Fletcher Building announces expected earnings for the financial year ended 30 June 2017.
Operating earnings expected to be approximately $525 million, down from previous guidance of $610-$650 million
Likely impairment up to $220 million relating to Iplex Australia and Tradelink business units
Departure of Chief Executive Officer (CEO) and Managing Director Mark Adamson
Appointment of Francisco Irazusta as interim CEO, effective Monday 24 July 2017
Auckland, July 20 2017
Fletcher Building has today announced it expects operating earnings before interest, tax and significant items (‘EBIT’) to be approximately $525 million for the year ended 30 June 2017.
Trading in the Building Products, International, Distribution and Residential and Land Development divisions, as well as three of the four business units in the Construction division (Infrastructure, Higgins and South Pacific), are in line with the Company’s expectations, previously provided at the time of the interim results on 22 February 2017.
However, as work on major projects in the Building + Interiors (‘B+I’) business unit has progressed, it has become apparent that losses in B+I will exceed those previously estimated. The deterioration is due to:
A major project subject to previous write-downs, which has required an increase in project resourcing and therefore cost as it nears completion;
A second major project where construction timelines and the likely completion date have been extended;
Reduced profit expectations on a number of smaller projects in the remainder of the B+I portfolio.
Fletcher Building Chairman Sir Ralph Norris said: “It is very disappointing to see further losses being reported in our B+I business, particularly when the vast majority of the remaining Fletcher Building business units have performed so well during the year. I know our people in B+I are working incredibly hard to deliver a number of projects for our clients and I would like to acknowledge their efforts.”
In addition, consistent with standard practice at the end of each financial period, Fletcher Building has undertaken a review of the Balance Sheet carrying values of its business units. This review has indicated that the value of two business units, Iplex Australia and Tradelink, are likely to be subject to an impairment charge of approximately $220 million, when the company finalises its financial statements in August. An impairment of this nature would be reported below the EBIT line and have no impact on cash earnings.
An impairment charge of $220 million would represent approximately 3% of the group’s total assets as at 30 June 2017. The amount of asset impairment is indicative at this stage and is subject to finalisation of the year-end audit.
“With regards to the impairment of Iplex Australia and Tradelink, while we do see progress in these business units the Board felt it was prudent to recognise that the near to medium term estimates of profitability in each business are not aligned with current carrying values,” continued Sir Ralph.
The Board also announced the departure of Chief Executive Officer (CEO) and Managing Director, Mark Adamson.
Sir Ralph Norris said: “The Board believes it is the right time for Mark to leave the Company, to allow a new CEO to lead Fletcher Building through this period and into the next phase of its strategy. The Board would like to thank Mark for his work and we wish him the best in his future endeavours.”
Mark Adamson said: “I am disappointed to finish my tenure on the back of a challenging result in the Construction Division, however I am proud of what has been achieved over the last five years – most notably the turnaround of Formica, double-digit earnings growth in Distribution, our acquisition of Higgins and the significant progress in our residential development division.”
The Board has appointed Francisco Irazusta interim CEO effective Monday 24 July 2017.
“Francisco joined Fletcher Building in March 2015 and is currently Chief Executive of the International Division. Prior to joining the Company he held senior leadership positions with a number of building products companies in North America and Europe and will provide stable leadership for the business during this transition, with the support of myself and the Board,” finished Sir Ralph.
The Board will now commence a process to appoint a new CEO.
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