‘Horrific’ losses mount up at Fletcher

Christchurch monopoly raises eyebrows

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.

He 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 per share.

‘‘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.’’ The owner of a Christchurch building firm is questioning why Crown agency O¯ ta¯karo seems unable to speed up Fletcher Living’s housing projects in the central city.

Fletcher Living has contracts with the Crown to purchase blocks of east frame land as it begins construction on each apartment development, designed to deliver up to 900 homes by 2026.

But Blair Chappell, managing director of townhouse developer Williams Corporation, said progress had been appalling and no-one seemed to be questioning why a company reporting huge losses was in charge of one of the city’s most important post-earthquake projects.

‘‘Local businesses are putting money into restaurants and shops but the residents aren’t there to support them,’’ Chappell said.

A spokesman for Greater Christchurch Regeneration Minister Megan Woods said the situation was being closely monitored.

An O¯ ta¯karo spokesman said the Crown signed the development agreement with Fletcher Living in December 2015, prior to the establishment of O¯ ta¯karo.

Meanwhile, Chappell said delays were evident after a year under construction of the first Fletcher apartment block in its developments in the area called One Central, where the roof had yet to be completed.

‘‘Why is nobody dealing to Fletchers over lack of progress?’’

Chappell said costs were mounting for taxpayers, and for Christchurch ratepayers for maintenance of the area.

‘‘Fletchers should also provide answers about the delays. The east frame is too big for one developer and other firms should be able to compete,’’ he said.

The first two apartment blocks are under construction after numerous delays. Fletcher paid $2 million for the first block last year.

Structural steel framing has been erected at the One Central site on the corner of Hereford St and Latimer Square for 20 three-storey terrace homes scheduled for completion in spring 2018.

Elsewhere, earthworks are under way on the corner of Madras and Lichfield streets for the construction of 44 apartments.

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 Taylor 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.

Sam Trethewey of Milford Asset Management said the prospect of a capital raising, offering discounted equity in return for extra cash, was not a good one for shareholders in the current market environment.

He said he expected Fletcher to instead do what it could to negotiate to give its lenders comfort that its issues were one-off.

But he said the $2 billion of debt held by Fletcher Building was complex and across a number of different parties.

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