Fletcher Building has made significant changes to its troubled Building + Interiors business so the disastrous $204 million construction losses are not repeated, its chairman said today.
At a briefing in Penrose following the release of the annual result this morning, chairman Sir Ralph Norris told of wide-sweeping changes.
Norris said the construction division, previously led by Graham Darlow, is now headed by Michele Kernahan. Within that, Building + Interiors has a new general manager: David Kennedy from Britain, who had about 30 years construction experience and brought other new talent with him, Norris said.
Norris cited two other financial appointments but did not name those new executives.
"We have made some very good appointments and made sure 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," Norris said.
Fletcher announced a 4 per cent revenue rise to make $9.39 billion but operating earnings before significant items fell 23 per cent to $525m - and net after-tax profit dropped 80 per cent from $462m to $94m 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."
Of a controversial email sent by ex-chief executive Mark Adamson, Norris said today: "It was not appropriate. Mark was already coming towards the end of his term."
Norris said previously he was "incredibly disappointed" about Adamson's comments in an internal email. 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.
Norris said today Adamson had obviously been concerned about Building + Interiors and that concern was reflected in the email.
Norris 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, Norris said. He told 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," he said, referring to building products operating earnings up 6 per cent, international up 27 per cent and distribution up 10 per cent, residential and land development up 55 per cent and Fletcher was still bidding for construction jobs.
"We do have a good business," Norris said.
Losses were caused by two big construction division projects: Auckland's $700m NZICC, which client SkyCity had made an NZX announcement on, and a Christchurch project that Norris refused to name, but is widely believed to be the Justice and Emergency Precinct.
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.
Francois 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 19cps dividend on October 11.