Norris hints at board refresh after Fletcher posts 23% drop in earnings

Key points

• Operating earnings down 23% to$525 million
• Impairments and other one-time charges of $252 million
• Net profit down 80% to $94 million
• Revenue of $9.4 billion, up 4%
• Final dividend 19c a share, total dividend 39c (unchanged)
• Fletcher’s B+I unit reported a $292 million loss
• Impairment charge of $222 million for Tradlink and Iplex Australia business

Fletcher Building chairman Ralph Norris says the board will be refreshed as part of the normal rotation of directors and appointees will be sought with construction experience.

But he stopped short of accepting responsibility for losses in construction projects and said chief executive Mark Adamson was dumped after an abusive email to staff.

Norris fronted a conference call with interim CEO Francisco Irazusta and chief financial officer Bevan McKenzie. He said a recent internal survey had shown that Adamson was rated "very highly" by his immediate reports and had actually done "a very good job improving the culture of the organisation".

"The issue with Mark - in frustration he wrote an email that was not appropriate and that caused some concern in B + I. Mark and I had a discussion and we came to the view this was inappropriate," Norris said. Adamson had been considering his future anyway, with his term coming up. "Mark will tell you he's 100 percent accountable for the result - the good and the bad." B + I is the building and interiors unit of its construction division that is incurring losses on major projects.

Adamson was dumped last month when the company slashed its forecast for full-year operating earnings to $525 million from the $682 million it reported in 2016. It confirmed the figures today. 

Impairments and other one-time charges amounted to $252 million, including $69 million against its building products division and $153 million against distribution. Group sales rose 4 percent to $9.4 billion.

Norris was pressed about the board's performance and said the directors had taken "an exhaustive approach" and that he personally felt more like an executive than a director, given "the amount of time I have spent in this business this year." He didn't have concern about having a CEO on the board, adding that some conversations would exclude the top executive.

"We acknowledge the tough year we had - it's not the result we wanted," he said. "We absolutely take responsibility for where we are today."

The directors wouldn't get an increase in their fees this year, he said. New managers had been put in place across the construction business, he said.

The company didn't give a forecast for 2018 but said operating cash flows would improve and there would be a rebound in earnings from B + I. 

Construction reported a loss on an earnings before interest and tax basis of $204 million, mainly reflecting a B + I operating loss of $292 million, while revenue climbed 36 percent to $2.2 billion.

The backlog of work for construction was about $2.5 billion as at June 30, of which about $1.3 billion was in the B + I unit. Of that, 68 percent was concentrated in the five largest B + I projects.

Building products ebit fell 3 percent to $267 million as revenue slid 7 percent to $2.3 billion, while its international division lifted ebit by 27 percent to $169 million on a 5 percent drop in sales to $2 billion.

Distribution, which includes its PlaceMakers, Mico and Tradelink stores, recorded a 10 percent gain in ebit to $193 million as sales rose 3 percent to $3.3 billion. Residential and land development ebit jumped 55 percent to $130 million on a 22 percent gain in revenue to $420 million.

Fletcher's group operating margin fell to 5.6 percent from 7.6 percent in 2016 while cash flows from operations tumbled 63 percent to $243 million.

Still, overall costs may rise.  "Following a year where corporate costs were reduced significantly by the reduction of incentives paid to some staff, FY18 will likely see a return of corporate costs closer to normalised levels," it said, adding that it also expects a temporary increase in net debt.

It will pay a fully imputed final dividend of 19 cents a share, taking the total for the year to 39 cents, in line with its 2016 payout. It expects to fully impute its 2018 payments.

Taking together the dividend payments and the drop in Fletcher shares, shareholders got a nil return from 2017.

The shares rose 1.2 percent to $8.30 today.

EARLIER: Fletcher Building reported a 23% drop in full-year operating earnings, in line with its profit warning last month when the building products and construction company fired its chief executive, and said operating cash flows will improve in 2018 as will returns from construction.

Operating earnings before one-time items were $525 million in the 12 months ended June 30, from $682 million a year earlier, the Auckland-based company said in a statement. Impairments and other one-time charges amounted to $252 million, including $69 million against its building products division and $153 million against distribution. Group sales rose 4% to $9.4 billion.

Fletcher dumped CEO Mark Adamson amid cost blowouts at two major construction projects – the Auckland convention centre and the Justice Precinct in Christchurch – and the company also disclosed a $220 million impairment against its Iplex Australia and Tradelink business units. Today the company said it expects "a significantly improved performance" at its construction business because of a turnaround at its buildings + interiors unit, which had negative cash flow in the 2016 year.

Still, overall costs may rise.  "Following a year where corporate costs were reduced significantly by the reduction of incentives paid to some staff, the 2018  financial year will likely see a return of corporate costs closer to normalised levels," it said, adding that it also expects a temporary increase in net debt.

It will pay a final dividend of 19c a share, down from 20c in the previous year.

“This is not the result we wanted," chairman Ralph Norris told a press conference this morning.

“We are committed to earning back the trust of our shareholders.”

Interim chief executive Francisco Irazusta said the result was disappointing for shareholders and company staff.

"I want to be clear, this is not good enough."

(BusinessDesk)