‘Horrific’ losses mount at Fletcher

The mismanagement of construction giant Fletcher Building may have destroyed up to $2.7 billion in wealth over the past nine years.

Fletcher has extended the halt on trading of its shares here and across the Tasman as it continues to review mounting losses on key construction projects.

Professor Jilnaught Wong, from the department of accounting and finance at the University of Auckland’s business school, estimated the company had suffered between $1.7b and $2.7b in total wealth loss over the past nine years as a result of not earning enough to cover the cost of its capital.

‘‘It’s quite horrific – if you think about an organisation that’s supposed to be performing.’’

He said the company seemed to have been trying to work its assets harder to boost productivity, but its profit margins were declining.

‘‘It’s quite frightening. This is their third go at an assessment of what their losses will be.’’

Wong said investors who put money into Fletcher Building could end up being burnt.

The share price topped more than $12 in 2008 but was $7.77 before the trading halt began. It had previously dropped below $6.

‘‘Their profitability is hurting them,’’ Wong said. ‘‘There’s no point being really productive if you’re not profitable.’’

Wong said there were questions to ask about the construction sector experience of the Fletcher board, because it was an industry where specialist knowledge was required.

‘‘General knowledge is not good enough … The company has been around for so long and construction is not a new industry; there should be people around with experience.’’

But he said those working in management in the company’s troubled building and interiors (B&I) unit ‘‘ought to have known what’s going on – why isn’t that information filtering through?

‘‘You would expect people with expert specialist knowledge to get it right. Will they get it right the third time? I thought they were reasonably confident they got it right the second time.

‘‘It’s a great company with lots of legacy; it’s a shame the performance hasn’t been there, and hasn’t been there for quite a while. That’s come home to roost.’’

He said Fletcher should look hard at not only its board level but also at its organisational governance, to examine the quality control involved in setting its pricing and bidding strategies.

New chief executive Ross Taylor has a background in the construction sector.

Wong said it could be that he wanted to reassess the situation to allow himself to start from a clean slate base.

Further news is expected by tomorrow.

Fletcher is believed to be renegotiating its debt covenants and working to avoid needing to raise more money – something that could be difficult given the pressure on its share price.

A Fletcher Building spokeswoman said the company could not comment during a trading halt.