Archive | Securities – NZ

Convention centre project delayed but “on budget”

Aside from the financial upheaval in the construction division of Fletcher Building Ltd, subsidiary company The Fletcher Construction Co Ltd told SkyCity Entertainment Group Ltd last Thursday that completion of its NZ international convention centre would be delayed.

When work on site, between Hobson & Nelson Sts, began in February 2016, the total project cost of the convention centre plus associated hotel, laneway & extra carparks was $700 million, with an opening date in 2019.

SkyCity said on Thursday an updated programme of works was still being reviewed, but it currently indicated practical completion for both the convention centre and the Hobson St hotel around the middle of 2019.

SkyCity said it remained comfortable with the contractual arrangements with Fletcher Construction and the project remained on-budget. It said the slight delay wouldn’t impact on any of the convention centre’s confirmed bookings.

Attribution: Company release.

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Fletcher Building takes axe again to construction earnings, Adamson ousted

Fletcher Building Ltd announced its second hefty cut in earnings guidance for the year yesterday, but cushioned it by issuing a statement that ignored the first target in the opening comparison – before its contracting ploys went disastrously wrong.

Chief executive & managing director Mark Adamson – very oddly – presented the company viewpoint on the first guidance cut in March as if the cause was something peculiar to the company’s construction division.

Yesterday, Mr Adamson was gone and company chair Sir Ralph Norris was the frontman, as he should have been previously.

The cause?

One can surmise, because the company hasn’t said: The failure to make the required earnings on major contracts could arise only from bidding low to win the contract, and being prepared to lock in costs when costs across the sector were rising.

That goes to company ethos, an historic view that Fletcher is the rightful owner of certain areas of business. On this occasion Mr Adamson was the fallguy, but the company ethos tells you that the board – and especially the chair – would have set the direction.

The guidance trail

The new guidance for operating earnings for the year that ended on 30 June is $525 million.

The previous guidance, on 20 March, was $610-650 million.

The original guidance when the half-year results were presented, on 22 February, was $720-760 million.

Sir Ralph said the company also expected likely impairment of up to $220 million relating to the Iplex Australia & Tradelink business units.

The company’s earnings review

According to the company statement yesterday, trading in the building products, international, distribution and residential & land development divisions, as well as 3 of the 4 business units in the construction division (infrastructure, Higgins & South Pacific), is “in line with the company’s expectations, previously provided at the time of the interim results on 22 February.

“However, as work on major projects in the Building + Interiors (B+I) business unit has progressed, it has become apparent that losses in B+I will exceed those previously estimated. The deterioration is due to:

  • a major project subject to previous writedowns, which has required an increase in project resourcing and therefore cost as it nears completion
  • a second major project where construction timelines and the likely completion date have been extended
  • reduced profit expectations on a number of smaller projects in the remainder of the B+I portfolio.

Sir Ralph said: “It is very disappointing to see further losses being reported in our B+I business, particularly when the vast majority of the remaining Fletcher Building business units have performed so well during the year. I know our people in B+I are working incredibly hard to deliver a number of projects for our clients and I would like to acknowledge their efforts.”

In addition, consistent with its standard practice at the end of each financial period, Fletcher Building said it had undertaken a review of the balance sheet carrying values of its business units: “This review has indicated that the value of 2 business units, Iplex Australia & Tradelink, are likely to be subject to an impairment charge of about $220 million when the company finalises its financial statements in August. An impairment of this nature would be reported below the ebit line and have no impact on cash earnings.

“An impairment charge of $220 million would represent about 3% of the group’s total assets as at 30 June. The amount of asset impairment is indicative at this stage and is subject to finalisation of the year-end audit.
“With regards to the impairment of Iplex Australia and Tradelink, 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.”

Norris & Adamson on Adamson

On Mr Adamson’s departure, Sir Ralph said: “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 of its strategy. The board would like to thank Mark for his work and we wish him the best in his future endeavours.”

Mr Adamson said in the company release: “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 last 5 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.”

Francisco Irazusta takes over as interim chief executive next Monday, 24 July.

Fletcher-posed questions & answers

In a question & answer segment of yesterday’s release, Fletcher Building said: “What are the 2 major projects and when will they be completed? For reasons of client confidentiality, we will not name the projects. One of the projects is close to completion, and the other is targeting completion in the 2019 financial year.

“Are the 2 major projects, and associated issues, the same as those referenced in the 20 March update? Yes. The most significant issues remain complexity in design, subcontractor management & building programme delivery, which has led to an extension of project timelines and increase in project resource requirements & costs, relative to original budgets.

“How can you be sure this new provision will capture all potential future losses? One of the major projects is close to completion, which provides greater certainty over the ultimate cost. A review of remaining projects has been completed, and the construction timelines and the likely completion date extended on a second major project.

“Why are you booking such a large provision now? Under accounting rules, profit on a construction contract is recognised progressively through the life of the project, whereas when it is probable that a contract will incur a loss, the expected loss must be recognised immediately as an expense.

“What has been done to address the issues in B+I since the last update? In addition to the initiatives outlined in our March update, the construction division is benefiting from the leadership & robust management expertise of chief executive Michele Kernahan and B+I has a newly appointed general manager, David Kennedy, who brings with him 30 years’ experience in the construction industry across multiple markets.

“Is there a future for B+I in the Fletcher Building portfolio? We continue to believe that there is a future for the B+I business in the Fletcher Building portfolio, but it is likely to be a more focused business, targeting key clients & sectors.

“What will Mark Adamson receive upon departure? Mark will receive his contractual entitlements. All of his share options will lapse and he will forfeit all shares in the company’s long-term incentive scheme. No short-term incentive will be paid in respect of the 2017 financial year.

“Does this downgrade to earnings guidance pose a risk to your banking or debt covenants? Despite the further reduction in forecast cashflows from these additional B+I losses in the 2017 financial year, the company remains well within its banking covenants, and expects to continue to do so. Based on the updated guidance range, we expect the ratio of net debt:net debt + equity to be around 36% at the end of the 2017 financial year, and the ratio of net debt:ebitda to be about 2.7 times.”

Mark Adamson

Mark Adamson.

Mr Adamson found himself auditing multi-nationals as a young accountant at Deloittes in London 30 years ago. After 5 years at Deloittes, including time managing a number of companies in receivership post-1987, he moved to pharmaceuticals company Glaxo Wellcome plc for 6 years, staying in finance roles, then had his first taste of laminates at Perstorp Ltd, the UK holding company of a Swedish multinational.

In 2000 he moved to Formica Corp as chief financial officer, moving up to managing director then president for the UK & Europe. When Fletcher Building took over Formica in 2008, he was promoted to chief executive with responsibility for all Formica’s operations in North America, Europe & Asia.

In October 2011 he was made chief executive of Fletcher Building’s laminates & panels division, responsible for the Laminex Group business in Australia & New Zealand and for Formica worldwide, and in October 2012 he took over as chief executive of the whole group.

In 2015, I wrote that Mr Adamson’s business record was that of a change merchant, which meant both that he could be expected to move on soon and that getting the building products company shipshape had been a rapid revolution. His views then (see the story link below) give an insight into his thinking on how to turn the Fletcher worldview around.

One thing he wasn’t was a construction man, though among his aims at Fletcher Building was a sharp lift in the company’s own residential construction business, which he achieved.

Francisco Irazusta.

The new chief

His replacement as interim chief executive, Francisco Irazusta, joined Fletcher Building in March 2015. According to the company’s website: “He has enjoyed an impressive career in global building products in both North America & Europe. Prior to joining Fletcher Building, Francisco steered CRH plc’s European building products business through tough times, driving performance improvement throughout his tenure.”

He holds an MSc in industrial engineering from the State University of New York.

Earlier stories:
20 March 2017: Fletcher Building cuts earnings guidance by $110 million
19 March 2017: Fletcher Building to explain construction loss Monday morning
17 August 2016: Fletcher message is steady rather than gains from innovative performance
21 August 2015: Fletcher chief looks at a better-based future
21 February 2013: Adamson wants Fletcher Unite to reshape group
21 November 2012: Adamson looks at local property rationalisation as first step to lift Fletcher Building
18 June 2012: Ling exits Fletcher Building, laminates chief Adamson moves up – and the big words are “patience” & “innovation”

Attribution: Company release.

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Goodman settles Henderson purchase

The Goodman Property Trust has settled its $18.9 million acquisition of the Concourse Industry Park in Henderson.

The trust announced its purchase of the former Alloy Yachts premises & an adjoining industrial property on the corner of Selwood Rd & The Concourse, Henderson, last September.

The 2 former boatbuilding premises have about 22,120m² of high volume warehouse space & 1250m² of associated office.

Management company Goodman (NZ) Ltd’s chief executive, John Dakin, said last year the trust intended to amalgamate the 2 sites into a single 4ha estate: “Close to the cbd and with direct access to State Highway 16 from the Lincoln Rd interchange, this property will become one of Auckland’s best located industrial estates when the western ring route completes in 2017 [and it’s just opened].”

Mr Dakin said the vacant warehouse buildings would be refurbished & reconfigured. Fully leased, they were expected to generate a passing yield of about 7%. The estate also offered 2ha of further development opportunity.

Image above: Goodman’s map showing its Concourse site.

Earlier story:
15 September 2016: Goodman sells Christchurch package on top of Fanshawe St lease confirmation & Henderson project

Attribution: Company release.

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Institutions much keener on Kiwi Property offer than existing retail investors

Kiwi Property Group Ltd completed the retail bookbuild component of its $161 million fully underwritten 1-for-11 pro rata entitlement offer on Wednesday.

Chief executive Chris Gudgeon said 74% of all entitlements were taken up by existing shareholders. But there was a clear division of enthusiasm between institutional & retail shareholders – 94.5% of the institutional component was taken up by existing shareholders, but in the retail component it was only 50.4%.

The clearing price under the retail bookbuild was $1.38/share, a 2c premium over the application price. Eligible retail shareholders who elected not to take up their entitlements and ineligible retail shareholders will therefore receive 2c for every new share they don’t take up.

Mr Gudgeon said in June the NZX-listed company intended to use the net proceeds initially to pay down bank debt and reduce gearing, before being used to fund potential investment & development opportunities, including the potential expansion & improvement projects at Sylvia Park, Northlands, The Base, and in the longer term at Drury.

Earlier story:
21 June 2017: Kiwi Property seeks $161 million new equity

Attribution: Company release.

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Retail Property Group valuation up 44% as NZX listing looms

NZ Retail Property Group Ltd’s pre-transaction restructuring to enable a backdoor NZX listing through Bethunes Investments Ltd has been completed, and Bethunes chair Chris Swasbrook said on Monday legally binding documentation to formalise the transaction should be entered within a week.

When Bethunes (previously the philatelic business Mowbray Collectables Ltd) said in March it had signed a non-binding conditional term sheet with NZRPG and its controlling shareholder, Westgate Power Centre Ltd (headed by Mark Gunton, pictured above), the shares in NZRPG were estimated at about $400 million.

In a roadshow presentation about its future look issued on Monday, Bethunes said: “Based on current valuations, NZRPG is expected to have about $575 million of assets in its property portfolio, including rights to acquire additional assets. About 40% of its total property assets – including the assets to be acquired – are development in nature.”

The portfolio comprises holdings in 3 Auckland town centres – Westgate, Milford & Birkenhead – and the Fraser Cove shopping centre in Tauranga.

NZRPG is unique in New Zealand in selling apartments above 2 of its mall developments – Milford (under way after a long consent battle) & Birkenhead (plans outlined).

Its main project has been at Westgate, at the top of the North-western Motorway (State Highway 16) in Auckland, where it accumulated 57ha for a masterplanned town centre servicing the north-west and still holds 28ha that’s ready to build on, on top of the developments already constructed.

In the words of the presentation, “Its existing [Westgate] holdings have a strong & stable cashflow and are well positioned to build on organically as demand materialises.”

The company said it had a defined path to portfolio growth: “NZRPG has been at the forefront of planning for the urban intensification required to provide a credible outcome for Auckland’s growth aspirations (and supported by the Auckland unitary plan).

“It is focused on the strategic development of its existing retail centres into planned town environments & mixed use assets. This is expected to include the provision of residential overlays to all its town centre properties, which will enhance the retail performance and allow for capital to be recycled into the core business.”

NZRPG board named

When NZRPG takes over the Bethunes listing, the board will comprise Paul Duffy as independent chair and directors Mark Gunton, Sean Joyce & Bruce Cotterill. Mr Gunton, founder of the business 30 years ago, is an executive director and the others are independent.

Mr Duffy is a former chief executive & executive director of Stride Property Ltd and now chairs Augusta Capital Ltd. He’s also a director of NPT Ltd, the NZX-listed property company which Augusta secured a big enough toehold in to defeat Kiwi Property Group Ltd in April in a contest for NPT’s management contract.

Mr Cotterill was elected as independent chair of NPT in April after winning a board seat on Augusta’s nomination.

Mr Joyce is a corporate & commercial lawyer in Auckland, has been a non-executive director of a number of companies listed on the NZAX & NZSX, a non-executive director of a consumer finance company & a funds management firm.

One NZX-listed shell company he’s chaired, NZF Group Ltd, was renamed Blackwell Global Holdings Ltd on Monday after a reverse listing by Taiwanese wholesale investor Chai Kaw Sing (Michael Chai).

Links:
NZ Retail Property Group
NZX 10 July 2017: NZ Retail Property Group presentation

Earlier stories:
10 March 2017: Gunton looks to backdoor-list Retail Property Group through Bethunes
25 May 2016: Milford shopping centre expansion approved

Attribution: Bethunes release, NZRPG & Joyce websites.

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Augusta House sale settlement date confirmed

Augusta Capital Ltd confirmed on Monday that it had completed the subdivision of its Finance Centre property in Auckland and new titles had been issued for its 4 parts – Augusta House, the podium retail, the Finance Centre podium and the Finance Centre carpark).

The company therefore confirmed 24 July as settlement date for the $30 million sale of Augusta House to Heng Yue Ltd (David (Duoyu) Bei). The settlement dates for the remaining 3 properties haven’t changed and are: Podium retail 1 April 2018, Finance Centre podium & Finance Centre carpark 1 April 2019.

The sale excludes the original Finance Centre office tower at 191 Queen St, now owned by Sir Bob Jones’s Robt Jones Holdings Ltd.

Augusta signed its $96 million sale package a year ago and collected a $3 million deposit on Augusta House from Heng Yue, which also paid the additional 10% deposits due last month.

Augusta managing director Mark Francis said: “While the delay in finalising the subdivision of the Finance Centre has been frustrating, Augusta has continued to receive all rent during this period and the settlement dates of the remaining 3 titles have not been affected.

“The proceeds will be applied towards debt repayment, with $10 million towards core debt and $17 million toward the facility drawn down for the underwrite of the 33 Broadway syndicate. As a result of this debt repayment, balance sheet capacity for future initiatives is increased.”

Earlier stories:
5 July 2017: Augusta closes Mercury HQ syndication 34% short, underwrites balance
25 July 2016: Finance Centre sale confirms Augusta’s full focus on funds management

Attribution: Company release.

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Summerset sales dip for quarter but up for half-year

Retirement village developer, owner & operator Summerset Group Holdings Ltd sold or resold occupation rights to 152 units in the June quarter, down from both the first quarter this year & second quarter last year.

But for the half-year, its total 323 sales were 6% ahead of the 2016 total of 306.

Summerset sold rights to 82 new units in the second quarter of this year (97 in the first quarter, 108 in the second quarter of 2016) and made 70 resales (74, 77).

Chief executive Julian Cook said: “New sales were driven by delivery timings for newly constructed retirement units, with 171 built over the first half of 2017 compared to new sales of 179. Resales continue to track well, with available homes being sold quickly.

“We are on track to deliver about 450 retirement units across our villages in 2017, with the development pipeline weighted towards the second half of the year. We expect new sales levels over each half of the year to reflect this, as signalled in our construction programme earlier this year.

“We continue to see strong demand for our retirement units, and presales levels & settlement rates both continue to track positively.”

Attribution: Company release.

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H&M to open at Queensgate

Expanding Swedish fashion retailer H&M (H&M Hennes & Mauritz AB) will open its first Wellington store at the Queensgate shopping centre in Lower Hutt this year.

Centre manager Stride Property Group’s shopping centres general manager, Roy Stansfield, said on Friday the announcement marked an important milestone in a large project, which had been a long time in the works: “We’re incredibly excited that a world-renowned brand like H&M has chosen Queensgate as the location for its first Wellington store. It’s testament to the standard of the centre & the opportunities in the region as a whole. Customers & retailers alike have been curious about the works going on in the centre as we prepare for H&M’s opening, so we’re very happy to be able to finally confirm who this new tenant is.”

Stride hasn’t confirmed the store’s opening date yet.

The Diversified NZ Property Trust, which Stride manages, bought the former Westfield mall from Scentre Group (NZ) Ltd last August. Part of it was closed after the Kaikoura earthquake in November and a portion of the carpark & its cinema complex were demolished. After a partial reopening, the centre was fully reopened in April.

H&M has a big international expansion programme underway, with 500 openings completed or planned this year.

Attribution: Company release.

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Steel & Tube ebit slips at year-end

Steel & Tube NZ Ltd said on Friday it expected its full-year ebit (earnings before interest & tax) to fall 10-15% of the 2016 figure.

When the company issued its half-year results in February, it indicated that the full-year result would be consistent with last year’s.

However, chief executive Dave Taylor said on Friday the second half proved more challenging in the final weeks: “We have faced multiple construction & infrastructure project challenges and delays which have been out of our control, coupled with intense competition in the market, leading to tighter margins, particularly in the construction sector.”

Despite falling short overall, however, Mr Taylor said that, excluding last year’s $6.2 million of gains on the sale of property, underlying ebit for the year to June would be 2.5-8% higher.

Attribution: Company release.

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Precinct gets 4.5% revaluation gain with more expected

Precinct Properties NZ Ltd said on Friday its $89 million valuation gain in the year to June had lifted the portfolio value over the $2 billion mark.

The 2017 valuation gain was up 4.5% on the $81 million last year.

The valuations were carried out by independent valuers, are subject to final audit, finalisation of year end book values and will be confirmed in the financial results for the year ending 30 June 2017, to be announced 17 August.

Chief executive Scott Pritchard said that, excluding Deloitte House in Wellington, the overall portfolio valuations were up 5.3% on forecast book values.

The Auckland portfolio gained 6.8%, Wellington 1.5%. Mr Pritchard said those increases were mainly attributable to continued compression in capitalisation rates, together with market rental growth. Deloitte House’s valuation declined by $14 million, with further work completed on remediating & seismically improving the building following the November 2016 Kaikoura earthquake.

“Precinct’s active development pipeline has contributed strongly to the value uplift. Commercial Bay (Auckland) & Bowen Campus (Wellington) ‘on completion’ values have increased by around $94 million to $1.176 billion.

“This was mainly due to an increase in the value on completion of Commercial Bay of $88 million to $941 million. Forecast net profit from both developments combined has increased to be around $250 million, of which about $160 million as at 30 June 2017 has yet to be recognised.”

Attribution: Company release.

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