The Post

Fletcher trouble highlights strain

- CATHERINE HARRIS

Fletcher Building’s troubles are age-old problems that highlight the stress the industry is currently under, industry watchers suggest.

The country’s largest constructi­on company announced its second profit downgrade in a year and the exit of its chief executive late last week.

Deutsche Bank now estimates the company has lost $231 million on two major projects, the SkyCity convention centre and Christchur­ch’s Justice and Emergency precinct. It also wrote down $220m on two Australian businesses.

In constructi­on, budget overruns can stem from misquoting, shortages in labour or materials, design changes or taking on too much work.

While Fletcher did not go into the fine details, investor relations manager Philip King told analysts last week that the industry was under huge strain.

‘‘We must acknowledg­e the New Zealand industry is absolutely at capacity and you’re seeing that reflected in subcontrac­tor rates and the availabili­ty of resources for jobs, etc,’’ he said.

‘‘I know we’re having our share of pain today but there’s no doubt the industry as a whole is really struggling with so much work on. It’s an unpreceden­ted level of activity; it’s ramped up very quickly.’’

King also hinted that subcontrac­tors had been part of the problem. ‘‘I could quote several minor instances where if we’d applied liquidator damages to our subcontrac­tors they would have failed,’’ he said.

‘‘They’re minor in a dollar sense but they can have an impact on jobs which is frustratin­g. We just have to work with them to get the job done.

‘‘I think we’re going to see more stress in the industry as this goes by with smaller subcontrac­tors.’’

Shane Solly, an analyst at Harbour Asset Management, said the boom-bust nature of constructi­on was ‘‘extremely challengin­g at the best of times’’.

‘‘Getting consistenc­y is really important, because sustainabl­e levels of workload allow people to invest for five, 10 years … That’s not something we’ve had historical­ly in New Zealand.’’

There were always cost blowouts, site difficulti­es and obstacles, but there was ‘‘no doubt’’ that Fletcher had other problems, and it was not clear whether people within the company had taken their eyes off the ball, or failed to be nimble enough,’’ Solly said.

‘‘Certainly things like bonding have changed the constructi­on industry. The ability for subcontrac­tors to, for example, pour a concrete floor for you – I have to put a bond up to cover any problems in the future.’’

Bonding was so expensive that ‘‘a lot of people have gone, we just can’t enter into these contracts’’, he said.

Whoever took over at Fletcher would need to address its direction, which had shifted from ‘‘building materials-focused’’ to bigger roles in constructi­on, land developmen­t and housing.

The company itself has signalled it will put more emphasis on the flourishin­g infrastruc­ture sector in future.

Meanwhile, questions remain about whether Fletcher’s board will remain unscathed by the company’s woes and who will replace Mark Adamson.

So far the Shareholde­rs Associatio­n has declined to say whether chairman Sir Ralph Norris is secure, but has said questions will be asked.

Mark Binns, a former Fletcher head of infrastruc­ture who now heads up Meridian Energy, has been floated as a potential chief executive. Binns, who leaves Meridian at the end of the year, declined to comment.

Solly said Adamson had done a good job in many parts of the business, but his departure gave the company ‘‘a chance to really think about re-engineerin­g itself’’.

Rickey Ward of JBWere agreed that ‘‘on the numbers, Mark has delivered on most of the job’’, and that he had ‘‘made it very clear ... should he have another disappoint­ment that he wouldn’t be here to deliver the next result’’.

Whoever took over would have to understand the New Zealand market well, Solly said.

 ??  ?? After Fletcher Building’s news last week, SkyCity confirmed that its Fletcher-led convention centre project was running late.
After Fletcher Building’s news last week, SkyCity confirmed that its Fletcher-led convention centre project was running late.
 ?? PHOTO: STUFF ?? Analysts say Mark Adamson’s exit gives the company a chance to rethink its direction.
PHOTO: STUFF Analysts say Mark Adamson’s exit gives the company a chance to rethink its direction.

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