Bad News Thursday: The profit reporting season is just starting, but even before we get to the pointy end next month, there’s been a flood of red ink, and a deputy CEO departing without explanation, which is always a bad sign, and a CEO departing with the reasons quite obvious from the company’s statements.
First up, Myer, the Australian department store chain doesn’t report its results for another six weeks or so, but on Thursday it revealed lower profit forecasts (by around $3 million) because of continuing poor trading conditions.
This means Myer’s hopes of beating 2015-16’s profit of $60.9 million have disappeared.
The company had previously expected net profit to exceed 2016’s $60.5 million, issued revised guidance of between $66 million and $70 million but that doesn’t include the large impairments and up to $20 million of other costs also announced yesterday.
But Myer also revealed that it will take one off losses and impairments of its Topshop instore store franchise and its sass and bide women’s fashion label.
These are non-cash costs which really means that the values in the balance sheet are overinflated and have to be cut because the businesses are not as viable as previously thought, or are gone.
In the case of the Topshop Australia, which went into administration last month, its out of Myer because a new deal could not be struck with the OK owner and the investment has been totally written-off.
The company also announced the resignation of its deputy chief executive officer Daniel Bracken, who was also chief merchandise officer, after two-and-a-half years in the job, without citing a reason.
Down went the shares, dropping more than 10% at one stage to close at 73.5 cents, off 9.8%.
Meanwhile Ansell quit its ’sexual wellbeing’ business (frangers) in May for $US800 million and yesterday its revealed its using over $US120 million of that to clean up the business and restructure by closing some of its least efficient production lines.
The shares were up 0.5% at $22.29.
But the big deal was across the Tasman at Fletcher Building where a huge profit downgrade – the second this year – has been announced and the company’s CEO, Mark Adamson is out. On top of that the company is looking at a $NZ220 million impairment to the value of some of its Australian plumbing supplies businesses.
Fletcher shares were pounded as a result, losing 5.7% to $A7.05.
The shares are down more than 15% since the March profit warning and over 28% for 2017 in the past six months.
The timing of the company’s statements to the New Zealand stock exchange will be examined by the exchange’s compliance department. Fletcher, which is a major builder and supplier in Australia as well as NZ said its 2016-17 operating profit would be $NZ525 million – around $NZ100 million below its previous guidance of $NZ610m to $NZ650m. That in turn was down from the original guidance for the year of between$NZ720 million and $NZ760 million.
In other words Fletcher is now looking at a $NZ200 million plus drop in earnings for the year to June 30, a fall of more than 26%.
NZ media said the NZX market supervision head Joost van Amelsfort said the exchange would look into whether the company had met its “continuous disclose” obligations. The NZX is already investigating the reporting of an earnings downgrade by Fletchers in March.
Fletchers’ problems stem from cost blow-outs on two construction projects which have pushed its buildings and interior (B&I) division further into the red. These are understood to be the Justice and Emergency Precinct in Christchurch and the Auckland’s Sky City International Convention Centre, however Fletchers would not confirm them by name because of "client confidentiality".
Fletchers chairman Sir Ralph Norris said yesterday the board believed it was “ he right time" for Adamson to leave the company "to allow a new CEO to lead Fletcher Building through this period and into the next phase of its strategy".
Adamson would receive his "contractual entitlements" but all of his share options would lapse, he would forfeit all shares in the company’s long term incentive scheme and no short-term bonus would be paid to him for the 2017 financial year, Norris said.
Norris said it was "very disappointing" to see further losses in the B&I business, "particularly when the vast majority of the remaining Fletcher Building business units have performed so well during the year".
Fletcher Building said it was likely to write down the value of its Iplex Australia and Tradelink businesses by $220 million (which will be a non cash write down).
"While we do see progress in these business units the board felt it was prudent to recognise that the near to medium term estimates of profitability in each business are not aligned with current carrying values," Norris said.
The head of Fletchers’ international division, Francisco Irazusta, will take over as "interim chief executive" on Monday. "Any decision regarding the dividend payment will be made at the time the board approves the annual audited results," Fletcher said. Final results are provisionally due August 16.
