Further background
Q. Which 16 projects were reviewed?
A. The Justice and Emergency Services Precinct and the New Zealand International Convention Centre (NZICC) projects continue to be the main contributors to the losses. In addition to these two projects the Company reviewed Commercial Bay, Auckland East Prison, Auckland Airport, Christchurch Airport Hotel, Wellington Airport Carpark, and a remaining group of smaller projects.
Q. Which projects did KPMG review?
A. In the latest review KPMG focused solely on B+I projects, including the two previously reviewed – NZICC and Commercial Bay – as well as the Christchurch Airport Hotel, Auckland East Prison and Auckland Airport projects.
Q. Does this mean Commercial Bay is now loss making?
A. We continue to target a profitable completion of this project, however given it has a long way to go we have provisioned for contingencies.
Q. Are the timelines for NZICC or Commercial Bay impacted by this announcement?
A. We continue to target the completion dates we have agreed with our customers, but we have provisioned for significant cost and timeline contingencies.
Q. When will the Justice Precinct complete?
A. The project is 99% complete and the client is occupying the building. We expect practical completion to be awarded at the end of February.
Q. Does the end of bidding on vertical construction projects mean the Fletcher Construction Company will close?
A. No. The Fletcher Construction Company includes four businesses – B+I, Infrastructure, Higgins and South Pacific. The only business impacted by this announcement is B+I.
Q. Will Fletcher Building ever consider bidding on a vertical construction project in the future?
A. We have made the decision to refocus B+I solely on project completion, to ensure our resources are completely focused on this task. While the B+I market sector remains characterised by high contract risk and low margins we will no longer participate. If these market dynamics change in the future we would reconsider our position.
Q. Does this change impact residential construction or infrastructure?
A. No. Our Residential Division will continue to operate as it does today. Likewise, our Infrastructure business will continue to complete existing projects and bid for new ones. The infrastructure sector benefits from more appropriate margins, better contract conditions, and alliance models that reduce risk. As our B+I projects complete we will redeploy key talent to these growth opportunities.
Q. How is Fletcher Building’s debt structured?
A. Funding facilities are: capital notes ($622m), US Private Placement ($1.13b) a commercial banking syndicate ($1.27b) and other loans ($103m).
Q. Which of these debt structures has FB breached covenants on?
A. USPP and the commercial banking syndicate.
Q. Which specific metrics have been breached?
A. Senior Net Debt to EBITDA, EBIT to Senior Interest, EBIT to Total Interest and Guaranteeing Group EBITDA.
Q. What happens if you do not agree new terms with your lenders by March 31 2018?
A. In consideration of the waiver, we have agreed to negotiate changes to our agreements with our lenders by 31 March. If we do not agree new terms by 31 March, we would then be in breach of the terms of our waiver. This would be an event of default with our commercial banking syndicate. However, the banks have moved quickly to grant us the waiver and we expect discussions to continue to be constructive.
Q. Which banks are included in the commercial banking syndicate?
A. ANZ Bank New Zealand Limited, The Bank of Tokyo-Mitsubishi UFJ Ltd, Bank of New Zealand, Commonwealth Bank of Australia, Citibank N.A., The Hong Kong and Shanghai Banking Corporation Limited, Westpac New Zealand Limited, Bank of China and China Construction Bank.
