‘Incompetence’ to blame, says Norris
A grim-faced Sir Ralph Norris has resigned as chairman of Fletcher Building, saying the board had to be accountable for the troubled building group’s massive construction losses.
Norris had planned to stay in the job until next year, but decided at the weekend to step down in the face of a $486 million increase in the projected losses for Fletcher’s troubled building and interiors (B&I) division on 16 major construction projects.
‘‘It’s fair to the shareholders for somebody to take accountability,’’ Norris said.
Fletcher shares dropped 13 per cent when trading restarted yesterday. They fell $1 to $6.67 each on the NZX, an hour after the company said the B&I losses had risen to a total expected loss of $660m in the current financial year.
Explaining what went wrong, Norris said: ‘‘There is no single point of failure.’’ He brushed off any suggestions of fraud, saying it was ‘‘incompetence’’ that led to the financial woes.
‘‘One of the significant issues is the information flows through to the board were not as fulsome as they possibly could have been.’’
Also, he said, the entire majorproject construction sector had seen a massive transfer of risk from clients to builders such as B&I. The building boom had also seen prices rise.
Norris was clear that his departure was his decision and said he had the board’s support had he wished to continue.
He said many parts of Fletcher were in better shape than when he arrived. There had, prior to his appointment, been some questionable acquisitions by the company.
‘‘Nearly all those businesses have improved over the last three to four years,’’ Norris said.
Norris’ career has included successful stints as managing director of ASB and chief executive of Air New Zealand. He is currently chairman of Contact Energy.
He would remain as Fletcher chairman until his replacement was found.
As for his future, Norris said he was realistic enough to accept that the B&I events would attach a stigma to his name and reputation.
He was undecided about future governance roles, saying that, in time, he hoped people would judge his legacy on his successes.
Chief executive Ross Taylor said the B&I division would be restructured to focus just on completing current projects and that it would not bid for new work.
But, Taylor said, there would be no fire sale of assets, and the building giant’s lenders remained supportive. Negotiations with lenders were ongoing as it had breached its banking covenants.
It expected to have completed negotiations on new lending terms by the end of March.
Taylor, who has been in the top job for 10 weeks, said he believed there would be no more increases in projected losses on the 16 troubled construction projects that have generated Fletcher’s losses.
He said the provisions on the projects were very conservative, and that he would be aiming to bring the projects to completion with lower losses.
He stressed that, excluding the B&I business, Fletcher Building was performing well, and the losses announced yesterday would be spread over the coming three years.
The overall Fletcher Building company had strong cashflows and the increased B&I losses had no effect on the firm’s ability to trade or to pay its bills.
Taylor said the new numbers on expected losses followed a review of 16 B&I projects, accounting for about 90 per cent of the construction backlog, and included input from KPMG. The 16 troubled construction projects that have left Fletcher Building with massive losses are a roll call of some of the highest profile developments in the country. Fletcher Building said losses from its troubled Building and Interiors (B&I) division had increased by
$486 million to a total expected loss of
$660m. It’s cost chairman Ralph
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‘‘One of the significant issues is the information flows through to the board were not as fulsome as they possibly could have been.’’
Sir Ralph Norris
Justice precinct
Just weeks out from completion, Christchurch’s central-city law and order precinct will cost Fletcher Building $156m in losses.
The approximate contract value was $200m to $300m, Fletcher said. Because it is so near to completion, the losses are the most certain.
Fletcher Construction was supposed to hand over the completed project in early February, ready for agencies to move in sometime in June, but the precinct was officially opened in midSeptember. Work is still under way to complete it.
Commercial Bay
A huge new office and retail centre is rising in the heart of Auckland’s CBD.
The project is to be completed at about the same time as the International Convention Centre, and is expected to give a big economic boost to the city.
Fletcher said the contract value was about $400m to $500m, but did not reveal whether big losses from the project were expected.
Commercial Bay was included with 13 other projects on Fletcher’s watch list of troubled projects. Together they are expected to result in a loss of $186m for Fletcher.
One prison, three airports
A prison and three airports are among the other marquee projects on Fletcher’s watch list.
They are Auckland East Prison (contract value $200m to $300m), the development of Auckland Airport ($100m to $200m), a Christchurch Airport hotel ($50m to
$100m, pictured), and the Wellington Airport car park $50m to $100m).
Their completion dates range from the middle of this year to January 2019.
Other unnamed ’’key’’ projects have contracts worth a combined
$500m to $600m, Fletcher said.