Fulton Hogan lifts annual profit 11% as acquisitions help widen margins

Friday 16th September 2016

Fulton Hogan boosted annual profit 11 percent, outpacing revenue gains, as a number of acquisitions helped widen the tightly held civil construction company's margins.

Net profit rose to $168.7 million in the 12 months ended June 30 from $158.6 million, the Christchurch-based company said in a statement. Revenue advanced 5.9 percent to about $3.1 billion in what managing director Nick Miller described as a "challenging environment" where multi-national rivals have been attracted to the certainty of New Zealand and Australia's investment pipeline.

The bottom line was bolstered by the introduction of new technology, such as on-site mobile devices, research and development for specialist products and several acquisitions in the year, including quarries in Auckland, Waikato and Wairarapa, and a joint venture in Melbourne operating an asphalt plant.

"It's not huge topline but we're focused very heavily on driving efficiencies in our operation," Miller told BusinessDesk. "That's very much of the Fulton Hogan strategy is the vertically integrated business. In New Zealand, that's in a reasonably mature state. In Australia, there's still a lot of opportunity for infill in that strategy."

The construction firm has been focusing on strengthening its balance sheet as part of a share buyback with former cornerstone investor Shell, which has included selling non-core assets and reducing debt.

Miller said Fulton Hogan's gearing ratio - a measure of debt to equity - was down to 26 percent from 35 percent in 2015, and that there was plenty of headroom to fund any new acquisitions. He sees Australia's regional towns as offering the biggest opportunity, with Fulton Hogan generating $1.6 billion of revenue across the Tasman in a market with a notional value of $84 billion.

"There's significant opportunity for us to grow in that market, but we've been very deliberate," Miller said.

Spain's Ferrovial delisted Australia's Broadspectrum after taking over the former Transfield Services earlier this year, while ASX-listed Cimic, once known as Leighton Holdings, is controlled by Spain's Grupo ACS. On this side of the Tasman, HEB Construction was acquired by France's Vinci Group last year.

Miller said the merger and acquisition activity was a result of a deliberate strategy where New Zealand and Australian governments provide "certainty of pipeline for infrastructure spend" at a time when infrastructure investment in Europe had subsided.

"Unquestionably, the pipeline of work is an attraction for them given where their current operations exist in Europe and North America," he said.

Fulton Hogan touts its local knowledge, flexible 6,294-strong workforce, and ability to operate and maintain projects after they're completed when pitching to join consortia for major projects, he said.

Miller said the level of activity was varied across the company's regions, with New South Wales and Victoria growing strongly in Australia whereas South Australia and West Australia were soft. Fulton Hogan's National Broadband Network contracts across the Tasman were helping make up for the downturn in mining

In New Zealand, where Fulton Hogan generated $1.4 billion of revenue, Auckland was still strong, though Christchurch work was expected to taper off as the Stronger Christchurch Infrastructure Rebuild Team (Scirt) work winds down, and last year's slump in dairy prices was still weighing on regional work.

The company's forward order book was $1.9 billion for 2017, up 10 percent from a year earlier.

Fulton Hogan declared dividends of 62 cents per share in the 2016 year, up from 53 cents a year earlier.

The company reduced its total recordable injury frequency rate to a record 4.8 from 6.7 in 2016. Miller said the alignment of Australia's and New Zealand's health and safety legislation meant the Kiwi operations had benefited from the company's experience across the Tasman.

Miller leaves the company at the end of March. Fulton Hogan's search for his replacement is "on target", he said.

BusinessDesk.co.nz

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