Bad news from Fletcher Building (FBU), Australasia’s biggest building and construction company, with a profit write down and loss from a key business due to be revealed this morning before trading starts on the ASX and NZX.
Fletcher put its shares into a trading halt on Friday morning, revealing that it was reviewing the financial performance of its construction division.
It said the halt would be in place until a review of the financial performance of its construction division was completed.
The trading halt came after the NZX opened on Friday and the company’s shares rose 1% to $NZ9.22 before the halt was put in place. The shares ended at $8.34 on Thursday afternoon on the ASX. The halt started in Australia before trading started.
But they are down 14% so far this year and look like taking another hammering today.
And Fletcher will provide a statement detailing the impact on earnings guidance. No other details were revealed and reports over the weekend suggest that the company has discovered losses on a major construction contract.
Last month, Fletcher Building said its after-tax profit for the six months to December 31 was $NZ176 million, up a disappointing (from the market’s point of view) 2% on the first half of 2015-16.
"An announcement regarding earnings guidance for the 2017 financial year is expected to be made prior to the NZX and ASX exchanges opening on Monday, March 20. Until then the trading halt will remain in place,” Fletcher Building said on Friday.
At the time, it said it expects full-year operating earnings before interest, tax and significant items to be in the range of $NZ720 million to $NZ760 million.
The company expected the strong economic conditions to continue throughout the year, particularly as there was strong demand for new housing in Auckland and the surrounding regions, as well as national infrastructure and commercial projects.
Operating earnings (earnings before interest and tax and significant items) were $NZ310 million, up 12% on the $NZ278 million reported in the the first half of 215-16.
An interim dividend of 20.0 cents share will be paid on 12 April 2017. That’s up 5% on a year ago. The impact of the loss and earnings write down on the dividend will e closely watched by investors.
CEO Mark Adamson said at the time of the interim result announcement in late February that the company had losses in the order of tens of millions of dollars on a big project.
But other than to say it was a current job, he declined to give further detail. Now, obviously the proverbial has hit the fan and these losses have crystalised and an earnings downgrade is imminent.
It’s clear from the company’s interim report that there were problems in the construction division. The commentary revealed that despite a boost in revenue from the Higgins purchase the profit line in the construction dividend was crunched. And the fall would have been worse but for the contribution from Higgins.
"The Construction division reported operating earnings of $24 million compared with $36 million in the prior corresponding period. Earnings include a contribution of $19 million from the Higgins contracting business acquired in July 2016.’
That means earnings would have been just $NZ5 million compared with $36 million and the company as a whole would have seen a slide in group profits.
"The reduction in operating earnings is due to a range of factors, notably: timing of earnings recognition for major projects; bid costs incurred in the period; reduced contribution from Fletcher EQR as the Canterbury earthquake home repair programme nears completion; and losses incurred on a major construction project,” Fletcher said.
"The division achieved strong revenue growth, with gross revenue increasing by 54% to $1,150 million. Included in the result was revenue from the Higgins business of $188 million; revenue growth excluding Higgins was 29%.
"At 31 December 2016, the backlog of work for the division, being the value of contracted work awarded but not completed, was $2.7 billion, compared with $3.3 billion as at 31 December 2015.”
