Archive | Gainz

Reserve Bank holds cashrate, warns of Government policy uncertainties

The Reserve Bank left the official cashrate unchanged at 1.75% today. Alongside that certainty, bank governor Grant Spencer said the impact of policies of the new government were uncertain.

Bank governor Grant Spencer said: “Global economic growth continues to improve, although inflation & wage outcomes remain subdued. Commodity prices are relatively stable. Bond yields & credit spreads remain low and equity prices are near record levels. Monetary policy remains easy in the advanced economies but is gradually becoming less stimulatory.

The exchange rate has eased since the August monetary policy statement and, if sustained, will increase tradables inflation and promote more balanced growth.

GDP in the June quarter grew broadly in line with expectations, following relative weakness in the previous 2 quarters. Employment growth has been strong and gdp growth is projected to strengthen, with a weaker outlook for housing & construction offset by accommodative monetary policy, the continued high terms of trade and increased fiscal stimulus.

The bank has incorporated preliminary estimates of the impact of new government policies in 4 areas: new government spending, the KiwiBuild programme, tighter visa requirements and increases in the minimum wage. The impact of these policies remains very uncertain.

House price inflation has moderated due to loan:value ratio restrictions, affordability constraints, reduced foreign demand and a tightening in credit conditions. Low house price inflation is expected to continue, reinforced by new government policies on housing.

Annual CPI inflation was 1.9% in September, although underlying inflation remains subdued. Non-tradables inflation is moderate but expected to increase gradually as capacity pressures increase. Tradables inflation has increased due to the lower $NZ & higher oil prices, but is expected to soften in line with projected low global inflation. Overall, CPI inflation is projected to remain near the midpoint of the target range and longer-term inflation expectations are well anchored at 2%.

Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.

Link: Monetary policy statement

Attribution: Bank release.

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Tripartite economic summit opens in Guangzhou

Auckland mayor Phil Goff leads a group of 97 delegates representing 70 Auckland businesses taking part in the third Tripartite Economic Alliance summit which opens today in Guangzhou, China.

2 councillors, finance & performance committee chair Ross Clow and planning committee chair Chris Darby, are also in the delegation.

Mr Goff said before leaving for China: “This will be Auckland’s largest ever trade delegation. Businesses clearly see the advantage of interacting with our 2 sister cities at the summit. Each are gateway cities to 2 of the most important & powerful economies in the world.”

The Guangzhou summit is the last of 3, which started in Los Angeles in 2015 and continued in Auckland last year. However, the 3 city councils have agreed to extend the special relationship for another 3 years with opportunities for interaction between them outside the formal summit process.

The Guangzhou summit runs for 3 days, allowing Auckland businesses to generate partnership & investment opportunities with counterparts from Los Angeles & Guangzhou, and for Auckland to showcase the city as a destination for investment & tourism.

Mr Goff said: “Auckland is New Zealand’s international city and represents 38% of the country’s gdp. As our city grows, investment & business partnerships become increasingly important to it & New Zealand’s future.

“Guangzhou & Los Angeles are global economic powerhouses, as well as a major source of migrants, students & tourists. The formal partnership between our cities creates opportunities for us to facilitate the continued growth of local businesses & our economy.

“The summits provide real economic value & jobs to Auckland, with deals ranging from hundreds of thousands to millions of dollars sealed as a result of the past 2 events.

“For Auckland, those agreements mean more jobs, business expansion, talent coming to our city, and New Zealand innovation & expertise finding new opportunities offshore.”

Mr Goff said the Bank of NZ, Huawei Technologies Co Ltd and NZ Trade & Enterprise were supporting Auckland’s delegation to the summit this year, which had enabled about half the cost of Auckland’s delegation budget to be met by the private sector.

One point of interest for Mr Goff is the Haizhu electric tram: “We are working with government to bring light rail to Auckland as quickly as possible. It’s a good chance to learn from the success of other light rail systems around the world and consider what is the best system for Auckland.”

Link: Summit & tripartite economic alliance

Attribution: Mayoral release.

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SkyCity agrees US placement & later NZ bond issue

SkyCity Entertainment Group Ltd reached agreement yesterday on a new $US150 million issue of US private placement notes.

Investor relations & corporate development manager Ben Kay said the issue represented the penultimate component of SkyCity’s debt funding plan for its capital investment programme in New Zealand & Australia.

The Auckland-based casino & hotel owner said it intended the final component of the programme to be a second New Zealand bond issue, planned for 2018.

The US issue will comprise 2 tranches:

  • a $US100 million tranche maturing in March 2025, and
  • an $A65.4 million (equivalent to $US50 million) tranche maturing in March 2028.

Mr Kay said the $US tranche had been swapped back to New Zealand dollars to remove all currency exposure to the $US.

He said the issue had been priced at attractive margins relative to recent comparable issues and extended SkyCity’s average debt maturity out to 4.6 years.

The transaction remains subject to execution of final documentation. Upon execution, the notes will be issued in March to coincide with the maturity of $US75 million of existing US private placement debt. The balance of the proceeds will initially be used to repay bank debt.

Attribution: Company release.

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Fed holds rate, issues one-liner on its debt mountain

The US Federal Reserve’s open market committee decided overnight to hold its federal funds rate in the range of 1-1.25%.

It issued a one-liner on its debt reduction programme. You can check the background on that at the foot of this article.

The committee’s position, now fairly forlorn as its hope for an inflation rise keeps not happening, but with the jobs picture stronger as the unemployment rate strengthened by 0.2% in September to 4.2%: “The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labour market conditions and a sustained return to 2% inflation.”

Below is the committee’s full statement on the US economy:

“Information received since the committee met in September indicates that the labour market has continued to strengthen and that economic activity has been rising at a solid rate despite hurricane-related disruptions.

“Although the hurricanes caused a drop in payroll employment in September, the unemployment rate declined further. Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters. Gasoline prices rose in the aftermath of the hurricanes, boosting overall inflation in September; however, inflation for items other than food & energy remained soft.

“On a 12-month basis, both inflation measures have declined this year and are running below 2%. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

“Consistent with its statutory mandate, the committee seeks to foster maximum employment & price stability. Hurricane-related disruptions & rebuilding will continue to affect economic activity, employment & inflation in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term.

“Consequently, the committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labour market conditions will strengthen somewhat further. Inflation on a 12-month basis is expected to remain somewhat below 2% in the near term but to stabilise around the committee’s 2% objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the committee is monitoring inflation developments closely.

“In view of realised & expected labour market conditions & inflation, the committee decided to maintain the target range for the federal funds rate at 1-1.25%. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labour market conditions and a sustained return to 2% inflation.

“In determining the timing & size of future adjustments to the target range for the federal funds rate, the committee will assess realised & expected economic conditions relative to its objectives of maximum employment & 2% inflation. This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures & inflation expectations, and readings on financial & international developments.

“The committee will carefully monitor actual & expected inflation developments relative to its symmetric inflation goal. The committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

“The balance sheet normalisation programme initiated in October is proceeding.”

Background to “normalisation”

In its June release, the committee said it was “maintaining its existing policy of reinvesting principal payments from its holdings of agency debt & agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.

“The committee currently expects to begin implementing a balance sheet normalisation programme this year, provided that the economy evolves broadly as anticipated. This programme… would gradually reduce the Federal Reserve’s securities holdings by decreasing reinvestment of principal payments from those securities.”

The normalisation programme has 2 parts to it, as outlined in June:

  • For payments of principal that the Federal Reserve receives from maturing Treasury securities, the committee anticipates that the cap will be $US6 billion/month initially and will increase in steps of $US6 billion at 3-month intervals over 12 months until it reaches $US30 billion/month.
  • For payments of principal that the Federal Reserve receives from its holdings of agency debt & mortgage-backed securities, the committee anticipates that the cap will be $US4 billion/month initially and will increase in steps of $US4 billion at 3-month intervals over 12 months until it reaches $US20 billion per month.

On that basis, the total reduction should now be $US10 billion/month.

14 June 2017: Federal Reserve board & federal open market committee release economic projections from the June 13-14 FOMC meeting
FOMC issues addendum to the policy normalisation principles & plans

Attribution: Fed release.

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PFI settles portfolio purchase

NZX-listed industrial property landlord Property For Industry Ltd (PFI) has settled its $69.5 million purchase of a portfolio of 8 industrial properties & one head office.

The portfolio comprises 7 properties leased to the Transport Investments Ltd group, one of New Zealand’s largest private domestic freight & logistics businesses, and 2l properties leased to NZ Post, Aviagen & Rockgas.

PFI has initially funded the acquisition via an extension of its banking facilities. It will repay those facilities with the proceeds of its $70 million 1:10 pro rata renounceable rights offer, which closes today.

Earlier story:
6 October 2017: PFI uses new credit facility & rights issue to buy low-site-coverage freight portfolio

Attribution: Company release.

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10% becomes 5.9%, just like that

This little snippet at the foot of today’s building consents release from Statistics NZ shows how kind I was to readers and to statisticians by declining to use seasonally adjusted figures many years ago.

In a note to today’s release, Statistics NZ said: “We have improved the way we calculate the seasonally adjusted number of new homes consented. We now include an adjustment for the timing of Easter. As a result, the seasonally adjusted increase in the number of new homes consented in August 2017 has been revised down from 10% to 5.9%.”

For its latest seasonal adjustment calculations, Statistics NZ said: “The seasonally adjusted number of new dwellings consented fell 2.3%, following a 5.9% rise in August. For houses only, the seasonally adjusted number fell 1.7%, following a 3.1% fall in August.

“The trend for the number of new dwellings consented increased, and is at its highest level since early 2004.”

I haven’t gone back to Statistics NZ to ask what Easter has to do with August. Such a large revision – what looks like an admission of a 41% miscalculation, and lacking a real, credible explanation – will keep me wary of these adjustments for some time yet.

In these columns, you’ll continue to get comparisons from year to year, one month against the same month. Or, as I noted in May 2008, my solution when I quoted then-Government Statistician Geoff Bascand, showing the difficulty Statistics NZ had with seasonal adjustments: “The earlier occurrence of the Easter holidays in March, rather than April, may have contributed to this increase, although the exact effect is difficult to measure.”

My solution was to lump the 2 months together, March + April, when comparing hotel occupancy, for example.

But the changes are refreshing

Government Statistician Liz MacPherson warned of this month’s change in the September release on building consents, under the heading Upcoming changes to seasonally adjusted & trend series. I’ve repeated her message below:

“We are improving the way we calculate the seasonally adjusted & trend series in building consents issued. These changes will be introduced in the September 2017 release (published on 31 October 2017).

“All seasonally adjusted series will now include an adjustment for the timing of Easter. This will account for when Easter moves between March & April. This change will affect the entire time series.

“We are also updating the way we treat outliers in the trend for the value of non-residential building consents. Currently, we exclude consents with a value of $50 million or more from the calculation of the trend. This threshold will be increased to $100 million, backdated to 2006. Currently, these outliers are only excluded from the monthly trend. For consistency, we will now also exclude these outliers from the quarterly trend.”

Despite my scepticism about some calculations, I’m enjoying the changes emanating under new leadership at Statistics NZ. They’re aimed at giving more people better information that they can use – a worthy cause.

Statistics NZ: Building consents issued seasonal adjustment and trend changes in September 2017

Related story today: New home consents jammed in 1000/year range

Earlier stories:
2 October 2017: A new understanding of seasonal adjustment
13 May 2008: Campers lift March accommodation use, but hotel & motel occupancy down
1 February 2008: Statistics, lies & don’t knows
2 September 2006: Pick an apple, an orange and you can concoct statistical fruitcake
13 May 2006: Late Easter takes March occupancy down
8 May 2006: Don’t believe everything you read…

Attribution: Statistics NZ release.

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PFI considers $100 million bond issue

NZX-listed industrial property landlord Property for Industry Ltd said on Friday it was considering issuing up to $100 million of bonds to institutional & New Zealand retail investors.

The offer would be up to $75 million of senior secured fixed rate bonds, expected to have a term to maturity of 7 years, with the ability to accept up to $25 million in oversubscriptions. The company would use the proceeds to repay existing bank debt.

It expects to release full details this week.

Attribution: Company release.

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Next Bethunes backdoor listing customer is transport operator TIL

Bethunes Investments Ltd said on Friday it had entered into an agreement to acquire the transport & logistics business of New Plymouth-based Transport Investments Ltd for $200 million (subject to adjustments for net debt & movements in working capital), to be paid through a combination of shares & cash.

Bethunes’ search for a new prospect to take over its listed shell followed the decision of NZ Retail Property Group Ltd to terminate its backdoor listing transaction on 25 July.

Each of these decisions has a huge impact on the near-zero Bethunes share price, which rose from 1c on Thursday to 1.9c on Friday.

When NZ Retail Property Group signalled its intention to list through Bethunes in March, the Bethunes share price made it to 2.3c, then had a spell through to July when the price was in the range of 1.6-1.9c, before dropping back to 1c or lower after NZ Retail Property Group pulled out.

At 1c, Bethunes’ market capitalisation equals $1.15 million, and at 1.9c it’s $2.186 million.

Transport Investments (TIL) has acquired a range of businesses to become one of New Zealand’s largest private domestic freight & logistics platforms, with a nationwide network of branches, depots & warehouses.

It generated over $320 million in pro forma revenue in its June 2017 financial year from activities that include transporting & warehousing freight throughout New Zealand and co-ordinating freight movements offshore through international alliances. It also has a specialist road tanker division which is the largest operator in the New Zealand fuel delivery market.

Its brands include Hooker Pacific, TNL, Roadstar, Pacific Fuel Haul, TIL Freight, McAuley’s, Move Logistics & NZL.

The company it intends to list through, Bethunes, listed on the NZX as Mowbray Collectables Ltd in 2000 and changed its name to Bethunes Investments Ltd in 2015. It no longer has any trading businesses.

TIL chair Jim Ramsay said on Friday the company had been evaluating a public listing for some time. Its acquisition of Bethunes is conditional on the approval of shareholders of both companies – TIL in early November, Bethunes in late November or early December. Grant Samuel & Associates Ltd will prepare an independent report for Bethunes shareholders.

Transaction process

If the acquisition is approved, Bethunes will consolidate its shares before completion. To part-fund the cash component of the purchase price, Bethunes intends to undertake a private placement involving the issue of at least $8.65 million of new shares to selected wholesale investors.

Following the acquisition, Bethunes would become TIL Logistics Group Ltd and Bethunes shareholders would own about 0.6% of it. The existing Bethunes directors would resign and be replaced by Jim Ramsay, Trevor Janes, Lorraine Witten, Danny Chan & Greg Kern.

Bethunes intends to consolidate its shares to one share for every 254.19 shares held now. At 1c/existing share (on 24 October), the post-consolidation price would be $2.54/share.

Following the share consolidation and immediately before completion, Bethunes would transfer its existing assets (other than a limited number of agreed assets) to its wholly owned subsidiary, BIL 2016 Ltd (New BIL), and in-specie distribute the shares in New BIL to all Bethunes’ existing shareholders on a pro rata basis. Those assets will include securities in an ASX-listed company, a receivable from Mossgreen NZ Ltd & any excess cash.

The Bethunes directors estimate that New BIL’s net tangible assets/share post-consolidation will be about 80c/share.

At completion, Bethunes will satisfy the acquisition purchase price of $200 million through the issue of 73.3 million fully paid ordinary shares in BIL at $1.50/share and the balance payable in cash. The purchase price is subject to working capital & net debt adjustments that would be determined following completion.

Old Bethunes/New BIL to retain an NZX listing

On completion, Bethunes will pay New BIL $200,000 towards its costs. The Bethunes directors intend that New BIL will use this cash to apply to compliance list on the NZX main board market and pursue a capital-raising initiative in 2018 to fund its investment & acquisition strategies.

To fund the cash consideration and the ongoing debt & working capital requirements of Bethunes following completion, Bethunes will enter into new debt facilities of about $100 million with ASB Bank Ltd. In addition, Bethunes proposes to undertake a placement of at least $8.65 million of new ordinary shares in BIL at $1.50/share to wholesale investors.

Earlier stories:
25 July 2017: NZ Retail Property Group pulls backdoor listing
12 July 2017: Retail Property Group valuation up 44% as NZX listing looms
9 July 2017: NZL to move Mt Maunganui operations to Tauriko
10 March 2017: Gunton looks to backdoor-list Retail Property Group through Bethunes

Attribution: Company release.

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Sheppard turns Fletcher meeting into “absolution or exorcism” exercise

Angst laid on thick, the introduction of monthly reviews (as if they weren’t once the norm), an unprecedented voluntary 20% cut in directors’ fees, an annual meeting chaired with aplomb & eventually giving space to the voices of protest.

Fletcher Building Ltd chair Sir Ralph Norris apologised on Wednesday to the hundreds of shareholders in the Auckland War Memorial Museum event centre for the performance of the company’s construction division, and the losses incurred on major projects by that division’s building & interiors business (B+I).

Father Bruce

Shareholders Association founder Bruce Sheppard chose priest’s garb to deliver his message.

Shareholders Association founder Bruce Sheppard turned up in priest’s garb to perform rites on the company, providing the elan that his successors never manage. Rising to speak to a director’s re-election, Mr Sheppard told Sir Ralph: “Big is not beautiful” and “Too much debt always kills business”.

Then he went on to explain his garb: “This is an A&E meeting, and I don’t mean accident & emergency. I mean absolution & exorcism.”

Boards at big listed companies are innately secure – they mostly hire people they’re going to get along with, they mostly have the votes tied up and it’s rare for a director to be elected on less than 98% support.

But, turning to the assembled shareholders at the museum before the vote on re-electing Cecilia Tarrant, who’s a member of the company’s audit & risk committee, Mr Sheppard conducted an absolution or exorcism test.

New Shareholders Association chief executive Michael Midgley, a retired lawyer, told the meeting that if the former audit & risk chair John Judge had been up for re-election the association would have campaigned for proxies opposing it. For Ms Tarrant, Mr Midgley said: “It’s our view that her position is untenable.”

Mr Sheppard told Ms Tarrant that, while “it pains me to put an alternative view to the organisation I founded, perhaps you could forfeit more fees than the rest of the board – but that is to your conscience”.

Asking his audience to raise their hands in favour of absolution or exorcism, he found the room evenly divided. In the official count, Ms Tarrant collected 99.13% of the votes. Former PWC NZ chief executive Bruce Hassall, who joined the board and its audit & risk committee in March and was therefore not part of the Building + Interiors problem, was up for election for the first time and scored only 96.14% support.

Both Ms Tarrant & Mr Hassall spoke forthrightly before the votes. Mr Hassall had gone to the trouble of meeting most of the finance executives across the group, and commented: “It is clear we have a lot of businesses which need to do a lot better.” On B+I he said: “Mistakes have clearly been made on contracts in the past.” He said his job was to make sure downside was minimised and that the mistakes “never occur again”.

The construction losses to continue

Fletcher Building split its earnings guidance on Wednesday to show B+I losing $160 million ebit (earnings before interest & tax and excluding “significant” items) in the 2018 financial year – and Sir Ralph said it could be more than that – while the rest of the group was expected to make $680-720 million.

The company expects 80% of the extra $125 million of project losses to come from 2 projects, construction of the NZ International Convention Centre in Auckland for SkyCity Entertainment Ltd, and the Justice precinct in Christchurch. The $35 million balance of anticipated ebit loss will come from extra B+I overheads.

The line – “so it won’t happen again” – is a nice, comforting one. Small shareholders invest in a company like Fletcher Building because it’s a secure large corporate, supposedly well managed.

Mr Hassall’s arrival on the board replaces one supposed accounting strength (John Judge) with another, but the board is still looking for a new director with construction sector nous.

It’s an extraordinary hallucination that a company of Fletcher’s size, with its origins, its company name, its basis for being before the gathering of product divisions that made it a vertically integrated conglomerate, should go a whole year since it discovered a gigantic gap in project management expertise without adequately stemming the flow of funds through that gap.

As one gnarly oldtimer commented to me on the way out the door: “What’s their job if not to manage the business? Monthly reports? We always had them.”

Sir Ralph Norris presenting the annual result in August.

Ihumatao versus the food trolley

But for all that, Sir Ralph ran a subdued meeting, giving a long explanation of negative construction project events but also spending considerably more time going through the performance of other divisions than they’d normally get at the annual meeting, allowing protesters over the housing division planned for Ihumatao, near Auckland Airport, to air their views & ask their questions rather than trying to shut them down, but also giving his own contrary opinion on Ihumatao and to a representative of striking drivers.

To the truck drivers, he said: “Increases have been significantly above the rate of inflation over the last 5-6 years. The company will come back in good faith.”

Then, after 130 minutes, the strident voice of SOUL (Save Our Unique Landscape) campaigner Pania Newton from a raised standpoint at the side of the room became too much for Sir Ralph as she accused the company of corruption & stealing land. It was also too much for most of the suddenly grumbling elderly shareholders who resented the attack and began to make their way to the food trolley. Sir Ralph closed the meeting.

The event was a success for allowing some important issues to be aired and some necessary explanations to be made. But both Sir Ralph & the company have a long way to go before Fletcher Building gets back on track – or, better, on to a positive new track that takes more considered account of affected communities & workforce relativities.

Earlier stories:
25 October 2017: Fletcher issues guidance, names new chief executive
25 October 2017: Fletcher shares in trading halt on eve of AGM
21 September 2017: A year on, Fletcher board still has ‘construction nous vacancy’ pencilled in
17 August 2017: ‘Fessed up, time to move on, says an unconvincing Fletcher boss
21 July 2017: Fletcher Building takes axe again to construction earnings, Adamson ousted
20 March 2017: Fletcher Building cuts earnings guidance by $110 million
19 March 2017: Fletcher Building to explain construction loss Monday morning
22 February 2017: Fletcher Building net up 2% after site closures

21 December 2016: Fletcher Residential completes Oruarangi purchase
25 May 2016: Fletcher wins approval for subdivision next to Mangere stonefields
29 January 2016: Opponents say Ihumatao alone as low-density special housing area proposal

Link: Fletcher Building

Attribution: Fletcher AGM.

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Fletcher issues guidance, names new chief executive

Fletcher Building Ltd announced earnings guidance for the 2018 financial year this morning, just ahead of its annual meeting at 10.30am.

Chair Sir Ralph Norris said: “Given the uncertainty in estimating the final outcomes of the major Buildings & Interiors (B+I) projects, and the resulting impact on in-year earnings, Fletcher Building has separated guidance of the B+I business from the remainder of the group’s earnings.”

Excluding Buildings & Interiors, he said the company anticipated earnings before interest & tax, excluding significant items at $680-720 million.

For Buildings & Interiors, the estimate is a loss of $160 million.

Sir Ralph also announced the appointment of Ross Taylor as chief executive, effective 22 November.

Mr Taylor was most recently chief executive of Australian company UGL, an international engineering, services, construction & product-manufacturing business, operating across the rail, transport & technology systems, power, resources, water & defence sectors. UGL was acquired by the ASX-listed construction & contracting company Cimic Group Ltd, in early 2017. Cimic is 73% owned by Hochtief AG of Germany, which in turn is now 71.8% owned by ACS Group SA of Spain.

Before this, Mr Taylor was managing director & chief executive of Tenix, a privately held engineering & construction services company, and before that held various senior leadership roles at Lend Lease over 23 years.

Fletcher Building results forecast release
Appointment details

Attribution: Company releases.

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