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UPDATE 3-NZ's Fletcher Building sees NZ$160 mln loss as high costs, worker shortages hit
October 24, 2017 / 8:57 PM / a month ago

UPDATE 3-NZ's Fletcher Building sees NZ$160 mln loss as high costs, worker shortages hit

* Building division suffers further NZ$160 mln earnings hit

* Fletcher appoints former UGL head Ross Taylor as CEO

* Major issues linked to two NZ projects

* Incoming NZ govt seeks to build more, while cutting immigration (Adds economist quote, NZ election impact)

By Jonathan Barrett and Ana Nicolaci da Costa

Wellington, Oct 25 (Reuters) - Fletcher Building Ltd said on Wednesday its 2018 financial year earnings would be hit by a NZ$160 million ($110.38 million) loss before interest and tax at its building business as project cost overruns and labour shortages continue to weigh on New Zealand’s biggest construction company.

The hit to earnings was released amid post-election debate in New Zealand over how the government will meet worker shortages in the construction sector while also fulfilling a pledge to cut immigration.

The inability to manage costs at major projects in the New Zealand cities of Auckland and Christchurch has plagued Fletcher recently, leading it to lower two earnings forecasts earlier this year. The NZ$160 million hit is the first guidance issued for 2017-18.

Fletcher chairman Ralph Norris said the company had taken remedial action and improved its practices around bidding, contracting and managing future projects.

“However, these measures will only go so far in altering the trajectory of our legacy projects that commenced some time ago,” Norris said in a statement.

Fletcher also said on Wednesday it had appointed Ross Taylor, who formerly headed engineering and construction company UGL, as its new chief executive, effective Nov. 22. Former chief executive Mark Adamson stepped down in July.

The company’s stock is one of the worst performers on the New Zealand main index so far this year, losing about one-quarter of its value. The share price fell more than 5 percent after a trading halt ended on Wednesday morning, before recovering slightly in afternoon trade.

“I guess investors only have so much patience, they will be looking for expectations that this is as bad as it gets,” said James Smalley, client advisor at New Zealand investment advisory firm Hamilton Hindin Greene.

“I think they just need to stem the bleeding from a couple of their long-term legacy contracts.”

In August, the company reported an 80 percent plunge in fiscal 2017 earnings to NZ$94 million, hurt by a NZ$292 million loss in its building unit.

POLICY BALANCE

While the company is tapped into New Zealand’s strong economy, parts of the business have been hit by cost blowouts and poor project decisions in a country where labour shortages, high material costs and supply constraints have undermined profits.

The Registered Master Builders Association of New Zealand is searching overseas for workers to fill an apparent void at the same time as the incoming government seeks to radically wind back immigration.

Labour leader Jacinda Ardern is due to be sworn in as the country’s next prime minister on Thursday, one week after securing office through the formation of a coalition with New Zealand First and negotiating a “supply and confidence” arrangement with the Greens in the wake of a closely fought election.

Labour has pledged to cut immigration from its current annual rate of around 70,000 by as much as 30,000, while also pursuing a major infrastructure and affordable housing building program.

“The government itself will be creating demand for construction workers at the same time as wanting to tighten up on immigration,” said Nick Tuffley, chief economist at ASB, owned by Commonwealth Bank of Australia.

“How immigration is tightened up and the extent to which the brakes are put on will matter.”

$1 = 1.4495 New Zealand dollars Reporting by Jonathan Barrett and Ana Nicolaci Da Costa in Wellington; Additional reporting by Christina Martin and Devika Syamnath; Editing by James Dalgleish and Christopher Cushing

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