Fletcher Building takes hit from project cost blowouts

Monday, 5 February 2024

The need for additional provisions for the convention centre and the airport car park is disappointing, Fletcher Building’s Ross Taylor says.

Costs on two of Fletcher Building’s big projects, the New Zealand International Convention Centre in Auckland and the Wellington International Airport car park building, have swelled by $180 million.

Fletcher Building announced on Monday that the latest cost and revenue forecasts for the convention centre had required the company to make additional provision of $165m to the project.

While the project was on track to be finished late this year, the actual and expected costs to complete it had increased, the company said in a statement.

The increases were principally in the areas of steel remediation, internal fit-out, and installation of operating systems, and largely due to the higher levels of subcontractor resource required to finish the project.

But a portion of the company’s claims against the project contract works insurance (CWI) might also not be recoverable, it said.

“The company continues to pursue recoveries under the centre’s third party liability (TPL) insurance policy of more than $100 million,” the statement said.

“While the company considers it has good grounds for its TPL claims, no TPL revenue is included in the current project forecast – in line with accounting standards.”

The remediation of Wellington Airport’s car park will cost $15 million.

Fletchers’ statement also had bad news on its Wellington International Airport car park remediation project.

It said the company was working with the client to agree to a remediation solution to quality issues and to settle claims, but its latest assessment showed remediation would cost another $15m.

The additional costs for the convention centre and the Wellington airport car park would be classified as significant items in the company’s half year 2024 financial statements.

Fletchers chief executive Ross Taylor said it was disappointing further provisions were required for both projects.

But the company was on track to complete construction of all legacy projects by the end of calendar 2024, although cost and revenue risk would remain until it had done so, he said.

“We will vigorously pursue our claims for recoveries on the legacy projects, which are likely to take until the financial year 2025-26 to settle.”

The convention center rebuild was a significantly complex and challenging project, he added.

A fire on the site of the convention centre in 2019 caused costs to escalate.

But the centre’s car parks were now complete, the Hobson Street Hotel was scheduled to be handed over to the client this month, and steel remediation throughout the centre was 98% complete.

Once completed, the centre would have 10 eateries, 2700m² of meeting space, 6674m² of hall space, and would be connected to the 1000 room Hobson Street Hotel by an air bridge.

Construction of the centre started in 2015, but was dealt a blow by a fire in October 2019, which caused extensive damage that delayed the project and escalated costs.

In the year to June 2023, Fletcher Building’s annual profit fell 46% after it faced extra costs related to the convention centre in Auckland, the company’s most recent guidance showed.

But excluding one-time costs, the company’s operating profit was up 6% to $798m, in line with its forecast for about $800m. Revenue slipped 0.3% to $8.5 billion.

The company’s half-year results are due out next Wednesday.