Fletcher Building has made significant changes to its troubled Building + Interiors business so the disastrous $204 million construction losses are not repeated, its chairman says.
At a briefing in Auckland following the annual result being released on Wednesday morning, chairman Sir Ralph Sir Ralph told of wide-sweeping changes.
Sir Ralph said the construction division, previously headed by Graham Darlow, is now headed by Michele Kernahan. Within that, Building + Interiors has a new general manager: David Kennedy from Britain, who Sir Ralph said had about 30 years of construction experience and who had also brought other new talent with him.
Sir Ralph cited two other financial appointments but did not name those new executives.
"So we have made some very good appointments and made sure that the issues that have arisen have been rectified. The issue has been around project governance and management and we have analysed Building + Interiors very, very extensively and we're now in a position to run this business effectively and profitably," he said.
Fletcher announced a 4% revenue rise to make $9.39 billion but operating earnings before significant items fell 23% to $525 million - and net after-tax profit dropped 80% from $462 million to $94 million for the year to June 30, 2017.
Francisco Irazusta, interim chief executive, also spoke of change: "We have improved our project governance. We have changed the way we decide whether we will bid or don't bid for a project."
On a controversial email sent by ex-chief executive Mark Adamson, Sir Ralph said on Wednesday: "It was not appropriate. Mark was already coming towards the end of his term."
Sir Ralph said previously he was "incredibly disappointed" about Mr Adamson's comments in an internal email.
Mr Adamson had sent an email to senior staff last year saying one unit of Fletcher was "full of pompous old farts", NBR reported. He also harshly criticised accounting firm Deloitte in the email and called for 100 staff to be culled from the troubled building and interiors unit, NBR reported.
Sir Ralph said today that Mr Adamson had obviously been concerned about Building + Interiors and that concern had been reflected in the email.
Sir Ralph said he was confident about the outcome of the NZX investigation into Fletcher, but opened the briefing in humble fashion.
"This is not the result we wanted. It's not the result our shareholders wanted and we absolutely take responsibility for where we are today. But the performance of the Building + Interiors is in contrast to the rest of the growth. Our foundations are strong. We will emerge stronger and we are committed to earning back the trust of our shareholders."
Construction accounting was more an art than a science, Sir Ralph said, telling of the financial complications of large projects, "making an assessment of when you take profit and when you decide when you are going to make a loss," examining issues such as liquidated damages, time extensions on work and legal aspects.
He encouraged perspective.
"This organisation has had a fantastic year. Except for this part of the business, we would have been reporting a record result," Sir Ralph said, referring to building products operating earnings up 6%, international up 27% and distribution up 10%, residential and land development up 55%.
"We do have a good business," Sir Ralph said and Fletcher was still bidding for construction jobs.
Losses were caused by two big construction division projects: Auckland's $700 million NZICC which client SkyCity had made an NZX announcements on and a Christchurch project which Sir Ralph refused to name, but is widely believed to be the Justice and Emergency Precinct.
Mr Irazusta presented an outlook for the June 30, 2018 year. The business was expecting that elevated levels of activity in the residential market would continue and a strong pipeline of infrastructure work for this year and beyond in New Zealand, he said.
Western Australia's economy appeared to be stabilising after large declines and infrastructure spending in the eastern states was resurrecting. Laminate markets in Asia, North America and Europe were expected to grow at moderate rates.
Mr Irazusta said operating earnings would benefit from Building + Interiors' turnaround, modest growth across remaining operating divisions and corporate costs returning to more normal levels.
Fletcher shareholders will get a final 19 cents per share dividend on October 11.
