14 Feb 2018

Fletcher Building chair resigns as losses blow out

10:15 am on 14 February 2018

Fletcher Building's chair Sir Ralph Norris will resign after the company announced its building and interiors unit was expecting $660m in losses, four times greater than initially projected.

Construction site for the SkyCity Convention Centre in Auckland.

Delays and higher costs at Auckland's SkyCity Convention Centre were partly to blame for the heavy losses in the Building and Interiors unit. Photo: RNZ / Claire Eastham-Farrelly

The company also said no interim dividend would be paid to shareholders.

Sir Ralph said he understood shareholders would be disappointed by the ongoing losses.

The losses came largely from delays and higher costs on the Justice Precinct in Christchurch and the Convention Centre in Auckland.

The company's share trading halt, which began on Thursday, ends today following a review of its building and interiors unit.

Fletcher Building shares have started trading down 14 percent at $6.70 per share at 10am. When the trading halt was put in place last week, they were trading at $7.77.

It said in a press release the unit would stop bidding for all vertical construction and be refocused solely on finishing its remaining projects.

Fletcher Building chief executive Ross Taylor said the building and interiors market sector remained characterised by high contract risk and low margins.

"Unless these dynamics change we will no longer work in this sector," he said.

Business Editor Gyles Beckford told Nine to Noon he was surprised by the size of the losses.

"I didn't expect that they would be adding close to another $500 million worth of losses, I thought that perhaps there would be another hundred million ... couple of hundred million."

Professor Jilnaught Wong, from the University of Auckland's business school, told Nine to Noon Fletcher's long history in the industry raises the question, how could this happen?.

Mr Wong said Fletcher Building may have destroyed up to $2.7bn in wealth over the past nine years.

He questioned whether it was because of the leadership.

"Is something to do with the corporate culture? Are there directions coming down from the top, not the appropriate directions or are people just not putting their effort in and focusing on their work.

"Because, these are people working at the top, they are experts in their fields so we would expect them to know what they are doing.

Fletcher Building slashed its full-year profit guidance after a previous trading halt in October last year, as its building and interiors section revealed a $160 million loss.

It is the country's biggest construction company and has been under pressure as costs on major building projects have blown out.

The company's chief executive abruptly resigned in July last year.

Earnings guidance for the Fletcher Building group excluding the building and interiors unity remains $680m to $720m as announced in October, the company said.

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