re-electing Cecilia Tarrant, who’s a member of the company’s audit & risk committee, Mr Sheppard conducted an absolution or exorcism test.

New Shareholders Association chief executive Michael Midgley, a retired lawyer, told the meeting that if the former audit & risk chair John Judge had been up for re-election the association would have campaigned for proxies opposing it. For Ms Tarrant, Mr Midgley said: “It’s our view that her position is untenable.”

Mr Sheppard told Ms Tarrant that, while “it pains me to put an alternative view to the organisation I founded, perhaps you could forfeit more fees than the rest of the board – but that is to your conscience”.

Asking his audience to raise their hands in favour of absolution or exorcism, he found the room evenly divided. In the official count, Ms Tarrant collected 99.13% of the votes. Former PWC NZ chief executive Bruce Hassall, who joined the board and its audit & risk committee in March and was therefore not part of the Building + Interiors problem, was up for election for the first time and scored only 96.14% support.

Both Ms Tarrant & Mr Hassall spoke forthrightly before the votes. Mr Hassall had gone to the trouble of meeting most of the finance executives across the group, and commented: “It is clear we have a lot of businesses which need to do a lot better.” On B+I he said: “Mistakes have clearly been made on contracts in the past.” He said his job was to make sure downside was minimised and that the mistakes “never occur again”.

The construction losses to continue

Fletcher Building split its earnings guidance on Wednesday to show B+I losing $160 million ebit (earnings before interest & tax and excluding “significant” items) in the 2018 financial year – and Sir Ralph said it could be more than that – while the rest of the group was expected to make $680-720 million.

The company expects 80% of the extra $125 million of project losses to come from 2 projects, construction of the NZ International Convention Centre in Auckland for SkyCity Entertainment Ltd, and the Justice precinct in Christchurch. The $35 million balance of anticipated ebit loss will come from extra B+I overheads.

The line – “so it won’t happen again” – is a nice, comforting one. Small shareholders invest in a company like Fletcher Building because it’s a secure large corporate, supposedly well managed.

Mr Hassall’s arrival on the board replaces one supposed accounting strength (John Judge) with another, but the board is still looking for a new director with construction sector nous.

It’s an extraordinary hallucination that a company of Fletcher’s size, with its origins, its company name, its basis for being before the gathering of product divisions that made it a vertically integrated conglomerate, should go a whole year since it discovered a gigantic gap in project management expertise without adequately stemming the flow of funds through that gap.

As one gnarly oldtimer commented to me on the way out the door: “What’s their job if not to manage the business? Monthly reports? We always had them.”

Sir Ralph Norris presenting the annual result in August.

Ihumatao versus the food trolley

But for all that, Sir Ralph ran a subdued meeting, giving a long explanation of negative construction project events but also spending considerably more time going through the performance of other divisions than they’d normally get at the annual meeting, allowing protesters over the housing division planned for Ihumatao, near Auckland Airport, to air their views & ask their questions rather than trying to shut them down, but also giving his own contrary opinion on Ihumatao and to a representative of striking drivers.

To the truck drivers, he said: “Increases have been significantly above the rate of inflation over the last 5-6 years. The company will come back in good faith.”

Then, after 130 minutes, the strident voice of SOUL (Save Our Unique Landscape) campaigner Pania Newton from a raised standpoint at the side of the room became too much for Sir Ralph as she accused the company of corruption & stealing land. It was also too much for most of the suddenly grumbling elderly shareholders who resented the attack and began to make their way to the food trolley. Sir Ralph closed the meeting.

The event was a success for allowing some important issues to be aired and some necessary explanations to be made. But both Sir Ralph & the company have a long way to go before Fletcher Building gets back on track – or, better, on to a positive new track that takes more considered account of affected communities & workforce relativities.

Earlier stories:
25 October 2017: Fletcher issues guidance, names new chief executive
25 October 2017: Fletcher shares in trading halt on eve of AGM
21 September 2017: A year on, Fletcher board still has ‘construction nous vacancy’ pencilled in
17 August 2017: ‘Fessed up, time to move on, says an unconvincing Fletcher boss
21 July 2017: Fletcher Building takes axe again to construction earnings, Adamson ousted
20 March 2017: Fletcher Building cuts earnings guidance by $110 million
19 March 2017: Fletcher Building to explain construction loss Monday morning
22 February 2017: Fletcher Building net up 2% after site closures

21 December 2016: Fletcher Residential completes Oruarangi purchase
25 May 2016: Fletcher wins approval for subdivision next to Mangere stonefields
29 January 2016: Opponents say Ihumatao alone as low-density special housing area proposal

Link: Fletcher Building

Attribution: Fletcher AGM.

Continue Reading

Fletcher issues guidance, names new chief executive

Fletcher Building Ltd announced earnings guidance for the 2018 financial year this morning, just ahead of its annual meeting at 10.30am.

Chair Sir Ralph Norris said: “Given the uncertainty in estimating the final outcomes of the major Buildings & Interiors (B+I) projects, and the resulting impact on in-year earnings, Fletcher Building has separated guidance of the B+I business from the remainder of the group’s earnings.”

Excluding Buildings & Interiors, he said the company anticipated earnings before interest & tax, excluding significant items at $680-720 million.

For Buildings & Interiors, the estimate is a loss of $160 million.

Sir Ralph also announced the appointment of Ross Taylor as chief executive, effective 22 November.

Mr Taylor was most recently chief executive of Australian company UGL, an international engineering, services, construction & product-manufacturing business, operating across the rail, transport & technology systems, power, resources, water & defence sectors. UGL was acquired by the ASX-listed construction & contracting company Cimic Group Ltd, in early 2017. Cimic is 73% owned by Hochtief AG of Germany, which in turn is now 71.8% owned by ACS Group SA of Spain.

Before this, Mr Taylor was managing director & chief executive of Tenix, a privately held engineering & construction services company, and before that held various senior leadership roles at Lend Lease over 23 years.

Links:
Fletcher Building results forecast release
Appointment details

Attribution: Company releases.

Continue Reading

Fletcher shares in trading halt on eve of AGM

Fletcher Building Ltd shares went into a trading halt before the sharemarket opened yesterday, on the eve of the company’s annual meeting.

Even in bad times, Fletcher has made the annual meeting an occasion to celebrate.

Not this time. The company has been dogged for over a year by major pricing miscalculations on some of the country’s biggest construction projects, including the SkyCity International Convention Centre in Auckland.

And yesterday, some of the company’s construction staff, members of the First Union, walked off the job over a pay dispute.

Sir Ralph Norris at the annual result announcement in September.

The trading halt was imposed pending the release of an announcement to be made by the company, which will hold its annual meeting at 10.30am today in Auckland.

In September, Fletcher Building reported net earnings before significant items down 23% to $321 million. Company chair Sir Ralph Norris said: “Performance was impacted by the Building + Interiors (B+I) business unit within the Construction division, which reported a $292 million loss during the year. The loss resulted from a combination of complex design issues, inadequate project management and stretched resourcing in a capacity-constrained New Zealand construction market – which negatively impacted 2 major projects in Christchurch [unnamed for business confidentiality reasons, Sir Ralph said] & Auckland [SkyCity International Convention Centre] and a number of smaller projects across the B+I portfolio.”

Earlier stories:
21 September 2017: A year on, Fletcher board still has ‘construction nous vacancy’ pencilled in
17 August 2017: ‘Fessed up, time to move on, says an unconvincing Fletcher boss
21 July 2017: Fletcher Building takes axe again to construction earnings, Adamson ousted
20 March 2017: Fletcher Building cuts earnings guidance by $110 million
19 March 2017: Fletcher Building to explain construction loss Monday morning
22 February 2017: Fletcher Building net up 2% after site closures

Attribution: Company release.

Continue Reading

Commission sets out preliminary issues on Daiken takeover of Dongwha MDF business

The Commerce Commission published a statement of preliminary issues yesterday relating to Daiken NZ Ltd’s proposed acquisition of Dongwha NZ Ltd.

It’s a standard but comprehensive list of competition checks & balances (see the link below).

Daiken lodged its application on 3 October. The commission has invited submissions by Thursday 2 November and is scheduled to make a decision on the application by 30 November. However, the decision date could be extended.

Daiken is the New Zealand subsidiary of Daiken Corp, a Japanese company specialising in the manufacture & supply of wood-based construction materials. In New Zealand, Daiken manufactures & supplies medium density fibreboard (MDF) from a plant it operates in North Canterbury.

Laminex gets supply agreement

Under a product supply agreement with Daiken, Laminex would continue to be supplied with raw MDF from the Southland plant.

Daiken said the agreement would enable Laminex to continue to compete with it and with New Zealand’s third raw MDF manufacturer, Nelson Pine Industries Ltd, in the supply of raw MDF to customers in New Zealand.

Daiken submitted that Dongwha NZ was a “fringe competitor” in the supply of raw MDF within New Zealand because it had long been primarily export focused and, setting aside its sales to Laminex, accounted for a very small proportion of sales in New Zealand.

Daiken also submitted that the proposed merger would not give rise to a material lessening of competition in the manufacture & supply of raw MDF in New Zealand because:

  • Nelson Pine is the largest competitor in the New Zealand market at present, and would continue to exert significant competitive constraint on the merged entity, including by being able to divert significant volumes destined for export to New Zealand customers if market opportunities were to arise;
  • raw MDF is sold in a global commodity market, meaning that prices to New Zealand customers are pinned to conditions in that global market, rather than by standalone competitive dynamics in the New Zealand market;
  • overseas manufacturers of raw MDF in Australia, Asia & South America could import & supply raw MDF in New Zealand if New Zealand manufacturers were to price raw MDF above global market levels;
  • substitutability of MDF for particle board placed additional competitive constraint on the supply raw MDF in New Zealand;
  • new entrants could be incentivised to enter;
  • customers are highly price conscious, push back in negotiations on price increases, and are willing to switch suppliers if they can obtain a cheaper price; and
  • the merger would not materially change the existing degree of competition in New Zealand because the product supply agreement Daiken & Laminex would enter into ancillary to the merger would ensure that Laminex has sufficient volumes to continue to compete, as market opportunities arise, with the merged entity & Nelson Pine in the sale of raw MDF in New Zealand.

The parties

Dongwha is 80% owned by Dongwha International Co Ltd (incorporated in Hong Kong, controlled by Dongwha Group of South Korea) and 20% owned by Fletcher Building Ltd subsidiary Laminex Group (NZ) Ltd. In New Zealand, Dongwha manufactures & supplies MDF from a plant it operates in Southland.

Its minority shareholder, Laminex, buys MDF from Dongwha for its own wood products business in New Zealand. Laminex also on-sells some of the MDF it purchases from Dongwha to other parties.

Dongwha bought the New Zealand business from US timber company Rayonier Wood Products LLC in 2005, and Laminex bought 20% from Dongwha in November 2007.

Link:
Commerce Commission, clearances register, Daiken-Dongwha

Attribution: Commission release & website.

Continue Reading

A year on, Fletcher board still has ‘construction nous vacancy’ pencilled in

A year after Fletcher Building Ltd’s board became aware of construction contract blowouts, the company is no nearer to appointing someone with construction nous as a director.

Sir Ralph Norris presenting the annual result in August.

Company chair Sir Ralph Norris confessed to not understanding the world of construction accounting when he addressed media on the annual result in August. He said then that the problems at the building + interiors business unit within the construction division had all come about in the 2017 financial year, first noticed in September but the extent not realised immediately.

When the half-year result was released in February, chief executive Mark Adamson said construction operating earnings were reduced due to the timing of earnings from certain projects being recognised, expensed bid costs, a reduced contribution from Fletcher EQR, and losses incurred on a major construction project.

In March, Mr Adamson had the task of explaining the blowouts. When the greater extent of the blowouts was recognised in July, Mr Adamson’s contract was ended.

At the August briefing, I asked Sir Ralph what Fletcher had done to fill the void of construction nous in its senior executive ranks, and what steps it was taking to fill that void within the board’s ranks.

Sir Ralph rattled off a long list of recent appointments to demonstrate how the company had tackled a problem aggressively, most of which the suddenly departing former chief executive, Mark Adamson, had listed when he announced a cut in earnings guidance in March, shortly before his exit.

In addition, I wanted to know how the board would acquire more construction understanding than it apparently had. Sir Ralph skirted that question, saying only that “we will have board members stepping down. We are in the process of looking at candidates – somebody with construction experience would be a very good addition to the board.”

Changes, but still a vacuum

Yesterday, Fletcher Building announced board changes – but the construction nous vacuum remained.

John Judge had already indicated he’d retire after 9 years on the board, and Kate Spargo has joined him. Mr Judge’s retirement takes effect at the end of the annual meeting on 25 October, Ms Spargo’s took effect yesterday because she was appointed yesterday as a director of ASX-listed Cimic Group Ltd, a competitor. She had chaired engineering services company UGL Ltd until Cimic acquired it early this year.

Cimic is 73% owned by Hochtief AG of Germany, which in turn is now 71.8% owned by ACS Group SA of Spain. Those stakes make the Spanish group 52.2% owner of Cimic. The former Leighton Construction, which changed its name to CPB Contractors Pty Ltd last year, won the $240 million contract to complete the design & construction of the Christchurch Convention & Exhibition Centre last month.

Bruce Hassall, appointed to the Fletcher board in March and therefore up for election at the annual meeting, will take over from Mr Judge as chair of Fletcher’s audit & risk committee.

Cecilia Tarrant, a director since 2011, is up for re-election under the rotation process. She will take over as chair of the safety, health and environment & sustainability committee from Ms Spargo.

And then came the announcement about the hunt for construction expertise: “With the retirement of John Judge & Kate Spargo, the Fletcher Building board will have 6 directors. The board is currently engaged in a process to extend its skills & experience, particularly in the area of construction & contracting.”

Online voting

2 changes that will happen at the company’s annual meeting are in attendance & voting.

Fletcher Building has told shareholders in its notice of meeting: “To encourage the widest possible participation in the shareholders’ meeting, this year Fletcher Building is introducing a hybrid meeting format where shareholders can participate by attending either in person or remotely online via Lumi AGM.

“By using Lumi AGM, shareholders will be able to watch the meeting, vote & ask questions remotely from a smartphone, tablet or desktop device.”

Earlier stories:
17 August 2017: ‘Fessed up, time to move on, says an unconvincing Fletcher boss
21 July 2017: Fletcher Building takes axe again to construction earnings, Adamson ousted
20 March 2017: Fletcher Building cuts earnings guidance by $110 million
19 March 2017: Fletcher Building to explain construction loss Monday morning
22 February 2017: Fletcher Building net up 2% after site closures

Attribution: Fletcher release & notice of meeting, Cimic release.

Continue Reading

Fletcher Building adds new facilities to already worse debt position

Fletcher Building Ltd said on Friday it had arranged additional debt facilities of $345 million with 3 banks from its existing syndicate – ANZ, HSBC & Westpac Bank.

The new facility was finalised 3 weeks after Fletcher Building issued its annual report, which showed substantial available funding but a much worse debt position than a year earlier, including leverage beyond its target range.

Chief financial officer Bevan McKenzie said the company had put the debt facilities in place in line with its scheduled refinancing programme, and they’d allow the company to work with its lenders to access longer-term funding solutions: “We are very pleased to have put these facilities in place, which show the continued support we have from our lenders. Fletcher Building has a strong funding profile and will continue to work with our lenders to maintain our diverse sources of debt funding.”

Balance date figures:

The annual report, released on 16 August, showed Fletcher Building had total available funding of $2.666 billion at its 30 June balance date, of which $536 million was undrawn. It had an additional $219 million of cash on hand.

The annual report showed $198 million of drawn debt facilities maturing within the next 12 months and a further $71 million of capital notes subject to interest rate & term reset.

The group’s gearing was 35.3% (27.3% at the 2016 balance date). Gearing has returned to the target range following completion of the Higgins acquisition. Gearing is interest-bearing net debt (including capital notes):interest-bearing net debt (including capital notes) & equity.

The group’s leverage was 2.7 times (1.6 times in 2016) interest-bearing net debt (including capital notes):ebitda before significant items. The company noted in its annual report: “Whilst just outside the target range of 2.0–2.5 times, the expectation is that this will return to within the range in 2018. The average maturity of the debt is 4.7 years.”

Interest coverage was 4.7 times (5.9 times in 2016). Interest coverage is the ratio of ebit before significant items:total interest paid (including capital notes interest).

Attribution: Company release, annual report.

Continue Reading

Fletcher Building – how the rest of the business went

The focus in Fletcher Building Ltd’s full-year results announcement last week was on events in its construction division, which went from a $78 million ebit (earnings before interest & tax) profit – before significant items – in 2016 to a $204 million ebit loss in 2017.

Other divisional ebit results were:

  • Building products up 6% to $267 million ($252 million after adjustment for sales of Rocla Quarries & Pacific Steel)
  • International up 27% to $169 million ($133 million)
  • Distribution up 10% to $193 million ($176 million)
  • Residential & land development up 55% to $130 million ($84 million), and
  • The corporate expense down from $63 million to $30 million.

Overall, the group’s operating earnings before significant items fell 23% to $525 million ($682 million).

And those significant items made a big difference – a $37 million gain last year, a $252 million cost this year, taking ebit down 62% to $273 million ($719 million) – a $446 million difference in outcomes.

Fletcher Building had slightly higher funding costs at $115 million ($111 million) and paid 56% more tax, $131 million ($57 million).

The fall in net earnings before significant items was 23% to $321 million ($418 million), and after those items 80% to $94 million ($462 million).

Earnings/share before those significant items fell 24% to 46.3c (60.6c).

Earnings/share after those significant items fell 80% to 13.5c (67c)

Gross revenue for the group rose 5% to $10.25 billion ($9.76 billion). Intercompany sales rose by 12% to $850 million ($757 million), reducing revenue from external sources to $9.4 billion (still up 4% from $9 billion).

Building products

In the building products division, the company reported negative significant items of $98 million from the impairment of Iplex Australia intangible assets ($69 million), costs relating to the closure of 3 sites in Australia ($17 million) and costs incurred in Fletcher Insulation as a result of prolonged industrial action at one of the business’s manufacturing sites ($12 million). This compared to a net gain of $79 million in 2016, primarily attributable to the sale of Rocla Quarries.

International

In the international division, the improved earnings resulted primarily from the turnaround of Formica Europe and improvement of the Laminex businesses. Operating earnings in Laminex Australia rose 6% to $76 million, but gross revenue in Australia fell 4% in local money, due largely to continuing weaknesses in the West Australian residential sector offset by growth in the eastern states. Gross revenue in New Zealand increased by 6%. Operating earnings excluding significant items for Formica rose 42% to $88 million, but overall gross revenue in local money rose only 3%.

Distribution

In the distribution division, operating earnings fell to $40 million ($175 million), primarily from the $153 million cost of impairment of intangible assets in the Tradelink business. The New Zealand building supplies businesses reported increased operating earnings of 22%, Placemakers’ gross revenue rose 6% to $1.2 billion, Mico’s gross revenue rose 6% to $250 million, and the New Zealand steel distribution businesses grew operating earnings before significant items by 23% to $54 million.

Across the division, the company said its focus on targeted growth & operating improvements saw 20 new Tradelink branches open in Australia and significant refurbishment & reinvestment in over 20 branches in New Zealand.

Residential & land development

In the residential & land development division, New Zealand residential operating earnings rose 3% to $76 million from more sales in the new developments of Swanson, Whenuapai, Beachlands & Red Beach, offsetting a decrease in volumes sold at Greenhithe & Stonefields.

“Overall, New Zealand residential sales volumes were behind expectations due to the delayed delivery of land. Average margins, however, were ahead of expectations, driven by continued strong Auckland pricing. The rate of increase in the residential market has slowed since January, signalling a return to more normal market conditions.”

Land development operating earnings were $54 million: “This business comprises a combination of residential & commercial land developments for onsale to third parties. This included the sale of the final lot at the James Fletcher Drive development and the sale of the first lot at the Wiri North development. Whilst land development earnings will be irregular in nature, it is anticipated that the business will earn at least $25 million/year over the next 5 years. At year end there were 3842 lots on balance sheet with a further 2227 lots under unconditional agreements, to be delivered over the next 5 years.”

Earlier stories:
17 August 2017: ‘Fessed up, time to move on, says an unconvincing Fletcher boss
16 August 2017: Fletcher – the bald results

Attribution: Company briefing.

Continue Reading

‘Fessed up, time to move on, says an unconvincing Fletcher boss

After an hour of a media briefing on Fletcher Building Ltd’s slashed annual profit yesterday, group chair Sir Ralph Norris (above) thought it was time to move on.

There’d been one topic of discussion, the failure to rein in loss-making practices at the construction division until it had cost the group $292 million. Most of the group’s other businesses had performed well, but nobody was interested.

Sir Ralph wanted to look forward, but the company calls the customary briefing to explain its past – the money it made or didn’t make over the last year, the performance of its divisions – with only a brief look forward.

The 2 central questions I wanted him to answer, when it came to the post-briefing media questions, were these, both forward-looking with an acknowledgement of aberrations:

What had Fletcher done to fill the void of construction nous in its senior executive ranks?

And what steps was the board taking to fill that void within the board’s ranks?

Sir Ralph rattled off a long list of recent appointments to demonstrate how the company had tackled a problem aggressively, most of which the suddenly departing former chief executive, Mark Adamson, had listed when he announced a cut in earnings guidance in March, shortly before his exit.

In addition, I wanted to know how the board would acquire more construction understanding than it apparently had. Sir Ralph skirted that question, saying only that “we will have board members stepping down. We are in the process of looking at candidates – somebody with construction experience would be a very good addition to the board.” The company will hold its annual meeting on 25 October.

“If you strip out B+I, we would have….”

Fletcher Building reported net earnings before significant items down 23% to $321 million: “Performance was impacted by the Building + Interiors (B+I) business unit within the Construction division, which reported a $292 million loss during the year. The loss resulted from a combination of complex design issues, inadequate project management and stretched resourcing in a capacity-constrained New Zealand construction market – which negatively impacted 2 major projects in Christchurch [unnamed for business confidentiality reasons, Sir Ralph said] & Auckland [SkyCity International Convention Centre] and a number of smaller projects across the B+I portfolio.

“The challenges in B+I masked a robust performance across the remaining portfolio, with Building Products (+6%), International (+27%), Distribution (+10%) and Residential & Land Development (+55%) all posting strong earnings growth.”

Sir Ralph commented: “If you strip out B+I, we would have increased our earnings about 30% in New Zealand and overall by 20%.”

The rejoinder is that, if the board had paid more attention to the operations of a core business sector, or tried harder to understand how that sector works, no stripping out would be needed.

The man in charge’s belated lesson on construction accounting

After saying “The past is the past, we’re going through a process of rebuilding,” Sir Ralph was reluctant to leave the construction division’s losses without some more explanation: “A boom in any business is almost as bad as a bust. In the end, in a situation where resources get short…. blocks & hurdles, which measure time, go against you.

“The demand for resources in a boom are significantly higher.

“These contracts were entered into some years ago… And one thing I have learned about construction is, construction accounting is more of an art than a science – when you decide to take profit into your books, when to take a loss.

“It’s a process that does take a fair degree of complexity to it.”

Sir Ralph said Fletcher had taken “a very exhaustive approach” to its construction division problems: “The amount of time I’ve taken in this business this year, I feel I’ve been an executive rather than a director.”

He said the problems at B+I had all come about this financial year, first noticed in September but the extent not realised immediately: “Up until this year, B+I has performed very well,” he said.

The issues surfaced last September, but the company thought it would get payment for extensions of time, liquidated damages or any other redress for rising costs.

However, in March, management realised none of those ways of making up for onsite losses were going to happen, and the board was informed. Come July, “we took the view there would be no extensions of time, no liquidated damages, no redress. But, as I said at the outset [of the briefing], construction accounting is not simple.”

The reaction was to make a series of executive appointments and to bring in “an independent group of seasoned construction experts, some from Higgins [acquired during the year]”.

At the SkyCity international convention centre in Auckland, Sir Ralph said: “That project has nearly 2 years to run. We have changed the team on that project. We identified a start date earlier than we should have committed to. We weren’t able to staff up. By the time we got to the scheduled start date, we weren’t able to staff up.”

And, after saying the cost of that lapse “hasn’t left our bank account yet”, Sir Ralph said: “I’d like to think we’ve covered the past and get on with the future.”

Interim chief executive talks up the positive

Francisco Irazusta, Fletcher Building’s interim chief executive.

The future of the group, for the moment, is in the hands an interim chief executive, Francisco Irazusta, who was enthusiastic & positive about Fletcher’s future. The problems had been uncovered, issues investigated and now being fixed: “We have improved our project governance and the way we bid for projects,” he said. B+I would become more focused.

And then, from Mr Irazusta, a culture shift.

Over the last 3 decades, Fletcher Building has flushed out businesses, flushed out staff when head office didn’t understand a business the group was running or wanted to change direction – distribution was one segment that caused the group many headaches, the risks of oil exploration looked too risky (in the dying days of the old Fletcher Challenge) and it wasn’t convinced of how to run a petrol station portfolio.

Now, with Mr Irazusta, a bright future dawns: “This remains a great business,” he said yesterday. “Our fundamentals are still strong. We are very focused on our people. We have great, great teams of people. They are passionate in what they do. We focus on safety. Safety is No 1.

“We are developing our ideas. We are developing our talent. We are embracing diversity…

“We will review our customer satisfaction in every business unit. We are putting actions in place to fulfil our customers’ requirements. We want to have more suitable products, more suitable services.

“We are becoming much closer to our customers.”

So, all will be rosy.

Mr Irazusta said the Iplex Australian operations had posted positive earnings for the first time since 2014. Mico & Steel were benefiting from increased residential construction in New Zealand, earnings from Fletcher Living & residential land development were up 55%, corporate costs were down (primarily due to lower incentives paid to staff because of lower earnings).

Australian impairment

Aside from the heavy focus on construction failings and Mr Irazusta’s insistence on a bright future, other troublesome areas of the business were ignored.

The company confirmed an impairment charge of $222 million for its Tradelink & Iplex Australia businesses, representing about 3% of the group’s total assets as at 30 June. The impairment, reported below the ebit line, will have no impact on cash earnings.

The company release said: “In taking these impairments, we are addressing the gap between the balance sheet carrying values of Tradelink & Iplex Australia and their near- to medium-term profitability in a tightening Australian economy.

“Despite these charges, both businesses are progressing well against their turnaround strategies. Tradelink has opened 20 new stores in the 2017 financial year, improved its customer proposition and taken market share, while Iplex Australia has returned to profitability for the first time since 2014.”

Sir Ralph, in his opening foray for the media briefing, summed up the state of play: “Our fundamentals are strong and the majority of our businesses are in growth. We will emerge stronger and we will work to win back the trust of our shareholders.”

That, and Mr Irazusta’s positivity, were exhortations. The Australian impairments and the failure at the highest level to understand basics of the construction business are far more serious than casual stumbles.

Image at top: Fletcher chair Sir Ralph Norris, pensive as his interim chief executive speaks.

Links: Fletcher Building
Results presentation

Earlier stories:
16 August 2017: Fletcher – the bald results
21 July 2017: Fletcher Building takes axe again to construction earnings, Adamson ousted
20 March 2017: Fletcher Building cuts earnings guidance by $110 million
19 March 2017: Fletcher Building to explain construction loss Monday morning
22 February 2017: Fletcher Building net up 2% after site closures

Attribution: Company briefing.

Continue Reading

Fletcher – the bald results

Fletcher Building Ltd still came out ahead in the year to June despite a $292 million loss by its construction division.

Below is the baldest version of Fletcher Building’s annual results. I’ll follow up later today with more financial detail, including the performance of the group’s no-construction businesses, which fared well.

I’ll also go into some detail on the frank assessment by chair Sir Ralph Norris of things that went wrong.

The company reported:

  • Underlying operating earnings down 23% to $525 million ($682 million)
  • Net earnings before significant items down 23% to $321 million ($418 million)
  • Significant items a $252 million debit ($37 million gain)
  • Earnings before interest & tax (ebit) down 62% to $273 million ($719 million)
  • Net earnings down 80% to $94 million ($462 million)
  • Earnings/share before significant items down 24% to $46.3 million ($60.6 million)
  • Operating margin down 26% to 5.6% (7.6%).

Attribution: Company briefing.

Continue Reading

Convention centre project delayed but “on budget”

Aside from the financial upheaval in the construction division of Fletcher Building Ltd, subsidiary company The Fletcher Construction Co Ltd told SkyCity Entertainment Group Ltd last Thursday that completion of its NZ international convention centre would be delayed.

When work on site, between Hobson & Nelson Sts, began in February 2016, the total project cost of the convention centre plus associated hotel, laneway & extra carparks was $700 million, with an opening date in 2019.

SkyCity said on Thursday an updated programme of works was still being reviewed, but it currently indicated practical completion for both the convention centre and the Hobson St hotel around the middle of 2019.

SkyCity said it remained comfortable with the contractual arrangements with Fletcher Construction and the project remained on-budget. It said the slight delay wouldn’t impact on any of the convention centre’s confirmed bookings.

Attribution: Company release.

Continue Reading
WordPress Appliance - Powered by TurnKey Linux