Fletcher Building shares tumble 13 percent after chairman steps down

Fletcher Building shares have tumbled 13 percent after the company said Sir Ralph Norris will step down as chairman in the face of a further $486 million provision for project losses at its Building + Interiors unit.

Fourteen of the unit's 73 projects, worth $2.3 billion, are loss-making or 'on watch', the country's largest building firm said on Wednesday.

Fletcher shares dropped $1.03 to $6.74 when they resumed trading in the morning. They have tumbled 23 percent in the past 12 months.

The projected 2018 loss for B+I has been widened to $660m on an earnings before interest and tax basis from a previous estimate of $160m.

Sir Ralph is to step down at the 2018 annual meeting toward the end of the year, having presided over a board that dumped former chief executive Mark Adamson after profit warnings that were driven by problems at B+I.

New chief executive Ross Taylor says the new provisions were informed by a review of 16 B+I projects, accounting for about 90 percent of the construction backlog.

Investors say the question now is whether Fletcher has quantified the extent of losses related to B+I with the latest provisions.

"We would think that the size of it might lead to more confidence they're putting a final cap on losses from that division," said Nick Dravitzki, an equity analyst at Devon Funds Management.

"It's sensible for this new CEO to be looking to put this to bed as soon as they can."

Still, with the single biggest loss coming from the Convention Centre contract at $410m, which is only 22 percent complete as a percentage of the estimated $400m to $500m contract value, "you would be a brave individual to say there's not a chance for further downside".

B+I was now focused "on project delivery only" and was ceasing all bidding on vertical construction projects in New Zealand, Mr Taylor said.

"The B+I sector remains characterised by high contract risk and low margins. Unless these dynamics change we will no longer work in this sector."

B+I had a contract backlog of $926m, the biggest for any unit in Fletcher Construction, and the contracts are predominantly fixed-price or guaranteed maximum price

Fletcher said it has obtained a waiver from its commercial banking syndicate after breaches the terms of its loans. Mr Taylor said the strength of Fletcher's remaining business and the phasing of the cash impact of the B+I provisions meant the company remained well capitalised and solvent.

NZN