Fletcher Building expects $150m hit to earnings after SkyCity centre rebuild costs more

12:33 pm on 16 December 2022

Damage from the 2019 SkyCity Convention Centre fire could be seen on the roof at the time. Photo: RNZ / Cole Eastham-Farrelly

Fletcher Building expects a $150 million hit to earnings from cost overruns in the rebuild of the fire damaged International Convention Centre (ICC) in Auckland, as it also moved to expand production of wood products.

It said it expected to complete the rebuild of the ICC, badly damaged by fire in late 2019 during construction, in early 2025 or earlier, but higher labour and material prices, and more difficult building conditions had increased the rebuild costs.

"Despite good progress on site, the complexity of the rebuild means costs are now expected to exceed insurance proceeds on NZICC. This has resulted in an additional $150 million provision for costs to complete the project."

The extra costs were expected to be felt for next year and 2024.

Chief executive Ross Taylor said the ICC was the last project of the now discontinued vertical construction business.

"It is disappointing we require further provisions, which are the result of the significant complexity of the project rebuild. However, NZICC is Fletcher Construction's last project in the vertical sector, as a decision to fully exit this sector was made in 2021."

The ICC was originally costed at $750m with casino company SkyCity to build and run the facility, but with the government of the day giving it extra gaming machines and tables to fund the build.

The partially built centre was badly damaged by fire in late 2019, which was later put down to being an accident caused by workers on site.

Trading update

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Fletcher Building chief executive Ross Taylor Photo: RNZ / Cole Eastham-Farrelly

Taylor said the Fletcher Building group was trading broadly in line with expectations with strong demand for house-building materials making up for some softness in civil sector work, while cost increases were being managed, and its gross margins were slightly higher.

Its Australian operations were improving with margins and volumes holding up, he said.

"Across all of our products and distribution divisions, we continue to watch lead indicators closely, and have a clear playbook if activity softens in late FY23 or into FY24."

Its house building and development was seeing lower prices, margins and sales, and in some areas it had slowed its build rate and had not been buying land for some time, Taylor said.

The company maintained its forecast of earnings before tax and major one-off items of more than $855m.

Expansion and acquisition

The company also detailed plans for a new wood products factory next to its existing factory in Taupō, with building set for next year at a cost of about $275m.

The plant would supersede the current particleboard production line and proicude cost competitive and superior products for use in furniture, joinery, and the broader construction sector.

It was expected to be up and running in late 2025, with projected earnings of about $40m.

Taylor said the group was also buying a Northland wood processor, Waipapa Pine, and its associated company Renewable Wood Fuels for about $97m.

Waipapa produces a range of sawn timber products, including industrial and structural grades, and includes a renewable fuels business, with customers through the top of the North Island.

It operates a sawmill in Kerikeri and timber treatment plant at Whangārei.

"Together, these investments represent our first major expansion steps in the wood products sector and nicely complement our already strong positions in Steel and Concrete," Taylor said.

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