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Fletcher Building could return to B&I under the right conditions

Wednesday 22nd August 2018

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Fletcher Building chief executive Ross Taylor said the company would be open to bidding on new vertical construction projects if the current procurement system changes.

Fletcher and other construction companies like Ebert Construction have run into difficulties due to cost-blowouts on low margin projects, prompting a series of crisis talks between government and industry and moves towards a longer-term approach to construction negotiations from government ministries.

This morning, Fletcher reported its net earnings loss was $190 million for the 12 months to June 30 compared to a profit of $94 million in the prior year. Operating earnings before significant items - excluding Building + Interiors - were $710 million, within the $680 million to $720 million range it forecast. The B+I losses were maintained at $660 million, as forecast in February when it announced further provisions of $486 million. 

The losses in the B+I unit, which includes some of New Zealand's most complex and expensive vertical construction projects on its books, had been well signaled to the market after cost overruns on major projects like the Auckland-based International Convention Centre, the Commercial Bay development, and Christchurch’s Justice Precinct. The company had indicated it won't bid for new contracts of that kind.

Today, however, Taylor was more sanguine. 

The government is “a big and an important client in the industry, but not the only one. I think if it positions itself a bit differently and a bit more thoughtfully that will be a positive for the industry. I think that's a really appropriate and sensible response,” Taylor told journalists on a conference call after the annual result.

The government is responsible for around 18 percent of all vertical construction projects, and Taylor said Fletcher will continue to engage with the government over the coming weeks.

“It’s not about having one conversation and hey presto it is all solved. There are some complexities to work through but I think they will work through those and we will get a sensible outcome. The intent and the will is certainly there. I think it is genuine and we will get some movement and changes,” he said.

If that happens Fletcher "will look at that as we look at the B&I or vertical space. We will keep an eye on the market and to the extent that changes and we start to see the right dynamic then, yes, we will be back in it because it is the logical place for us to play,” he said.

“It’s just the way it evolved it wasn’t making any sense at all.”

Earlier this month Jenny Salesa, Minister for Building and Construction, said Cabinet will consider whether government ministries should take a longer-term approach to construction negotiations after Ebert Construction was tipped into receivership. Among other things it will look at ensuring departments adhere to the Ministry of Business, Innovation and Employment (MBIE)'s government procurement guidelines, which stress the importance of "optimum whole-of-life value for money" ahead of short-term cost-cutting.

Last week the government announced it would create an independent infrastructure agency in a bid to take the politics out of any development decisions. The new body will provide expert advice, planning and strategy, and help support the delivery of major infrastructure projects across the country.

Fletcher Building shares were last down 1.7% at $6.78. 


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