Iplex Pipelines Australia, a subsidiary of NZX and ASX-listed Fletcher Building, will provide A$155m ($168m) to pay for the Perth leaky pipes debacle after it struck a deal with the Western Australian Government to help homeowner victims.
Fletcher first estimated the issue would cost A$2m ($2.17m) but it has proved far more expensive, the $168m to be spent over a five-year period.
Fletcher, which went into a trading halt this morning, has just issued a statement which tells how it will pay dearly for the disaster which ex-Fletcher CEO Ross Taylor called sensationalist and blamed on builders for poor installation.
“Fletcher Building today announced that its subsidiary Iplex Pipelines Australia, together with the Western Australian Government and key industry stakeholders, have reached an in-principle agreement to address plumbing failures occurring in some West Australia homes constructed with Typlex Pro-Fit pipe.
“On the assumption that the joint industry response is finalised, the company expects to record a pre-tax provision of A$155m ($168m) in its FY25 financial statements,” that said.
Once agreed, the builders of those homes will be the point of contact for homeowners and have agreed to attend and fix every plumbing failure and repair any damage to that home resulting from it, Fletcher said.
Iplex pipes taken out of a Perth home after leaks.
“They have also agreed to undertake an additional programme of work, including replacing ceiling pipes, in those homes that experience a plumbing failure and – for homes with extensive failures – either a zone or a full home re-pipe. Temporary accommodation will be provided for homeowners for whom a full home re-pipe is carried out,” the statement said.
“This work programme has been designed by the industry and the WA Government to provide the most pragmatic solution for affected homeowners, providing priority to the homes most affected while recognising the capacity constraints on the industry,” it said.
Iplex and the government had committed to cover the direct costs of participating builders for the work programme: 80% by Iplex and 20% by the government.
Builders will pay their own administrative costs.
A burst Iplex pipe in a Perth home. The homeowner said pipes had failed in a bedroom and a bathroom.
The response recognises that a product recall is not an appropriate response to the plumbing failures.
The response has no time limit and homeowners will be entitled to access its benefits through their participating builder if and as needed.
Homeowners and their insurers will have no need to go elsewhere nor be required to fund their own repairs. The builders who built almost all of the affected homes participated in the mediated discussions for the response, Fletcher said.
All of those builders, other than BGC which built about 50%-60% of the affected homes, have agreed to join the response.
Sue Ellery, West Australia Minister for Finance and Commerce, said the Cook government would provide A$30m. Legislation would soon be introduced to extend complaints to the Building Commissioner over the leaky Typlex 1050 pipes from the current shorter period to 15 years.
Today’s $168m estimate is a dramatic shift from Fletcher’s original stance where it made A$15m ($16.26m) available to assist people.
Grant Swanepoel, Jarden’s equity research director, previously noted water pipes in Perth homes were installed in ceilings, unlike here where they are in floors, so had the potential to cause far more damage to homes there than here.
The physical and therefore financial cost could be much greater, he said last April when he noted the previous A$2m provision and said because that was so low, “we didn’t expect this to be a blowout” but now Fletcher has increased the total provision to A$15m.
Fletcher acting CEO Nick Traber addressed analysts on the agreement today.
On an investor conference call today, acting Fletcher CEO Nick Traber warned class action litigation against Iplex over the pipes “may have a material adverse impact on the group”.
Iplex faces the class action on behalf of all homeowners, Australia-wide, alleging that the Pro-Fit product was not of acceptable quality at the time of supply and seeking a wide range of damages, Fletcher’s presentation on the problem said.
The A$155m Fletcher expects to pay in FY25 comprises:
A$120m for Iplex’s share of estimated industry repair costs;
A$20m for leak detectors;
A$15m for overhead costs during five years.
Rohan Koreman-Smit, a Forsyth Barr analyst, congratulated the company for reaching “some form of resolution.”
He asked for assurances about work on Perth homes “given you’re paying quite a bit per home”.
Traber said a claims management provider had been appointed to process and oversee the spend so money had been well-spent and independently monitored.
Builder BGC estimated A$80,000 to fix pipes in each house, Koreman-Smit noted but was told Fletcher’s numbers were lower than that.
Grant Swanepoel of Jardens asked about who could access the funds, particularly for owners of homes built by BGC which isn’t part of the response.
Swanepoel also asked why the problem came back to New Zealand but CFO Bevan McKenzie said there was a cross-guarantee between Fletcher Building Australia entities including Iplex Australia as a function of the financial reporting structure in Australia.
Swanepoel also asked if costs to fix double-storey homes were double that to fix single-story but Traber said the response covered all the homes.
Traber said the $168m would be funded from operating cash.
Anne Gibson has been the Herald’s property editor for 24 years, written books and covered property extensively here and overseas.
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