- Fletcher Building announces further provisions for expected losses in its Buildings + Interiors business of $486 million, leading to a total projected B+I EBIT loss of $660 million in FY18
- Expected FY18 EBIT for the Fletcher Building Group excluding B+I remains $680 million to $720 million
- B+I business refocused solely on delivery of remaining projects – bidding for all vertical construction in New Zealand to cease
- Waiver received from commercial banking syndicate following breach of covenants
- No interim dividend payment for HY18
- Fletcher Building Chairman announces he will step down no later than the 2018 Annual Shareholders Meeting
Following a review of projects in the Building + Interiors (B+I) business of the Construction Division, Fletcher Building today announced a further provision of $486 million for project losses.
Combined with provisions previously announced in October, as well as overheads and other costs, this leads to a projected $660 million EBIT loss for B+I in FY18.
Earnings guidance for the Fletcher Building group excluding B+I remains $680 million to $720 million as announced in October.
Fletcher Building CEO Ross Taylor said the new provisioning was informed by a review of 16 B+I projects, accounting for approximately 90% of the construction backlog, and incorporating external input from independent construction experts and KPMG.
“The provisions we have announced today are informed by a considerable amount of further project analysis, and while we continue to target agreed completion dates across the portfolio, we have factored in significant cost and timeline contingencies.
“Our absolute focus is finishing our remaining B+I projects within these provisions and to a high quality for our customers. To achieve this, we are refocussing the entire B+I business on project delivery only, and ceasing all bidding on vertical construction projects in New Zealand. This will allow us to direct all resources in B+I to the completion of the current book.
“While our broader construction businesses continue to benefit from favourable market conditions and strong growth, the B+I market sector remains characterised by high contract risk and low margins. Unless these dynamics change we will no longer work in this sector.”
The projected B+I EBIT loss has resulted in a breach of Fletcher Building’s financial covenants given to its commercial banking syndicate and US Private Placement (USPP) noteholders. However, the strength of the broader business and the phasing of the cash impact of the B+I provisions means the Company remains well capitalised and solvent.
“We have strong and predictable cash flows across the Fletcher Building group. While the B+I provisions are large, they are phased over a number of years and do not impact our ability to trade with our customers or suppliers or pay our bills.”
In line with the Company’s Dividend Policy the Board has determined that it will not be declaring an HY18 dividend.
“Our discussions with the banks have been constructive. We have received a waiver from our commercial banking syndicate for the breach of covenants and they have confirmed the availability of continued funding while we renegotiate terms. We have also commenced discussions with our USPP noteholders to obtain a similar waiver for the covenant breach. We are targeting to successfully complete renegotiations with all lenders by the end of March.”
Commenting on the reasons for the additional provisions, Taylor said there are many nuances by project, but three core drivers. “Following further project reviews we have taken a more pragmatic view on program delivery and resulting cost contingencies. While we will pursue our contract entitlements vigorously, we have also taken a less optimistic view on client claims and variations. And lastly, since October we have seen further material price escalation across trade finishing costs, which have now been incorporated into cost forecasts.”
In a separate statement made today Fletcher Building Chairman Sir Ralph Norris confirmed he will step down as Chairman no later than the 2018 Annual Shareholders Meeting, allowing an orderly transition to a new Chairman and the completion of the Board refresh process already commenced.