By Gareth Vaughan
The actual physical rebuild of Christchurch won't be complex but will remain frustratingly on hold until the aftershocks tormenting the city come to an end, says Fletcher Building CEO Jonathan Ling. He also says the strong rise in Fletcher's June 2012 year earnings currently forecast by analysts is "very dependent" on work getting underway in the Garden City.
In a Double Shot interview with interest.co.nz Ling said Fletcher wanted to fix things once and do it properly but the earthquakes, a magnitude 7.1 earthquake last September 4, a devastating magnitude 6.3 quake on February 22 that killed more than 180 people, and continuing aftershocks including a 6.4 quake on June 13, are piling uncertainty onto the timing of a full throttle rebuilding programme.
Fletcher Construction was named by the Earthquake Commission (EQC) to run EQC's Canterbury earthquake project management office after the September earthquake. Fletcher Construction is also one of five companies working with the Christchurch City Council and the NZ Transport Agency on between NZ$2.2 billion and NZ$2.7 billion worth of infrastructure repairs. And the building materials Fletcher makes and distributes such as concrete, steel, aggregates, wallboards, pipes, roof tiles and insulation such as Pink Batts, will be in heavy demand once the Christchurch rebuilding gets seriously going.
Speaking before the Government's announcement yesterday where it offered to buy up to 5,100 houses at 2007 values in some of Christchurch's worst hit suburbs, Ling said since the February earthquake Fletcher's team in Christchurch had spent a lot of time working on emergency repairs.
"I understand now we’ve done something like 13,000 emergency repairs but the real rebuild, the permanent rebuild, is not really underway yet and is probably going to still take some time," Ling said.
'Don't want to rebuild things two, three, four or five times'
This "permanent rebuild" was unlikely to kick off until the aftershocks stop, and no one really knows when that will be.
"We prefer to fix things once and do it properly and be done with it but while the aftershocks continue, and continue to do more damage, it’s very difficult to really get going," said Ling.
"Every time you start to rebuild something and we have an aftershock, it has got to be inspected again and evaluated to see if there are cracks in foundations and all those sorts of things. The last thing anyone wants to do is rebuild twice or three, or four or five times."
"I think the reality is that the rebuild in proper won’t really start until the aftershocks really cease," Ling added.
Meanwhile, in the Christchurch central business district (CBD) there are some 900 buildings that need to be demolished before rebuilding there starts.
"The aftershocks are not really hampering the demolition too much but there’s an awful lot of demolition to go on before the (CBD) rebuild will really start and I think that will take 9-12 months."
Once the aftershocks ease off, Fletcher and others were ready to go. Ling said all the infrastructure and planning mechanisms were in place, and the rebuild will be "smooth" once it's able to really get going.
"The actual physical rebuild, once we get going, is not a complex job," said Ling. "From a construction point of view it’s technically not difficult, there is a large volume of work, we’ve got the workforce all geared up ready to go, we’ve got the contractors all ready to go, the materials are all ready to go. It’s really just getting a stable platform without the aftershocks to really get the momentum going. And when that does happen, I think you’ll start to see it build very, very quickly."
Complicated insurance issues
Meanwhile, Ling said the situation around insurance was far from straight forward.
"It’s obviously a very, very complex situation particularly with insurance, the involvement of government, the role that reinsurers play, and there’ll be a lot of issues to sort out," said Ling.
"Every claim is an individual negotiation between private insurers, EQC, and as I understand it now quite a lot of issues are being sorted out between the reinsures, insurers and the government, some of it in the courts some of it behind closed doors. There are a number of issues that need to be sorted out."
What all this means for Fletcher's bottom line over the long-term is unclear. For the year to June 30, 2011 Fletcher has steered expectations on its net earnings after tax to between NZ$330 million and NZ$340 million. Asked if he remained comfortable with this Ling said: "Obviously we’re at a very sensitive time but if we weren’t within that range we’d be obliged to inform the (share)market."
The company is due to report its annual results on August 17.
2012 Fletcher earnings surge reliant on Christchurch rebuild
Analysts' currently expect a big jump in Fletcher's earnings for the June 2012 year, with the median of analysts' expectations just under NZ$592 million.
Ling said such a jump, year-on-year, was "very dependent" on work getting going in Christchurch.
"The markets have been pretty tough in both New Zealand and Australia and Christchurch is a key part of what our demand will be for next year," said Ling. "So yes, we are very dependent on it."
"It’s an incredibly difficult time to forecast what’s going on and I think probably over the last four or six weeks, where the analysts don’t keep up, but we’ve probably had some pretty disappointing housing construction data from both Australia and New Zealand," Ling added.
Things were looking "pretty tough" at the moment and it would be interesting to see how 2012 panned out, he said. Following this year's NZ$1.2 billion acquisition of Australia's Crane Group, Fletcher now makes 45% of its revenue in Australia, 42% in New Zealand and the rest elsewhere. See Fletcher's latest investor presentation here.
Ling said there were mixed signals on what to expect in terms of demand in both Australia and New Zealand over the next year. Although some economists were predicting a fairly buoyant year in both countries, the demand Fletcher had today made things "pretty tough."
"And then we look at programmes like the leaky buildings, and it is taking a while for the legislation to come through and what that programme is actually going to be and the details around it, Christchurch is taking a little longer than we’d like to think in terms of getting the rebuild going, so there are a lot of uncertainties at the moment."
This article was first published in our email for paid subscribers this morning. See here for more details and to subscribe.