Archive | Fletcher Building

Fletcher Building takes axe again to construction earnings, Adamson ousted

Fletcher Building Ltd announced its second hefty cut in earnings guidance for the year yesterday, but cushioned it by issuing a statement that ignored the first target in the opening comparison – before its contracting ploys went disastrously wrong.

Chief executive & managing director Mark Adamson – very oddly – presented the company viewpoint on the first guidance cut in March as if the cause was something peculiar to the company’s construction division.

Yesterday, Mr Adamson was gone and company chair Sir Ralph Norris was the frontman, as he should have been previously.

The cause?

One can surmise, because the company hasn’t said: The failure to make the required earnings on major contracts could arise only from bidding low to win the contract, and being prepared to lock in costs when costs across the sector were rising.

That goes to company ethos, an historic view that Fletcher is the rightful owner of certain areas of business. On this occasion Mr Adamson was the fallguy, but the company ethos tells you that the board – and especially the chair – would have set the direction.

The guidance trail

The new guidance for operating earnings for the year that ended on 30 June is $525 million.

The previous guidance, on 20 March, was $610-650 million.

The original guidance when the half-year results were presented, on 22 February, was $720-760 million.

Sir Ralph said the company also expected likely impairment of up to $220 million relating to the Iplex Australia & Tradelink business units.

The company’s earnings review

According to the company statement yesterday, trading in the building products, international, distribution and residential & land development divisions, as well as 3 of the 4 business units in the construction division (infrastructure, Higgins & South Pacific), is “in line with the company’s expectations, previously provided at the time of the interim results on 22 February.

“However, as work on major projects in the Building + Interiors (B+I) business unit has progressed, it has become apparent that losses in B+I will exceed those previously estimated. The deterioration is due to:

  • a major project subject to previous writedowns, which has required an increase in project resourcing and therefore cost as it nears completion
  • a second major project where construction timelines and the likely completion date have been extended
  • reduced profit expectations on a number of smaller projects in the remainder of the B+I portfolio.

Sir Ralph said: “It is very disappointing to see further losses being reported in our B+I business, particularly when the vast majority of the remaining Fletcher Building business units have performed so well during the year. I know our people in B+I are working incredibly hard to deliver a number of projects for our clients and I would like to acknowledge their efforts.”

In addition, consistent with its standard practice at the end of each financial period, Fletcher Building said it had undertaken a review of the balance sheet carrying values of its business units: “This review has indicated that the value of 2 business units, Iplex Australia & Tradelink, are likely to be subject to an impairment charge of about $220 million when the company finalises its financial statements in August. An impairment of this nature would be reported below the ebit line and have no impact on cash earnings.

“An impairment charge of $220 million would represent about 3% of the group’s total assets as at 30 June. The amount of asset impairment is indicative at this stage and is subject to finalisation of the year-end audit.
“With regards to the impairment of Iplex Australia and Tradelink, while we do see progress in these business units, the board felt it was prudent to recognise that the near- to medium-term estimates of profitability in each business are not aligned with current carrying values.”

Norris & Adamson on Adamson

On Mr Adamson’s departure, Sir Ralph said: “The board believes it is the right time for Mark to leave the company, to allow a new chief executive to lead Fletcher Building through this period and into the next phase of its strategy. The board would like to thank Mark for his work and we wish him the best in his future endeavours.”

Mr Adamson said in the company release: “I am disappointed to finish my tenure on the back of a challenging result in the construction division. However I am proud of what has been achieved over the last 5 years – most notably the turnaround of Formica, double-digit earnings growth in distribution, our acquisition of Higgins and the significant progress in our residential development division.”

Francisco Irazusta takes over as interim chief executive next Monday, 24 July.

Fletcher-posed questions & answers

In a question & answer segment of yesterday’s release, Fletcher Building said: “What are the 2 major projects and when will they be completed? For reasons of client confidentiality, we will not name the projects. One of the projects is close to completion, and the other is targeting completion in the 2019 financial year.

“Are the 2 major projects, and associated issues, the same as those referenced in the 20 March update? Yes. The most significant issues remain complexity in design, subcontractor management & building programme delivery, which has led to an extension of project timelines and increase in project resource requirements & costs, relative to original budgets.

“How can you be sure this new provision will capture all potential future losses? One of the major projects is close to completion, which provides greater certainty over the ultimate cost. A review of remaining projects has been completed, and the construction timelines and the likely completion date extended on a second major project.

“Why are you booking such a large provision now? Under accounting rules, profit on a construction contract is recognised progressively through the life of the project, whereas when it is probable that a contract will incur a loss, the expected loss must be recognised immediately as an expense.

“What has been done to address the issues in B+I since the last update? In addition to the initiatives outlined in our March update, the construction division is benefiting from the leadership & robust management expertise of chief executive Michele Kernahan and B+I has a newly appointed general manager, David Kennedy, who brings with him 30 years’ experience in the construction industry across multiple markets.

“Is there a future for B+I in the Fletcher Building portfolio? We continue to believe that there is a future for the B+I business in the Fletcher Building portfolio, but it is likely to be a more focused business, targeting key clients & sectors.

“What will Mark Adamson receive upon departure? Mark will receive his contractual entitlements. All of his share options will lapse and he will forfeit all shares in the company’s long-term incentive scheme. No short-term incentive will be paid in respect of the 2017 financial year.

“Does this downgrade to earnings guidance pose a risk to your banking or debt covenants? Despite the further reduction in forecast cashflows from these additional B+I losses in the 2017 financial year, the company remains well within its banking covenants, and expects to continue to do so. Based on the updated guidance range, we expect the ratio of net debt:net debt + equity to be around 36% at the end of the 2017 financial year, and the ratio of net debt:ebitda to be about 2.7 times.”

Mark Adamson

Mark Adamson.

Mr Adamson found himself auditing multi-nationals as a young accountant at Deloittes in London 30 years ago. After 5 years at Deloittes, including time managing a number of companies in receivership post-1987, he moved to pharmaceuticals company Glaxo Wellcome plc for 6 years, staying in finance roles, then had his first taste of laminates at Perstorp Ltd, the UK holding company of a Swedish multinational.

In 2000 he moved to Formica Corp as chief financial officer, moving up to managing director then president for the UK & Europe. When Fletcher Building took over Formica in 2008, he was promoted to chief executive with responsibility for all Formica’s operations in North America, Europe & Asia.

In October 2011 he was made chief executive of Fletcher Building’s laminates & panels division, responsible for the Laminex Group business in Australia & New Zealand and for Formica worldwide, and in October 2012 he took over as chief executive of the whole group.

In 2015, I wrote that Mr Adamson’s business record was that of a change merchant, which meant both that he could be expected to move on soon and that getting the building products company shipshape had been a rapid revolution. His views then (see the story link below) give an insight into his thinking on how to turn the Fletcher worldview around.

One thing he wasn’t was a construction man, though among his aims at Fletcher Building was a sharp lift in the company’s own residential construction business, which he achieved.

Francisco Irazusta.

The new chief

His replacement as interim chief executive, Francisco Irazusta, joined Fletcher Building in March 2015. According to the company’s website: “He has enjoyed an impressive career in global building products in both North America & Europe. Prior to joining Fletcher Building, Francisco steered CRH plc’s European building products business through tough times, driving performance improvement throughout his tenure.”

He holds an MSc in industrial engineering from the State University of New York.

Earlier stories:
20 March 2017: Fletcher Building cuts earnings guidance by $110 million
19 March 2017: Fletcher Building to explain construction loss Monday morning
17 August 2016: Fletcher message is steady rather than gains from innovative performance
21 August 2015: Fletcher chief looks at a better-based future
21 February 2013: Adamson wants Fletcher Unite to reshape group
21 November 2012: Adamson looks at local property rationalisation as first step to lift Fletcher Building
18 June 2012: Ling exits Fletcher Building, laminates chief Adamson moves up – and the big words are “patience” & “innovation”

Attribution: Company release.

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Fletcher Building cuts earnings guidance by $110 million

Fletcher Building Ltd has dropped its range earnings guidance for the year to June by $110 million (before interest, tax & significant items).

The range when chief executive Mark Adamson (above) delivered the half-year results on 22 February was $720-760 million. The range now is $610-650 million.

Mr Adamson said today: “The revised guidance is due to the identification of additional estimated losses & downside risk in the buildings & interiors business unit of the construction division.

“A thorough review of the buildings & interiors business & projects began in late calendar year 2016 and led to new management & governance processes. A significant loss was recorded for buildings & interiors in the half-year results based on the best estimate available at the time. However, management has now identified an increase in the estimated loss on the major construction project which was referenced at the time of the announcement of the first-half results, and the identification of downside risk on other buildings & interiors projects, with the majority being a provision for expected losses on one other major project….

“For reasons of client confidentiality, we will not name the projects. We expect one of the projects to complete within the next few months, and the other is targeting completion in the 2019 financial year.”

The second project had been expected to make a $10 million ebit contribution to 2018 earnings.

Mr Adamson said all other business units within the construction division had continued their strong trading performance. “However, taking into account the new estimates of profitability for the commercial construction projects, it is now expected that the construction division as a whole will report a loss at the ebit level for the 2017 financial year.

“Trading for Fletcher Building’s other divisions remains in line with expectations previously discussed in the first-half earnings commentary.”

Specific questions

In a Q&A section of his release, Mr Adamson said: “The major projects involved are large & highly complex. Project reports & reviews received since the half-year results announcement have indicated significantly higher costs to complete the projects, and have also enabled improved quantification of remaining risks. In addition, the detailed review by new management has led to downward revisions in expected profits on a number of smaller projects.

“The most significant issues relate to complexity in design, subcontractor management and building programme delivery on key projects. This has led to an extension of project timelines and increase in project resource requirements & costs, relative to original budgets. The extent of this has become more apparent since the half-year announcement as new management & processes have bedded in.”

As a result of this debacle, Mr Adamson said Fletcher Building had appointed a chief operating officer for the construction division, a new head of risk & governance in the construction division, and a new general manager of the buildings & interiors business unit would start shortly. We have new finance leadership & processes along with the recent implementation of a new financial management reporting system. The criteria for bidding major construction projects have been made more stringent, and internal review processes for proposed & existing projects have been strengthened. We believe these changes will drive improvement in future periods.”

Would the update also impact the outlook for financial year 2018? Mr Adamson said: “Fletcher Building does not provide guidance beyond the current financial year, however we have tried to be conservative in estimating the losses in the current construction book, and trading in our other divisions remains in line with our expectations.”

Mr Adamson said he wouldn’t discuss potential claims: “We do not discuss matters related to claims publicly. Whenever we have issues on a construction project, we endeavour to work constructively with our clients & other relevant parties to resolve them. Where we have a robust basis for a claim we will consider our position carefully.

Do these issues point to a systemic issue in your construction book? “We don’t think these issues are systemic because they are primarily related to programme & design challenges on a small number of major projects. We are very cognisant of pressure on labour & sub-contractor resource in the New Zealand construction industry at present, and need to ensure we manage this effectively in current projects & future bids. We believe that the changes we are making to strengthen our governance, management processes & bidding criteria and review & approval processes will enable improved performance in the future.

What proportion of the contracts in the construction book are fixed price? “Our current construction backlog is about $2.7 billion. Of this, about $1.5 billion is in the buildings & interiors business. All but one of our major projects underway in buildings & interiors is either a ‘fixed price lump sum’ or ‘guaranteed maximum price’ contract. This is standard in the commercial construction industry. We do not believe the issues we have uncovered relate to contract type, but rather challenges related to programme & design complexity in key projects.”

Has the growth in the buildings & interiors business been driven by a deliberate strategy to boost volume growth for the building products division? “Building products operates as an independent division to construction and supplies product to the construction division’s projects on arm’s length terms. We estimate that sales from building products businesses to buildings & interiors make up less than 5% of total building products revenue.”

Despite the reduction in forecast cashflows from the construction division in financial year 2017, Mr Adamson said the company remained comfortably within its banking covenants & target debt metrics and expected to continue to do so: “Based on the updated guidance range, we expect the ratio of net debt:net debt + equity to be around 34% at the end of financial year 2017, and the ratio of net debt:ebitda to be about 2.4 times.”

Earlier story:
19 July 2017: Fletcher Building to explain construction loss Monday morning

Attribution: Company release.

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Fletcher Building to explain construction loss Monday morning

Fletcher Building Ltd expects to make an announcement on earnings guidance on Monday morning after asking for a trading halt on its shares on the NZX & ASX exchanges on Friday.

The company sought the trading halt while it completed a review of the financial performance of its construction division & impact on earnings guidance.

Chief executive Mark Adamson was more concerned about when construction losses had to appear on the company’s books when he presented the company’s half-year results on 22 February, than explaining how they’d arisen.

“You have to take all of that loss in to the books in the first half,” he said then. “It is in the order of 10s of millions of dollars. It’s a really detailed programme management issue.”

In the results media release, Mr Adamson said: “Construction operating earnings reduced due to the timing of earnings from certain projects being recognised, expensed bid costs, a reduced contribution from Fletcher EQR (Earthquake Recovery in Christchurch) and losses incurred on a major construction project.”

Mr Adamson wouldn’t say whether that one project where the full losses had to be reported for the interim result was the only one where this nature of impact was occurring – and he wouldn’t explain how the country’s biggest construction company could make a loss entering a new site such as SkyCity Entertainment Group Ltd’s International Convention Centre or Precinct Properties NZ Ltd’s Commercial Bay.

According to the interim accounts, the construction division increased revenue by 54%, from $748 million in the December 2015 half-year to $1.15 billion in the December 2016 half. Reported operating earnings, and operating earnings on the non-GAAP measure before significant items, were down 33%, from $36 million to $24 million. The group’s $16 million of significant items related to site closures at Fletcher Insulation & Rocla Products ($15 million) and costs associated with acquiring the Higgins business ($1 million).

New Zealand construction operating earnings fell from $26 million in the 2015 half to $1 million in the latest period, while South Pacific construction earnings rose from $10 million to $23 million.

Attribution: Company accounts, release, interim results briefing.

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Fletcher Building net up 2% after site closures

Fletcher Building Ltd lifted net earnings by 18% in the December half-year, then reduced the figure to 2% through the closure of sites in 2 divisions.

The company reported net earnings of $176 million ($172 million in the December 2015 half), but said earnings would have been $11 million higher but for the net loss from significant items – costs associated with site closures in Rocla Products & Fletcher Insulation.

Highlights:

  • Operating earnings (earnings before interest, tax & significant items) rose 12% to $310 million ($278 million)
  • Revenue rose 4% to $4.613 billion
  • Operating earnings from the distribution & international divisions both rose over 30%
  • Construction result impacted by losses on a major project
  • Cashflow from operations, negative $67 million ($170 million)
  • Basic earnings/share before significant items 27c (23c)
  • Interim dividend up 5% to 20c/share.

Chief executive Mark Adamson said the result reflected a sustained improvement across almost all parts of the portfolio, “signalling the benefit that businesses are getting from a strong New Zealand economy, improved customer propositions, operational efficiencies, cost reductions, and in some cases organisational restructuring”.

The increase in revenue reflected sales growth in the New Zealand businesses and the acquisition of the Higgins contracting business, which operates in New Zealand & the South Pacific and was effective from 29 July 2016.

Despite mixed economic conditions in Australia, operating earnings there rose from $64 million to $84 million.

“The International division is now starting to show the benefit of cost reductions, operational efficiencies, restructures & new product initiatives across the Formica & Laminex group of companies. The 32% improvement in operating earnings in the first half of this year was primarily driven by year-on-year improvements at Formica Europe & Formica Asia.

“Across New Zealand we were pleased to see operating earnings – excluding the performance of the construction division and divested & acquired businesses – increase 20% year on year, indicating the positive impact of continued demand across the residential building & infrastructure sectors.”

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.

Consistent with guidance provided at the annual meeting last October, operating earnings (earnings before interest, tax & significant items) for the 2017 financial year are expected to be in the range of $720-760 million.

Link:
Fletcher Building financial results

Attribution: Company release.

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Fletcher Residential completes Oruarangi purchase

Fletcher Residential Ltd has completed the purchase of 33.8ha for its residential development in Oruarangi Rd, Mangere.

Image above: Map of the development showing the buffer zones & other protected areas.

General manager Ken Lotu-I’iga said yesterday the purchase last week followed Auckland Council consent approvals granted in May.

He said Fletcher Residential, a subsidiary of Fletcher Building Ltd, was pleased with the continued progress: “It is well known that Auckland needs more houses, and we believe this will be a wonderful new neighbourhood, sensitive to the surrounding area. It will also include affordable housing which so many Aucklanders so desperately need.”

The deal has been hotly contested by local residents, particularly members of SOUL (Save Our Unique Landscape), who argued that the rezoning at 545-561 Oruarangi Rd from future urban to a combination of mixed housing suburban, public open space:conservation, and green infrastructure corridor would provide housing at a far lower density than most others in the same tranche of special housing areas approved in 2014.

Fletcher Residential intends to build up to 480 homes in a mix of standalones & terrace housing, and including about 48 affordable homes.

In a list of 18 other development proposals under the housing accord, SOUL found only 4 with densities below 40 dwellings/ha, 8 with densities over 200 dwellings/ha: “The only special housing area approved by Auckland Council & the NZ Government as a low density development is special housing area 62, Oruarangi Rd, Mangere: 480 dwellings on 32ha, density 15 = low.”

The Wallace family farmed this land for over 150 years and it was zoned for future residential development in 2011. Mr Lotu-I’iga said a small part of the residential development land bordered the Stonefields Reserve, and the stonefields were an important part of the history of Aotearoa: “We applaud the Auckland Council for acquiring the stonefields and making them a reserve for all to enjoy. In keeping with this history of protection, we have set aside more than 25% of the development land to provide a buffer zone for the reserve.

“Comprehensive preparations & planning have already been undertaken to protect the culturally significant geological features of the area, including the adjacent Stonefields Reserve. Fletcher Residential has commissioned reports from archaeologists, Heritage NZ, lizard experts, engineers & others, and incorporated these recommendations into the development plans.

“The company has been working with Maori leaders who have the mandate to represent their iwi. We have walked the site with mandated representatives and used ground-penetrating radar to confirm the exact location of caves & midden. We are not building on any of these areas. We are also protecting the old farmhouse & some significant trees. We have comprehensive protocols in place for the discovery & protection of anything of significance found on site, including having an archaeologist on site.

“We believe Auckland can have both history & houses. We are committed to creating a new neighbourhood that reflects these values. While we understand there is some local opposition from people who don’t want any development at all, we believe that the redevelopment of this site has been carefully considered and provides a good outcome for Aucklanders. We will continue to discuss our plans with mandated stakeholders.”

Earlier stories:
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

Attribution: Company release.

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Fletcher message is steady rather than gains from innovative performance

One thing I was looking for out of Fletcher Building Ltd’s briefing today on its annual result was an indication that the outlook is better than running with the tide.

Shifting $81 million of working capital, released when Pacific Steel closed, into cashflow from operations was one big help. The $85 million increase in cashflow from operations was one of the company’s financial highlights for the year but, given the source of most of it, that’s a weak highlight.

On to the next year, then. Chief financial officer Gerry Bollman spoke about how the Accelerate programme would help lift Fletcher Building’s performance, but the outlook is for…. rising & falling with the tide, depending on the country or continent.

The Accelerate message, I said, was fine words, but what did they mean? Mr Bollman tried again. There was a focus on things like external procurement, and also on reducing internal costs. In dollar terms & business effectiveness, your guess is as good as mine.

When chief executive Mark Adamson arrived in Auckland to take over running the business in 2012, his first mission was to change value by driving efficiency, and FBUnite was the mechanism. Accelerate – “building better, together, faster” – adds “art of the possible” bottom up analysis & “top down” validation to the mix, “harnessing the power of the centralised functions & centres of excellence”, co-ordinating it all through the company’s group transformation office, tracking it “consistently across all businesses with a weekly cadence”.

It might equate to more than hocus pocus if it had been related to something concrete like financial returns, or growth in skills, or less downtime, or more pay for staff through their suggestions of how they could perform better for the company.

Housing consents outlook

Fletcher Building – which began as a builder, got right out of that post-1987 then returned with a vengeance in recent years as it saw opportunities to develop housing on golfcourses and in old quarries – has a different perspective from the Government & Auckland Council on the near future for the residential construction sector.

The unitary plan, which the council mostly passed this week, provides for enough land around the region to become available to build 420,000  homes over the next 30 years – an average of 14,000/year built, not just consented. Even as Auckland consents have lifted from a low point of about 3400 in 2011 to 9600 in the year to June, they’re well short of the 39,000 target (including sections) for the 3 years of the housing accord that ends next month.

Fletcher Building expects residential consents nationally to peak in the June 2018 year (after already peaking in Christchurch), but Mr Adamson said a lag in construction could mean the peak is delayed.

He forecast non-residential activity to remain elevated & steady, and infrastructure work to continue growing.

Fletcher Building is forecasting a gradual decline in residential activity in Australia after peaking this year, and expects little non-residential growth. Elsewhere around the world, the company expects growth at best to be modest.

Fletcher Residential’s NZ operating earnings rose 12% to $74 million for the year on revenue up 44%, from $238 million to $343 million, as the Stonefields development in Auckland’s east winds down to completion in about 18 months, offset by an accelerated building programme that includes sales at a number of new locations. The business has a construction target of 1500 houses/year.

Link:
Fletcher Building results

Earlier story today:
Australia & NZ lift Fletcher earnings

Attribution: Company results, briefing.

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Australia & NZ lift Fletcher earnings

Fletcher Building Ltd reported net earnings for the June year up 71% to $462 million ($270 million last year), including significant items totalling $37 million. Net earnings before those items were up 5% to $418 million ($399 million).

Highlights:

Revenue, up 4% to $9 billion ($8.7 billion)
Net earnings, up 71% to $462 million ($270 million)
Net earnings before significant items, up 5% to $418 million ($399 million)
Operating earnings (ebit), up 43% to $719 million ($503 million)
Operating earnings (ebit) before significant items, up 4% to $682 million ($653 million)
Cashflow from operations, $660 million ($575 million)
Basic earnings/share before significant items, up 4% to 60.6c/share (58c/share)
Earnings/share, up 71% to 67c/share (39.2c/share)
Capex, up 8% to $300 million ($278 million)
Final dividend, 20c/share, fully imputed

Chief executive Mark Adamson said a 29% uplift in operating earnings from the company’s Australian businesses drove the higher result, coupled with strong growth in operating earnings in New Zealand in the distribution, residential & construction divisions.

“While the macro-economic environment in Australia was mixed, we delivered strong earnings growth from our Australian business portfolio, which was the result of our focus on improving the performance & capability of our businesses in that market.

“What was equally pleasing was the continued growth in earnings from our New Zealand distribution, residential development & construction businesses. These are all areas we have highlighted as offering strong growth potential.

“Cashflow generation was another highlight of the year, with cashflow from operations up 15%.

“We made good progress during the year in completing our portfolio rationalisation. With the sale of Rocla Quarries completed in January and the acquisition of Higgins completed last month, we have now largely concluded the restructure of our business portfolio.”

I’ll have further details from a briefing later today.

Link:
Fletcher Building, full results

Attribution: Company release.

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Commission clears Fletcher to buy Higgins

The Commerce Commission cleared Fletcher Building Ltd yesterday to acquire Higgins Group Holdings Ltd.

The clearance covers Higgins’ road surfacing & road maintenance, civil structure & construction products, including most of its aggregates & bitumen businesses. Higgins has not sold its readymix concrete business & property businesses, which will be transferred to existing Higgins shareholders before the acquisition.

Fletcher Building also originally applied for clearance to acquire Horokiwi Quarries Ltd in Wellington, but amended its application to remove this quarry during the commission’s consideration.

The commission said today it focused its consideration of the merger on the competitive effects in the supply of aggregates in regions where Fletcher Building (operating as Winstones) & Higgins overlap – namely North Waikato, Napier, Manawatu-Whanganui, Kapiti & Christchurch. In particular, the commission considered whether the loss of Higgins’ quarry operations in these regions would make it easier for Fletcher Building to raise prices to external aggregate customers such as roading contractors.

Commission chair Mark Berry said the commission was satisfied the merger wouldn’t have, or wouldn’t be likely to have, the effect of substantially lessening competition in the affected markets.

“Higgins & Fletcher Building are key competitors of aggregate products in particular regions. However, we consider that strong competition would continue in these regions from existing competitors and the ability of customers to self-supply.”

Link: Commerce Commission clearance register, decision

Attribution: Commission release.

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Fletcher wins approval for subdivision next to Mangere stonefields

Fletcher Residential Ltd, the development subsidiary of NZX-listed Fletcher Building Ltd, has won another controversial right to develop an Auckland site, this time the 32ha Oruarangi special housing area next to the Otuataua stonefields historic reserve in Mangere.

Fletcher’s proposal to redevelop the Three Kings quarry for up to 1500 homes, including a land swap with Auckland Council for sportsfields, has won council approval for the land exchange but has been appealed by opponents.

The decisions on variation 9 to the proposed Auckland unitary plan, and the Oruarangi land use consents under the Housing Accords & Special Housing Areas Act, were dated 18 May and the plan variation was deemed to be operative yesterday.

For local Maori who opposed the development, wanted it to occur on other vacant land nearby, or who supported the proposal because it was inevitable and hoped to win concessions, hearing panel chair Leigh McGregor expressed sympathy, told much of their story in the decision but said, in the end, a resource management hearing was not the place for grievances dating back to the mid-19th century to be heard.

The land’s status as a special housing area had already been decided when that was approved in July 2014 under the housing accord between the Government & Auckland Council. What remained to be decided after the hearing on 3-4 February were the permission to subdivide, and the conditions to do so.

8-year development plan

Fletcher Residential aims to complete the development’s 4 stages over about 8 years. The initial qualifying development will supply 92 residential lots, one lot to retain an historic homestead and 6 superlots for a total 140 houses on 8.2ha, including 15 affordable homes. Ultimately the development will provide for 480 houses.

Fletcher Residential sought to have the 32ha at 545-561 Oruarangi Rd rezoned in the proposed Auckland unitary plan from future urban to a combination of mixed housing suburban, public open space, conservation and green infrastructure corridor.

Ms McGregor said the land was currently zoned future development in the Manukau section of the operative Auckland district plan: “In other words, under the provisions of both the operative plan & the proposed plan, the site is already earmarked for urban development.”

The qualifying development application was for concurrent subdivision & land use consents. As well as the housing, subdivision consent was also required to create a lot to be vested as a recreation reserve, 2 local purpose reserves to serve as accessways, roads to be vested in the council, and 2 balance lots. Consents for bulk earthworks & reconstruction of stone walls on the Oruarangi Rd frontage were also required.

Counsel for Fletcher, Sue Simons, said at the hearing the vision for the development was “the creation of an affordable residential community that achieves quality environmental outcomes and recognises cultural values & associations with the area. The proposed development will offer its residents access to connected open space & the adjoining Otuataua stonefields historic reserve. It will also be connected to a variety of transport options, including pedestrian & cycle networks”.

The development land is located at the end of the Ihumatao Peninsula on the eastern fringes of the Manukau Harbour and is 21km from central Auckland. The general area is known as the Western Gateway, with the peninsula forming part of what is referred to as the Mangere gateway heritage area.

It’s fringed by a reserve to the north, a papakainga village to the east, Oruarangi Rd to the south-south-east and the Rennie block, owned by the council, and part of the reserve to the west. Ihumatao Quarry Rd bisects the site from the south-east to the north-west. Despite its proximity to the motorway and the city, the area hasn’t been serviced by public transport and there are no schools or shops.

The stonefields reserve, created in 2001, adjoins the site to the north-west, and portions of the eastern slope of the reserve extend into the special housing area land. The Makaurau marae & papakainga lie to the north-east, while across the road & immediately to the east is land zoned as Mangere gateway business (Oruarangi) in the district plan, which is being developed for business purposes with a number of small to medium-sized business/industrial units. Beyond that new development is the airport precinct.

The wider area is bounded by the South-western Motorway (State Highway 20) to the east, George Bolt Drive & the Auckland international airport terminals, runways & business park to the south, and the Manukau Harbour to the north & west.

Rezoning approved in 2012

The Environment Court approved rezoning of this & nearby land from rural to the future development zone in 2012. Ms McGregor quoted part of the court’s decision in the decision out yesterday: “To keep the land outside the MUL (metropolitan urban limit) with a rural zoning would, without further constraints, offer less protection to the characteristics protected by section 6 (e) & (f) of the Resource Management Act. To lock the land up might indeed provide for Maori & heritage values. But it would not provide for the economic needs & wellbeing of the owners. By allowing sensitive constrained development, heritage & landscape characteristics can be protected.”

Panel chair acknowledges depth of feeling

Ms McGregor recorded, from previous court evidence, some of the depth of feeling about the area: “The volcanic features on the Ihumatao Peninsula are recognised as taonga by local Maori and the court recorded the evidence given to it that subsequent modifications & destructions of these features have caused immense distress & ongoing grief.

“Examples of such modifications included creation of the Mangere sewerage ponds & associated water treatment plant on the edge of the Manukau Harbour, quarrying of various maunga, and construction of the second runway for the Auckland international airport. Destructions included laying waste to cultural icons when the wastewater treatment ponds were built.”

She also noted that, although the Environment Court concluded there was little doubt that Ngati Ahiwaru, the inhabitants of the area in 1853 when Maori were ordered to leave, were unfairly treated by the Crown, “those matters cannot be addressed through Resource Management Act processes. We agree with that, and note that in the present case a remedy for historical grievances is not provided by our jurisdiction in terms of the Housing Accords & Special Housing Areas Act either”.

Several submissions were concerned with the special housing legislation, its affordable housing requirements and public involvement in the special housing area formulation processes. Again, Ms McGregor said in the panel decision: “As noted by Ms Simons in her legal submissions, those are political processes which are beyond the control of the authority. We have no jurisdiction to comment on, let alone decide, the matters raised…

“We were made aware that a claim has been made to the Waitangi Tribunal by persons or parties who object to the special housing area legislation process and the announcement of this land as a special housing area. Again it would be inappropriate for this authority to comment on that claim or any steps the Waitangi Tribunal might have taken in relation to it. Impacts on property values, and potential rate increases, were also raised and are similarly inappropriate as a basis for decisions under the legislative framework that applies to the current applications.

“The combined submissions of the Te Kawerau Iwi Tribal Authority & the Makaurau Marae Maori Trust supported both the plan variation & the qualifying development application and stated they represent the people who hold mana whenua of Ihumatao and who reside at Puketapapa papakainga (Ihumatao village). There was also a submission in support of both applications lodged by Daniel Nahkle, who is a director of several companies including that developing the business land at 533 & 556 Oruarangi Rd. This confirmed that the parties he represented had agreed to stormwater & wastewater infrastructure for the development being installed for the qualifying development.”

The hearing panel turned down a request from Auckland International Airport Ltd that a proportion of the development contributions to be generated by the development be allocated to improving the local road network, including roads which it owns around the airport. Ms McGregor: “We have no jurisdiction to consider that request as this is a Local Government Act matter, and therefore we have no legal basis on which to make the decision the company sought.”

Fletcher’s archaeologist sees benefit

Archaeologist Rod Clough, on behalf of Fletcher Residential, said the project would actually protect a number of significant features and also add a valuable buffer to the stonefields reserve that would assist in protecting its values over the long term. He advised that the adverse effects on historic heritage would require mitigation through a range of measures which include development of a reserve management plan, establishing a protective covenant for the historic Kintyre House, repair & restoration of stone walls where feasible, archaeological investigation & recording to recover information relating to the history of the area, and providing public amenities in the reserve area, including information on the history of occupation (and including the association of the Wallace family with this land, which the family acquired in 1863).

Marae head details long battle

Mr Te Warena Taua, who chairs the local Makaurau Marae Trust and is a kaumatua of Te Kawerau a Maki as well as executive chairman of Te Kawerau Iwi Tribal Authority, described the confiscations & military activity in & around Ihumatao during the 19th century, including how Maori had been ordered to leave the area when the English soldiers arrived in 1863. When Maori finally began returning, there was nowhere for them to live. At the time the Crown grant was made to Mr Wallace some nearby land had been ‘gifted’ to iwi, although they didn’t gain title to it until 1911. Land was taken back from the Wallace family and divided between 14 kaumatua of several related iwi groups.

Mr Taua said more & more houses were built and gradually more of his people started to return. He said Ihumatao had changed immensely since that time. There are now 67 houses in the village, around two-thirds of which are owned by those who live there. The population is now around 210 people.

Mr Taua referred to the Environment Court cases which had considered the extent of the metropolitan urban limit and an attempt to rezone 545-561 Oruarangi Rd as public open space. Mr Taua was involved in these cases and clearly disappointed by the outcome. He explained that since that time his focus had shifted from opposing growth to negotiating with Fletcher to achieve better outcomes for tangata whenua through the provision of affordable housing for those who return to the area, creating an ongoing relationship with the developer and ensuring that the future housing would be set back from the papakainga & urupa.

He said in the course of these discussions: “Fletchers came to realise how much this land means to us. The proposal was 520 houses which came down to 480 … then it agreed to move a fence back by 80m, which is a sizeable area, and that land will come back to us in fee simple. This is the first time since the confiscations that land, including the toe of the maunga, will come back to us.

“There are at least 200 families who could come back and live in the village. We’ve had children who could not be brought up here because there’s no room. That’s nothing to do with Fletchers, but there are many who want to come back and they have a right to do so. It’s up to us. If our people are able to return to these houses then we have done something.”

He added that those who were opposed to the development had not taken any account of the people who are not there and who want to return. He acknowledged there could be no guarantee that descendants of the original settlers will actually own all of the new houses, although that aspect was also being negotiated.

Effects more than minor, but…

Ms McGregor said in the decision: “We have concluded that the heritage, cultural & archaeological effects of the development will be more than minor. In this context, however, it must also be borne in mind that in respect of this particular land the Environment Court has already decided that appropriate development can occur on the site and that it should not be retained as a wholly open space area. While there may have been previous intentions by various agencies to purchase all or some of the land as reserve, the fact is it has never happened and the advice we received at the end of the hearing was the Auckland Council has no intention to acquire it.

“We are satisfied that the proposal will set back any development from sites of cultural, heritage & archaeological significance, and that the design has included a reduction in the overall yield, and a buffer & building height restriction between the existing papakainga and the development. The ground-penetrating radar survey has confirmed that the full extent of the known burial caves & the 2 smaller lava voids are located within the proposed reserve area and will not be affected by the development.”

Opponent Brendan Corbett raised the issue of development density just before the hearing and in formal submissions, arguing that it would be a much lower density than other special housing areas.

480 dwellings on 32ha equated to a density of 15 houses/ha, while special housing area 59 at Walmsley Rd in Mangere would yield 1500 dwellings from the same land area and have a density of 100 houses/ha, and special housing area 93 at Kirkbride Rd would yield 53 from 1.7ha, a density of 31/ha.

Ms McGregor commented: “He construed the lower density proposed for Oruarangi as a marketing strategy designed to pitch the houses to the high price/elite end of the market. However, Mr Corbett’s preference was for this site to be purchased for reserve purposes, with no development to take place on it at all as ‘losing the land to housing had never been conceived of as possible’….

“It was apparent to those reporting for the council that Mr Corbett’s density calculations had been based on the entire site, without taking into account any areas to be set aside for stormwater, roads, reserves & the buffer to the west.”

Between the applicant and the council, only one variation provision remained in dispute by the time the application was set down for hearing. This related to the recommended rule 4.13, which at that time required that no more than 6 affordable dwellings or sites were to be provided in a single cluster. Fletcher asked to increase that to 9 dwellings so terraced housing could be developed, as that typology would provide an economic option for affordable housing.

Ms McGregor said the outcome of discussions between Fletcher & the council before the hearing was agreement that a cluster of 9 dwellings could be provided. The approved variation reflects that agreed outcome.

In sum, Ms McGregor said: “The authority has concluded that the development anticipated by plan variation 9 is appropriate. We have been satisfied that the special characteristics of this area will be maintained in that the proposed unitary plan provisions for the Oruarangi Rd sub-precinct do not provide for tall buildings that would otherwise intrude on views of the maunga or the stonefields; they will maintain public access to the coast, the stonefields area and the stonefields reserve; they will require an appropriate buffer area between the development and the stonefields reserve along with other heritage protection measures, and will maintain & enhance linkages with, and for the customs of, the adjacent papakainga & the Makaurau marae.

The applications were heard by the accord territorial authority comprised of Ms McGregor (chair), Robert Scott, Shona Myers, Basil Morrison & Murray Kay (local board member).

Links:
Oruarangi hearing documents
Variation 9 full decision

Earlier stories:
2 February 2016: Minister takes Fletcher side on 3 Kings, and local politicians cry foul
29 January 2016: Opponents say Ihumatao alone as low-density special housing area proposal

Attribution: Panel decision.

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Fletcher & NALCO unveil aluminium joint venture

Fletcher Building Ltd said today it had reached agreement to create a 50-50 joint venture between its Fletcher Aluminium windows & doors business and NALCO Ltd.

NALCO managing director Ron Holden will become managing director of the new entity.

Fletcher Building chief executive Mark Adamson said it was proposed that the Fletcher Building manufacturing site in Auckland would close in the 18 months following formation of the joint venture.

He said Fletcher Building would fund its share of the capital expenditure to expand NALCO’s Hamilton manufacturing facility. The new entity will have 2 key manufacturing sites – an extrusion & powdercoating facility in Hamilton and a powdercoating facility in Christchurch.

In its first full year of operation the new entity is expected to have sales of $190 million. The joint venture is expected to be formed by June and is conditional on a number of matters, including Commerce Commission approval if required.

Attribution: Company release.

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