It’s not that often you see such a positive reaction to a financial loss as we saw yesterday with the market’s almost joyful acceptance of Fletcher Building’s first loss in eight years.
The market boosted the shares 7% in trading yesterday, or 40 cents, to $6.10 after the loss was revealed in yesterday’s profit statement.
The reason was simple, the $NZ46 million net loss was smaller than the market had been thinking, which, given the company operates in the US housing sector which has been damaged beyond belief, as well as the recessed Australian and NZ home building industries, was a credible outcome.
Fletcher (FBU) is the world’s biggest maker of laminated building products, a title it assumed when it took over Formica Corp in 2007 just before the crunch hit and then the recession.
The 2009 loss compares with the $NZ467 million profit in 2008 and market estimates for one around $NZ70 million.
The latest result was struck after $NZ360 million of write-downs and closure costs for Formica plants, mostly in the US.
"As foreshadowed in April 2009, unusual items of $360 million were incurred, giving rise to a net loss after tax and minority interests and unusual items of $46 million.
"Unusual items comprised charges for restructuring and manufacturing capacity reduction initiatives, and the impairment of certain assets," the company said in its profit announcement yesterday.
Seeing the company paid around $NZ980 million for Formica, the losses have made it a very substantial acquisition and one that has been very painful financially.
Excluding these one-time items, net income fell 33% to $NZ314 million. Sales rose just 0.2% to $NZ7.1 billion.
The company will pay a second-half dividend of 14 NZ cents.
That makes the payment for the full year 38 cents, down from 48 cents a share last year.
"The result reflected a strong performance from the Steel division, with operating earnings excluding unusual items up 52 percent on the prior year, while all other divisions recorded lower operating earnings than the prior year due to the slowdown in building activity across most markets," directors said.
"Property related earnings from the residential business, quarry end use activities, and surplus asset sales were $18 million compared with $80 million in the prior year."
CEO, Jonathan Ling said “This year has been about maximising our cash earnings during the recession, and restructuring the business so that we are strongly positioned for the economic recovery, when it comes.
”Throughout the past year we have seen a marked deterioration in all of the major markets in which Fletcher Building operates.
"Given this, and our cautious outlook for building activity worldwide, we have undertaken a range of initiatives to appropriately scale our manufacturing capacity and restructured our operations to optimise earnings in the light of lower volumes.
"Together with the measures we undertook earlier this year to strengthen the balance sheet, and our strong operating cashflows, these initiatives have ensured that we are well positioned for the current economic conditions and to benefit as volumes grow over time.
"All divisions undertook business rationalisations in response to reductions in demand, and the total labour force across the group fell by approximately 2,500 to 16,500 through the year.
"Actions taken include the closure of the door manufacturing business in New Zealand; an 18 percent reduction in employee numbers in the concrete businesses; a 15 percent reduction in employees at both Laminex and Formica; three branch closures in the steel rollforming and coated steel businesses; and the opening of a manufacturing and distribution centre in Melbourne for Stramit with the consolidation of three sites into one.
"A companywide freeze on salaries and directors fees was implemented for 2010."
Another local multi-national reporting a lower profit yesterday was share registry operator Computershare (CPU).
It reported a 9.3% fall in 2008-09 net profit and the shares ended up 7 cents at $10.01.
The shares rose 6 cents to $10 yesterday.
Computershare said net earnings reached $US255.733 million for the year to June 30, after sales fell 4.5% to $US1.5 billion as the recession and especially the credit crunch hit stockmarket deals, trading and its core businesses.
"The decrease in revenue was largely due to weaker equity markets resulting in less activity, and falling interest rates and balances reducing margin income," directors said in the report to the ASX.
"The current year EBITDA result is $443.9 million including significant item expense of $31.6 million.
"Net profit after tax is $255.7 million, including significant item expense of $33.8 million, a decrease of 9.3% from the prior year.
"The decrease is primarily driven by lower transaction volumes; lower margin income, one off asset write downs and a strong US dollar, partially offset by cost reduction initiatives."
US dollar denominated management earnings per share for 2009/10 is anticipated to be similar to that of 2008/09, the company said in the statement.
Computershare’s board declared a final dividend of 11 Australian cents per share, unchanged from the prior corresponding period.
