Fletcher Building has taken a further $125 million provision against problematic construction contracts, including Auckland's international convention centre and the Justice Precinct in Christchurch, and says its B+I unit will report a full-year loss of $160m.
A trading halt was lifted on Fletcher’s shares following Wednesday’s announcement, which follows a review by KPMG.
The shares fell 5.5 per cent to $7.52 when trading opened on disappointment over the latest earnings downgrade. The stock has fallen 25 per cent this year.
Losses on the convention centre and the Justice Precinct accounted for about two-thirds of the $292m loss recorded for B&I in 2017.
Excluding the B+I loss, full-year earnings guidance for the rest of the group is $680m to $720m, suggesting full-year earnings including B+I could be as low as $520m.
“I want to offer my personal apology to our shareholders,” chairman Sir Ralph Norris said. “Mistakes have been made and responsibility ultimately rests with the board… we fully accept this responsibility.”
Auckland-based Fletcher downgraded earnings twice last year as escalating construction costs and a lack of oversight on major building projects saw the B+I unit come under pressure.
KPMG reviewed two B+I projects in Auckland, the Convention Centre and Commercial Bay, and two infrastructure projects, Puhoi to Warkworth and Hamilton City Edge Expressway, Fletcher said.
In three projects KPMG’s forecast outcome was broadly in line with management’s expectations, with final margins expected to be positive.
However, the convention centre would be a major major contributor to the company’s losses in the financial year.
KPMG didn’t include the Justice Precinct in the review because that contract is near completion.
It made the statements ahead of its annual meeting in Auckland this morning. The meeting may see criticism heaped on the board.
Meanwhile, former UGL and Tenix boss Ross Taylor has been named as Fletcher’s new chief executive, starting next month.
At both companies he returned loss-making businesses to profitability, doubling the UGL share price in two years, Sir Ralph said.
Grant Williamson, a director at Hamilton Hindin Greene, says investors are “quietly losing confidence in the company given that they have had a number of write-downs regarding these projects”.
“I think it will take quite a while for confidence to rebuild in the company.”
Australian reaction will be key as they are large holders of the stock, he said.
“If there’s any selling (when Australia opens) it could see further downside.”
Mr Williamson said the appointment of new chief executive was a positive and might be one of the reasons the stock hadn’t fallen further.