Simplicity seeking answers from Fletcher Building over GIB board shortage

A not-for-profit KiwiSaver provider and the Shareholders Association will meet with Fletcher Building's board this week to discuss concerns shortages of GIB plasterboard could hurt investor returns.

The company has a near monopoly of the plasterboard market and the chronic shortages, which have been blamed on unprecedented demand, have been well publicised.

Some in the building sector have warned that the ongoing shortages could result in builders going broke because they could not finish residential projects.

Simplicity, which owns 0.8 percent of the company through its KiwiSaver schemes, said it initiated the meeting because it wanted to have an open and constructive conversation about the supply issues.

"We are going to go and ask our representatives on the board, the directors, how did this come about, what will be done in order to fix it, and what is it about looking after the stakeholders that needs to be improved at the company level," Simplicity chief executive Sam Stubbs told RNZ.

"This is the sort of shareholder activism KiwiSaver funds should be getting involved in," he said.

Simplicity's social housing developer, Simplicity Living, recently fired Fletchers as its supplier due to lengthy products delays and was now resorting to importing a cheaper alternative from Thailand.

Stubbs said Fletcher Building was an important company and its actions affected millions of New Zealanders, either through the supply of its building products for news houses or the performance of its share price.

However, the company had lost sight of servicing its customer, he said.

He would not comment on whether it would try to force a change on the company's board.

"It's too early to judge at this stage, the board of Fletcher Building and the management of Fletcher Building deserve a fair hearing.

"Let's have this discussion, let's find out what's going on and most importantly let's find out what the plan is for the future and how this company will best service stakeholders."

The New Zealand Shareholders Association (NZSA) would also attend the meeting.

"We're concerned about the political and reputational impacts caused by the GIB supply issue on the sustainability of shareholder returns," NZSA chief executive Oliver Mander said.

"Simplicity have uncovered some deep dissatisfaction amongst customers of the Fletcher plasterboard product and, ultimately, for shareholders we're concerned about that."

Fletcher working to alleviate problem - CEO

Simplicity's social housing arm has had 60 construction companies get in touch for advice on how to import plasterboard directly.

Fletcher Building says it will be another year before its new Tauranga factory comes online. It says it is working around the clock producing GIB, but nobody could see the scale of supply problems coming.

Fletcher Building chief executive Ross Taylor had told Checkpoint in 2019 the firm was committed to building the GIB factory at Tauriko in Tauranga.

Ross told Checkpoint this evening his company had no dragged its heels with the project, which he said won't be ready until this time next year. But the firm could not have foreseen problems of supply and demand faced by the industry today, he added, and said it had invested responsibly and reasonably.

"At that stage back in 2019 consensus for about 30,000 houses per annum," he said.

"We had a capacity... to deliver for 50,000 houses. So, we made a decision to invest $400 million in manufacturing in New Zealand quite some time ago."

But Covid-19 and subsequent border closures caused delays of six-to 12-months, Taylor said.

"What then also happened through the Covid-19 period is what no one saw coming... once people couldn't travel they started investing in houses, alterations, additions, new houses, and the consents and demand for housing went from 30,000 to 50,000 quite quickly.

Fletcher was an intrinsic part of the building industry and accepted that onshore manufacturing was critical to levels of resilience when these situations arise, but it was doing everything it could to alleviate the problem, he said.

"We're working our plants 24/7 and we've looked to source product offshore, but there's very limited avenues to do that because offshore markets and capacity are also limited and you can't get much in."

His company was importing alternative products in the same why Simplicity Living had been doing, Taylor said, although the quantity of product was not that significant.

"It's not in very large volumes because those companies offshore are still quite busy and still unable really don't do much to put a very large dent in what's going on here in New Zealand."

Merchants prioritised customers differently, so that the time it took to deliver GIB board to a customer varied, he said.

Merchants bringing in alternative plasterboard products was a direct consequence of not having enough of Fletcher's products to go around, he confirmed.

Taylor said his company's hold on the market of about 94 percent did not affect competition.

"What we did with all our building products is compete against imports generally," he said.

The firm needed scale to compete with those big manufacturers overseas who had a cost advantage, hence the $400 million plant it had planned to operate to be competitive, Taylor said.

"We have to stay on our toes as when manufacturer plasterboard and other products in New Zealand to make sure we stay competitive. There are no tariffs, no barriers to entry to products in New Zealand, which is a healthy thing for the economy and keeping local manufacturers competitive."

There was no bias on the industry towards GIB board, he said.

System 'wrong'

Elephant Plasterboard's managing director Kevin Van Hest told Checkpoint there was something inherently wrong with the system that had helped create Fletcher Building's monopoly on the market with GIB.

One big problem was when the word GIB was written on building plans because people thought it is a generic term, not a brand name, he said.

On top of that council had made it difficult to use any other type of plasterboard. In his experience he had also found a prejudice against a product that had not made in New Zealand, he said.

"We've all put our eggs in one basket... the authorities, council compliance, the building code, they've made it really hard for there to be competition."

MBIE spokesperson John Sneyd told Checkpoint councils are willing to be part of the solution to the plasterboard shortage.

"There's no silver bullet to this but there is stuff that we are doing," he said.

"We know there are credible alternatives out there... That's one of the things we've asked [consenters] - thinking about the products that are available out there that they can use, using generic products where they don't need to have specialist performance, thinking about designing differently for fire protection and bracing."

RNZ