Angst laid on thick, the introduction of monthly reviews (as if they weren’t once the norm), an unprecedented voluntary 20% cut in directors’ fees, an annual meeting chaired with aplomb & eventually giving space to the voices of protest.
Fletcher Building Ltd chair Sir Ralph Norris apologised on Wednesday to the hundreds of shareholders in the Auckland War Memorial Museum event centre for the performance of the company’s construction division, and the losses incurred on major projects by that division’s building & interiors business (B+I).
Shareholders Association founder Bruce Sheppard turned up in priest’s garb to perform rites on the company, providing the elan that his successors never manage. Rising to speak to a director’s re-election, Mr Sheppard told Sir Ralph: “Big is not beautiful” and “Too much debt always kills business”.
Then he went on to explain his garb: “This is an A&E meeting, and I don’t mean accident & emergency. I mean absolution & exorcism.”
Boards at big listed companies are innately secure – they mostly hire people they’re going to get along with, they mostly have the votes tied up and it’s rare for a director to be elected on less than 98% support.
But, turning to the assembled shareholders at the museum before the vote on re-electing Cecilia Tarrant, who’s a member of the company’s audit & risk committee, Mr Sheppard conducted an absolution or exorcism test.
New Shareholders Association chief executive Michael Midgley, a retired lawyer, told the meeting that if the former audit & risk chair John Judge had been up for re-election the association would have campaigned for proxies opposing it. For Ms Tarrant, Mr Midgley said: “It’s our view that her position is untenable.”
Mr Sheppard told Ms Tarrant that, while “it pains me to put an alternative view to the organisation I founded, perhaps you could forfeit more fees than the rest of the board – but that is to your conscience”.
Asking his audience to raise their hands in favour of absolution or exorcism, he found the room evenly divided. In the official count, Ms Tarrant collected 99.13% of the votes. Former PWC NZ chief executive Bruce Hassall, who joined the board and its audit & risk committee in March and was therefore not part of the Building + Interiors problem, was up for election for the first time and scored only 96.14% support.
Both Ms Tarrant & Mr Hassall spoke forthrightly before the votes. Mr Hassall had gone to the trouble of meeting most of the finance executives across the group, and commented: “It is clear we have a lot of businesses which need to do a lot better.” On B+I he said: “Mistakes have clearly been made on contracts in the past.” He said his job was to make sure downside was minimised and that the mistakes “never occur again”.
The construction losses to continue
Fletcher Building split its earnings guidance on Wednesday to show B+I losing $160 million ebit (earnings before interest & tax and excluding “significant” items) in the 2018 financial year – and Sir Ralph said it could be more than that – while the rest of the group was expected to make $680-720 million.
The company expects 80% of the extra $125 million of project losses to come from 2 projects, construction of the NZ International Convention Centre in Auckland for SkyCity Entertainment Ltd, and the Justice precinct in Christchurch. The $35 million balance of anticipated ebit loss will come from extra B+I overheads.
The line – “so it won’t happen again” – is a nice, comforting one. Small shareholders invest in a company like Fletcher Building because it’s a secure large corporate, supposedly well managed.
Mr Hassall’s arrival on the board replaces one supposed accounting strength (John Judge) with another, but the board is still looking for a new director with construction sector nous.
It’s an extraordinary hallucination that a company of Fletcher’s size, with its origins, its company name, its basis for being before the gathering of product divisions that made it a vertically integrated conglomerate, should go a whole year since it discovered a gigantic gap in project management expertise without adequately stemming the flow of funds through that gap.
As one gnarly oldtimer commented to me on the way out the door: “What’s their job if not to manage the business? Monthly reports? We always had them.”
Ihumatao versus the food trolley
But for all that, Sir Ralph ran a subdued meeting, giving a long explanation of negative construction project events but also spending considerably more time going through the performance of other divisions than they’d normally get at the annual meeting, allowing protesters over the housing subdivision planned for Ihumatao, near Auckland Airport, to air their views & ask their questions rather than trying to shut them down, but also giving his own contrary opinion on Ihumatao and to a representative of striking drivers.
To the truck drivers, he said: “Increases have been significantly above the rate of inflation over the last 5-6 years. The company will come back in good faith.”
Then, after 130 minutes, the strident voice of SOUL (Save Our Unique Landscape) campaigner Pania Newton from a raised standpoint at the side of the room became too much for Sir Ralph as she accused the company of corruption & stealing land. It was also too much for most of the suddenly grumbling elderly shareholders who resented the attack and began to make their way to the food trolley. Sir Ralph closed the meeting.
The event was a success for allowing some important issues to be aired and some necessary explanations to be made. But both Sir Ralph & the company have a long way to go before Fletcher Building gets back on track – or, better, on to a positive new track that takes more considered account of affected communities & workforce relativities.
25 October 2017: Fletcher issues guidance, names new chief executive
25 October 2017: Fletcher shares in trading halt on eve of AGM
21 September 2017: A year on, Fletcher board still has ‘construction nous vacancy’ pencilled in
17 August 2017: ‘Fessed up, time to move on, says an unconvincing Fletcher boss
21 July 2017: Fletcher Building takes axe again to construction earnings, Adamson ousted
20 March 2017: Fletcher Building cuts earnings guidance by $110 million
19 March 2017: Fletcher Building to explain construction loss Monday morning
22 February 2017: Fletcher Building net up 2% after site closures
21 December 2016: Fletcher Residential completes Oruarangi purchase
25 May 2016: Fletcher wins approval for subdivision next to Mangere stonefields
29 January 2016: Opponents say Ihumatao alone as low-density special housing area proposal
Link: Fletcher Building
Attribution: Fletcher AGM.