Fletcher’s acting CEO starts cleaning up
Major shareholders first on list for NZ building giant's new man, Nick Traber
Fletcher Building’s acting chief executive officer Nick Traber has spoken to major shareholders as he strives to rebuild confidence in the embattled construction giant.
Traber was appointed to Fletcher’s top job on March 29, taking over from Ross Taylor, who brought forward his retirement after shareholders demanded accountability from Fletcher’s executive and board for a series of financial and management missteps.
On April 5, long-serving chief financial officer (CFO) Bevan McKenzie also succumbed, joining Taylor and former chair Bruce Hassall in leaving the business.
Director Doug McKay is also out, stepping down by June 30, and board member Rob McDonald won’t stand for re-election later this year.
Fletcher said Traber had spoken with some of the company’s shareholders in his first two weeks in the job and had been out and about in the business meeting with the wider team. Traber became Fletcher’s acting chief executive officer (CEO) after serving as CEO of its concrete division from 2021.
Taylor was no longer working at Fletcher’s Penrose office, the company said, but was available to support Traber and the business as required until August 23.
The original plan from the NZXlisted conglomerate would have seen Taylor stay in the CEO position and work out a six-month notice period.
The extraordinary announcement Taylor was “considering his position” was made in a disclosure to the Australian securities exchange in February. This followed another cost blowout of $180 million for SkyCity’s New Zealand International Convention Centre (NZICC) project and remediation work at Wellington Airport.
The appointment of a new, permanent CEO was expected after the company found a new chair. It had called in executive recruitment and board advisory firm Johnson Partners in March to help with the board search and said discussions were continuing with potential external candidates.
An external chair not currently
We just didn’t get confidence they were on top of what was going on in some of these problem areas of the business. Anonymous source
involved with the company is favoured by shareholders, including Fletcher’s largest shareholder, contrarian investor Allan Gray.
Allan Gray analyst Sudhir Kissun said an external chair would bring a fresh perspective to the company’s issues, without having the baggage of Fletcher’s history. Kissun said Allan Gray was pleased to see the company was taking accountability, including the exit of CFO McKenzie.
“It’s a good signal from the board that they’re continuing to try to foster a culture of accountability within the business.
“We see this as another step in that direction.”
McKenzie had been with Fletcher for seven years. He leaves in October.
Kissun said it would be important for the board and the interim CEO to balance the loss of McKenzie’s institutional knowledge with bringing in a new CFO with a different perspective and approach to tackling some of the challenges the business was facing.
Fletcher’s repeated provisioning for projects and seeming inability to get across its financials and keep markets updated in a timely manner was a bugbear for many analysts and shareholders.
It dropped the $180m provision on February 5 and then released its firsthalf result on February 14.
A source with knowledge of the situation said despite conversations with Fletcher’s board, they had been unable to get to grips with what was happening inside the business, which led to the disclosure so close to the result.
“We just didn’t get confidence they were on top of what was going on in some of these problem areas of the business.”
When the company did post its half-year result, it also revealed a $122m write-down of its Australian plumbing business, Tradelink.
Another source said Fletcher lacked sufficient controls within the business to get early signalling of some of the issues bubbling below the surface.
“Rightly or wrongly, we’ve felt a CFO that had a bit more of a finger on the pulse of what was going on in the business might have uncovered some of these issues sooner,” the source said.
They said it was important the next CFO could not only tackle its finances, but also be strategic and work out where the company should invest more capital, and which parts of the business weren’t worth throwing more money into.
Traber is understood to have had brief calls with some shareholders in the day or two after his appointment.
Kissun said Allan Gray wished him well.
Fletcher had also called in highprofile Australian corporate reputation management firm Domestique Consulting to gauge the mood of its major shareholders through a survey including one-on-one sessions on the company’s strategic priorities and expectations and attributes of the new CEO.
Fletcher said the shareholders involved provided feedback on the basis it was anonymous and confidential.
The New Zealand Shareholders’ Association (NZSA) CEO Oliver Mander said he had a “free and frank exchange” as part of the shareholder engagement.
Along with Simplicity and its cofounder Sam Stubbs and Blackbull Research head of research Eden Bradfield, the NZSA had written to Fletcher and asked for an independent review of its culture and conduct, particularly about how information was shared with the board.
The trio also asked Fletcher to analyse the value of the company’s parts to see whether its current setup was the best value for shareholders.
The good bits of Fletcher are its buildings and materials businesses, which hold dominant positions in New Zealand; the construction and Australian businesses are seen as troubled and haemorrhaging cash.
The updates are almost daily now about job losses and cutbacks in the public sector.
The Ministry of Business, Innovation and Employment (MBIE), the National Institute of Water and Atmospheric Research, Callaghan: all are facing proposed redundancies.
The Reserve Bank of New Zealand is keeping interest rates high and now here comes the belt-tightening as the inflation beast is battered back and a new Government looks to retrench a burgeoning public service.
How will these public sector cutbacks affect listed companies?
Craigs Investment Partners investment director Mark Lister says there will be generally reduced demand from public servants for cafes and restaurants, and lower retail expenditure, even if the individuals are not among those who lose their jobs.
The listed companies that may be directly affected by public sector cutbacks are likely to be those with property, including listed firms that offer offices for government departments, he says, or those exposed to corporate travel such as Air New Zealand.
ANZ’s merchant and card spending data for March showed annual growth in total spending was 2.5 per cent, a fall from the previous month’s annual figure.
Spending at restaurants and bars declined 3 per cent year-on-year, and hobby, toy and game store expenditure fell by 3 per cent. Spending at book stores decreased 4.6 per cent, while consumer spending at music and instrument stores fell by 8.4 per cent, year-onyear.
Belt-tightening will increase as people become more cautious, and flow-on effects will spread wider than those public servants who are directly affected.
“There will be a general tone from above to say curb your spending, do you need to go to Auckland for that meeting? Can you have that meeting over Zoom, maybe? All those sorts of things probably have some broader economic flow-on effects,” Lister said.
While cutbacks will be painful in the short term, looking out at one or two years from now, they will take pressure off inflation and interest rates might come down and give the economy a boost.
“And hopefully those people can find themselves employment in other places because unemployment is still extremely low.”
In its half-year result, New Zealand stock exchange-listed telecommunications firm Spark mentioned the public sector a few times.
It said information technology (IT) revenues were flat and digital health revenues were down, “primarily due to lower public sector demand”.
In its digital services business, it reported total IT revenue of $345 million, a flat result compared with the same period in the previous year with a fall of 10 per cent in revenue for IT service management pegged to a fall in public sector business.
Revenue in digital health fell $42m, or 8.7 per cent, and Spark said revenues were affected by the public sector slowdown.
Spark chair Justine Smyth said the first half of the 2024 financial year was characterised by high inflation and cost-of-living pressures, which flowed through to lower levels of consumer and business confidence.
“While Spark’s products are largely resilient to economic downturns, they are not immune, and we saw weaker demand in some areas of the business.”
In October, listed recruitment firm Accordant said it was cautiously optimistic trading conditions would improve after certainty of government, increased business confidence and a healthier outlook for interest rate stabilisation.
Come March, and in an update to the market, it flagged a much softer trading environment.
The company, which owns executive recruiter JacksonStone & Partners, Madison, Hobson Leavy and “blue collar” recruiter AWF, warned its net profit would be materially lower than the $2m reported for the prior year.
It flagged the Government had asked public sector agencies to identify savings in back-office expenditure in the range of 6.5 per cent to 7.5 per cent, “which we expect will impact in the areas of consulting and contracting especially”.
JacksonStone & Partners had already been affected by the intended cost cuts, with revenues from public sector contracting and permanent placements down 15 per cent to date against the prior year, it said.
Madison experienced the same decline in government contracting, Accordant said, with a widespread slowdown in temporary and permanent entry-level and support roles driving a 20 per cent drop in revenues. It said it expected to review the carrying goodwill value for the business unit as of March 31, 2024.
On the flipside, Accordant said a renewed Government focus on permanent placements would benefit the JacksonStone& Partners business mid-term, “as executive and managerial changes drive further demand for talent over the coming year”.
AWF had steadily grown its deployed workforce over the past 12 months with revenues up 5 per cent against the prior year after focusing on civil infrastructure, logistics and roading, it said.
Listed property firm Argosy’s top 10 customers by rent graph is headed by MBIE. Stats NZ, Kā inga Ora, the Ministry of Housing and the Urban Development and Parliamentary Corporation also make the list.
Argosy derives 34 per cent of its rental income from the Government, an interim results announcement published in November showed, followed by transport and storage and retail trade.
The listed firm said exposure to the government sector provided earnings defensiveness and certainty.
Argosy chief executive Peter Mence said the reduction in government headcount was only giving up a lot of growth that had occurred across the past 24 months.
“We knew there was a potential for a change in government. We knew that government growth was unusually high. We did expect to see that reverse. And as a consequence, you get the leases and the bits and pieces sorted, and make sure your shareholders are looked after.”
He said the Government Property Group, which leads the Government’s property strategy and gives agencies property advice, had been measured and methodical and strategic in the way it had handled the cutbacks.
“It’s not having a significant impact because it’s been well signalled and well planned.”
Mence said office leases tended to be long and he suspected there would be “consolidation away from working from home” with more people coming into the office.
“I don’t think there’s anything quite as motivating to get people to work from the office as to think that they might be losing a job.”
He said the Wellington central business district was already more vibrant because of the return to the office.
And those offices needed to be up to scratch for workers, Mense said.
“The vast majority of our tenant inquiry across the market — with the exception of retail — but for industrial and for commercial space, is for green space. People are focused on sustainability. Feedback, particularly from office occupiers, has been that they understand they need to provide a workspace that is appropriate for younger people, or they will not keep their staff.”
Flow-on effects will spread wider than public servants directly affected.