The just-resigned CEO of the biggest construction company, Ross Taylor, explains how Fletcher Building has lost hundreds of millions of dollars in a matter of years, and if it can ever be fixed. Video / Carson Bluck
Global ratings agency Moody’s has put Fletcher Building on notice for a possible investment rating downgrade as its net debt nears $2 billion to pay for project cost blowouts.
Moody’s currently had a stable outlook on Fletcher with a medium-grade credit rating of Baa2, but notified the company it wasreviewing it after it announced a $120m six-month net loss last week.
Fletcher Building chief financial officer Bevan McKenzie said in a market announcement on Monday morning the company was committed to keeping its stable rating.
“We will work alongside Moody’s during their review period, demonstrating our commitment to the credit metrics which underpin our rating of Baa2″.
Fletcher Building chief financial officer Bevan McKenzie, pictured here in 2017 alongside then-boss Mark Adamson. Photo/Dean Purcell
Fletcher Building’s net loss for the six months to December was caused by another $180 million of cost increases, including $165m for the SkyCity International Convention Centre, which were being funded by debt.
It was still awaiting an insurance payout of more than $100m to cover some cost increases on the fire-damaged SkyCity project but because the exact payout was not yet certain, it could not be counted under accounting rules.
“We’ve got a push-and-shove process to go through with our insurers,” chief executive Ross Taylor told the Herald’s Markets with Madison following the result last week.
“I think we’ve got very solid grounds [legally], the thing is, we can’t book it.”
Insurers had confirmed a payout would be given but not exactly what damage it would cover, and any payout was not expected to be received until calendar year 2025, Fletcher’s interim financial statements said.
As a result of increased costs, the construction company’s debt-to-earnings ratio had risen to 1.8 times, from 1.2 times last year - the top of its range was capped at 2 times.
“We intend to stay within that,” Taylor said last week.
Fletcher Building CEO Ross Taylor resigned last week as the construction company announced a $120m net loss for the half year and debt nearing $2b.
In dollar terms, debt had increased to $1.9b in December, from $1.4b in June last year.
The company had $2.87b in lending facilities available to it in a mix of bank loans and offshore lending arrangements, but had already drawn down $2.16b, leaving around $700m available.
It was paying an average interest rate on its debt of 6 per cent.
The company’s repayment bill was forecast to be around $140m in the 2024 financial year.
It recently increased its bank debt and pushed out the maturity on that loan to 2026.
“We always stress test the balance sheet,” Taylor said last week.
He could not be sure that more cost increases would not come before the Convention Centre was finished at the end of 2024 but was confident there would not be.
“I think we’re through the remediation now and we’re fully procured, we’re into the fit-out of the Convention Centre, so I think we’re in a much better place.”
The company said in its half-year result presentation it had taken prudent steps to shore up its balance sheet, including cancelling an interim dividend payout to investors and pausing some residential developments.
Madison Reidy is the host of the NZ Herald’s investment show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.
