Fletchers building division announce a 660m dollar loss this year

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KrazyKid

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#229238 14-Feb-2018 10:22

ODT article here

Holy cow they have stuffed up big. Not going to bid on new projects until the have sorted out this mess (I assume because they have no faith in their current processes)
That loss wipes out all the earnings from every other division .

And it is just this year. I assume that since most of these jobs are multi-year projects they will have another year of losses.

Glad to see the chairman has gone. I expect quite a few others have or are looking for new jobs.

Disclaimer: I own no shares in Fletchers and never have :)

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#1956878 14-Feb-2018 10:48

Makes you wonder about Norris and top executives.

He can't be all that smart if he can destroy the countries largest construction company during a building boom.

trig42

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#1956888 14-Feb-2018 11:00

I don't own shares (other than through Kiwisaver), but it, and last weeks US stock market 'correction' have caused a hit in my Kiwisaver funds.

Not any cause for panic, swings and roundabouts.

As for Fletcher Building - I hear from people I know in the industry (and related) that they bid for these jobs very aggressively, and for many, way under what the true costs are or will be (when you add in contingencies). Almost like they are bidding on these big jobs as 'loss leaders'. It has bitten them big time now.

wellygary

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#1956917 14-Feb-2018 11:24

KrazyKid:

And it is just this year. I assume that since most of these jobs are multi-year projects they will have another year of losses.

No, what they do is recognise the losses all in this financial year, ( well that is the plan), you scoop up all the losses you expect on these projects and account for them in one hit,

Although this is the 4th time trying to quantify the total loss and it just gets worse every time

25 October 2017

"Norris apology as Fletcher Building forecasts $160m loss"

https://www.odt.co.nz/business/norris-apology-fletcher-building-forecasts-160m-loss

July 2017

https://www.reuters.com/article/fletcher-bldg-outlook/update-3-new-zealands-fletcher-building-lowers-profit-view-again-prompting-bourse-probe-idUSL3N1KA5AF

March 2017

https://www.nbr.co.nz/article/fletcher-cuts-full-year-earnings-guidance-15-b-200847

networkn

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#1956923 14-Feb-2018 11:32

Interesting I think. If they stop underquoting for jobs, that is going to cause some pretty big price increases in some building projects going forward.

I don't think it will put the company under or anything, I think their balance sheet looks good, but as I understand it, they went hat in hand to the banks for relaxing the covenants. I suspect head rolling of a couple of execs may have been a bank stipulation in order to get them.

kryptonjohn

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#1956933 14-Feb-2018 11:48

surfisup1000:

Makes you wonder about Norris and top executives.

He can't be all that smart if he can destroy the countries largest construction company during a building boom.

Norris is not an executive - he's a director and chairman of the board, so his job is to oversee the executives but has no role in day to day running of the business.

But... the buck stops at the top!

MikeB4

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#1956935 14-Feb-2018 11:52

networkn:

Interesting I think. If they stop underquoting for jobs, that is going to cause some pretty big price increases in some building projects going forward.

I don't think it will put the company under or anything, I think their balance sheet looks good, but as I understand it, they went hat in hand to the banks for relaxing the covenants. I suspect head rolling of a couple of execs may have been a bank stipulation in order to get them.

Government contracts sound good but seldom pay the ferry man. Ask those on AOG.

kryptonjohn

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#1956940 14-Feb-2018 11:57

networkn:

Interesting I think. If they stop underquoting for jobs, that is going to cause some pretty big price increases in some building projects going forward.

I don't think it will put the company under or anything, I think their balance sheet looks good, but as I understand it, they went hat in hand to the banks for relaxing the covenants. I suspect head rolling of a couple of execs may have been a bank stipulation in order to get them.

I suspect they didn't intentionally under quote. I think they just didn't grasp the extent of the likely project costs when quoting. In other words, lack of experience, ability, time or the correct tools.

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networkn

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#1956944 14-Feb-2018 12:00

kryptonjohn:

networkn:

Interesting I think. If they stop underquoting for jobs, that is going to cause some pretty big price increases in some building projects going forward.

I don't think it will put the company under or anything, I think their balance sheet looks good, but as I understand it, they went hat in hand to the banks for relaxing the covenants. I suspect head rolling of a couple of execs may have been a bank stipulation in order to get them.

I suspect they didn't intentionally under quote. I think they just didn't grasp the extent of the likely project costs when quoting. In other words, lack of experience, ability, time or the correct tools.

Not sure I'd agree. It's possible, but Fletchers do have some great people. Mistakes get made. I am guessing we will never know, but like one other poster, I had heard they were deliberately underquoting to get jobs as it gave them a foothold into other jobs. It's not completely uncommon.

kryptonjohn

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#1956949 14-Feb-2018 12:05

I may personally have some inside knowledge here... and I agree that Fletchers have some great people.

But consider this: If you knowingly under quote on a billion dollar budget then you knowingly line yourself up as responsible for (hundreds of) millions of dollars in losses and therefore knowingly line yourself up for career termination. That doesn't make sense to me.

networkn

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#1956953 14-Feb-2018 12:08

kryptonjohn:

I may personally have some inside knowledge here... and I agree that Fletchers have some great people.

But consider this: If you knowingly under quote on a billion dollar budget then you knowingly line yourself up as responsible for (hundreds of) millions of dollars in losses and therefore knowingly line yourself up for career termination. That doesn't make sense to me.

I'd suggest that repeatedly getting quoting wrong is just as likely to result in the same effect.

Dairyxox

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#1956954 14-Feb-2018 12:09

I've seen them do some crazy things.

My own anecdotal story, the firm I work for is in an industry a that competes with a Fletchers company.

We both tendered for a certain job. Our rate was about $8, the Fletchers company suggested they could do it for $1, and got awarded the contract.

Obviously it didn't work out too well for them, and the guy who was in charge of this has ended up committing career seppuku. Obviously this kind of behavior is detrimental to the industry.

Craziness.

I also have Fletchers Building stock unfortunately. Looking to ditch this lemon if its ever suitable to do so.

floydbloke

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#1956994 14-Feb-2018 12:13

In IT&T I have seen numerous instances of salespeople and company execs selling services for way too cheap because it's all about getting the sale, and then expecting the doing teams to deliver it.

Does this occur in construction? Could it be what happened here?

Did Eric Clapton really think she looked wonderful...or was it after the 15th outfit she tried on and he just wanted to get to the party and get a drink?

kryptonjohn

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#1956999 14-Feb-2018 12:15

networkn:

kryptonjohn:

I may personally have some inside knowledge here... and I agree that Fletchers have some great people.

But consider this: If you knowingly under quote on a billion dollar budget then you knowingly line yourself up as responsible for (hundreds of) millions of dollars in losses and therefore knowingly line yourself up for career termination. That doesn't make sense to me.

I'd suggest that repeatedly getting quoting wrong is just as likely to result in the same effect.

Yeah I'd expect so and if I was a shareholder I'd hope so!

I find it very hard to accurately estimate software development projects. In fact I tend to over quote to avoid nasty surprises. I can get away with that, and as the projects are almost always T&M that means the customer is more likely to get a pleasant rather than unpleasant surprise. But if I had a bit of competition then I'd find myself being underbid by clowns who don't know what they are in for. Has happened in the past, and the clowns don't get a second shot but still lost business to me.

It must be pretty damn difficult to make accurate estimates on extremely large and complex projects, and pad them with enough contingency yet still get the business. You would need the experience of having done similar projects in the past, along with the right tools to build the estimates, and the time to do it properly.

Or... as is often the case in my business... the estimates or quotes may have been OK but the PMs have not cracked down on scope creep and forced any changes into a paid-for change request.

kryptonjohn

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#1957002 14-Feb-2018 12:17

floydbloke:

In IT&T I have seen numerous instances of salespeople and company execs selling services for way too cheap because it's all about getting the sale, and then expecting the doing teams to deliver it.

Does this occur in construction? Could it be what happened here?

The suits have to rely on expert professionals to do the cost forecasts. This will all have to be explained to the shareholders so it will be interesting to see when it comes out.

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#1957015 14-Feb-2018 12:34

trig42:

I don't own shares (other than through Kiwisaver), but it, and last weeks US stock market 'correction' have caused a hit in my Kiwisaver funds.

Not any cause for panic, swings and roundabouts.

As for Fletcher Building - I hear from people I know in the industry (and related) that they bid for these jobs very aggressively, and for many, way under what the true costs are or will be (when you add in contingencies). Almost like they are bidding on these big jobs as 'loss leaders'. It has bitten them big time now.

Yes underbidding here to pick up follow on work at better rates is pretty common in construction.

I've heard that those involved in bidding for Fletchers had pretty strong bonuses tied to winning jobs, but not the profitability of jobs. This misalignment of incentives had a big part to play in the current mess.

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