Agri-business group, Futuris, was hammered by investors yesterday after springing a surprise profit downgrade of up to 20% on the market for the year to June 30.
The updated guidance came only six days before the end of the 2008 financial year. Investors handed out a bit of pain, selling Futuris (FCL) shares down 27%, or 36.5c to 97c at the close. That was the 52 week low. They hit a high of $2.83 almost a year ago on speculation of some sort of corporate activity.
Futuris blamed the lowered earnings expectations on slower than expected sales from tax-driven Managed Investment Schemes (MIS) and the prospect of a negative contribution from Australian Agricultural Co (which Futuris failed to sell) and higher interest expense.
That’s probably a function of the stockmarket shakeout since last August, and especially since January of this year as tens of billions of dollars in value has been wiped from the market, investors have lost heavily in the near collapse of the likes of Allco and MFS, the drop in the prices of groups like Babcock and Brown, and the hammering the Australian banks have taken.
There would seem to be few capital gains around to try and lever into tax favourable investments this year.
"While it is not possible to predict the final MIS sale and AAco result, a continuation of current trends is expected to result in an FY08 (fiscal 2008) underlying net profit after tax result of approximately $80 million to $85 million," Futuris said. That compares to a forecast earlier this year for an underlying profit of $100 million.
"FY08 EBIT (earnings before interest and tax) is forecast to fall within the range of current market expectations of $166 million to $182 million," FCL said in its statement to the market.
Chairman Stephen Gerlach said in a market briefing interview that the "revised earnings guidance represents an underlying EPS of approximately 10.6 to 11.2 cents.
"The dividend decision will be made by the Board after consideration of the results recorded for the year, but the revised guidance issued today is not expected to present any implications for the 2008 final dividend."
"The level of MIS sales achieved in the current period will also influence FY09 (fiscal 2009) earnings."
Futuris said assuming that MIS sales fell within the forecast range of $35 million to $45 million; the company’s underlying profit would rise in fiscal 2009 to between $85 million and $90 million, which would still be below the estimate for the 2008 year and the result for 2007.
It estimated 2009 EBIT to be within the lower range of market expectations of $178 million to $191 million.
Futuris said it expects to report the MIS sales result on July 1 and will announce its financial results for the 2008 financial year on August 14. The bulk of the MIS sales by Futuris are for tree plantations.
It previously forecast, on May 6, an underlying net profit of about $100 million for the 2008 financial year.
That forecast was made, subject to good continuing rainfall and MIS sales, and with the expectation of a positive mark to market for the six months to June 30.
"Rainfall conditions, while below average for most of agricultural Australia, have been adequate," the company said.
"Elders Rural Services has recorded strong merchandise sales and is on track to record strong growth in underlying EBIT (earnings before interest and tax) and its best financial result to date."
But the company said demand for MIS products had been significantly weaker than in the previous year, for the year to date.
"As is customary, daily sales levels are accelerating as the peak selling period approaches," the company said.
"However, on the basis of sales to date, it appears improbable that ITC’s 2008 MIS sales will match the level recorded in the previous year.
"At this stage, a MIS sales result in the range of approximately $35 million to $45 million appears the most probable."
Elders Financial Services and Futuris Automotive are in line with expectations but Futuris said its equity accounted share of earnings from AAco was now also expected to be negative.
Mr Gerlach said "In respect of AAco specifically, our position has not changed from that advised previously.
"We have terminated the tender for our shares as no executable offer was in prospect. Should other parties wish to make a realistic offer for our shareholding in AAco then we would consider the offer on its merits and, if acceptable, take it forward."
AAco shares eased 6c to $2.70 yesterday, compared to a 52 week low of $2.35.
