Fletcher Building boss says aftershocks delaying a 'not difficult' rebuilding job in Christchurch

Fletcher Building boss says aftershocks delaying a 'not difficult' rebuilding job in Christchurch

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."

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Placemakers....ho hum  -

Makita 2704 table saw, $2200, Mitre-10, $1448.....

makita (green) 185mm buzz saw $181, bunnings $145....

Stainless steel screws, PM's price $45, Bunnings $28....

Bunnings stores busy, Placemakers, almost empty....

Me thinks he has to get real on his pricing......

regards

If doing alot of renos/building - also try ITM.  Wonderful account system and up to a 30% discount off retail.  Definitely cheapest on most everything we buy.

PM also gives a good tradie discount, depends which end of the market they are aiming at. Bunnings = DIY vs PM/ITM = Trade

As someone that has designed and built his own house I have had interesting experiences with the all the above. 

Placemakers were a joke and offered 10% trade discount.

Benchmark building supplies(Bunnings now) set me up with their best discount account, which was essentially cost +5%. Excellent but no good for timber.

In the end most of my money went to an independent timber merchant that was willing to sharpen his pencil. The big boys actually can't compete on price or quality with a good timber merchant. Even Carters!

After two take overs my Benchmark account was downgraded to the point where it was based solely on volume. I don't use Bunning anymore except for the odd thing on special. I was lucky to get several thousand dollars worth of gear through my existing contacts though.

Lucky I had a colleague that had been a sparky previously, he got me 80% off my cable:)

ITM staff also more knowledgable about building.

What I am struggling to understand is the economic view that the rebuild will add to inflation.

 "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"

I thought I understood it - supply and demand fundamentals - but if the materials, workforce and contractors are all in place then why is there an inflation risk?

 

Well see meh it's like this...since the rebuilds will be insurance payout based..if the insurance companies payout!....so every entity involved from the dog up will want a wack of the loot and the game in town will be 'how high can I go'.....you name it and the prices have already started to rise...from engineer fees to architects...A to Z.....every sodding thing will go up....bugger demand meh...it's a 'golden monopoly'......this is where the buyers and users have no alternative....they are stuffed.

Now since the IRD creams off 15% you would be wise not to expect the govt to see any price rises at all. Even the insurance company bosses are thinking..."hmmmm..I don't need to worry because I can hike the premiums...JKs helped me out there by not compensating the uninsured...and it's the re insurers who are forking out...and I stand to get a big fat pay rise and bonus for doing such a great job" 

Actually, you could find that things are a bit more competitive in the current busines environment than you appreciate Wolly, you are obviously an arm chair critic and not in business.  While not yet operating in the Chch  scenario, our (small) business is readily undercutting the big ones and believe you me many people are looking hard for the best value.

I agree that sharply priced businesses will get the majority of work - but every week I get noticication of price rises affecting some element of building.

This did the rounds via email, not sure if it has been discussed on here yet:

http://www.business.govt.nz/companies/app/ui/pages/companies/1104175/shareholdings 

Fletchers biggest shareholding, 44%, is New Zealand Central Securities Depository Ltd which is 100% owned by Reserve Bank of NZ.

Is Fletchers the new Ministry of Works?

Fascinating.

No, great conspiracy theory as it is though.

The NZCSD is a settlement clearing system for shares - one of 2 in NZ, the NZX owns the other one. The RBNZ is considered pretty safe and competent so they were given one to run

NZCSD runs NZClear, to which parties selling/buying shares sign up to.

http://www.rbnz.govt.nz/payment/nzclear/0091771.html

Say share trader A agrees to sell shares to share trader B. They both hold accounts at NZClear, which holds and acts as a custodian for the shares - but the beneficial owner would now be trader B.

If you do a companies office shareholder search and put in New Zealand Central Securities Depository Limited, you'll find it 'owns' quite a few companies - it just holds the shares as a custodian for the beneficial owners.

Cheers

Alex

So when share trade volumes go down - so does the NZClear shareholding?

 

Thanks Alex.  I will pass this back on. 

Thanks Alex.  I will pass this back on. 

I like Ling

"Things were looking "pretty tough" at the moment " 

You hit the nail on the head mate.

Talking to a English civil engineer over beer tonight (mate of my mate), he escaped Uk expecting things to be a lot better here....he thinks things are really tough, in fact not really any better than the UK. I think he is actually feeling ripped off on the back of "lies" about how robust our economy was...he's seriously thinking of heading back, and he knows a few others just like him

Most of the Auckland engineering consultancies are putting a lot of stock in the Chch rebuild, as there is a general consensus that Auckland is "dead"

I say bollocks to the bank spruikers currently talking up the "recovery" 

Ling talks about needing the seismic activity to stop, or at least significantly quieten down

this could be months and months away?

we really won't see much rebuild this year will we?

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.

 

Well Ling that says it all. You are planning to rebuild substandard collapsable trash, and hope there are no earthquakes to catch you out. How about building beyond the code, and giving us all some confidence that rebuilding will not be necessary after the next little tremor. It can be done, and it doesn't have to cost the earth. If you are not going to do the job properly, stand aside and let's find someone who will.

Matt, when the world financial crisis hit, the government fast tracked a lot of proposed infrastructure projects to give our economy an injection. Was great for the engineering profession, especially in growth areas like Auckland. BUT things have changed now due to Chch.  Govt is putting on hold varoius projects in the likes of Auckland because of priorities at Chch

Muzza - exactly. The projects are either coming to a close or they've been put on hold. They kept the engineering companies going over the last 3 years

With infrastructure projects in Auck slowing markedly and the development sector dead for the foreseeable future, I think Auckland is really going to struggle. These sectors, along with immigration, really drove the Auckland economy from 2001 to 2007. As we all know immigration has ground to a halt too....

I think a heck of a lot of Aucklanders and economists are simply in denial about Auckland's economy....   

Out of necessity a lot of Aucklanders are going to have to move to ChCh in the next 1-2 years, for work. Thats why I don't think ChCh will lose too much population

On the back of this economic weakness I see Auckland house prices edging down in the next couple of years

How about Tauranga?

 

Mr Ling and so many others constantly  need reminding of what is an "aftershock" and what is a new earthquake in it's own right. The problem that is blatantly obvious now in CHCH is the large number of faults and fractures that are essentially causing a domino effect in the area. One goes, sets off another and so on and so on. So to make the naive assumption that this will all settle down in a few months/years is rather a bold statement. Geological events don't necessarily fit within a single human lifespan. They can become active for decades, centuries even. 

Justice you are on the money, the reports have been suggesting this since April and the people of Christchurch have started to realise this since the double hit Monday fortnight ago. The mood across the city has changed.

You even have commentators on this forum saying the Christchurch City Council is the main problem and not the actual earth quakes. People being in denial is natural however Chrsitchurch and actually New Zealands economy can not avoid the reality in the end.