UPDATE: Metroglass' woes drag annual net profit down 69%

By Jenny Ruth

May 23 (BusinessDesk) - Metro Performance Glass blamed "significant challenges" in Australia for a 69 percent plunge in annual net profit and a slide in operating earnings consistent with the firm's March downgrade.

Net profit for the year ended March was $5 million, down from $16.3 million the previous year – both the previous year’s profit and the year before that also declined. It reported a profit of $20.5 million in the 2016 financial year.

Operating profit before a $9.6 million write-down of the value of the firm's Australian assets fell 18.4 percent to $25.2 million. The company bought its Australian business in September 2016.

Metroglass shares jumped 5 cents, or 12.5 percent, to 45 cents after the results announcement with one analyst suggesting there was relief there was no further bad news in the announcement.

The company had last downgraded its guidance in mid-March and the operating result was in keeping with that guidance.

The shares have fallen from 84 cents on May 21 last year and from $1.70 at its July 2014 float

Asked whether this year’s write-down of the Australian assets will prove sufficient, chief executive Simon Mander says that there was “a pretty robust process" around that.

"How we arrived at that was quite slow – we went through testing on that and looking at our model.”

That assessment included the improvements in the Australian operations the company expects to make, he says.

Metroglass’ balance sheet is still carrying $146.4 million of intangible assets and more than 95 percent of that is goodwill.

“Progress has been made across all parts of the group this year and we are pleased with the operational improvements and stronger financial results achieved in New Zealand,” Mander says. He has held the top job since November.

The New Zealand operations lifted earnings before interest and tax before significant items by 6 percent to $31.1 million. Australian Glass Group made a $4.8 million loss before interest and tax compared with a $3.2 million profit the previous year.

Operating cash flow fell 30 percent to $23.6 million and Mander says that predominantly reflects the poor performance in Australia

“We have a clear strategy and plan in place for AGG and, in the latter stages of the financial year, we improved service delivery in all three states, reduced reworks and achieved a more stable and engaged workforce,” Mander says.

AGG operates in New South Wales, Victoria and Tasmania.

“These positive changes have resulted in a number of former customers already returning and we’re focused on regaining their confidence and trust.”

Revenue in Australia fell 9 percent to $50.4 million while New Zealand sales rose 2 percent to $217.4 million.

Metroglass says its changes in Australia include a major capital programme, a shift from domestic to international glass supply, moving the manufacturing and sales focus towards double glazing products and opening a manufacturing plant in Tasmania.

The company says the start-up of that factory, its seventh in Australia, met its first-year financial goals, including breaking even on an ebit basis in the final quarter of 2019.

It also had operational problems in the other two states. In Victoria, which accounts for two-thirds of the Australian operations, a $2.5 million reduction in ebit reflected sales volumes lost to Tasmania and another $2.2 million drop in ebit reflected revenue declines due to the operational problems in Victoria.

Revenue declines in NSW accounted for another $1.4 million fall in ebit.

The company says New Zealand fundamentals remain strong but Metroglass expects supply constraints and it expects Australian housing starts will decline further.

Metroglass is paying no dividends this year after paying 7.6 cents per share last year. Mander wouldn’t be drawn on when dividends are likely to resume.

He says the company will provide preliminary guidance for the current year at its annual shareholders’ meeting on July 26.

“While being acutely aware of the challenges ahead, Metroglass is firmly focused on rebuilding shareholder value through further improved performance in New Zealand and by executing its plan for stabilising and growing the Australian business,” he says.

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