New Zealand’s largest builder announced yesterday that it will stop bidding for construction projects after its building and interiors (B+I) division racked up a projected pre-tax loss of NZ$660m (US$490m) for 2018, a far greater loss than previously forecast.
The company, which has a turnover of about $3.7bn and employs 20,000 people, will restrict its building arm to completing projects that are already under way. Other consequences of the loss include the cancellation of dividend payments and the resignation of Sir Ralph Norris, the chairman of the company, who will step down before the annual shareholder meeting.
"We got it wrong"
Ross Taylor, the company’s chief executive since November, said the decision was taken after a review conducted by accountant KPMG into 16 projects that accounted for about 90% of the construction backlog.
The Justice and Emergency Services Precinct in Christchurch (pictured) was one of the loss-making projects.
He said: "Our absolute focus is finishing our remaining projects to a high quality for our customers. To achieve this, we are refocusing the entire B+I business on project delivery only, and ceasing all bidding on vertical construction projects in New Zealand. This will allow us to direct all resources in B+I to the completion of the current book.
"While our broader construction businesses continue to benefit from favourable market conditions and strong growth, the B+I market sector remains characterised by high contract risk and low margins. Unless these dynamics change we will no longer work in this sector."
He added that the losses were "phased over a number of years" and would not affect the company’s solvency. Crucially, its banks have agreed to waive Fletcher’s breaking of its debt covenant, and the company will be able to continue lending. Â
The company noted that the buoyant construction market in New Zealand had contributed to its losses by driving up the price of materials. However, Taylor admitted that some of the blame lay with Fletcher’s management. "You don’t write off this amount of money without getting some of that wrong," he told Radio New Zealand.
"They built half of New Zealand"
Government and unions have expressed shock at Fletcher’s announcement. David Parker, the minister for economic development, was quick to rule out a state bail-out.
Ron Angel, a coordinator for the union, E tÅ«, told Radio New Zealand that although it was known the B+I division had problems, nobody thought they were this bad. "We’re just absolutely gobsmacked that they’re not taking on any new work. I mean, they’re an iconic New Zealand company, they built half of New Zealand when you think about it," he said.
Paul Johnston, a union organiser in Christchurch, blamed the lack of managers who had come up from the tools for Fletcher’s problems.
He said: "People keep telling me it’s the top level where they’re struggling to get good people. They haven’t been in the trade, they might have come out of university or doing a course or whatever, but they’re not actually tradesmen themselves. They haven’t worked up through from the bottom."
Image: The Justice and Emergency Services Precinct in Christchurch, a loss-making project for Fletcher (Fletcher)