A year after Fletcher Building Ltd’s board became aware of construction contract blowouts, the company is no nearer to appointing someone with construction nous as a director.
Company chair Sir Ralph Norris confessed to not understanding the world of construction accounting when he addressed media on the annual result in August. He said then that the problems at the building + interiors business unit within the construction division had all come about in the 2017 financial year, first noticed in September but the extent not realised immediately.
When the half-year result was released in February, chief executive Mark Adamson said construction operating earnings were reduced due to the timing of earnings from certain projects being recognised, expensed bid costs, a reduced contribution from Fletcher EQR, and losses incurred on a major construction project.
In March, Mr Adamson had the task of explaining the blowouts. When the greater extent of the blowouts was recognised in July, Mr Adamson’s contract was ended.
At the August briefing, I asked Sir Ralph what Fletcher had done to fill the void of construction nous in its senior executive ranks, and what steps it was taking to fill that void within the board’s ranks.
Sir Ralph rattled off a long list of recent appointments to demonstrate how the company had tackled a problem aggressively, most of which the suddenly departing former chief executive, Mark Adamson, had listed when he announced a cut in earnings guidance in March, shortly before his exit.
In addition, I wanted to know how the board would acquire more construction understanding than it apparently had. Sir Ralph skirted that question, saying only that “we will have board members stepping down. We are in the process of looking at candidates – somebody with construction experience would be a very good addition to the board.”
Changes, but still a vacuum
Yesterday, Fletcher Building announced board changes – but the construction nous vacuum remained.
John Judge had already indicated he’d retire after 9 years on the board, and Kate Spargo has joined him. Mr Judge’s retirement takes effect at the end of the annual meeting on 25 October, Ms Spargo’s took effect yesterday because she was appointed yesterday as a director of ASX-listed Cimic Group Ltd, a competitor. She had chaired engineering services company UGL Ltd until Cimic acquired it early this year.
Cimic is 73% owned by Hochtief AG of Germany, which in turn is now 71.8% owned by ACS Group SA of Spain. Those stakes make the Spanish group 52.2% owner of Cimic. The former Leighton Construction, which changed its name to CPB Contractors Pty Ltd last year, won the $240 million contract to complete the design & construction of the Christchurch Convention & Exhibition Centre last month.
Bruce Hassall, appointed to the Fletcher board in March and therefore up for election at the annual meeting, will take over from Mr Judge as chair of Fletcher’s audit & risk committee.
Cecilia Tarrant, a director since 2011, is up for re-election under the rotation process. She will take over as chair of the safety, health and environment & sustainability committee from Ms Spargo.
And then came the announcement about the hunt for construction expertise: “With the retirement of John Judge & Kate Spargo, the Fletcher Building board will have 6 directors. The board is currently engaged in a process to extend its skills & experience, particularly in the area of construction & contracting.”
2 changes that will happen at the company’s annual meeting are in attendance & voting.
Fletcher Building has told shareholders in its notice of meeting: “To encourage the widest possible participation in the shareholders’ meeting, this year Fletcher Building is introducing a hybrid meeting format where shareholders can participate by attending either in person or remotely online via Lumi AGM.
“By using Lumi AGM, shareholders will be able to watch the meeting, vote & ask questions remotely from a smartphone, tablet or desktop device.”
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
Attribution: Fletcher release & notice of meeting, Cimic release.