Fulton Hogan to keep $33m wage subsidy despite bumper profit, shareholder dividends

Fulton Hogan recorded a $211m net profit in 2020 but says the outlook is uncertain due to Covid-19. Photo / File

Engineering and civil construction giant Fulton Hogan will retain about $33.3 million received from the wage subsidy scheme, despite recording a bumper $211m net profit for the year to June 2020.

The privately owned company said it wished to maintain a conservative financial position amid global and local uncertainties.

The strong result – up 27.7 per cent on the previous year – allowed the Christchurch firm to pay out $83.78m in total dividends to its shareholders for the 2020 financial year.

Major shareholders include the company's founding families, the Fultons and Johnstones, whose net worth was estimated at $450m and $315m respectively in 2019.

Fulton Hogan, which is involved in a mix of private and public construction projects, including major road maintenance and government infrastructure contracts, released its financial statements on Friday.

Its balance sheet showed total assets of $3.16 billion at June 30, 2020, and net equity of $1.2 billion. Total borrowings at that date were $774.8 m while employee entitlements, mostly due in the following 12 months, totalled $149 million. Net debt declined to $400.7m at balance date.

Total revenue for the year was flat at $4.6 billion.

Fulton Hogan initially received $34.3m in wage subsides to cover 4883 staff as the country went into Covid-19 Alert Level 4 lockdown in late March. The Ministry of Social Development's employer search tool shows the current figure at $33.315m.

"At the end of September, following a full reconciliation we made a partial reimbursement to MSD," a Fulton Hogan spokesperson told the Herald when asked if the company intended paying back any of the taxpayer money.

"Our intention is to retain the remaining wage subsidy in line with the objective and criteria of the scheme."

The comments come as some companies come under public pressure to return wage support payments after posting increasing profits. Retailer Briscoe Group last month announced it was returning $11.5m as sales rebounded after lockdowns.

Briscoe had earlier reported a $28m half-year profit and announced a $20.3m dividend payout.

Seventy per cent of the Fulton Hogan's 4500 New Zealand-based employees were unable to work during the Level 4 lockdown in response to Covid-19.

Fulton Hogan is facing different challenges from Covid-19 and said in its annual report it needed to maintain a conservative financial position due to an uncertain outlook both here and overseas.

Given the uncertain outlook, the board decided to declare a reduced final dividend of 33c a share – down from 36c last year – taking the annual dividend to 57c compared to 60c in 2019.

"After a strong first-half financial performance across most of our business, the subsequent impact of Covid-19 caused significant business interruption in the second half of the year, in particular in New Zealand," managing director Cos Bruyn said.

"The abrupt and severe curtailment of works during the six-week, Covid-19 Alert Level 4 lockdown saw over 70 per cent of the company's 4500 New Zealand-based employees unable to work.

"This situation was actively managed, with directors, and New Zealand-based executives and other employees taking a 20 per cent cut in remuneration, and special leave provisions put in place for employees. With the support of the Ministry of Social Development Wage Subsidy scheme, and significant financial commitment from Fulton Hogan, all New Zealand-based employees, working or not, were able to be maintained on 80 per cent pay as a minimum, despite the company incurring a significant loss in New Zealand in April."

The financial result, he said, reflected a strong turnaround for the company in the Australian market where profit before tax climbed 89 per cent on the previous year.

Last year, Fulton Hogan tried unsuccessfully to sell its Australian civil construction unit, having cited troubled Australian projects as the main reason for its 2019 first-half profit dropping by a third.

In New Zealand Fulton Hogan picked up more annual maintenance work, winning the Dunedin City Council, Wellington City Council CBD and Southern Districts, Rotorua District Council, Christchurch City Council Banks Peninsula and Waka Kotahi NZ Transport Agency Marlborough road maintenance contracts.

However, Bruyn said the outlook remains uncertain on both sides of the Tasman, with local government in both countries facing lower budgeted incomes, along with deferred capital expenditure in the private sector, as companies move to strengthen their balance sheets in the short-term.

There was also uncertainty about fiscal stimulus programmes in both Australia and New Zealand.

"While both governments have spoken of additional investments into infrastructure and 'shovel-ready' projects, the speed at which these major projects are likely to come to market, and our fortunes in gaining our share, are still unknown," Bruyn and chairman Dean Hamilton noted in the just released annual report.

"In both countries, it will be months before construction activity will begin on projects coming to market, and there is certainly a feeling that in the coming year, there is more risk than opportunity compared to the same time last year.

"Notwithstanding the potential challenges ahead, morale is high, and the business is well-positioned for the future."

The annual report showed Bruyn was paid $1.6m in 2020 up from $1.5m in 2019, despite the reduced salary during lockdown.

The company had a total of 3618 staff earning more than $100,000 in 2020, up from 3455 in 2019.