MARCH 10 2018 LISTENER 23
F
letcher Building may be
withdrawing from vertical con-
struction such as multistorey
buildings, but come Monday
morning, most of its rivals in
that market will be backing up
their trucks to buy its building
materials.
“Fletcher companies provide by far the
biggest supply of building materials in the
New Zealand market, including to Arrow,”
says Ken Forrest, chief executive of Arrow
International, which won the 2017 Supreme
Award at the NZ Commercial Project Awards
for The Remarkables Base Building near
Queenstown.
Although Fletcher’s Building + Interiors
(B+I) business plunged to a $630 million loss
in the six months to the end of December,
its building products division earnings fell a
modest 9% to $118 million. Building Prod-
ucts includes Winstone Wallboards, maker
of the ubiquitous Gib board, which domi-
nates the segment but claims no pricing
power in a global market.
Knauf, the world’s sec-
ond-largest plasterboard
maker, failed in 2014 to
convince the Commerce
Commission that Win-
stone froze it out of the
market at every turn.
The Fletcher name
is connected with
some of New Zealand’s
most iconic buildings,
including the Chateau Tongariro,
Wellington’s ornate Central Railway Station
and, in more recent times, the Museum of
New Zealand Te Papa Tongarewa and the
Sky Tower. All were built before Fletcher
Building was created as a standalone
company in 2001, and in each case, Fletcher
was hired as builder only. Fletcher was also
a member of the partnership that built the
Waterview Tunnel.
But the company’s design-and-build con-
tract with SkyCity Entertainment Group to
construct the International Convention
Centre is a different story. This is Fletcher’s
most problematic project and the greatest
remaining risk on its balance sheet, since
it runs through until mid-2019 (the Justice
Precinct in Christ church was due to wind
up in February).
On the plus side, Commercial Bay, the
$425 million Auckland CBD development
contract it has with Precinct Properties, also
runs through to mid-2019 but is rare amongmajor B+I design-and-build projects in being
profitable. Another $500-600 million in key
projects Fletcher hasn’t identified publicly
will run into next year and are in the red.
Ross Taylor, who took the reins at the
company in November after former chief
executive Mark Adamson left abruptly, is
focusing on completing the remaining con-
tracts and is not taking on new business.
“Fletcher is predominantly a builder, but it
got into design-and-build contracts. If you
don’t control that, you can get very signifi-
cant cost blowouts,” he says.
Design and build required “a level of com-
plexity and sophistication” that Fletcher
didn’t have in-house, he says. That’s not
to say vertical construction isn’t a viable
market, provided a company “is very dis-
ciplined and works the variations and
contractual angles”. That’s not the way he
works or the way he sees Fletcher, and the
whole debacle has damaged the company’s
brand, he says.
It’s a striking admission for a listed
company that has had a
phalanx of knights at the
boardroom table over the
years. Rod Deane, now Sir
Roderick, joined Fletcher
Challenge in 1994 and,
with the separate listing
of Fletcher Building,
became its chairman,
with Australian Ralph
Waters as CEO. There
followed, by some
measures, six glorious years. Between 2001
and May 2007, the shares rose 469% as
Fletcher Building became a global name,
buying businesses as far away as the US
and Europe.
In an analyst presentation in early 2004,
Waters said Fletcher was not a construction
company, not a distribution business but
“a building materials manufacturer which
controls its channels to market”. At the time,
Winstone Wallboards had 94% of the New
Zealand market.TUMBLING FORTUNES
A 20-year chart of Fletcher’s stock price
shows that after tumbling from its peak
$13.42 in May 2007, it has never quite
regained its mojo. Like many global compa-
nies, it was left reeling by the global financial
crisis. Its total shareholder return for 2008
was minus 43%, taking some of the cream
off what Boston Consulting Group assessed
as a five-year run in which Fletcher “wasIt’s a striking
admission for a
listed company that
has had a phalanx
of knights at the
boardroom table.