Photo: supplied
- Fletcher Building sets aside NZ$168m to repair leaky pipes
- Covers only builders signing up to state backed settlement
- Major complainant Perth building firm BGC not part of deal
- Fletcher does not admit liability, to defend BGC legal action
- Fletcher concedes successful legal action may have "material adverse impact" on group
- Investment analyst asks why Fletcher Building shareholders paying the cost if company denies fault
Fletcher Building has reached a multi-million dollar settlement over the issue of leaky pipes in Western Australian homes which has dogged the company.
Fletcher Building said in a statement to the NZ stock exchange that it will set aside $A155 million ($168m) in its next financial statement to cover the settlement. The West Australian government will pay up to $A30m ($32.5m).
At issue has been who is responsible for leaky pipes in Western Australian homes. The pipes are manufactured by Fletcher's Iplex subsidiary, which Perth-based building firm BGC has blamed for the bursting and leaking pipes, but Fletcher has blamed on poor installation.
The proposed settlement requires builders to sign up and do necessary repair work, on condition they are not involved in legal action. Iplex will also supply leak detection monitors to houses.
Fletcher Building acting chief executive Nick Traber said the industry approach with state government backing was the best solution.
"As we have said for some time, it is in all parties' interests, as a first priority, to stand up a comprehensive response which remediates the plumbing issues in a timely and pragmatic way."
A product recall was not the best response to the failures.
Future risk
BGC, which built between 50 and 60 percent of the affected houses, was not eligible to join the industry scheme while it was taking legal action, but the two parties were talking about BGC possibly joining.
There was no immediate reaction from BGC to the proposed industry plan.
Fletcher Building, however, acknowledged the proposed settlement would not necessarily be the end of the issue.
"Legal and financial risks remain for Iplex AU and Fletcher Building. If a current or future matter was successfully brought against Iplex AU, it may have a material adverse impact to the Group."
Fletchers said it expected the first year of the settlement would cost $A40m ($43m) to $A50m ($55m), and in subsequent years in the order of A$15m ($16m) to A$35m ($38m), and were likely to be payable over five years, and if BGC did not participate then the spend would be lower.
The costs were at the top end of investment analysts' estimates.
Fletcher Building shares closed up 8 percent after being on a short trading halt ahead of the announcement.
Meanwhile, an investment analyst said the proposal offered some certainty about the financial impact and removed the risk of a product recall, but also raised questions.
Forsyth Barr analyst Rohan Koreman-Smit queried why BCG, the company which raised the pipes issue, was not part of the settlement, and why Fletcher Building was paying the bulk of the costs.
"Why do FBU shareholders have to pay the majority of the cost if the company maintains that this is an installation issue ? Particularly in light of the fact that if it is proven through legal proceedings that FBU is not at fault, they would have no recourse against any funds spent on the JIR (Joint Industry Response) to that date."