Directors today announced the group’s unaudited interim results for the six months ended 31 December 2008. Net earnings were $172 million, compared with $235 million in the previous corresponding period. This is a reduction in earnings per share from 47 cents to 34 cents.
During the period the group’s operations were exposed to rapidly deteriorating economic conditions and a marked slowdown in residential and commercial construction markets globally. Significant volume declines were experienced across the business, particularly in New Zealand, the United States, Spain and the United Kingdom. Other parts of Europe saw demand levels fall away during the period while Australia also evidenced signs of a major slow-down. Higher input and energy costs also negatively impacted earnings.
As a consequence, operating earnings (earnings before interest and tax) fell to $303 million, compared with $394 million in the previous corresponding period. The Infrastructure, Distribution, Building Products and Laminates & Panels divisions all recorded lower operating earnings. The Steel division saw strong earnings growth due to higher steel prices and margins, and strong volumes during the half year.
Formica’s North American operations experienced significant improvements in operating efficiency at the Evendale plant, and a reduction in operating costs following the restructure of the United States operations. However, the rapid decline in demand in US and European markets negatively impacted the business.
The interim dividend of 24 cents per share has been maintained at the 2008 level, and is in line with guidance provided by the board at the annual shareholders’ meeting in November 2008. The dividend will carry imputation credits of six cents per share. Shareholders may elect to participate in the Dividend Reinvestment Plan and there will be a three percent discount applied to the price for shares issued under the Plan.
Total shareholder return was negative 4 percent for the half year, and was impacted by the continued deterioration in world equity markets during the period.
Group sales were 6 percent higher than the previous year, reflecting higher steel prices and volumes, growth in the metal roof tile business, strong demand for concrete pipe products in Australia, and record construction activity levels associated with infrastructure projects in New Zealand.
In response to the declining volumes, a number of cost reduction initiatives were undertaken during the period. Excluding the construction business in which activity levels are high, restructuring costs of $19 million were incurred with employee numbers reduced by nearly 1100 worldwide. In addition, there were other one-off costs of $10 million in Laminates & Panels during the half year.
The Chief Executive Officer, Mr Jonathan Ling said: “We have seen extremely tough trading conditions in most of our key markets over the past six months – particularly New Zealand, the United States, UK and Spain – and demand for building materials has fallen significantly. In light of this, the result for the half year is a reasonable one. Offsetting these weaker markets has been stronger infrastructure investment in New Zealand and Australia, and we continue to have a solid construction backlog in New Zealand of nearly $1.2 billion”.
“Looking forward, our current plans have as a base assumption lower activity levels, and in response to this we have a range of further cost reduction initiatives underway. Additionally, we are working to ensure that we scale manufacturing production volumes to meet expected demand levels. We have a strong financial position and we are focused on maintaining this and preserving financial flexibility,” Mr Ling said.
- Group sales up 6 percent to $3,757 million
- Group net earnings down 27 percent to $172 million
- Operating earnings down 23 percent to $303 million
- Cashflow from operations down 15 percent to $208 million
- Earnings per share down from 47 cents to 34 cents
- Capital expenditure up 16 percent to $162 million
- Interim dividend of 24 cents per share with partial New Zealand tax credits
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