Fletcher Building to make extra $105m in cost provisions for convention centre

A fire at SkyCity's New Zealand International Convention Centre in 2019 caused plenty of damage. Photo / Dean Purcell

Fletcher Building has maintained its earnings guidance for the 2023 year but said it would make an additional provision of $105 million in its annual accounts for costs associated with the New Zealand International Convention Centre (NZICC) project in Auckland.

The company said its audit and risk committee today reviewed key accounting judgments on the NZICC, which is being built for SkyCity.

The site was damaged by a fire in 2019.

The company’s guidance, issued in June, was for earnings before interest and tax (Ebit) of about $800m and Ebit margins before significant items to be greater than 9 per cent.

The company had disclosed at its June investor day up to $50m of cost risk, and it was determined that $50m should be recorded to reflect this risk.

On contract works insurance (CWI), the amounts available to the company have reduced by about $20m due to additional claims paid to SkyCity.

Offsetting the cost and CWI impacts, the company considers that recoveries available to it under the project third party liability (TPL) insurance have risen - from a prior estimate of about $35m to more than $100m.

“However, while the company considers it has good grounds to recover these amounts, it has determined that these proceeds from the TPL policy are not yet virtually certain as required by accounting standards to be recognised in its accounts,” the company said in today’s statement.

Fletcher Building said that it had therefore determined that it will make an additional provision on the NZICC of $105 million in the 2023 accounts.

This amount is the aggregate of the $50m of additional cost, the $20m of lower CWI revenue and a reassessment of assumed TPL recoveries to nil at this point, compared to $35m previously.

The additional provision would be classified as a “significant” item.

Fletcher Building said it would continue to pursue its rights to recovery under the TPL policy.

The company’s annual results for the June year are due out on Wednesday, August 16.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.