Analysts unhappy with Fletcher’s $180m provision from NZICC, car parks

The convention centre on fire in 2019. Photo / Michael Craig

Analysts expressed disappointment about Fletcher Building’s $180 million provisioning from the NZ International Convention Centre [$165m] and Wellington International Airport car parks [$15m], cutting share price valuations.

Fletcher chief executive Ross Taylor fronted a conference call with analysts, who asked what the NZICC had cost Fletcher in total but got no answer, although one afterwards estimated $1.6 billion.

Grant Swanepoel, Jarden’s equity research director, told the Herald following the call that the $165m loss came very soon after the annual result on August 16.

“It’s disappointing that the company which moved on from the previous management to a team that understands risk finds a $180m hole just six months after giving an update,” Swanepoel said.

Shareholders have already suffered a 15 per cent dividend cut after the June 30, 2023 result showed a $301 million hit, mainly from NZICC losses but all major metrics are headed in the wrong direction.

Asked by Swanepoel about the Iplex pipe problem in Australia, Taylor refused to give any update, saying: “Basically every day you don’t say something suggests you don’t have anything to say. That’s the continuous disclosure regime.”

Grant Swanepoel of Jarden expressed disappointment with the $180m losses.

Shane Solly of Harbour Asset Management said a number of people were concerned about the sustainability of dividends, given today’s announcement and other problems Fletcher faces.

“Capital markets are now looking at the balance sheet and the company’s ability to pay dividends at the current rate,” Solly said.

Taylor gave the end of this year as when the NZICC would be finished.

“Overall completion of the project [will be] by December 2024. The majority of the building works will be finished in the next six months. We move to hand over the project from September onwards. We’re really six months away from finishing the building works. What we’ve been able to do now to get back into the finishing works - which subbies have gone broke, what’s inflation doing? We’re very close to finishing it,” Taylor told analysts at the midday conference call.

The extra $165m provisioning was mainly from the higher costs of steel remediation and the updated forecasts to complete the interior fitout and installation of operating systems, the company said.

“Encapsulation, stripping and blasting, repainting three coats on all NZICC primary and secondary steel,” the investor presentation said. The company has up to 500 people on the site, along with encapsulation and access equipment.

“Burn rate circa $750k /day,” the presentation said.

Fletcher has given many previous updates on the NZICC cost including in early August when it made an extra $105m provision.

Taylor told analysts on the call that subcontractors had gone into liquidation and had to be replaced with new ones: “Finishing trades are quite complex when you re-do it five years on.”

Goods bought years ago and stored were not able to be used, he said.

Fletcher’s written document with the presentation told when the effects would be felt: “Previous expectation was for a cash outflow on NZICC of circa $300m in FY24, ahead of a small positive cash inflow in FY25. Based on the latest provision, the cash outflow in FY24 is now expected to be circa $370m, followed by a cash outflow in FY25 of circa $80m.”

Asked about payouts, Taylor said he didn’t want to prejudice commercial outcomes of insurance settlements.

Asked what the total cost of the NZICC was and what the insurance payout was, Taylor said that had never been disclosed “so not really planning to start talking about that yet”.

Ross Taylor of Fletcher Building.

The investor presentation said: “Other cost increases from refining scope and procuring subcontractor resource to complete remaining parts of project especially internal fit-out and installation of operating systems, circa 5000 drawings, circa 200 subcontractor packages on remaining scope. Some original suppliers insolvent or no longer available (e.g. operable doors, theatre/AV), work packages re-tendered. Limited capacity in commercial trades, pressure on rates.”

Asked about risks in finishing the NZICC and commissioning it, Taylor said: “We’ve got to get the work done, you have over 1200, 1300 people working there. Once you’re finished you have a much narrower technical team there. Getting through August/September and the physical works done is an important milestone. I would expect commissioning to go well and complex, handed over by the end of the year. I think the team’s on top of that.”

Along with citing fire remediation, Taylor also cited productivity issues on the job.

On the Wellington International Airport [WIAL] car parks, Fletcher has been discussing technical solutions to fix quality issues.

“While the solution has not yet been agreed with Wellington International Airport, FCC considers that it now has an effective solution and a robust estimate of the cost to undertake the remediation. The $15m provision reflects these expected remediation costs Cash-flow impact of the provision is expected to be through calendar 2024.

“Additional claims exist in both directions between FCC and WIAL. Upside and downside risk exists on settlement of these claims.”

Another investor told the Herald afterwards he was concerned about silicosis and the toll that could take on the business.

At the end of the conference call, chief financial officer Bevan McKenzie cited the Puhoi to Warkworth motorway where there were delays and cost rises. He said there were “a bunch of claims on Puhoi”.

Fletcher has been trading down on the NZX, around $4.20.

Anne Gibson has been the Herald’s property editor for 24 years, has won many awards, written books and covered property extensively here and overseas.