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Home / Business / Companies / Construction

Covid 19 coronavirus: How much government support is Fletcher Building getting?

By Jenny Ruth
BusinessDesk·
18 Apr, 2020 09:19 PM5 mins to read

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Fletcher chief executive Ross Taylor. Photo / File

Fletcher chief executive Ross Taylor. Photo / File

The amount of government support Fletcher Building is getting through the coronavirus crisis goes considerably beyond the $66.3 million in wage subsidies.

Fletcher is also getting advance payments from the New Zealand Transport Agency on all its projects as part of the government's measures to ensure the construction industry faces as little disruption as possible.

The government is hoping the industry and its infrastructure projects will provide much-needed economic stimulus once the lockdown ends.

READ MORE:
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That could come as soon as next week if the government decides to shift from the current level 4 total lockdown except for essential services to level 3.

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On Thursday, Prime Minister Jacinda Ardern outlined what level 3 would look like and it will include the construction industry resuming work.

Fletcher also stands to benefit from the government's contract guidelines for public sector agencies with ongoing construction projects.

The company won't say what proportion of its workload is government contracts, claiming that is "commercially sensitive," but it's obvious much of its Higgins subsidiary, which specialises in roading and other infrastructure, includes a hefty number of both central and local government contracts.

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The Puhoi to Warkworth motorway is one of the most high profile projects – Fletcher chief executive Ross Taylor has repeatedly said the company is breaking even on that one.

Other Higgins projects, such as the Waipipi windfarm in Taranaki, which is being built for Tilt Renewables, are private sector contracts.

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"We have some teams within some of our businesses working on or in supply to central and local government work that has been deemed essential," Fletcher said in answering BusinessDesk's questions.

But the company's plan to cut wages through the 12 weeks the subsidy is meant for - under which workers will get 80 per cent of their normal pay for four weeks, 50 per cent for the next four weeks and 30 per cent for the final four weeks - applies only to those not working, the company said.

"All of our people who are working on essential services are being paid their normal pay," it said.

As for the government's contract guidelines, they "provide clear and accurate expectations about variation entitlements under the standard form of construction contract in New Zealand," Fletcher said.

"We will work through the details of cost recovery, mitigation and payments with each of our customers, suppliers and subcontractors," it said.

But right now, "almost all of our New Zealand operations are shut as they are deemed non-essential and we now have extremely limited income," the company said.

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Asked how the company squares the government assistance it is receiving with the company-wide pay cuts, Fletcher said "the 12-week bridging pay programme was designed to provide certainty and clarity around pay so our people not working can plan ahead.

"It aligns with the timeframe of (the) government wage subsidy scheme and recognises that any business restart will be a gradual process as we come out of lockdown and restrictions are lifted."

In any case, it's impossible to quantify the additional support Fletcher is getting from the government, but the wage subsidy alone is significant, especially if it can restart construction projects next week.

Fletcher's annual report shows its employee-related short-term costs were $1.6 billion at June 30 last year and that other long-term employee-related benefits were $57m.

That would have included Formica and other businesses the company sold in the year ended June 2019 – the $1.19b Formica sale was completed on June 4.

So that would cut about 20 per cent of this year's wages bill, bringing it down to about $1.3b, or a monthly run rate of a little under $110m.

Fletcher's senior managers who have been working through the crisis and its directors have taken a 30 per cent cut in salaries and fees – the amount was increased from 15 per cent after protests from staff that the company's leaders should shoulder more of the burden they wanted everybody else to accept.

The wage subsidy was for 9,485 workers, so, assuming that construction activities return to about half their former pace – to allow for social distancing measures on building sites – that $66.3m will go a long way towards cushioning the impact of the crisis on the company.

Fletcher will, of course, have lost at least a month's profits and likely more due to its enforced inactivity.

The union representing some Fletcher employees, First Union, has previously accused the company of using stand-over tactics to get employees to agree to the pay cuts. It remains unhappy with its members having to take such hefty pay cuts.

The First Union secretary for transport, logistics and manufacturing, Jared Abbott, found it particularly galling that Fletcher was able to lodge a company-wide application for the wage subsidy when the union has to negotiate subsidiary-by-subsidiary pay agreements.

"Fletcher Building is not legally the employer of most of the workers they have applied for. They are employed by subsidiary companies, some of which are probably very profitable. They should not have been allowed to apply in this way," Abbott told BusinessDesk.

"One of the problems with how Fletcher Building has applied and received the wage subsidy across the entire group, when the bulk of workers are employed by subsidiary companies that may well be making good money, is it means low paid workers end up subsidising high paid workers in their corporate areas."

The 2019 annual report showed Fletcher had 2,263 employees in New Zealand on salaries of $100,000 or more a year at June 30.

The company had a further 2,310 high-earning employees working overseas during that year, although that would have included Formica executives.

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