16 Aug 2017

NZ's biggest builder hurt by big project losses

12:24 pm on 16 August 2017

Major project losses, delays and asset writedowns have savaged the profit of the country's biggest construction company, Fletcher Building.

The construction industry has boosted the economy and employment rates

A poor performance by its building and interiors division has hurt the company's earnings (file photo). Photo: RNZ / Alexander Robertson

Net profit dropped 80 percent to $94 million in the year to June, from $462m the year before.

The slump in profit had been well signalled by the company last month, when it disclosed it would book hefty losses on two major projects, believed to be the Christchurch justice precinct and Auckland's international convention centre, as well as large writedowns in the value of some of its Australian businesses.

The company's operating earnings - which give a better view of its performance and underlying profit - dropped 23 percent to $525m, in line with the company's forecast last month.

The blowout in the company's earnings cost former chief executive Mark Adamson his job.

Acting chief executive Francisco Irazusta called the result "disappointing", but said they have taken steps to turn around the building and interiors (B+I) business.

"Following a complete review of the B+I portfolio, a significant amount of change has already been implemented - including improved project governance and processes for current and future projects and enhanced bidding rigour."

The building and interiors division lost $292m, while all other parts of the company were in the black. Some areas of the business - such as the home building and land development division - posted healthy profit increases.

Group revenue was slightly higher at $9.4 billion, and its overseas operations were mixed with a softer return in Australia, where housing demand has weakened, while the United States was flat, although Europe and Asia were stronger.

Too much work

Mark Adamson

Mark Adamson was responsible for "the good and the bad" in the company's performance, its chairman said. Photo: Fletcher Building

Fletcher Building was largely undone by chasing too much work, especially big projects for the rebuilding of post-earthquake Christchurch and infrastructure upgrades in Auckland.

It built up a pipeline of work worth more than $3bn, but it was bidding aggressively to get contracts years ahead of some projects' starts.

That left it vulnerable to shortages of materials, equipment and labour on some jobs, and with fixed cost contracts and penalties for delays, it lost millions.

Chief financial officer Bevan McKenzie said the company was being more careful about what it bid for and had passed up the chance to chase more work.

Fletcher Building's share price, which at the start of the year hit $10.70 a share, today settled one cent higher at $8.21, after initially rising 11 cents.

Analysts previously blamed the company's directors for not having control over Mr Adamson and other senior executives.

Chairman Ralph Norris said Mr Adamson had been frustrated in the way parts of the company were operating.

"He [Adamson] was responsible for the good and the bad," Sir Ralph told a news conference.

"The past is the past."