Fletcher Building this morning owned up to a massive, 20% to 25% cut in its expected 2016-17 profit.
The company told the exchanges it now sees its earnings up to $NZ150 million less than what it forecast a month ago.
Fletcher says it now expected its earnings before interest, tax and significant items would be between $NZ610 million and $NZ650 million for the year to June 30.
This was down from its previous guidance at February’s half year results release of between $NZ720 million and $NZ760 million for the 2017 year: a cut of up to $NZ150 million at this stage.
The revised guidance figure was because of additional estimated losses and downside risk in the company’s buildings and interiors (B+I) business unit.
Fletcher Building chief executive Mark Adamson said it was “extremely regrettable" the expected profitability had worsened since comments the company had made last month.
“A thorough review of the B+I business and projects began in late calendar year 2016 and led to new management and governance processes,” Mr Adamson told the exchanges..
"A significant loss was recorded for B+I in the half-year results based on the best estimate available at the time. However, management has now identified an increase in the estimated loss on the major construction project which was referenced at the time of the announcement of the H1 17 results, and the identification of downside risk on other B+I projects, with the majority being a provision for expected losses on one other major project.
“It is very disappointing that the review of the B+I business unit has found weaker performance than we had previously understood,” he said.
Last month, Adamson said the company had worn a loss in the order of tens of millions of dollars on a big project, but without giving further details, stressed it was under control.
On Monday, however, the company said there was an increase in the estimated loss on this major construction project.
The other change had been because of the identification of downside risk in other projects, as well the expected losses on one other major project.
It would not name to two projects due to client confidentiality, but one would be completed shortly, and the other in 2019.
"All other business units within the Construction division have continued their strong trading performance. However, taking into account the new estimates of profitability for the commercial construction projects, it is now expected that the Construction division as a whole will report a loss at the EBIT level for FY2017,” he said.
“The major projects involved are large and highly complex,” he added.
