Construction is one of New Zealand's largest industry sectors. Photo / Michael Craig
In another bad week for the already-stressed big builders, Anne Gibson runs the ruler over the commercial construction industry
The multibillion-dollar construction industry was left reeling by a double blow this week.
First, the sector's giant revealed that it had turned last year's profit into a loss. Then, strict new measures were introduced at Auckland building sites as the city went back into level 3 lockdown.
On Tuesday, Fletcher Building said it would make a $196 million net loss, after tax, for the year to June 30, 2020, and operating earnings would be reduced by $150m. Half the loss provisions were due to reduced productivity at key legacy projects which had been "significantly disrupted" by Covid-19; 20 per cent from "a handful of historically completed" projects; and 30 per cent due to "a prudent risk provision".
But in a turnaround, chief executive Ross Taylor said the company now had a $2.4 billion forward order book of "new work won with materially better margin outlook and significantly lower and more appropriate risk profile".
The same day as Fletcher's announcement came the news of Auckland's return to lockdown.
Although that didn't immediately shut down the dozens of sites across the city, completion times will certainly be extended. While work continued, said building bosses, everything took longer thanks to further restrictions, social distancing and sanitation measures.
Peter Reidy, Fletcher Construction chief executive, cited the need for physical distancing, personal hygiene, surface cleaning, tracking and tracing staff, and setting up work bubbles at the firm's many sites.
Shane Brealey, of apartment/townhouse specialist NZ Living, said his firm's social housing sites at Northcote on the city's North Shore were busy, but acknowledged the escalating alert level meant jobs took longer.
A video explaining safe working protocols in many languages was sent to all workers' phones, he said, because one big challenge for the industry was communicating with workers whose first language was often not English.
"A QR code log-in system at the one entry gate is being used by all subcontractors so we can track automatically who enters and leaves the site and when," he said.
Deliveries were being dropped to designated points and unloaded, and each driver was leaving before those materials were collected, Brealey said.
Hand washing areas were re-established and smoko/lunchrooms closed. "Workers eat in their car or space on their own."
A fulltime cleaner is roaming the site, wiping down handrails, door handles and bench surfaces.
The first subcontractor into a room "owns the room", said Brealey, and the required 2m separation between workers was "likely to slow up construction but is considered essential".
Even before Wednesday night's shock announcement, construction had already been knee-capped by the coronavirus pandemic, with widespread layoffs and Fletcher alone announcing in May that it was reducing numbers by 1500.
Economist Cameron Bagrie says commercial builders were quick to respond to uncertainty, laying off staff. Banks are not as willing to lend on big projects and are charging higher interest rates to compensate for rising risk, he says.
Another expert says the Government's "shovel-ready" projects are no help to builders who are facing job cancellations from the pandemic.
James MacQueen, who heads construction and real estate specialisation for accounting and advisory group BDO, says that while civil contractors stand to benefit richly, the state boost will generally not be so much of a help to commercial construction.
The list of our biggest builders is very telling, he says: "What that says about the New Zealand building sector is that apart from Fletchers and one or two Australian companies, they're all privately-owned Kiwi businesses." Much of the shovel-ready work is civil projects and the big builders will miss out, he says.
BDO's annual survey of the construction industry will be out on September 29.
"We're looking at what the industry looked like pre-Covid and what Covid did to the industry," says MacQueen.
"Some people have got plenty of work and some have a number of years of forward work so we're not concerned about their future. And the reason for that, is it's work they secured at good margins because it's all pre-Covid."
At the other end of the scale, he says, are those with big projects cancelled, who are now out seeking new work. "People are offering low margins to secure work and that's silly. All it's doing is bringing expectations down and making life tough for the whole industry. It's taken quite a few years for the industry to get margins up.
"Now builders are panicking to secure work to replace jobs they've lost. A number have laid many staff off as well and we'll see more redundancies as they finish existing projects."
The industry hit Covid at an all-time high and had the strongest balance sheet for some time because most builders had several good years before the pandemic, he says.
Here is our list of some of the biggest guns of the NZ commercial building scene, ranked by size.
• Headquarters: Jack Smith House, Great South Rd, Penrose
• Peter Reidy, chief executive
The giant of the industry, having just finished the $1b Commercial Bay project on Auckland's waterfront for Precinct Properties, and still working on the $703 million NZ International Convention Centre for SkyCity Entertainment Group. Payments were withheld by both clients because of late delivery. On May 20, Fletcher Building said 1000 New Zealand and 500 Australian jobs would be cut due to the pandemic.
• Headquarters: Corporate offices at 60 Stanley St, Parnell
• Murray Robertson, executive manager building projects
The McConnell family sold most of its Hawkins construction business to the ASX- and NZX-listed Downer EDI in 2017. Downer spent A$55.4m ($60.5m) on the purchase. Murray Robertson is the executive general manager of building projects, responsible for the Hawkins portfolio, but the New Zealand CEO of Downer is Steve Killeen, a member of the industry-government group the Construction Sector Accord.
• Offices: 170 Marua Rd, Ellerslie/ 292 Cashel St, Christchurch
• Brett Russell, managing director
Running for 45 years, and "proud to be a 100 per cent New Zealand owned and part of the Russell Group of companies. Dominion has expanded from its beginnings as a concrete structures specialist". Laid off 70 staff and 70 labour-only contractors post-Covid. Workload dropped from $450m to $250m. Dominion is changing the way it operates, having forged important links, including with the NZ Super Fund.
• Headquarters: High-spec new purpose-built offices, 74 St Georges Bay Rd, Parnell
• Director Culum Manson works with brothers Luke and Mac
Founded by philanthropist Ted Manson and father Colin, this is now a three-generation dynasty. Sons Culum, Luke and Mac now run the business, with projects under way including a $300m office development at 110 Carlton Gore Rd, Newmarket. "No one has built more office floor space in New Zealand over last 20 years than Mansons," says Culum Manson. "We are the most prolific and constantly delivering new stock into the market year after year." The company has delayed a $500m project at 46 Albert St in the central city, and is now finishing projects at 155 and 136 Fanshawe St, worth $240m and $338m respectively. Scored major new tenants for its premises, and is renowned for starting projects without pre-commitments. NZ Mortgages & Securities at 160 Ponsonby Rd is an associate, run by James Kellow.
• Headquarters: Level 22, SAP Building, 151 Queen St, Auckland
• NZ chief Dan Ashby
Established here in June 2017, arriving to build the fast-rising 57-level The Pacifica apartments near Auckland's waterfront. Building a 39-level, 490-room hotel on the Wyndham/Albert St corner, with a Holiday Inn Express on lower levels and a Voco hotel above. Both brands are part of the IHG hospitality group.
Also building 700-room student accommodation on Mayoral Drive for AUT, which is due to finish next year. Contracted to build new Indigo Hotel on Albert St. Also won the contract to build the new northern council service centre on Munroe Lane, Albany, by Asset Plus, for about 1200 people.
• Headquarters: Victoria Park markets, Auckland cbd
• Managing director Ron Macrae
Rose quickly up the ranks of builders lately, scoring substantial high-rise apartment work, building for the Ted Manson Foundation and two projects for Risland's Sunny Developments, one of China's largest developers. Building a big warehouse development in Māngere, apartments at Alexandra Park, Ponsonby, Ōrākei, St Heliers, Herne Bay, Albany and two in Remuera. Recently entered Wellington and Queenstown markets and about to start building its first dairy factory.
• Headquarters: 108 Mt Eden Rd, Mt Eden
• Chris Hunter managing director
Hunter, Lyndon Evans, John Overton and Jamie Vallance own the solely Auckland-based builder, now finishing $240m of projects with a further $290m of work subject to contract signing. Says it has "successfully completed over $1 billion worth of major projects in the Auckland region".
• Headquarters: 19 Hargreaves St, St Marys Bay.
• Anthony Leighs, managing director
Leighs arrived in Auckland from Christchurch five years ago and last year had $300m worth of jobs on in that city. A Registered Master Builders ex-chairman, Leighs chaired that organisation through the consolidation from 22 associations to one, is a patron of the NZ Defence Service limited service volunteer programme, which provides motivational training to youth, and a recipient of the Canterbury Chamber of Commerce special commendation for service to business.
Part of the giant China State Construction Engineering Corporation, this business arrived in New Zealand a few years ago for major work. In 2016, it won what was then a $200m contract - now $300m - to build the Park Hyatt Hotel in Auckland's Wynyard Quarter with Hawkins. It is also building the 57-level Seascape apartment block on Customs St East.
'Developers are a good target for a council under financial pressure.' - Steve Evans