Fletcher. The name is synonymous with construction and building in New Zealand, and has been since, well, forever. But it’s been in the news for all the wrong reasons lately – here are ten numbers that sum up the company’s bad news streak.
This morning, Fletcher Building announced losses from its Building and Interiors (B+I) business would amount to $660 million for the 2018 financial year, and its chairman Sir Ralph Norris (ex Commonwealth Bank of Australia, ASB, Air New Zealand) would be stepping down, noting shareholders’ demands for accountability. This caps an ugly gush of losses from the company’s high profile construction unit, responsible for delivering many large scale projects in New Zealand including the new international convention centre in Auckland and the Justice Precinct in Christchurch. It has already haemorrhaged $292m in 2017 due to “underperformance in the management of two key contracts: one in Christchurch and one in Auckland”. It will also cease to bid on projects, and concentrate on finishing off those not completed.
If only that had been the number! Fletcher had flagged in its 2018 earnings guidance announcement in October 2017 that losses for the building and interiors business would total about $160m in 2018 (after a previous trading halt to review “the financial performance of its Building + Interiors business unit”). Then, last week, it asked for another trading halt on shares due to expected losses in B+I, which it has extended twice since. It has also had to have a wee chat to its banks. Gulp.
Is the year that Fletcher’s Treasury team scooped the award for Excellence in Treasury at the black-tie 2017 Institute of Financial Professionals Inc. New Zealand (IFINZ) Awards dinner – the “highlight of the financial calendar”. The treasury team, the company’s press release said, is responsible for financial risk management. “The team works with business units to identify and appropriately manage financial risks, to guide strong business decisions and to help Fletcher Building’s businesses to operate in all economic climates.” It is “also responsible for ensuring Fletcher Building’s funding requirements are met, there is a diversity of funding sources, and the group is funded cost effectively”. Mmmkay.
But it’s not all doom and gloom, Fletchers would like you to know. In a letter to shareholders last year, chairman Sir Ralph Norris pointed out four out of five of its divisions made a profit thank you very much! Sir Ralph: “The reality is that in FY17, excluding the losses incurred in B+I, the Group’s operating earnings increased by approximately 20%, and operating earnings from the New Zealand businesses increased by around 30% … On average, these other four divisions outside of Construction delivered over 90% of the Group’s annual operating earnings in the years from 2011 to 2016. In addition, three out of the four business units in the Construction division performed well in FY17, particularly our new acquisition Higgins, which posted operating earnings of $39 million for the year.”
Fletcher shares last traded at $7.70 per share. Who knows how much of a hammering the share price may take when they are finally traded again, and while you may not be one of Fletcher’s long-time mum and dad shareholders (about 17,000 shareholders hold up to 1000 shares) you may well have a slice of this iconic Kiwi company through your KiwiSaver. In total the company has 38,100 shareholders including our Accident Compensation Corporation (ACC).
The number of people on the construction giant’s board that have building industry experience – and that’s Tony Carter – the former chairman of Mitre10, so not exactly a construction company but a building supplies retailer. Company critics say one of modern-day Fletcher’s weaknesses is a lack of building and construction industry people in its executive and governance team. Over time, the company has recruited heavily from banking/accounting/management firms (PWC, Deloitte, Boston Consulting Group to name a few). This lack of industry-specific experience has led to some of the issues with its large construction projects, and them going awry and making losses, critics say. That said, new CEO Ross Taylor (no, not that Ross Taylor) has a long background in the industry.
This was former Fletcher boss Mark Adamson’s BASE salary before he abruptly left last year after a run of disappointing results. On top of the base, Adamson was paid about $2.2m more in short term incentives. He didn’t get the $8m he was owed in long term incentives! But he did get a further $2.9m as part of an exit package. Board remuneration for the financial year ended June 2017 totalled about $1.8m, with Sir Ralph receiving about $435,000 of that. As you can imagine, the company’s results have left shareholders not best pleased with the salaries, or performance, of its executives and board.
The number of people at Fletcher Building who earn $100,000 or more. But the number we really need to get amongst is the 146 people who are paid $300,000 or more per year, or hell, what about the 46 who earn more than $400,000 annually. Critics have pointed to high salaries and an out-of-touch culture as contributing to the company’s poor performance for shareholders.
The number of employees Fletcher has across “hundreds of sites” across the globe. We like to think of Fletchers as being our national builder of everything, but it is a huge company with a presence in manufacturing (it owns Formica, you remember Formica?), building products, distribution and infrastructure to name a few. Its international division has more than 5000 staff, the building division almost 4000, and more than 6000 work in its distribution businesses, with a further 4500 or so in construction. It’s a huge business, and huge businesses come with huge risks.
But it all started a long, long time ago. The company was founded in 1915 by James Fletcher and his brothers, after James Fletcher (and Albert Morris) won a contract to build a villa near Dunedin. From that humble start, “the company built many of New Zealand’s public and private buildings railway stations, universities, hospitals, banks and office blocks. The company expanded and bought businesses that supplied building materials, such as timber, marble, brick and concrete works, and employed hundreds of people in associated trades,” the Fletcher Trust archives say.
In the 80s Fletcher Challenge (as it was then called after mergers) really hit its straps, taking in forestry, paper, pulp, meat processing, gas distribution and fisheries businesses and led to the conglomerate we see today. In 2001 Fletcher Challenge was dismantled and Fletcher Building was created so it could get back to basics. Now, some people expect the company may sell off its construction arm – could Fletcher’s dominant position atop our building industry be coming to an end?
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