Opinion
Paul Keane's picture
Paul Keane

Fletcher announcement leaves investment market stunned

The recent profit announcement by Fletcher Building has stunned the investment market and left commentators shaking their heads as to how a major New Zealand company could get their profit forecasting so wrong.  Just to recap, the company announced in March this year that their previously forecast profit announcement of $720 - 760 million was unlikely to be achieved and the figure was adjusted as an annual forecast to $610 - 650 million. Then unexpectedly this week the Chair of Fletcher Building announced a profit expectation of $220 million with potentially worse to come.

The share market reacted with a significant downturn in the share price, consistent with the profit warning hammering.

It’s been a field day since the announcement with commentators endeavouring to unearth the reason for the decline. To add to the misery, the CEO Mark Adamson has gone and a permanent replacement will be sought. Disparaging comments have been forthcoming from all quarters as to the performance of senior management with less criticism being targeted at the board.  I had 20 years of employment with Fletcher Challenge, through to the late 1980s. I experienced the merger of Fletcher and Challenge and saw the change in the personality of the merged company as a result. In early days when we operated as just Fletcher, a Saturday morning catch up in my offices at Penrose would inevitably see me have a visit from the late Sir James and a chat. It was a wonderful period in the company's history.  All senior executives were committed to the cause and profit was the cornerstone of its success, but it was achieved in a quiet determined way.

The Fletcher Challenge merger changed all that and the late Bruce Wallace, who was a PR employee of Fletcher Challenge subsequently, wrote a book "Battle of the Titans" which chronicled the clash of personalities in the two companies.  Since then, Fletcher Building has had many changes at the top. Never have they quite got it right in recent years, and there will be many challenges ahead for the Group as a result of this recent debacle. Yes "debacle".  It’s not just the CEO but the Board that needs to account for its actions. However, I see greater difficulty beyond just endeavouring to repair the current damage.

Looking forward, the company will be focussed not only on reducing its exposure to existing projects that have exceeded budget expectations, but all executives will have been warned as to future spend.  From a Fletcher Construction perspective that will be difficult when it comes to pricing forward work and I suspect that some current price bidding will be under a real focus. This will inevitably result in Fletchers withdrawing from some work to protect their bottom line.  Certainly the possibility of “lump sum" bidding will be off the table across all levels of project size.

The Group will want to protect and improve its current position and will not want any risk or exposure into the future.

The impact of this on the wider construction industry will be apparent. Major projects will attract fewer construction companies who will be capable of performing and undertaking large projects. Inevitably, if it was hard getting construction works priced in Auckland particularly, then it will now be a whole lot harder and prices will be expected to rise further as a result.  Fletcher has a wonderful history. What it needs now are people on board both at management and Board level who have an understanding of the Construction and Property Industry, and personnel who can relate to others and understand what "lump sum" or "negotiation" really mean. Margins in construction are slim, not unlike the margins achieved in the home appliance industry.  "Buying" business is not a good idea.  Any company that does that is at risk of imploding, and most importantly, clients of the Group will have a new perspective of what they expect from Fletcher Building. It will take a long time for the business to recover and we can expect some major surgery before that recovery occurs.

 


RCG - How are we transforming a tired 80s building into a Flagship Car Dealership?

KIA are a few weeks from unveiling their new Flagship branch at 425 Broadway, Newmarket. Although the space is currently operational, the façade and building are undergoing extensive works that will see the space inline with KIAs global ‘Red Cube’ concept. KIA is due to be completed in late August- check out the concept below. 

KIA - Auckland Flagship from RCG on Vimeo.

 


In the Press

Local Media Highlights 17 - 24 July 2017

Beleaguered Aussie retail chain suffers another setback

There is probably no tougher job for a chief executive than the turnaround.  Let's face it, when a business is humming along in a strong economy, it probably doesn't matter very much who occupies the chief executive's chair.

(Source: NZ Herald)

The Christchurch convention centre's rocky road: still the talk of missed opportunities

How much is it actually costing? Could the money have been better spent? And how did the whole procurement process get quite so drastically out of line?

(Source: Stuff)

New work on Lower Hutt's quake damaged Queensgate Mall

Lower Hutt's Queensgate Mall is undergoing a face change, as more work is done on a section damaged in the Kaikoura earthquake.  A section including a cinema and part of the car park suffered extensive damage, and needed to be demolished.

(Source: Stuff)

New state houses come at a cost for existing tenants on Auckland's North Shore

Some of the million-dollar suburbs on Auckland's North Shore are set to get more state houses, as part of the Government's response to the city's housing crisis.

(Source: Stuff)

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