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Fulton Hogan profit falls 7%, lowest returns in five years

Monday 3rd October 2011

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Fulton Hogan, the closely held construction company, reported a 7% decline in full-year profit as finance costs rose and it spent more buying back Shell New Zealand’s stake and taking a related impairment.

Net profit was $73.9 million in the 12 months ended June 30, from $79.5 million a year earlier, according to the company’s 2011 annual review, mailed to shareholders after media releases focusing on its 13% increase in operating earnings to $104.5 million.

Tax paid return on assets, at 4.5%, was down from 5.1% and the lowest in the last five years.

Returns on shareholders' funds and revenues were also at five year lows, reflecting both tough economic conditions and the cost of digesting major acquisitions.

Sales climbed to $2.4 billion from $2.1 billion.Chairman Ed Johnson said the year ahead “offers no respite” from the sluggish global and regional economic environment in Australia and New Zealand.

While the two nations have escaped the worst of the downturn in the rest of the world, “there appears no easy way out of a slow pace of recovery.”

In the latest year, finance costs jumped 58% to $38.2 million, reflecting financing for the $163 million acquisition of the remaining half of Australia’s Pioneer Road Services.

It also recorded $18.5 million of interest related to the buyback of Shell’s stake, up from $13 million in the previous year, and an impairment of $13 million related to an interest expense on the transaction.

The acquisition of the rest of Victoria-based Pioneer lifted its share of annual revenue from Australia to 59%.

The company ended the financial year with a forward order book of $3.2 billion, up 10% from a year earlier. Orders were helped by the company winning a share of the government’s roads of national significance programme, which made major roadways a funding priority.

The company said the New Zealand infrastructure sector “will continue to be highly competitive” reflecting the long-term impacts of the global economic downturn, the increasing cost of fuel and bitumen and the government’s decision to redirect funding to the earthquake recovery costs.

Its Australian operations performance was impacted by drought, with only 70% of budget delivered, it said. The Australian infrastructure sector “remains strong, buoyed by the booming resource sector and flood remediation works in Queensland,” said Andrew Rosengren, Australian CEO.

The company’s strategic projects division is anticipating a 300% jump in revenue in the current year, it said.

The company will pay a final dividend of 13 cents a share, making 20 cents for the year, up from 17 cents in 2010. The total paid out in dividends was $29 million, down from $45.9 million.

In Fulton Hogan’s New Zealand operations, revenue was 17% ahead of budget and topped $1 billion. Earnings also came in ahead of budget, the company said in the report, without giving figures.

Fulton Hogan agreed to buy back Shell’s stake in tranches, and the stake has shrunk to 16% currently from 37%. It will have bought all of Shell’s stake by 2014.

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