'No one wants to live in Sydney': CEO hits out over tax

The British-born, Auckland-based CEO of a $4.4 billion Australasian company says New Zealand's tax regime is so far ahead of Australia's that all his new recruits want to move across the ditch. 

Fletcher Building chief executive Mark Adamson also tipped a bucket on any talk of an Australian infrastructure boom, saying the state of Australian politics has dented his confidence that projects will actually be delivered.

More Business Videos

What's the purpose of tax reform, anyway?

Peter Martin questions the government's motivation for tax reform.

Mr Adamson said that in contrast to New Zealand, Australia charged too much tax, through a system that was overly complex. 

"New Zealand is a very simple tax regime. I take five minutes to fill in my tax return and I'm a fairly complex tax person. The taxes are low and they simply encourage entrepreneurs to swing their bat and try new things," he said.  

Fletcher Building CEO Mark Adamson says the drop in construction should be gradual.
Fletcher Building CEO Mark Adamson says the drop in construction should be gradual. Photo: Carys Monteath

"And [that] is not to say that we don't have good public services." 

New Zealand's tax system was a global leader, he said.


"New Zealand is a great model and the best system I've seen and I've worked all over the world.

"When we recruit, people spend five minutes looking at the tax regime and they all want to move to Auckland. No one wants to live in Sydney."

'All talk'

Mr Adamson also renewed his criticism of Australia's infrastructure planning.

ASX-listed Fletcher supplies laminates, pipes, aggregates and other materials to the construction sector and has a market capitalisation of $4.4 billion. 

The company was aghast at the Victorian Labor government's decision to tear up the $6.8 billion contract to build Melbourne's East-West link and has previously accused Australia of being "all talk" on plans for $120 billion worth of new airports, roads, and rail lines.

Last week Mike Kane, chief executive of Fletcher's building products rival Boral, said a wave of road building, such as the mammoth NorthConnex project in Sydney, would give Boral its next earnings boost and drive the Australian economy forward as the housing boom faded.

Five minutes looking at the tax regime and they all want to move to Auckland. No one wants to live in Sydney.

Mark Adamson

But Mr Adamson, who operates a substantial Australian business, is less optimistic.

"I can totally understand Mike's enthusiasm, because if I run the numbers through my P&L [profit and loss] account it makes my life easier. But I'm less sanguine. How many prime ministers have we had in four years? Four? I'm not building my strategy in Australia on that infrastructure spend happening," he told Fairfax Media.

But he agreed the residential construction boom, running at record levels, would ease.

"The resi boom in Australia is a hell of a boom, I just don't see it continuing. It is more likely to drop from 210,000 [new dwellings a year] to 150,000 in the next few years," he said.

Earnings down

His comments come as Fletcher reported a 7 per cent slump in underlying profit to $NZ159 million ($148.6 million) and reaffirmed its full-year operating earnings guidance of $NZ650 million to $NZ690 million.

Underlying earnings, impacted by the wind down of the Stonefields residential project in Auckland, were in line with consensus expectations but analysts were unimpressed.

RBC Capital Markets analyst Andrew Scott said the group earnings fell short of his forecast by 10 per cent.

"We view this as a disappointing result that leaves a lot to do if FY16 [financial year 2016] guidance is to be achieved. We expect consensus earnings downgrades towards the bottom end of the guidance range," he said.

"This result also highlights that Fletcher is not necessarily 'making hay while the sun shines' on NZ construction markets, with earnings generally robust but not at the level we would expect at this point in the cycle."

Evans & Partners analyst Ben Chan said that margins in the core New Zealand business had disappointed for two years given the strength of the market.

Including significant items the company considers non-recurring, profit for the six months ended December 31 rose to $NZ172 million, up from $NZ114 million.

This half was boosted by a $NZ10 million gain on the sale of Rocla Quarries assets, while the previous half was negatively impacted by $NZ66 million of goodwill impairments and site closure costs.

Revenue for the period rose 2 per cent to $NZ4.4 billion.

Mr Adamson said he was not satisfied with performance to date and had made sweeping management changes in the past year as a result.

He said the company would move to "value-added" innovative building products to get more pricing power and become less dependent on commoditised building products.

Fletcher shares, which are listed in Australia and New Zealand, are down 24 per cent over the past 12 months.

The stock was down 1.6 per cent to $6.28 at 1:45pm AEDT on Wednesday.


Comment are now closed