Fulton Hogan lifts annual earnings 43%, looks to grow water, rail, airport units

Monday 29th September 2014

Fulton Hogan, the privately held construction firm, lifted annual earnings 43 percent as it cut its costs in the face of falling Australian revenue, and is looking to grow its water, rail and airport units.

Net profit rose to $138.2 million in the 12 months ended June 30 from $96.5 million a year earlier, the Christchurch-based company said in a statement. Revenue fell 11 percent to $3.24 billion as a strong New Zealand dollar eroded export earnings, and on reduced Australian construction activity as the federal government clamps down on spending. Still, the construction firm achieved an increased profit after several distressed projects were completed and it eked out $26 million in savings from better procurement processes.

Part of the gain came from Fulton Hogan expanding its new units in water, rail and airports beyond its traditional road business, and they now account for between 10 and 15 percent of the group's annual revenue.

"We've made significant traction around the diversification of our brand and our activities this year, particularly into the rail, which we'd commenced last year, water, and airports space again," managing director Nick Miller told BusinessDesk. "The driver there strategically is whilst roading will always be at the heart of our DNA, building a broader capability is critical in terms of our long-term future growth."

Fulton Hogan's Australian businesses underpinned its bounceback in earnings last year after profit in the prior year was eroded by impairment charges on distressed projects, including the problematic Pacific Highway joint venture in New South Wales, which has since been completed.

Miller said Australia's federal budget deficit meant the company anticipated leaner times across the Tasman, and was taking a cautious approach to Australian construction projects to reduce its risk.

That means it won't participate in major public-private partnerships such as the $4 billion East West Link project in Melbourne. Rather, Fulton Hogan will seek to manage its exposure by taking elements of projects.

Miller said he was also encouraged by the New Zealand government's plans for regional road projects.

Fulton Hogan's future order book sat at $2.6 billion, down from the $2.8 billion figure it gave in March.

The company continued to improve its health and safety record, with a 21 percent improvement in total recordable injury frequency rate (TRIFR) to 7.6, and Miller said the firm is continuing on a drive to achieve zero harm.

He confirmed the company had almost completed its buy back of shares from former cornerstone investor Shell, and should wrap that up with a final payment in December.

Once that's completed, Fulton Hogan will return its dividend policy to paying out 50 percent of net profit after tax, from its current 35 percent level.

The company has almost completed its divestment of non-core assets, with some parcels of land available in Australia. It has been exiting those businesses for the past couple of years, using the funds to retire debt, and Miller has previously said the aim was to bring company's balance sheet to the equivalent of a BBB credit rating in 2015, once the Shell buyback was complete.

BusinessDesk.co.nz

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