Sir Ralph Norris apologises as Fletcher once again downgrades earnings

Fletcher has pinned the blame for its earnings downgrade on previous acquisitions, as it named a new CEO.

Ralph Norris offered a personal apology to Fletcher shareholders.

Fletcher Building chairman and former CBA chief Sir Ralph Norris has told The Australian that some of the company’s previous acquisitions haven’t paid off, as the company flagged a full-year loss for its Buildings + Interiors unit.

“I think it’s fair to say that some of the acquisitions in the past were not good acquisitions and this board is having to live with those and sort those out,” he said.

“So, from my perspective, not having been around when those acquisitions were made, I’m not well versed in what the rationale was behind those decisions but it’s fair to say that those acquisitions have not performed as well as what would have been expected.”

It comes after the company took a further $NZ125 million provision against problematic construction contracts, including Auckland’s international convention centre and the Justice Precinct in Christchurch.

Mr Norris said the board would be making sure projects have got very good management, which for the B+I business was overhauled in 2016, to avoid a similar problem in the future. He said the board would ensure that good process and good oversight are in place.

“There’s no doubt that the problems we’ve encountered here have been for a number of reasons,” he said.

“A poor bidding process, poor contract negotiation, poor project scoping and design and project management.

“The remedial work that we have been undertaking has been focused on those weaknesses and reading the KPMG report was a good way of assessing whether we had it right.

“I’m pleased to say that the work that we had done to date was consistent with the view of KPMG.

“Obviously there’s some improvements at the margin but they gave a good insight in terms of some of the issues around the provisioning in regards to a couple of the major projects.”

The New Zealand and Australian-listed construction business (FBU) also announced former UGL and Tenix boss Ross Taylor as its new chief executive, starting next month.

A trading halt was lifted on Fletcher’s shares following today’s announcement, which follows a review by KPMG.

At 2.32pm (AEDT), the ASX-listed shares in the builder were down 4.6 per cent at $6.885. The stock has fallen about 25 per cent this year. Losses on the convention centre and the Justice Precinct accounted for about two-thirds of the $292m loss recorded for B+I in 2017.

Excluding the B+I loss, full-year earnings guidance for the rest of the group is $680m to $720m, suggesting full-year earnings including B+I could be as low as $520m.

“I want to offer my personal apology to our shareholders,” chairman Sir Ralph Norris said. “Mistakes have been made and responsibility ultimately rests with the board ... we fully accept this responsibility.”

Auckland-based Fletcher downgraded earnings twice last year as escalating construction costs and a lack of oversight on major building projects saw the B+I unit come under pressure.

KPMG reviewed two B+I projects in Auckland, the Convention Centre and Commercial Bay, and two infrastructure projects, Puhoi to Warkworth and Hamilton City Edge Expressway, Fletcher said.

New CEO Ross Taylor

In three projects KPMG’s forecast outcome was broadly in line with management’s expectations, with final margins expected to be positive.

However, the convention centre would be a major contributor to the company’s losses in the financial year.

KPMG didn’t include the Justice Precinct in the review because that contract is near completion.

It made the statements ahead of its annual meeting in Auckland this morning. The meeting may see criticism heaped on the board.

Grant Williamson, a director at Hamilton Hindin Greene, says investors are “quietly losing confidence in the company given that they have had a number of writedowns regarding these projects”.

“I think it will take quite a while for confidence to rebuild in the company.”

Australian reaction will be key as they are large holders of the stock, he said. “If there’s any selling (when Australia opens) it could see further downside.”

Mr Williamson said the appointment of new chief executive was a positive and might be one of the reasons the stock hadn’t fallen further.