The losses from its troubled B+I division continue for Fletcher Building.
The company has taken a further $NZ125 million ($A113 million) provision against problematic construction contracts, including the Auckland’s international convention centre and the Justice Precinct in Christchurch, and says its B+I unit will report a full-year loss of $NZ160 million.
A trading halt was lifted on Fletcher’s shares following Wednesday’s announcement which follows a review by KPMG and the bad news for shareholders for a second year.
While the company will report a higher net profit in 2017-18 than the $94 million for 2016-17, it will be below potential for a second year running.
Losses on the convention centre and the Justice Precinct accounted for about two-thirds of the $NZ292 million loss recorded for the B&I division in 2016-17.
And excluding the B+I loss, full-year earnings guidance for the rest of the group is $NZ680 million to $NZ720 million, suggesting full-year earnings including B+I could be as low as $NZ520 million. Reuters had previously forecast that Fletcher would post a $NZ448.5 million net profit in the 2017-18 financial year, up from the depressed (by the B+I losses) $NZ94 million in 2016-17.
Fletcher Building shares lost 5.8% in early trading and ended the day down 5.2% at $6.84.
The news of another weak result – and a new CEO – dominated yesterday’s meeting in Auckland at which chair, Sir Ralph Norris apoligised to shareholders for the weak performance and revealed the board would take a 20% pay cut.
Sir Ralph said: "I want to offer my personal apology to our shareholders. Mistakes have been made and responsibility ultimately rests with the Board. As we stated at our full year results briefings, we fully accept this responsibility."
“The Board has resolved to reduce all Directors fees by 20 per cent for the next 12 months, with immediate effect” and directors had resolved to hold on to at least 20,000 of their shares while on the board.
Fletcher also named Ross Taylor as its new chief executive, stepping in from November 22. He was most recently chief executive of Sydney based UGL, an international engineering, services, construction and product manufacturing business and befre that he was managing director and chief executive of Tenix, the privately held Australian engineering and construction services company.
This time a year ago, Taylor’s UGL was in the processes of being stalked and then taken over by CIMIC (the old Leighton Holdings).
Norris said: "Ross has spent an impressive career in the real estate, construction, manufacturing and engineering sectors internationally, with direct experience across much of the sector value chain. He has worked extensively across our core markets of New Zealand and Australia, as well as Europe, Asia and the USA.
"He has proven experience leading business turnarounds and improving performance and shareholder returns, and has direct experience across a range of Fletcher Building’s core sectors – including housing, manufacturing and construction.
"During his time as CEO and managing director of both UGL and Tenix he returned loss-making businesses to profitability, doubling the UGL share price in two years.
Norris said Taylor would lead the development of a new strategy for Fletcher Building, to deliver increased focus and ensure capital allocation that delivers the most value to shareholders (that’s a no brainer!)
Looking at the company’s sudden slide, Sir Ralph put it down to a too rapid expansion. He said that as its “project pipeline” grew in a short space of time, mistakes were made, management wasn’t up to the task and the company became over-stretched.
"As the pipeline grew there were a number of failings within the core capabilities of the Building and Interiors business, across a range of projects. This included bid strategy, project planning and resourcing, commercial judgment around the pricing of risk, and the management of consultants.”
“Our project management resources became stretched, impacted by the labour scarcity of the broader sector and our own rapid growth."
The projects were also complex, he said, but admitted they were “not managed or priced effectively by stretched teams."
“Our key learning from this is that in addition to having high-quality bid and project teams we must ensure we have more robust systems and processes which ensure an appropriate level of testing and challenge on major projects at key intervals."
"There is no silver bullet. Instead we have systematically reviewed the total performance of the business and strengthened our governance, processes, systems and talent across the board,” he said.
