NZX investigates Fletcher Building's latest profit downgrade as the construction and building products company's chief executive Mark Adamson has been forced to resign. UPDATE: Shares fall sharply.
UPDATE July 21: Where Fletcher's 'blamestorming' boss went wrong
UPDATE 12.30pm: EXCLUSIVE: Ex-Fletcher boss' abusive internal email
UPDATE 12pm: Exit costs millions for Fletcher boss
UPDATE 10.30am: Fletcher Building shares [NZX:FBU] were down 8.41% to $7.41, a 16-month low.
9am: Fletcher Building chief executive Mark Adamson has been forced to resign after the company discovered more losses on major construction projects.
After a $110 million downgrade announced in March, the company has now downgraded its operating earnings forecast to $525 million for the year ended June, down from its previous $610 million to $650 million guidance.
It says it will also write down the value of its Iplex Australia and Tradelink business units by $220 million.
Chairman Sir Ralph Norris says that “the board believes it is the right time for Mark to leave the company to allow a new chief executive to lead Fletcher Building through this period and into the next phase its strategy.”
Market regulator the NZX says it will be making enquiries into today's downgrade, given Fletcher's continuous disclosure obligations under the listing rules. This is in addition to the on-going investigation into the previous March downgrade. Separately, the NZX says it will be assessing in detail any trading ahead of today's announcement in accordance with its routine surveillance processes.
James Smalley, director at brokerage Hamilton Hindin Greene, said he hadn't noticed any unusual trading that would trigger concern. "We haven't seen anything untoward," he said, adding that the market was already "tentative" on the stock given the company's initial downgrade.
Francisco Irazusta, head of Fletcher's international division, has been appointed interim chief executive effective from next Monday.
The company says trading in its building products, international, distribution and residential and land development divisions and three of the four business units within its construction division – the infrastructure, Higgins and South Pacific units – is in line with expectations and guidance given with the first-half results in February.
But it has become apparent that losses in the building and interiors (B&I) unit of the construction division will exceed previous estimates, partly due to a major project subject to previous writedowns requiring additional resources.
NBR understands this is the Justice Precinct in Christchurch, which was supposed to have been completed in June but now probably won’t be completed before late August.
Fletcher says a second major project’s construction timelines and likely completion date have been extended and that it expects reduced profits on a number of smaller projects.
The company says it has reviewed the carrying values of its assets and decided the Iplex and Tradelink businesses’ values have been impaired. That represents about 3% of the company’s total group assets at June 30.
"While we do see progress in these business units, the board felt it was prudent to recognise that the near to medium term estimates of profitability in each business are not aligned with current carrying values,” Sir Ralph says.
In a statement, Mr Adamson says, "I am disappointed to finish my tenure on the back of a challenging result in the construction division. However, I am proud of what has been achieved over the past five years – most notably the turnaround of Formica, double-digit earnings growth in distribution, our acquisition of Higgins and the significant progress in our residential development division.”
Fletcher shares last traded at $8.09 and have declined 12% in the past 12 months while the NZX 50 Index gained 8.1%.
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(Additional reporting by BusinessDesk)
