Government projects - namely the new Sky City International Convention Centre in Auckland and the new Justice and Emergency precinct in Christchurch are thought to be involved in a shock $150 million profit warning issued by construction giant Fletcher Building.
The shares in Fletcher Building have been under the hammer on the share market, down as much as 13%, at one stage after the company warned its earnings in the current financial year might be as much as $150 million less than it was telling the market only weeks ago when releasing its interim results.
The main problem apparently centres around a project that's due for completion this year - and which the company will not name. There's another project due for completion in two year's time that's also problematic. Media company Fairfax is reporting that the projects are the Justice and Emergency precinct in Christchurch and the new Sky City International Convention Centre in Auckland. Details from the company on the Christchurch development are here and on the convention centre are here.
Prime Minister Bill English said he had heard speculation around which projects were delayed, but had not had any specific conversations on the issue.
"We’re dealing with a very wide range of commercial operators and it’s up to them to deal with their own commercial risks," English said at his post-Cabinet press conference Monday.
Asked whether he had any concerns that government projects may not be completed as scheduled, English replied that the government did want to make sure infrastructure projects it was paying for were on budget and on time.
This is the statement Fletcher Building issued:
The company now expects operating earnings before interest, tax and significant items (“EBIT”) to be between $610 million to $650 million for the year ending 30 June 2017. This compares with the previous EBIT guidance range of $720 million to $760 million.
The revised guidance is due to the identification of additional estimated losses and downside risk in the Buildings and Interiors (“B+I”) business unit of the Construction division.
A thorough review of the B+I business and projects began in late calendar year 2016 and led to new management and governance processes. A significant loss was recorded for B+I in the half-year results based on the best estimate available at the time. However, management has now identified an increase in the estimated loss on the major construction project which was referenced at the time of the announcement of the H1 17 results, and the identification of downside risk on other B+I projects, with the majority being a provision for expected losses on one other major project.
Chief Executive Mark Adamson stated that it was extremely regrettable that expected profitability for FY17 in the Construction division has worsened since comments made at the time the H1 17 results were reported.
“It is very disappointing that the review of the B+I business unit has found weaker performance than we had previously understood.”
All other business units within the Construction division have continued their strong trading performance. However, taking into account the new estimates of profitability for the commercial construction projects, it is now expected that the Construction division as a whole will report a loss at the EBIT level for FY2017.
Trading for Fletcher Building’s other divisions remains in line with expectations previously discussed in the first half earnings commentary.