AGMs/Updates: Bad News

Sydney, Oct 27, 2008 (ABN Newswire) - Call it bad news Friday, when a string of earnings downgrades were issued by companies large and small at annual meetings, or ahead of meetings in coming weeks.

It was a smaller version of the spate of bad news on global markets Friday night that saw cars, banks and retailers downgrade earnings and production levels in the US, Europe and Asia.

Boral Ltd shareholders at Friday's annual meeting in Sydney knocked back the company's remuneration report for the year as a sort of 'punishment' for more bad news on earnings.

After a couple of downgrades in 2008, 2009 was always going to be tough.

The vote went against accepting the remuneration report, but that was largely symbolic.

But it's clear shareholders are not happy with the money being paid to CEO Rod Pearse

Friday's AGM heard an update that said full-year earnings may fall 18% or more as US housing starts slump and profit at home will be "significantly'' less than a year ago.

Net income may fall to around A$200 million ($134 million) in the year ending June 30 if the Australian dollar averages about 70 USc for the period, Sydney-based Boral said today in a statement to the Australian Stock Exchange. The company reported profit of A$242.8 million in fiscal 2008.

Seeing the Australian business contributed 96% of earnings in 2008, any further weakness here would have a dramatic impact, and that's what happened, especially after this statement in August with that 2008 profit announcement that seemed to suggest better returns were possible seen.

"We expect that in Australia we will see a further lift in Construction Materials earnings and Building Products will be broadly steady.

"In the USA, increased benefits from structured cost reduction programs will be delivered but we expect US earnings to decline further with housing starts of around 900,000 compared with 1.13 million in FY2008.

"We expect continued competitive market conditions and input cost pressures in Asia, particularly in Construction Materials. We will provide an update on trading conditions at the AGM on 24 October 2008." CEO Rod Pearse said in the 2008 profit announcement in August.

So Boral has now forecast that profit will drop for a fifth straight year to its lowest since 2002.

Not helping is the credit crunch, as Mr Pearse explained on Friday:

"We are seeing an increased rate of deferrals for some large non-housing projects in Australia including commercial, industrial, and multi-residential buildings. This is a reflection of tighter credit and higher borrowing costs."

"The first home buyers boost from the Federal Government isn't expected to see any impact at Boral until well into next year.

"Construction materials profits in Australia for the September quarter were above the prior year. We expect this trend to continue during FY2009. The improved construction materials result has been driven by stronger prices and by effective operational improvement initiatives; concrete market volumes are broadly comparable with last year. Concrete and quarry prices have lifted well year-on-year as the April and August 2008 price increases flow through.

"Cement price increases were effectively implemented on the east coast in August and September and cement and lime volumes are up on the prior year.

"Australian dwelling starts weakened to an annualised rate of around 145,000 starts in the September quarter and the performance of our Australian building products businesses was well below the prior year.

"Reducing interest rates and improvements announced in October 2008 to the First Home Owners Grant will over time significantly improve housing affordability but these initiatives will not favourably affect our Australian businesses until well into 2009. We expect that building product profits for the full year will be significantly below the prior year.

"We expect continued growth and competitive market conditions in Asia for the remainder of FY2009. First quarter results were similar to last year and Asian earnings should be better than last year's levels.

"Since year end, US housing permits and starts have continued to decline and earnings from our brick and roof tile businesses will be below last year despite the significant step change cost reductions which are being progressively implemented.

"Construction materials results have been adversely affected by the deterioration in US residential and commercial markets since year end and by adverse weather conditions. Full year US construction materials earnings are expected to be below the prior year."

So it's no wonder Boral shares ended down 45c, or more than 8.8% at $4.63 on Friday and hit a new 52 week low of $4.61 in trading after the AGM.

Boom Logistics has had a tough year or so with management problems, weather problems hurting business in some states and a mixture of other factors that cut 2008 earnings.

On Friday the annual meeting of the Melbourne-based crane hire and mining services group heard that there's confidence the company is well positioned to weather the economic downturn as it recovers from that challenging period.

Boom shareholders were told the company was not immune to the economic downturn, but the company's diversification and limited exposure to the residential sector would bode well for future earnings.

It's a message that obviously had some strength. Boral fell sharply on a tough day's trading because of a gloomy outlook. Boom shares edged up 1.5c to 99c when the overall market was off 2.7%. 

That was after the shares had slumped to a day's low of 92c after the AGM, so there was a late rally of sorts.

Boom's newish CEO, Brenden Mitchell told meeting: "What I can say with confidence is that we are well positioned in terms of the market sectors where we have the greatest exposure".

He said the volatile economic climate made it difficult to make short term predictions with confidence, but noted analysts prediction of net profit between $22 million and $29 million for the financial year. 

First quarter results at $7.5 million, which was better than the $6.5 million earned in the 4th quarter of 2008. Mr Mitchell said this was a "significant improvement given where we are on the improvement path".

"In attempting to look forward I can still see circumstances where the upper end of this range could be exceeded," he said.

"I also recognise that if customer projects are delayed, general service demand softens or crane sales fall significantly, this upper end would represent a stretch target for us."

The crane hire and mining services provider was forced to downgrade its forecast for underlying earnings last year a couple of times after its rapid growth through acquisitions masked underlying integration issues in the business. Senior management was changed during the year and other changes made.

"There is still much to be done but the issues have been identified, the required remedies are in focus and the business turnaround is making solid progress," chairman John Robinson told the meeting.

Still in Melbourne and the poor news continues for PaperlinX Ltd.

Friday's AGM was told the company expects weaker conditions to continue in fiscal 2009, which is not the best of background for those continuing talks over the possible sale of its Australian Paper unit.

The company is looking to sell assets to complete a fund raising needed under the terms of new banking arrangements.
Chairman David Meiklejohn told shareholders that the company's performance will continue to be affected by paper prices and currency movements that depressed the first quarter results.

"The market weakness evident in May and June of the 2008 financial year has continued into the current financial year and depressed the first quarter results. We expect the weaker conditions to continue to prevail in the first half. PaperlinX's financial performance will continue to be affected by, among other factors, demand, paper prices, input costs and currency relativities," the chairman said.

"Recently currency has moved in a positive direction for PaperlinX, although external conditions remain volatile."

The Board decided to explore rolling early the one year tranche of the company's multi-currency funding facility due in February of next year.

"This was successfully negotiated with our banks by the end of September 2008 and as part of this process we agreed to reduce the overall facility by $150 million by May 2009," the chairman told the meeting.

"In early October, to remove uncertainty over the source of funding to affect this, we implemented a non-renounceable entitlement offer to our shareholders. This raised some $150 million from institutional shareholders. The entitlement offer to our retail shareholders, which could raise up to $77 million if all retail shareholders participate, closes today.

"The net proceeds from the entitlement offer will be used to repay debt and will strengthen the underlying financial platform of the Company."

To raise the extra money, the company started a 'strategic review of the Australian Paper unit. That resulted in talks with several interested parties, but at this stage no decision on a sale has been reached, managing director Tom Park told the meeting.

"All parties are also aware of the improved external environment developing for Australian Paper following years of more negative external trends," he said.

"This half is as difficult for us as it gets," he added.

PaperlinX shares ended steady at $1.40 on Friday, not a bad effort in the overall weak market.

Shares in retirement homes operator Aevum Ltd fell on Friday in the wake of a gloomy AGM in Sydney.

The shares lost 4c to $1.39, and probably should be lower except for the big foot that Stockland has on the company with a shareholding and underwriting deal that could see it emerge with a dominant minority position.

Friday's AGM was told that 2009 net profit is likely to fall by up to 20%, thanks to the slowing economy.

Chairman Graham Lenzner said the earnings decline will be the company's first since it listed in November 2004.

He said that the 2009 year "is clearly going to be a most demanding year for the business community.

"For Aevum - while our likely first decline in earnings since listing is disappointing - we are hopeful that it will only be temporary and that greater certainty and stability will return to set the stage for a profit recovery in 2009/2010."

Mr Lenzner said that "when releasing our results to the ASX some nine weeks ago we declined, because of the abnormal market conditions and growing financial uncertainties, to include profit guidance for the current financial year.

"Forecasting profitability is a hazardous task at the best of times. Trends are emerging and turnover of existing units, sales price growth and valuations are being negatively impacted by the many uncertainties and current financial and economic conditions.

"While we remain confident that operating cash flow will exceed last years $20.4 million and our annual dividend of 9 cents per share will be maintained, net profit is likely to decline in the range 10% to 20%, assuming no further significant deterioration in housing prices

"2008 - 2009 is clearly going to be a most demanding year for the business community. For Aevum - while our likely first decline in earnings since listing is disappointing we are hopeful that it will only be temporary and that greater certainty and stability will return to set the stage for a profit recovery in 2009 - 2010."

Aevum reported a net profit of $28.55 million for 2008, up from $22.93 million in the 2007 year.

Earlier this month, Stockland Group acquired a 14.4% stake in Aevum from Babcock & Brown for $26.9 million.

The property developer has said it wants to increase its presence in the retirement living sector.

And more gloomy news for shareholders in paintmaker Wattyl Ltd on Friday which saw the company's shares fall to the lowest level on record.

Earlier in the week it downgraded its 2009 profit outlook and revealed more cost cutting measures. On Friday the company went further and said it did not expect earnings to improve this year.

So Wattyl shares fell to an all time low of 98.5c, before ending at $1.00, down 1.5c on the day.

Managing director John Nolan told shareholders at the company's annual general meeting the outlook was pessimistic.

"The prospects for the new housing sector in both Australia and New Zealand still remain pessimistic, with no improvements predicted for this current financial year," he said.

"Trading expectations in the current economic climate remain uncertain."

Wattyl said earlier in the week that revenue for the first quarter of 2008-09 was down 5.5% from the same period last year.

"While this first quarter trading may not be a true guide, given the impact of the market changes underway ... the company remains cautious on the outlook," Dr Nolan said.

"As outlined in our trading update earlier this week, given the uncertain economic and market environment, it is difficult to predict with confidence our expected performance for the year.

"However, assuming the trading environment does not deteriorate further, with the timing of the benefits from our cost reduction initiatives in the second half, we anticipate the first half EBIT (before 'non-recurring" items) to be around break even and the second half performance to be more in line with last year.

"The final outcome is dependent on the extent and length of the changes, and slowdown in the market, the success of our sales and market initiatives, the effectiveness of the cost reduction program, and the effects of the increased competitive environment we are operating in," Dr Nolan told the meeting.

Melbourne-based whitegoods and consumer entertainment retailer, Clive Peeters, has joined larger rival, Harvey Norman, in being hit hard by the slump in demand for the company's products.

Harvey Norman has been detailing its falling level of same store sales for the past fortnight: they are down an average of more than 5% over the five weeks to last Sunday, October 19.

But Clive Peeters is doing it much tougher.

The retailer said in an update on Friday that it expects to post a loss in the first quarter of fiscal 2009 because the slump in consumer confidence has meant subdued trading since July.

The company said conditions would remain challenging for the remainder of 2008-09 but hoped (like Boral and Harvey Norman and a host of other companies) that the government's recent economic stimulus package and interest rate cuts had improved prospects for the Christmas trading period.

The company said it expected a net operating loss of around $1 million for the three months to September 30.

"Despite the FY 2009 year starting well with Delivered Sales being over Budget for the month of July, sales for August and September were below Budget expectations (6% and 12% respectively).

"Like for like Delivered Sales for Clive Peeters over August and September 2008 compared to the corresponding months in the previous year fell 10% and 14% respectively.

"Weaker floor traffic accounted for the sales decline, with sharp falls across all States in August and in September 2008.

"The main contributor appears to be the significant impact on consumer confidence due to the unprecedented events affecting the global and Australian financial sectors, and availability of credit, and emerging concerns about job security, adding to concerns about interest rates, fuel costs and costs of living.

"The combination of these events has created a climate of fear and uncertainty amongst consumers.

"Industry statistics provided by Narta International show that the overall market over August 2008 was down 23% by comparison to July 2008. On a comparable basis Clive Peeters was down 15%. No official industry figures are yet available for the month of September.

"Margins have been under pressure over August and September 2008 with retail competitors increasingly conducting their businesses with preservation of cash flow as the priority."

The Company said it had cut costs by $12 million on an annualised basis, and costs continue to be managed in line with Budgets.

"Other cost reductions are under consideration if the market does not improve over the December 2008 quarter."

The Company said it has reduced inventories by $16 million over the September 2008 quarter and capex for FY 2009, previously forecast at $7.5 million, is now expected to fall below $5.0 million.

Apart from two new stores opening in Coburg Victoria and Townsville Queensland over the December 2008 quarter, all new stores will be put on hold until the retail cycle improves.

"The board believes that the overall outlook for retail has improved as a result, giving better prospects for an improved Christmas trading period, and beyond.

"Notwithstanding the improving sentiment the board believes that retail conditions for at least the remainder of fiscal 2009 will remain very challenging."

No wonder the shares fell Friday to an all time low of 35c. The 2c drop was a fall of 5.41% in a market down 2.7% overall.

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