Norris Walks As Fletcher Building Losses Balloon
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Not even former bankers are exempt from overseeing a mess, especially when it is a debacle that has created close to $NZ1 billion in losses in less than a year! Take Sir Ralph Norris, a former CEO of the Commonwealth Bank. He retired from the CBA (to make way for another Kiwi in Ian Narev) in 2011 and took up various board roles, one of which saw him made chair of Fletcher Building - one of the biggest building products and construction groups in Australasia.
All went swimmingly until Fletcher started hitting problems in early 2017 on a couple of contracts, one on a casino in Auckland and another in a rebuild of a major new part of Christchurch’s Justice Precinct. The situation worsened however from the initial news and a massive loss was found in the year to June, 2017 of around $NZ250 million on the two dodgy contracts in its Building and Interiors (B&I) division.
A preliminary report on a review of the two contracts found another $NZ160 million in losses last November, but the company assured everyone that it would earning a profit and it would be more than the $NZ 94 million in 2016-17.
Then last week a big ‘Ooops’ from Fletcher as the shares went into a trading halt because the problematic contracts were now worse. The shares were halted until Monday, when Fletcher asked for two more days.
This morning the company told the stock exchanges in NZ and Australia that the $NZ160 million loss estimate had become $NZ660 million. That means total losses on these contracts is approaching $NZ1 billion.
Fletcher also said chairman Sir Ralph Norris would step down no later than the 2018 shareholders meeting later this year and that shareholders would not receive an interim dividend. The board took a 20% pay cut last year. After this debacle, they should be paying shareholders. The shares fell 13% this morning in NZ when trading resumed.
The new CEO (there have been two others in the past five years) is Ross Taylor, an Australian who has been there a matter of months. He said this morning the losses had not affected Fletcher’s ability to trade or pay its bills.
But the losses have forced the company to talk to its banks to obtain a waiver because it has breached the huge losses had caused the company to breach the terms of the existing financing deals.
That will cost more as well and means for all intents and purposes a company selling more than $NZ9 billion of goods and services a year and survives because the banks did it a deal. Talks are now underway about a new funding structure, which will cost more. (I suppose it does pay, at the end, to have a former banker as chair. Norris had been in similar situations at the CBA during the GFC).
What has not been explained is why the losses ballooned, and why Fletcher and its advisers had no idea as to their extent and size for so long. There is a very large whiff of incompetence here.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.