Fletcher Building to explain construction loss Monday morning

Fletcher Building Ltd expects to make an announcement on earnings guidance on Monday morning after asking for a trading halt on its shares on the NZX & ASX exchanges on Friday.

The company sought the trading halt while it completed a review of the financial performance of its construction division & impact on earnings guidance.

Chief executive Mark Adamson was more concerned about when construction losses had to appear on the company’s books when he presented the company’s half-year results on 22 February, than explaining how they’d arisen.

“You have to take all of that loss in to the books in the first half,” he said then. “It is in the order of 10s of millions of dollars. It’s a really detailed programme management issue.”

In the results media release, Mr Adamson said: “Construction operating earnings reduced due to the timing of earnings from certain projects being recognised, expensed bid costs, a reduced contribution from Fletcher EQR (Earthquake Recovery in Christchurch) and losses incurred on a major construction project.”

Mr Adamson wouldn’t say whether that one project where the full losses had to be reported for the interim result was the only one where this nature of impact was occurring – and he wouldn’t explain how the country’s biggest construction company could make a loss entering a new site such as SkyCity Entertainment Group Ltd’s International Convention Centre or Precinct Properties NZ Ltd’s Commercial Bay.

According to the interim accounts, the construction division increased revenue by 54%, from $748 million in the December 2015 half-year to $1.15 billion in the December 2016 half. Reported operating earnings, and operating earnings on the non-GAAP measure before significant items, were down 33%, from $36 million to $24 million. The group’s $16 million of significant items related to site closures at Fletcher Insulation & Rocla Products ($15 million) and costs associated with acquiring the Higgins business ($1 million).

New Zealand construction operating earnings fell from $26 million in the 2015 half to $1 million in the latest period, while South Pacific construction earnings rose from $10 million to $23 million.

Attribution: Company accounts, release, interim results briefing.

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