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Fulton Hogan absorbs Stevenson assets, expects tougher times in 2019

Friday 2nd November 2018

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Fulton Hogan committed close to $300 million for its strategic purchase of Stevenson Group’s construction and quarrying activities.

The deal, announced in May, was to have included two quarries and four concrete plants and was intended to strengthen Fulton Hogan’s supply chain and ensure its long-term aggregate supplies for projects in Auckland and Waikato.

The Christchurch-based infrastructure and construction group’s accounts show the company had committed $304.3 million for the purchase of two Stevenson companies and for general plant as at June 30. The firm’s general plant commitments had totalled $16.7 million and $13.4 million in each of the two prior years.

Fulton Hogan subsequently opted to exclude Stevenson’s Huntly quarry from the deal, allowing the Commerce Commission to drop an investigation last month.

Privately-held Fulton Hogan builds and maintains roads, bridges, airports, and rail, water and energy projects. It works in New Zealand, Australia and Fiji. Recent major local projects include the $25 million Taramakau bridge opened on the West Coast in August, the $122 Western Belfast bypass in Canterbury, and the expansion of Christchurch International Airport.

Including the 182 Stevenson employees that joined it, the group now employs 7,963 workers, about 3,100 of them in Australia. That is up from 6,300 two years ago.

The company's net profit of $180.1 million for the year through June, was only marginally higher than a year earlier, despite a 28 percent jump in revenue to $4.67 billion.

Earnings before interest, tax, depreciation and amortisation increased 4.3 percent to $380.3 million.

The company said almost two-thirds of the revenue increase was from its Australian activities. New Zealand contributed 21 percent of the growth, with a softening of the average exchange rate accounting for 13 percent of the increase.

In a joint commentary, chair David Faulkner and managing director Cos Bruyn said all the firm’s divisions performed well, apart from Australian construction.

The company said 2019 will be challenging in New Zealand and Australia.

In New Zealand, the government’s infrastructure focus has moved from major road networks to rail and smaller projects, and a further slowdown in post-earthquake work in Canterbury is expected.

The forward order book in New Zealand is solid with 58 percent of next year’s revenue secured, but that is down from 66 percent last year, due to the shift away from large government construction projects.

“Our challenged projects in Australia are advancing in their delivery, with one completed already, and the board is considering all options to reduce our risk exposure associated with major projects in the new financial year.

“It is worthy of note that these challenged projects were secured in the very competitive environment that prevailed two years ago and are now being executed in very buoyant market conditions. The wider Australian pipeline continues to be strong.”

The firm will pay a final dividend of 35 cents a share. That takes the full-year payout to 60 cents, down from 64 cents the year before.

Paying out less than the firm’s target of 50 percent of net profit reflects the need to fund strategically important asset purchases, such as the Stevenson Construction Materials business, the company said.


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