Fletcher Building chief executive Ross Taylor says a report by BGC builders claiming pipes made by its subsidiary Iplex had faults was flawed and its findings unsupported. Photo: RNZ / Dan Cook
Fletcher Building shares are expected to fall when they resume trading on Monday as investors turn wary amid wildly differing estimates of the cost of leaky plumbing pipes in West Australia.
The company has been in a trading halt since Wednesday 11 October after a report emerged from Perth-based house builder BGC that defective pipes made by Fletcher's subsidiary Iplex were responsible for bursting pipes and water damage to new homes across the state.
The report estimated the cost in West Australia was about A$709 million, but said the problem was actually Australia-wide and might cost as much as A$1.8 billion.
However Fletcher Building hit back on Friday, calling the claims about defective product and the cost of the problem unfounded, unsubstantiated, and gravely flawed, and blamed incorrect installation as the prime cause of the leaks.
The company had set aside only A$15m for the cost of the issue.
Investment advisor Jeremy Sullivan of Hamilton Hindin Green said a lengthy legal battle would likely be the result.
"[This will] be costly and provide negative sentiment for the company in the near term.
"Where the true cost of this dispute lies is yet to be seen."
He estimated Fletcher Building shares, which last traded at $4.90, might fall more than 4 percent toward $4.69 when trading resumes.
In a client note before Fletcher Building issued its response Forsyth Barr analyst Rohan Koreman-Smit said the range of outcomes for the company was "wide and highly uncertain".
"Any increased cost will drag on already anaemic cash generation and pressure gearing (debt levels) which is already expected to rise."