SkyCity confirms delay to international convention centre as Fletchers feels 'pain'

Thursday, 20 July 2017

Fletcher Building chief executive Mark Adamson said he was disappointed to be leaving the firm amidst bad news.

A horror day for Fletcher Building has seen a profit downgrade, the departure of chief executive Mark Adamson and confirmation of a delay to the $700 million International Convention Centre in Auckland.

The International Convention Centre will open later than expected in 2019 because of problems Fletcher Building has had with the project, SkyCity has confirmed.

The convention centre had been expected to be completed early in 2019, but SkyCity said in a statement to the NZX that work on the centre and its associated hotel was not now expected to finish until 'around the middle of 2019'.

Fletchers chairman Sir Ralph Norris said Adamson had apologised to the company's construction division about comments that included criticism of the company's auditor Deloitte.

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Fletchers would not comment further publicly about what was said, but Stuff has confirmed Adamson sent an email that said Fletcher's Business and Interiors (B&I) construction unit was 'full of old farts'.

'Mark has expressed his deep regret to me personally and offered his sincere apologies to all construction division employees. Deloitte has worked with us for many years and we have always been impressed with the high quality work they have delivered,' Norris said.

'The board is incredibly disappointed by these comments about the business and our employees, which are clearly not consistent with Fletcher Building's values.'

Shares in Fletchers were punished after the company said its operating profit for the year to the end of last month would be $525 million – about $100m below its previous guidance of $610m to $650m.

Fletchers' problems stem from cost blow-outs on two construction projects which have pushed its B&I division further into the red.

Aside from the convention centre, the other problem project is understood to be the Justice Ministry's $300m Justice and Emergency Precinct in Christchurch which is expected to open later this year, after a delay of several months.

SkyCity said Fletcher Construction had provided it with 'an updated programme of works' for the convention centre which was still being reviewed.

SkyCity remained comfortable with the contractual arrangements it had with Fletcher Construction, it said.

'This slight delay will not impact on any of the [convention centre's] confirmed bookings to date,' it added.

Norris said Fletcher Building was having its 'share of pain' on Thursday but the industry as a whole was really struggling with 'so much work on'.

That was being reflected in subcontractors' rates and 'the availability of resources for jobs', he said.

'There is an unprecedented level of activity and if you don't manage it carefully – as we can attest – it hurts you.'

NZX market supervision head Joost van Amelsfort said the exchange would look into whether the company had met its 'continuous disclose' obligations.

The NZX is already investigating the reporting of an earnings downgrade by Fletchers in March.

Norris said the board believed it was 'the right time' for Adamson to leave the company 'to allow a new CEO to lead Fletcher Building through this period and into the next phase of its strategy'.

Adamson would receive his 'contractual entitlements' but all of his share options would lapse, he would forfeit all shares in the company's long term incentive scheme and no short-term bonus would be paid to him for the 2017 financial year, Norris said.

His base salary is about $2m.

Adamson was on bereavement leave in the UK earlier this week.

He said in a statement that he was disappointed to finish his tenure on the back of 'a challenging result' for Fletchers' construction division.

'However, I am proud of what has been achieved over the last five years – most notably the turnaround of Formica, double-digit earnings growth in distribution, our acquisition of Higgins and the significant progress in our residential development division,' he said.

Fletcher Building said it was likely to write down the value of its Iplex Australia and Tradelink businesses by $220m.

Its shares were down 4 per cent in lunchtime trading at $7.75. SkyCity shares slipped 2 cents to $4.24.

The head of Fletchers' international division, Francisco Irazusta, will take over as 'interim chief executive' on Monday.

A Justice Ministry spokesman said there had been no further change to the completion date of its Christchurch precinct which was scheduled for the final quarter of this year.

Fletchers' statement indicated it was having to put extra resources into the project, which it again did not identify by name.

- Audio courtesy of Radio NZ