Fletcher Building looks forward after nasty year, plus Michael Hill struggles while Hallenstein Glasson surges

Little cheer in Fletcher Building’s full year result

Fletcher Building confirmed an annual net loss of $196 million yesterday having already pre-announced its bottom line result last week. The company blamed the result on the need for additional provisions for legacy construction losses, plus the impact coronavirus crisis is having on the business.

Fletcher’s loss for the year ended June compares with a $164 million net profit in the previous year.

CEO Ross Taylor, who took a 30 percent pay cut during the year, with other senior staff, said the 1,500 staff layoffs announced last week and other measures being planned will permanently lower Fletcher’s cost base by around $300 million a year.

He described the current business outlook as “very uncertain” on both sides of the Tasman due to an expected prolonged economic slowdown and rising unemployment.

Revenue for the year fell to $7.31 billion from $8.31 billion the previous year, with pre-tax earnings declining in all divisions, the largest being in building products which fell by almost 50 percent to $87 million.

The construction division’s additional $150 million provision weighed heavily on the result while its underperforming Australian division, which has been an ongoing problem area for the company, saw its pre-tax earnings slump to $33 million from $77 million the previous year.

Taylor said the company had been trading in line with expectations and had been “making good progress with operating efficiencies” before the crisis hit. Sounding a note of optimism, he added that with a strong balance sheet, he expected the tougher market will “present better opportunities to achieve Fletcher’s aspirations and overall strategies in the coming year.”

Fletcher Building shares closed down 0.6 percent at $3.40.

A2 revenues lift, expects to continue growing

Market heavyweight A2 Milk yesterday reported a 33 percent lift in full-year revenue and is expecting to achieve further growth in the next 12 months.

The company said total revenue was $1.73 billion in the year to June while net profit came in at $385.8 million, up 34 percent on the previous year.

Continued growth in the infant nutrition segment, with sales totalling $1.42 billion for the period – an increase of 33.8 percent on the year – underpinned the result.

Consumers stockpiling infant formula in the wake of Covid-19 lockdowns, particularly via online and reseller channels, had contributed to revenue in the third quarter being well above expectations

Importantly, the company said its balance sheet remains “very robust” with a closing cash position of $854.2 million.

Despite having previously indicated its interest in the possibility of further acquisitions, the company provided no further details of any potential targets on its radar, particularly in regard to cash strapped Southland-based milk formula exporter Mataura Valley Milk which has recently been the subject of market speculation that it may be a potential acquisition for A2 Milk.

The company reiterated it has no immediate plans to pay a dividend, saying it is still a “growth business.”

A2 shares closed down 5.3 percent at $20.35 but have gained 34 percent in the past 12 months.

Hallensteins Glasson shares surge on better than expected outlook

Not all retailers are doing it tough. Hallenstein Glasson was the star performer on the New Zealand sharemarket yesterday, delivering some unexpected good news for investors regarding its online channels that saw its shares surge 20 percent.

The clothing retailer said it expects to deliver an annual profit of between $27.2 million and $27.8 million, down just 5 percent from last year, despite the disruption caused by store closures across Australia and New Zealand during the lockdown.

Second-half sales dropped just 6.2 percent thanks to online sales soaring 80 percent. Proving just how dramatically the lockdown has changed consumer buying patterns, the company said during the past six months almost one third of its total sales were transacted online.

Group managing director Mary Devine said the significant growth online over the lockdown period in both New Zealand and Australia had continued once stores re-opened.

Hallenstein Glasson shares closed up 21 percent at $4.15.

Michael Hill International disappoints

Reporting a 69 percent plunge in net profit to A$3.1 million for the 12 months ended June, due in part to new accounting standards, Michael Hill International said the impact of Covid-19 and its associated lockdown had taken a severe toll on its full year result.

Earnings before interest and tax fell 33.3 percent to A$14 million, well below analysts’ forecasts. Underlying pre-tax earnings of A$25.7m were also down on last year’s A$34.6m.

While the company reported a lift in online sales to a record A$24.7 million, it said they still only accounted for 5 percent of total sales, though this was up from 2.8 percent in 2019.

During the year it opened one new store in Canada and closed 17 under-performing stores. It currently has 290 stores in its retail network.

CEO Daniel Bracken described a year of “two halves” pointing to the positive sales momentum achieved across FY19, the business had delivered consecutive quarters of growth in all markets to finish the first half with a 6.3 percent lift in sales. However, he said Covid-19 and its impact in the second half of the year had changed all of that, noting the company took decisive action to preserve cash, reduce expenditure, and actively monitor inventory.

“Cash management initiatives included the cancellation or deferral of capital expenditure, renegotiation of vendor payment terms, engaging with landlords to obtain rental assistance packages including deferrals, and a reduction in the cost of doing business through leaner labour models were all adopted.”

The company said it had suspended dividends for the 2020 financial year.

Michael Hill International shares closed down 4.2 percent at 34c.

Target delivers blockbuster result

US retail giant Target stunned Wall Street yesterday announcing an eye-popping 80.3 percent lift in net profit for its second quarter to US$1.7 billion. Its adjusted earnings per share came in at US$3.38 versus a market expectation of just US$1.62

The company said online sales climbed by 24.3 percent during the second quarter, an all-time high, after it attracted more than 10 million new digital customers in the first half of the year.

Target CEO Brian Cornell said the retailer’s mix of merchandise and online options had resonated with customers who sought out safe and convenient ways to shop in the midst of the pandemic. The company also benefited from its designation as an essential retailer during lockdowns across the US that forced some competitors to close.

The retailer reported its strongest sales category was electronics, with sales up by more than 70 percent over the same quarter a year prior as customers loaded up on home office equipment, computers and video games.

With US school students set to return to the classrooms in coming weeks, a traditional bonanza for retailers, Cornell said Target is bracing for significant uncertainty, pointing out that of the 56 million school students in the US, 66 percent are expected to be starting out the new year remotely.

US sharemarket finally makes a new high for the year

After a couple of days of near misses, the S&P500 finally set a new record high for the year on Tuesday after closing at 3389, topping by 3 points its previous high set on February 19, just before the impact of Covid-19 began to take its toll on markets. It’s the third fastest market recovery on record and makes the Covid bear market (a fall of more than 20 percent) the shortest in history at just 1.1 months.

However, for some investors who missed out on the rally the news will be bittersweet after early expectations that the rebound would be short lived, and stocks would continue to trade lower, didn’t materialise.

Andrew Patterson is Newsroom's Markets Editor and has worked for decades as a financial journalist, radio presenter and editor with Australia's ABC, Radio Live and NBR.

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