Fletcher cuts full-year earnings guidance 15%

Fletcher Building chief executive Mark Adamson

Fletcher Building has sliced about 15 percent from its annual earnings guidance after the prognosis for two major construction projects deteriorated, prompting an overhaul of the firm's bidding processes.

The Auckland-based company expects operating earnings before interest, tax, and significant items to be between $610-650 million in the year ending June 30, down from a previous estimate of $720-760 million.

The downgrade comes less than a month after the country's biggest building firm affirmed guidance at its first-half result, which showed the firm's construction division struggled due to problems at a major project that ran into the tens of millions of dollars.

Fletcher Building has completed a "thorough review" of its construction division which started in late 2016 and found the major contract was likely to face bigger losses, which represents about half of the downgrade, while another major project has attracted provisions for losses due to significantly higher costs needed to complete it, and a number of smaller jobs also faced lower earnings.

"It is very disappointing that the review of the B+I (buildings and interiors) business unit has found weaker performance than we had previously understood," chief executive Mark Adamson said in a statement. The B+I unit accounts for about $1.5 billion of Fletcher's $2.7 billion construction book.

Trading in Fletcher's shares was halted on Friday pending the review and has now been lifted. The stock last traded at $9.22 and has dropped 9.7 percent since reporting its first-half result on February 22.

The company refused to name the projects, citing client confidentiality, and said one of them is expected to be completed within the next few months and the other has a target date for the 2019 financial year.

Fletcher said the main problems were in the complexity of design, subcontractor management and building programme delivery, which delayed the projects and led to higher costs.

As a result, Fletcher has appointed a chief operating officer and a new head of risk and governance for the construction division, while a new general manager of the B+I unit will start soon.

"We have new finance leadership and processes along with the recent implementation of a new financial management reporting system," the company said. "The criteria for bidding major construction projects have been made more stringent, and internal review processes for proposed and existing projects have been strengthened."

(BusinessDesk)


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With all the Auckland building requirements, earthquake repairs and other jobs around the place, Fletchers has got to be the most underperforming and incompetent government department going. Second only to the NZX.

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Govt department?

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Might as well be a Government department
Relies on sweetheart Government contracts like the Christchurch rebuild and motorway and highway contracts
And is as incompetent as one

How much is the Government overpaying Fletchers on the profitable jobs?

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yes many incompetently run businesses on the NZX

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So hard to predict give the massive fail on concrete quality
No one will want to drive in the overbridge outside lanes
Must feel a bit awkward as one of the customers..........
This is the guy who criticized previous CEO & Chairman
Surely CEO or his mate the CFO to go for this

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Given asset base & their monopolies they should have made over $1b in current market
A mistake of this size surely the buck stops at the top - suspect however only a few little people will be token road kill followed by lots of chest beating

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Well I wonder if Fletcher shares will drop after this little announcement. I'll bet they will. I also wonder if there will be any big buy-ups from any of the executive team after they drop?

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If Fletcher is losing money, who is making the money? Or is it the sign that the building sector is now saturated and going downhill now?

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