Returns for Fulton Hogan worst in decade

Fulton Hogan's New Zealand projects, such as the Waikato Expressway, (pictured) helped sustain...
Fulton Hogan's New Zealand projects, such as the Waikato Expressway, (pictured) helped sustain what was otherwise one of the company's toughest years in construction and roading. Photo supplied.
A punishing 12 months in Australia undermined a record $NZ2.73 billion turnover for construction company Fulton Hogan, resulting in before-tax and after-tax bottom lines plunging and the company's worst result for a decade.

A litany of problems in Australia, including major weather events, acquisition bedding-in, lacklustre projects and the costs of addressing issues, caused earnings before interest, tax, depreciation and amortisation (ebitda) to plunge 47% to $130.9 million. After-tax profit crashed almost 90%, from $73.9 million a year ago to $7.9 million.

Further overshadowing a forgettable year were four unrelated workplace employee deaths which rocked the company, prompting a wide-ranging health and safety review.

Managing director Nick Miller said the privately held company, with more than 2000 shareholders, was entering 2013 with a full order book at $3.7 billion, but it was facing up to "the hard lessons from 2012" and was taking decisive action to improve profitability and "correct its course".

"It [$7.9 million profit] was a very poor performance, but we're very confident to be back on course," he said.

Management restructuring and cost-cutting had been put in place, as had the sale of non-core assets, including land in Queenstown and across the country and a near 3000ha forest block in Otago, the latter under Overseas Investment Office consideration.

Mr Miller declined to reveal the individual proceeds of asset sales, but they totalled more than $10 million.

All of these measures meant Fulton Hogan would "not be undertaking any form of capital-raising [from shareholders or elsewhere]," he said.

When asked to describe banking relationships and covenants, he said they were "strong", with the five banks concerned, some of which had been with the company for more than 50 years and were being supportive, given the order book stood at $3.7 billion.

Revenue during the past year was $1 billion in New Zealand and $1.7 billion in Australia.

"Our Australian construction business posted losses due to management challenges, prolonged wet weather, growing pains from an earlier acquisition, underperforming projects and costs of changes to address these performance issues and stabilise the company," Mr Miller said.

The Australian operations' poor performance was the major factor behind the 47% decrease in ebitda to $130.95 million.

"The New Zealand businesses continued a long history of sustained results, anchored by the company's vertically integrated business model," he said.

"Rapid growth has come at a price," he said.

Asked about what drove the "price", Mr Miller said becoming established in each of Australia's states and territories, at 52 locations, with the right staffing leadership was "a clear strategy" to expand the company's footprint Australia-wide.

It was its Pacific Highway joint venture in New South Wales that was hardest hit by wet weather and Fulton Hogan had made provision for almost $56 million in future-losses liabilities on the project.

Mr Miller said negotiations with partners concerning the liabilities were ongoing. The $56 million provision was behind postponement of the annual meeting.

"We have learnt some important lessons and taken a number of decisive steps to get back on course, tackle profitability and better protect the wellbeing of every one of our 5500 people," he said.

The four workplace deaths during the past year had "shocked" the company, as even one death a year was considered a "rare event". The deaths prompted the introduction of a system of new rules, a renewed focus on five "critical risk areas" and strengthening health and safety leadership.

"To me, personally, and the company as a whole, nothing is more important than our renewed focus on health and safety following the tragic deaths of four employees ... " he said.

A final dividend of 5c a share was posted, boosting the annual dividend to 11.5c, from last year's 20c.

Fulton Hogan is holding informal meetings with shareholders before its annual meeting, scheduled for December 19 in Christchurch.

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