Christchurch's Justice & Emergency Services Precinct: cost Fletcher more to build than planned. Photo / George Heard
Christchurch's Justice & Emergency Services Precinct: cost Fletcher more to build than planned. Photo / George Heard
Shareholders are engaging with an Australian legal firm to bring a class action against Fletcher Building over its disastrous Buildings + Interiors division, responsible for losses of nearly $1 billion over a two-year period.
The company announced this morning it was facing a class action relating to that troubled partof its operations during 2016 and 2017.
Back then the company was headed by British-born Mark Adamson before Australian Ross Taylor took over.
“Fletcher Building Limited has been served by an Australian law firm with a shareholder class action filed in the Supreme Court of Victoria. The claim is brought by persons who acquired shares on the New Zealand Main Board and the Australian Stock Exchange between 17 August 2016 and 23 October 2017 and relates to FBL’s disclosures regarding its Building + Interiors business in that period,” today’s announcement said.
Asked who was involved, a Fletcher spokesman said the lawyers engaged in Australia were Mayweathers. They have offices in Sydney and Adelaide and specialise in class actions.
The Buildings + Interiors division was responsible for massive financial failure last decade when it took on work with huge cost overruns. All up, losses of $952 million during two years were disclosed.
Difficult construction contracts caused losses of $292m in the June 30, 2017 year but a further $660m of losses were projected in the June 2018 year.
The company said in 2018 that the projected B+I ebit loss has resulted in a breach of Fletcher Building’s financial covenants given to its commercial banking syndicate and US Private Placement noteholders.
However, the strength of the broader business and the phasing of the cash impact of the B+I provisions means the company remains well capitalised and solvent.
The business cut guidance for its full-year earnings to June 2018 by around $415m in a series of announcements throughout 2017.
Losses came about from cost overruns from building Christchurch’s Justice & Emergency project, Precinct Properties’ $1b Commercial Bay and SkyCity Entertainment Group’s NZ International Convention Centre.
Grant Swanepoel of Jarden has previously cited the $150m extra costs which Fletcher revealed on the convention centre in December as an example of cost shocks.
That indicated that even extremely well-run management teams like those under Ross Taylor’s control could get huge surprises and have to wear massive losses from some jobs.
Forsyth Barr analyst Rohan Koreman-Smit said today it had been known in the market for some time that such a class action was possible due to this period of announcements from the company.
“This relates to a law firm claiming Fletcher didn’t make full disclosure about the writedowns from this division. There’s a history of settlements in cases like this in Australia but it’s a process and it can take a year or more to settle. There’s a wide range of potential outcomes in what gets awarded. There’s also the potential of no payout if Fletcher can defend it robustly.
“This was lodged in the last week, right towards the end of the statute of limitations when they can possibly launch such a case,” he said.
Work on the NZICC - one of New Zealand's largest building jobs. Photo / Jason Oxenham
The case might not relate as much to the level of disclosure as much as the timeliness of disclosure, he said.
And it appears both Kiwi and Aussie shareholders are involved because today’s notice cites trading on both sides of the Tasman.
Others said today that while stock prices never like uncertainty this doesn’t feel like one to lose sleep over. The real issue for the stock is the perception of what FY24 and ‘25 earnings look like, that professional said.
Fletcher downgraded earnings from Building + Interiors over many months last decade, the Herald reported in early 2018.
It lowered expectations from that division by $20m, then downgraded overall operating earnings by a further $110m, then cut earnings by $85m to $125m, then cut guidance by a further $160m.
And the trouble is not over still.
Only in December, Fletcher announced a further $150m losses from the NZICC.
“Despite good progress on site, the complexity of the rebuild means costs are now expected to exceed insurance proceeds on NZICC,” the company said on December 16.
Swanepoel said in December that another cost blowout was a “big surprise” because it was his understanding that the insurance payout would cover any additional costs.
“This is quite left-field and $150m is quite a big number,” Swanepoel said.
“We were being told insurance was going to cover the differential left to go.”
Fletcher shares are trading on the NZX today at $4.60, down 30 per cent annually. They were $7.95 in June, 2021.
