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Fletcher Building a 'serial underperformer' which needs to earn back trust - Grant Davies

Fletcher Building will have to work hard to earn back trust, but Monday's large profit downgrade is far from disastrous for the country's biggest construction firm, an analyst says.

Auckland-based Fletcher Building said its profit could be up to $150 million less than it indicated it would be just three weeks ago, after the cost of two major projects blew out.

Fletcher Building refused to say which two projects were responsible, but chief executive Mark Adamson said on Monday "people did lose their jobs".

Hamilton Hindin Greene investment advisor Grant Davies said the downgrade to Fletcher Building's profit before interest, tax and significant items to between $610m and $650m for the 2017 year, from between $720m and $760m, was material but not disastrous.

This was because of the size of the company, which was worth about $5.8 billion.

Davies said the real hit was for investor sentiment and confidence towards management, after they had given the company some credit for turning underperforming divisions around.

The company's share price had touched $10.60 at the start of the year, but was down to $8.41 on Tuesday.

"Fletcher Building will have to work very hard to earn back the trust of investors after twin downgrades within a month," Davies said.

"The company has been a serial underperformer over the past few years, never managing to get all its ducks in a row."

The New Zealand Shareholders Association said on Monday the company had failed to tell investors how such a massive change had occurred, which suggested the problems might be systemic.

Association chief executive Michael Midgley said the downgrade raised questions about the ability of the Adamson to remain the boss at Fletcher Building.

But Davies said Adamson had earned his position by turning around a perennially underperforming business, and while investors would be disappointed, he should be given the chance to turn the latest situation around.

It was reasonably rare for a company of Fletcher Building's size to have a downgrade like this, he said, but big building projects could always cause big headaches and change quickly.

Whether this reflected something bigger remained to be seen, but Davies expected the company would maintain its dividend this year.

"The upper brass have cleared the decks in the buildings and interiors business unit, and will no doubt be taking a more hands on role to turn around its profitability.

"It would be very surprising if there were other major write-downs in the near term, but with $2.7 billion of work on their books, it's hard to say for sure."

Adamson said on Monday the company started a review of its building and interiors (B&I) business, responsible for the losses, last year.

The former head of B&I was "released" in September.

Greg Pritchard was the B&I managing director at Fletcher Building, where according to LinkedIn he worked for nearly 30 years, before departing last year.

Pritchard has not responded to requests for comment, and a Fletcher Building spokeswoman said the company did not comment on individual employment matters.

Adamson said the company would seek compensation for the programmes coming off track, but the focus for now was on getting the jobs finished in better shape than they were now.

"But there is no doubt the board and I and others who are in the business are preparing for compensation, let's just leave it at that.

"We're not taking this lightly."


Filed under General \ Grant Davies
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