Fletcher's giant downgradeSave
By Anne Gibson
Fletcher Building's huge earnings downgrade "raises clear questions around the ability of the chief executive to remain in the role", says the Shareholders Association.
The association issued a statement after Fletcher today revealed that operating earnings for the year to June may be more than $100 million below earlier forecasts. Association chief executive Michael Midgley said it would ask the company for an early meeting to seek a clearer explanation of the issues.
By press time, Fletcher had not responded to a request for comment on the statement.
A big new government project in Christchurch has been partly blamed for the profit downgrade.
The city's new Justice and Emergency Services Precinct has been delayed for months, and building industry specialists say the job is part of the reason for the reduced profit forecast.
Fletcher shares plunged after the downgrade was revealed, falling 94c to close at $8.28 and shaving about $652m off the company's value.
Operating earnings for the year ending on June 30 had been expected to come in at $720m to $760m. The figure is now expected to be $610m-$650m.
A Ministry of Justice spokesman confirmed delays to the $300m project near the Bridge of Remembrance.
He refused to confirm whether it caused the downgrade: "You'll need to talk to Fletchers about that."
A ministry statement said Fletcher had revised the handover date for the project. "Fletcher Construction has committed to handing over the Justice Building by 30 June 2017 and the Emergency Services Building by 14 July 2017."
Agencies were expected to move into the precinct during the third quarter of this year. "The ministry is currently negotiating to extend the lease on its current premises."
Up to 2000 people will work in the new building.
Fletcher chief executive Mark Adamson said yesterday that an extra 300 people were brought onto one almost-finished project - which he did not name - where 650 people were already working, in an attempt to get it back on programme.
"The slippage started with engineering and then design brief changes. Then there were aesthetic issues," he said, referring to a "unique" building.
Adamson disclosed the details to analysts in a conference call, where he and new chief financial officer Bevan McKenzie spent more than an hour answering questions about the downgrade.
"Originally the job was a job that had 650 people on the site before Christmas. To get it finished on time without liquidated damages, we have had to bring in another 300 people and that's what we mean by cost overruns," he told the analysts who questioned him hard.
The "estimated losses and downside risk" are from two jobs: one finishing in the next few months and one in 2019, said Fletcher.
"Not in our wildest dreams did we expect to find what we have found," said Adamson. "Things have been quite fraught."
He said that although problems were raised at the half-year results last month - when one analyst said the losses could be around $30m - the true scale of the losses only became apparent late last week.
"We were presented with this information on Thursday night," Adamson said, describing how a meeting was then held with the chairman of the governance committee on Friday and Fletcher entered a trading halt that Friday morning.
"We never want to find ourselves in this position again and we're only three months away from the end of the year," Adamson said.
Scott Pritchard, chief executive of Precinct Properties and Colin Espiner, SkyCity Entertainment Group communications general manager, said all was well on two huge jobs being built by Fletcher, now under way and both due to finish in 2019.
Fletcher is building Precinct's Commercial Bay office tower and shopping centre on the Auckland waterfront, with a $850m projected end value and SkyCity's $700m NZ International Convention Centre.
Pritchard said: "We are very happy with how Fletchers are performing on our site. They're doing a fantastic job and we're on project and on budget." Espiner said: "We remain comfortable with the contract we have with Fletcher Construction, and the NZICC project remains on budget and due for completion in the first quarter of 2019, as previously advised."
Additional reporting, Herald staff