May 29, 2009
Fulton Hogan eyes Aussie expansion
Big here but minnow size in Australia
by Graeme Kennedy [NBR]Roading contractor Fulton Hogan is actively seeking more opportunities for expansion in Australia through acquisitions, managing director Dave Faulkner says.
“Our Australian turnover is around $750 million a year and we want to grow there but not in a silly way,” Mr Faulkner said. “We will bed down what we buy before making more purchases. In Australia we are a small fish in a very big ocean but there are a lot of opportunities in government-funded infrastructure including roading.
“We bought Pioneer Road Services, a $400 million company, a few weeks ago in a 50-50 joint venture with our 37% shareholder Shell Oil. And in New Zealand where our turnover is $1 billion we welcome the acceleration of roading projects and infrastructure expansion driven by the National government and providing work at a time when jobs are disappearing.
“Longer term, New Zealand, like other countries, is addressing major deficits in energy, water and sewerage treatment work.”
Fulton Hogan topped the infrastructure sector in The National Business Review’s monthly Exciting Companies series with a 71 rating in surveys conducted by strategic business consultancy New River.
Downer EDI Works, DCM Process Control, ARTA and BF Barrett Contractors were next in the rankings (see table.)
Jules Fulton and Bob Hogan started their small roading business in Dunedin 76 years ago. it grew throughout the South Island, with Shell becoming a 25% shareholder in 1981. Shell is about to sell its downstream businesses in New Zealand but has said it will keep the Fulton Hogan stake which has risen to 36%.
In 1983 the company began its first offshore project — laying 80,000 tonnes of asphalt at Nadi Airport in Fiji, the first of many around the Pacific including Papua New Guinea, Samoa, Niue and Norfolk Island.
Acquisition-driven expansion into the North Island followed with Shell increasing its stake to 37% in 1989.
Mr Faulkner said Fulton Hogan had run a small operation in Brisbane since the early 1980s and in the 1990s won a long-term West Australian government road maintenance contract in a joint venture with Pioneer.
“We then made several acquisitions and are now in all state capitals with around 1100 stuff,” he said.
Fulton Hogan had in the late 1960s diversified into the waste business in Dunedin and through acquisitions and mergers expanded nationwide to become EnvironWaste, a fully owned subsidiary in 2002.
“We sold it to Ironbridge Capital two years ago,” Mr Faulkner said. “At the time it was a good opportunity and waste was not a long-term strategy — our core business is roading. Selling it gave us money for the Pioneer purchase and some new ones when the time comes.
“Pioneer has 37 asphalt plants in Australia and we have 18 and several aggregate quarries in New Zealand. We also reconstitute asphalt and have built a completely recycled road in Christchurch
— we want to be a fully sustainable company.”
Fulton Hogan is a joint venture partner with Dannemora Trust in land development with the last of 4000 sections near Howick, south Auckland, sold in the past six months and 3000 at Orewa due to sell soon.
Mr Faulkner will retire at the end of this year after 23 years with Fulton Hogan, the last eight as managing director.
EVENLY DIVIDED
Infrastructure business conditions vary widely depending on which of three main areas companies operate in, says New River in its survey of the sector.The strategic business consultancy found 35% of respondents rated conditions difficult and 30% buoyant with 25% neutral while 5% said they were very difficult and the same number very buoyant.
New River found private developments had decreased due to a lack of financing and the falling property market with some companies reporting business shrinkage of up to 75%.
“One leading executive in the private sector said private infrastructure was dead,” the survey said, “although those businesses in asset management were still doing okay. Local authority work suchas water and sewerage systems is a mixed bag as councils try to reduce spending to hold costs down as the recession cuts rate-payers’ incomes and wealth.”
New River said, however, that government and SOE work including transport, broadband, power and water were reported to be strong with capital investment of $40 billion expected in the next 10 years — double that of the last decade.
“An underlying trend is that infrastructure was under-invested
previously and is catching up,” it said.
“With reduced work there is increasing competition in the sector and it is likely that while some companies will do well others will not and there will have to be consolidation in the next 12 months.”
Business conditions
Respondents’ rating of current business conditions in the INFRASTRUCTURE SectorVery buoyant =5%
Buoyant =30%
Neutral =25%
Difficult =35%
Very difficult =5%
Top 10 INFRASTRUCTURE
Rank / Company/ Excitement rating1 Fulton Hogan 71.0
2 Downer EDI Works 69.3
3 DCM Process Control 68.7
4 ARTA 65.0
5= PF Barrett contract 61.9
5= Harker Underground Construction 61.9
7 TrustPower 61.5
8 Duffill Watts 58.4
9 Hawkins Construction 51.9
10 Common Ground Urban Design & Construction 49.6
