Leaky building claims hit Mainzeal profits

By Coran Lill

Friday 27th August 2004

Mainzeal is stashing away cash to pay for potential leaky building claims, leaving the construction company with an embarrassingly small mid-year profit.

Added to that, bad weather and project delays have left the company looking bereft in what is being dubbed the busiest year for building companies in more than a decade.

On $176 million of revenue in the first six months of this year the business recorded a woeful $890,000 profit from operating activities - grossly out of step with at least one of its closest competitors. The net profit was $1.2 million.

Mainzeal, a division of listed Richina Pacific, said some of the revenue was being put away to deal with identified potential leaky building claims even where claims had not yet been made.

In a media statement the company said "the first half Mainzeal result does not appropriately reflect its performance, due to timing of projects, which should adjust to reflect positively in the anticipated improved second-half result."

When asked to explain what that meant, Richina group financial controller Reegan Pearce told the National Business Review a number of Mainzeal's projects had been delayed because of inclement weather and so had not reached a 25% completion threshold for inclusion in profit calculations.

But Pearce also said funds were being set aside to deal with claims where Mainzeal had determined potential liability.

Pearce would not be drawn on how much money was being flagged and stashed for such claims but said the move was a "contributing factor" in the poor profit result.

When asked what Mainzeal was doing with the funds, which will potentially be out of circulation for 10 years, Pearce said the funds were "sitting in the bank." This is in spite of Richina having $4.4 million less in the bank than this time last year.

Insurance would not cover all costs if such claims were brought, Pearce said.

Under building legislation, most claims - if not lodged within 10 years of construction - cannot be brought.

He said profits had "never been fantastic."

In the first half of last year, Mainzeal made a $4.8 million operating profit on revenue of $99.6 million but that included a $3.2 million gain on the sale of the Mobil-on-the-Park building in Wellington.

Fletcher Construction, a division of Fletcher Building, managed to record a $42 million operating profit (before interest and tax) for the year ended June 2004 on operating revenue of $643 million.

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