Hutchinson Builders reports a ‘rubbish’ 80pc slump in profit

The company widely known has Hutchies avoided the troubled $3.6 billion integrated hotel and casino Queens Wharf project – in which builder Multiplex and client Destination Brisbane Consortium are mired in a mass of claims and counter claims – but has its own problems.

Mr Hutchinson said residential projects in Brisbane, including developer Stockwell’s 124-unit mixed-use Croft & Cremorne in South Brisbane and JGL Properties’ 14-unit Thornton in Kangaroo Point were “not good for me”.

Gold Coast was the most problematic, he said. The company’s website shows a string of residential, commercial and health projects from Southport to Coolangatta.

Projects in the coastal strip include Belvedere and Lagoon Main Beach in Main Beach, Luxe Broadbeach, Dawn at Mermaid Beach, Mondrian Hotel at Burleigh Heads, The Tally, 474 Esplanade and Seaclusion at Palm Beach and The Del Rey at Coolangatta.

“Nothing stacks up on Goldie at the moment,” Mr Hutchinson said. “Building prices are too high.”

The builder, whose company began in 1912, told the Financial Review last month that the Reserve Bank of Australia’s estimate that 30 per cent of building companies were cashflow-negative was an understatement.

Booming demand was a problem for construction companies because they triggered a surge in costs in a sector with fixed capacity, Mr Hutchinson said on Tuesday.

“Just when you win a whole lot of work, if the whole world wins a whole lot of work you get caught with fixed prices and all your subcontractors raise their prices because they don’t have enough people,” he said.

“All of a sudden your costs go well above your contract value and you lose money.”

Hutchies’ results show that even as revenue jumped 17 per cent to $3.1 billion in the year to June, costs rose almost 19 per cent to $3.1 billion. Gross profit margin slumped to $36.3 million from $63.2 million, halving the gross margin to 1.2 per cent from 2.4 per cent.

The financial report gave little forward-looking detail.

“Likely developments in the operations of the entity and the expected results of those operations in future financial years have not been included in this report as the inclusion of such information is likely to result in unreasonable prejudice to the entity,” it said.

The results disclosed the value of cash tied up in bank accounts under Queensland’s project bank account system intended to protect payments received for payment to contractors rose to $71 million in the year to June from $3.4 million a year earlier.

The Australian Constructors Association this week railed against the Queensland-style trust system, saying it “distorted” the market. Mr Hutchinson declined to criticise it, however.

“It’s not great for the industry but it certainly weeds out the under-capitalised builders from doing anything, which is probably a good thing,” he said.

Commercial projects are only subject to the project bank account regime if they are worth $10 million or more, but next year the threshold will drop to $3 million, which will tie up cashflow for contractors doing smaller projects, one industry figure said.

“That’s when we’re really bringing in chook sheds,” the person said.