The Press

Building giant’s mea culpa leaves market shaken

The loss of Fletcher Building’s straight shooter must trigger some soul-searching, writes Catherine Harris.

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ANALYSIS: Fletcher Building’s financial troubles have claimed its biggest scalp, that of chief executive Mark Adamson.

The company is entering a new chapter after announcing yesterday that it was the right time for another person to take the helm and that an internal acting chief executive would take over on Monday.

Adamson came to Fletcher five years ago, with a strong track record in Fletcher’s laminates subsidiary overseas.

The Scotsman brought with him some of his own team, and analysts say he appears to have done a largely effective, if painful, job of exiting low-performing businesses and pulling Fletcher’s many subsidiari­es into a better working whole.

However, JBWere analyst Rickey Ward said Adamson was also a straight talker and that alienated some staff.

Problems compounded late last year when several longstandi­ng senior staff left – in Adamson’s words, ‘‘heads rolled’’ – as it became clear its building and interiors division was suffering a huge budget blowout.

In February it was an unhappy Adamson who braced the sharemarke­t for a profit downgrade of up to $150 million, three-quarters of it due to cost over-runs and delays on two major projects. They are understood to be Auckland’s SkyCity convention centre and Christchur­ch’s Justice Precinct.

Now the company faces an operating profit of $525m for the year to June 30 – $100m below guidance given in February.

Budget blowouts are by no means uncommon in the constructi­on industry, but Fletcher Building is a large publicly listed company and investors punished it accordingl­y.

Cheered by the constructi­on boom, investors pushed the share price to above $11.00 in September last year. But yesterday its shares were trading at about $7.45, falling nearly 8 per cent on the previous day.

Most commentato­rs think Fletcher, the country’s biggest constructi­on firm, is unlikely to fail.

Chairman Sir Ralph Norris took pains to point out that the multi-pronged business is on track in most of its divisions, which include housing developmen­t, building products, Formica and Laminex, and several other internatio­nal operations.

The constructi­on division – which includes the troubled building and interiors division – is expected to be back in profit by 2018.

But two profit downgrades in 12 months is a bad look, especially as yesterday’s announceme­nt also unveiled a writedown of around $220m on its slower-growing Iplex Australia and Tradelink businesses.

In a briefing yesterday, Fletcher said it was likely to turn its attention much more towards the fast-growing infrastruc­ture sector, and gave assurances it had much better oversight over its workload.

It would also be much more cautious about the constructi­on jobs it takes on.

But former Fletcher’s executive Paul Keane said that for a while at least, the company would have to endure some scepticism from constructi­on customers.

‘‘From a client point of view, people will now be saying, ‘Can you complete, and is this price you’ve given us robust?’’’

However, Fletcher’s problems reflected the wider industry, Keane said. Taking contracts at fixed prices was a risky business when there was a shortage of skilled workers and soaring building material prices.

Managing subcontrac­tors was also a serious issue. A main contractor such as Fletcher would have its ‘‘head on the block’’ if a subcontrac­tor failed to deliver, Keane said.

Analysts said the onus was on Fletcher to restore confidence, and that started with the new chief executive.

One name being floated is Mark Binns, a former Fletcher senior executive who has indicated he will resign from his current job at Meridian Energy at the end of the year.

Ward said Binns was well regarded but it was presumptiv­e to throw names into the ring. And he had some sympathy for Adamson who ‘‘might have some straight-up forthright views, but the rest of the business is doing well’’.

Both he and Keane said Fletcher’s board could not be absolved from some responsibi­lity for its situation.

‘‘There must be some soulsearch­ing from the board downwards,’’ Keane said.

 ??  ?? Delays and cost overruns on SkyCity’s convention centre are thought to be among major factors behind Fletcher Building’s woes.
Delays and cost overruns on SkyCity’s convention centre are thought to be among major factors behind Fletcher Building’s woes.

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