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Strongbuild falls as Frasers Property pulls the pin on a major deal

Adam Strong
Adam Strong

Thursday 16 November, 2.30 pm; UPDATED 6:15 pm : Prefabrication and lightweight timber builder Strongbuild was placed into voluntary administration at 9 am on Thursday morning, after Frasers Australia pulled out of a contract just two weeks from commencement leaving a massive $6 million gap in expected earnings.

Strongbuild managing director Adam Strong told The Fifth Estate that a lending facility that had been arranged as working capital was abruptly cancelled.

According to Mr Strong, Frasers gave no reason for reneging on the arrangement, other to cite matters of  “convenience”, which triggered the appointment of voluntary administrators Brian Silvia and Andrew Cummins of BRI Ferriers.

The contract was for stage two of Edmondson Park, for 104 townhouses. Mr Strong said 22 townhouses in stage one had already been successfully delivered by his company.

He said he and his brothers Jamie and Tim who are in the business and longtime family friend (who shares the same surname but is not related) Shane Strong, are all “shattered, particularly under the circumstances, and the continuing big pipeline of work underway – to be tripped up in this way. There was huge momentum in prefab and what we were doing.”

Mr Strong would not comment on whether legal remedy would be sought against Frasers and said that was now in the hands of the administrators.

Frasers Property has been asked for comment, but did not respond.

However, industry sources suggested Frasers may have had a loss of confidence in the financial profile of Stongbuild  – it had a $5.5 million debt for plant and equipment – and made a judgment call to not proceed.

Mr Silvia told The Fifth Estate that he and Cummins were appointed administrators to three Strongbuild companies this morning: a manufacturing business for lightweight timber construction at Bella Vista north west of Sydney, a contract builder working mainly on the NSW South Coast with about 25 houses and townhouses under construction, and a commercial company involved in volume building, which was handling the Frasers work.

The total business is understood to have shown a turnover of $160 million in 2017-18 with $120 million of work in hand. It employed 150 people – around 60 on the South Coast, 60 in the commercial business and 30 in the factory.

It’s understood that already there have been a number of parties showing interest in purchasing the factory, including  “a competitor” and two product manufacturers.

Mr Silvia would not say whether Lendlease, which has a prefab timber facility at Eastern Street, was one of the parties.

It’s understood that the Frasers contract was worth around $45 million, which includes a margin of around $6 million plus significant time and effort already invested.

Asked his view, Mr Silvia said, “a client has pulled a job… on the basis of convenience…and decided they didn’t want to proceed.”

Some of the home owners on the South Coast may be out of pocket: seven townhouses are around 50 per cent complete and look likely to warrant completion but the viability of the remainder is unknown at this stage, Mr Silvia said.

“Strongbuild have a strong relationship with the individual owners and there will be solutions worked out.”

The fate of workers was even less clear. Some of the jobs at the manufacturing facility were likely to be saved if a suitable buyer could be found but this depended on all contracts in place continuing. Jobs related to the commercial operation were most at risk.

Mr Silvia was upbeat on the potential of the prefab industry. Strongbuild had built 101 apartments in three towers in Campbelltown using “just eight guys” and it was clear the industry was fast developing.

He was not alone.

Several sources said the industry was strong and would flourish. It was inevitable with the efficiencies available through prefab and the growing numbers of businesses entering the field.

The industry not without its challenges but the Strongbuild situation should not be seen as the start of more fallout from the sector.

A good reason for the industry to keep growing is the cost of labour as pressure continues to mount, especially in NSW with huge infrastructure projects sending prices for labour through the roof. One source said that while a couple of years ago a carpenter would cost $45 an hour, some employers were now paying $85 to $90 an hour. Concrete in NSW was double the price in Queensland and Victoria, the source said.

Not a profitability issue

Mr Strong told The Fifth Estate that the three companies in the group “remained profitable year in, year out”. It was not a profitability issue.

“Over the past three years we needed to invest a lot of working capital into manufacturing; a lot has been tied up in fixed assets.

“In the last three months we’ve been working on some debt and equity options and there’s been a lot of interest related to investment in our business.

“We had a debt facility approved that would have been more than enough to get through this squeeze last week.

“And what’s happened is Frasers terminated a contract on Friday last week without allowing us to address any of their concerns.”

A facility from a non-bank institution had been put in place and would have made the company “as strong as ever” but because the new contract was starting in two weeks the company was forced to advise the funders of the withdrawl of Frasers, which then triggered the administration proceedings.

Asked a question flagged by several sources: how was Strongbuild financed? Mr Strong said it was self funded, with profits continually reinvested.

“We invested the entire working capital which meant we needed this facility but that doesn’t mean our balance sheet wasn’t strong.”

Mr Strong was keen to assure the industry that his company’s situation was no reflection on other prefab manufacturers and builders.

“This should not be a reflection on manufacturing or prefab in any way. I don’t think anyone needs to be nervous that this is the start of something.

“We needed additional working capital. We had that in place.”

Mr Strong said early details that emerged in The Australian about his company’s administration were incorrect”. The newspaper on Thursday said the company was in debt for $7 million for plant and equipment; the correct figure was $5.5 million, he said.

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Comments

2 Responses to “Strongbuild falls as Frasers Property pulls the pin on a major deal”

  • Tim Keating says:

    There’s a grand assumption being made, generated mostly by the timber industry, that if it’s wood, it’s sustainable. In the US, the promotion of timber frame high-rises, mass timber, etc., has skipped over the reality that demand for wood is driving massive forest destruction globally. This is evident with this article, with “sustainability” being a tag, yet not a single mention of how any of this construction is sustainable, including the wood.
    What’s needed is for the media to dig deeper, do a little more research, and question this new ‘meme’, that wood is inherently sustainable. The reality is that *some* wood is sustainable and *some* wood is part of the most Earth-damaging materials streams on the planet. This is the real story for environmental media to tell, and it should be part of every story on timber construction.

    • Tina Perinotto says:

      Thanks for your piercing comments Tim. We’ve been working on such a story for a long time – been slowly collecting the pieces of reality of what is sustainable and not in timber. But I have to say this is a hugely complex story and needs a lot of deeply buried strings to be unearthed and followed. We need evidence of bad practice and a plan for a sustainable future for timber. Where are the plans for plantations? How can these avoid being monocultures that destroy other forms of life? What of the Vic gov authority found to be looting timber in protected areas? We’ve also heard that old growth timber from Tasmania is being shipped holus bolus to Japan for WOODCHIPPING! But this is unconfirmed. See what we mean by this being a massive story that needs a lot resources? So here’s a call for help from our expert readers and people with the inside knowledge to help!

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