Six Months Performance
Tenon performed well in this last six-month period – a period that saw unprecedented operating conditions for our business activities (refer Current Market Conditions discussion below). It is pleasing that in such a weak market environment, we were still able to advance our operational and strategic agendas for the Company. Specifically, the six-month period saw Tenon:
- GENERATE Net Cash from Continuing Operating Activities of $26 million, which included $21 million of cash generated through working capital improvement initiatives put in place during the period;
- ENTER into a supply chain financing agreement, which allows Tenon to receive a payment for a large part of its receivables well in advance of normal customer credit payment terms;
- REDUCE net interest bearing debt and deferred liabilities (inclusive of the impact of the supply chain financing agreement) by $24 million, down to $47 million – a significant achievement;
- MAINTAIN capital expenditure at below $3 million on an annualised basis – well below our depreciation and amortisation level, reflecting the healthy operational state of manufacturing facilities and our low “business as usual” capital needs;
- FURTHER its presence into the “Big Box” retailers in the core North American market – by way of example, Empire (our full-service distribution business) now services over half (i.e. more than 800) of all Lowe’s stores in North America;
- INCREASE its ownership in Southwest Mouldings to 87.75%, with a negotiated agreement in place for Tenon to move to 100% in the second-half of the current 2009 fiscal year;
- EXPAND the presence of its outdoor trim products into the US market – by way of example, Armour Wood is now a full-service offering into 300 retail stores, and we would like to see this number increase by 50% in calendar 2009;
- IMPLEMENT a number of incremental sales initiatives, including extending our full-service mouldings distribution programme into Canada, increasing the penetration of the NZ-manufactured clear boards programme, and adding new specialty millwork products into our distribution network;
- RIGHT-SIZE the business to meet the demands of the current difficult operating environment – this saw reductions in shifts at each of our manufacturing facilities, as well as headcount attrition across the Group, which combined with the continued focus on the “One Company” cost reduction program has reduced our total cost base by in excess of $4 million per annum; and
- ACHIEVE Operating Earnings (i.e. earnings before interest, tax, depreciation and amortisations – “EBITDA”) of $6 million.
This earnings result compares with the $7 million EBITDA we recorded in the immediately preceding six-months (the most relevant benchmark period due to the continued deterioration in operating conditions that has occurred over the past 12 months). These earnings were achieved on revenues that were down only 10% on the immediately preceding six months (14% down on the previous comparative period). Given the dramatic decline in operating and macro-market conditions that occurred in this latest six months – the global credit crisis making itself known throughout this period – achieving revenue and earnings performance at these levels is a very creditable achievement, reflecting the strong strategic positioning of the Company and our on-going commitment to both operational cost-reduction and sales growth initiatives.
The charts in the attached Appendix outline the path of Tenon’s key business drivers during the period under review, compared with their historical trends. As can be seen, with the exception of the NZ:US exchange rate, the trend was either flat or deteriorating. Our forward hedging program did not allow us to receive anywhere near the full benefit of the positive exchange rate movement (the cross-rate averaged 64.7 cents across the period, compared with our effective hedge rate of 69.9 cents), however this hedging runs out at the end of March, at which time we will enjoy the full impact of a lower exchange rate in our earnings and cash results. Had we been unhedged, our EBITDA result would have been 20% higher than reported – a reflection of the steepness of decline in the NZ:US cross-rate that occurred during the period.
Current Market Conditions
As already noted, current operating and market conditions for us are quite unprecedented, and our expectation is that the international credit crisis will continue to have an impact on our business throughout 2009. Limited access to mortgage credit has to date been a significant dampner on housing activity in North America, with housing foreclosure activity rising dramatically in calendar 2008. This has contributed to an over-supply of new and existing homes for sale (refer chart in the attached Appendix), which has seen a resultant reduction in house prices – which in turn has fueled more foreclosures as those homeowners with high housing debt see the equity in their homes eliminated.
In addition, we find ourselves in an environment where the traditional counter-cyclicality of remodeling spend with new house construction has not occurred. For the first time, significant declines in both market segments have occurred. Historically, remodeling spend has tracked at relatively constant and consistent levels, with steady growth that has survived the “downs” of the new housing cycles. As Tenon’s key driver is remodeling spend, it is that decline that has impacted us most. This is perhaps best indicated by the Big Box building retailers same store previous comparable period % sales figures, which are shown in the chart in the attached Appendix – where the data has now been tracking negative for nine successive quarters.
Outlook
There is no doubt that we will be operating in extremely tough market conditions for the remainder of fiscal 2009, with this next six months perhaps proving to be the most difficult for our sector in this cycle. Clearly, the unknown for us relates to the extent of slow-down the US economy will sustain across this next period, with the greatest risk being to unemployment levels and the impact that will have on retail sales and resultant manufacturing activity across the country. Having said that, there are some positives on the horizon, such as an improving availability of mortgage credit for qualified borrowers, an increase in housing affordability resulting from the house price declines that occurred in calendar 2007 and 2008, a significantly lower interest rate environment and potentially a housing stimulus package as part of the Federal Government’s overall fiscal stimulus package. Taking all factors into account, the most likely outcome is for a “flattish” second-half earnings performance for Tenon compared with the first-half result reviewed in this report.
Beyond this immediate period we believe the longer-term outlook for the Company remains strong. In summary, Tenon:
- Has built an enviable strategic position – in its chosen categories, it holds the #1 or #2 vendor / market position;
- Is almost exclusively a niche, specialty player – with our exposure being to high-value products used primarily in the remodeling and renovation markets;
- Operates a unique blend of manufacturing and distribution activities – which provide key points of leverage in the supply chain and good earnings diversification; and
- Has a strong long-term growth profile – by way of example, the chart below shows the store count growth that Empire has achieved with Lowe’s over the past four years. Despite current market conditions, Lowe’s is still anticipating further new store growth, albeit at a reduced rate. As long as Empire continues to provide the high level of service and commitment that Lowe’s demands, then it should participate accordingly in Lowe’s organic growth.
Quite aside from organic growth, is the growth that product and category expansion through these powerful “Big Box” home-improvement retailers can offer. As we have discussed previously in our reports to Shareholders, Tenon has now moved into the “outdoor” segment with the launch of the Armour Wood and LIFESPAN brands. The overall importance and relevance of this new segment is that the exterior trim and sidings market is some ten times the size of Tenon’s traditional interior mouldings category, and wood-based products have only scratched the surface of this opportunity. It will be the introduction of new wood-modification technology (refer Sneek Bridge photo below) that will allow much higher growth of wood products into this segment in future. Tenon plans on taking a leadership role in developments in this segment, and we hope to report on these developments later in the year.
In addition to structurally positioning Tenon for growth, it is worth confirming that the longer-term macro-economic conditions for future success in our business activities remain strong – with, in particular, positive household formation statistics and an aging housing-stock both being positive supporting indicators of strong future performance when the market recovers from its current low level of activity.
In the immediate environment however, we remain focused on achieving incremental sales and cost-out opportunities to underpin our operating earnings at the bottom of the cycle. We will also continue our tight control of working capital and capital expenditure to ensure we meet our debt-reduction goals, whilst maintaining our best-in-class service and commitment to our customers. At the same time, we will be looking widely at a number of ways to strategically advance the Company – from product and market growth opportunities right through to participation in sector rationalisation activity where it is sensible for us to do so. This latter activity might require Tenon to establish a more flexible bank funding facility – if this can be achieved, then for the strategic reasons outlined above we believe Tenon would be well-placed to participate in focused sector restructuring activity.
We will report to Shareholders on our progress with all of these goals later in the year.
Forward-Looking Statements
There are forward-looking statements included in this document. As forward-looking statements are predictive in nature, they are subject to a number of risks and uncertainties relating to Tenon, its operations, the markets in which it competes and other factors (some of which are beyond the control of Tenon). As a result of the foregoing, actual results and conditions may differ materially from those expressed or implied by such statements. In particular Tenon’s operations and results are significantly influenced by the level of activity in the various sectors of the economies in which it competes. Fluctuations in industrial output, commercial and residential construction activity, changes in availability of capital, declining housing turnover and pricing, declining levels of repairs, remodelling and additions to existing homes in North America, relative exchange rates, interest rates in each market, and profitability of customers, can have a substantial impact on Tenon’s results of operations and financial condition. Other risks include competitor product development and demand and pricing and customer concentration risk.
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NZ Stock Exchange Profit Announcements: Feb - May 2009
TEN - Tenon Ltd: HY to 31/12/08
by Share Investor » 14 Apr 2009 22:23
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TTK - Teamtalk Ltd: HY to 31/12/08
by Share Investor » 14 Apr 2009 22:47
Name of Listed Issuer: TeamTalk Limited
Reporting Period: 6 months to 31 December 2008
The financial statements have been prepared in accordance with generally accepted accounting practice in New Zealand. They comply with NZ IFRS, which constitutes NZ GAAP, and give a true and fair view of the Group's results and are based on unaudited financial statements.
CONSOLIDATED OPERATING STATEMENT
Current Half Year NZ$'000; Up/Down %; Previous Corresponding Half Year NZ$'000
OPERATING REVENUE:
Total Operating Revenue:
15,545; Up 2.4%; 15,178
OPERATING SURPLUS BEFORE UNUSUAL ITEMS AND TAX:
2,126; Down 22.7%; 2,750
Unusual items for separate disclosure:
0;0;0
OPERATING SURPLUS BEFORE TAX:
2,126; Down 22.7%; 2,750
Less tax on operating profit:
690; Down 22.8%; 894
NET SURPLUS AND EXTRAORDINARY ITEMS AFTER TAX:
1,436; Down 22.6%; 1,856
NET SURPLUS (DEFECIT) ATTRIBUTABLE TO MINORITY INTERESTS:
(22); Down 164.7%, 34
NET SURPLUS ATTRIBUTABLE TO MEMBERS OF THE LISTED ISSUER:
1,458; Down 20.0%; 1,822
Earnings per share:
7.25 cps; Down 20.0%; 9.06 cps
Interim Dividend – Fully Imputed:
10.0 cps, 0, 10.0 cps
Record Date: 17/04/2009.
Payable Date: 24/04/2009.
Imputation tax credit on latest dividend:
4.2857 cps
FROM THE DIRECTORS
The Directors are pleased to report another solid trading result for the six months to December 2008.
Revenue for the period increased 2.4% to $15.5m while operating costs increased just 1.0% to $9.3m. This tight control on costs resulted in EBITDA increasing by 4.5% to $6.3m when compared to the same period in 2007.
Trading Result
The following table shows the Group’s overall results split between the wireless (TeamTalk) and the fibre-optic (CityLink) businesses.
NZ$'0000 TeamTalk CityLink Group
Revenue 10,039 5,506 15,545
Total costs
excl depreciation - 6,306 - 2,964 - 9,270
EBITDA 3,733 2,542 6,275
Depreciation - 1,533 - 859 - 2,392
EBIT 2,200 1,683 3,883
Net external interest - 1,222
Pre-tax Operating profit 2,661
Unrealised gain / (loss)
on swap revaluation -535
Pre Tax Profit 2,126
Tax and minority interests - 668
Profit for the period
attributable to the
Company’s equity holders 1,458
Based on International Financial Reporting Standards (IFRS) TeamTalk reported a net profit of $1.5m for the period. This figure was unduly influenced by bringing to account a $0.5m loss on the revaluation of interest rate swaps at the end of the period. This non-cash loss is unrealised and is not unexpected given the significant fall in the OCR and the unusual capital market environment. Importantly the loss does not affect the profit available for distribution to shareholders.
Revenue from the wireless services (TeamTalk’s mobile radio and ancillary businesses) grew 2.7% to $10.0m as revenue from data sales grew. In the short term this trend is not expected to continue largely because of the recessionary trading conditions that our customers, particularly in the key transport sector, are currently experiencing.
CityLink’s revenue grew 1.9% to $5.4m compared to the same period in 2007. This was a particularly pleasing result given that the 2007 result had been boosted by a major one-off project for Peter Jackson’s Camperdown studios. Most importantly the recurring monthly revenue from CityLink is over 20% higher than the corresponding period.
In spite of the difficult economic conditions the Group is continuing to identify attractive investment opportunities. During the period the Group invested $4.4m to expand its fibre optic and wireless networks’ coverage and also to reduce our dependency on third party infrastructure. These investments add immediate inherent value and are also expected to contribute to future growth in earnings as many of these capital projects were directly tied to new contracted revenues. However, they have naturally required an immediate stepped up cash outlay for a future incremental cash benefit and in the meantime this increased investment has resulted in a $281,000 increase in depreciation charges when compared to the first half of 2007. A similar increase is expected in the second half of the current financial year.
Dividend and Dividend Reinvestment Plan
The Directors have declared a fully imputed dividend of 10 cents per share payable on 24 April 2009. The record date for entitlement to the interim dividend is 5pm on 17 April 2009.
The final dividend for the 2009 year will not be less than 10 cents per share with full imputation credits making a total dividend for the year of 20 cents per share fully imputed.
The Company has decided to introduce a Dividend Reinvestment Plan (DRP) ahead of the interim dividend.
The plan will offer shareholders a convenient method of reinvesting all or part of their dividends in ordinary shares in the Company and shares will be issued at a 3% discount to the average closing price in the week after the record date for the dividend. Participation is entirely voluntary and shareholders will be able to elect to participate in the plan for all or part or none of their shares.
Shareholders will be sent documentation with full details of the plan in plenty of time to make an election prior to the interim dividend in April.
TeamTalk’s largest shareholder (Active Equities Limited) is fully supportive of the move and has committed to fully participate in the plan in respect of its dividend entitlement for at least the next two dividends.
The decision to introduce a DRP was driven by two factors; firstly requests from shareholders for the opportunity to invest via such a plan, and secondly to give the Company greater flexibility to support the growth potential of its subsidiary companies. Notwithstanding that the core radio business continues to generate strong cashflows the exciting opportunities available to CityLink, and on a smaller scale Araneo, suggest that the Company should be in the best possible shape to support them.
Outlook
The economy is clearly in an extremely difficult period and some of our customers are experiencing real hardship which will result in a loss of revenue to the company. Another result of the economic weakness is that we are now also seeing customers defer their purchasing decisions so we now expect that revenue for the full year will show a modest decline when compared to the 2008 year. Costs are being tightly contained so that even with the higher depreciation expense referred to above underlying operating earnings (i.e. excluding interest rate swap revaluations and the impact of a subsidiary company’s asset sale in the prior year) profit is expected to be in line with last year. However the reported bottom line figure, which includes these items, will be down on last year’s figure of $3.98m.
Reporting Period: 6 months to 31 December 2008
The financial statements have been prepared in accordance with generally accepted accounting practice in New Zealand. They comply with NZ IFRS, which constitutes NZ GAAP, and give a true and fair view of the Group's results and are based on unaudited financial statements.
CONSOLIDATED OPERATING STATEMENT
Current Half Year NZ$'000; Up/Down %; Previous Corresponding Half Year NZ$'000
OPERATING REVENUE:
Total Operating Revenue:
15,545; Up 2.4%; 15,178
OPERATING SURPLUS BEFORE UNUSUAL ITEMS AND TAX:
2,126; Down 22.7%; 2,750
Unusual items for separate disclosure:
0;0;0
OPERATING SURPLUS BEFORE TAX:
2,126; Down 22.7%; 2,750
Less tax on operating profit:
690; Down 22.8%; 894
NET SURPLUS AND EXTRAORDINARY ITEMS AFTER TAX:
1,436; Down 22.6%; 1,856
NET SURPLUS (DEFECIT) ATTRIBUTABLE TO MINORITY INTERESTS:
(22); Down 164.7%, 34
NET SURPLUS ATTRIBUTABLE TO MEMBERS OF THE LISTED ISSUER:
1,458; Down 20.0%; 1,822
Earnings per share:
7.25 cps; Down 20.0%; 9.06 cps
Interim Dividend – Fully Imputed:
10.0 cps, 0, 10.0 cps
Record Date: 17/04/2009.
Payable Date: 24/04/2009.
Imputation tax credit on latest dividend:
4.2857 cps
FROM THE DIRECTORS
The Directors are pleased to report another solid trading result for the six months to December 2008.
Revenue for the period increased 2.4% to $15.5m while operating costs increased just 1.0% to $9.3m. This tight control on costs resulted in EBITDA increasing by 4.5% to $6.3m when compared to the same period in 2007.
Trading Result
The following table shows the Group’s overall results split between the wireless (TeamTalk) and the fibre-optic (CityLink) businesses.
NZ$'0000 TeamTalk CityLink Group
Revenue 10,039 5,506 15,545
Total costs
excl depreciation - 6,306 - 2,964 - 9,270
EBITDA 3,733 2,542 6,275
Depreciation - 1,533 - 859 - 2,392
EBIT 2,200 1,683 3,883
Net external interest - 1,222
Pre-tax Operating profit 2,661
Unrealised gain / (loss)
on swap revaluation -535
Pre Tax Profit 2,126
Tax and minority interests - 668
Profit for the period
attributable to the
Company’s equity holders 1,458
Based on International Financial Reporting Standards (IFRS) TeamTalk reported a net profit of $1.5m for the period. This figure was unduly influenced by bringing to account a $0.5m loss on the revaluation of interest rate swaps at the end of the period. This non-cash loss is unrealised and is not unexpected given the significant fall in the OCR and the unusual capital market environment. Importantly the loss does not affect the profit available for distribution to shareholders.
Revenue from the wireless services (TeamTalk’s mobile radio and ancillary businesses) grew 2.7% to $10.0m as revenue from data sales grew. In the short term this trend is not expected to continue largely because of the recessionary trading conditions that our customers, particularly in the key transport sector, are currently experiencing.
CityLink’s revenue grew 1.9% to $5.4m compared to the same period in 2007. This was a particularly pleasing result given that the 2007 result had been boosted by a major one-off project for Peter Jackson’s Camperdown studios. Most importantly the recurring monthly revenue from CityLink is over 20% higher than the corresponding period.
In spite of the difficult economic conditions the Group is continuing to identify attractive investment opportunities. During the period the Group invested $4.4m to expand its fibre optic and wireless networks’ coverage and also to reduce our dependency on third party infrastructure. These investments add immediate inherent value and are also expected to contribute to future growth in earnings as many of these capital projects were directly tied to new contracted revenues. However, they have naturally required an immediate stepped up cash outlay for a future incremental cash benefit and in the meantime this increased investment has resulted in a $281,000 increase in depreciation charges when compared to the first half of 2007. A similar increase is expected in the second half of the current financial year.
Dividend and Dividend Reinvestment Plan
The Directors have declared a fully imputed dividend of 10 cents per share payable on 24 April 2009. The record date for entitlement to the interim dividend is 5pm on 17 April 2009.
The final dividend for the 2009 year will not be less than 10 cents per share with full imputation credits making a total dividend for the year of 20 cents per share fully imputed.
The Company has decided to introduce a Dividend Reinvestment Plan (DRP) ahead of the interim dividend.
The plan will offer shareholders a convenient method of reinvesting all or part of their dividends in ordinary shares in the Company and shares will be issued at a 3% discount to the average closing price in the week after the record date for the dividend. Participation is entirely voluntary and shareholders will be able to elect to participate in the plan for all or part or none of their shares.
Shareholders will be sent documentation with full details of the plan in plenty of time to make an election prior to the interim dividend in April.
TeamTalk’s largest shareholder (Active Equities Limited) is fully supportive of the move and has committed to fully participate in the plan in respect of its dividend entitlement for at least the next two dividends.
The decision to introduce a DRP was driven by two factors; firstly requests from shareholders for the opportunity to invest via such a plan, and secondly to give the Company greater flexibility to support the growth potential of its subsidiary companies. Notwithstanding that the core radio business continues to generate strong cashflows the exciting opportunities available to CityLink, and on a smaller scale Araneo, suggest that the Company should be in the best possible shape to support them.
Outlook
The economy is clearly in an extremely difficult period and some of our customers are experiencing real hardship which will result in a loss of revenue to the company. Another result of the economic weakness is that we are now also seeing customers defer their purchasing decisions so we now expect that revenue for the full year will show a modest decline when compared to the 2008 year. Costs are being tightly contained so that even with the higher depreciation expense referred to above underlying operating earnings (i.e. excluding interest rate swap revaluations and the impact of a subsidiary company’s asset sale in the prior year) profit is expected to be in line with last year. However the reported bottom line figure, which includes these items, will be down on last year’s figure of $3.98m.
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CCC - Cavotec MSL Holdings: FY to 31/12/08
by Share Investor » 14 Apr 2009 22:55
MEDIA RELEASE
26th February 2009
Cavotec MSL Holdings Ltd
Earnings Release for announcement to the market
Reporting Period: Twelve Months to 31 December 2008
Previous Reporting Period: Twelve Months to 31 December 2007
Revenue from sales of goods:
Amount: EUR 141,724,004 (NZD 294,550,667)
Percentage change: 9.0% (19.1%)
Operating profit before finance costs and income tax (EBIT):
Amount: EUR 13,317,904 (NZD 27,679,132)
Percentage change: 5.6% (15.4%)
Profit after tax attributable to share holder:
Amount: EUR 9,161,010 (NZD 19,039,693)
Percentage change: 26.6% (38.3%)
Net tangible assets per share
Amount: EUR 0.159 (NZD 0.389)
Percentage change: -40.1% (-23.4%)
Basic earnings per share
Amount: EUR 0.144 (NZD 0.299)
Percentage change: 26.3% (38.5%)
Number of shares outstanding
31 December 2008: 63,632,700
31 December 2007: 63,632,700
Interim/Final Dividend
Current economic and credit market conditions require the Group to be conservative with its financial resources. The Board of Cavotec MSL has postponed any decision regarding the payment of dividends until the second half of 2009.
Exchange rates:
Profit and Loss values converted at average exchange rate of 2008: (EUR 1.0 = NZD 2.0783)
Balance Sheet values converted at 31 December 2008 exchange rate: (EUR 1.0 = NZD 2.4368)
The second-half of 2008 continued to impose economic challenges not seen in a generation on individuals and companies all over the world. Credit concerns initially perceived to be limited to the world’s financial institutions quickly spread, further deepening and extending macroeconomic unrest. By year’s end, disruptions in international capital flows, the swift reversal of commodities’ pricing trends and erratic fluctuations in currency exchange relationships led to sharp contractions in economies the world-over.
Throughout this period, local and national governments endeavored to stimulate activity through increased spending and investment - and their efforts are ongoing. In mid-2009, these ‘Stimulus Packages’ will begin injecting enormous financial resources into all sectors of society, with a likely strong focus on infrastructure-related projects.
I am pleased, then, to present this annual report to you, as it details Cavotec MSL’s strong 2008 performance within this environment, and outlines the Company’s preparedness for the challenges - and opportunities - of 2009 and beyond.
Financial Results
Cavotec MSL delivered another excellent year for our shareholders, producing record levels of revenue, operating income, annual order intake and year-ending order book.
Our Group’s annual consolidated revenue from sales of goods grew 9.0% in 2008 to EUR 141.7 million, indicating strong invoicing in 2H 2008 of EUR 75.7 million. Operating profit (EBIT) increased by 5.6% to EUR 13.3 million, with EUR 8.2 million of EBIT coming in 2H 2008 at a 10.8% margin.
Profit for the year amounted to EUR 9.2 million, representing a 24.8% increase over 2007. Excluding the gain and associated tax effects from the sale of Gantrex, 2008 net profit would have been EUR 5.9 million, or a decrease of 19.3% from 2007. Our effective tax rate this year was 33.4%; however, excluding the effects of the sale of Gantrex, our effective tax rate would have been 43.1%. This increase over 2007’s level is principally due to different geographical split of our revenues and profitability in 2008.
The EBIT and net profit amounts above also include approximately EUR 0.8 million of accounts receivable and slow-moving inventory provisions we elected to take as a prudent step in the increasingly tight credit environment. While most of our customers continued making payments in the ordinary course throughout 2008, there were signs of strain in some areas towards the end of the year. Management felt a more conservative stance was appropriate, and we have implemented tighter credit controls on our financial exposure accordingly.
Additionally, the Company incurred about EUR 1.9 million of additional finance costs in 2008, related to approximately EUR 1.1 million of unrealized foreign exchange losses on financial assets and liabilities and increased interest expense from acquisition-related debt and measures taken by the Company to ensure uninterrupted access to its credit facilities worldwide.
Finally, order intake for the year totaled EUR 146.7 million, a 9.6% increase over 2007’s level of EUR 133.7 million. We ended the year with our largest December order book ever, EUR 46.1 million, which is 21.4% higher than 2007’s level of EUR 38.0 million.
Looking forward with confidence
On behalf of the Board of Directors, I would like to express our sincere satisfaction with the final outcome of 2008, as outlined by our CEO in his preceding report. This was the second consecutive year for Cavotec as a public company on the NZX, and I am pleased that we have delivered good results and performed to the expectations of our shareholders.
As one of the founders of the Group, I am particularly happy to see that Cavotec MSL is financially solid and prudently leveraged in view of the challenging times ahead. Since starting in 1974, the Company has experienced seven major economical contractions, each of which slowed or reduced our growth for periods between three to twelve months. As the Group continued to develop and broaden its base of stakeholders, we worked to strengthen the Group’s global market position and diversify our operations. Simultaneously, we introduced a series of measures to minimize our exposure to financial risks and created a strong and healthy financial platform to build upon. We greatly benefitted from these actions in the past and they will serve us well as we navigate through the current economic environment.
The CCC share price
Throughout this global economic crisis, I, along with our shareholders and management, have been attentive to the decline in CCC’s share price and market capitalization. Over the past year, CCC’s value has decreased about 35% in NZD and, with the decline of the NZD versus the Euro, our overseas shareholders have observed an additional 24% loss on their investments. Given the strong performance of the Group during this period, I believe this negative share value trend is mainly attributable to depressed company valuations and volatile foreign currency exchange rates worldwide.
Yet despite these market conditions, I am pleased to note that virtually all of our major shareholders continue to endorse Cavotec. As included in this Report, the list of our twenty largest shareholders is basically unchanged, and collectively they account for 55.2 million shares in 2008 as compared with 55.0 million shares in 2007. We are inspired by this display of support and remain committed to our long-term goal of creating value and providing a good return on investment for our shareholders.
Considering the opportunities in our market units around the world, and combined with the developments in our new innovative systems (MoorMaster™, AMP, PCAir, E-RTG), it is my strong personal belief that Cavotec MSL will return to a period of substantial growth once this global economic slowdown is behind us.
The Cavotec MSL Annual Report is available for download from the Cavotec MSL website: http://www.cavotec.com
For further information contact:
Stefan Widegren
Executive Chairman
investor@cavotec.com
26th February 2009
Cavotec MSL Holdings Ltd
Earnings Release for announcement to the market
Reporting Period: Twelve Months to 31 December 2008
Previous Reporting Period: Twelve Months to 31 December 2007
Revenue from sales of goods:
Amount: EUR 141,724,004 (NZD 294,550,667)
Percentage change: 9.0% (19.1%)
Operating profit before finance costs and income tax (EBIT):
Amount: EUR 13,317,904 (NZD 27,679,132)
Percentage change: 5.6% (15.4%)
Profit after tax attributable to share holder:
Amount: EUR 9,161,010 (NZD 19,039,693)
Percentage change: 26.6% (38.3%)
Net tangible assets per share
Amount: EUR 0.159 (NZD 0.389)
Percentage change: -40.1% (-23.4%)
Basic earnings per share
Amount: EUR 0.144 (NZD 0.299)
Percentage change: 26.3% (38.5%)
Number of shares outstanding
31 December 2008: 63,632,700
31 December 2007: 63,632,700
Interim/Final Dividend
Current economic and credit market conditions require the Group to be conservative with its financial resources. The Board of Cavotec MSL has postponed any decision regarding the payment of dividends until the second half of 2009.
Exchange rates:
Profit and Loss values converted at average exchange rate of 2008: (EUR 1.0 = NZD 2.0783)
Balance Sheet values converted at 31 December 2008 exchange rate: (EUR 1.0 = NZD 2.4368)
The second-half of 2008 continued to impose economic challenges not seen in a generation on individuals and companies all over the world. Credit concerns initially perceived to be limited to the world’s financial institutions quickly spread, further deepening and extending macroeconomic unrest. By year’s end, disruptions in international capital flows, the swift reversal of commodities’ pricing trends and erratic fluctuations in currency exchange relationships led to sharp contractions in economies the world-over.
Throughout this period, local and national governments endeavored to stimulate activity through increased spending and investment - and their efforts are ongoing. In mid-2009, these ‘Stimulus Packages’ will begin injecting enormous financial resources into all sectors of society, with a likely strong focus on infrastructure-related projects.
I am pleased, then, to present this annual report to you, as it details Cavotec MSL’s strong 2008 performance within this environment, and outlines the Company’s preparedness for the challenges - and opportunities - of 2009 and beyond.
Financial Results
Cavotec MSL delivered another excellent year for our shareholders, producing record levels of revenue, operating income, annual order intake and year-ending order book.
Our Group’s annual consolidated revenue from sales of goods grew 9.0% in 2008 to EUR 141.7 million, indicating strong invoicing in 2H 2008 of EUR 75.7 million. Operating profit (EBIT) increased by 5.6% to EUR 13.3 million, with EUR 8.2 million of EBIT coming in 2H 2008 at a 10.8% margin.
Profit for the year amounted to EUR 9.2 million, representing a 24.8% increase over 2007. Excluding the gain and associated tax effects from the sale of Gantrex, 2008 net profit would have been EUR 5.9 million, or a decrease of 19.3% from 2007. Our effective tax rate this year was 33.4%; however, excluding the effects of the sale of Gantrex, our effective tax rate would have been 43.1%. This increase over 2007’s level is principally due to different geographical split of our revenues and profitability in 2008.
The EBIT and net profit amounts above also include approximately EUR 0.8 million of accounts receivable and slow-moving inventory provisions we elected to take as a prudent step in the increasingly tight credit environment. While most of our customers continued making payments in the ordinary course throughout 2008, there were signs of strain in some areas towards the end of the year. Management felt a more conservative stance was appropriate, and we have implemented tighter credit controls on our financial exposure accordingly.
Additionally, the Company incurred about EUR 1.9 million of additional finance costs in 2008, related to approximately EUR 1.1 million of unrealized foreign exchange losses on financial assets and liabilities and increased interest expense from acquisition-related debt and measures taken by the Company to ensure uninterrupted access to its credit facilities worldwide.
Finally, order intake for the year totaled EUR 146.7 million, a 9.6% increase over 2007’s level of EUR 133.7 million. We ended the year with our largest December order book ever, EUR 46.1 million, which is 21.4% higher than 2007’s level of EUR 38.0 million.
Looking forward with confidence
On behalf of the Board of Directors, I would like to express our sincere satisfaction with the final outcome of 2008, as outlined by our CEO in his preceding report. This was the second consecutive year for Cavotec as a public company on the NZX, and I am pleased that we have delivered good results and performed to the expectations of our shareholders.
As one of the founders of the Group, I am particularly happy to see that Cavotec MSL is financially solid and prudently leveraged in view of the challenging times ahead. Since starting in 1974, the Company has experienced seven major economical contractions, each of which slowed or reduced our growth for periods between three to twelve months. As the Group continued to develop and broaden its base of stakeholders, we worked to strengthen the Group’s global market position and diversify our operations. Simultaneously, we introduced a series of measures to minimize our exposure to financial risks and created a strong and healthy financial platform to build upon. We greatly benefitted from these actions in the past and they will serve us well as we navigate through the current economic environment.
The CCC share price
Throughout this global economic crisis, I, along with our shareholders and management, have been attentive to the decline in CCC’s share price and market capitalization. Over the past year, CCC’s value has decreased about 35% in NZD and, with the decline of the NZD versus the Euro, our overseas shareholders have observed an additional 24% loss on their investments. Given the strong performance of the Group during this period, I believe this negative share value trend is mainly attributable to depressed company valuations and volatile foreign currency exchange rates worldwide.
Yet despite these market conditions, I am pleased to note that virtually all of our major shareholders continue to endorse Cavotec. As included in this Report, the list of our twenty largest shareholders is basically unchanged, and collectively they account for 55.2 million shares in 2008 as compared with 55.0 million shares in 2007. We are inspired by this display of support and remain committed to our long-term goal of creating value and providing a good return on investment for our shareholders.
Considering the opportunities in our market units around the world, and combined with the developments in our new innovative systems (MoorMaster™, AMP, PCAir, E-RTG), it is my strong personal belief that Cavotec MSL will return to a period of substantial growth once this global economic slowdown is behind us.
The Cavotec MSL Annual Report is available for download from the Cavotec MSL website: http://www.cavotec.com
For further information contact:
Stefan Widegren
Executive Chairman
investor@cavotec.com
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LNN - Lion Nathan Ltd: HY to 31 March 2009
by Share Investor » 24 Apr 2009 21:41
ASX/ NZX/ MEDIA RELEASE
Lion Nathan releases preliminary trading results (subject to audit review) for the six months ended 31 March 2009
24 April 2009: The Board of Lion Nathan (LNN) has authorised the release of the attached preliminary trading results (which are subject to audit review) for the six months ended 31 March 2009.
Full results for the six months ended 31 March 2009 will be provided in line with original reporting timeline, with results expected to be released on or before 20 May 2009.
As previously disclosed, LNN has received an indicative, non-binding, conditional and confidential proposal from Kirin. LNN has obtained a trading halt from ASX and NZX until it makes an announcement in relation to that proposal or the commencement of normal trading on Monday 27 April 2009, whichever is the earlier.
Enquiries to:
Preliminary Trading Results
SUBJECT TO AUDIT REVIEW
For 6 Months Ended 31 March 2009
Note: all dollar amounts are in Australian dollars unless noted otherwise
DATE: 24th April, 2009
OVERVIEW
Lion Nathan’s solid first half beer results have enabled a positive revision to the FY09 Reported NPAT guidance to $305-315 million (previously $300 - $315 million), which represents 12% - 16% growth on prior year.
First half results summary: (comparisons are to first half of FY08 unless noted otherwise)
Group net sales revenue up 5.5% to $1.184 billion
Group Earnings Before Interest and Tax (EBIT) increased by 8.4% to $307.0 million
Reported Net Profit After Tax (NPAT) of $176 million, up 6.9% (Underlying NPAT1 up 6.1% to $178 million)
Lion Nathan's robust business model continues to generate strong cash flows. The company's funding position remains secure, with no debt maturities in the remainder of FY09.
Very strong results from Lion Nathan Australia achieved through core brand growth, innovation, tap gains and Boag’s growth
EBIT up 14.8% to $280.3 million
Volume up 4.6%
Net sales revenue up 11.3%
New Zealand - maintaining position through innovation success
EBIT up 3.1% to NZ$56.5 million
Domestic beer volume in line with prior year
Growth of Steinlager Pure and Speight’s Summit resulted in strong mix gains
Wine – profitability adversely impacted by economic environment in US, UK and Australia and investment in US platform
EBIT (pre SGARA2) of $3.5 million, down 55.7%
Outlook:
The Company’s investment decisions over the past five year have built a stronger business which is positioned to deliver in FY09 and beyond.
The Company expects a higher growth rate in the second half due to innovation momentum, Boag’s growth accelerating, the timing of Easter and the cycling of the investment period of the prior year where fourth quarter marketing spend and the funding costs relating to the Boag’s acquisition had a significant impact on results.
TO LION NATHAN SHAREHOLDERS – 24 APRIL 2009
BUSINESS OVERVIEW
Lion Nathan’s solid first half beer results have enabled a positive revision to the FY09 Reported NPAT guidance to $305-315 million (previously $300 - $315 million).
Lion Nathan today released preliminary trading results (subject to audit review), which indicate a net profit after tax (NPAT) of $176 million for the six months to 31 March 2009, up 6.9%. Underlying NPAT was $178 million after adjusting for costs associated with the proposed acquisition of Coca-Cola Amatil.
Commenting on the result, Lion Nathan CEO, Rob Murray said, “These first half results show the resilience of our business which has delivered another set of robust numbers. Five years ago, we made the decision to invest in our most valuable assets; our brands, our people and our breweries and we made a commitment that the investment would be followed by a step up in earnings. At the time we could not have predicted the economic conditions we would face. For that reason, it is even more rewarding to see the business delivering ahead of our forecasts. The investments we have made have been a key enabler of innovation and have enhanced the equity of our core brands and it has also resulted in a stronger business, better able to navigate tough economic times. We are in a strong position for the full year and consequently we have revised our full year NPAT guidance which is now $305 million to $315 million.”
Underpinning the result was the excellent performance of the Lion Nathan Australia business unit, which grew Operating EBIT by an impressive 12.7% to $280.3 million (Reported EBIT grew 14.8%). Net sales revenue rose 11.3% in the period and total volumes increased by 4.6%. Gains through core brands and the Boag’s trademark, ongoing improvement in mix, successful innovation and good tap beer volumes were the key drivers of growth.
The New Zealand business performed well to achieve a 3.1% improvement in EBIT in New Zealand dollars (NZD). With stable domestic beer volumes, the growth in EBIT was largely the result of improving mix with the key contributors being the success of Steinlager Pure and Speight’s Summit. This was supported by good results from the wine, spirits and ready to drink (RTD) portfolio and tight cost control across the business.
In regard to the market conditions in Australia and New Zealand (NZ), Mr Murray said “Our core beer markets have remained robust despite the economic circumstances, with premium beer remaining attractive as an affordable luxury. The level of innovation has had a very positive impact and consumers continue to move to more premium beers. We have seen some switching to at home consumption in particular regions, but overall the market remains in good health.”
In contrast to the strong beer results, the Wine business has experienced much greater volatility and exposure to the current economic conditions. Wine EBIT pre SGARA declined to $3.5 million, down 55.7% for the half. This was further compounded by an adverse SGARA movement which went from a $0.5 million gain in the first half of last financial year to a $0.7 million loss this half year.
Corporate costs rose due partly to the legal, consulting and other costs associated with the CCA proposal as well as one-time items associated with the move to the new corporate office and an increase in other group costs.
The Company’s cash flow and financing position remains solid. The interest expense for the half was better than anticipated due to the timing of cashflows for major projects and a modest benefit from lower interest rates.
The step change in EBIT for the Australian beer business and the resilience of the New Zealand business in the first half positions the Company well for the full year, and as such, the Company has revised the NPAT guidance range to $305 - $315 million (previously $300 - $315 million). The timing of Easter, further gains through innovation and contribution from the Boag’s brands are expected to culminate in an increase of the NPAT growth rate in the second half.
Table 1 – REPORTED PROFIT ANALYSIS
Six months ended ($m) 31 March 2009 31 March 2008 Change
Net Sales Revenue 1184.0 1121.9 5.5%
Reported EBIT
Australia 280.3 244.2 14.8%
New Zealand (NZD) 56.5 54.8 3.1%
New Zealand (AUD) 47.0 47.6 -1.3%
Wine (pre SGARA) 3.5 7.9 -55.7%
SGARA (0.7) 0.5 -240.0%
Corporate (23.1) (16.9) -36.7%
Group EBIT 307.0 283.3 8.4%
Net Interest Expense (61.7) (47.8) -29.1%
Pre-Tax Earnings 245.3 235.5 4.2%
Income Tax Expense (69.2) (70.7) 2.1%
Minority Interests (0.1) (0.2) 50.0%
Net Profit after Tax 176.0 164.6 6.9%
Note: Rounding may affect percentage change calculations – correct percentage change shown in table.
AUSTRALIA
Table 2 – AUSTRALIA
Six months ended 31 March 2009 31 March 2008 Change
Volume (millions of litres) 406 388 4.6%
Net Sales Revenue $m 832.0 747.7 11.3%
Operating EBIT $m 280.3 248.7 12.7%
Reported EBIT $m 280.3 244.2 14.8%
Note: Rounding may affect percentage change calculations – correct percentage change shown in table
Investments leading to stronger brand equity and EBIT improvement
The performance of the Australian business in the first half of FY09 provides a solid platform for the full year and beyond. The growth in core brands including Boag’s, enhanced brand equity, strong mix and tap gains all helped Lion Nathan Australia (LNA) achieve a 12.7% rise in Operating EBIT for the first half (a 14.8% increase in Reported EBIT).
Core brands and tap beer providing mix benefits
The strong mix shift to “step-up” brands, aided by the success of recent innovations, secured an up-lift in net sales revenue of 11.3% for the period.
The benefits of upweighted brand investment were seen in the strength of LNA’s core brands with Tooheys Extra Dry, XXXX Gold and Tooheys New all performing ahead of their respective market segments. Premiumisation and wellbeing trends are still thriving in the market. LNA’s “step-up” portfolio has enjoyed considerable success as a consequence of consumers moving up from traditional mainstream beers. Hahn Super Dry grew volumes by just under 50% in the half, outstripping the already high growth rate for the low-carb category. Craft beer sales increased through the James Squire trademark with volumes up 14% for the half.
Lion Nathan Australia was able to grow tap volumes in XXXX Gold, Boag’s Draught, Tooheys Extra Dry, James Squire and Hahn Super Dry which has had a positive impact on margin levels. The business’s total tap beer volumes were up 2% on prior year including Boag’s, and almost flat once Boag’s is excluded. This is an excellent result in the context of a market segment which has been in steady decline for over 10 years as consumers move to drink from bottles in on-premise locations and compounded by smoking bans. The tap gains are testament to the strength of the brands and gains made in brand equity through sustained brand investment.
Maintaining market share in buoyant market
LNA grew total volumes by 4.6% in the half and 5.5% on an MAT basis. Once the prior year volumes are normalised for Boag’s, volumes grew by 1%3 MAT. This is in line with the market which is estimated by AC Nielsen, to have grown by 0.9%4 MAT. LNA outperformed the market in all bar the Premium segment, where the business is structurally under represented and where there was significant price activity during the half.
Recent innovations a success
Over the last 3 years, the business has created a number of new brands and each of these is now established as sizeable and sustainable consumer propositions. Tooheys New White Stag was launched in September 2008 as the first mainstream low-carbohydrate beer in the market and is meeting internal launch expectations. This half year represents the first summer for Barefoot Radler and sales volume outstripped expectations with the brand reaching 5 million litres in the last year and rising rapidly, broadening the appeal of beer.
Boag’s building momentum - increasing profitability in the second half
Boag’s is a key growth driver for Lion Nathan Australia and the first half results provide the business with further confidence in the potential for the trademark. Volumes for the Boag’s trademark were up 8% on prior year, and the four key brands within the Boag’s portfolio rose 12%. The brand momentum has increased significantly in recent months, with Boag’s Draught now available on tap in over 1,800 locations nationwide and building. This is supported by the recently commenced TV advertising campaign for Boag’s Draught which highlights the brands’ Tasmanian provenance, a message which has gained strong cut through with consumers.
The last twelve months has included significant investment in this brand, with new packaging, TV commercials, and other advertising developed. These investments support the recent growth momentum which is expected to culminate in an increasing profit contribution from Boag’s in the second half.
Investments delivering results
The LNA business has benefited greatly from the decision to invest behind the Company’s core assets – its brands, breweries and people. The first half results demonstrate the renewed strength of the LNA business and the impact of the investments in creating a business that is more agile, efficient and better able to capitalise on opportunities through innovation and strong brand equity. Further benefits from these investments are anticipated into the second half of FY09 and beyond, including further savings through the nearly completed brewery upgrades.
NEW ZEALAND
Table 3 - NEW ZEALAND
Six months ended 31 March 2009 31 March 2008 Change
Domestic Beer Volume (millions of litres)
Total Volume (millions of litres) 91
105 91
106 -0.3%
-0.6%
Net Sales Revenue NZ$m
$m 323.8
269.6 326.3
283.5 -0.8%
-4.9%
Reported EBIT NZ$m
$m 56.5
47.0 54.8
47.6 3.1%
-1.3%
Note: Rounding may affect percentage change calculations – correct percentage change shown in table
Innovation led to improved mix and EBIT, despite high cost and FX pressures
The New Zealand business has been able to gain ground through innovation and mix improvements in beer complemented by volume gains in wine, spirits and RTDs offsetting export and mainstream beer volume declines. This enabled EBIT growth to continue in the first half of 2009, with EBIT up 3.1% in local currency.
Domestic beer volumes steady
Despite strong prior year first half volumes which benefited from the timing of Easter and the hot NZ summer, domestic beer volumes in the first half of FY09 remained steady on prior year. Beer exports declined by 1.3 million litres for the period as macro-economic factors caused demand to contract, particularly in Hawaii, where Steinlager has a strong presence, and where tourism levels are down significantly on prior year.
Positive mix trends continue largely due to successful innovations
Lion Nathan New Zealand’s domestic beer volumes were in line with prior year, with an improved product mix as consumers migrated to “step up” and premium beers. Much of this movement to higher value brands was due to recently launched brands Steinlager Pure and Speight’s Summit. In addition, Steinlager Classic returned to growth.
Price increases required to cover rising costs
Beer raw material costs (especially aluminium, sugar, barley, glass, energy costs) have risen significantly in recent years, and well ahead of CPI. While positive mix gains and innovation success has provided some offset to this cost pressure, this is not sustainable. A recent price increase effected in March 2009 will alleviate some of this cost pressure and partially restore beer margins, however further price increases are likely in 2009 to recover these significant historic cost increases and the continued negative exchange rate impacts on foreign priced input costs.
Wine, Spirits & RTDs provide incremental EBIT
Lion Nathan New Zealand achieved first half volume growth of 11% from its wine, spirits, and RTDs portfolio compared to the prior year with all categories growing. New product development initiatives in wine, and new agency brands more than offset the loss of the Moet Hennessy agency brands in February 2008. The effective Christmas promotional programme supported by the continued strength in the Smirnoff vodka brand helped lift spirits performance in a competitive market, while RTDs were boosted by increased multi-pack volumes in key brands.
WINE
Table 4 – WINE
Six months ended 31 March 2009 31 March 2008 Change
Volume (000s of 9 litre cases) 798 752 6.1%
Net Sales Revenue $m 82.4 90.7 -9.2%
Reported EBIT pre SGARA $m 3.5 7.9 -55.7%
SGARA $m (0.7) 0.5 -240.0%
Reported EBIT $m 2.8 8.4 -66.7%
Note: Rounding may affect percentage change calculations – correct percentage change shown in table.
Wine Group profitability down due to market conditions and investment in US platform
Key wine markets have been impacted not only by the economic crisis but also by structural wine industry dynamics of excess supply, the vagaries of nature and rising discount requirements.
Volumes and overheads up due to the new US distribution platform
Volumes are higher than prior year due to the inclusion of brands distributed through the new owned Lion Nathan US wine distribution business. This business is in start up phase and it is expected to breakeven in the near term, covering the additional overheads attributable to this business. The platform provides a solid basis to take Lion Nathan’s wines to market in the US.
Consumers trading down and deeper discounting required
In the US and UK, market dynamics have deteriorated with considerable trading down evident and a switch away from on-premise consumption, reducing demand for fine wines. Additionally, there has been a significant increase in supplier funded discounting required by major retailers, particularly in the UK, leveraging the excess global supply.
In Australia, similar trends are becoming evident. The total bottled market is still in growth, though much reduced from previous levels. MAT value growth is at 3.8%, down from 8% a year ago and the quarterly growth is only 1.8%. The major contributor to wine market growth in Australia was sauvignon blanc, which increased value by approximately 30% in the half to overtake chardonnay (which decreased 10%) as the number one varietal. The growth in sauvignon blanc accounted for 82% of the total market growth.
As Lion Nathan’s Wine business adapts to take account of the changing market conditions, Wither Hills is strongly positioned in the Australian market and brand extensions are planned to capture demand at key growth price points.
Nature impacting on yields and SGARA
The intense heat and fires in South Eastern Australia have reduced vintage yields across the region and have negatively impacted SGARA valuations for the half. The heatwave across Victoria and South Australia has had the greatest impact, with yields down up to 15% for some vineyards. Berry weights are below expectation with some fruit effectively dried from the sun and extreme heat. In Central Victoria, no owned vineyards were lost in the recent fires but smoke taint was detected in some of the contracted growers' vineyards. Consequently intake from these growers in the region was considerably reduced. The lower 2009 vintage is likely to assist the balancing of bulk wine inventory in Australia and will not impact on the Company’s ability to meet demand.
Outlook
The Wine business is expected to track below prior year for the second half of FY09, as economic factors continue to suppress demand and margins. Due to the relative size of the Wine business, this is not expected to be material to the Group result.
OTHER FINANCIAL INFORMATION
Effective income tax rate
The effective income tax rate during the half has reduced by the lower New Zealand corporate tax rate and R&D tax concessions.
Strong funding position
Key debt coverage ratios remain well within debt covenants and investment grade parameters.
The robustness of Lion Nathan’s business model and balance sheet resulted in rating agency Fitch upgrading the Company’s credit rating in April 2009 to BBB+ (from BBB).
Ratings from Standard and Poor’s and Moody’s are BBB/stable and Baa2/positive respectively.
Interest costs higher than prior year, but better than anticipated
The Company’s funding levels increased in January 2008 to facilitate the acquisition of Boag’s and the investment in brewing assets. Consequently, interest expense increased, with $47.8 million incurred in the first half of FY08, increasing to $60.9 million in the second half of FY08. In the first half of FY09, the timing of cashflows for major projects has enabled interest costs to remain broadly consistent with the second half of FY08 at $61.7 million. Interest expense for the second half of FY09 is expected to remain at a similar level.
COGS guidance reaffirmed
At a Group level, variable COGS are likely to increase between 5-7% in FY095, as per previous guidance.
Full year capital expenditure guidance reaffirmed
As previously guided, capital expenditure of between $225 – 275 million is anticipated in FY09.
The investment in breweries in Australia and New Zealand will help the Company maintain low cost, efficient operations with enhanced flexibility, agility and quality to meet evolving customer and consumer requirements as well as providing further improvements in occupational health and safety standards and reducing the environmental footprint of the breweries.
Further savings enabled through recent Australian breweries investment
Work to improve the XXXX Castlemaine and Tooheys breweries will conclude by the end of this financial year, with some fine tuning expected in FY10. Annualised savings from this investment have reached the $15 million project commitment, and there is now scope for these savings to increase as the full benefits of the investment program come to fruition. The project has resulted in significant reductions in greenhouse gas emissions and energy usage and a forecast reduction in trade waste.
Increasing the capacity of the Boag’s brewery
The new brewhouse at the Boag’s Brewery in Launceston is expected to be complete in the first half of FY10. The first brew is expected by the end of this calendar year. The additional capacity of the brewery will allow the brand to build on its current momentum.
Transforming NZ operations
The Auckland brewery project is well underway, with the brewhouse currently under construction. The first brew from the new brewery is expected by the end of this calendar year. Following this, the packaging and distribution equipment will be installed. It is anticipated that the Auckland operations will be fully transitioned to the new facility in 2011. Total projected Auckland Brewery Project expenditure remains at NZ$250 million as previously advised. The project is on track to deliver NZ$15 million in savings, as per previous guidance.
OUTLOOK
Positive change to guidance
Following the strong first half results, robust beer market fundamentals and positive indicators going in to the second half, the Company today revised the full year Reported NPAT guidance range to $305 million - $315 million (previous guidance was $300 million - $315 million).
Beer market and beer results robust
With consumers trading into beer, but moving up within the beer category to step-up and premium offerings, the beer market has remained buoyant. Lion Nathan has been able to take advantage of these trends to deliver strong results from both beer business units in the first half, with LNA EBIT up 14.8%, and LNNZ NZD EBIT up 3.1%.
Innovation remains key
The momentum of recent new brands such as Steinlager Pure, Hahn Super Dry, Barefoot Radler, Speight’s Summit and Tooheys New White Stag is expected to yield further growth in the second half. It is anticipated that this will be enhanced by further innovation which is scheduled for release in the second half.
Growth rate accelerating
The Company expects the NPAT growth rate to increase in the second half of FY09, as the business cycles the heavy marketing investment period of the last quarter of FY08. Additionally, the first half growth rate was suppressed by the significantly lower interest costs in the first half of FY08 as the Boag’s funding was drawn down in January of last year. Funding levels have been relatively stable since that time.
Boag’s considerable contributor in second half
The profitability of the key Boag’s brands are expected to rise in the second half as they build on the momentum achieved through the recent relaunch of Boag’s Draught and new advertising campaign.
Easter timing a factor
With Easter moving from the first half in FY08 to the second half in FY09, the Company has enjoyed a good start to the second half in April for all divisions, providing further confidence in the full year outlook.
Excise tax
The Company’s original guidance was set in November 2008, based on the excise rates of beer, wine, spirits and RTDs prevailing at the time and which are the same today. This remains the assumption on which the outlook is based.
Outlook
In regard to the Company’s outlook for the full year, Rob Murray said “The business fundamentals give us confidence in a strong second half, building on the solid foundations of the first half. Our key beer markets remain healthy and with limited exposure to the more volatile wine market, we are well placed to thrive in the current environment. The wise investment decisions we made five years ago have resulted in a stronger, more resilient Company with great brands, more flexible and efficient operations, leading people engagement and a string of successful brand innovations. Each of these is a competitive advantage for Lion Nathan that can help us to deliver not only in FY09 but well into the future.”
NOTES:
These preliminary results are subject to Audit Review. Full results will be provided in line with the Company’s original half year reporting timeline, with a results announcement expected on 20 May, 2009.
This announcement includes forward looking statements which may be subject to events or uncertainties outside of Lion Nathan’s control. No warranty of accuracy or reliability is made and Lion Nathan takes no responsibility for accuracy or reliability of forecasts, the assumptions on which they are based or other forward looking statements. Actual future events may vary from these forecasts. Undue reliance should not be placed on any forward looking statement.
- Ends –
Contacts:
Investors
Caroline Veitch
Investor Relations Director
Lion Nathan Limited
Sydney, Australia
Phone: +61 2 9290 6615
Mobile: +61 404 447 681
E-mail: caroline.veitch@lion-nathan.com.au
Media
James Tait
Corporate Affairs Director
Lion Nathan Limited
Sydney, Australia
Phone: +61 2 9320 2236
Mobile: +61 400 304 147
E-mail: james.tait@lion-nathan.com.au
APPENDICES
1 - One-Time Items (OTI)
The first half of FY09 contains no separately disclosed one-time items.
In line with previous announcements, approximately $3 million pre-tax (around $2 million after tax) in costs were incurred in the first half of this financial year in relation to the proposed merger with Coca-Cola Amatil. As these costs are not considered material, they will not be separately disclosed as OTIs in the financial report.
In the first half of the prior financial year, pre-tax OTIs of $4.5 million ($3.1 million after tax) were incurred relating to restructuring and integration costs associated with the Boag’s acquisition.
2 - Significant items
The 2009 first half result contained no individually significant items (ISIs). Similarly the prior corresponding period contained no ISIs.
3 - Exchange rate translation
Lion Nathan converts its New Zealand earnings into Australian dollars at the monthly weighted average exchange rate for the period which was NZ$1.201 (compared to NZ$1.151 for first half FY08 – up 4.3%). New Zealand investments are converted into Australian dollars at the period end exchange rate which was NZ$1.211 (NZ$1.157 at 31 March 2008 – up 4.7%).
Lion Nathan releases preliminary trading results (subject to audit review) for the six months ended 31 March 2009
24 April 2009: The Board of Lion Nathan (LNN) has authorised the release of the attached preliminary trading results (which are subject to audit review) for the six months ended 31 March 2009.
Full results for the six months ended 31 March 2009 will be provided in line with original reporting timeline, with results expected to be released on or before 20 May 2009.
As previously disclosed, LNN has received an indicative, non-binding, conditional and confidential proposal from Kirin. LNN has obtained a trading halt from ASX and NZX until it makes an announcement in relation to that proposal or the commencement of normal trading on Monday 27 April 2009, whichever is the earlier.
Enquiries to:
Preliminary Trading Results
SUBJECT TO AUDIT REVIEW
For 6 Months Ended 31 March 2009
Note: all dollar amounts are in Australian dollars unless noted otherwise
DATE: 24th April, 2009
OVERVIEW
Lion Nathan’s solid first half beer results have enabled a positive revision to the FY09 Reported NPAT guidance to $305-315 million (previously $300 - $315 million), which represents 12% - 16% growth on prior year.
First half results summary: (comparisons are to first half of FY08 unless noted otherwise)
Group net sales revenue up 5.5% to $1.184 billion
Group Earnings Before Interest and Tax (EBIT) increased by 8.4% to $307.0 million
Reported Net Profit After Tax (NPAT) of $176 million, up 6.9% (Underlying NPAT1 up 6.1% to $178 million)
Lion Nathan's robust business model continues to generate strong cash flows. The company's funding position remains secure, with no debt maturities in the remainder of FY09.
Very strong results from Lion Nathan Australia achieved through core brand growth, innovation, tap gains and Boag’s growth
EBIT up 14.8% to $280.3 million
Volume up 4.6%
Net sales revenue up 11.3%
New Zealand - maintaining position through innovation success
EBIT up 3.1% to NZ$56.5 million
Domestic beer volume in line with prior year
Growth of Steinlager Pure and Speight’s Summit resulted in strong mix gains
Wine – profitability adversely impacted by economic environment in US, UK and Australia and investment in US platform
EBIT (pre SGARA2) of $3.5 million, down 55.7%
Outlook:
The Company’s investment decisions over the past five year have built a stronger business which is positioned to deliver in FY09 and beyond.
The Company expects a higher growth rate in the second half due to innovation momentum, Boag’s growth accelerating, the timing of Easter and the cycling of the investment period of the prior year where fourth quarter marketing spend and the funding costs relating to the Boag’s acquisition had a significant impact on results.
TO LION NATHAN SHAREHOLDERS – 24 APRIL 2009
BUSINESS OVERVIEW
Lion Nathan’s solid first half beer results have enabled a positive revision to the FY09 Reported NPAT guidance to $305-315 million (previously $300 - $315 million).
Lion Nathan today released preliminary trading results (subject to audit review), which indicate a net profit after tax (NPAT) of $176 million for the six months to 31 March 2009, up 6.9%. Underlying NPAT was $178 million after adjusting for costs associated with the proposed acquisition of Coca-Cola Amatil.
Commenting on the result, Lion Nathan CEO, Rob Murray said, “These first half results show the resilience of our business which has delivered another set of robust numbers. Five years ago, we made the decision to invest in our most valuable assets; our brands, our people and our breweries and we made a commitment that the investment would be followed by a step up in earnings. At the time we could not have predicted the economic conditions we would face. For that reason, it is even more rewarding to see the business delivering ahead of our forecasts. The investments we have made have been a key enabler of innovation and have enhanced the equity of our core brands and it has also resulted in a stronger business, better able to navigate tough economic times. We are in a strong position for the full year and consequently we have revised our full year NPAT guidance which is now $305 million to $315 million.”
Underpinning the result was the excellent performance of the Lion Nathan Australia business unit, which grew Operating EBIT by an impressive 12.7% to $280.3 million (Reported EBIT grew 14.8%). Net sales revenue rose 11.3% in the period and total volumes increased by 4.6%. Gains through core brands and the Boag’s trademark, ongoing improvement in mix, successful innovation and good tap beer volumes were the key drivers of growth.
The New Zealand business performed well to achieve a 3.1% improvement in EBIT in New Zealand dollars (NZD). With stable domestic beer volumes, the growth in EBIT was largely the result of improving mix with the key contributors being the success of Steinlager Pure and Speight’s Summit. This was supported by good results from the wine, spirits and ready to drink (RTD) portfolio and tight cost control across the business.
In regard to the market conditions in Australia and New Zealand (NZ), Mr Murray said “Our core beer markets have remained robust despite the economic circumstances, with premium beer remaining attractive as an affordable luxury. The level of innovation has had a very positive impact and consumers continue to move to more premium beers. We have seen some switching to at home consumption in particular regions, but overall the market remains in good health.”
In contrast to the strong beer results, the Wine business has experienced much greater volatility and exposure to the current economic conditions. Wine EBIT pre SGARA declined to $3.5 million, down 55.7% for the half. This was further compounded by an adverse SGARA movement which went from a $0.5 million gain in the first half of last financial year to a $0.7 million loss this half year.
Corporate costs rose due partly to the legal, consulting and other costs associated with the CCA proposal as well as one-time items associated with the move to the new corporate office and an increase in other group costs.
The Company’s cash flow and financing position remains solid. The interest expense for the half was better than anticipated due to the timing of cashflows for major projects and a modest benefit from lower interest rates.
The step change in EBIT for the Australian beer business and the resilience of the New Zealand business in the first half positions the Company well for the full year, and as such, the Company has revised the NPAT guidance range to $305 - $315 million (previously $300 - $315 million). The timing of Easter, further gains through innovation and contribution from the Boag’s brands are expected to culminate in an increase of the NPAT growth rate in the second half.
Table 1 – REPORTED PROFIT ANALYSIS
Six months ended ($m) 31 March 2009 31 March 2008 Change
Net Sales Revenue 1184.0 1121.9 5.5%
Reported EBIT
Australia 280.3 244.2 14.8%
New Zealand (NZD) 56.5 54.8 3.1%
New Zealand (AUD) 47.0 47.6 -1.3%
Wine (pre SGARA) 3.5 7.9 -55.7%
SGARA (0.7) 0.5 -240.0%
Corporate (23.1) (16.9) -36.7%
Group EBIT 307.0 283.3 8.4%
Net Interest Expense (61.7) (47.8) -29.1%
Pre-Tax Earnings 245.3 235.5 4.2%
Income Tax Expense (69.2) (70.7) 2.1%
Minority Interests (0.1) (0.2) 50.0%
Net Profit after Tax 176.0 164.6 6.9%
Note: Rounding may affect percentage change calculations – correct percentage change shown in table.
AUSTRALIA
Table 2 – AUSTRALIA
Six months ended 31 March 2009 31 March 2008 Change
Volume (millions of litres) 406 388 4.6%
Net Sales Revenue $m 832.0 747.7 11.3%
Operating EBIT $m 280.3 248.7 12.7%
Reported EBIT $m 280.3 244.2 14.8%
Note: Rounding may affect percentage change calculations – correct percentage change shown in table
Investments leading to stronger brand equity and EBIT improvement
The performance of the Australian business in the first half of FY09 provides a solid platform for the full year and beyond. The growth in core brands including Boag’s, enhanced brand equity, strong mix and tap gains all helped Lion Nathan Australia (LNA) achieve a 12.7% rise in Operating EBIT for the first half (a 14.8% increase in Reported EBIT).
Core brands and tap beer providing mix benefits
The strong mix shift to “step-up” brands, aided by the success of recent innovations, secured an up-lift in net sales revenue of 11.3% for the period.
The benefits of upweighted brand investment were seen in the strength of LNA’s core brands with Tooheys Extra Dry, XXXX Gold and Tooheys New all performing ahead of their respective market segments. Premiumisation and wellbeing trends are still thriving in the market. LNA’s “step-up” portfolio has enjoyed considerable success as a consequence of consumers moving up from traditional mainstream beers. Hahn Super Dry grew volumes by just under 50% in the half, outstripping the already high growth rate for the low-carb category. Craft beer sales increased through the James Squire trademark with volumes up 14% for the half.
Lion Nathan Australia was able to grow tap volumes in XXXX Gold, Boag’s Draught, Tooheys Extra Dry, James Squire and Hahn Super Dry which has had a positive impact on margin levels. The business’s total tap beer volumes were up 2% on prior year including Boag’s, and almost flat once Boag’s is excluded. This is an excellent result in the context of a market segment which has been in steady decline for over 10 years as consumers move to drink from bottles in on-premise locations and compounded by smoking bans. The tap gains are testament to the strength of the brands and gains made in brand equity through sustained brand investment.
Maintaining market share in buoyant market
LNA grew total volumes by 4.6% in the half and 5.5% on an MAT basis. Once the prior year volumes are normalised for Boag’s, volumes grew by 1%3 MAT. This is in line with the market which is estimated by AC Nielsen, to have grown by 0.9%4 MAT. LNA outperformed the market in all bar the Premium segment, where the business is structurally under represented and where there was significant price activity during the half.
Recent innovations a success
Over the last 3 years, the business has created a number of new brands and each of these is now established as sizeable and sustainable consumer propositions. Tooheys New White Stag was launched in September 2008 as the first mainstream low-carbohydrate beer in the market and is meeting internal launch expectations. This half year represents the first summer for Barefoot Radler and sales volume outstripped expectations with the brand reaching 5 million litres in the last year and rising rapidly, broadening the appeal of beer.
Boag’s building momentum - increasing profitability in the second half
Boag’s is a key growth driver for Lion Nathan Australia and the first half results provide the business with further confidence in the potential for the trademark. Volumes for the Boag’s trademark were up 8% on prior year, and the four key brands within the Boag’s portfolio rose 12%. The brand momentum has increased significantly in recent months, with Boag’s Draught now available on tap in over 1,800 locations nationwide and building. This is supported by the recently commenced TV advertising campaign for Boag’s Draught which highlights the brands’ Tasmanian provenance, a message which has gained strong cut through with consumers.
The last twelve months has included significant investment in this brand, with new packaging, TV commercials, and other advertising developed. These investments support the recent growth momentum which is expected to culminate in an increasing profit contribution from Boag’s in the second half.
Investments delivering results
The LNA business has benefited greatly from the decision to invest behind the Company’s core assets – its brands, breweries and people. The first half results demonstrate the renewed strength of the LNA business and the impact of the investments in creating a business that is more agile, efficient and better able to capitalise on opportunities through innovation and strong brand equity. Further benefits from these investments are anticipated into the second half of FY09 and beyond, including further savings through the nearly completed brewery upgrades.
NEW ZEALAND
Table 3 - NEW ZEALAND
Six months ended 31 March 2009 31 March 2008 Change
Domestic Beer Volume (millions of litres)
Total Volume (millions of litres) 91
105 91
106 -0.3%
-0.6%
Net Sales Revenue NZ$m
$m 323.8
269.6 326.3
283.5 -0.8%
-4.9%
Reported EBIT NZ$m
$m 56.5
47.0 54.8
47.6 3.1%
-1.3%
Note: Rounding may affect percentage change calculations – correct percentage change shown in table
Innovation led to improved mix and EBIT, despite high cost and FX pressures
The New Zealand business has been able to gain ground through innovation and mix improvements in beer complemented by volume gains in wine, spirits and RTDs offsetting export and mainstream beer volume declines. This enabled EBIT growth to continue in the first half of 2009, with EBIT up 3.1% in local currency.
Domestic beer volumes steady
Despite strong prior year first half volumes which benefited from the timing of Easter and the hot NZ summer, domestic beer volumes in the first half of FY09 remained steady on prior year. Beer exports declined by 1.3 million litres for the period as macro-economic factors caused demand to contract, particularly in Hawaii, where Steinlager has a strong presence, and where tourism levels are down significantly on prior year.
Positive mix trends continue largely due to successful innovations
Lion Nathan New Zealand’s domestic beer volumes were in line with prior year, with an improved product mix as consumers migrated to “step up” and premium beers. Much of this movement to higher value brands was due to recently launched brands Steinlager Pure and Speight’s Summit. In addition, Steinlager Classic returned to growth.
Price increases required to cover rising costs
Beer raw material costs (especially aluminium, sugar, barley, glass, energy costs) have risen significantly in recent years, and well ahead of CPI. While positive mix gains and innovation success has provided some offset to this cost pressure, this is not sustainable. A recent price increase effected in March 2009 will alleviate some of this cost pressure and partially restore beer margins, however further price increases are likely in 2009 to recover these significant historic cost increases and the continued negative exchange rate impacts on foreign priced input costs.
Wine, Spirits & RTDs provide incremental EBIT
Lion Nathan New Zealand achieved first half volume growth of 11% from its wine, spirits, and RTDs portfolio compared to the prior year with all categories growing. New product development initiatives in wine, and new agency brands more than offset the loss of the Moet Hennessy agency brands in February 2008. The effective Christmas promotional programme supported by the continued strength in the Smirnoff vodka brand helped lift spirits performance in a competitive market, while RTDs were boosted by increased multi-pack volumes in key brands.
WINE
Table 4 – WINE
Six months ended 31 March 2009 31 March 2008 Change
Volume (000s of 9 litre cases) 798 752 6.1%
Net Sales Revenue $m 82.4 90.7 -9.2%
Reported EBIT pre SGARA $m 3.5 7.9 -55.7%
SGARA $m (0.7) 0.5 -240.0%
Reported EBIT $m 2.8 8.4 -66.7%
Note: Rounding may affect percentage change calculations – correct percentage change shown in table.
Wine Group profitability down due to market conditions and investment in US platform
Key wine markets have been impacted not only by the economic crisis but also by structural wine industry dynamics of excess supply, the vagaries of nature and rising discount requirements.
Volumes and overheads up due to the new US distribution platform
Volumes are higher than prior year due to the inclusion of brands distributed through the new owned Lion Nathan US wine distribution business. This business is in start up phase and it is expected to breakeven in the near term, covering the additional overheads attributable to this business. The platform provides a solid basis to take Lion Nathan’s wines to market in the US.
Consumers trading down and deeper discounting required
In the US and UK, market dynamics have deteriorated with considerable trading down evident and a switch away from on-premise consumption, reducing demand for fine wines. Additionally, there has been a significant increase in supplier funded discounting required by major retailers, particularly in the UK, leveraging the excess global supply.
In Australia, similar trends are becoming evident. The total bottled market is still in growth, though much reduced from previous levels. MAT value growth is at 3.8%, down from 8% a year ago and the quarterly growth is only 1.8%. The major contributor to wine market growth in Australia was sauvignon blanc, which increased value by approximately 30% in the half to overtake chardonnay (which decreased 10%) as the number one varietal. The growth in sauvignon blanc accounted for 82% of the total market growth.
As Lion Nathan’s Wine business adapts to take account of the changing market conditions, Wither Hills is strongly positioned in the Australian market and brand extensions are planned to capture demand at key growth price points.
Nature impacting on yields and SGARA
The intense heat and fires in South Eastern Australia have reduced vintage yields across the region and have negatively impacted SGARA valuations for the half. The heatwave across Victoria and South Australia has had the greatest impact, with yields down up to 15% for some vineyards. Berry weights are below expectation with some fruit effectively dried from the sun and extreme heat. In Central Victoria, no owned vineyards were lost in the recent fires but smoke taint was detected in some of the contracted growers' vineyards. Consequently intake from these growers in the region was considerably reduced. The lower 2009 vintage is likely to assist the balancing of bulk wine inventory in Australia and will not impact on the Company’s ability to meet demand.
Outlook
The Wine business is expected to track below prior year for the second half of FY09, as economic factors continue to suppress demand and margins. Due to the relative size of the Wine business, this is not expected to be material to the Group result.
OTHER FINANCIAL INFORMATION
Effective income tax rate
The effective income tax rate during the half has reduced by the lower New Zealand corporate tax rate and R&D tax concessions.
Strong funding position
Key debt coverage ratios remain well within debt covenants and investment grade parameters.
The robustness of Lion Nathan’s business model and balance sheet resulted in rating agency Fitch upgrading the Company’s credit rating in April 2009 to BBB+ (from BBB).
Ratings from Standard and Poor’s and Moody’s are BBB/stable and Baa2/positive respectively.
Interest costs higher than prior year, but better than anticipated
The Company’s funding levels increased in January 2008 to facilitate the acquisition of Boag’s and the investment in brewing assets. Consequently, interest expense increased, with $47.8 million incurred in the first half of FY08, increasing to $60.9 million in the second half of FY08. In the first half of FY09, the timing of cashflows for major projects has enabled interest costs to remain broadly consistent with the second half of FY08 at $61.7 million. Interest expense for the second half of FY09 is expected to remain at a similar level.
COGS guidance reaffirmed
At a Group level, variable COGS are likely to increase between 5-7% in FY095, as per previous guidance.
Full year capital expenditure guidance reaffirmed
As previously guided, capital expenditure of between $225 – 275 million is anticipated in FY09.
The investment in breweries in Australia and New Zealand will help the Company maintain low cost, efficient operations with enhanced flexibility, agility and quality to meet evolving customer and consumer requirements as well as providing further improvements in occupational health and safety standards and reducing the environmental footprint of the breweries.
Further savings enabled through recent Australian breweries investment
Work to improve the XXXX Castlemaine and Tooheys breweries will conclude by the end of this financial year, with some fine tuning expected in FY10. Annualised savings from this investment have reached the $15 million project commitment, and there is now scope for these savings to increase as the full benefits of the investment program come to fruition. The project has resulted in significant reductions in greenhouse gas emissions and energy usage and a forecast reduction in trade waste.
Increasing the capacity of the Boag’s brewery
The new brewhouse at the Boag’s Brewery in Launceston is expected to be complete in the first half of FY10. The first brew is expected by the end of this calendar year. The additional capacity of the brewery will allow the brand to build on its current momentum.
Transforming NZ operations
The Auckland brewery project is well underway, with the brewhouse currently under construction. The first brew from the new brewery is expected by the end of this calendar year. Following this, the packaging and distribution equipment will be installed. It is anticipated that the Auckland operations will be fully transitioned to the new facility in 2011. Total projected Auckland Brewery Project expenditure remains at NZ$250 million as previously advised. The project is on track to deliver NZ$15 million in savings, as per previous guidance.
OUTLOOK
Positive change to guidance
Following the strong first half results, robust beer market fundamentals and positive indicators going in to the second half, the Company today revised the full year Reported NPAT guidance range to $305 million - $315 million (previous guidance was $300 million - $315 million).
Beer market and beer results robust
With consumers trading into beer, but moving up within the beer category to step-up and premium offerings, the beer market has remained buoyant. Lion Nathan has been able to take advantage of these trends to deliver strong results from both beer business units in the first half, with LNA EBIT up 14.8%, and LNNZ NZD EBIT up 3.1%.
Innovation remains key
The momentum of recent new brands such as Steinlager Pure, Hahn Super Dry, Barefoot Radler, Speight’s Summit and Tooheys New White Stag is expected to yield further growth in the second half. It is anticipated that this will be enhanced by further innovation which is scheduled for release in the second half.
Growth rate accelerating
The Company expects the NPAT growth rate to increase in the second half of FY09, as the business cycles the heavy marketing investment period of the last quarter of FY08. Additionally, the first half growth rate was suppressed by the significantly lower interest costs in the first half of FY08 as the Boag’s funding was drawn down in January of last year. Funding levels have been relatively stable since that time.
Boag’s considerable contributor in second half
The profitability of the key Boag’s brands are expected to rise in the second half as they build on the momentum achieved through the recent relaunch of Boag’s Draught and new advertising campaign.
Easter timing a factor
With Easter moving from the first half in FY08 to the second half in FY09, the Company has enjoyed a good start to the second half in April for all divisions, providing further confidence in the full year outlook.
Excise tax
The Company’s original guidance was set in November 2008, based on the excise rates of beer, wine, spirits and RTDs prevailing at the time and which are the same today. This remains the assumption on which the outlook is based.
Outlook
In regard to the Company’s outlook for the full year, Rob Murray said “The business fundamentals give us confidence in a strong second half, building on the solid foundations of the first half. Our key beer markets remain healthy and with limited exposure to the more volatile wine market, we are well placed to thrive in the current environment. The wise investment decisions we made five years ago have resulted in a stronger, more resilient Company with great brands, more flexible and efficient operations, leading people engagement and a string of successful brand innovations. Each of these is a competitive advantage for Lion Nathan that can help us to deliver not only in FY09 but well into the future.”
NOTES:
These preliminary results are subject to Audit Review. Full results will be provided in line with the Company’s original half year reporting timeline, with a results announcement expected on 20 May, 2009.
This announcement includes forward looking statements which may be subject to events or uncertainties outside of Lion Nathan’s control. No warranty of accuracy or reliability is made and Lion Nathan takes no responsibility for accuracy or reliability of forecasts, the assumptions on which they are based or other forward looking statements. Actual future events may vary from these forecasts. Undue reliance should not be placed on any forward looking statement.
- Ends –
Contacts:
Investors
Caroline Veitch
Investor Relations Director
Lion Nathan Limited
Sydney, Australia
Phone: +61 2 9290 6615
Mobile: +61 404 447 681
E-mail: caroline.veitch@lion-nathan.com.au
Media
James Tait
Corporate Affairs Director
Lion Nathan Limited
Sydney, Australia
Phone: +61 2 9320 2236
Mobile: +61 400 304 147
E-mail: james.tait@lion-nathan.com.au
APPENDICES
1 - One-Time Items (OTI)
The first half of FY09 contains no separately disclosed one-time items.
In line with previous announcements, approximately $3 million pre-tax (around $2 million after tax) in costs were incurred in the first half of this financial year in relation to the proposed merger with Coca-Cola Amatil. As these costs are not considered material, they will not be separately disclosed as OTIs in the financial report.
In the first half of the prior financial year, pre-tax OTIs of $4.5 million ($3.1 million after tax) were incurred relating to restructuring and integration costs associated with the Boag’s acquisition.
2 - Significant items
The 2009 first half result contained no individually significant items (ISIs). Similarly the prior corresponding period contained no ISIs.
3 - Exchange rate translation
Lion Nathan converts its New Zealand earnings into Australian dollars at the monthly weighted average exchange rate for the period which was NZ$1.201 (compared to NZ$1.151 for first half FY08 – up 4.3%). New Zealand investments are converted into Australian dollars at the period end exchange rate which was NZ$1.211 (NZ$1.157 at 31 March 2008 – up 4.7%).
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NZX - New Zealand Stock Exchange Ltd: 1st Quarter to 31/03/
by Share Investor » 27 Apr 2009 20:18
NZX Q1 NPAT exceeds $3 million, up 40%
27 April 2009 - NZX has released a Group Q1 financial result showing NPAT up 40%.
NZX Group – Q1 2009 vs Q1 2008 Performance
-Operating revenue: $8.59 million versus $7.99 million in 2008, an increase of 7%
-Operating expenditure: $4.311 million versus $4.314 million in 2008.
-EBITDA: $4.28 million versus $3.67 million in 2008, an increase of 16%.
-EBITDA margin: 49.8% versus 46.0% in 2008, an increase of 8%.
-NPAT: $3.04 million versus $2.17 million in 2008, an increase of 40%.
-NPAT margin: 35.4% versus 27.2% in 2008, an increase of 30%.
-Fully diluted earnings per share (EPS): 12.4 cents per share versus 8.9 cents per share in 2008, an increase of 39%.
NZX CEO Mark Weldon said, “Our strategy comprises three key areas of focus: strengthening the core NZX markets, cementing a broader integrated base from which to grow and generate strong operating leverage, and continuing to proactively reshape the NZX business. This pleasing Q1 result is evidence of the success of this strategy.
“We are currently in the process of successfully exiting two key global investments, TZ1 Registry and BESA. Alongside this we believe this environment presents an unparalleled opportunity to further reshape the NZX business for substantial future growth. Over the next few years NZX is well-placed to continue to deliver strong financial results,” said Weldon.
Looking forward, NZX management sees momentum returning and has a positive outlook. Some leading indicators driving this outlook include:
-A record of $1.4 billion capital was raised in March including significant secondary equity.
-Average daily trades in March were the best year to date, and NZX market data revenues and sales have remained stronger than peer exchanges.
-Operating expenditure is unchanged compared with the previous corresponding period, despite the addition of TZ1 costs, which make up 21% of total costs. The TZ1 Registry business is currently in the due diligence stage of a NZ $66 million sale to leading global financial services company Markit.
Peer exchanges in the Asia-Pacific region reporting decreasing profits in the last two months include: Hong Kong Exchange & Clearing down 17%, Singapore Exchange down 46% and Bursa Malaysia down 63%.
NZX Markets Business – Q1 2009 Performance
-Total NZX Markets Business operating revenue grew 5% year on year to $7.67 million in 2009.
-The Information businesses generated $3.89 million in revenue in Q1 2009, half of the total Markets Business revenue, and an increase of 39% on 2008.
-Total listings revenue was $1.78 million, a 17% decrease on the same period in 2008.
-Trading, clearing and settlement revenue was down 15% on the comparable period in 2008 at $905,000.
The Data business continues to deliver strong results for NZX, despite challenging market conditions. In the Rural Information Businesses, NZX will continue to look at suitable acquisition opportunities that will increase its ability to leverage off existing infrastructure and knowledge.
Market services income, with the exclusion of AXE services revenue, has increased 100% compared with the same period last year, largely due to NZX providing additional contracted services to associated companies on commercial terms. NZX will continue to explore these opportunities as they become available.
Positive signs are emerging in listing and trading. Record levels of capital were raised in the first quarter of 2009. Total capital raised on NZX Markets in Q1 was up 67% on the same period last year at $1.4 billion. Debt raised in the first quarter of 2009 was up 87% on 2008, with over $1.2 billion raised on the NZDX Market year to date. Recent total trades on the NZDX Market were up 89% in the month of March and up 13% over the first quarter of 2009. Average daily trade numbers in March were 2,112, the highest since October 2008.
NZX has agreed with the NZX Participant firms a go-live date of 20 November 2009 for its new Clearing House. This will enable futures and commodities markets to be launched this year.
NZX Subsidiaries - Q1 2009 Performance
Smartshares
Operating EBITDA was $99,000, a 46% decrease on the first quarter of 2008. This reflects the impact of falls in index values evident in revenues over this period.
Despite these falls, funds under management (FUM), excluding funds managed for the New Zealand Superannuation Fund (NZSF), increased $1.5 million due to regular savings and dividend re-investment plans. In Q1, NZSF provided a further $118 million of FUM for Smartshares to manage. Total FUM at the end of Q1 was $665 million.
Disciplined expense management resulted in an 11% decrease in operating expenditure for Smartshares compared with the same period last year.
TZ1
TZ1 Registry achieved all its customer and credit issuance targets in Q1 2009. At the end of Q1 2009, TZ1 Registry had 182 customers and over 30.5 million credits listed. TZ1 Registry was appointed exclusive registry provider for the American Carbon Registry standard and the Plan Vivo Standard in Q1, and signed a strategic partnership agreement with the World Green Exchange.
In line with its stated business strategy of developing the registry into new environmental market sectors, TZ1 is providing exclusive registry services to a number of regional ecosystem market initiatives in the USA, including habitat-banking and water quantity and quality programs.
The closing date for the TZ1/Markit transaction will be June 30 2009.
Link
Link continued its stable growth both with a very good Q1 result, meeting budget forecasts with an EBITDA increase of 3% in the quarter versus the same period in 2008. Corporate actions remain active, and capital raisings have provided a solid revenue base for Link over the first quarter. Q1 also saw Link successfully complete its migration of the Air New Zealand registry, and process their first dividend payment under Link.
Link redeemed $300,000 of preference shares in Q1 2009. As Link is a 50%-owned, equity accounted joint venture, $150,000 falls to NZX's balance sheet.
Appello
Revenue for Appello Services Limited (ASL) in the first quarter of 2009 is slightly ahead of projections with operating expenditure on budget. Revenues in 2009 will be derived primarily from continued implementation of new PIE Funds and migration of current funds from legacy systems onto the ASL Unit Registry platform. Appello continues to implement the business plan for the creation of a new generation unit registry platform focusing on funds compliant with the Portfolio Investment Entity (PIE) tax regime.
AXE
AXE’s licence application and the associated legal framework changes for competition in Australia remains in the “Cabinet process” awaiting decision, where it has been since March 2008. AXE understands that a “pro-competition” framework has been designed and recommended by the Minister of Corporate Law (Nick Sherry) but that no timetable is yet set.
Bond Exchange of South Africa (BESA)
The Bond Exchange of South Africa (BESA) recorded a profit in Q1 2009, showing a significant improvement in the underlying performance of the business. The JSE takeover offer is now only subject to review by the competition authorities in South Africa, who have requested an additional 30 days for deliberation. If the decision is positive, it is still expected that the transaction will be completed in Q2 2009.
NZX Dividend and Capital Management
NZX Limited has declared a cash dividend of $0.25 per share, fully imputed, to be paid for the year ending 31 December 2008. The record date was 14 April 2009 and the payment and allotment date is 6 May 2009.
NZX has decided to re-implement its Distribution Plan. Under the Plan holders of NZX ordinary shares will receive distributions in respect of their shares in the form of fully paid ordinary shares (“Bonus Shares”), together with an offer from NZX to buy back all, or a portion, of the Bonus Shares.
NZX is in advanced discussions for the acquisition of the energy and related assets of M-co, and would intend to fund this via a combination of debt and equity, details of which will be advised upon final Board determination.
For more information, please contact:
Lucy McFadden
NZX Limited, Media & Investor Relations
04-496-2890
027-512-7832
lucy.mcfadden@nzx.com
27 April 2009 - NZX has released a Group Q1 financial result showing NPAT up 40%.
NZX Group – Q1 2009 vs Q1 2008 Performance
-Operating revenue: $8.59 million versus $7.99 million in 2008, an increase of 7%
-Operating expenditure: $4.311 million versus $4.314 million in 2008.
-EBITDA: $4.28 million versus $3.67 million in 2008, an increase of 16%.
-EBITDA margin: 49.8% versus 46.0% in 2008, an increase of 8%.
-NPAT: $3.04 million versus $2.17 million in 2008, an increase of 40%.
-NPAT margin: 35.4% versus 27.2% in 2008, an increase of 30%.
-Fully diluted earnings per share (EPS): 12.4 cents per share versus 8.9 cents per share in 2008, an increase of 39%.
NZX CEO Mark Weldon said, “Our strategy comprises three key areas of focus: strengthening the core NZX markets, cementing a broader integrated base from which to grow and generate strong operating leverage, and continuing to proactively reshape the NZX business. This pleasing Q1 result is evidence of the success of this strategy.
“We are currently in the process of successfully exiting two key global investments, TZ1 Registry and BESA. Alongside this we believe this environment presents an unparalleled opportunity to further reshape the NZX business for substantial future growth. Over the next few years NZX is well-placed to continue to deliver strong financial results,” said Weldon.
Looking forward, NZX management sees momentum returning and has a positive outlook. Some leading indicators driving this outlook include:
-A record of $1.4 billion capital was raised in March including significant secondary equity.
-Average daily trades in March were the best year to date, and NZX market data revenues and sales have remained stronger than peer exchanges.
-Operating expenditure is unchanged compared with the previous corresponding period, despite the addition of TZ1 costs, which make up 21% of total costs. The TZ1 Registry business is currently in the due diligence stage of a NZ $66 million sale to leading global financial services company Markit.
Peer exchanges in the Asia-Pacific region reporting decreasing profits in the last two months include: Hong Kong Exchange & Clearing down 17%, Singapore Exchange down 46% and Bursa Malaysia down 63%.
NZX Markets Business – Q1 2009 Performance
-Total NZX Markets Business operating revenue grew 5% year on year to $7.67 million in 2009.
-The Information businesses generated $3.89 million in revenue in Q1 2009, half of the total Markets Business revenue, and an increase of 39% on 2008.
-Total listings revenue was $1.78 million, a 17% decrease on the same period in 2008.
-Trading, clearing and settlement revenue was down 15% on the comparable period in 2008 at $905,000.
The Data business continues to deliver strong results for NZX, despite challenging market conditions. In the Rural Information Businesses, NZX will continue to look at suitable acquisition opportunities that will increase its ability to leverage off existing infrastructure and knowledge.
Market services income, with the exclusion of AXE services revenue, has increased 100% compared with the same period last year, largely due to NZX providing additional contracted services to associated companies on commercial terms. NZX will continue to explore these opportunities as they become available.
Positive signs are emerging in listing and trading. Record levels of capital were raised in the first quarter of 2009. Total capital raised on NZX Markets in Q1 was up 67% on the same period last year at $1.4 billion. Debt raised in the first quarter of 2009 was up 87% on 2008, with over $1.2 billion raised on the NZDX Market year to date. Recent total trades on the NZDX Market were up 89% in the month of March and up 13% over the first quarter of 2009. Average daily trade numbers in March were 2,112, the highest since October 2008.
NZX has agreed with the NZX Participant firms a go-live date of 20 November 2009 for its new Clearing House. This will enable futures and commodities markets to be launched this year.
NZX Subsidiaries - Q1 2009 Performance
Smartshares
Operating EBITDA was $99,000, a 46% decrease on the first quarter of 2008. This reflects the impact of falls in index values evident in revenues over this period.
Despite these falls, funds under management (FUM), excluding funds managed for the New Zealand Superannuation Fund (NZSF), increased $1.5 million due to regular savings and dividend re-investment plans. In Q1, NZSF provided a further $118 million of FUM for Smartshares to manage. Total FUM at the end of Q1 was $665 million.
Disciplined expense management resulted in an 11% decrease in operating expenditure for Smartshares compared with the same period last year.
TZ1
TZ1 Registry achieved all its customer and credit issuance targets in Q1 2009. At the end of Q1 2009, TZ1 Registry had 182 customers and over 30.5 million credits listed. TZ1 Registry was appointed exclusive registry provider for the American Carbon Registry standard and the Plan Vivo Standard in Q1, and signed a strategic partnership agreement with the World Green Exchange.
In line with its stated business strategy of developing the registry into new environmental market sectors, TZ1 is providing exclusive registry services to a number of regional ecosystem market initiatives in the USA, including habitat-banking and water quantity and quality programs.
The closing date for the TZ1/Markit transaction will be June 30 2009.
Link
Link continued its stable growth both with a very good Q1 result, meeting budget forecasts with an EBITDA increase of 3% in the quarter versus the same period in 2008. Corporate actions remain active, and capital raisings have provided a solid revenue base for Link over the first quarter. Q1 also saw Link successfully complete its migration of the Air New Zealand registry, and process their first dividend payment under Link.
Link redeemed $300,000 of preference shares in Q1 2009. As Link is a 50%-owned, equity accounted joint venture, $150,000 falls to NZX's balance sheet.
Appello
Revenue for Appello Services Limited (ASL) in the first quarter of 2009 is slightly ahead of projections with operating expenditure on budget. Revenues in 2009 will be derived primarily from continued implementation of new PIE Funds and migration of current funds from legacy systems onto the ASL Unit Registry platform. Appello continues to implement the business plan for the creation of a new generation unit registry platform focusing on funds compliant with the Portfolio Investment Entity (PIE) tax regime.
AXE
AXE’s licence application and the associated legal framework changes for competition in Australia remains in the “Cabinet process” awaiting decision, where it has been since March 2008. AXE understands that a “pro-competition” framework has been designed and recommended by the Minister of Corporate Law (Nick Sherry) but that no timetable is yet set.
Bond Exchange of South Africa (BESA)
The Bond Exchange of South Africa (BESA) recorded a profit in Q1 2009, showing a significant improvement in the underlying performance of the business. The JSE takeover offer is now only subject to review by the competition authorities in South Africa, who have requested an additional 30 days for deliberation. If the decision is positive, it is still expected that the transaction will be completed in Q2 2009.
NZX Dividend and Capital Management
NZX Limited has declared a cash dividend of $0.25 per share, fully imputed, to be paid for the year ending 31 December 2008. The record date was 14 April 2009 and the payment and allotment date is 6 May 2009.
NZX has decided to re-implement its Distribution Plan. Under the Plan holders of NZX ordinary shares will receive distributions in respect of their shares in the form of fully paid ordinary shares (“Bonus Shares”), together with an offer from NZX to buy back all, or a portion, of the Bonus Shares.
NZX is in advanced discussions for the acquisition of the energy and related assets of M-co, and would intend to fund this via a combination of debt and equity, details of which will be advised upon final Board determination.
For more information, please contact:
Lucy McFadden
NZX Limited, Media & Investor Relations
04-496-2890
027-512-7832
lucy.mcfadden@nzx.com
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KRK - Kirkcaldie & Stains Ltd: HY to 28/2/09
by Share Investor » 29 Apr 2009 22:08
Reporting Period
Current financial period – six months ended 28 February 2009
Previous corresponding period- six months ended 29 February 2008
The abridged financial statements included in this announcement have not been audited.
Results
Current period NZ$’000 Up/Down % Previous corresponding period $’000
Revenue $22,918 down 5.9% ; $24,376
Net profit attributable to shareholders $482 down 41.8% ; $829
Earnings per share (cents per share) 4.8 ; 8.3
Diluted Earnings per share (cents per share) 4.7 ; 8.1
Net tangible assets per security $2.32 ; $2.32
Diluted net tangible assets per security $2.26 ; $2.27
Current Assets $11,342 down 23%; $14,731
Non Current Assets $28,512 down 0.07%;$28,534
Total Assets $39,854 down 7.8%; $43,265
Current Liabilities $5,460 down 31.8%; $8,014
Non Current Liabilities $12,010 nil; $12,010
Total Liabilities $17,470 down 12.75%;$20,024
The Directors of Kirkcaldie & Stains Limited present the unaudited result for the six months ended 28 February 2008.
As indicated at the February Annual General Meeting, the first half of the 2008/2009 financial year proved to be a very challenging period. Despite a reduced profit for the period, many actions have been taken that will assist with an improved performance in the second half. Rental income has remained strong, expenses have been reduced and the balance sheet remains robust. A dividend of 3 cents fully imputed is to be paid on 22 May 2009. The dividend record date is 5pm 15th May 2009.
For the period ended 28 February the Company has recorded a profit before tax of $731,000 compared with $1,335,000 for the same period in the previous year. The after tax profit is $482,000 (last year $829,000) a drop of 41.8%.
With the prevailing lack of confidence in the economy, retail demand was low for the entire six-month period and resulted in sales of $20.9M compared with $22.3M for the same period last year, a drop of 6.2%. This trend has been evidenced by all retailers reporting results in recent months and some have fared less well. The end of season clearance Sale was successful with increased volume, which helped to achieve a healthy reduction in stockholding.
There has been a deliberate strategy to ensure clean stocks and reduced inventory levels for the remainder of the year. Mark downs for the period were therefore significantly higher than in previously periods and this, combined with the pressure on margin to achieve sales, resulted in a lower level of gross profit. However, the level of inventory on hand has been much reduced and this lower holding of clean stock will stand the Company in good stead for the second half of the year.
Management has focussed on many facets of the business since the onset of the poor trading conditions brought about by the global financial turmoil. All areas of expenditure have been explored in detail. Despite many costs having risen inevitably through inflationary effects, total expenses for the period were reduced below the level of the corresponding period of the previous year. Many of these benefits will continue to favour the Company in the future.
Rental income from the Harbour City Centre has continued to increase. We are currently negotiating a scheduled rent review with our largest office tenant, and our largest retail tenant has renewed its lease for a further period, ensuring continuity in the Harbour City Centre retail offering. The Company has also been able to capitalise on the lower interest rates experienced in recent months, which has provided a significant, ongoing reduction in our interest expense. These rates have been locked in for the next five years.
Positive cash flows have been maintained and the Company’s balance sheet remains robust.
Management remains confident of a full year profit result similar to last year on the basis that current level of retail confidence does not further deteriorate.
Given the result for the first half, a positive forecast for the second half, and the Company’s current financial position, the Board has determined to pay an interim dividend for the 2009 year of three cents per share on 22 May 2009 with a record date of 5pm 15 May 2009. The dividend will carry full imputation credits.
The lease on the Southern half of the main store building has been renewed for a further 21-year period. This coincides with the loss of the rental subsidy that had been in place. Discussions with our landlord over the overall lease are continuing and we hope to finalise a favourable agreement before the end of the financial year.
We do not envisage the retail environment changing substantially in the coming 12 months. Management will continue to address all aspects of the business with a view to maintaining the Company’s clear point of difference in the market – “Service without Compromise”. We are not tempted to take short term actions which may compromise the integrity of Kirkcaldie & Stains and will continue to leverage our strengths to maintain the reputation of the Company.
We are fortunate to have started the $2 million refurbishment of our cosmetics and fragrance departments 18 months ago. This project is now completed and we are enjoying positive growth in this area of our business. We have also expanded our men’s and ladies’ fashion accessory departments. Over the past six months we have reviewed our exclusive brands strategy and entered into a number of new and exciting merchandise partnerships.
The Company is currently actively seeking a new Director to replace Mr Murray Doyle, who retired from his position on the Board following the Annual General Meeting in February. Mr Doyle had been a director since 1999 and we would like to take this opportunity to formally thank him for his significant contribution to the Company’s affairs over almost a decade.
ENDS
For further information please contact
Mr John Milford, Managing Director
Kirkcaldie & Stains Limited.
Tel: (04) 495-7353
Current financial period – six months ended 28 February 2009
Previous corresponding period- six months ended 29 February 2008
The abridged financial statements included in this announcement have not been audited.
Results
Current period NZ$’000 Up/Down % Previous corresponding period $’000
Revenue $22,918 down 5.9% ; $24,376
Net profit attributable to shareholders $482 down 41.8% ; $829
Earnings per share (cents per share) 4.8 ; 8.3
Diluted Earnings per share (cents per share) 4.7 ; 8.1
Net tangible assets per security $2.32 ; $2.32
Diluted net tangible assets per security $2.26 ; $2.27
Current Assets $11,342 down 23%; $14,731
Non Current Assets $28,512 down 0.07%;$28,534
Total Assets $39,854 down 7.8%; $43,265
Current Liabilities $5,460 down 31.8%; $8,014
Non Current Liabilities $12,010 nil; $12,010
Total Liabilities $17,470 down 12.75%;$20,024
The Directors of Kirkcaldie & Stains Limited present the unaudited result for the six months ended 28 February 2008.
As indicated at the February Annual General Meeting, the first half of the 2008/2009 financial year proved to be a very challenging period. Despite a reduced profit for the period, many actions have been taken that will assist with an improved performance in the second half. Rental income has remained strong, expenses have been reduced and the balance sheet remains robust. A dividend of 3 cents fully imputed is to be paid on 22 May 2009. The dividend record date is 5pm 15th May 2009.
For the period ended 28 February the Company has recorded a profit before tax of $731,000 compared with $1,335,000 for the same period in the previous year. The after tax profit is $482,000 (last year $829,000) a drop of 41.8%.
With the prevailing lack of confidence in the economy, retail demand was low for the entire six-month period and resulted in sales of $20.9M compared with $22.3M for the same period last year, a drop of 6.2%. This trend has been evidenced by all retailers reporting results in recent months and some have fared less well. The end of season clearance Sale was successful with increased volume, which helped to achieve a healthy reduction in stockholding.
There has been a deliberate strategy to ensure clean stocks and reduced inventory levels for the remainder of the year. Mark downs for the period were therefore significantly higher than in previously periods and this, combined with the pressure on margin to achieve sales, resulted in a lower level of gross profit. However, the level of inventory on hand has been much reduced and this lower holding of clean stock will stand the Company in good stead for the second half of the year.
Management has focussed on many facets of the business since the onset of the poor trading conditions brought about by the global financial turmoil. All areas of expenditure have been explored in detail. Despite many costs having risen inevitably through inflationary effects, total expenses for the period were reduced below the level of the corresponding period of the previous year. Many of these benefits will continue to favour the Company in the future.
Rental income from the Harbour City Centre has continued to increase. We are currently negotiating a scheduled rent review with our largest office tenant, and our largest retail tenant has renewed its lease for a further period, ensuring continuity in the Harbour City Centre retail offering. The Company has also been able to capitalise on the lower interest rates experienced in recent months, which has provided a significant, ongoing reduction in our interest expense. These rates have been locked in for the next five years.
Positive cash flows have been maintained and the Company’s balance sheet remains robust.
Management remains confident of a full year profit result similar to last year on the basis that current level of retail confidence does not further deteriorate.
Given the result for the first half, a positive forecast for the second half, and the Company’s current financial position, the Board has determined to pay an interim dividend for the 2009 year of three cents per share on 22 May 2009 with a record date of 5pm 15 May 2009. The dividend will carry full imputation credits.
The lease on the Southern half of the main store building has been renewed for a further 21-year period. This coincides with the loss of the rental subsidy that had been in place. Discussions with our landlord over the overall lease are continuing and we hope to finalise a favourable agreement before the end of the financial year.
We do not envisage the retail environment changing substantially in the coming 12 months. Management will continue to address all aspects of the business with a view to maintaining the Company’s clear point of difference in the market – “Service without Compromise”. We are not tempted to take short term actions which may compromise the integrity of Kirkcaldie & Stains and will continue to leverage our strengths to maintain the reputation of the Company.
We are fortunate to have started the $2 million refurbishment of our cosmetics and fragrance departments 18 months ago. This project is now completed and we are enjoying positive growth in this area of our business. We have also expanded our men’s and ladies’ fashion accessory departments. Over the past six months we have reviewed our exclusive brands strategy and entered into a number of new and exciting merchandise partnerships.
The Company is currently actively seeking a new Director to replace Mr Murray Doyle, who retired from his position on the Board following the Annual General Meeting in February. Mr Doyle had been a director since 1999 and we would like to take this opportunity to formally thank him for his significant contribution to the Company’s affairs over almost a decade.
ENDS
For further information please contact
Mr John Milford, Managing Director
Kirkcaldie & Stains Limited.
Tel: (04) 495-7353
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ANZ - ANZ National Bank Ltd: HY to 28/2/09
by Share Investor » 29 Apr 2009 22:19
Australia and New Zealand Banking Group Limited have provided NZX with the following documents
Media Release and Results Document
Investor Presentation
ANZ National Half-Year Results Presentation
ANZ 2009 Interim Results
Solid underlying performance in New Zealand, impacted by slowing
economy and higher provisions
Wellington: Australia and New Zealand Banking Group Limited (ANZ), of which ANZ National Bank is a wholly owned subsidiary, today announced its 2009 Interim Results.
Commenting on the contribution of the New Zealand business to the Interim Result, CEO Mr Graham Hodges said: “The Bank performed solidly in underlying terms in the first half of the
financial year given the challenging economic conditions evident in the domestic and international economy.”
The New Zealand underlying profit performance (including NZ Institutional) was up 24% on the preceding half, to NZ$494 million; the result was negatively impacted by higher credit
provisions.
“The New Zealand economy has been in recession since the start of 2008 and the deteriorating domestic environment has been aggravated by a sharp slowing in the global growth and the flow-on effects of the global crisis in credit and equity markets.
“Considering these issues, the Bank continues to be solidly profitable, have strong liquidity and funding, and is well capitalised” Mr Hodges said.
The first half performance was assisted by the scale and diversity of the Bank. An exceptional performance from the Markets businesses reflects that business’s ability to position the Bank and its customers to take advantage of the unusually high levels of market volatility (interest and exchange rate) over the half. The Institutional division’s underlying profit rose 67% in the half and 82% over the prior comparable period (pcp).
The effect of the domestic recession has been felt most significantly in the Retail business where profit fell 6% on the preceding half (down 17%, pcp) on a pre-provisions basis. The
Commercial business achieved a reasonable result with profit up 5% on the preceding half (up 9% pcp) on a pre-provisions basis with the main contribution coming from the Rural business where the Bank has a very strong market presence.
Provisioning and margin compression have impacted both the Retail and Commercial portfolios with higher wholesale funding costs and competition for deposits, as well as mortgage break costs contributing to a decrease of 9 basis points in margins in the half (24 basis points pcp). Costs are being well managed.
ANZ National Bank Limited
Credit provisions rose to $291 million compared to $207 million for the preceding half.
Provisions for the full year 2009 are expected to be more than double those of 2008.
Individual provision increases have been spread across the unsecured Retail portfolio and the Mortgage portfolio, although the number of mortgagee sales remains low. The Commercial
sector has seen increased provisioning on a relatively small number of names reflecting the impact of the weakness in household spending flowing through to business activity and
performance.
In response to the increasing pressures on household budgets through 2008, the Bank introduced a customer assistance programme specifically to help our customers manage
unexpected decreases in household incomes.
“We’re seeing some very positive results with our customer assistance programme with customers appreciating the measures we’re able to put into place” Mr Hodges said.
Ends
For New Zealand media enquiries
Virginia Stracey-Clitherow
ANZ National Bank
Phone 0275 618 995
Email: straceyv@anz.com
For all analyst enquiries
Jill Craig
GGM Investor Relations, ANZ
Phone +61 3 9273 4185 or +434 736 879
Email: jill.craig@anz.com
Media Release and Results Document
Investor Presentation
ANZ National Half-Year Results Presentation
ANZ 2009 Interim Results
Solid underlying performance in New Zealand, impacted by slowing
economy and higher provisions
Wellington: Australia and New Zealand Banking Group Limited (ANZ), of which ANZ National Bank is a wholly owned subsidiary, today announced its 2009 Interim Results.
Commenting on the contribution of the New Zealand business to the Interim Result, CEO Mr Graham Hodges said: “The Bank performed solidly in underlying terms in the first half of the
financial year given the challenging economic conditions evident in the domestic and international economy.”
The New Zealand underlying profit performance (including NZ Institutional) was up 24% on the preceding half, to NZ$494 million; the result was negatively impacted by higher credit
provisions.
“The New Zealand economy has been in recession since the start of 2008 and the deteriorating domestic environment has been aggravated by a sharp slowing in the global growth and the flow-on effects of the global crisis in credit and equity markets.
“Considering these issues, the Bank continues to be solidly profitable, have strong liquidity and funding, and is well capitalised” Mr Hodges said.
The first half performance was assisted by the scale and diversity of the Bank. An exceptional performance from the Markets businesses reflects that business’s ability to position the Bank and its customers to take advantage of the unusually high levels of market volatility (interest and exchange rate) over the half. The Institutional division’s underlying profit rose 67% in the half and 82% over the prior comparable period (pcp).
The effect of the domestic recession has been felt most significantly in the Retail business where profit fell 6% on the preceding half (down 17%, pcp) on a pre-provisions basis. The
Commercial business achieved a reasonable result with profit up 5% on the preceding half (up 9% pcp) on a pre-provisions basis with the main contribution coming from the Rural business where the Bank has a very strong market presence.
Provisioning and margin compression have impacted both the Retail and Commercial portfolios with higher wholesale funding costs and competition for deposits, as well as mortgage break costs contributing to a decrease of 9 basis points in margins in the half (24 basis points pcp). Costs are being well managed.
ANZ National Bank Limited
Credit provisions rose to $291 million compared to $207 million for the preceding half.
Provisions for the full year 2009 are expected to be more than double those of 2008.
Individual provision increases have been spread across the unsecured Retail portfolio and the Mortgage portfolio, although the number of mortgagee sales remains low. The Commercial
sector has seen increased provisioning on a relatively small number of names reflecting the impact of the weakness in household spending flowing through to business activity and
performance.
In response to the increasing pressures on household budgets through 2008, the Bank introduced a customer assistance programme specifically to help our customers manage
unexpected decreases in household incomes.
“We’re seeing some very positive results with our customer assistance programme with customers appreciating the measures we’re able to put into place” Mr Hodges said.
Ends
For New Zealand media enquiries
Virginia Stracey-Clitherow
ANZ National Bank
Phone 0275 618 995
Email: straceyv@anz.com
For all analyst enquiries
Jill Craig
GGM Investor Relations, ANZ
Phone +61 3 9273 4185 or +434 736 879
Email: jill.craig@anz.com
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ORG - Orion Minerals Group Ltd: HY to 31/12/08
by Share Investor » 30 Apr 2009 23:41
OMG Orion Minerals Group Releases its Half Year Report for the Period ended 31 December 2008
Orion Minerals Group Limited (OMG) advises that its Half Year Report for the six months ended 31 December 2008 is attached.
The Report is also available from the company’s website at http://www.orionminerals.co.nz
About Orion Minerals Group Limited
Orion Minerals Group Limited owns Minera Varry S.A, a Chilean company which owns a mining concession in Chile in respect of the excavation, processing and export of iron ore.
Further Information For further information please contact Roger Gower on 0275 914 112
ORION MINERALS GROUP LIMITED (PREVIOUSLY RLV NO.3 LIMITED)
UNAUDITED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2008
Net (loss) after tax for the year attributable to shareholders: -$432,000
Earnings per share for loss attributable to shareholders
Basic earnings per share (cents): -0.001
Diluted earnings per share (cents): n/a
Net tangible assets per security: 0
Orion Minerals Group Limited (OMG) advises that its Half Year Report for the six months ended 31 December 2008 is attached.
The Report is also available from the company’s website at http://www.orionminerals.co.nz
About Orion Minerals Group Limited
Orion Minerals Group Limited owns Minera Varry S.A, a Chilean company which owns a mining concession in Chile in respect of the excavation, processing and export of iron ore.
Further Information For further information please contact Roger Gower on 0275 914 112
ORION MINERALS GROUP LIMITED (PREVIOUSLY RLV NO.3 LIMITED)
UNAUDITED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2008
Net (loss) after tax for the year attributable to shareholders: -$432,000
Earnings per share for loss attributable to shareholders
Basic earnings per share (cents): -0.001
Diluted earnings per share (cents): n/a
Net tangible assets per security: 0
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INP - Independent News & Media PLC: 4.25 months to 24/4/09
by Share Investor » 01 May 2009 10:59
RESILIENT TRADING PERFORMANCE WITH REVENUES OF
€1.5 BILLION AND OPERATING PROFIT* OF €290 MILLION
Ticker: (Bloomberg) INM.ID/ INM.LN and (Reuters) INME.I/ INME.L
Dublin/London 30 April 2009: The Board of Independent News & Media PLC (‘INM’ or the ‘Group’) today announced the Group’s full year results for the 12 months ended 31 December 2008. A detailed presentation on these results is available on the Group’s website www.inmplc.com. This release also incorporates INM’s Interim Management Statement relating to the 17 weeks from 1 January 2009 to 24 April 2009.
RESULTS 2008 2007 Change Change
€m €m Constant FX
Revenue 1476.6 1673.5 -11.8% -2.6%
Operating Profit* 290.3 349.2 -16.9% -9.8%
Operating Margin* 19.7% 20.9% -120bps
Profit Before Tax* 211.7 286.1 -26.0%
(Loss)/Profit Before Tax (161.4) 248.4 -165.0%
Profit After Tax* 170.3 228.9 -25.6%
(Loss)/Profit After Tax (159.4) 195.7 -181.5%
Cash Generated from Operations 287.3 278.8 +3.0%
Basic (Loss)/Earnings Per Share (19.9c) 14.6c -236.3%
Adjusted Earnings Per Share** 12.6c 18.8c -33.0%
Dividend Per Share – full year 4.57c 13.70c -66.6%
* Before exceptional items
** Diluted EPS, before exceptional items
SUMMARY PERFORMANCE
Group Revenue of €1,476.6 million, represents a 2.6% decline on 2007 in constant currency terms – a good performance in exceptionally challenging market conditions
INM outperforms peers, with advertising revenues only down by 3.8% and circulation revenues up 0.5% in constant currency
Operating costs reduced by €138.0 million, down 0.7% in constant currency or down 3.0% on a like-for-like basis
Reflecting both the diversity of INM’s operations and the effectiveness of its cost reduction programme, the Group reported Operating Profit, before exceptional items, of €290.3 million – ahead of the guidance given on 26 January 2009
Strong industry-leading operating margin at 19.7%
Cash generated from operations of €287.3 million for 2008, up 3.0% on 2007
Exceptional Costs of €373.1 million – primarily relates to non-cash impairment charges of €290.9 million, mainly arising on the Group’s intangible assets as a consequence of the current economic downturn. This is in line with other public media groups worldwide: such as DMGT, Fairfax, Johnston Press and Trinity Mirror and includes the impairment charge already reported in the annual results of APN News & Media Limited
As indicated on 26 January 2009 and consistent with the Group’s financial objective to maximise available cash flow and reduce leverage, the Board has not recommended a Final Dividend for 2008
Consistent with the objective to de-leverage, INM has identified a number of non-core assets to be disposed. Proceeds will be applied towards debt reduction
– 2008 PERFORMANCE OVERVIEW –
INM’s 2008 full year results reflect a resilient performance in very difficult market conditions. Group revenue of €1,476.6 million (2.6% decline in constant currency terms) yielded an Operating Profit, before exceptional items, of €290.3 million.
Change
(constant currency)
Publishing revenues -5.2%
Publishing Advertising revenues (incl. Online) -8.5%
Circulation revenues +0.5%
Online revenues +16.3%
Outdoor revenues +24.5%
Radio revenues -7.2%
INM continued to manage its operations – in a weakening global advertising climate – through aggressive advertising yield management, selective cover price increases and an unrelenting focus on operating cost reduction and business process improvement initiatives. Strong, effective and ongoing cost management across all geographies and all divisions partially offset the pronounced advertising contraction experienced from September 2008 onwards. Total Group costs were reduced by 10.4% or €138 million in 2008, producing an industry-leading margin of 19.7%.
INM reported a total exceptional charge of €373.1 million in 2008, of which €290.9 million was a non-cash impairment charge arising on the Group’s assets (primarily intangible assets) as a consequence of the current economic downturn. The Directors believe that when the economic climate recovers, these intangible asset valuations will improve. While impairment charges have been recorded during the year on certain of the Group’s intangible assets, the Group has many other intangible assets which have substantial value that is not reflected on the Group’s Balance Sheet because IFRS does not allow any value to be recognised for internally generated mastheads (such as the Irish Independent, the Evening Herald and the Sunday Independent) nor for any value created post acquisition (e.g. South African mastheads).
A further €58.0 million of the 2008 exceptional charge relates to restructuring costs incurred to enable the Group to significantly re-engineer its payroll and internal workflows across each of its main publishing divisions, with headcount reducing by over 630 during the year, with a further 160 headcount reduction to take place in early 2009 in relation to restructuring charges booked in 2008. The remaining €24.2 million in the 2008 exceptional charge mainly relates to online and education start-up and other development costs and exceptional finance charges incurred.
Net finance charges (excluding exceptional finance charges) were €91.5 million, an increase of 11.0% on 2007 due to higher interest rates in place for most of 2008. The taxation charge (excluding exceptional items) of €41.4 million represents an effective tax rate of 19.6% down marginally from 20.0% in 2007. The exceptional tax credit of €43.4 million in 2008 arose mainly on the impairment charges booked in relation to intangible assets.
INM reported a loss after tax and minority interests of €164.4 million, including exceptional items. However, excluding exceptional items, the result was a profit of €104.0 million. This translated into a Diluted Earnings Per Share excluding exceptional items of 12.6 cent.
Net debt as at 31 December 2008 was €1,310.2 million, a reduction of €5.5 million year-on-year, with cash generated from operations increasing by 3% to €287.3 million. In 2008, INM completed a new four year bank facility for €105 million to fund the redemption of the €112.6 million outstanding under the Group’s €125 million Bond, which matured in December.
– FINANCING UPDATE –
As a result of the current difficult credit markets, the Group has been unable to raise new debt to fund the maturity of the €200 million 5.75% bond which is due to mature on 18 May 2009. The Group currently does not have sufficient financial headroom available under its existing facilities in order to meet this maturity and service its debt obligations.
While the Group was compliant with its banking covenants as at 31 December 2008 and it remains both profitable and cash generative, the continued difficult trading conditions within which the Group is currently operating means there is now a strong likelihood of a breach of the financial covenants within the Group’s borrowing facilities during 2009, if an amendment or waiver is not granted by the lenders in advance.
The Group has appointed Rothschild and Davy to advise it in relation to its refinancing requirements and the Group has entered into constructive discussions with an ad-hoc committee of the Bondholders, its Banks and the two major shareholders. Discussions to date have indicated a willingness from all parties to seek agreement and, while subject to material uncertainty, the Directors remain confident that an agreement will be reached with them which is acceptable to the Group. Agreement to a financial standstill period is being sought from Bondholders and Banks in order to afford a period beyond 18 May 2009 in which an agreement can be reached.
– DIVIDEND –
INM paid an interim dividend of 4.57 cent per share on 7 November 2008. As announced on 26 January 2009, the Directors are not proposing a final dividend in respect of the year ended 31 December 2008.
– BOARD –
As part of the Group’s stated objective to reconstitute and reduce the size of the Board, during 2008, BMA Hopkins resigned as an executive Director and LP Healy and JC Davy retired from the Board after serving 35 years and 25 years respectively.
Since the year end, a number of other substantial changes to the composition of the Board have been announced. Sir Anthony O’Reilly has announced his retirement as a Director and as Group Chief Executive with effect from 7 May 2009. The Board has further announced that GK O’Reilly, who is currently Group Chief Operating Officer, has been appointed as Group Chief Executive Officer effective from 7 May 2009.
The Board appointed three new non-executive Directors, Leslie Buckley, Paul Connolly and Lucy Gaffney, with effect from 13 March 2009, each of whom brings a wide range of experience which will be of significant benefit to all stakeholders.
As part of a detailed restructuring of the Board, two executive Directors, VC Crowley – Chief Executive of Independent News & Media (Ireland) and IG Fallon – Chief Executive of Independent News & Media (UK), will be retiring from the Board and will remain as members of the Executive Committee.
In addition, BE Somers has advised the Board of his decision to retire from the Board with effect from 30 April 2009. The following non-executive Directors, PM Cosgrove, CU Daly, MN Hayes, Dr. IE Kenny, AJ O’Reilly Jr. and AC O’Reilly, have advised the Board that they will not be seeking re-election to the Board at the AGM.
– OUTLOOK –
Against a very difficult market backdrop, your Group is pleased to report a resilient revenue and operating profit performance for 2008. This performance reflects the diversity of the Group’s operations and the effectiveness of its ongoing cost reduction programme.
Your Board believes that this performance in 2008 compares favourably to its peer group and is mainly attributable to INM’s market leading positions, its strong brand franchises, the diversity of its geography and asset base, a continuing focus on product and platform innovation, increased online activities and continuing cost control. These key attributes should continue to benefit INM in 2009.
Trading in the first quarter of 2009 has been tougher than expected. Although earnings visibility is still limited, assuming advertising and credit markets do not deteriorate further, INM currently expects operating profit before exceptionals for 2009 to be within a €200 million – €230 million range and EBITDA within a €240 million – €270 million range.
– OPERATIONS REVIEW –
AUSTRALASIA
OVERVIEW 2008 2007 Change Change
€m €m Constant FX
Revenue 671.8 769.4 -12.7% -4.9%
Operating Profit before Exceptional Items 155.5 192.7 -19.3% -12.3%
Operating Margin 23.1% 25.0% -190bps
APN News & Media Ltd (‘APN’), in which INM has a 39.1% shareholding, is listed on the Australian and New Zealand Stock Exchanges. Generally tougher advertising conditions led to a 4.9% decline (in constant currency) in Revenue to €671.8 million, which produced a 2008 Operating Profit of €155.5 million (a 12.3% decline in constant currency).
In the Australian Regional Publishing division, continued readership growth produced a solid advertising performance, particularly from national advertisers, who are emerging as an increasingly important category, which – together with retail advertising – now represents almost 60% of advertising revenue for this division. In addition, despite the challenging macro-economic climate, real estate and employment advertising reported year-on-year growth.
In New Zealand, trading conditions remained very challenging throughout 2008 for both National and Regional publishing, with reduced advertising spend across most categories. Active cost management continued to be a strong focus, with editorial production, marketing and logistics of individual regional titles being transferred to a single outsourced facility in Auckland. After two years of consistent growth, New Zealand’s largest daily newspaper, The New Zealand Herald, added a further 10,000 readers in the most recent readership survey to reach an average of 583,000 readers per day. Its sister title, the Herald on Sunday also continued to gain significant market share, adding 37,000 readers on the prior year, achieving a record total of 382,000 readers, just four years after its launch.
In the Radio division, Australian Radio Network (‘ARN’) ended the year strongly, with its Sydney stations securing the position of number one network for both the 10+ demographic and its target audience of the 25-54 demographic. Together with a solid performance in Melbourne, ARN is now the top network for the 25-54 demographic in the combined markets of Sydney and Melbourne. Radio advertising remains competitive across Australia, but is showing resilience despite tougher markets. The Radio Network (‘TRN’) in New Zealand broadcasts across more than 120 FM and AM frequencies around the country, reaching 1.5 million listeners each week, and is the clear market leader in New Zealand radio, with a 10+ audience share at a record 47.3%. NewstalkZB is the number one national network, with a 12.9% audience share, and is now the top station in the three major metropolitan cities of Auckland, Wellington and Christchurch.
APN Outdoor, Australasia’s leading outdoor advertising business, reported a strong performance for 2008, maintaining revenue on a constant currency basis and growing operating profit. APN Outdoor launched Australia’s largest digital billboard in Melbourne, and this is an important revenue development for the business. The Adshel street furniture business retained important contracts and rolled out a programme of new facings in Canberra. While the economic slowdown has impacted revenues, it has also allowed the renegotiation of leases on more advantageous terms. Despite tough trading conditions throughout 2008, the New Zealand Outdoor division retained its market leading positions across all of the major Outdoor categories.
In Online, the development of an APN Regional News Network built on upgraded masthead websites is well advanced and is attracting good traffic and advertising revenue. The sites are being developed in tandem with a suite of ‘finda’ branded local community and directory sites. APN continues to invest in New Zealand online, with The New Zealand Herald website, www.nzherald.co.nz, remaining the most popular news website in New Zealand, generating a near 300% increase in revenue and traffic in the past two years.
IRELAND
OVERVIEW 2008 2007 Change
€m €m
Revenue 377.3 401.3 -6.0%
Operating Profit before Exceptional Items 75.8 98.3 -22.9%
Operating Margin 20.1% 24.5% -440bps
The Irish division reported 2008 Revenue of €377.3 million, which is down on last year as a result of a significant fall off in advertising in the second half, and delivered a good operating margin of 20.1%, with an operating profit of €75.8 million.
Advertising revenues declined by 15% year-on-year in 2008, after a record first quarter, reflecting the accelerating deterioration in the Irish economy throughout the rest of the year. This advertising decline principally reflected significantly reduced property and recruitment revenues, while run-of-paper and retail advertising achieved modest growth. Against this difficult market backdrop, and in the context of one of the most competitive newspaper markets in the world, circulation revenues still delivered an impressive 2.8% increase in 2008, from select cover price increases and solid circulation volumes.
The market-leading positions of the Group’s titles were maintained during the year, with the Irish Independent remaining the clear number one quality daily newspaper with an ABC1 of 154,610 copies (a 47.9% market share). Attracting an average daily readership of 520,000 readers2, it continues to reach as many readers each day as its two leading competitors combined. Ireland’s largest selling Sunday quality newspaper, the Sunday Independent, also delivered a solid performance during 2008 recording an ABC1 figure of 270,362 copies. It continues to be the Republic of Ireland’s most read newspaper attracting over 941,000 readers2 each and every Sunday. The Sunday World consolidated its position as Ireland’s largest selling newspaper in 2008, as well as maintaining its position as Ireland’s most read and biggest selling tabloid newspaper, delivering an average sale across the two ABC periods in 2008 of 288,669 copies, an increase of 1.9% on 2007.
Despite the significant volume of free dailies in the Dublin market place, the Evening Herald continued to demonstrate the resilience of its brand, reporting 317,000 readers2 in 2008 – its fourth consecutive year of readership growth.
The Group’s joint venture publication, the Irish Daily Star, consolidated its position as a market leader in the popular daily tabloid sector and delivered an ABC1 of 105,031 copies. The Irish Daily Star Sunday is now firmly established in the market after only five years in existence, achieving an ABC1 of 59,898 copies.
The Group’s daily free newspaper, herald am, continued to outperform the competition and remains the largest and most read free circulating newspaper in the country, with a verified free daily distribution of 73,992 copies (March 2009) and a readership2 of 100,000, a clear 10,000 readers ahead of its rival publication.
The Group publishes 13 paid-for weekly regional titles in counties Cork, Kerry, Dublin, Louth, Wexford, Wicklow, Carlow and Sligo (following the acquisition of The Sligo Champion in March 2008).
Newspread, INM’s wholly-owned distribution and wholesaling company, continued to trade well in 2008. Wholesale Newspaper Services Limited (WNS), the largest newspaper and magazine distributor in Northern Ireland, was integrated into Newspread during 2008 to provide an all-Ireland distribution capability. The ongoing market-leading strength of the Group’s distribution business has been further underpinned by the installation of a new state-of-the-art SAP distribution system, which went live in March 2009.
In Education, Independent College made excellent progress throughout 2008 – its first full year in operation. To date, it has attracted over 5,000 students for its professional, academic and development courses. The College now has the largest student body for professional law courses in Ireland, with six first place prize winners in the 2008 Law Society of Ireland entrance examinations. In a highly competitive market, the professional accountancy school has become one of the market leaders with a reputation for the best lecturers, as borne out by its seven ACCA prize winners last year.
INM’s suite of online offerings continued to perform well in 2008, with significant revenue growth in its publishing platform (up 38% on 2007). The core publishing site www.independent.ie continued to establish itself as a leading online news resource with a recently released ABCe confirming 23.1 million page impressions and 1.8 million unique users in October 2008 (+27% and +87% respectively on the last audited statistics). The Group’s publishing platform was further expanded in 2008 by the launch of www.herald.ie and a suite of regional sites. www.loadzajobs.ie continues its innovative and successful approach to the online recruitment market, with its online recruitment fairs proving extremely popular with both advertisers and candidates. The Group’s online footprint in Ireland was further expanded in early 2008 with the launch of the www.yourlocal.ie website, a dedicated online directory website, which now boasts over 2,500 customers from launch in February 2008.
SOUTH AFRICA
OVERVIEW 2008 2007 Change Change
€m €m Constant FX
Revenue 212.5 234.7 -9.5% 15.1%
Operating Profit before Exceptional Items 72.2 59.1 22.2% 41.1%
Operating Margin 34.0% 25.2% +880bps
The South African division reported 2008 Revenue of €212.5 million and very strong operating profits of €72.2 million, which reflects the positive impact of the acquisition of INM Outdoor and the benefit of INM’s ongoing focus on business improvement initiatives leveraged off new operating structures and upgraded newspaper production technology.
__________________________
Mark July to December 2008 ABC period
2 JNRS 2008
INM’s South African operations traded well in 2008 despite a rapidly deteriorating economic environment which resulted in a marked slowdown in advertising volumes from July 2008 onwards. Revenues were impacted by reduced consumer spending and confidence in the wake of the increasing interest rates, rising inflation and adverse currency movements. However, it should be noted that economic conditions in South Africa have not been as badly impacted as in Europe and in Australasia, partly due to a more stable financial environment which was supported by conservative banking regulations and the introduction of the National Credit Act in 2007, which reduced consumer credit availability.
The Group’s titles maintained their strong market positions in both circulation and advertising despite aggressive competition. In a tougher trading environment, the core (actively purchased) sales of the morning titles (Cape Times and Mercury) in particular held firm and the daily Zulu-language Isolezwe nudged closer to an average daily sale of 100,000 copies (now at around 98,500). Overall readership in the metro markets has been maintained and the Group’s titles held their share of advertising spend. A stand-alone Sunday edition of Isolezwe (Isolezwe ngeSonto) was successfully launched in 2008, with weekly sales now just under 50,000.
Expansion of the Group’s online presence continues with the launch of South Africa’s largest property website (www.iolproperty.co.za) which is market leader in both terms of search capability and houses for sale and to let, with over 270,000 homes listed.
The wholly-owned Magazine division (Condé Nast Independent Magazines) reported a good trading performance in a very competitive trading environment. Condé Nast House & Garden celebrated its 10th Anniversary and continues to be number one in the South African Home Décor market.
In Outdoor, a strong and growing presence in 12 high-growth markets outside South Africa has driven the strong profit contribution. Since acquisition, the business has expanded into Madagascar and further market expansion opportunities in Africa are being assessed. INM Outdoor’s market-leading position leaves it well placed to take advantage of the revenue opportunities arising from the 2010 Soccer World Cup.
UNITED KINGDOM
OVERVIEW 2008 2007 Change Change
€m €m Constant FX
Revenue 215.0 268.1 -19.8% -6.6%
Operating Profit before Exceptional Items 0.2 15.5 -98.7% -98.7%
Operating Margin 0.1% 5.8% -570bps
The UK division reported 2008 Revenue of €215.0 million, a shortfall of €53.1 million against the prior year, mainly driven by a reduction in advertising and circulation revenues. As a result, operating profit for the year declined to €0.2 million.
The UK division undertook a major cost-efficiency programme in both London and Belfast in 2008 which included the closure of its loss-making magazine division. The Nationals division, comprising The Independent and Independent on Sunday, reported advertising revenue down 14.3% on 2007 driven by the very weak economic climate in the UK. At the end of 2008, the Nationals division announced a major restructuring programme, aimed at producing substantial savings and greater efficiencies, by entering into a service-sharing agreement with Daily Mail & General Trust (DMGT) under which the operation will move from its existing Docklands premises to DMGT’s offices in Kensington. DMGT will provide office space and services including information technology, production and picture services with further additional services to be shared going forward. This restructuring, combined with the initial phase of savings from the DMGT deal, will yield annualised cost savings of over £10 million (€11.1 million).
Both titles also appointed new editors during the year: Roger Alton, the award-winning former editor of The Observer, joined as editor of The Independent in July 2008; while John Mullin, after a distinguished career at the daily title, moved to the Sunday title as editor. Simon Kelner, who had edited the daily title for 10 years, was appointed as Managing Director and Editor-in-Chief. With a UK readership of 688,000 - including 588,000 in the lucrative ABC1 segment – The Independent remains an integral part of the UK quality newspaper market. In the quality Sunday market the Independent on Sunday had 720,000 readers, of which 600,000 were ABC1, providing a strong platform for targeted advertising in a difficult market.
The Group’s interests in Northern Ireland comprise the biggest publishing operation (the Belfast Telegraph and Sunday Life), the biggest commercial printing operation with two modern plants in Belfast and Newry, the number one property website (www.propertynews.com) and the biggest newspaper and magazine distributor, WNS.
The Belfast Telegraph remains the number one newspaper serving the Northern Ireland community. Advertising revenue remained weak and was down 14.9% on 2007 reflecting lower government spend, recruitment and property advertising. Despite weak economic conditions, the Group continued its commitment to ongoing innovation and editorial improvement with the launch of a new advertising-led Saturday magazine. Sunday Life was also re-designed to reflect the changing environment of the Northern Ireland community. The success of the morning compact edition led to a review of the broadsheet format and in March 2009, the Belfast Telegraph successfully moved to a fully compact format.
The new printing plant in Newry, which was commissioned in 2007, is now fully operational, producing both newsprint titles and glossy magazine titles on a revolutionary new dual heatset/coldest press installed by Goss. The Newry plant is now printing the entire island-of-Ireland print run for the Irish Daily Star and Sunday World, and together with the Belfast plant, most of the UK national newspapers circulating in the Northern Ireland market. It also prints the magazine section of the Saturday Independent in London, as well as other Group publications. The Group now has three modern, fully-equipped print plants on the island-of-Ireland, allowing maximum efficiencies in distribution.
In the Online division, www.independent.co.uk has seen significant growth with January 2009 page impressions for the site at 49.3 million, an increase of 179% over January 2008 with unique users up to 10.2 million, a 108% increase year-on-year. In Northern Ireland, www.propertynews.com has continued to expand and improve its functionality and services to the property industry, strengthening its already dominant position in the online property market. A new car site, www.nicarfinder.co.uk, was launched in February 2008 to complement a new classified print product and has performed exceptionally well in an otherwise difficult market. A new jobs website, www.nijobfinder.co.uk was successfully launched in early 2009 on the same model. In addition to these classified platforms, the news portal www.belfasttelegraph.co.uk was re-launched with significantly improved functionality and content, which has resulted in an increase of more than three-fold in unique users and page impressions and a commensurate 78% increase in online revenues in H2 2008.
INDIA
Jagran Prakashan Limited (‘JPL’), INM’s 20.8% owned Indian associate – which is listed on the Mumbai and National Stock Exchanges in India – recorded Revenue of €130.5 million (an increase of 11.2% in constant currency terms) and an Operating Profit of €20.5 million for the four quarters ended 31 December 2008.
This performance reflects the continuing strong growth of Dainik Jagran, India’s largest selling newspaper and the world’s largest read daily newspaper (with a total of 55.7 million readers weekly). Circulation volumes continued to grow as JPL expanded its footprint. Dainik Jagran is now published in 37 editions across 11 states from 30 different printing facilities.
The Outdoor division, Jagran Engage, now has exclusive marketing rights in some of the key outdoor properties in Delhi, Mumbai and Bangalore. JPL’s mobile division (J9) also continues to expand rapidly in a very fast-growing market. During the year, JPL successfully launched its digital online classified web and SMS portal, www.khojle.in.
Radio Mantra (in which INM has a 20% stake) continued to expand during 2008 with eight radio stations across four major states in Northern India. The Indian Radio Survey R2 – 2008, shows that Radio Mantra is the No. 1 radio station in four of the five areas in which it broadcasts, with 2.5 million listeners.
– INTERIM MANAGEMENT STATEMENT –
In accordance with the Transparency Regulations, this Interim Management Statement is an update on INM’s trading performance for the first 17 weeks of 2009 (from 1 January 2009 to 24 April 2009).
To date in 2009, INM has experienced a continuation of the tough trading conditions experienced in the last 4 months of 2008. While the trading performance compared to the same period in 2008 appears very weak, it should be noted that Q1 2008 was a particularly strong quarter, especially in Ireland. The comparators become more favourable as 2009 progresses.
Currently, total revenues (in constant currency) are down year-on-year by 13.5%, with:
Group advertising revenue down by 18.4%; and
Group circulation revenue down by 1.0%.
Costs continue to be well-managed across the Group and, in constant currency terms, are 7.9% below the same period in 2008, despite significant newsprint price increases.
A number of changes to the Board of Directors of INM have been announced since the year end, details of which are outlined above.
An update on the Group’s refinancing is detailed above.
Following a period of significant capital spend, 2009 capital expenditure is expected to reduce by 50% to €31 million and is below the 2009 forecasted depreciation charge.
On 20 March 2009, INM announced that APN confirmed that the New Zealand Inland Revenue Department (‘NZIRD’) has advised that it has formally decided to discontinue the dispute in relation to the tax treatment of APN’s Masthead Licensing Agreement (‘MLA’). The decision confirms the taxation and accounting treatment adopted by both INM and APN in relation to the MLA and results in no additional tax being payable by either INM or APN. This decision also means that INM no longer has any liability to APN under the warranties it granted to APN at the time of the sale of Wilson & Horton Limited to APN in 2001, and the tax indemnity falls away.
Trading in the first quarter of 2009 has been tougher than expected. Although earnings visibility is still limited, assuming advertising and credit markets do not deteriorate further, INM currently expects operating profit before exceptionals for 2009 to be within a €200 million – €230 million range and EBITDA within a €240 million – €270 million range.
INM expects to announce its Interim results for the half year to 30 June on 27 August 2009.
Note Regarding Forward-Looking Statements
Some statements in this announcement are forward-looking. They represent our expectations for our business, and involve risks and uncertainties. We have based these forward-looking statements on our current expectations and projections about future events. We believe that our expectations and assumptions with respect to these forward-looking statements are reasonable. However, because they involve known and unknown risks, uncertainties and other factors, which are in some cases beyond our control, our actual results or performance, may differ materially from those expressed or implied by such forward-looking statements. These forward-looking statements speak only as of the date of this document and no obligation is undertaken, save as required by law or by the Listing Rules of the Irish Stock Exchange and/or the UK Listing Authority, to reflect new information, future events or otherwise.
ENDS 30 April 2009
For further information, please contact:
Gavin O’Reilly
Dónal Buggy Chief Operating Officer
Chief Financial Officer +353 1 466 3200
+353 1 466 3200
Media
Pat Walsh
Murray Consultants (Dublin)
Tel: +353 1 498 0300
Paul Durman/Rory Godson
Powerscourt (London)
Tel: +44 20 7250 1446
Investors and Analysts
Mark Kenny/ Jonathan Neilan
K Capital Source (Dublin)
Tel: +353 1 631 5500
Email: INM@kcapitalsource.com
ABOUT INDEPENDENT NEWS & MEDIA PLC
– CORPORATE PROFILE –
INM is a leading international newspaper and communications group, with its main interests in Australia, India, Ireland, New Zealand, South Africa and the United Kingdom. Spanning four continents, 10 major markets and 22 individual countries, INM has market-leading newspaper positions in Australia (regional), India, Indonesia, Ireland, New Zealand and South Africa. In the United Kingdom, it publishes the flagship national title, The Independent, as well as being the largest newspaper group in Northern Ireland.
Across these regions, the Group publishes over 200 newspaper and magazine titles, delivering a combined weekly circulation of 32 million copies, with a weekly audience of over 100 million consumers and includes the world’s largest read newspaper, Dainik Jagran, in India. The Group has established a strong and growing online presence, with over 100 editorial, classified and transactional sites.
INM is the largest radio operator – over 130 stations and an audience of almost six million people – and outdoor advertising operator in Australasia and also has leading outdoor advertising positions in Hong Kong, Malaysia, India, Indonesia and across Africa.
The Group has grown consistently over the last 15 years by building a geographically unique and diverse portfolio of market-leading brands, and today manages gross assets of €2.1 billion, revenue of €1.6 billion and employs approximately 9,600 people worldwide. Further information is available on the Group’s website www.inmplc.com.
INDEPENDENT NEWS & MEDIA PLC
FINAL RESULTS
Group Income Statement Year Ended 31 December 2008 Year Ended 31 December 2007
Before Exceptional Items
Exceptional Items*
Total Before Exceptional Items
Exceptional Items*
Total
Notes €m €m €m €m €m €m
Revenue 3 1476.6 - 1476.6 1673.5 - 1673.5
Operating profit/(loss) 3 290.3 (365.9) (75.6) 349.2 (37.7) 311.5
Share of results of associates and joint ventures 12.9 - 12.9 19.3 - 19.3
Finance income/costs: 5
- Finance income 8.9 - 8.9 10.9 - 10.9
- Finance costs (100.4) (7.2) (107.6) (93.3) - (93.3)
Profit/(loss) before taxation 211.7 (373.1) (161.4) 286.1 (37.7) 248.4
Taxation (charge)/credit (41.4) 43.4 2.0 (57.2) 4.5 (52.7)
Profit/(loss) for the year 170.3 (329.7) (159.4) 228.9 (33.2) 195.7
Attributable to:
Minority interests 66.3 (61.3) 5.0 85.2 (0.2) 85.0
Equity holders of the parent 104.0 (268.4) (164.4) 143.7 (33.0) 110.7
170.3 (329.7) (159.4) 228.9 (33.2) 195.7
(Loss)/earnings per ordinary share (cent)
- Basic 6 (19.9c) 14.6c
- Diluted 6 (19.9c) 14.5c
* Note 4Group Statement of Recognised Income and Expense
Year Ended Year Ended
31 Dec 2008 31 Dec 2007
€m €m
Items of (expense)/income recognised directly in equity
Currency translation adjustments (297.4) (63.1)
Retirement benefit obligations:
- Actuarial (losses)/gains (64.9) 15.1
- Movement on deferred tax asset 7.0 (2.0)
Losses relating to cash flow hedges (5.1) (0.7)
Net expense recognised directly in equity (360.4) (50.7)
(Loss)/profit for the year (159.4) 195.7
Total recognised income and expense for the year (519.8) 145.0
Attributable to:
Minority interests (91.6) 82.9
Equity holders of the parent (428.2) 62.1
(519.8) 145.0
Group Balance Sheet
31 Dec 2008 31 Dec 2007
€m €m
Assets
Non-Current Assets
Intangible assets 1330.5 1805.4
Property, plant and equipment 334.9 376.5
Investments in associates and joint ventures 69.6 90.0
Deferred taxation assets 19.3 54.7
Available-for-sale financial assets 16.7 37.0
Trade and other receivables 21.8 45.9
1792.8 2409.5
Current Assets
Inventories 14.9 16.7
Trade and other receivables 210.6 298.1
Current income tax assets 0.5 3.5
Derivative financial instruments - 0.9
Cash and cash equivalents 80.7 147.5
306.7 466.7
Total Assets 2099.5 2876.2
Liabilities
Current Liabilities
Trade and other payables 238.5 274.3
Current income tax liabilities 12.0 20.1
Borrowings 336.3 221.7
Derivative financial instruments 5.5 3.3
Provisions for other liabilities and charges 36.8 27.1
629.1 546.5
Non-Current Liabilities
Borrowings 1054.6 1241.5
Retirement benefit obligations 148.8 100.4
Deferred taxation liabilities 125.6 233.5
Other payables 5.0 6.4
Provisions for other liabilities and charges 3.4 0.8
1337.4 1582.6
Total Liabilities 1966.5 2129.1
Net Assets 133.0 747.1
Equity
Capital and Reserves Attributable to Equity Holders of the Parent
Share capital 263.6 249.2
Other reserves 196.9 377.9
Retained losses (738.5) (454.9)
(278.0) 172.2
Minority Interests 411.0 574.9
Total Equity 133.0 747.1
Group Cash Flow Statement
Year Ended 31 December
2008 2007
Notes €m €m
Cash generated from operations 287.3 278.8
Income tax paid (34.9) (33.9)
Cash generated by operating activities 8 252.4 244.9
Cash flows from investing activities
Purchases of property, plant and equipment (55.8) (65.0)
Proceeds from sale of property, plant and equipment 17.7 18.0
Purchases of intangible assets (18.7) (70.5)
Purchases of subsidiary undertakings (25.3) -
Cash acquired with subsidiary undertakings 21.4 -
Purchases of associates and joint ventures (5.9) (1.4)
Advances to associates and joint ventures (4.3) (3.4)
Loans repaid by associates and joint ventures 3.0 3.6
Purchases of available-for-sale financial assets (1.4) (11.1)
Proceeds from sale of available-for-sale financial assets 3.9 0.3
Interest received 8.2 11.4
Dividends received 4.9 7.8
Net cash used in investing activities (52.3) (110.3)
Cash flows from financing activities
Proceeds from issuance of ordinary shares 0.1 13.5
Debt issue costs (1.0) (1.5)
Interest paid (94.0) (89.5)
Proceeds from borrowings 323.3 535.7
Repayment of borrowings (263.7) (172.6)
Repayment of compound financial instruments - (9.9)
Dividends paid to shareholders of the parent (97.7) (72.6)
Payment of finance lease liabilities (45.6) (43.6)
Purchases of treasury shares - (138.3)
Issue of minority interests by subsidiary undertaking 0.9 6.8
Dividends paid to minority interests (72.8) (77.3)
Purchases of minority interests - (35.8)
Net cash used in financing activities (250.5) (85.1)
Net (decrease)/increase in cash and cash equivalents and bank overdrafts in the year
(50.4) 49.5
Balance at beginning of the year 145.9 100.7
Exchange losses (23.9) (4.3)
Cash and cash equivalents and bank overdrafts at end of the year 71.6 145.9
NOTES TO THE FINAL RESULTS
1. Basis of Preparation of Financial Information under IFRS
Basis of Preparation and Liquidity
This financial information has been prepared on the going concern basis, which assumes that the Group will continue to be able to meet its liabilities as they fall due for the foreseeable future. However, as a result of the current difficult credit markets, the Group has been unable to raise new debt to fund the maturity of the €200m 5.75% bond (“Bonds”) which is due to mature on 18 May 2009. The Group currently does not have sufficient financial headroom available under its existing facilities in order to meet this maturity and service its debt obligations.
In addition, the Group’s bank facilities contain certain covenant tests relating to Net Debt to EBITDA and EBITDA to Net Interest. Failure of a covenant test would render the facilities in default and repayable on demand at the option of the lenders if an amendment or waiver is not granted by the lenders in advance. The Group reports on these covenants to the eight banks within the Group’s bank group (the “Banks”) bi-annually as part of the facility agreements. While the Group was compliant with its banking covenants as at 31 December 2008, the covenants are due to be tested again as at 30 June 2009 and 31 December 2009. The Group remains both profitable and cash generative but, given the continued difficult trading conditions within which the Group is currently operating, there is now a strong likelihood of a breach of the financial covenants within the Group’s borrowing facilities during 2009 if an amendment or waiver is not granted by the lenders in advance.
The Group has appointed Rothschild and Davy to advise it in relation to its refinancing requirements and the Group has entered into constructive discussions with an ad-hoc committee of the holders of the Bonds (the “Bondholders”), its Banks and the two major shareholders, in relation to the Group’s proposal to reschedule maturities on the Bonds and Bank debt and agree covenant amendments and the provision of sufficient working capital facilities. However, there can be no certainty that these discussions with the Bondholders, the Banks and the two major shareholders will be successfully concluded or that banking facilities will continue to be available to the Group on commercially acceptable terms.
In order to amend the terms of the Bonds (including the maturity date of the Bonds) a meeting of the Bondholders must be convened. Such a meeting requires 21 clear days notice to the Bondholders and requires 75% of those voting at such a meeting to approve any amendment to the terms. Given the time available does not permit the holding of a Bondholders meeting by 18 May 2009, the Company will seek a financial standstill with the Bondholders and Banks, whereby no party will take any action to enforce any claim for any payment during the financial standstill period.
Given the current economic circumstances and the difficulties in raising finance, the Directors have had detailed and ongoing discussions as a Board. Following these discussions, although the Directors remain confident of a satisfactory outcome, they have concluded that as the combination and timing of these circumstances is not entirely within their control, they indicate the existence of a material uncertainty which may cast significant doubt on the Group’s and Company’s ability to continue as a going concern. NOTES TO THE FINAL RESULTS (continued)
1. Basis of Preparation of Financial Information under IFRS (continued)
Basis of Preparation and Liquidity (continued)
If this is the case, the Group and Company may be unable to continue to realise assets and discharge liabilities in the normal course of business.
However, discussions to date with the Group’s Bondholders, Banks and two major shareholders have indicated a willingness to seek agreement and the Directors remain confident that an agreement will be reached with them which is acceptable to the Group. Consequently, having made due enquiries and considering the uncertainties described above, the Directors have a reasonable expectation that the Group and Company has and will have adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis in preparing this financial information and this financial information does not include any adjustments that would result from the going concern basis of preparation being inappropriate.
The financial information in this announcement does not constitute the statutory accounts of the Company and the Group, a copy of which is required to be annexed to the Company's annual return to the Companies Registration Office in Ireland. A copy of the statutory accounts in respect of the year ended 31 December 2008 will be annexed to the Company's annual return for 2008.
A copy of the statutory accounts required to be annexed to the Company's annual return in respect of the year ended 31 December 2007 has been annexed to the Company’s annual return for 2007 to the Companies Registration Office. The auditor’s report on the statutory accounts for the year ended 31 December 2007 was unqualified.
The 2008 statutory accounts of the Company will be available on the Company’s website www.inmplc.com as of 30 April 2009. Consistent with prior years, the full financial statements for the year ended 31 December 2008 and the audit report thereon will be completed and circulated to shareholders at least 20 working days before the AGM.
The auditors have reported on the statutory accounts for the year ended 31 December 2008. The auditors have issued an unqualified report on the statutory accounts for the year ended 31 December 2008. However, for the reasons outlined above and without qualifying their report, the auditors have emphasised matters that they would wish to draw to the attention of shareholders in respect of funding and going concern. The matters referred to in the auditors’ report relating to going concern are described above and are also described in detail in note 1 of the statutory accounts for the year ended 31 December 2008.
General Information
In accordance with EU Regulations, the Group is required to present its annual consolidated financial statements for the year ended 31 December 2008 in accordance with EU adopted International Financial Reporting Standards (“IFRS”) and IFRIC interpretations and with those parts of the Companies Acts, 1963 to 2006, applicable to companies reporting under IFRS. This financial information comprises the Group NOTES TO THE FINAL RESULTS (continued)
1. Basis of Preparation of Financial Information under IFRS (continued)
General Information (continued)
Balance Sheets as of 31 December 2008 and 31 December 2007 and related Group Income Statements, Cash Flow Statements, Statements of Recognised Income and Expense and related notes for the years then ended of Independent News & Media PLC. This financial information for the years ended 31 December 2008 and 31 December 2007 has been prepared in accordance with the Listing Rules of the Irish Stock Exchange. The accounting policies used in preparing this financial information are set out in the audited financial statements for the year ended 31 December 2008 which are available on the Company’s website www.inmplc.com as of 30 April 2009. The consolidated financial statements are prepared under the historical cost convention and the measurement at fair value of certain financial instruments.
2. Intangible Assets – Supplementary Non-IFRS Information
The Balance Sheet reports the carrying value of newspaper mastheads at their acquired cost; where these assets have been acquired through a business combination, cost will be the fair value allocated in acquisition accounting. The value of internally generated newspaper mastheads or post-acquisition revaluations are not permitted to be recognised in the Balance Sheet in accordance with IFRS and, as a result, no value for certain of the Group’s internally generated newspaper mastheads (e.g. the three main Irish titles, the Irish Independent, the Evening Herald and the Sunday Independent) is reflected in the Balance Sheet.
While impairment charges have been recorded during the year on certain of the Group’s intangible assets, the Group has many other intangible assets which have substantial value that is not reflected on the Group’s Balance Sheet. This is because these intangible assets are carried in the Group’s Balance Sheet at either a nil value or a value which is much less than their recoverable amount. IFRS does not allow the offsetting of this excess value on the total of the Group’s mastheads against the impairment charge recorded in the year.
NOTES TO THE FINAL RESULTS (continued)
3. Segmental Reporting
(i) Geographical Segment
Revenue Operating Profit
(Before Exceptionals)
2008 2007 2008 2007
€m €m €m €m
Ireland 377.3 401.3 75.8 98.3
United Kingdom 215.0 268.1 0.2 15.5
South Africa 212.5 234.7 72.2 59.1
Australasia 671.8 769.4 155.5 192.7
Common costs (13.4) (16.4)
1476.6 1673.5 290.3 349.2
Exceptional Items
2008 2007
€m €m
Ireland (25.0) (32.1)
United Kingdom (205.6) 0.8
South Africa (3.1) (1.2)
Australasia (114.3) (5.2)
Common/Unallocated (17.9) -
(365.9) (37.7)
Operating (loss)/profit after exceptional items
Ireland 50.8 66.2
United Kingdom (205.4) 16.3
South Africa 69.1 57.9
Australasia 41.2 187.5
Common costs (31.3) (16.4)
(75.6) 311.5
(ii) Business Segment
Revenue Operating Profit
(Before Exceptionals)
2008 2007 2008 2007
€m €m €m €m
Printing, publishing, online, distribution and commercial printing
1,176.7
1,370.2 235.3 295.8
Radio 127.6 149.5 39.5 51.9
Outdoor advertising 172.3 153.8 28.9 17.9
Common costs (13.4) (16.4)
1476.6 1673.5 290.3 349.2
NOTES TO THE FINAL RESULTS (continued)
4. Exceptional Items
Exceptional items are those items of income and expense that the Group considers are material and/or of such a nature that their separate disclosure is relevant to a better understanding of the Group’s financial performance.
2008 2007
€m €m
Included in (loss)/profit before taxation are the following:
Impairment of assets and gains/(losses) on sale of assets, net of transaction costs
(i)
(295.8) 15.4
Restructuring charges (ii) (58.0) (45.9)
Online and education start-up and other development costs (iii) (12.1) (7.2)
(365.9) (37.7)
Exceptional finance costs (iv) (7.2) -
Total exceptional items (373.1) (37.7)
Net exceptional tax credit 43.4 4.5
Minority interest share of exceptional items (net of tax) 61.3 0.2
Exceptional items net of taxation and minority interests (268.4) (33.0)
Primarily relates to non-cash impairment charges of €290.9m. These arose on intangible assets €258.7m, investments in associates and joint ventures €3.4m, loans to associates and joint ventures €6.m, property, plant and equipment €11.7m and available-for-sale financial assets €10.4m in respect of the Group’s operations in Ireland, United Kingdom and in Australasia. It also includes gains on the sale of properties in Australasia. (2007: Relates to the gain on disposal of investments and properties in Australasia and the United Kingdom net of costs associated with the unsuccessful APN Scheme of Arrangement and charges relating to the decommissioning of certain property, plant and equipment across the Group.)
Relates to the restructuring of operations in Ireland €6.0m, United Kingdom €15.1m, South Africa €3.1m and in Australasia €19.0m. It also includes onerous contracts arising in the publishing businesses in Australasia and the United Kingdom. (2007: Relates to the restructuring of operations in Ireland, United Kingdom, South Africa and in Australasia.)
Relates to start-up and other development costs in respect of online in Australasia, United Kingdom and Ireland and education in Ireland. It also includes other launch costs incurred in Ireland. (2007: Relates to start-up and other development costs in respect of online in Australasia and Ireland and education in Ireland.)
The exceptional finance costs relate to costs incurred by the Group as part of the re-negotiation of financing arrangements during the year.
NOTES TO THE FINAL RESULTS (continued)
5. Net Finance Costs
2008 2007
€m €m
Finance income (8.9) (10.9)
Finance costs 100.4 93.3
Net finance costs (before exceptional finance costs) 91.5 82.4
Exceptional finance costs (note 4) 7.2 -
Net finance costs 98.7 82.4
6. (Loss)/Earnings Per Share
2008 2007
€m €m
(Loss)/profit attributable to the parent (164.4) 110.7
Exceptional items (note 4) 373.1 37.7
Net exceptional tax credit (43.4) (4.5)
Minority interest share of exceptional items (net of tax) (61.3) (0.2)
Profit before exceptional items 104.0 143.7
Weighted average number of shares outstanding during the year (excluding treasury shares)
825,927,562
759,836,469
Effect of:
Conversion of options 130495 5185655
Diluted number of shares 826058057 765022124
Basic (loss)/earnings per share (19.9c) 14.6c
Basic earnings per share before exceptional items 12.6c 18.9c
Diluted (loss)/earnings per share (19.9c) 14.5c
Diluted earnings per share before exceptional items 12.6c 18.8c
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.
For diluted earnings per share, the weighted average number of ordinary shares outstanding is adjusted to assume conversion of all potential dilutive options over ordinary shares once the adjustment does not reduce a loss per share.
Basic and diluted earnings per share before exceptional items are presented in order to give a better understanding of the Group’s financial performance.
NOTES TO THE FINAL RESULTS (continued)
7. Dividends - Approved and Paid
2008 2007
€m €m
Final dividend for the year ended 31 December 2007 of €0.0913 (2006: €0.083) per share 75.9 63.7
Interim dividend for the year ended 31 December 2008 of €0.0457 (2007: €0.0457) per share 38.3 34.0
114.2 97.7
As announced in the market update on 26 January 2009 the Directors are not proposing a final dividend in respect of the year ended 31 December 2008.
8. Reconciliation of Operating Profit before Exceptional Items to Cash Generated by Operating Activities
2008 2007
€m €m
Operating profit before exceptional items 290.3 349.2
Depreciation/amortisation 40.1 36.1
Non-cash share option charge 0.9 2.2
Earnings Before Interest, Tax, Depreciation and Amortisation 331.3 387.5
Unrealised foreign exchange movements (7.9) (8.8)
Increase in inventories (0.4) (0.9)
Decrease/(increase) in short-term and medium-term receivables 45.4
(23.3)
Decrease in short-term and long-term payables (25.6) (5.9)
Decrease in provisions (excluding restructuring payments) (1.2) (3.6)
Retirement benefit obligations (6.1) (8.7)
Cash generated from operations (before cash exceptional items) 335.5 336.3
Exceptional expenditure (including restructuring payments) (48.2) (57.5)
Cash generated from operations 287.3 278.8
Income tax paid (34.9) (33.9)
Cash generated by operating activities 252.4 244.9
NOTES TO THE FINAL RESULTS (continued)
Analysis of Changes in Equity
2008 2008 2008 2007 2007 2007
€m €m €m €m €m €m
Parent Minority Total Parent Minority Total
At 1 January 172.2 574.9 747.1 199.0 519.2 718.2
Issue of share capital 88.4 1.9 90.3 145.1 79.7 224.8
Share based payment 1.3 (0.4) 0.9 2.0 0.2 2.2
Dividends (including minority interests)
(114.2)
(73.8)
(188.0)
(97.7)
(77.3)
(175.0)
Buyback of shares held by minority
-
-
-
-
(27.8)
(27.8)
Treasury shares 2.5 - 2.5 (138.3) - (138.3)
Acquisition of minority interest - - - - (2.0) (2.0)
Total recognised income and expense for the year
(428.2)
(91.6)
(519.8) 62.1 82.9 145.0
At 31 December (278.0) 411.0 133.0 172.2 574.9 747.1
€1.5 BILLION AND OPERATING PROFIT* OF €290 MILLION
Ticker: (Bloomberg) INM.ID/ INM.LN and (Reuters) INME.I/ INME.L
Dublin/London 30 April 2009: The Board of Independent News & Media PLC (‘INM’ or the ‘Group’) today announced the Group’s full year results for the 12 months ended 31 December 2008. A detailed presentation on these results is available on the Group’s website www.inmplc.com. This release also incorporates INM’s Interim Management Statement relating to the 17 weeks from 1 January 2009 to 24 April 2009.
RESULTS 2008 2007 Change Change
€m €m Constant FX
Revenue 1476.6 1673.5 -11.8% -2.6%
Operating Profit* 290.3 349.2 -16.9% -9.8%
Operating Margin* 19.7% 20.9% -120bps
Profit Before Tax* 211.7 286.1 -26.0%
(Loss)/Profit Before Tax (161.4) 248.4 -165.0%
Profit After Tax* 170.3 228.9 -25.6%
(Loss)/Profit After Tax (159.4) 195.7 -181.5%
Cash Generated from Operations 287.3 278.8 +3.0%
Basic (Loss)/Earnings Per Share (19.9c) 14.6c -236.3%
Adjusted Earnings Per Share** 12.6c 18.8c -33.0%
Dividend Per Share – full year 4.57c 13.70c -66.6%
* Before exceptional items
** Diluted EPS, before exceptional items
SUMMARY PERFORMANCE
Group Revenue of €1,476.6 million, represents a 2.6% decline on 2007 in constant currency terms – a good performance in exceptionally challenging market conditions
INM outperforms peers, with advertising revenues only down by 3.8% and circulation revenues up 0.5% in constant currency
Operating costs reduced by €138.0 million, down 0.7% in constant currency or down 3.0% on a like-for-like basis
Reflecting both the diversity of INM’s operations and the effectiveness of its cost reduction programme, the Group reported Operating Profit, before exceptional items, of €290.3 million – ahead of the guidance given on 26 January 2009
Strong industry-leading operating margin at 19.7%
Cash generated from operations of €287.3 million for 2008, up 3.0% on 2007
Exceptional Costs of €373.1 million – primarily relates to non-cash impairment charges of €290.9 million, mainly arising on the Group’s intangible assets as a consequence of the current economic downturn. This is in line with other public media groups worldwide: such as DMGT, Fairfax, Johnston Press and Trinity Mirror and includes the impairment charge already reported in the annual results of APN News & Media Limited
As indicated on 26 January 2009 and consistent with the Group’s financial objective to maximise available cash flow and reduce leverage, the Board has not recommended a Final Dividend for 2008
Consistent with the objective to de-leverage, INM has identified a number of non-core assets to be disposed. Proceeds will be applied towards debt reduction
– 2008 PERFORMANCE OVERVIEW –
INM’s 2008 full year results reflect a resilient performance in very difficult market conditions. Group revenue of €1,476.6 million (2.6% decline in constant currency terms) yielded an Operating Profit, before exceptional items, of €290.3 million.
Change
(constant currency)
Publishing revenues -5.2%
Publishing Advertising revenues (incl. Online) -8.5%
Circulation revenues +0.5%
Online revenues +16.3%
Outdoor revenues +24.5%
Radio revenues -7.2%
INM continued to manage its operations – in a weakening global advertising climate – through aggressive advertising yield management, selective cover price increases and an unrelenting focus on operating cost reduction and business process improvement initiatives. Strong, effective and ongoing cost management across all geographies and all divisions partially offset the pronounced advertising contraction experienced from September 2008 onwards. Total Group costs were reduced by 10.4% or €138 million in 2008, producing an industry-leading margin of 19.7%.
INM reported a total exceptional charge of €373.1 million in 2008, of which €290.9 million was a non-cash impairment charge arising on the Group’s assets (primarily intangible assets) as a consequence of the current economic downturn. The Directors believe that when the economic climate recovers, these intangible asset valuations will improve. While impairment charges have been recorded during the year on certain of the Group’s intangible assets, the Group has many other intangible assets which have substantial value that is not reflected on the Group’s Balance Sheet because IFRS does not allow any value to be recognised for internally generated mastheads (such as the Irish Independent, the Evening Herald and the Sunday Independent) nor for any value created post acquisition (e.g. South African mastheads).
A further €58.0 million of the 2008 exceptional charge relates to restructuring costs incurred to enable the Group to significantly re-engineer its payroll and internal workflows across each of its main publishing divisions, with headcount reducing by over 630 during the year, with a further 160 headcount reduction to take place in early 2009 in relation to restructuring charges booked in 2008. The remaining €24.2 million in the 2008 exceptional charge mainly relates to online and education start-up and other development costs and exceptional finance charges incurred.
Net finance charges (excluding exceptional finance charges) were €91.5 million, an increase of 11.0% on 2007 due to higher interest rates in place for most of 2008. The taxation charge (excluding exceptional items) of €41.4 million represents an effective tax rate of 19.6% down marginally from 20.0% in 2007. The exceptional tax credit of €43.4 million in 2008 arose mainly on the impairment charges booked in relation to intangible assets.
INM reported a loss after tax and minority interests of €164.4 million, including exceptional items. However, excluding exceptional items, the result was a profit of €104.0 million. This translated into a Diluted Earnings Per Share excluding exceptional items of 12.6 cent.
Net debt as at 31 December 2008 was €1,310.2 million, a reduction of €5.5 million year-on-year, with cash generated from operations increasing by 3% to €287.3 million. In 2008, INM completed a new four year bank facility for €105 million to fund the redemption of the €112.6 million outstanding under the Group’s €125 million Bond, which matured in December.
– FINANCING UPDATE –
As a result of the current difficult credit markets, the Group has been unable to raise new debt to fund the maturity of the €200 million 5.75% bond which is due to mature on 18 May 2009. The Group currently does not have sufficient financial headroom available under its existing facilities in order to meet this maturity and service its debt obligations.
While the Group was compliant with its banking covenants as at 31 December 2008 and it remains both profitable and cash generative, the continued difficult trading conditions within which the Group is currently operating means there is now a strong likelihood of a breach of the financial covenants within the Group’s borrowing facilities during 2009, if an amendment or waiver is not granted by the lenders in advance.
The Group has appointed Rothschild and Davy to advise it in relation to its refinancing requirements and the Group has entered into constructive discussions with an ad-hoc committee of the Bondholders, its Banks and the two major shareholders. Discussions to date have indicated a willingness from all parties to seek agreement and, while subject to material uncertainty, the Directors remain confident that an agreement will be reached with them which is acceptable to the Group. Agreement to a financial standstill period is being sought from Bondholders and Banks in order to afford a period beyond 18 May 2009 in which an agreement can be reached.
– DIVIDEND –
INM paid an interim dividend of 4.57 cent per share on 7 November 2008. As announced on 26 January 2009, the Directors are not proposing a final dividend in respect of the year ended 31 December 2008.
– BOARD –
As part of the Group’s stated objective to reconstitute and reduce the size of the Board, during 2008, BMA Hopkins resigned as an executive Director and LP Healy and JC Davy retired from the Board after serving 35 years and 25 years respectively.
Since the year end, a number of other substantial changes to the composition of the Board have been announced. Sir Anthony O’Reilly has announced his retirement as a Director and as Group Chief Executive with effect from 7 May 2009. The Board has further announced that GK O’Reilly, who is currently Group Chief Operating Officer, has been appointed as Group Chief Executive Officer effective from 7 May 2009.
The Board appointed three new non-executive Directors, Leslie Buckley, Paul Connolly and Lucy Gaffney, with effect from 13 March 2009, each of whom brings a wide range of experience which will be of significant benefit to all stakeholders.
As part of a detailed restructuring of the Board, two executive Directors, VC Crowley – Chief Executive of Independent News & Media (Ireland) and IG Fallon – Chief Executive of Independent News & Media (UK), will be retiring from the Board and will remain as members of the Executive Committee.
In addition, BE Somers has advised the Board of his decision to retire from the Board with effect from 30 April 2009. The following non-executive Directors, PM Cosgrove, CU Daly, MN Hayes, Dr. IE Kenny, AJ O’Reilly Jr. and AC O’Reilly, have advised the Board that they will not be seeking re-election to the Board at the AGM.
– OUTLOOK –
Against a very difficult market backdrop, your Group is pleased to report a resilient revenue and operating profit performance for 2008. This performance reflects the diversity of the Group’s operations and the effectiveness of its ongoing cost reduction programme.
Your Board believes that this performance in 2008 compares favourably to its peer group and is mainly attributable to INM’s market leading positions, its strong brand franchises, the diversity of its geography and asset base, a continuing focus on product and platform innovation, increased online activities and continuing cost control. These key attributes should continue to benefit INM in 2009.
Trading in the first quarter of 2009 has been tougher than expected. Although earnings visibility is still limited, assuming advertising and credit markets do not deteriorate further, INM currently expects operating profit before exceptionals for 2009 to be within a €200 million – €230 million range and EBITDA within a €240 million – €270 million range.
– OPERATIONS REVIEW –
AUSTRALASIA
OVERVIEW 2008 2007 Change Change
€m €m Constant FX
Revenue 671.8 769.4 -12.7% -4.9%
Operating Profit before Exceptional Items 155.5 192.7 -19.3% -12.3%
Operating Margin 23.1% 25.0% -190bps
APN News & Media Ltd (‘APN’), in which INM has a 39.1% shareholding, is listed on the Australian and New Zealand Stock Exchanges. Generally tougher advertising conditions led to a 4.9% decline (in constant currency) in Revenue to €671.8 million, which produced a 2008 Operating Profit of €155.5 million (a 12.3% decline in constant currency).
In the Australian Regional Publishing division, continued readership growth produced a solid advertising performance, particularly from national advertisers, who are emerging as an increasingly important category, which – together with retail advertising – now represents almost 60% of advertising revenue for this division. In addition, despite the challenging macro-economic climate, real estate and employment advertising reported year-on-year growth.
In New Zealand, trading conditions remained very challenging throughout 2008 for both National and Regional publishing, with reduced advertising spend across most categories. Active cost management continued to be a strong focus, with editorial production, marketing and logistics of individual regional titles being transferred to a single outsourced facility in Auckland. After two years of consistent growth, New Zealand’s largest daily newspaper, The New Zealand Herald, added a further 10,000 readers in the most recent readership survey to reach an average of 583,000 readers per day. Its sister title, the Herald on Sunday also continued to gain significant market share, adding 37,000 readers on the prior year, achieving a record total of 382,000 readers, just four years after its launch.
In the Radio division, Australian Radio Network (‘ARN’) ended the year strongly, with its Sydney stations securing the position of number one network for both the 10+ demographic and its target audience of the 25-54 demographic. Together with a solid performance in Melbourne, ARN is now the top network for the 25-54 demographic in the combined markets of Sydney and Melbourne. Radio advertising remains competitive across Australia, but is showing resilience despite tougher markets. The Radio Network (‘TRN’) in New Zealand broadcasts across more than 120 FM and AM frequencies around the country, reaching 1.5 million listeners each week, and is the clear market leader in New Zealand radio, with a 10+ audience share at a record 47.3%. NewstalkZB is the number one national network, with a 12.9% audience share, and is now the top station in the three major metropolitan cities of Auckland, Wellington and Christchurch.
APN Outdoor, Australasia’s leading outdoor advertising business, reported a strong performance for 2008, maintaining revenue on a constant currency basis and growing operating profit. APN Outdoor launched Australia’s largest digital billboard in Melbourne, and this is an important revenue development for the business. The Adshel street furniture business retained important contracts and rolled out a programme of new facings in Canberra. While the economic slowdown has impacted revenues, it has also allowed the renegotiation of leases on more advantageous terms. Despite tough trading conditions throughout 2008, the New Zealand Outdoor division retained its market leading positions across all of the major Outdoor categories.
In Online, the development of an APN Regional News Network built on upgraded masthead websites is well advanced and is attracting good traffic and advertising revenue. The sites are being developed in tandem with a suite of ‘finda’ branded local community and directory sites. APN continues to invest in New Zealand online, with The New Zealand Herald website, www.nzherald.co.nz, remaining the most popular news website in New Zealand, generating a near 300% increase in revenue and traffic in the past two years.
IRELAND
OVERVIEW 2008 2007 Change
€m €m
Revenue 377.3 401.3 -6.0%
Operating Profit before Exceptional Items 75.8 98.3 -22.9%
Operating Margin 20.1% 24.5% -440bps
The Irish division reported 2008 Revenue of €377.3 million, which is down on last year as a result of a significant fall off in advertising in the second half, and delivered a good operating margin of 20.1%, with an operating profit of €75.8 million.
Advertising revenues declined by 15% year-on-year in 2008, after a record first quarter, reflecting the accelerating deterioration in the Irish economy throughout the rest of the year. This advertising decline principally reflected significantly reduced property and recruitment revenues, while run-of-paper and retail advertising achieved modest growth. Against this difficult market backdrop, and in the context of one of the most competitive newspaper markets in the world, circulation revenues still delivered an impressive 2.8% increase in 2008, from select cover price increases and solid circulation volumes.
The market-leading positions of the Group’s titles were maintained during the year, with the Irish Independent remaining the clear number one quality daily newspaper with an ABC1 of 154,610 copies (a 47.9% market share). Attracting an average daily readership of 520,000 readers2, it continues to reach as many readers each day as its two leading competitors combined. Ireland’s largest selling Sunday quality newspaper, the Sunday Independent, also delivered a solid performance during 2008 recording an ABC1 figure of 270,362 copies. It continues to be the Republic of Ireland’s most read newspaper attracting over 941,000 readers2 each and every Sunday. The Sunday World consolidated its position as Ireland’s largest selling newspaper in 2008, as well as maintaining its position as Ireland’s most read and biggest selling tabloid newspaper, delivering an average sale across the two ABC periods in 2008 of 288,669 copies, an increase of 1.9% on 2007.
Despite the significant volume of free dailies in the Dublin market place, the Evening Herald continued to demonstrate the resilience of its brand, reporting 317,000 readers2 in 2008 – its fourth consecutive year of readership growth.
The Group’s joint venture publication, the Irish Daily Star, consolidated its position as a market leader in the popular daily tabloid sector and delivered an ABC1 of 105,031 copies. The Irish Daily Star Sunday is now firmly established in the market after only five years in existence, achieving an ABC1 of 59,898 copies.
The Group’s daily free newspaper, herald am, continued to outperform the competition and remains the largest and most read free circulating newspaper in the country, with a verified free daily distribution of 73,992 copies (March 2009) and a readership2 of 100,000, a clear 10,000 readers ahead of its rival publication.
The Group publishes 13 paid-for weekly regional titles in counties Cork, Kerry, Dublin, Louth, Wexford, Wicklow, Carlow and Sligo (following the acquisition of The Sligo Champion in March 2008).
Newspread, INM’s wholly-owned distribution and wholesaling company, continued to trade well in 2008. Wholesale Newspaper Services Limited (WNS), the largest newspaper and magazine distributor in Northern Ireland, was integrated into Newspread during 2008 to provide an all-Ireland distribution capability. The ongoing market-leading strength of the Group’s distribution business has been further underpinned by the installation of a new state-of-the-art SAP distribution system, which went live in March 2009.
In Education, Independent College made excellent progress throughout 2008 – its first full year in operation. To date, it has attracted over 5,000 students for its professional, academic and development courses. The College now has the largest student body for professional law courses in Ireland, with six first place prize winners in the 2008 Law Society of Ireland entrance examinations. In a highly competitive market, the professional accountancy school has become one of the market leaders with a reputation for the best lecturers, as borne out by its seven ACCA prize winners last year.
INM’s suite of online offerings continued to perform well in 2008, with significant revenue growth in its publishing platform (up 38% on 2007). The core publishing site www.independent.ie continued to establish itself as a leading online news resource with a recently released ABCe confirming 23.1 million page impressions and 1.8 million unique users in October 2008 (+27% and +87% respectively on the last audited statistics). The Group’s publishing platform was further expanded in 2008 by the launch of www.herald.ie and a suite of regional sites. www.loadzajobs.ie continues its innovative and successful approach to the online recruitment market, with its online recruitment fairs proving extremely popular with both advertisers and candidates. The Group’s online footprint in Ireland was further expanded in early 2008 with the launch of the www.yourlocal.ie website, a dedicated online directory website, which now boasts over 2,500 customers from launch in February 2008.
SOUTH AFRICA
OVERVIEW 2008 2007 Change Change
€m €m Constant FX
Revenue 212.5 234.7 -9.5% 15.1%
Operating Profit before Exceptional Items 72.2 59.1 22.2% 41.1%
Operating Margin 34.0% 25.2% +880bps
The South African division reported 2008 Revenue of €212.5 million and very strong operating profits of €72.2 million, which reflects the positive impact of the acquisition of INM Outdoor and the benefit of INM’s ongoing focus on business improvement initiatives leveraged off new operating structures and upgraded newspaper production technology.
__________________________
Mark July to December 2008 ABC period
2 JNRS 2008
INM’s South African operations traded well in 2008 despite a rapidly deteriorating economic environment which resulted in a marked slowdown in advertising volumes from July 2008 onwards. Revenues were impacted by reduced consumer spending and confidence in the wake of the increasing interest rates, rising inflation and adverse currency movements. However, it should be noted that economic conditions in South Africa have not been as badly impacted as in Europe and in Australasia, partly due to a more stable financial environment which was supported by conservative banking regulations and the introduction of the National Credit Act in 2007, which reduced consumer credit availability.
The Group’s titles maintained their strong market positions in both circulation and advertising despite aggressive competition. In a tougher trading environment, the core (actively purchased) sales of the morning titles (Cape Times and Mercury) in particular held firm and the daily Zulu-language Isolezwe nudged closer to an average daily sale of 100,000 copies (now at around 98,500). Overall readership in the metro markets has been maintained and the Group’s titles held their share of advertising spend. A stand-alone Sunday edition of Isolezwe (Isolezwe ngeSonto) was successfully launched in 2008, with weekly sales now just under 50,000.
Expansion of the Group’s online presence continues with the launch of South Africa’s largest property website (www.iolproperty.co.za) which is market leader in both terms of search capability and houses for sale and to let, with over 270,000 homes listed.
The wholly-owned Magazine division (Condé Nast Independent Magazines) reported a good trading performance in a very competitive trading environment. Condé Nast House & Garden celebrated its 10th Anniversary and continues to be number one in the South African Home Décor market.
In Outdoor, a strong and growing presence in 12 high-growth markets outside South Africa has driven the strong profit contribution. Since acquisition, the business has expanded into Madagascar and further market expansion opportunities in Africa are being assessed. INM Outdoor’s market-leading position leaves it well placed to take advantage of the revenue opportunities arising from the 2010 Soccer World Cup.
UNITED KINGDOM
OVERVIEW 2008 2007 Change Change
€m €m Constant FX
Revenue 215.0 268.1 -19.8% -6.6%
Operating Profit before Exceptional Items 0.2 15.5 -98.7% -98.7%
Operating Margin 0.1% 5.8% -570bps
The UK division reported 2008 Revenue of €215.0 million, a shortfall of €53.1 million against the prior year, mainly driven by a reduction in advertising and circulation revenues. As a result, operating profit for the year declined to €0.2 million.
The UK division undertook a major cost-efficiency programme in both London and Belfast in 2008 which included the closure of its loss-making magazine division. The Nationals division, comprising The Independent and Independent on Sunday, reported advertising revenue down 14.3% on 2007 driven by the very weak economic climate in the UK. At the end of 2008, the Nationals division announced a major restructuring programme, aimed at producing substantial savings and greater efficiencies, by entering into a service-sharing agreement with Daily Mail & General Trust (DMGT) under which the operation will move from its existing Docklands premises to DMGT’s offices in Kensington. DMGT will provide office space and services including information technology, production and picture services with further additional services to be shared going forward. This restructuring, combined with the initial phase of savings from the DMGT deal, will yield annualised cost savings of over £10 million (€11.1 million).
Both titles also appointed new editors during the year: Roger Alton, the award-winning former editor of The Observer, joined as editor of The Independent in July 2008; while John Mullin, after a distinguished career at the daily title, moved to the Sunday title as editor. Simon Kelner, who had edited the daily title for 10 years, was appointed as Managing Director and Editor-in-Chief. With a UK readership of 688,000 - including 588,000 in the lucrative ABC1 segment – The Independent remains an integral part of the UK quality newspaper market. In the quality Sunday market the Independent on Sunday had 720,000 readers, of which 600,000 were ABC1, providing a strong platform for targeted advertising in a difficult market.
The Group’s interests in Northern Ireland comprise the biggest publishing operation (the Belfast Telegraph and Sunday Life), the biggest commercial printing operation with two modern plants in Belfast and Newry, the number one property website (www.propertynews.com) and the biggest newspaper and magazine distributor, WNS.
The Belfast Telegraph remains the number one newspaper serving the Northern Ireland community. Advertising revenue remained weak and was down 14.9% on 2007 reflecting lower government spend, recruitment and property advertising. Despite weak economic conditions, the Group continued its commitment to ongoing innovation and editorial improvement with the launch of a new advertising-led Saturday magazine. Sunday Life was also re-designed to reflect the changing environment of the Northern Ireland community. The success of the morning compact edition led to a review of the broadsheet format and in March 2009, the Belfast Telegraph successfully moved to a fully compact format.
The new printing plant in Newry, which was commissioned in 2007, is now fully operational, producing both newsprint titles and glossy magazine titles on a revolutionary new dual heatset/coldest press installed by Goss. The Newry plant is now printing the entire island-of-Ireland print run for the Irish Daily Star and Sunday World, and together with the Belfast plant, most of the UK national newspapers circulating in the Northern Ireland market. It also prints the magazine section of the Saturday Independent in London, as well as other Group publications. The Group now has three modern, fully-equipped print plants on the island-of-Ireland, allowing maximum efficiencies in distribution.
In the Online division, www.independent.co.uk has seen significant growth with January 2009 page impressions for the site at 49.3 million, an increase of 179% over January 2008 with unique users up to 10.2 million, a 108% increase year-on-year. In Northern Ireland, www.propertynews.com has continued to expand and improve its functionality and services to the property industry, strengthening its already dominant position in the online property market. A new car site, www.nicarfinder.co.uk, was launched in February 2008 to complement a new classified print product and has performed exceptionally well in an otherwise difficult market. A new jobs website, www.nijobfinder.co.uk was successfully launched in early 2009 on the same model. In addition to these classified platforms, the news portal www.belfasttelegraph.co.uk was re-launched with significantly improved functionality and content, which has resulted in an increase of more than three-fold in unique users and page impressions and a commensurate 78% increase in online revenues in H2 2008.
INDIA
Jagran Prakashan Limited (‘JPL’), INM’s 20.8% owned Indian associate – which is listed on the Mumbai and National Stock Exchanges in India – recorded Revenue of €130.5 million (an increase of 11.2% in constant currency terms) and an Operating Profit of €20.5 million for the four quarters ended 31 December 2008.
This performance reflects the continuing strong growth of Dainik Jagran, India’s largest selling newspaper and the world’s largest read daily newspaper (with a total of 55.7 million readers weekly). Circulation volumes continued to grow as JPL expanded its footprint. Dainik Jagran is now published in 37 editions across 11 states from 30 different printing facilities.
The Outdoor division, Jagran Engage, now has exclusive marketing rights in some of the key outdoor properties in Delhi, Mumbai and Bangalore. JPL’s mobile division (J9) also continues to expand rapidly in a very fast-growing market. During the year, JPL successfully launched its digital online classified web and SMS portal, www.khojle.in.
Radio Mantra (in which INM has a 20% stake) continued to expand during 2008 with eight radio stations across four major states in Northern India. The Indian Radio Survey R2 – 2008, shows that Radio Mantra is the No. 1 radio station in four of the five areas in which it broadcasts, with 2.5 million listeners.
– INTERIM MANAGEMENT STATEMENT –
In accordance with the Transparency Regulations, this Interim Management Statement is an update on INM’s trading performance for the first 17 weeks of 2009 (from 1 January 2009 to 24 April 2009).
To date in 2009, INM has experienced a continuation of the tough trading conditions experienced in the last 4 months of 2008. While the trading performance compared to the same period in 2008 appears very weak, it should be noted that Q1 2008 was a particularly strong quarter, especially in Ireland. The comparators become more favourable as 2009 progresses.
Currently, total revenues (in constant currency) are down year-on-year by 13.5%, with:
Group advertising revenue down by 18.4%; and
Group circulation revenue down by 1.0%.
Costs continue to be well-managed across the Group and, in constant currency terms, are 7.9% below the same period in 2008, despite significant newsprint price increases.
A number of changes to the Board of Directors of INM have been announced since the year end, details of which are outlined above.
An update on the Group’s refinancing is detailed above.
Following a period of significant capital spend, 2009 capital expenditure is expected to reduce by 50% to €31 million and is below the 2009 forecasted depreciation charge.
On 20 March 2009, INM announced that APN confirmed that the New Zealand Inland Revenue Department (‘NZIRD’) has advised that it has formally decided to discontinue the dispute in relation to the tax treatment of APN’s Masthead Licensing Agreement (‘MLA’). The decision confirms the taxation and accounting treatment adopted by both INM and APN in relation to the MLA and results in no additional tax being payable by either INM or APN. This decision also means that INM no longer has any liability to APN under the warranties it granted to APN at the time of the sale of Wilson & Horton Limited to APN in 2001, and the tax indemnity falls away.
Trading in the first quarter of 2009 has been tougher than expected. Although earnings visibility is still limited, assuming advertising and credit markets do not deteriorate further, INM currently expects operating profit before exceptionals for 2009 to be within a €200 million – €230 million range and EBITDA within a €240 million – €270 million range.
INM expects to announce its Interim results for the half year to 30 June on 27 August 2009.
Note Regarding Forward-Looking Statements
Some statements in this announcement are forward-looking. They represent our expectations for our business, and involve risks and uncertainties. We have based these forward-looking statements on our current expectations and projections about future events. We believe that our expectations and assumptions with respect to these forward-looking statements are reasonable. However, because they involve known and unknown risks, uncertainties and other factors, which are in some cases beyond our control, our actual results or performance, may differ materially from those expressed or implied by such forward-looking statements. These forward-looking statements speak only as of the date of this document and no obligation is undertaken, save as required by law or by the Listing Rules of the Irish Stock Exchange and/or the UK Listing Authority, to reflect new information, future events or otherwise.
ENDS 30 April 2009
For further information, please contact:
Gavin O’Reilly
Dónal Buggy Chief Operating Officer
Chief Financial Officer +353 1 466 3200
+353 1 466 3200
Media
Pat Walsh
Murray Consultants (Dublin)
Tel: +353 1 498 0300
Paul Durman/Rory Godson
Powerscourt (London)
Tel: +44 20 7250 1446
Investors and Analysts
Mark Kenny/ Jonathan Neilan
K Capital Source (Dublin)
Tel: +353 1 631 5500
Email: INM@kcapitalsource.com
ABOUT INDEPENDENT NEWS & MEDIA PLC
– CORPORATE PROFILE –
INM is a leading international newspaper and communications group, with its main interests in Australia, India, Ireland, New Zealand, South Africa and the United Kingdom. Spanning four continents, 10 major markets and 22 individual countries, INM has market-leading newspaper positions in Australia (regional), India, Indonesia, Ireland, New Zealand and South Africa. In the United Kingdom, it publishes the flagship national title, The Independent, as well as being the largest newspaper group in Northern Ireland.
Across these regions, the Group publishes over 200 newspaper and magazine titles, delivering a combined weekly circulation of 32 million copies, with a weekly audience of over 100 million consumers and includes the world’s largest read newspaper, Dainik Jagran, in India. The Group has established a strong and growing online presence, with over 100 editorial, classified and transactional sites.
INM is the largest radio operator – over 130 stations and an audience of almost six million people – and outdoor advertising operator in Australasia and also has leading outdoor advertising positions in Hong Kong, Malaysia, India, Indonesia and across Africa.
The Group has grown consistently over the last 15 years by building a geographically unique and diverse portfolio of market-leading brands, and today manages gross assets of €2.1 billion, revenue of €1.6 billion and employs approximately 9,600 people worldwide. Further information is available on the Group’s website www.inmplc.com.
INDEPENDENT NEWS & MEDIA PLC
FINAL RESULTS
Group Income Statement Year Ended 31 December 2008 Year Ended 31 December 2007
Before Exceptional Items
Exceptional Items*
Total Before Exceptional Items
Exceptional Items*
Total
Notes €m €m €m €m €m €m
Revenue 3 1476.6 - 1476.6 1673.5 - 1673.5
Operating profit/(loss) 3 290.3 (365.9) (75.6) 349.2 (37.7) 311.5
Share of results of associates and joint ventures 12.9 - 12.9 19.3 - 19.3
Finance income/costs: 5
- Finance income 8.9 - 8.9 10.9 - 10.9
- Finance costs (100.4) (7.2) (107.6) (93.3) - (93.3)
Profit/(loss) before taxation 211.7 (373.1) (161.4) 286.1 (37.7) 248.4
Taxation (charge)/credit (41.4) 43.4 2.0 (57.2) 4.5 (52.7)
Profit/(loss) for the year 170.3 (329.7) (159.4) 228.9 (33.2) 195.7
Attributable to:
Minority interests 66.3 (61.3) 5.0 85.2 (0.2) 85.0
Equity holders of the parent 104.0 (268.4) (164.4) 143.7 (33.0) 110.7
170.3 (329.7) (159.4) 228.9 (33.2) 195.7
(Loss)/earnings per ordinary share (cent)
- Basic 6 (19.9c) 14.6c
- Diluted 6 (19.9c) 14.5c
* Note 4Group Statement of Recognised Income and Expense
Year Ended Year Ended
31 Dec 2008 31 Dec 2007
€m €m
Items of (expense)/income recognised directly in equity
Currency translation adjustments (297.4) (63.1)
Retirement benefit obligations:
- Actuarial (losses)/gains (64.9) 15.1
- Movement on deferred tax asset 7.0 (2.0)
Losses relating to cash flow hedges (5.1) (0.7)
Net expense recognised directly in equity (360.4) (50.7)
(Loss)/profit for the year (159.4) 195.7
Total recognised income and expense for the year (519.8) 145.0
Attributable to:
Minority interests (91.6) 82.9
Equity holders of the parent (428.2) 62.1
(519.8) 145.0
Group Balance Sheet
31 Dec 2008 31 Dec 2007
€m €m
Assets
Non-Current Assets
Intangible assets 1330.5 1805.4
Property, plant and equipment 334.9 376.5
Investments in associates and joint ventures 69.6 90.0
Deferred taxation assets 19.3 54.7
Available-for-sale financial assets 16.7 37.0
Trade and other receivables 21.8 45.9
1792.8 2409.5
Current Assets
Inventories 14.9 16.7
Trade and other receivables 210.6 298.1
Current income tax assets 0.5 3.5
Derivative financial instruments - 0.9
Cash and cash equivalents 80.7 147.5
306.7 466.7
Total Assets 2099.5 2876.2
Liabilities
Current Liabilities
Trade and other payables 238.5 274.3
Current income tax liabilities 12.0 20.1
Borrowings 336.3 221.7
Derivative financial instruments 5.5 3.3
Provisions for other liabilities and charges 36.8 27.1
629.1 546.5
Non-Current Liabilities
Borrowings 1054.6 1241.5
Retirement benefit obligations 148.8 100.4
Deferred taxation liabilities 125.6 233.5
Other payables 5.0 6.4
Provisions for other liabilities and charges 3.4 0.8
1337.4 1582.6
Total Liabilities 1966.5 2129.1
Net Assets 133.0 747.1
Equity
Capital and Reserves Attributable to Equity Holders of the Parent
Share capital 263.6 249.2
Other reserves 196.9 377.9
Retained losses (738.5) (454.9)
(278.0) 172.2
Minority Interests 411.0 574.9
Total Equity 133.0 747.1
Group Cash Flow Statement
Year Ended 31 December
2008 2007
Notes €m €m
Cash generated from operations 287.3 278.8
Income tax paid (34.9) (33.9)
Cash generated by operating activities 8 252.4 244.9
Cash flows from investing activities
Purchases of property, plant and equipment (55.8) (65.0)
Proceeds from sale of property, plant and equipment 17.7 18.0
Purchases of intangible assets (18.7) (70.5)
Purchases of subsidiary undertakings (25.3) -
Cash acquired with subsidiary undertakings 21.4 -
Purchases of associates and joint ventures (5.9) (1.4)
Advances to associates and joint ventures (4.3) (3.4)
Loans repaid by associates and joint ventures 3.0 3.6
Purchases of available-for-sale financial assets (1.4) (11.1)
Proceeds from sale of available-for-sale financial assets 3.9 0.3
Interest received 8.2 11.4
Dividends received 4.9 7.8
Net cash used in investing activities (52.3) (110.3)
Cash flows from financing activities
Proceeds from issuance of ordinary shares 0.1 13.5
Debt issue costs (1.0) (1.5)
Interest paid (94.0) (89.5)
Proceeds from borrowings 323.3 535.7
Repayment of borrowings (263.7) (172.6)
Repayment of compound financial instruments - (9.9)
Dividends paid to shareholders of the parent (97.7) (72.6)
Payment of finance lease liabilities (45.6) (43.6)
Purchases of treasury shares - (138.3)
Issue of minority interests by subsidiary undertaking 0.9 6.8
Dividends paid to minority interests (72.8) (77.3)
Purchases of minority interests - (35.8)
Net cash used in financing activities (250.5) (85.1)
Net (decrease)/increase in cash and cash equivalents and bank overdrafts in the year
(50.4) 49.5
Balance at beginning of the year 145.9 100.7
Exchange losses (23.9) (4.3)
Cash and cash equivalents and bank overdrafts at end of the year 71.6 145.9
NOTES TO THE FINAL RESULTS
1. Basis of Preparation of Financial Information under IFRS
Basis of Preparation and Liquidity
This financial information has been prepared on the going concern basis, which assumes that the Group will continue to be able to meet its liabilities as they fall due for the foreseeable future. However, as a result of the current difficult credit markets, the Group has been unable to raise new debt to fund the maturity of the €200m 5.75% bond (“Bonds”) which is due to mature on 18 May 2009. The Group currently does not have sufficient financial headroom available under its existing facilities in order to meet this maturity and service its debt obligations.
In addition, the Group’s bank facilities contain certain covenant tests relating to Net Debt to EBITDA and EBITDA to Net Interest. Failure of a covenant test would render the facilities in default and repayable on demand at the option of the lenders if an amendment or waiver is not granted by the lenders in advance. The Group reports on these covenants to the eight banks within the Group’s bank group (the “Banks”) bi-annually as part of the facility agreements. While the Group was compliant with its banking covenants as at 31 December 2008, the covenants are due to be tested again as at 30 June 2009 and 31 December 2009. The Group remains both profitable and cash generative but, given the continued difficult trading conditions within which the Group is currently operating, there is now a strong likelihood of a breach of the financial covenants within the Group’s borrowing facilities during 2009 if an amendment or waiver is not granted by the lenders in advance.
The Group has appointed Rothschild and Davy to advise it in relation to its refinancing requirements and the Group has entered into constructive discussions with an ad-hoc committee of the holders of the Bonds (the “Bondholders”), its Banks and the two major shareholders, in relation to the Group’s proposal to reschedule maturities on the Bonds and Bank debt and agree covenant amendments and the provision of sufficient working capital facilities. However, there can be no certainty that these discussions with the Bondholders, the Banks and the two major shareholders will be successfully concluded or that banking facilities will continue to be available to the Group on commercially acceptable terms.
In order to amend the terms of the Bonds (including the maturity date of the Bonds) a meeting of the Bondholders must be convened. Such a meeting requires 21 clear days notice to the Bondholders and requires 75% of those voting at such a meeting to approve any amendment to the terms. Given the time available does not permit the holding of a Bondholders meeting by 18 May 2009, the Company will seek a financial standstill with the Bondholders and Banks, whereby no party will take any action to enforce any claim for any payment during the financial standstill period.
Given the current economic circumstances and the difficulties in raising finance, the Directors have had detailed and ongoing discussions as a Board. Following these discussions, although the Directors remain confident of a satisfactory outcome, they have concluded that as the combination and timing of these circumstances is not entirely within their control, they indicate the existence of a material uncertainty which may cast significant doubt on the Group’s and Company’s ability to continue as a going concern. NOTES TO THE FINAL RESULTS (continued)
1. Basis of Preparation of Financial Information under IFRS (continued)
Basis of Preparation and Liquidity (continued)
If this is the case, the Group and Company may be unable to continue to realise assets and discharge liabilities in the normal course of business.
However, discussions to date with the Group’s Bondholders, Banks and two major shareholders have indicated a willingness to seek agreement and the Directors remain confident that an agreement will be reached with them which is acceptable to the Group. Consequently, having made due enquiries and considering the uncertainties described above, the Directors have a reasonable expectation that the Group and Company has and will have adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis in preparing this financial information and this financial information does not include any adjustments that would result from the going concern basis of preparation being inappropriate.
The financial information in this announcement does not constitute the statutory accounts of the Company and the Group, a copy of which is required to be annexed to the Company's annual return to the Companies Registration Office in Ireland. A copy of the statutory accounts in respect of the year ended 31 December 2008 will be annexed to the Company's annual return for 2008.
A copy of the statutory accounts required to be annexed to the Company's annual return in respect of the year ended 31 December 2007 has been annexed to the Company’s annual return for 2007 to the Companies Registration Office. The auditor’s report on the statutory accounts for the year ended 31 December 2007 was unqualified.
The 2008 statutory accounts of the Company will be available on the Company’s website www.inmplc.com as of 30 April 2009. Consistent with prior years, the full financial statements for the year ended 31 December 2008 and the audit report thereon will be completed and circulated to shareholders at least 20 working days before the AGM.
The auditors have reported on the statutory accounts for the year ended 31 December 2008. The auditors have issued an unqualified report on the statutory accounts for the year ended 31 December 2008. However, for the reasons outlined above and without qualifying their report, the auditors have emphasised matters that they would wish to draw to the attention of shareholders in respect of funding and going concern. The matters referred to in the auditors’ report relating to going concern are described above and are also described in detail in note 1 of the statutory accounts for the year ended 31 December 2008.
General Information
In accordance with EU Regulations, the Group is required to present its annual consolidated financial statements for the year ended 31 December 2008 in accordance with EU adopted International Financial Reporting Standards (“IFRS”) and IFRIC interpretations and with those parts of the Companies Acts, 1963 to 2006, applicable to companies reporting under IFRS. This financial information comprises the Group NOTES TO THE FINAL RESULTS (continued)
1. Basis of Preparation of Financial Information under IFRS (continued)
General Information (continued)
Balance Sheets as of 31 December 2008 and 31 December 2007 and related Group Income Statements, Cash Flow Statements, Statements of Recognised Income and Expense and related notes for the years then ended of Independent News & Media PLC. This financial information for the years ended 31 December 2008 and 31 December 2007 has been prepared in accordance with the Listing Rules of the Irish Stock Exchange. The accounting policies used in preparing this financial information are set out in the audited financial statements for the year ended 31 December 2008 which are available on the Company’s website www.inmplc.com as of 30 April 2009. The consolidated financial statements are prepared under the historical cost convention and the measurement at fair value of certain financial instruments.
2. Intangible Assets – Supplementary Non-IFRS Information
The Balance Sheet reports the carrying value of newspaper mastheads at their acquired cost; where these assets have been acquired through a business combination, cost will be the fair value allocated in acquisition accounting. The value of internally generated newspaper mastheads or post-acquisition revaluations are not permitted to be recognised in the Balance Sheet in accordance with IFRS and, as a result, no value for certain of the Group’s internally generated newspaper mastheads (e.g. the three main Irish titles, the Irish Independent, the Evening Herald and the Sunday Independent) is reflected in the Balance Sheet.
While impairment charges have been recorded during the year on certain of the Group’s intangible assets, the Group has many other intangible assets which have substantial value that is not reflected on the Group’s Balance Sheet. This is because these intangible assets are carried in the Group’s Balance Sheet at either a nil value or a value which is much less than their recoverable amount. IFRS does not allow the offsetting of this excess value on the total of the Group’s mastheads against the impairment charge recorded in the year.
NOTES TO THE FINAL RESULTS (continued)
3. Segmental Reporting
(i) Geographical Segment
Revenue Operating Profit
(Before Exceptionals)
2008 2007 2008 2007
€m €m €m €m
Ireland 377.3 401.3 75.8 98.3
United Kingdom 215.0 268.1 0.2 15.5
South Africa 212.5 234.7 72.2 59.1
Australasia 671.8 769.4 155.5 192.7
Common costs (13.4) (16.4)
1476.6 1673.5 290.3 349.2
Exceptional Items
2008 2007
€m €m
Ireland (25.0) (32.1)
United Kingdom (205.6) 0.8
South Africa (3.1) (1.2)
Australasia (114.3) (5.2)
Common/Unallocated (17.9) -
(365.9) (37.7)
Operating (loss)/profit after exceptional items
Ireland 50.8 66.2
United Kingdom (205.4) 16.3
South Africa 69.1 57.9
Australasia 41.2 187.5
Common costs (31.3) (16.4)
(75.6) 311.5
(ii) Business Segment
Revenue Operating Profit
(Before Exceptionals)
2008 2007 2008 2007
€m €m €m €m
Printing, publishing, online, distribution and commercial printing
1,176.7
1,370.2 235.3 295.8
Radio 127.6 149.5 39.5 51.9
Outdoor advertising 172.3 153.8 28.9 17.9
Common costs (13.4) (16.4)
1476.6 1673.5 290.3 349.2
NOTES TO THE FINAL RESULTS (continued)
4. Exceptional Items
Exceptional items are those items of income and expense that the Group considers are material and/or of such a nature that their separate disclosure is relevant to a better understanding of the Group’s financial performance.
2008 2007
€m €m
Included in (loss)/profit before taxation are the following:
Impairment of assets and gains/(losses) on sale of assets, net of transaction costs
(i)
(295.8) 15.4
Restructuring charges (ii) (58.0) (45.9)
Online and education start-up and other development costs (iii) (12.1) (7.2)
(365.9) (37.7)
Exceptional finance costs (iv) (7.2) -
Total exceptional items (373.1) (37.7)
Net exceptional tax credit 43.4 4.5
Minority interest share of exceptional items (net of tax) 61.3 0.2
Exceptional items net of taxation and minority interests (268.4) (33.0)
Primarily relates to non-cash impairment charges of €290.9m. These arose on intangible assets €258.7m, investments in associates and joint ventures €3.4m, loans to associates and joint ventures €6.m, property, plant and equipment €11.7m and available-for-sale financial assets €10.4m in respect of the Group’s operations in Ireland, United Kingdom and in Australasia. It also includes gains on the sale of properties in Australasia. (2007: Relates to the gain on disposal of investments and properties in Australasia and the United Kingdom net of costs associated with the unsuccessful APN Scheme of Arrangement and charges relating to the decommissioning of certain property, plant and equipment across the Group.)
Relates to the restructuring of operations in Ireland €6.0m, United Kingdom €15.1m, South Africa €3.1m and in Australasia €19.0m. It also includes onerous contracts arising in the publishing businesses in Australasia and the United Kingdom. (2007: Relates to the restructuring of operations in Ireland, United Kingdom, South Africa and in Australasia.)
Relates to start-up and other development costs in respect of online in Australasia, United Kingdom and Ireland and education in Ireland. It also includes other launch costs incurred in Ireland. (2007: Relates to start-up and other development costs in respect of online in Australasia and Ireland and education in Ireland.)
The exceptional finance costs relate to costs incurred by the Group as part of the re-negotiation of financing arrangements during the year.
NOTES TO THE FINAL RESULTS (continued)
5. Net Finance Costs
2008 2007
€m €m
Finance income (8.9) (10.9)
Finance costs 100.4 93.3
Net finance costs (before exceptional finance costs) 91.5 82.4
Exceptional finance costs (note 4) 7.2 -
Net finance costs 98.7 82.4
6. (Loss)/Earnings Per Share
2008 2007
€m €m
(Loss)/profit attributable to the parent (164.4) 110.7
Exceptional items (note 4) 373.1 37.7
Net exceptional tax credit (43.4) (4.5)
Minority interest share of exceptional items (net of tax) (61.3) (0.2)
Profit before exceptional items 104.0 143.7
Weighted average number of shares outstanding during the year (excluding treasury shares)
825,927,562
759,836,469
Effect of:
Conversion of options 130495 5185655
Diluted number of shares 826058057 765022124
Basic (loss)/earnings per share (19.9c) 14.6c
Basic earnings per share before exceptional items 12.6c 18.9c
Diluted (loss)/earnings per share (19.9c) 14.5c
Diluted earnings per share before exceptional items 12.6c 18.8c
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.
For diluted earnings per share, the weighted average number of ordinary shares outstanding is adjusted to assume conversion of all potential dilutive options over ordinary shares once the adjustment does not reduce a loss per share.
Basic and diluted earnings per share before exceptional items are presented in order to give a better understanding of the Group’s financial performance.
NOTES TO THE FINAL RESULTS (continued)
7. Dividends - Approved and Paid
2008 2007
€m €m
Final dividend for the year ended 31 December 2007 of €0.0913 (2006: €0.083) per share 75.9 63.7
Interim dividend for the year ended 31 December 2008 of €0.0457 (2007: €0.0457) per share 38.3 34.0
114.2 97.7
As announced in the market update on 26 January 2009 the Directors are not proposing a final dividend in respect of the year ended 31 December 2008.
8. Reconciliation of Operating Profit before Exceptional Items to Cash Generated by Operating Activities
2008 2007
€m €m
Operating profit before exceptional items 290.3 349.2
Depreciation/amortisation 40.1 36.1
Non-cash share option charge 0.9 2.2
Earnings Before Interest, Tax, Depreciation and Amortisation 331.3 387.5
Unrealised foreign exchange movements (7.9) (8.8)
Increase in inventories (0.4) (0.9)
Decrease/(increase) in short-term and medium-term receivables 45.4
(23.3)
Decrease in short-term and long-term payables (25.6) (5.9)
Decrease in provisions (excluding restructuring payments) (1.2) (3.6)
Retirement benefit obligations (6.1) (8.7)
Cash generated from operations (before cash exceptional items) 335.5 336.3
Exceptional expenditure (including restructuring payments) (48.2) (57.5)
Cash generated from operations 287.3 278.8
Income tax paid (34.9) (33.9)
Cash generated by operating activities 252.4 244.9
NOTES TO THE FINAL RESULTS (continued)
Analysis of Changes in Equity
2008 2008 2008 2007 2007 2007
€m €m €m €m €m €m
Parent Minority Total Parent Minority Total
At 1 January 172.2 574.9 747.1 199.0 519.2 718.2
Issue of share capital 88.4 1.9 90.3 145.1 79.7 224.8
Share based payment 1.3 (0.4) 0.9 2.0 0.2 2.2
Dividends (including minority interests)
(114.2)
(73.8)
(188.0)
(97.7)
(77.3)
(175.0)
Buyback of shares held by minority
-
-
-
-
(27.8)
(27.8)
Treasury shares 2.5 - 2.5 (138.3) - (138.3)
Acquisition of minority interest - - - - (2.0) (2.0)
Total recognised income and expense for the year
(428.2)
(91.6)
(519.8) 62.1 82.9 145.0
At 31 December (278.0) 411.0 133.0 172.2 574.9 747.1
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WBC - Westpac Bank Ltd: HY to 31/3.09
by Share Investor » 06 May 2009 19:15
PRESS RELEASE AND OUTLOOK
6 May 2009
WESTPAC GROUP DELIVERS SOUND RESULT IN CHALLENGING ENVIRONMENT
Highlights:1 (Comparisons are with prior corresponding period2)
- Statutory net profit of $2,175 million, down 1%
- Pro forma cash earnings of $2,295 million, down 6%
- Pro forma economic profit of $1,019 million, down 26%
- Pro forma cash earnings per share 82.4 cents down 16%
- Pro forma revenue of $8,307 million, up 15%
- First half dividend of 56 cents, down 20%
- Pro forma return on equity (cash basis) of 14.3%
- Pro forma expense to income ratio (cash basis) 40.4% down 440 bps
- Tier 1 capital ratio of 8.4%
Half Year Profit Result
The Westpac Group today announced pro forma cash earnings of $2,295 million, down 6% for the six months ended 31 March 2009. Net profit after tax was down 1% to $2,175 million for the six months ended 31 March 2009. Pro forma cash earnings per share of 82.4 cents for the first half 2009 was 16% lower than cash
earnings per share for Westpac in the 2008 first half.
Westpac announced it will reduce its dividend as part of its efforts to conservatively manage its capital.
Westpac will pay a fully franked interim dividend of 56 cents, down 20% on the prior corresponding period.
Westpac Chief Executive Officer, Gail Kelly, said the Westpac Group had performed soundly in a very challenging operating environment.
“While it is disappointing to announce an overall decline in cash earnings, the Group’s performance demonstrates that we have strong, diversified and resilient businesses. Our 9% increase in lending, 24% increase in customer deposits and 24% increase in core earnings (revenue less expenses) reflects the solid
momentum in Westpac’s key businesses.
“Importantly, we further strengthened our balance sheet to ensure that we can continue to support our customers through these difficult economic times. This was achieved through capital raisings, lengthening our funding profile, strong growth in customer deposits, a reduction in our dividend and maintaining a stronger than usual liquidity position.
“While impairments have significantly increased over the period, we have also maintained a conservative approach to provisioning and have increased our provisioning coverage for bad debts, including an additional $112 million of economic overlay.
“Collectively, these measures reflect our prudent management of the business for the long term, putting the Group in a strong position to meet the challenges ahead.”
Mrs Kelly said that the initial integration with St.George has progressed smoothly and to plan.
“St.George has shown significantly improved momentum since completion of the merger. Pleasingly, customer retention and satisfaction results have also been strong, reflecting the benefits of our new operating model,” she said.
Following Westpac’s merger with St.George on 17 November 2008, the results have been prepared on a “pro forma” basis.
Details of the pro forma adjustments and details of statutory results are provided in this document.
Changes in pro forma economic profit and pro forma cash earnings per share are based on comparison of 2009 first half pro forma result with the 2008 first half actual result for Westpac. Other comparisons of 2009 first half pro forma results in the table are with 2008 first half pro forma result. earnings per share for Westpac in the 2008 first half.
SUMMARY AND OUTLOOK Interim Profit Announcement 2009
Result Highlights
Pro forma revenue rose 15% to $8,307 million, well above the 4% growth in expenses.
Strong growth in total deposits was a highlight this half, growing 8% on the corresponding period. Australian customer deposits were up $46 billion or 27%, ahead of Australian system growth of 17%. This significantly improved the Group’s funding mix. Growth in customer deposits more than funded our loan growth.
Total loan growth of 9% was another pleasing result, particularly in Australian housing and business, including $27.1 billion of new lending in Australian mortgages. Growth rates, however, are slowing in line with declining economic activity.
Impairment charges rose to $1,611 million during the first half, a direct consequence of the economic slowdown and the global financial crisis. In particular, the global financial crisis led to a small number of large Australian corporate exposures becoming impaired at the beginning of the half which contributed $372 million to the overall impairment charge.
The economic slowdown has impacted the Australian business sector and is causing a rise in customer stress, particularly in commercial property, pubs and clubs, mining services, retail and some financial services companies. The Australian consumer portfolio continues to perform well, with modest losses. In New
Zealand, the stresses in the economy have been more broadly spread reflecting the fact that the economy has been in recession for over a year.
Westpac has increased its impairment provisioning as the economic environment deteriorates. Total provisioning now stands at almost $4.5 billion, with collective provisions to credit risk weighted assets increasing by 31 basis points to 125 basis points.
The Westpac Group is strongly capitalised with a Tier 1 ratio of 8.4%, up from 7.4% in March 2008, having raised over $4.6 billion of core equity over the period.
Funding Environment
Funding costs have remained very high. Wholesale term funding costs are more then 100 basis points higher than pre-financial crisis. The cost of raising term deposits has increased on average more than 80 basis points over the last 12 months.
Collectively, this will see our average cost of funds continue to rise through 2009 as cheaper funding matures and is replaced by more expensive funding and as competition for deposits remains strong.
The overall net interest margin of 2.24% was 24 basis points higher than the prior corresponding period, and is in line with levels prior to the financial crisis. Higher Group Treasury income drove a 10 basis point increase in net interest margin, with overall consumer and business customer margins 7 basis points higher.
Strategic Progress
The Westpac Group continues to make good progress on implementing its customer focussed strategy. Significant progress has been made on implementing our local market model in Westpac Retail and Business Banking, with 569 additional people in Westpac branches and business banking centres.
An important initiative has been to give local bankers more authority to make decisions quickly, allowing them to more easily assist customers. Deepening relationships with customers has also been a key area of focus, with improved cross sell of Wealth and Insurance products.
At the same time, the integration with St.George is proceeding well, without any disruption to customers. A key initial priority was the development of customer retention plans, which have been successfully implemented in both Westpac and St.George.
The Group is also improving the reliability and capability of its operations, as well as developing longer term process and technology investment programs for the entire Group.
SUMMARY AND OUTLOOK Interim Profit Announcement 2009
Business Unit Performance
Cash earnings $A millions Half Year
March 2009
Half Year
March 2008 % Change
WBC Retail & Business Banking $990 $843 17
Westpac Institutional Bank1 $158 $420 (62)
St.George1 $529 $500 6
BT Financial Group1 $207 $250 (17)
New Zealand (NZD) $202 $239 (15)
WBC Retail & Business Banking (Westpac RBB) – cash earnings increased 17% supported by strong growth in lending and deposits, partially offset by a $62 million increase in impairment charges. Mortgages grew above system in the half with growth at 15% and business lending grew 8%. Consumer delinquencies continued to trend higher although losses remain low. Business impairment charges increased $47 million
with more businesses affected by the deteriorating operating environment.
Westpac Institutional Bank (WIB) – cash earnings decreased by 62%. Core earnings (revenue less expenses) were particularly strong, up 44%, supported by revenue growth in the Markets areas. Increased customer volumes and higher market volatility supported these results. Transactional services also made a solid contribution. More than offsetting this was a steep increase in impairment charges reflecting the impact of the financial crisis on three large corporate exposures and the margin lending portfolio.
The credit portfolio also saw a broader based deterioration in line with the slowing economy.
St.George – delivered cash earnings growth of 6% with solid deposit growth of 18% and lending growth of 10%, partly offset by an increase in impairment charges of $115 million. The higher impairments reflect the effects of the deteriorating economic environment on St.George’s commercial lending portfolio (middle markets and corporate segment), coupled with its relatively higher exposure to the NSW market. The recognition of the St.George brand remains strong, with customer satisfaction continuing to remain high.
BT Financial Group (BTFG) – BTFG, which incorporates St.George’s wealth business, saw its cash earnings fall 17% impacted by lower fees from funds under management and funds under administration related to weaker investment markets. The funds business saw net positive flows of $0.6 billion. Notwithstanding higher general insurance claims, the performance of the insurance business was pleasing, with cash earnings up 10%
and strong gains made in cross-selling into the broader Westpac Group. In keeping with the more difficult environment, expenses were kept flat compared to the prior corresponding period.
New Zealand – New Zealand cash earnings declined 15% to $202 million, primarily due to higher impairment costs resulting from the deepening and prolonged recession. Core earnings growth of 13% was very solid with business lending up 9% and deposits up 6%. Consumer lending growth was subdued at 3% reflecting the
slowing demand in the housing market.
Outlook
The first half of the 2009 financial year has seen significant and rapid change, including further stress in the global financial sector, a number of large corporate failures and a material and more broad-based deterioration in global economic activity.
These events have prompted unprecedented action and intervention by governments around the world to restore confidence in the financial system and support their respective economies. Government intervention has, in part, helped stabilise markets and assisted in reopening wholesale funding sources although it will be some time before markets are operating effectively and autonomously.
While it appears some of the severe stresses of the financial crisis have now stabilised, the more dominant impact on Westpac will be the size and duration of the recession in our home economies of Australia and New Zealand.
There will be two main impacts. Firstly slower loan growth is expected, in part from lower demand for credit but also because both consumers and businesses are expected to use the opportunity of lower interest rates to de-leverage their balance sheets. Secondly, it is expected that more customers will come under pressure as the effects of the slowing activity become more widespread.
On a pro forma basis.
SUMMARY AND OUTLOOK Interim Profit Announcement 2009
Mrs Kelly said that Westpac is well positioned to continue to support customers through this more challenging period.
“Looking ahead, while we expect system credit growth to continue slowing, our strong franchise and multiple brands should position us favourably to achieve further market share gains,” Mrs Kelly said.
“Conditions for markets income are also expected to remain favourable given continued market volatility and a customer preference for dealing with strong, AA rated, banks. That said, the very strong market revenues delivered in the first half 2009 are unlikely to be repeated.
“We are also further strengthening our productivity focus. Initiatives underway will begin to be reflected in our second half results but will be more pronounced in 2010. While seeking to reduce expense growth, we continue to prioritise key elements of our strategy, particularly investments to enhance customer service and develop our technology infrastructure.
“While the larger impairments associated with the impacts of the global financial crisis appear largely behind us, we are seeing more pressure across our business customers and expect consumer stress to grow as unemployment rises. As a result we expect impairment charges to remain at a high level throughout the
second half of 2009 and into 2010.
“Westpac has delivered a sound result while considerably strengthening our balance sheet, and I believe we are well placed for these challenging times. Supporting our customers remains our priority,” Mrs Kelly said.
Financial Report
3 Directors’ report The Directors of Westpac present their report together with the financial statements of Westpac and its controlled entities (collectively referred to as ‘the Group’) for the half year ended 31 March 2009.
Directors The names of the Directors of Westpac holding office at any time during, and since the end of, the half year and the period for which each has served as a Director are set out below:
Edward Evans Chairman since April 2007 and Director since November 2001 Gail Kelly Managing Director and Chief Executive Officer since February 2008 John Curtis Deputy Chairman and Director since December 2008 Elizabeth Bryan Director since November 2006 Gordon Cairns Director since July 2004 Peter Hawkins Director since December 2008 Carolyn Hewson Director since February 2003 Lindsay Maxsted Director since March 2008 Graham Reaney Director since December 2008 Peter Wilson Director since October 2003
Review and results of the Group’s operations during the half year The net profit of the Group for the half year ended 31 March 2009, after tax and minority interests, was $2,175 million, a decrease of $27 million compared to the net profit for the half year ended 31 March 2008 of $2,202 million. Basic earnings per share for the half year ended 31 March 2009 was 84.3 cents per share compared to 118.0 cents for the prior interim period ended 31 March 2008. The current half year includes the consequence of the merger with St.George; the net profit of St.George has been included as part of the Westpac Group result from the merger date (which for consolidation purposes was 17 November 2008, refer to Note 12) to the end of the reporting period. On a comparable basis excluding St.George, net profit decreased by $457 million.
Net interest income increased by $2,088 million to $5,558 million compared to the six months ended 31 March 2008. The increase is largely attributable to the merger with St.George with its contribution to net interest income being $1,125 million.
After removing this effect, the increase of $963 million is driven by volume growth, with lending growth of $27.3 billion and customer deposit growth of $32.4 billion combined with improved margins.
Non-interest income increased by $101 million to $2,529 million compared to the six months ended 31 March 2008. Non- interest income excluding the impact of St.George decreased by $178 million compared to the prior comparable period. The half year ended 31 March 2008 included large one off items, namely a profit on the partial sale of BT Investment Management of $141 million and a profit from the receipt and redemption of shares in Visa Inc. of $295 million. After adjusting for these one off items, the movement between periods is driven by a reduction in wealth and equities earnings, a decline in transaction and account fees and interchange fees. Offsetting this decrease was an increase in financial markets income.
Operating expenses increased by $873 million from $2,556 million to $3,429 million. Operating expenses, excluding the impact of St.George, were $242 million higher compared to the half year ended 31 March 2008. The main reasons for the increase were a $54 million increase in credit card loyalty cost due to the Qantas Frequent Flyer withdrawal from the loyalty programme and a $77 million provision in respect of a long standing legal proceeding.
Impairment charges increased by $1,124 million from $433 million to $1,557 million. The substantial increase reflects both the impact of the merger ($156 million) as well as the deteriorated credit environment over the period.
The effective tax rate increased to 28.5% from 23.2% in the prior corresponding period primarily due to the prior period including a release of $20 million in provisions, the tax impact of policy holder losses and the recognition of capital gains tax.
An interim dividend for the half year ended 31 March 2009 of 56 cents per ordinary share, estimated to be $1,626 million has been determined and will be paid on 2 July 2009. The dividend will be fully franked. The current interim dividend is a decrease of 20% compared to the 2008 interim dividend which was also fully franked.
The result is impacted by the challenging operating environment and competitive landscape, with the economy dramatically slowing as the effects of the global financial crisis continue to work through, and local conditions in the markets that we operate in continuing to deteriorate.
Against this backdrop we have strengthened our capital position and delivered a sound financial performance supported by volume growth in loans and deposits and improved margins.
Significant events during the half year ended 31 March 2009 Merger with St.George Bank Limited On 1 December 2008, Westpac completed its merger with St.George by way of scheme of arrangement. This merger, originally announced on 13 May 2008, was approved by holders of St.George ordinary shares on 13 November 2008 and subsequently
4 approved by the Federal Court of Australia on 17 November 2008. Under the terms of the merger, holders of St.George ordinary shares received 1.31 Westpac ordinary shares for each St.George ordinary share held on the record date. Based on the closing price of Westpac ordinary shares on the Australian Securities Exchange on 17 November 2008 of $16.32 per ordinary share and the 742,594,256 Westpac ordinary shares issued to holders of St.George ordinary shares as at the record date, the total value of the Westpac ordinary shares issued to St.George ordinary shareholders was $12.1 billion.
Australian and New Zealand government guarantee schemes In light of recent turbulence in the international financial system, the Australian and New Zealand governments have each announced guarantee arrangements for deposits and wholesale funding of eligible financial institutions, as described in more detail below. These arrangements are designed to promote financial system stability and ensure the continued flow of credit through those economies by supporting retail depositor confidence and assisting banks to continue to access funding at a time of considerable turbulence. They are also designed to ensure that eligible Australian and New Zealand financial institutions, respectively, are not placed at a disadvantage to their international competitors that can access similar government guarantees on bank debt.
The Australian Government announced on 12 October 2008 that it would guarantee the deposits in eligible Australian authorised deposit-taking institutions (ADIs) (including Westpac (and its foreign branches) and St.George) for a period of three years from 12 October 2008. In October 2008, the Banking Act 1959 (Australia) was amended to facilitate the guarantee of the first $1 million of ‘protected accounts’ held with an eligible ADI (including most deposits) without charge by establishing a financial claims scheme (FCS) to be administered by the Australian Prudential Regulation Authority (APRA). The FCS will apply to an eligible ADI if APRA has applied for the winding up of the ADI and the responsible Australian Government minister has declared that the FCS applies to that ADI. The Financial Claims Scheme (ADIs) Levy Act 2008 provides for the imposition of a levy to fund the excess of certain of APRA’s financial claims scheme costs connected with the ADI. The levy is imposed on liabilities of eligible ADIs to their depositors and cannot be more than 0.5% of the amount of those liabilities.
In November 2008 the Australian Government released the details and rules (Scheme Rules) of the Australian Government Guarantee Scheme for Large Deposits and Wholesale Funding which, effective 28 November 2008, provides a guarantee facility for deposits of amounts over $1 million and wholesale funding of an eligible ADI, in return for a fee payable by the ADI. The wholesale funding guarantee is restricted to senior unsecured liabilities (which are not complex) issued domestically in Australia or off-shore and which meet certain other eligibility criteria.
Deposits above the $1 million threshold and wholesale funding will only have the benefit of the guarantee where an eligibility certificate has been issued by the Commonwealth of Australia in respect of those liabilities. Eligibility certificates have been issued in relation to a number of liabilities of Westpac, including certain deposit liabilities, certain short term funding liabilities and certain long term funding liabilities, and in relation to certain deposit liabilities of St.George. Details of issued eligibility certificates are available at the Reserve Bank of Australia-maintained website ‘www.guaranteescheme.gov.au/guaranteed- liabilities’.
A different fee applies to eligible ADIs in relation to deposits over $1 million and wholesale funding covered by the guarantee based on their long term credit rating. The fee applicable to Westpac and St.George, based on their current long term ratings by Standard and Poor’s of AA, is 70 basis points (or 0.70%) per annum.
The Australian Government has announced that the Australian Government Guarantee Scheme for Large Deposits and Wholesale Funding will be reviewed on an ongoing basis and revised if necessary.
The New Zealand Government announced on 12 October 2008 an opt-in deposit guarantee scheme under which it will guarantee deposits with participating New Zealand registered banks and non-bank deposit taking entities, with effect for a two year period from that date. Westpac New Zealand Limited (WNZL) has opted into the scheme and entered into a Crown Deed of Guarantee with the Crown on 11 November 2008, which was amended by a Supplemental Deed dated 24 November 2008 (together ‘NZ Guarantee’). As at the date of this report, Westpac Banking Corporation’s New Zealand branch has not opted into this scheme.
The NZ Guarantee extends to debt securities issued by WNZL in any currency (which includes deposits and other amounts lent to WNZL), other than debt securities issued to excluded creditors, which include financial institutions and related parties of a participating entity. It does not extend to subordinated debt obligations. The debt securities covered by the NZ Guarantee are limited to an amount of NZ$1 million per creditor per approved institution. Under the NZ Guarantee, WNZL was required to pay a fee of 10 basis points (or 0.1%) on the amounts owing to creditors covered by the NZ Guarantee to the extent that amount exceeded NZ$5 billion as at 12 October 2008. A similar additional fee is payable in respect of the position as at 12 October 2009.
On 1 November 2008, the New Zealand Government announced details of a wholesale funding guarantee facility to investment- grade financial institutions that have substantial New Zealand borrowing and lending operations (Facility). The Crown entered into a Crown Wholesale Funding Guarantee Facility Deed with WNZL on 23 February 2009 and has provided a Crown Wholesale Funding Guarantee in respect of WNZL dated the same date. The Facility operates on an opt-in basis, by institution and by instrument. Wholesale funding liabilities of WNZL (which can include amounts guaranteed by WNZL) will only have the benefit of the Facility where a Guarantee Eligibility Certificate has been issued in respect of those liabilities. A guarantee fee will be charged for each guarantee issued under the Facility, differentiated by the credit rating of the issuer, the term of the security being guaranteed and, in the case of issues with terms of more than one year, between New Zealand dollar and non-New Zealand dollar issues. The maximum term of securities guaranteed is five years. As at the date of this report, Westpac’s New Zealand branch has taken no action in relation to the Facility. WNZL has entered into the Facility Deed but has not made use of the Facility.
Further information about the NZ Guarantee and the Facility may be obtained from WNZL’s General Short Form Disclosure Statement for the three months ended 31 December 2008 and the New Zealand Treasury internet site ‘www.treasury.govt.nz’.
5 Capital transactions Westpac undertook the following significant initiatives to increase its Tier 1 capital, which impacted ordinary share capital during the half year ended 31 March 2009: the issue of $2.5 billion worth of ordinary shares under a fully underwritten placement of ordinary shares completed in December 2008; the underwrite of 100% of Westpac’s dividend reinvestment plan in respect of the 2008 final dividend, which resulted in the issue of $887 million worth of ordinary shares to the underwriter, in addition to the ordinary shares issued to dividend reinvestment plan participants; and the issue of $441 million worth of ordinary shares under the Westpac share purchase plan, which was completed in February 2009.
Westpac also undertook the following initiatives during the half year ended 31 March 2009, which impacted loan capital: the acquisition of St.George’s SAINTS securities on 1 December 2008 as part of the merger with St.George for $350 million; the redemption of St.George’s SPS, CPS and CPS II Tier 1 securities on 31 March 2009 for a combined face value of $875 million; and the issue of $908 million worth of new non-innovative residual Tier 1 securities known as Westpac SPS II on 31 March 2009.
Principal risks and uncertainties Our business activities are subject to risks that can adversely impact our business, future performance and financial condition. If any of the following risks actually occur, our business, results of operations or financial condition could be materially adversely affected, with the result that the trading price of our securities could decline and you could lose all or part of your investment.
You should carefully consider the risks and the other information in this Interim Financial Report and our 2008 Annual Report before investing in our securities. The risks and uncertainties described below are not the only ones we may face. Additional risks and uncertainties that we are unaware of, or that we currently deem to be immaterial, may also become important factors that affect us.
Risks relating to our business Adverse credit and capital market conditions may significantly affect our ability to meet liquidity needs, adversely affect our access to domestic and international capital markets and increase our cost of funding Global credit and capital markets have experienced extreme volatility, disruption and decreased liquidity for more than 18 months and we anticipate that the global financial markets are likely to remain volatile and uncertain in the short to medium term. We rely on credit and capital markets to fund our business. As of 31 March 2009, we obtained approximately 40%1 of our total net funding from domestic and international wholesale markets. Since December 2008, we have utilised the guarantee of the Commonwealth of Australia under the Australian government guarantee scheme to obtain funding in the global capital markets. As a result of the current adverse global capital market conditions our funding costs have increased and accessing wholesale markets without the government guarantee, particularly in relation to longer-term securities, remains difficult.
Continued instability in these market conditions may result in further increases in our funding costs and may limit our ability to replace, in a timely manner, maturing liabilities, which could adversely affect our ability to fund and grow our business.
In the event that our current sources of funding prove to be insufficient, we may be forced to seek alternative financing. The availability of such alternative financing, and the terms on which it may be available, will depend on a variety of factors, including prevailing market conditions, the availability of credit, our credit ratings and the sovereign credit ratings in Australia and New Zealand, and credit capacity. Even if available, the cost of these alternatives may be more expensive or on unfavourable terms, which could adversely affect our results of operations, liquidity, capital resources and financial condition. There is no assurance that we will be able to obtain funding at acceptable prices.
If Westpac is unable to source appropriate funding, we may be forced to reduce our lending or begin to sell liquid securities.
Such actions would adversely impact our business, results of operations, liquidity, capital resources and financial condition.
For a more detailed description of liquidity risk, refer to the section ‘Liquidity and funding’ in our 2008 Annual Report.
Failure to maintain credit ratings could adversely affect our cost of funds, liquidity, competitive position and access to capital markets The credit ratings assigned to us by rating agencies are based on an evaluation of a number of factors, including our financial strength. In light of the difficulties in the banking sector and financial markets, the rating agencies have indicated they are watching global developments closely and if conditions continue to deteriorate, they may adjust the ratings of some or all of the major Australian banks. Moody’s has all the major Australian banks, including Westpac, on a negative outlook. In addition, a credit rating downgrade could be driven by the occurrence of one or more of the other risks identified in this section or by other events.
If we fail to maintain our current corporate credit ratings, this would adversely affect our cost of funds and related margins, liquidity, competitive position and our access to capital markets. In addition, any downgrade in the sovereign credit ratings of Australia and New Zealand may adversely affect Westpac’s ability to raise funds that have the benefit of a government guarantee
1 Comprised of wholesale funding and excess liquid assets.
6 under the relevant government guarantee schemes, or the cost of those funds. In turn, this could adversely affect our earnings, liquidity, access to capital markets and financial condition.
Any systemic shock in relation to the Australian, New Zealand or global financial systems could have adverse consequences for Westpac that would be difficult to predict and respond to In the current volatile economic environment, there is a risk of a major systemic shock occurring that could have an adverse impact on the Australian, New Zealand or global financial systems. Such an event could have a material adverse effect on financial institutions such as Westpac, including the undermining of confidence in the financial systems, reducing liquidity and impairing access to funding. The nature and consequences of any such event are difficult to predict and there can be no guarantee that we could respond effectively to any such event.
Declining asset markets could adversely affect our operations or profitability A continuation of the recent declines in global asset markets, including equity, property and other asset markets could impact our operations and profitability.
Declining asset prices impact our wealth management business and other asset holdings. In relation to our wealth management business, our earnings are, in part, dependent on asset values, such as the value of securities held or managed, and a further decline in asset prices could further negatively impact the earnings of the division. Declining asset prices could also impact customers and the value of security we hold against loans which may impact our ability to recover amounts owing to us if customers were to default.
Our business is substantially dependent on the Australian and New Zealand economies and we can give no assurance as to the likely future state of such economies Our revenues and earnings are dependent on economic activity and the level of financial services our customers require. In particular, lending is dependent on customer confidence, the state of the economy, the state of the home lending market and prevailing market interest rates in the countries we operate in.
We currently conduct the majority of our business in Australia and New Zealand. Consequently, our performance is influenced by the level and cyclical nature of business and home lending in these countries. These factors are in turn impacted by both domestic and international economic and political events. The ongoing dislocation in credit and capital markets has impacted global economic activity including the economies of Australia and New Zealand, which are in recession. This disruption has led to a slowdown in credit growth and a reduction in consumer and business confidence. If the downturn in the Australian and New Zealand economies continues for an extended period or becomes more severe, our results of operations, liquidity, capital resources and financial condition would be adversely affected. The economic conditions of other regions in which we conduct operations can also affect our future performance and have shown signs of significant deterioration.
An increase in defaults under our loan portfolio could adversely affect our results of operations, liquidity, capital resources and financial condition Credit risk is a significant risk and arises primarily from our lending activities. The risk arises from the likelihood that some customers will be unable to honour their obligations to us, including the repayment of loans and interest. Credit exposures also include our dealings with, and holdings of, debt securities issued by other banks and financial institutions whose conditions may be impacted to varying degrees by continuing turmoil in the global financial markets.
We hold collective and individually assessed provisions for impaired assets. As a result of the current market and economic conditions, we have increased our impairment provisions and if economic conditions deteriorate further, some customers could experience higher levels of financial stress and we may experience a significant increase in defaults and write-offs, and be required to further increase our provisioning. Such actions would diminish available capital and would adversely affect our results of operations, liquidity, capital resources and financial condition.
For a discussion on our risk management procedures, including the management of credit risk, refer to the section ‘Risk management’ in our 2008 Annual Report.
There can be no assurance that actions of the Australian, New Zealand, United States and other foreign governments and other governmental and regulatory bodies to stabilise financial markets will achieve the intended effect In response to the recent financial crises affecting the banking system and financial markets generally and deteriorating global financial conditions, on 12 October 2008, the Australian government announced that it will guarantee deposits and wholesale term funding of eligible Australian financial institutions and, in November 2008, it implemented the Australian Government Guarantee Scheme for Large Deposits and Wholesale Funding. See ‘Significant events during the half year ended 31 March 2009 – Australian and New Zealand government guarantee schemes’ for a description of the schemes. Stabilising actions have also been taken by governments and regulatory bodies in New Zealand, the United States, United Kingdom, Europe and other jurisdictions. We expect to continue to rely on the relevant government guarantee scheme to access the wholesale funding markets in the short to medium term.
The Australian Government has announced that the Australian Government Guarantee Scheme for Large Deposits and Wholesale Funding will be reviewed on an ongoing basis and revised if necessary. There can be no assurance as to whether any changes will have an adverse impact on our ability to obtain wholesale term funding in the future in reliance on the Commonwealth government guarantee. The ongoing impact of the stabilisation packages implemented by governments and regulators in New Zealand, the United States, United Kingdom, Europe and other jurisdictions are equally uncertain. There can be no assurance as to what impact such regulatory actions will have on financial markets, consumer and investor confidence, or the extreme levels of volatility currently being experienced. Further declines in consumer and investor confidence and continued uncertainty and volatility could materially adversely affect our business, financial condition and results of operations.
7 We face intense competition in all aspects of our business We compete, both domestically and internationally, with asset managers, retail and commercial banks, investment banking firms, brokerage firms, and other investment service firms. In addition, the trend toward consolidation in the global financial services industry is creating competitors with broader ranges of product and service offerings, increased access to capital, and greater efficiency and pricing power. In recent years, competition has also increased as large insurance and banking industry participants have sought to establish themselves in markets that are perceived to offer higher growth potential and as local institutions have become more sophisticated and competitive and have sought alliances, mergers or strategic relationships. If we are unable to compete effectively in our various businesses and markets, our business, results of operations and financial condition would be adversely affected.
For more detail on how we address competitive pressures refer to the section ‘Competition’ in our 2008 Annual Report.
We could suffer losses due to market volatility We are exposed to market risk as a consequence of our trading activities in financial markets and through the asset and liability management of our overall financial position. In our financial markets trading business, we are exposed to losses arising from adverse movements in levels and volatility of interest rates, foreign exchange rates, commodity prices, credit prices and equity prices. The recent levels of market volatility increased our estimated earnings at risk as measured by value at risk (VaR)1. If we were to suffer substantial losses due to any market volatility, including the volatility brought about by the current global credit crisis, it would adversely affect our results of operations, liquidity, capital resources and financial condition.
For a discussion of our risk management procedures, including the management of market risk, refer to the section ‘Risk management’ in our 2008 Annual Report.
We could suffer losses due to operational risks or environmental factors As a financial services organisation we are exposed to a variety of other risks including those resulting from process error, fraud, information technology instability and failure, system failure, security and physical protection, customer services, staff competence, external events (including fire, flood or pandemic) that cause material damage, impact on our operations or adversely affect demand for our products and services, and product development and maintenance. Operational risks can directly impact our reputation and result in financial losses which would adversely affect our financial performance or financial condition.
For a discussion of our risk management procedures, including the management of operational risk, refer to the section ‘Risk management’ in our 2008 Annual Report.
Our businesses are highly regulated and we could be adversely affected by changes in regulations and regulatory policy Compliance risk arises from the regulatory standards that apply to us as an institution. All of our businesses are highly regulated in the jurisdictions in which we do business. We are responsible for ensuring that we comply with all applicable legal and regulatory requirements (including changes to accounting standards – for example, refer to sections ‘Changes in accounting policies’, ‘Critical accounting assumptions and estimates’ and ‘Future developments in accounting policies’) and industry codes of practice, as well as meeting our ethical standards. The nature and impact of future changes in such policies are not predictable and are beyond our control.
It is likely that the recent global financial crisis will lead to changes in regulation in most markets in which we operate, particularly for financial companies. These changes may include, for example, changes in capital adequacy requirements, accounting and reporting requirements, liquidity regulation, regulation relating to remuneration, or changes in the oversight approach of regulators in the markets in which we operate. In the current economic conditions, it is also possible that governments in jurisdictions in which we do business or obtain funding might revise their application of existing regulatory policies that apply to, or impact, Westpac’s business, including for reasons relating to national and systemic stability.
We anticipate that the current uncertain economic environment may also result in increased litigation, which creates the potential for legal decisions that result in unanticipated changes in law and may result in regulators making material changes to existing regulatory policies to address or enforce such changes in law.
Changes in law, regulations or regulatory policy could adversely affect one or more of our businesses, including limiting our ability to do business, and could require us to incur substantial costs to comply or impact our capital requirements. The failure to comply with applicable regulations could result in fines and penalties or limitations on our ability to do business. These costs, expenses and limitations could have a material adverse affect on our business, financial performance or financial condition.
Reputational damage could harm our business and prospects Various issues may give rise to reputational risk and cause harm to our business and our prospects. These issues include appropriately dealing with potential conflicts of interest, legal and regulatory requirements, ethical issues, money laundering laws, trade sanctions legislation, privacy laws, information security policies, sales and trading practices and conduct by companies in which we hold strategic investments. Failure to address these issues appropriately could also give rise to additional legal risk, subject us to regulatory enforcement actions, fines and penalties, or harm our reputation among our customers and our investors in the marketplace.
1 VaR is the potential loss in earnings from adverse market movements, calculated by Westpac using a 99% confidence level with a minimum of one year of historical rate data and a one-day time horizon.
8 We could suffer losses if we fail to syndicate or sell down underwritten equity securities As a financial intermediary we underwrite listed and unlisted equity securities. Equity underwriting activities include the development of solutions for corporate and institutional customers who need equity capital and investor customers who have an appetite for equity-based investment products. We may guarantee the pricing and placement of these facilities. We could suffer losses if we fail to syndicate or sell down our risk to other market participants.
Other risks Other risks that can adversely impact our performance and our financial condition include insurance risk, model risk, business risk and contagion risk. Refer to the section ‘Corporate governance’ in our 2008 Annual Report for more information on these risks.
Risks relating to the integration of St.George We may fail to realise the business growth opportunities, cost savings and other benefits anticipated from, or may incur unanticipated costs associated with, the merger and our results of operations, financial condition and the price of our securities may suffer As a result of the merger with St.George, we expect to increase our revenue and reduce operating expense growth of the combined business. In order to achieve these synergies we estimate we will incur approximately $700 million in integration costs. There is no assurance that we will be able to achieve the business growth opportunities, cost savings and other benefits we anticipate from the merger with St.George. This may be because the assumptions upon which we assessed the merger, including the anticipated benefits and the factors we used to determine the merger consideration, may prove to be incorrect.
Unanticipated delays in the integration of our operations may impact our assumptions regarding the benefits we expect to derive from the merger and may delay such benefits. In addition, we may incur greater costs than we have estimated in connection with the integration.
If we fail to achieve the business growth opportunities, cost savings and other benefits we anticipate from the merger, or we incur greater integration costs than we have estimated, our results of operations, financial condition and the price of our securities may be adversely affected.
The integration of our operations and those of St.George presents significant challenges that could delay or diminish the anticipated benefits of the merger There are risks associated with the integration of two organisations of the size of Westpac and St.George. Particular areas of risk include: difficulties or unexpected costs relating to the integration of technology platforms, financial and accounting systems, and risk and other management systems of two organisations; difficulties or unexpected costs in realising synergies from the consolidation of head office and back office functions; higher than expected levels of customer attrition or market share loss arising as a result of the merger; unexpected losses of key personnel during or following the integration of the two businesses; possible conflict in the culture of the two organisations and decrease in employee morale; and potential damage to the reputation of brands due to actions from competitors, media and lobby groups in relation to the merger.
In addition, senior management of Westpac may be required to devote significant time to the process of integrating Westpac and St.George, which may decrease the time they have to manage the combined business.
If any of these risks should occur, or if there are unexpected delays in the integration process, the anticipated benefits of the merger may be delayed, achieved only in part, or not at all or at greater cost, which could have an adverse effect on our results of operations or financial condition.
The merger has resulted in additional concentration risk in the lending books of the combined business The lending books of each of Westpac and St.George have exposures to a range of clients, assets, industries and geographies which, now that they are combined, has resulted in additional concentration risk.
The fair values associated with the assets and liabilities of St.George are subject to review and any revision in these values could materially adversely affect Westpac’s reported assets and liabilities Due to the timing of the merger with St.George and the complexity of the merger accounting, the fair values currently established in relation to the identifiable assets and liabilities acquired and goodwill recognised are provisional as at 31 March 2009 and, as permitted by the applicable accounting standard, remain subject to further review during the 12 month period following the merger. As the accounting for the merger is completed over this 12 month period, these items are therefore subject to revision, which revisions may be material, after the date of this Interim Financial Report. As a result, it is possible that assets and liabilities as at 31 March 2009 that are disclosed in this report may be materially different if the fair values are subsequently revised.
Auditor’s Independence Declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 10 and forms part of this report.
Rounding of amounts ASIC Class Order 98/100 applies to Westpac and in accordance with that Class Order all amounts have been rounded to the nearest million dollars unless otherwise stated.
Responsibility Statement The Directors of Westpac Banking Corporation confirm that to the best of their knowledge: (i) the condensed set of financial statements have been prepared in accordance with AASB 134 Interim Financial Reporting and are in compliance with IAS 34 Interim Financial Reporting issued by the International Accounting Standards Board; and (ii) the Directors’ Report includes a fair review of the information required by the Disclosure and Transparency Rules 4.2.7R of the United Kingdom Financial Services Authority.
Signed in accordance with a resolution of the Board of Directors.
E.A. Evans Chairman G.P. Kelly Managing Director and Chief Executive Officer
Sydney 6 May 2009
6 May 2009
WESTPAC GROUP DELIVERS SOUND RESULT IN CHALLENGING ENVIRONMENT
Highlights:1 (Comparisons are with prior corresponding period2)
- Statutory net profit of $2,175 million, down 1%
- Pro forma cash earnings of $2,295 million, down 6%
- Pro forma economic profit of $1,019 million, down 26%
- Pro forma cash earnings per share 82.4 cents down 16%
- Pro forma revenue of $8,307 million, up 15%
- First half dividend of 56 cents, down 20%
- Pro forma return on equity (cash basis) of 14.3%
- Pro forma expense to income ratio (cash basis) 40.4% down 440 bps
- Tier 1 capital ratio of 8.4%
Half Year Profit Result
The Westpac Group today announced pro forma cash earnings of $2,295 million, down 6% for the six months ended 31 March 2009. Net profit after tax was down 1% to $2,175 million for the six months ended 31 March 2009. Pro forma cash earnings per share of 82.4 cents for the first half 2009 was 16% lower than cash
earnings per share for Westpac in the 2008 first half.
Westpac announced it will reduce its dividend as part of its efforts to conservatively manage its capital.
Westpac will pay a fully franked interim dividend of 56 cents, down 20% on the prior corresponding period.
Westpac Chief Executive Officer, Gail Kelly, said the Westpac Group had performed soundly in a very challenging operating environment.
“While it is disappointing to announce an overall decline in cash earnings, the Group’s performance demonstrates that we have strong, diversified and resilient businesses. Our 9% increase in lending, 24% increase in customer deposits and 24% increase in core earnings (revenue less expenses) reflects the solid
momentum in Westpac’s key businesses.
“Importantly, we further strengthened our balance sheet to ensure that we can continue to support our customers through these difficult economic times. This was achieved through capital raisings, lengthening our funding profile, strong growth in customer deposits, a reduction in our dividend and maintaining a stronger than usual liquidity position.
“While impairments have significantly increased over the period, we have also maintained a conservative approach to provisioning and have increased our provisioning coverage for bad debts, including an additional $112 million of economic overlay.
“Collectively, these measures reflect our prudent management of the business for the long term, putting the Group in a strong position to meet the challenges ahead.”
Mrs Kelly said that the initial integration with St.George has progressed smoothly and to plan.
“St.George has shown significantly improved momentum since completion of the merger. Pleasingly, customer retention and satisfaction results have also been strong, reflecting the benefits of our new operating model,” she said.
Following Westpac’s merger with St.George on 17 November 2008, the results have been prepared on a “pro forma” basis.
Details of the pro forma adjustments and details of statutory results are provided in this document.
Changes in pro forma economic profit and pro forma cash earnings per share are based on comparison of 2009 first half pro forma result with the 2008 first half actual result for Westpac. Other comparisons of 2009 first half pro forma results in the table are with 2008 first half pro forma result. earnings per share for Westpac in the 2008 first half.
SUMMARY AND OUTLOOK Interim Profit Announcement 2009
Result Highlights
Pro forma revenue rose 15% to $8,307 million, well above the 4% growth in expenses.
Strong growth in total deposits was a highlight this half, growing 8% on the corresponding period. Australian customer deposits were up $46 billion or 27%, ahead of Australian system growth of 17%. This significantly improved the Group’s funding mix. Growth in customer deposits more than funded our loan growth.
Total loan growth of 9% was another pleasing result, particularly in Australian housing and business, including $27.1 billion of new lending in Australian mortgages. Growth rates, however, are slowing in line with declining economic activity.
Impairment charges rose to $1,611 million during the first half, a direct consequence of the economic slowdown and the global financial crisis. In particular, the global financial crisis led to a small number of large Australian corporate exposures becoming impaired at the beginning of the half which contributed $372 million to the overall impairment charge.
The economic slowdown has impacted the Australian business sector and is causing a rise in customer stress, particularly in commercial property, pubs and clubs, mining services, retail and some financial services companies. The Australian consumer portfolio continues to perform well, with modest losses. In New
Zealand, the stresses in the economy have been more broadly spread reflecting the fact that the economy has been in recession for over a year.
Westpac has increased its impairment provisioning as the economic environment deteriorates. Total provisioning now stands at almost $4.5 billion, with collective provisions to credit risk weighted assets increasing by 31 basis points to 125 basis points.
The Westpac Group is strongly capitalised with a Tier 1 ratio of 8.4%, up from 7.4% in March 2008, having raised over $4.6 billion of core equity over the period.
Funding Environment
Funding costs have remained very high. Wholesale term funding costs are more then 100 basis points higher than pre-financial crisis. The cost of raising term deposits has increased on average more than 80 basis points over the last 12 months.
Collectively, this will see our average cost of funds continue to rise through 2009 as cheaper funding matures and is replaced by more expensive funding and as competition for deposits remains strong.
The overall net interest margin of 2.24% was 24 basis points higher than the prior corresponding period, and is in line with levels prior to the financial crisis. Higher Group Treasury income drove a 10 basis point increase in net interest margin, with overall consumer and business customer margins 7 basis points higher.
Strategic Progress
The Westpac Group continues to make good progress on implementing its customer focussed strategy. Significant progress has been made on implementing our local market model in Westpac Retail and Business Banking, with 569 additional people in Westpac branches and business banking centres.
An important initiative has been to give local bankers more authority to make decisions quickly, allowing them to more easily assist customers. Deepening relationships with customers has also been a key area of focus, with improved cross sell of Wealth and Insurance products.
At the same time, the integration with St.George is proceeding well, without any disruption to customers. A key initial priority was the development of customer retention plans, which have been successfully implemented in both Westpac and St.George.
The Group is also improving the reliability and capability of its operations, as well as developing longer term process and technology investment programs for the entire Group.
SUMMARY AND OUTLOOK Interim Profit Announcement 2009
Business Unit Performance
Cash earnings $A millions Half Year
March 2009
Half Year
March 2008 % Change
WBC Retail & Business Banking $990 $843 17
Westpac Institutional Bank1 $158 $420 (62)
St.George1 $529 $500 6
BT Financial Group1 $207 $250 (17)
New Zealand (NZD) $202 $239 (15)
WBC Retail & Business Banking (Westpac RBB) – cash earnings increased 17% supported by strong growth in lending and deposits, partially offset by a $62 million increase in impairment charges. Mortgages grew above system in the half with growth at 15% and business lending grew 8%. Consumer delinquencies continued to trend higher although losses remain low. Business impairment charges increased $47 million
with more businesses affected by the deteriorating operating environment.
Westpac Institutional Bank (WIB) – cash earnings decreased by 62%. Core earnings (revenue less expenses) were particularly strong, up 44%, supported by revenue growth in the Markets areas. Increased customer volumes and higher market volatility supported these results. Transactional services also made a solid contribution. More than offsetting this was a steep increase in impairment charges reflecting the impact of the financial crisis on three large corporate exposures and the margin lending portfolio.
The credit portfolio also saw a broader based deterioration in line with the slowing economy.
St.George – delivered cash earnings growth of 6% with solid deposit growth of 18% and lending growth of 10%, partly offset by an increase in impairment charges of $115 million. The higher impairments reflect the effects of the deteriorating economic environment on St.George’s commercial lending portfolio (middle markets and corporate segment), coupled with its relatively higher exposure to the NSW market. The recognition of the St.George brand remains strong, with customer satisfaction continuing to remain high.
BT Financial Group (BTFG) – BTFG, which incorporates St.George’s wealth business, saw its cash earnings fall 17% impacted by lower fees from funds under management and funds under administration related to weaker investment markets. The funds business saw net positive flows of $0.6 billion. Notwithstanding higher general insurance claims, the performance of the insurance business was pleasing, with cash earnings up 10%
and strong gains made in cross-selling into the broader Westpac Group. In keeping with the more difficult environment, expenses were kept flat compared to the prior corresponding period.
New Zealand – New Zealand cash earnings declined 15% to $202 million, primarily due to higher impairment costs resulting from the deepening and prolonged recession. Core earnings growth of 13% was very solid with business lending up 9% and deposits up 6%. Consumer lending growth was subdued at 3% reflecting the
slowing demand in the housing market.
Outlook
The first half of the 2009 financial year has seen significant and rapid change, including further stress in the global financial sector, a number of large corporate failures and a material and more broad-based deterioration in global economic activity.
These events have prompted unprecedented action and intervention by governments around the world to restore confidence in the financial system and support their respective economies. Government intervention has, in part, helped stabilise markets and assisted in reopening wholesale funding sources although it will be some time before markets are operating effectively and autonomously.
While it appears some of the severe stresses of the financial crisis have now stabilised, the more dominant impact on Westpac will be the size and duration of the recession in our home economies of Australia and New Zealand.
There will be two main impacts. Firstly slower loan growth is expected, in part from lower demand for credit but also because both consumers and businesses are expected to use the opportunity of lower interest rates to de-leverage their balance sheets. Secondly, it is expected that more customers will come under pressure as the effects of the slowing activity become more widespread.
On a pro forma basis.
SUMMARY AND OUTLOOK Interim Profit Announcement 2009
Mrs Kelly said that Westpac is well positioned to continue to support customers through this more challenging period.
“Looking ahead, while we expect system credit growth to continue slowing, our strong franchise and multiple brands should position us favourably to achieve further market share gains,” Mrs Kelly said.
“Conditions for markets income are also expected to remain favourable given continued market volatility and a customer preference for dealing with strong, AA rated, banks. That said, the very strong market revenues delivered in the first half 2009 are unlikely to be repeated.
“We are also further strengthening our productivity focus. Initiatives underway will begin to be reflected in our second half results but will be more pronounced in 2010. While seeking to reduce expense growth, we continue to prioritise key elements of our strategy, particularly investments to enhance customer service and develop our technology infrastructure.
“While the larger impairments associated with the impacts of the global financial crisis appear largely behind us, we are seeing more pressure across our business customers and expect consumer stress to grow as unemployment rises. As a result we expect impairment charges to remain at a high level throughout the
second half of 2009 and into 2010.
“Westpac has delivered a sound result while considerably strengthening our balance sheet, and I believe we are well placed for these challenging times. Supporting our customers remains our priority,” Mrs Kelly said.
Financial Report
3 Directors’ report The Directors of Westpac present their report together with the financial statements of Westpac and its controlled entities (collectively referred to as ‘the Group’) for the half year ended 31 March 2009.
Directors The names of the Directors of Westpac holding office at any time during, and since the end of, the half year and the period for which each has served as a Director are set out below:
Edward Evans Chairman since April 2007 and Director since November 2001 Gail Kelly Managing Director and Chief Executive Officer since February 2008 John Curtis Deputy Chairman and Director since December 2008 Elizabeth Bryan Director since November 2006 Gordon Cairns Director since July 2004 Peter Hawkins Director since December 2008 Carolyn Hewson Director since February 2003 Lindsay Maxsted Director since March 2008 Graham Reaney Director since December 2008 Peter Wilson Director since October 2003
Review and results of the Group’s operations during the half year The net profit of the Group for the half year ended 31 March 2009, after tax and minority interests, was $2,175 million, a decrease of $27 million compared to the net profit for the half year ended 31 March 2008 of $2,202 million. Basic earnings per share for the half year ended 31 March 2009 was 84.3 cents per share compared to 118.0 cents for the prior interim period ended 31 March 2008. The current half year includes the consequence of the merger with St.George; the net profit of St.George has been included as part of the Westpac Group result from the merger date (which for consolidation purposes was 17 November 2008, refer to Note 12) to the end of the reporting period. On a comparable basis excluding St.George, net profit decreased by $457 million.
Net interest income increased by $2,088 million to $5,558 million compared to the six months ended 31 March 2008. The increase is largely attributable to the merger with St.George with its contribution to net interest income being $1,125 million.
After removing this effect, the increase of $963 million is driven by volume growth, with lending growth of $27.3 billion and customer deposit growth of $32.4 billion combined with improved margins.
Non-interest income increased by $101 million to $2,529 million compared to the six months ended 31 March 2008. Non- interest income excluding the impact of St.George decreased by $178 million compared to the prior comparable period. The half year ended 31 March 2008 included large one off items, namely a profit on the partial sale of BT Investment Management of $141 million and a profit from the receipt and redemption of shares in Visa Inc. of $295 million. After adjusting for these one off items, the movement between periods is driven by a reduction in wealth and equities earnings, a decline in transaction and account fees and interchange fees. Offsetting this decrease was an increase in financial markets income.
Operating expenses increased by $873 million from $2,556 million to $3,429 million. Operating expenses, excluding the impact of St.George, were $242 million higher compared to the half year ended 31 March 2008. The main reasons for the increase were a $54 million increase in credit card loyalty cost due to the Qantas Frequent Flyer withdrawal from the loyalty programme and a $77 million provision in respect of a long standing legal proceeding.
Impairment charges increased by $1,124 million from $433 million to $1,557 million. The substantial increase reflects both the impact of the merger ($156 million) as well as the deteriorated credit environment over the period.
The effective tax rate increased to 28.5% from 23.2% in the prior corresponding period primarily due to the prior period including a release of $20 million in provisions, the tax impact of policy holder losses and the recognition of capital gains tax.
An interim dividend for the half year ended 31 March 2009 of 56 cents per ordinary share, estimated to be $1,626 million has been determined and will be paid on 2 July 2009. The dividend will be fully franked. The current interim dividend is a decrease of 20% compared to the 2008 interim dividend which was also fully franked.
The result is impacted by the challenging operating environment and competitive landscape, with the economy dramatically slowing as the effects of the global financial crisis continue to work through, and local conditions in the markets that we operate in continuing to deteriorate.
Against this backdrop we have strengthened our capital position and delivered a sound financial performance supported by volume growth in loans and deposits and improved margins.
Significant events during the half year ended 31 March 2009 Merger with St.George Bank Limited On 1 December 2008, Westpac completed its merger with St.George by way of scheme of arrangement. This merger, originally announced on 13 May 2008, was approved by holders of St.George ordinary shares on 13 November 2008 and subsequently
4 approved by the Federal Court of Australia on 17 November 2008. Under the terms of the merger, holders of St.George ordinary shares received 1.31 Westpac ordinary shares for each St.George ordinary share held on the record date. Based on the closing price of Westpac ordinary shares on the Australian Securities Exchange on 17 November 2008 of $16.32 per ordinary share and the 742,594,256 Westpac ordinary shares issued to holders of St.George ordinary shares as at the record date, the total value of the Westpac ordinary shares issued to St.George ordinary shareholders was $12.1 billion.
Australian and New Zealand government guarantee schemes In light of recent turbulence in the international financial system, the Australian and New Zealand governments have each announced guarantee arrangements for deposits and wholesale funding of eligible financial institutions, as described in more detail below. These arrangements are designed to promote financial system stability and ensure the continued flow of credit through those economies by supporting retail depositor confidence and assisting banks to continue to access funding at a time of considerable turbulence. They are also designed to ensure that eligible Australian and New Zealand financial institutions, respectively, are not placed at a disadvantage to their international competitors that can access similar government guarantees on bank debt.
The Australian Government announced on 12 October 2008 that it would guarantee the deposits in eligible Australian authorised deposit-taking institutions (ADIs) (including Westpac (and its foreign branches) and St.George) for a period of three years from 12 October 2008. In October 2008, the Banking Act 1959 (Australia) was amended to facilitate the guarantee of the first $1 million of ‘protected accounts’ held with an eligible ADI (including most deposits) without charge by establishing a financial claims scheme (FCS) to be administered by the Australian Prudential Regulation Authority (APRA). The FCS will apply to an eligible ADI if APRA has applied for the winding up of the ADI and the responsible Australian Government minister has declared that the FCS applies to that ADI. The Financial Claims Scheme (ADIs) Levy Act 2008 provides for the imposition of a levy to fund the excess of certain of APRA’s financial claims scheme costs connected with the ADI. The levy is imposed on liabilities of eligible ADIs to their depositors and cannot be more than 0.5% of the amount of those liabilities.
In November 2008 the Australian Government released the details and rules (Scheme Rules) of the Australian Government Guarantee Scheme for Large Deposits and Wholesale Funding which, effective 28 November 2008, provides a guarantee facility for deposits of amounts over $1 million and wholesale funding of an eligible ADI, in return for a fee payable by the ADI. The wholesale funding guarantee is restricted to senior unsecured liabilities (which are not complex) issued domestically in Australia or off-shore and which meet certain other eligibility criteria.
Deposits above the $1 million threshold and wholesale funding will only have the benefit of the guarantee where an eligibility certificate has been issued by the Commonwealth of Australia in respect of those liabilities. Eligibility certificates have been issued in relation to a number of liabilities of Westpac, including certain deposit liabilities, certain short term funding liabilities and certain long term funding liabilities, and in relation to certain deposit liabilities of St.George. Details of issued eligibility certificates are available at the Reserve Bank of Australia-maintained website ‘www.guaranteescheme.gov.au/guaranteed- liabilities’.
A different fee applies to eligible ADIs in relation to deposits over $1 million and wholesale funding covered by the guarantee based on their long term credit rating. The fee applicable to Westpac and St.George, based on their current long term ratings by Standard and Poor’s of AA, is 70 basis points (or 0.70%) per annum.
The Australian Government has announced that the Australian Government Guarantee Scheme for Large Deposits and Wholesale Funding will be reviewed on an ongoing basis and revised if necessary.
The New Zealand Government announced on 12 October 2008 an opt-in deposit guarantee scheme under which it will guarantee deposits with participating New Zealand registered banks and non-bank deposit taking entities, with effect for a two year period from that date. Westpac New Zealand Limited (WNZL) has opted into the scheme and entered into a Crown Deed of Guarantee with the Crown on 11 November 2008, which was amended by a Supplemental Deed dated 24 November 2008 (together ‘NZ Guarantee’). As at the date of this report, Westpac Banking Corporation’s New Zealand branch has not opted into this scheme.
The NZ Guarantee extends to debt securities issued by WNZL in any currency (which includes deposits and other amounts lent to WNZL), other than debt securities issued to excluded creditors, which include financial institutions and related parties of a participating entity. It does not extend to subordinated debt obligations. The debt securities covered by the NZ Guarantee are limited to an amount of NZ$1 million per creditor per approved institution. Under the NZ Guarantee, WNZL was required to pay a fee of 10 basis points (or 0.1%) on the amounts owing to creditors covered by the NZ Guarantee to the extent that amount exceeded NZ$5 billion as at 12 October 2008. A similar additional fee is payable in respect of the position as at 12 October 2009.
On 1 November 2008, the New Zealand Government announced details of a wholesale funding guarantee facility to investment- grade financial institutions that have substantial New Zealand borrowing and lending operations (Facility). The Crown entered into a Crown Wholesale Funding Guarantee Facility Deed with WNZL on 23 February 2009 and has provided a Crown Wholesale Funding Guarantee in respect of WNZL dated the same date. The Facility operates on an opt-in basis, by institution and by instrument. Wholesale funding liabilities of WNZL (which can include amounts guaranteed by WNZL) will only have the benefit of the Facility where a Guarantee Eligibility Certificate has been issued in respect of those liabilities. A guarantee fee will be charged for each guarantee issued under the Facility, differentiated by the credit rating of the issuer, the term of the security being guaranteed and, in the case of issues with terms of more than one year, between New Zealand dollar and non-New Zealand dollar issues. The maximum term of securities guaranteed is five years. As at the date of this report, Westpac’s New Zealand branch has taken no action in relation to the Facility. WNZL has entered into the Facility Deed but has not made use of the Facility.
Further information about the NZ Guarantee and the Facility may be obtained from WNZL’s General Short Form Disclosure Statement for the three months ended 31 December 2008 and the New Zealand Treasury internet site ‘www.treasury.govt.nz’.
5 Capital transactions Westpac undertook the following significant initiatives to increase its Tier 1 capital, which impacted ordinary share capital during the half year ended 31 March 2009: the issue of $2.5 billion worth of ordinary shares under a fully underwritten placement of ordinary shares completed in December 2008; the underwrite of 100% of Westpac’s dividend reinvestment plan in respect of the 2008 final dividend, which resulted in the issue of $887 million worth of ordinary shares to the underwriter, in addition to the ordinary shares issued to dividend reinvestment plan participants; and the issue of $441 million worth of ordinary shares under the Westpac share purchase plan, which was completed in February 2009.
Westpac also undertook the following initiatives during the half year ended 31 March 2009, which impacted loan capital: the acquisition of St.George’s SAINTS securities on 1 December 2008 as part of the merger with St.George for $350 million; the redemption of St.George’s SPS, CPS and CPS II Tier 1 securities on 31 March 2009 for a combined face value of $875 million; and the issue of $908 million worth of new non-innovative residual Tier 1 securities known as Westpac SPS II on 31 March 2009.
Principal risks and uncertainties Our business activities are subject to risks that can adversely impact our business, future performance and financial condition. If any of the following risks actually occur, our business, results of operations or financial condition could be materially adversely affected, with the result that the trading price of our securities could decline and you could lose all or part of your investment.
You should carefully consider the risks and the other information in this Interim Financial Report and our 2008 Annual Report before investing in our securities. The risks and uncertainties described below are not the only ones we may face. Additional risks and uncertainties that we are unaware of, or that we currently deem to be immaterial, may also become important factors that affect us.
Risks relating to our business Adverse credit and capital market conditions may significantly affect our ability to meet liquidity needs, adversely affect our access to domestic and international capital markets and increase our cost of funding Global credit and capital markets have experienced extreme volatility, disruption and decreased liquidity for more than 18 months and we anticipate that the global financial markets are likely to remain volatile and uncertain in the short to medium term. We rely on credit and capital markets to fund our business. As of 31 March 2009, we obtained approximately 40%1 of our total net funding from domestic and international wholesale markets. Since December 2008, we have utilised the guarantee of the Commonwealth of Australia under the Australian government guarantee scheme to obtain funding in the global capital markets. As a result of the current adverse global capital market conditions our funding costs have increased and accessing wholesale markets without the government guarantee, particularly in relation to longer-term securities, remains difficult.
Continued instability in these market conditions may result in further increases in our funding costs and may limit our ability to replace, in a timely manner, maturing liabilities, which could adversely affect our ability to fund and grow our business.
In the event that our current sources of funding prove to be insufficient, we may be forced to seek alternative financing. The availability of such alternative financing, and the terms on which it may be available, will depend on a variety of factors, including prevailing market conditions, the availability of credit, our credit ratings and the sovereign credit ratings in Australia and New Zealand, and credit capacity. Even if available, the cost of these alternatives may be more expensive or on unfavourable terms, which could adversely affect our results of operations, liquidity, capital resources and financial condition. There is no assurance that we will be able to obtain funding at acceptable prices.
If Westpac is unable to source appropriate funding, we may be forced to reduce our lending or begin to sell liquid securities.
Such actions would adversely impact our business, results of operations, liquidity, capital resources and financial condition.
For a more detailed description of liquidity risk, refer to the section ‘Liquidity and funding’ in our 2008 Annual Report.
Failure to maintain credit ratings could adversely affect our cost of funds, liquidity, competitive position and access to capital markets The credit ratings assigned to us by rating agencies are based on an evaluation of a number of factors, including our financial strength. In light of the difficulties in the banking sector and financial markets, the rating agencies have indicated they are watching global developments closely and if conditions continue to deteriorate, they may adjust the ratings of some or all of the major Australian banks. Moody’s has all the major Australian banks, including Westpac, on a negative outlook. In addition, a credit rating downgrade could be driven by the occurrence of one or more of the other risks identified in this section or by other events.
If we fail to maintain our current corporate credit ratings, this would adversely affect our cost of funds and related margins, liquidity, competitive position and our access to capital markets. In addition, any downgrade in the sovereign credit ratings of Australia and New Zealand may adversely affect Westpac’s ability to raise funds that have the benefit of a government guarantee
1 Comprised of wholesale funding and excess liquid assets.
6 under the relevant government guarantee schemes, or the cost of those funds. In turn, this could adversely affect our earnings, liquidity, access to capital markets and financial condition.
Any systemic shock in relation to the Australian, New Zealand or global financial systems could have adverse consequences for Westpac that would be difficult to predict and respond to In the current volatile economic environment, there is a risk of a major systemic shock occurring that could have an adverse impact on the Australian, New Zealand or global financial systems. Such an event could have a material adverse effect on financial institutions such as Westpac, including the undermining of confidence in the financial systems, reducing liquidity and impairing access to funding. The nature and consequences of any such event are difficult to predict and there can be no guarantee that we could respond effectively to any such event.
Declining asset markets could adversely affect our operations or profitability A continuation of the recent declines in global asset markets, including equity, property and other asset markets could impact our operations and profitability.
Declining asset prices impact our wealth management business and other asset holdings. In relation to our wealth management business, our earnings are, in part, dependent on asset values, such as the value of securities held or managed, and a further decline in asset prices could further negatively impact the earnings of the division. Declining asset prices could also impact customers and the value of security we hold against loans which may impact our ability to recover amounts owing to us if customers were to default.
Our business is substantially dependent on the Australian and New Zealand economies and we can give no assurance as to the likely future state of such economies Our revenues and earnings are dependent on economic activity and the level of financial services our customers require. In particular, lending is dependent on customer confidence, the state of the economy, the state of the home lending market and prevailing market interest rates in the countries we operate in.
We currently conduct the majority of our business in Australia and New Zealand. Consequently, our performance is influenced by the level and cyclical nature of business and home lending in these countries. These factors are in turn impacted by both domestic and international economic and political events. The ongoing dislocation in credit and capital markets has impacted global economic activity including the economies of Australia and New Zealand, which are in recession. This disruption has led to a slowdown in credit growth and a reduction in consumer and business confidence. If the downturn in the Australian and New Zealand economies continues for an extended period or becomes more severe, our results of operations, liquidity, capital resources and financial condition would be adversely affected. The economic conditions of other regions in which we conduct operations can also affect our future performance and have shown signs of significant deterioration.
An increase in defaults under our loan portfolio could adversely affect our results of operations, liquidity, capital resources and financial condition Credit risk is a significant risk and arises primarily from our lending activities. The risk arises from the likelihood that some customers will be unable to honour their obligations to us, including the repayment of loans and interest. Credit exposures also include our dealings with, and holdings of, debt securities issued by other banks and financial institutions whose conditions may be impacted to varying degrees by continuing turmoil in the global financial markets.
We hold collective and individually assessed provisions for impaired assets. As a result of the current market and economic conditions, we have increased our impairment provisions and if economic conditions deteriorate further, some customers could experience higher levels of financial stress and we may experience a significant increase in defaults and write-offs, and be required to further increase our provisioning. Such actions would diminish available capital and would adversely affect our results of operations, liquidity, capital resources and financial condition.
For a discussion on our risk management procedures, including the management of credit risk, refer to the section ‘Risk management’ in our 2008 Annual Report.
There can be no assurance that actions of the Australian, New Zealand, United States and other foreign governments and other governmental and regulatory bodies to stabilise financial markets will achieve the intended effect In response to the recent financial crises affecting the banking system and financial markets generally and deteriorating global financial conditions, on 12 October 2008, the Australian government announced that it will guarantee deposits and wholesale term funding of eligible Australian financial institutions and, in November 2008, it implemented the Australian Government Guarantee Scheme for Large Deposits and Wholesale Funding. See ‘Significant events during the half year ended 31 March 2009 – Australian and New Zealand government guarantee schemes’ for a description of the schemes. Stabilising actions have also been taken by governments and regulatory bodies in New Zealand, the United States, United Kingdom, Europe and other jurisdictions. We expect to continue to rely on the relevant government guarantee scheme to access the wholesale funding markets in the short to medium term.
The Australian Government has announced that the Australian Government Guarantee Scheme for Large Deposits and Wholesale Funding will be reviewed on an ongoing basis and revised if necessary. There can be no assurance as to whether any changes will have an adverse impact on our ability to obtain wholesale term funding in the future in reliance on the Commonwealth government guarantee. The ongoing impact of the stabilisation packages implemented by governments and regulators in New Zealand, the United States, United Kingdom, Europe and other jurisdictions are equally uncertain. There can be no assurance as to what impact such regulatory actions will have on financial markets, consumer and investor confidence, or the extreme levels of volatility currently being experienced. Further declines in consumer and investor confidence and continued uncertainty and volatility could materially adversely affect our business, financial condition and results of operations.
7 We face intense competition in all aspects of our business We compete, both domestically and internationally, with asset managers, retail and commercial banks, investment banking firms, brokerage firms, and other investment service firms. In addition, the trend toward consolidation in the global financial services industry is creating competitors with broader ranges of product and service offerings, increased access to capital, and greater efficiency and pricing power. In recent years, competition has also increased as large insurance and banking industry participants have sought to establish themselves in markets that are perceived to offer higher growth potential and as local institutions have become more sophisticated and competitive and have sought alliances, mergers or strategic relationships. If we are unable to compete effectively in our various businesses and markets, our business, results of operations and financial condition would be adversely affected.
For more detail on how we address competitive pressures refer to the section ‘Competition’ in our 2008 Annual Report.
We could suffer losses due to market volatility We are exposed to market risk as a consequence of our trading activities in financial markets and through the asset and liability management of our overall financial position. In our financial markets trading business, we are exposed to losses arising from adverse movements in levels and volatility of interest rates, foreign exchange rates, commodity prices, credit prices and equity prices. The recent levels of market volatility increased our estimated earnings at risk as measured by value at risk (VaR)1. If we were to suffer substantial losses due to any market volatility, including the volatility brought about by the current global credit crisis, it would adversely affect our results of operations, liquidity, capital resources and financial condition.
For a discussion of our risk management procedures, including the management of market risk, refer to the section ‘Risk management’ in our 2008 Annual Report.
We could suffer losses due to operational risks or environmental factors As a financial services organisation we are exposed to a variety of other risks including those resulting from process error, fraud, information technology instability and failure, system failure, security and physical protection, customer services, staff competence, external events (including fire, flood or pandemic) that cause material damage, impact on our operations or adversely affect demand for our products and services, and product development and maintenance. Operational risks can directly impact our reputation and result in financial losses which would adversely affect our financial performance or financial condition.
For a discussion of our risk management procedures, including the management of operational risk, refer to the section ‘Risk management’ in our 2008 Annual Report.
Our businesses are highly regulated and we could be adversely affected by changes in regulations and regulatory policy Compliance risk arises from the regulatory standards that apply to us as an institution. All of our businesses are highly regulated in the jurisdictions in which we do business. We are responsible for ensuring that we comply with all applicable legal and regulatory requirements (including changes to accounting standards – for example, refer to sections ‘Changes in accounting policies’, ‘Critical accounting assumptions and estimates’ and ‘Future developments in accounting policies’) and industry codes of practice, as well as meeting our ethical standards. The nature and impact of future changes in such policies are not predictable and are beyond our control.
It is likely that the recent global financial crisis will lead to changes in regulation in most markets in which we operate, particularly for financial companies. These changes may include, for example, changes in capital adequacy requirements, accounting and reporting requirements, liquidity regulation, regulation relating to remuneration, or changes in the oversight approach of regulators in the markets in which we operate. In the current economic conditions, it is also possible that governments in jurisdictions in which we do business or obtain funding might revise their application of existing regulatory policies that apply to, or impact, Westpac’s business, including for reasons relating to national and systemic stability.
We anticipate that the current uncertain economic environment may also result in increased litigation, which creates the potential for legal decisions that result in unanticipated changes in law and may result in regulators making material changes to existing regulatory policies to address or enforce such changes in law.
Changes in law, regulations or regulatory policy could adversely affect one or more of our businesses, including limiting our ability to do business, and could require us to incur substantial costs to comply or impact our capital requirements. The failure to comply with applicable regulations could result in fines and penalties or limitations on our ability to do business. These costs, expenses and limitations could have a material adverse affect on our business, financial performance or financial condition.
Reputational damage could harm our business and prospects Various issues may give rise to reputational risk and cause harm to our business and our prospects. These issues include appropriately dealing with potential conflicts of interest, legal and regulatory requirements, ethical issues, money laundering laws, trade sanctions legislation, privacy laws, information security policies, sales and trading practices and conduct by companies in which we hold strategic investments. Failure to address these issues appropriately could also give rise to additional legal risk, subject us to regulatory enforcement actions, fines and penalties, or harm our reputation among our customers and our investors in the marketplace.
1 VaR is the potential loss in earnings from adverse market movements, calculated by Westpac using a 99% confidence level with a minimum of one year of historical rate data and a one-day time horizon.
8 We could suffer losses if we fail to syndicate or sell down underwritten equity securities As a financial intermediary we underwrite listed and unlisted equity securities. Equity underwriting activities include the development of solutions for corporate and institutional customers who need equity capital and investor customers who have an appetite for equity-based investment products. We may guarantee the pricing and placement of these facilities. We could suffer losses if we fail to syndicate or sell down our risk to other market participants.
Other risks Other risks that can adversely impact our performance and our financial condition include insurance risk, model risk, business risk and contagion risk. Refer to the section ‘Corporate governance’ in our 2008 Annual Report for more information on these risks.
Risks relating to the integration of St.George We may fail to realise the business growth opportunities, cost savings and other benefits anticipated from, or may incur unanticipated costs associated with, the merger and our results of operations, financial condition and the price of our securities may suffer As a result of the merger with St.George, we expect to increase our revenue and reduce operating expense growth of the combined business. In order to achieve these synergies we estimate we will incur approximately $700 million in integration costs. There is no assurance that we will be able to achieve the business growth opportunities, cost savings and other benefits we anticipate from the merger with St.George. This may be because the assumptions upon which we assessed the merger, including the anticipated benefits and the factors we used to determine the merger consideration, may prove to be incorrect.
Unanticipated delays in the integration of our operations may impact our assumptions regarding the benefits we expect to derive from the merger and may delay such benefits. In addition, we may incur greater costs than we have estimated in connection with the integration.
If we fail to achieve the business growth opportunities, cost savings and other benefits we anticipate from the merger, or we incur greater integration costs than we have estimated, our results of operations, financial condition and the price of our securities may be adversely affected.
The integration of our operations and those of St.George presents significant challenges that could delay or diminish the anticipated benefits of the merger There are risks associated with the integration of two organisations of the size of Westpac and St.George. Particular areas of risk include: difficulties or unexpected costs relating to the integration of technology platforms, financial and accounting systems, and risk and other management systems of two organisations; difficulties or unexpected costs in realising synergies from the consolidation of head office and back office functions; higher than expected levels of customer attrition or market share loss arising as a result of the merger; unexpected losses of key personnel during or following the integration of the two businesses; possible conflict in the culture of the two organisations and decrease in employee morale; and potential damage to the reputation of brands due to actions from competitors, media and lobby groups in relation to the merger.
In addition, senior management of Westpac may be required to devote significant time to the process of integrating Westpac and St.George, which may decrease the time they have to manage the combined business.
If any of these risks should occur, or if there are unexpected delays in the integration process, the anticipated benefits of the merger may be delayed, achieved only in part, or not at all or at greater cost, which could have an adverse effect on our results of operations or financial condition.
The merger has resulted in additional concentration risk in the lending books of the combined business The lending books of each of Westpac and St.George have exposures to a range of clients, assets, industries and geographies which, now that they are combined, has resulted in additional concentration risk.
The fair values associated with the assets and liabilities of St.George are subject to review and any revision in these values could materially adversely affect Westpac’s reported assets and liabilities Due to the timing of the merger with St.George and the complexity of the merger accounting, the fair values currently established in relation to the identifiable assets and liabilities acquired and goodwill recognised are provisional as at 31 March 2009 and, as permitted by the applicable accounting standard, remain subject to further review during the 12 month period following the merger. As the accounting for the merger is completed over this 12 month period, these items are therefore subject to revision, which revisions may be material, after the date of this Interim Financial Report. As a result, it is possible that assets and liabilities as at 31 March 2009 that are disclosed in this report may be materially different if the fair values are subsequently revised.
Auditor’s Independence Declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 10 and forms part of this report.
Rounding of amounts ASIC Class Order 98/100 applies to Westpac and in accordance with that Class Order all amounts have been rounded to the nearest million dollars unless otherwise stated.
Responsibility Statement The Directors of Westpac Banking Corporation confirm that to the best of their knowledge: (i) the condensed set of financial statements have been prepared in accordance with AASB 134 Interim Financial Reporting and are in compliance with IAS 34 Interim Financial Reporting issued by the International Accounting Standards Board; and (ii) the Directors’ Report includes a fair review of the information required by the Disclosure and Transparency Rules 4.2.7R of the United Kingdom Financial Services Authority.
Signed in accordance with a resolution of the Board of Directors.
E.A. Evans Chairman G.P. Kelly Managing Director and Chief Executive Officer
Sydney 6 May 2009
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TEL - Telecom NZ Ltd: 9 months to 31/03/09
by Share Investor » 08 May 2009 11:33
SUMMARY OF PRELIMINARY NINE MONTHS ANNOUNCEMENT
Name of Listed Issuer: Telecom Corporation of New Zealand Limited
For nine months ended: 31 March 2009
This report has been prepared in a manner which complies with generally accepted accounting practice and gives a true and fair view of the matters to which the report relates and is based on unaudited accounts.
CONSOLIDATED OPERATING STATEMENT
Current nine months NZ$’000; Up/Down %; Previous Corresponding nine months NZ$’000
Total operating revenue and other gains: 4,236,000; Up 0.5%; 4,214,000
EARNINGS BEFORE ADJUSTED ITEMS AND TAX: 557,000; Down 25.1%; 744,000
Adjusted items for separate disclosure:
Income / gains Nil; NM; Nil
Expenses 101,000; NM; Nil
EARNINGS BEFORE INCOME TAX: 456,000; Down 38.7%; 744,000
Less income tax expense: 134,000; Down 35.3%; 207,000
NET EARNINGS FOR THE PERIOD: 322,000; Down 40.0%; 537,000
Less minority interests: 2,000; Nil; 2,000
EARNINGS ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY:
320,000; Down 40.2%; 535,000
Earnings per share: 17 cps; 28 cps
Third Quarter Dividend: 6.0 cps
Date Payable: 5 June 2009
Imputation tax credit on latest dividend: Nil
Short details of any bonus or rights issue or other item(s) of importance not previously released to the market:
Name of Listed Issuer: Telecom Corporation of New Zealand Limited
For nine months ended: 31 March 2009
This report has been prepared in a manner which complies with generally accepted accounting practice and gives a true and fair view of the matters to which the report relates and is based on unaudited accounts.
CONSOLIDATED OPERATING STATEMENT
Current nine months NZ$’000; Up/Down %; Previous Corresponding nine months NZ$’000
Total operating revenue and other gains: 4,236,000; Up 0.5%; 4,214,000
EARNINGS BEFORE ADJUSTED ITEMS AND TAX: 557,000; Down 25.1%; 744,000
Adjusted items for separate disclosure:
Income / gains Nil; NM; Nil
Expenses 101,000; NM; Nil
EARNINGS BEFORE INCOME TAX: 456,000; Down 38.7%; 744,000
Less income tax expense: 134,000; Down 35.3%; 207,000
NET EARNINGS FOR THE PERIOD: 322,000; Down 40.0%; 537,000
Less minority interests: 2,000; Nil; 2,000
EARNINGS ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY:
320,000; Down 40.2%; 535,000
Earnings per share: 17 cps; 28 cps
Third Quarter Dividend: 6.0 cps
Date Payable: 5 June 2009
Imputation tax credit on latest dividend: Nil
Short details of any bonus or rights issue or other item(s) of importance not previously released to the market:
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XRO - XERO LTD: FY to 31/3/09
by Share Investor » 14 May 2009 17:47
Full Year Results
Market Release
14 May 2009
This document covers Xero Limited’s audited financial results for the year ended 31 March 2009.
1. FULL YEAR RESULTS (audited)
XERO LIMITED
Results for Announcement to the Market
Reporting Period 12 months to 31 March 2009
Previous Reporting Period 12 months to 31 March 2008
Amount (000s) Percentage Change
Revenues from Ordinary Activities $NZ 959 616%
Profit (Loss) from Ordinary Activities after Tax attributable to Security Holder $NZ (6,751) 57%
Net Profit (Loss) attributable to Security Holder $NZ (6,751) 57%
Interim / Final Dividend Amount per Security Imputed Amount per Security
No dividend is proposed. Not applicable Not applicable
Record Date Not applicable
Dividend Payment Date Not applicable
Financial highlights for the full year to 31 March 2009
- Revenue from subscriptions of $959,000
- Operating expenses of $8,364,000
- A net loss for the year of $6,751,000
- Cash and bank balances of $3,807,000
Commentary on financials
- The operating revenue from customer subscriptions was $959,000 for the year ended 31 March 2009 compared with $134,000 for the previous year; a 616% increase. In addition, Xero received grant funding from New Zealand Trade & Enterprise of $125,000 (2008: $216,000). Interest earned was $494,000 (2008: $789,000).
- Revenue was significantly weighted towards the last quarter of the period as Xero customer acquisition accelerated.
- Payments to suppliers and employees totalled $8,364,000 for the year ended 31 March 2009 compared with $5,488,000 in the prior year; a 52% rise.
- The result for the year was a net loss before tax of $6,751,000, compared to $4,310,000 in 2008; a 57% increase, which was in line with expectations.
- Xero had 55 employees at 31 March 2009 including 32 employees in product development, 3 employees based in the UK and 2 employees in Australia compared to 44 employees overall at year-end 2008.
Cashflow and balance sheet
- The net cash used for operations amounted to $5,144,000 compared to $3,875,000 for the previous year. These increased costs are primarily attributable to the increase in staff in all areas of operations, particularly product development and sales and marketing.
Customer Highlights
- Xero exceeded 6,000 paying customers, up from 950 customers as at 31 March 2008, this figure included over 2,000 customers in the United Kingdom.
- Xero doubled its customer base in the first three months of 2009.
- Xero now has paying customers in 25 Countries.
- Xero has trained 292 Xero Certified Advisors.
- Growth continued after year-end, with customer numbers exceeding 7,500 at 10 May 2009.
Product progress
- Xero has continued to release high quality software every month.
- NAB, ANZ and Commonwealth Bank are providing automated bank feeds to Australian Xero customers.
- Global version of Xero was released in December 2008.
- PayPal link has been embedded with Xero invoices for online payments.
- Release of Integrated Fixed Assets and depreciation features – fulfilling one of the major requests from accountants.
- Release of significant features that enable accountants to manage large numbers of their clients.
Company News
- Xero selected to be the sole accounting partner in the New Zealand Institute Charted Accountants (NZICA) Catalyst Programme.
- International companies Microsoft, Campaign Monitor and Rackspace completed case studies on Xero.
- International marketing expert Andy Lark, Global Vice-President of Enterprise Marketing at Dell, joined Xero as a US-based advisor to help Xero move into the next phase of its global marketing strategy.
- Telecom New Zealand began its Xero promotional campaign.
- Xero has signed a strategic marketing partnership with Telstra in Australia and British Telecom in the UK.
- Winner of 2009 PricewaterhouseCoopers Hi-Tech Awards – Innovative Services Product Award.
- Winner of two international 2009 Webby Awards for world-class software usability and design.
Economic climate
Xero is well-positioned for the current global financial situation:
- Almost all businesses require an increased focus on cashflow and Xero helps businesses to have accurate, timely and up-to-date financial information.
- In order for banks to roll over credit facilities, many are now demanding monthly management accounts. Xero facilitates cost-effective collaboration between small businesses and their accountants.
- Xero is contributing to job creation. New jobs and companies are being established to provide services using the Xero platform.
- Xero is earning export revenue from the UK, Australia and global regions following product releases in those countries.
Subsequent Events
- Post year-end, Xero has successfully raised $23.2 million in new capital from strategic investors (with $18 million of this being subject to approval by shareholders at the Special Shareholders’ Meeting held on 14 May 2009).
- In addition, Xero is also raising further capital via a Share Purchase Plan which is being offered to all New Zealand-based Xero Shareholders. The SPP closes on 18 May 2009.
- Craig Winkler, the major new strategic investor, will join Xero’s Board on 21 May 2009 following completion of the capital raising (subject to the outcome of the Shareholders’ Special Meeting).
- Xero currently has in excess of 7,500 customers who, in aggregate, are committed to approximately $250,000 of monthly revenues. Revenue collection and recognition is subject to timings of customer promotional periods.
Summary
- Xero has successfully delivered on its initial milestones; namely to complete product development, establish itself in the New Zealand market and enter the Australian and United Kingdom markets.
- Xero is beginning to see early adopter accounting practices converting their client base and is seeing continued strong growth through this channel.
- Xero has developed international channels that will provide exposure to large numbers of businesses in Australia and the UK.
Xero will provide detailed analysis and additional commentary in its Annual Report.
For more information please contact:
Paul Williams
General Manager Finance
Paul.williams@xero.com
(04) 819 4854
027 231 5043
Market Release
14 May 2009
This document covers Xero Limited’s audited financial results for the year ended 31 March 2009.
1. FULL YEAR RESULTS (audited)
XERO LIMITED
Results for Announcement to the Market
Reporting Period 12 months to 31 March 2009
Previous Reporting Period 12 months to 31 March 2008
Amount (000s) Percentage Change
Revenues from Ordinary Activities $NZ 959 616%
Profit (Loss) from Ordinary Activities after Tax attributable to Security Holder $NZ (6,751) 57%
Net Profit (Loss) attributable to Security Holder $NZ (6,751) 57%
Interim / Final Dividend Amount per Security Imputed Amount per Security
No dividend is proposed. Not applicable Not applicable
Record Date Not applicable
Dividend Payment Date Not applicable
Financial highlights for the full year to 31 March 2009
- Revenue from subscriptions of $959,000
- Operating expenses of $8,364,000
- A net loss for the year of $6,751,000
- Cash and bank balances of $3,807,000
Commentary on financials
- The operating revenue from customer subscriptions was $959,000 for the year ended 31 March 2009 compared with $134,000 for the previous year; a 616% increase. In addition, Xero received grant funding from New Zealand Trade & Enterprise of $125,000 (2008: $216,000). Interest earned was $494,000 (2008: $789,000).
- Revenue was significantly weighted towards the last quarter of the period as Xero customer acquisition accelerated.
- Payments to suppliers and employees totalled $8,364,000 for the year ended 31 March 2009 compared with $5,488,000 in the prior year; a 52% rise.
- The result for the year was a net loss before tax of $6,751,000, compared to $4,310,000 in 2008; a 57% increase, which was in line with expectations.
- Xero had 55 employees at 31 March 2009 including 32 employees in product development, 3 employees based in the UK and 2 employees in Australia compared to 44 employees overall at year-end 2008.
Cashflow and balance sheet
- The net cash used for operations amounted to $5,144,000 compared to $3,875,000 for the previous year. These increased costs are primarily attributable to the increase in staff in all areas of operations, particularly product development and sales and marketing.
Customer Highlights
- Xero exceeded 6,000 paying customers, up from 950 customers as at 31 March 2008, this figure included over 2,000 customers in the United Kingdom.
- Xero doubled its customer base in the first three months of 2009.
- Xero now has paying customers in 25 Countries.
- Xero has trained 292 Xero Certified Advisors.
- Growth continued after year-end, with customer numbers exceeding 7,500 at 10 May 2009.
Product progress
- Xero has continued to release high quality software every month.
- NAB, ANZ and Commonwealth Bank are providing automated bank feeds to Australian Xero customers.
- Global version of Xero was released in December 2008.
- PayPal link has been embedded with Xero invoices for online payments.
- Release of Integrated Fixed Assets and depreciation features – fulfilling one of the major requests from accountants.
- Release of significant features that enable accountants to manage large numbers of their clients.
Company News
- Xero selected to be the sole accounting partner in the New Zealand Institute Charted Accountants (NZICA) Catalyst Programme.
- International companies Microsoft, Campaign Monitor and Rackspace completed case studies on Xero.
- International marketing expert Andy Lark, Global Vice-President of Enterprise Marketing at Dell, joined Xero as a US-based advisor to help Xero move into the next phase of its global marketing strategy.
- Telecom New Zealand began its Xero promotional campaign.
- Xero has signed a strategic marketing partnership with Telstra in Australia and British Telecom in the UK.
- Winner of 2009 PricewaterhouseCoopers Hi-Tech Awards – Innovative Services Product Award.
- Winner of two international 2009 Webby Awards for world-class software usability and design.
Economic climate
Xero is well-positioned for the current global financial situation:
- Almost all businesses require an increased focus on cashflow and Xero helps businesses to have accurate, timely and up-to-date financial information.
- In order for banks to roll over credit facilities, many are now demanding monthly management accounts. Xero facilitates cost-effective collaboration between small businesses and their accountants.
- Xero is contributing to job creation. New jobs and companies are being established to provide services using the Xero platform.
- Xero is earning export revenue from the UK, Australia and global regions following product releases in those countries.
Subsequent Events
- Post year-end, Xero has successfully raised $23.2 million in new capital from strategic investors (with $18 million of this being subject to approval by shareholders at the Special Shareholders’ Meeting held on 14 May 2009).
- In addition, Xero is also raising further capital via a Share Purchase Plan which is being offered to all New Zealand-based Xero Shareholders. The SPP closes on 18 May 2009.
- Craig Winkler, the major new strategic investor, will join Xero’s Board on 21 May 2009 following completion of the capital raising (subject to the outcome of the Shareholders’ Special Meeting).
- Xero currently has in excess of 7,500 customers who, in aggregate, are committed to approximately $250,000 of monthly revenues. Revenue collection and recognition is subject to timings of customer promotional periods.
Summary
- Xero has successfully delivered on its initial milestones; namely to complete product development, establish itself in the New Zealand market and enter the Australian and United Kingdom markets.
- Xero is beginning to see early adopter accounting practices converting their client base and is seeing continued strong growth through this channel.
- Xero has developed international channels that will provide exposure to large numbers of businesses in Australia and the UK.
Xero will provide detailed analysis and additional commentary in its Annual Report.
For more information please contact:
Paul Williams
General Manager Finance
Paul.williams@xero.com
(04) 819 4854
027 231 5043
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Share Investor - Share Investor Forum - Admin
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GMT - Goodman Property Trust: FY to 31/3/09
by Share Investor » 15 May 2009 07:58
Goodman Property Trust (“GMT” or “Trust”) announces its annual result for the year ended 31 March 2009.
Result Summary
- After tax distributable profit of $83.8 million.
- Annual cash distribution of 10.0 cents per unit is consistent with guidance and 1.0% ahead of previous year.
- 10.3% decline in portfolio value contributed to after tax loss of $74.1 million; NTA now $1.06 per unit.
- Secure cashflows and strong balance sheet.
- Current gearing of 35.3% and Interest Cover Ratio of 3.2 times.
- $902 million of new debt financing completed (including $220 million in available liquidity) with no significant maturity until October 2011.
- Asset sales of $50.6 million were achieved with a further $57.0 million under conditional contract.
- 5.4% increase on market rental reviews and 157,847 sqm of new lease transactions resulting in 96% occupancy and 5.9 year average lease term.
Financial Result
The Trust has continued to achieve its operational targets and has delivered an after tax distributable profit of $83.8 million. The increase from $68.7 million in the previous corresponding period includes the full year impact of GMT’s investment in Highbrook Development Limited, ongoing leasing success and further development commitments and completions.
Cash distributions, on a weighted per unit basis, have increased 1.0% to 10.0 cents per unit. The increase is consistent with the guidance provided in November 2008 and will result in a final quarter cash distribution of 2.47916 cents per unit. Imputation credits of 0.1556162 cents per unit will also be attached.
The record date for the distribution is 4 June 2009 with payment to be made on 18 June 2009. Unitholders are reminded that the distribution reinvestment plan continues to operate with a 2% discount and that any changes to their election are required by 5:00pm on the record date of 4 June 2009.
While distributable earnings targets have been achieved the financial performance of the Trust has been impacted by a 10.3% write down in the carrying value of the investment and development assets to $1.5 billion. The $172.8 million devaluation is a non-cash item and contributes to a net loss of $74.1 million for the year, compared to a net profit of $99.3 million in 2008.
Jim McLay, Chairman of Goodman (NZ) Limited (“GNZ”) said, “The Board is pleased with the operational performance of the Trust but disappointed with the valuation outcome and its impact on the Trust’s result.”
While the devaluation has no impact on distributable profit, it contributes to the reduction in net tangible assets to $1.06 per unit.
Net tangible assets have also been reduced by an unrealised reduction in the market value of GMT’s interest rate swaps, from an asset of $12.8 million to a liability of $38.4 million.
Balance Sheet Remains Strong
GMT’s strong balance sheet position is supported by secure cashflows from its high quality property portfolio. These cashflows are underpinned by long term leases to leading local and international companies including, Toll Logistics, NZ Post, Air New Zealand, DHL, Linfox Logistics and Fletcher Building. GMTs interest cover ratio of 3.2 times provides significant headroom against its banking covenants of 2.25 times.
As at 31 March 2009, net borrowings less pending settlements make up 35.3% of property assets compared to banking covenants on GMT’s main debt facility of 45.0%.
During the period, GMT successfully refinanced all its existing debt facilities. These facilities total $902 million and provide approximately $220 million of additional liquidity. The extended facility terms ensure that GMT has no unfunded refinancing until October 2011.
Jim McLay said “Mitigating the risks around debt refinancing and prudent capital management have been a key focus of 2009. This emphasis has ensured GMT has maintained a strong financial position at a time when corporate balance sheets are under pressure and access to debt funding is more restricted than in the past.”
GNZ Chief Executive Officer, John Dakin said “The Board and Management were proactive in their response to a changing credit market and acted early to ensure GMT maintained its secure financial position. The commitment of the major trading banks to the new three year facilities reflects the strength of GMT’s business and investment strategy.”
In addition to its debt refinancing GMT has successfully implemented a number of direct capital management initiatives. These have included:
- The sale of non-core assets.
- Selectively allocating capital to development activity by:
1) Lifting the investment thresholds on new developments.
2) Suspending uncommitted developments.
Strategic disposals remain a key component of the capital management programme with the Trust securing $50.6 million of asset sales during the year. GMT has a further $57.0 million of property currently under conditional contract.
Portfolio Performance
Underpinning the pleasing operational result has been the consistent performance of the property portfolio. Active management and high standards of customer service have contributed to strong leasing results and have helped ensure revenue targets were achieved.
Portfolio highlights include:
- Leasing 157,847 sqm of rentable space to new and existing customers.
- Achieving annualised rental growth of 5.4% pa on market and inflation linked rent reviews.
- An occupancy rate of 96% and a weighted average lease term of 5.9 years.
While the stabilised portfolio has performed strongly, the attraction of the Trust’s development portfolio has continued to draw enquiry from customers seeking purpose built property solutions. In a competitive development market new commitments totalling 46,285sqm have been secured at the Highbrook Business Park and Savill Link estates for customers Blackwoods Paykel, Corporate Express, CSR Viridian, Schneider Electric, Steel and Tube Holdings and Toll Logistics.
With structured rent reviews and a weighted average lease term of 10 years these new developments provide regular rental growth and enhance the existing portfolio with improvements to portfolio quality, average lease term and customer diversity.
Valuation Result
The Board of GMT acknowledges the current dislocation in global financial and investment markets, from which New Zealand is not immune. This has resulted in a significant decline in the number of property transactions, worldwide, and in limited property transactional evidence of a “willing buyer and willing seller” nature, which is a key component of the property valuation process. The Board acknowledges that investor risk appetites have decreased over the preceding 12 months.
However, the Board is concerned that should the current dislocation continue, leading to limited appropriate transactional evidence, an alternative valuation methodology may need to be considered. To this end the Board has commenced a process engaging with key stakeholders to address these concerns and will update the market in due course.
The result of the independent valuations of the investment and development assets is a devaluation of $172.8 million, compared to a valuation gain of $28.9 million in the previous corresponding period.
The 10.3% decline comprises a 9.2% reduction in the value of the investment portfolio and an 18.2% reduction in the value of development land. The average capitalisation rate across the investment portfolio has increased from 8.0% in March 2008 to 8.73% in March 2009.
Outlook and Guidance
Strengthening GMT’s financial position and delivering a strong operational result were the key objectives of 2009. Achieving these goals in a more challenging financial environment, make this year’s result particularly notable.
Initiatives undertaken to strengthen the Trust’s financial position have ensured that GMT remains well capitalised and has secure debt funding facilities available. Active management and GMT’s premium property offering should continue to attract customers and will help mitigate the impact of any prolonged recession.
GMT’s strong capital base and high quality portfolio give the Board confidence that the Trust has the scale and liquidity appropriate in today’s uncertain market.
While the debt refinancing and balance sheet strengthening initiatives have proven to be very prudent, they do have a cost. Operational earnings for 2010 are expected to be in line with broker forecasts of 9.0 to 9.5 cents per unit, reflecting the impact of increased interest costs, asset disposals and lower growth and development assumptions. The forecast assumes that earnings are not unexpectedly impacted by deterioration in market conditions or a material customer default.
John Dakin, said, “With a proven management capability, a moderate level of debt, secure funding and a high quality property portfolio, the Trust has the right foundations for the year ahead.”
For further information please contact:
John Dakin
Chief Executive Officer
Goodman (NZ) Limited
(09) 375 6063
(021) 321 541
Attachments provided to NZX:
1. NZX Appendix 1
2. NZX Appendix 7
3. NZX Auditors Report
Result Summary
- After tax distributable profit of $83.8 million.
- Annual cash distribution of 10.0 cents per unit is consistent with guidance and 1.0% ahead of previous year.
- 10.3% decline in portfolio value contributed to after tax loss of $74.1 million; NTA now $1.06 per unit.
- Secure cashflows and strong balance sheet.
- Current gearing of 35.3% and Interest Cover Ratio of 3.2 times.
- $902 million of new debt financing completed (including $220 million in available liquidity) with no significant maturity until October 2011.
- Asset sales of $50.6 million were achieved with a further $57.0 million under conditional contract.
- 5.4% increase on market rental reviews and 157,847 sqm of new lease transactions resulting in 96% occupancy and 5.9 year average lease term.
Financial Result
The Trust has continued to achieve its operational targets and has delivered an after tax distributable profit of $83.8 million. The increase from $68.7 million in the previous corresponding period includes the full year impact of GMT’s investment in Highbrook Development Limited, ongoing leasing success and further development commitments and completions.
Cash distributions, on a weighted per unit basis, have increased 1.0% to 10.0 cents per unit. The increase is consistent with the guidance provided in November 2008 and will result in a final quarter cash distribution of 2.47916 cents per unit. Imputation credits of 0.1556162 cents per unit will also be attached.
The record date for the distribution is 4 June 2009 with payment to be made on 18 June 2009. Unitholders are reminded that the distribution reinvestment plan continues to operate with a 2% discount and that any changes to their election are required by 5:00pm on the record date of 4 June 2009.
While distributable earnings targets have been achieved the financial performance of the Trust has been impacted by a 10.3% write down in the carrying value of the investment and development assets to $1.5 billion. The $172.8 million devaluation is a non-cash item and contributes to a net loss of $74.1 million for the year, compared to a net profit of $99.3 million in 2008.
Jim McLay, Chairman of Goodman (NZ) Limited (“GNZ”) said, “The Board is pleased with the operational performance of the Trust but disappointed with the valuation outcome and its impact on the Trust’s result.”
While the devaluation has no impact on distributable profit, it contributes to the reduction in net tangible assets to $1.06 per unit.
Net tangible assets have also been reduced by an unrealised reduction in the market value of GMT’s interest rate swaps, from an asset of $12.8 million to a liability of $38.4 million.
Balance Sheet Remains Strong
GMT’s strong balance sheet position is supported by secure cashflows from its high quality property portfolio. These cashflows are underpinned by long term leases to leading local and international companies including, Toll Logistics, NZ Post, Air New Zealand, DHL, Linfox Logistics and Fletcher Building. GMTs interest cover ratio of 3.2 times provides significant headroom against its banking covenants of 2.25 times.
As at 31 March 2009, net borrowings less pending settlements make up 35.3% of property assets compared to banking covenants on GMT’s main debt facility of 45.0%.
During the period, GMT successfully refinanced all its existing debt facilities. These facilities total $902 million and provide approximately $220 million of additional liquidity. The extended facility terms ensure that GMT has no unfunded refinancing until October 2011.
Jim McLay said “Mitigating the risks around debt refinancing and prudent capital management have been a key focus of 2009. This emphasis has ensured GMT has maintained a strong financial position at a time when corporate balance sheets are under pressure and access to debt funding is more restricted than in the past.”
GNZ Chief Executive Officer, John Dakin said “The Board and Management were proactive in their response to a changing credit market and acted early to ensure GMT maintained its secure financial position. The commitment of the major trading banks to the new three year facilities reflects the strength of GMT’s business and investment strategy.”
In addition to its debt refinancing GMT has successfully implemented a number of direct capital management initiatives. These have included:
- The sale of non-core assets.
- Selectively allocating capital to development activity by:
1) Lifting the investment thresholds on new developments.
2) Suspending uncommitted developments.
Strategic disposals remain a key component of the capital management programme with the Trust securing $50.6 million of asset sales during the year. GMT has a further $57.0 million of property currently under conditional contract.
Portfolio Performance
Underpinning the pleasing operational result has been the consistent performance of the property portfolio. Active management and high standards of customer service have contributed to strong leasing results and have helped ensure revenue targets were achieved.
Portfolio highlights include:
- Leasing 157,847 sqm of rentable space to new and existing customers.
- Achieving annualised rental growth of 5.4% pa on market and inflation linked rent reviews.
- An occupancy rate of 96% and a weighted average lease term of 5.9 years.
While the stabilised portfolio has performed strongly, the attraction of the Trust’s development portfolio has continued to draw enquiry from customers seeking purpose built property solutions. In a competitive development market new commitments totalling 46,285sqm have been secured at the Highbrook Business Park and Savill Link estates for customers Blackwoods Paykel, Corporate Express, CSR Viridian, Schneider Electric, Steel and Tube Holdings and Toll Logistics.
With structured rent reviews and a weighted average lease term of 10 years these new developments provide regular rental growth and enhance the existing portfolio with improvements to portfolio quality, average lease term and customer diversity.
Valuation Result
The Board of GMT acknowledges the current dislocation in global financial and investment markets, from which New Zealand is not immune. This has resulted in a significant decline in the number of property transactions, worldwide, and in limited property transactional evidence of a “willing buyer and willing seller” nature, which is a key component of the property valuation process. The Board acknowledges that investor risk appetites have decreased over the preceding 12 months.
However, the Board is concerned that should the current dislocation continue, leading to limited appropriate transactional evidence, an alternative valuation methodology may need to be considered. To this end the Board has commenced a process engaging with key stakeholders to address these concerns and will update the market in due course.
The result of the independent valuations of the investment and development assets is a devaluation of $172.8 million, compared to a valuation gain of $28.9 million in the previous corresponding period.
The 10.3% decline comprises a 9.2% reduction in the value of the investment portfolio and an 18.2% reduction in the value of development land. The average capitalisation rate across the investment portfolio has increased from 8.0% in March 2008 to 8.73% in March 2009.
Outlook and Guidance
Strengthening GMT’s financial position and delivering a strong operational result were the key objectives of 2009. Achieving these goals in a more challenging financial environment, make this year’s result particularly notable.
Initiatives undertaken to strengthen the Trust’s financial position have ensured that GMT remains well capitalised and has secure debt funding facilities available. Active management and GMT’s premium property offering should continue to attract customers and will help mitigate the impact of any prolonged recession.
GMT’s strong capital base and high quality portfolio give the Board confidence that the Trust has the scale and liquidity appropriate in today’s uncertain market.
While the debt refinancing and balance sheet strengthening initiatives have proven to be very prudent, they do have a cost. Operational earnings for 2010 are expected to be in line with broker forecasts of 9.0 to 9.5 cents per unit, reflecting the impact of increased interest costs, asset disposals and lower growth and development assumptions. The forecast assumes that earnings are not unexpectedly impacted by deterioration in market conditions or a material customer default.
John Dakin, said, “With a proven management capability, a moderate level of debt, secure funding and a high quality property portfolio, the Trust has the right foundations for the year ahead.”
For further information please contact:
John Dakin
Chief Executive Officer
Goodman (NZ) Limited
(09) 375 6063
(021) 321 541
Attachments provided to NZX:
1. NZX Appendix 1
2. NZX Appendix 7
3. NZX Auditors Report
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KIP - Kiwi Income Property Trust: FY to 31/3/09
by Share Investor » 15 May 2009 12:41
Kiwi Income Property Trust today announced its annual result to 31 March 2009, delivering solid operating performance despite reporting an after tax loss.
The Trust, which counts Auckland’s Sylvia Park Shopping Centre amongst its premium assets, recorded an after tax loss of $168.9 million for the financial year to
31 March 2009. This was due primarily to an unrealised reduction in the value of the property portfolio and an adverse fair value movement in interest rate derivatives.
However, distributable profit was $61.0 million, down just 1.8% on the previous financial year. In line with previous guidance, Unit Holders will receive a final cash distribution of 4.00 cents per unit - bringing the Trust’s full-year cash distribution to 8.00 cents per unit. [1]
Independent valuations showed that the value of the Trust’s portfolio dropped by 10.1%, or $215.1 million, to $1.91 billion for the financial year to 31 March 2009. The decline resulted from a softening in market capitalisation rates – offset partly by an improvement in rental income performance.
“Solid operating performance underlines the annual result,” noted Sean Wareing, Chairman of the Manager of the Trust.
“The Trust’s net rental income grew by 6.9% to $133.7 million. Operating profit before tax increased by 4.8%, to $69.9 million,” he said.
“Despite the challenging environment, the Trust offers solid defensive attributes as it continues to benefit from the strength of its premium assets, its sector diversification in both retail and office properties and its diverse and high-quality tenant base,” Mr Wareing said.
[1] The record date for the final distribution is 8 June 2009, and the payment date is 24 June 2009. The distribution is eligible for reinvestment in accordance with the terms of the Trust’s Distribution Reinvestment Plan and a discount of 2.5% to the price at which units will be issued under the Plan will continue to apply.
BALANCE SHEET AND CAPITAL MANAGEMENT
“The Board of the Manager holds the view that it is essential to maintain a strong financial position in the current market conditions,” Mr Wareing said.
As a precautionary measure, the Trust has implemented capital management initiatives to improve its ability to absorb further possible reductions in portfolio value. Additional equity has been raised with a $50 million institutional placement, which is being followed up with a Unit Purchase Plan (UPP) opening on 18 May 2009, together with asset sales of $38 million.
“All the proceeds are being used to reduce debt, further strengthening the financial position of the Trust,” Mr Wareing said. The institutional placement and asset sales reduce the Trust’s gearing by approximately 4%.
“Our increased financial capacity will also better position the Trust to take advantage of future investment opportunities that may arise out of the current environment,” he added.
- As at 31 March 2009, the Trust’s total assets were $1.92 billion, with secured bank debt of $634 million representing 33.1% of total assets.
- The Trust had $800 million of committed bank debt facilities with a weighted average cost of bank debt of 6.45%, down from 7.62% as at 31 March 2008. The Trust has no bank debt that expires before the 2012 financial year and the combined banking facilities have a weighted average duration of 2.9 years as at 31 March 2009.
OPERATIONS
Chief Executive of the Manager of the Trust, Chris Gudgeon, said that despite the recession, the underlying operating performance of the Trust’s portfolio remains sound.
“The Trust has delivered solid growth in net rental income,” Mr Gudgeon said.
- In the year to 31 March 2009, 620 new leases, renewals or rent reviews were completed for over 145,000m2 of space.
- This resulted in an overall rental increase of $6.66 million (8.7% above previous rental levels), with an average compound annual growth rate of 5.7% recorded from rent reviews.
- Occupancy levels across the total portfolio remain high at 98.7%.
Retail Portfolio
“The Trust’s regional and sub-regional shopping centres provide competitive formats for retailers to access consumer spending,” said Mr Gudgeon.
“The Trust’s shopping centre management and leasing teams are working with retailers to drive sales performance, increase market share, maintain vacancies at current minimal levels and ensure rents remain affordable. Occupancy levels remain high at 99.0%.”
Overall sales for the retail portfolio were $930 million (excluding GST) for the year to 31 March 2009, down 2.2% on the previous year. Sales performance for major tenants (supermarkets, department stores and cinemas) saw modest 0.2% growth while specialty stores reflected lower discretionary spending, with a 4.1% decline.
Over the financial year, rent reviews were completed over 81,000m2 of retail space, resulting in a 4.9% rent increase (largely reflecting the CPI-related annual rent review structure in place for most specialty retail leases). The average gross occupancy cost ratio for specialty retail tenants was approximately 16.2% as at 31 March 2009, up from 14.7% the year before.
Sylvia Park and The Plaza
Sylvia Park continues to consolidate its position as Auckland’s premier shopping destination. By increasing market share, annual retail sales have grown to $350 million, the highest of any centre in New Zealand.
The centre’s popularity has supported the Trust’s investment in significant improvements to carparking and vehicle access. A $14 million extension to the existing multi-storey carpark was completed in December 2008, increasing the number of parking spaces by 750 to 4000. A fifth vehicle entry was also opened, providing direct access from Waipuna Road.
In Palmerston North, there was also steady progress. Since construction began in March 2008, the Trust’s $93 million redevelopment of The Plaza Shopping Centre has progressed on schedule. The first retail stage opened in March 2009 and features 15 new specialty shops including a new foodcourt, a three-level carpark, and integration of the existing Countdown supermarket into the mall.
The Plaza’s redevelopment will increase the centre’s size by nearly 60% to 31,200m2. Highlights include a new two-level 6,800m2 Farmers department store, the integrated Countdown, the existing Kmart department store, 100 specialty retailers (up from the current 60) and a total of 1,200 car parks. Completion is programmed for the second quarter of 2010.
In February 2008, at the start of redevelopment, The Plaza’s value was projected to be approximately $209 million on completion, based on a 6.75% capitalisation rate. With softening rates, the value on completion is now projected to be around $188 million, based on a 7.5% capitalisation rate.
A fully resourced and focused leasing programme is underway, with 57 of 102 specialty shops leased and 70% of total budgeted base rent on completion now secured.
Office Portfolio
Mr Gudgeon noted that since 2002, the Auckland and Wellington CBD office markets have performed well for investors. Solid demand and controlled new supply has led to low vacancy rates and significant growth in rents. Vacancy rates reached historic lows in both CBDs in 2008.
The Trust’s office portfolio continues to produce significant rental growth and enjoys a high occupancy rate of 98.3% at 31 March 2009.
During the year to 31 March, rental reviews were completed for nearly 48,000m2 of office space, with an average 22.1% rent increase, equivalent to compound growth of 7.4% per annum since the previous review. New and renewed leases were finalised for over 17,000m2 of space or 10.0% of the total office portfolio.
“The Trust’s commitment to maintaining strong relationships with tenants has helped in retaining 90% of tenants whose leases expired in the last 12 months,” Mr Gudgeon said.
Divestments
As part of the Trust’s capital management initiatives, the Trust entered into unconditional contracts to sell two properties during the year with the proceeds to be used to repay debt. Both properties were identified for sale principally because of their limited prospects for rental growth.
- The Fisher & Paykel Finance Building at 31 Highbrook Drive, East Tamaki was unconditionally sold for $12 million, reflecting a passing yield of 8.36%. This asset was independently valued at $12 million as at 31 March 2009. This transaction is due to settle on 15 June 2009.
- BP House on Customhouse Quay in Wellington was unconditionally sold for $26 million, reflecting a passing yield of 7.3%. This asset was independently valued at $26.3 million as at 31 March 2009. The sale remains subject to a first right of refusal in favour of BP Oil New Zealand Limited to acquire the property on the same terms as those agreed with the purchaser. This transaction is due to settle no later than 18 August 2009.
ANNUAL VALUATIONS
Independent valuations were completed for the Trust’s assets by CB Richard Ellis, Colliers International and Jones Lang LaSalle. These indicate that the overall value of the Trust’s property portfolio at 31 March 2009 was $1.91 billion, a net reduction of $215.1 million or 10.1% of the portfolio value.
The portfolio weighted average lease term remaining is 4.3 years and the portfolio occupancy rate is 98.7%. Based on the independent valuers’ assessments of market rents, portfolio rental levels are under market by 4.1%. This results from office portfolio rents being 8.7% less than market (with retail rents essentially at market levels).
The decline in the value of the Trust’s property portfolio reflects adverse global economic conditions and negative sentiment in financial markets worldwide. The weighted average capitalisation rate for the investment portfolio increased 76 basis points from 6.97% as at 31 March 2008 to 7.73% as at 31 March 2009. The full impact of softening capitalisation rates was partially offset by solid income growth, particularly within the office portfolio.
OUTLOOK
“Prospects for rental growth in the retail portfolio are inevitably constrained by current market conditions,” said Mr Wareing.
“Subdued economic and investment activity and potentially higher unemployment will likely bring an end to the significant rental growth enjoyed by the office sector. Vacancy rates are expected to increase over the next two years, putting pressure on rental rates,” he said.
“Little can be done to affect movements in market rents. But the Trust’s portfolio benefits from defensive characteristics which will help maintain rental income performance in the current environment. These defensive qualities are underpinned by the portfolio’s sector diversification in both retail and office properties, the quality of its premium assets, and its diverse and high quality tenant base,” said Mr Wareing.
Mr Wareing said, “While the Manager remains cautious in the current economic environment, based upon the outlook for the Trust, and subject to economic conditions, we are projecting a cash distribution for the year ending 31 March 2010 of approximately 7.5 cents per unit.”
At current unit prices this represents an after tax return of approximately 8.0% p.a. (equivalent to a 12.0% p.a. pre-tax return for 33% tax payers).
ENDS
For further information please contact:
Chris Gudgeon
Chief Executive
Kiwi Income Properties Limited
DDI: +64 9 359 4011
Mob: +64 21 855 907
Media contact:
Penny Newbigin
Communications Manager
Kiwi Income Properties Limited
DDI: +64 9 359 4014
Mob: +64 21 241 8368
About Kiwi Income Property Trust
Kiwi Income Property Trust’s objective is to optimise returns for its Unit Holders through the careful acquisition, development and professional management of its property portfolio. The Trust is listed on the New Zealand Stock Exchange and is ranked within the top 15 on the NZX 50 Index, and is a member of the NZX 10 Index.
The total value of the Trust’s property portfolio is $1.91 billion. Assets include:
Key Retail Assets
Sylvia Park Shopping Centre Auckland
Centre Place Shopping Centre Hamilton
Downtown Plaza Shopping Centre Hamilton
The Plaza Shopping Centre Palmerston North
North City Shopping Centre Porirua
Northlands Shopping Centre Christchurch
Key Office Assets
Vero Centre Auckland
National Bank Centre Auckland
21 Pitt Street Auckland
The Majestic Centre Wellington
Unisys House Wellington
44 The Terrace Wellington
50 The Terrace Wellington
PricewaterhouseCoopers Centre Christchurch
Kiwi Income Property Trust’s website address is http://www.kipt.co.nz
The Trust, which counts Auckland’s Sylvia Park Shopping Centre amongst its premium assets, recorded an after tax loss of $168.9 million for the financial year to
31 March 2009. This was due primarily to an unrealised reduction in the value of the property portfolio and an adverse fair value movement in interest rate derivatives.
However, distributable profit was $61.0 million, down just 1.8% on the previous financial year. In line with previous guidance, Unit Holders will receive a final cash distribution of 4.00 cents per unit - bringing the Trust’s full-year cash distribution to 8.00 cents per unit. [1]
Independent valuations showed that the value of the Trust’s portfolio dropped by 10.1%, or $215.1 million, to $1.91 billion for the financial year to 31 March 2009. The decline resulted from a softening in market capitalisation rates – offset partly by an improvement in rental income performance.
“Solid operating performance underlines the annual result,” noted Sean Wareing, Chairman of the Manager of the Trust.
“The Trust’s net rental income grew by 6.9% to $133.7 million. Operating profit before tax increased by 4.8%, to $69.9 million,” he said.
“Despite the challenging environment, the Trust offers solid defensive attributes as it continues to benefit from the strength of its premium assets, its sector diversification in both retail and office properties and its diverse and high-quality tenant base,” Mr Wareing said.
[1] The record date for the final distribution is 8 June 2009, and the payment date is 24 June 2009. The distribution is eligible for reinvestment in accordance with the terms of the Trust’s Distribution Reinvestment Plan and a discount of 2.5% to the price at which units will be issued under the Plan will continue to apply.
BALANCE SHEET AND CAPITAL MANAGEMENT
“The Board of the Manager holds the view that it is essential to maintain a strong financial position in the current market conditions,” Mr Wareing said.
As a precautionary measure, the Trust has implemented capital management initiatives to improve its ability to absorb further possible reductions in portfolio value. Additional equity has been raised with a $50 million institutional placement, which is being followed up with a Unit Purchase Plan (UPP) opening on 18 May 2009, together with asset sales of $38 million.
“All the proceeds are being used to reduce debt, further strengthening the financial position of the Trust,” Mr Wareing said. The institutional placement and asset sales reduce the Trust’s gearing by approximately 4%.
“Our increased financial capacity will also better position the Trust to take advantage of future investment opportunities that may arise out of the current environment,” he added.
- As at 31 March 2009, the Trust’s total assets were $1.92 billion, with secured bank debt of $634 million representing 33.1% of total assets.
- The Trust had $800 million of committed bank debt facilities with a weighted average cost of bank debt of 6.45%, down from 7.62% as at 31 March 2008. The Trust has no bank debt that expires before the 2012 financial year and the combined banking facilities have a weighted average duration of 2.9 years as at 31 March 2009.
OPERATIONS
Chief Executive of the Manager of the Trust, Chris Gudgeon, said that despite the recession, the underlying operating performance of the Trust’s portfolio remains sound.
“The Trust has delivered solid growth in net rental income,” Mr Gudgeon said.
- In the year to 31 March 2009, 620 new leases, renewals or rent reviews were completed for over 145,000m2 of space.
- This resulted in an overall rental increase of $6.66 million (8.7% above previous rental levels), with an average compound annual growth rate of 5.7% recorded from rent reviews.
- Occupancy levels across the total portfolio remain high at 98.7%.
Retail Portfolio
“The Trust’s regional and sub-regional shopping centres provide competitive formats for retailers to access consumer spending,” said Mr Gudgeon.
“The Trust’s shopping centre management and leasing teams are working with retailers to drive sales performance, increase market share, maintain vacancies at current minimal levels and ensure rents remain affordable. Occupancy levels remain high at 99.0%.”
Overall sales for the retail portfolio were $930 million (excluding GST) for the year to 31 March 2009, down 2.2% on the previous year. Sales performance for major tenants (supermarkets, department stores and cinemas) saw modest 0.2% growth while specialty stores reflected lower discretionary spending, with a 4.1% decline.
Over the financial year, rent reviews were completed over 81,000m2 of retail space, resulting in a 4.9% rent increase (largely reflecting the CPI-related annual rent review structure in place for most specialty retail leases). The average gross occupancy cost ratio for specialty retail tenants was approximately 16.2% as at 31 March 2009, up from 14.7% the year before.
Sylvia Park and The Plaza
Sylvia Park continues to consolidate its position as Auckland’s premier shopping destination. By increasing market share, annual retail sales have grown to $350 million, the highest of any centre in New Zealand.
The centre’s popularity has supported the Trust’s investment in significant improvements to carparking and vehicle access. A $14 million extension to the existing multi-storey carpark was completed in December 2008, increasing the number of parking spaces by 750 to 4000. A fifth vehicle entry was also opened, providing direct access from Waipuna Road.
In Palmerston North, there was also steady progress. Since construction began in March 2008, the Trust’s $93 million redevelopment of The Plaza Shopping Centre has progressed on schedule. The first retail stage opened in March 2009 and features 15 new specialty shops including a new foodcourt, a three-level carpark, and integration of the existing Countdown supermarket into the mall.
The Plaza’s redevelopment will increase the centre’s size by nearly 60% to 31,200m2. Highlights include a new two-level 6,800m2 Farmers department store, the integrated Countdown, the existing Kmart department store, 100 specialty retailers (up from the current 60) and a total of 1,200 car parks. Completion is programmed for the second quarter of 2010.
In February 2008, at the start of redevelopment, The Plaza’s value was projected to be approximately $209 million on completion, based on a 6.75% capitalisation rate. With softening rates, the value on completion is now projected to be around $188 million, based on a 7.5% capitalisation rate.
A fully resourced and focused leasing programme is underway, with 57 of 102 specialty shops leased and 70% of total budgeted base rent on completion now secured.
Office Portfolio
Mr Gudgeon noted that since 2002, the Auckland and Wellington CBD office markets have performed well for investors. Solid demand and controlled new supply has led to low vacancy rates and significant growth in rents. Vacancy rates reached historic lows in both CBDs in 2008.
The Trust’s office portfolio continues to produce significant rental growth and enjoys a high occupancy rate of 98.3% at 31 March 2009.
During the year to 31 March, rental reviews were completed for nearly 48,000m2 of office space, with an average 22.1% rent increase, equivalent to compound growth of 7.4% per annum since the previous review. New and renewed leases were finalised for over 17,000m2 of space or 10.0% of the total office portfolio.
“The Trust’s commitment to maintaining strong relationships with tenants has helped in retaining 90% of tenants whose leases expired in the last 12 months,” Mr Gudgeon said.
Divestments
As part of the Trust’s capital management initiatives, the Trust entered into unconditional contracts to sell two properties during the year with the proceeds to be used to repay debt. Both properties were identified for sale principally because of their limited prospects for rental growth.
- The Fisher & Paykel Finance Building at 31 Highbrook Drive, East Tamaki was unconditionally sold for $12 million, reflecting a passing yield of 8.36%. This asset was independently valued at $12 million as at 31 March 2009. This transaction is due to settle on 15 June 2009.
- BP House on Customhouse Quay in Wellington was unconditionally sold for $26 million, reflecting a passing yield of 7.3%. This asset was independently valued at $26.3 million as at 31 March 2009. The sale remains subject to a first right of refusal in favour of BP Oil New Zealand Limited to acquire the property on the same terms as those agreed with the purchaser. This transaction is due to settle no later than 18 August 2009.
ANNUAL VALUATIONS
Independent valuations were completed for the Trust’s assets by CB Richard Ellis, Colliers International and Jones Lang LaSalle. These indicate that the overall value of the Trust’s property portfolio at 31 March 2009 was $1.91 billion, a net reduction of $215.1 million or 10.1% of the portfolio value.
The portfolio weighted average lease term remaining is 4.3 years and the portfolio occupancy rate is 98.7%. Based on the independent valuers’ assessments of market rents, portfolio rental levels are under market by 4.1%. This results from office portfolio rents being 8.7% less than market (with retail rents essentially at market levels).
The decline in the value of the Trust’s property portfolio reflects adverse global economic conditions and negative sentiment in financial markets worldwide. The weighted average capitalisation rate for the investment portfolio increased 76 basis points from 6.97% as at 31 March 2008 to 7.73% as at 31 March 2009. The full impact of softening capitalisation rates was partially offset by solid income growth, particularly within the office portfolio.
OUTLOOK
“Prospects for rental growth in the retail portfolio are inevitably constrained by current market conditions,” said Mr Wareing.
“Subdued economic and investment activity and potentially higher unemployment will likely bring an end to the significant rental growth enjoyed by the office sector. Vacancy rates are expected to increase over the next two years, putting pressure on rental rates,” he said.
“Little can be done to affect movements in market rents. But the Trust’s portfolio benefits from defensive characteristics which will help maintain rental income performance in the current environment. These defensive qualities are underpinned by the portfolio’s sector diversification in both retail and office properties, the quality of its premium assets, and its diverse and high quality tenant base,” said Mr Wareing.
Mr Wareing said, “While the Manager remains cautious in the current economic environment, based upon the outlook for the Trust, and subject to economic conditions, we are projecting a cash distribution for the year ending 31 March 2010 of approximately 7.5 cents per unit.”
At current unit prices this represents an after tax return of approximately 8.0% p.a. (equivalent to a 12.0% p.a. pre-tax return for 33% tax payers).
ENDS
For further information please contact:
Chris Gudgeon
Chief Executive
Kiwi Income Properties Limited
DDI: +64 9 359 4011
Mob: +64 21 855 907
Media contact:
Penny Newbigin
Communications Manager
Kiwi Income Properties Limited
DDI: +64 9 359 4014
Mob: +64 21 241 8368
About Kiwi Income Property Trust
Kiwi Income Property Trust’s objective is to optimise returns for its Unit Holders through the careful acquisition, development and professional management of its property portfolio. The Trust is listed on the New Zealand Stock Exchange and is ranked within the top 15 on the NZX 50 Index, and is a member of the NZX 10 Index.
The total value of the Trust’s property portfolio is $1.91 billion. Assets include:
Key Retail Assets
Sylvia Park Shopping Centre Auckland
Centre Place Shopping Centre Hamilton
Downtown Plaza Shopping Centre Hamilton
The Plaza Shopping Centre Palmerston North
North City Shopping Centre Porirua
Northlands Shopping Centre Christchurch
Key Office Assets
Vero Centre Auckland
National Bank Centre Auckland
21 Pitt Street Auckland
The Majestic Centre Wellington
Unisys House Wellington
44 The Terrace Wellington
50 The Terrace Wellington
PricewaterhouseCoopers Centre Christchurch
Kiwi Income Property Trust’s website address is http://www.kipt.co.nz
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TPW - Trustpower Ltd: FY to 31/3/09
by Share Investor » 15 May 2009 17:36
Market Announcement Friday, 15 May 2009
TrustPower Limited Audited Financial Results for the Year Ended 31 March 2009
TrustPower’s consolidated underlying surplus after tax excluding fair value movements on financial instruments which are inherently volatile and prior year adjustment for change in tax rate was $118.8 million for the year ended 31 March 2009. This represents an increase of 28 per cent compared with $92.6 million for the same period last year.
Earnings before interest, tax, depreciation, amortisation and fair value movements on financial instruments (“EBITDAF”) grew by 25 per cent to $260.0 million from $208.0 million in the previous year.
Profit after tax attributable to the shareholders of the Company was $105.1 million compared with $98.1 million for the prior year. This includes the impact of fair value movements on financial instruments and prior year adjustment for change in tax rate.
Operating expenses including energy and line costs increased 11 per cent on the previous year, primarily driven by higher wholesale electricity costs during the first half of the year.
Operating revenue of $785.4 million increased 15 per cent on the previous year as a result of higher energy prices charged to those customers paying spot market prices through the first half of the year together with a $17.0 million revenue contribution from telecommunication services, $8.4 million from sale of carbon credits and $24.2 million from the Snowtown Wind Farm in South Australia.
Total electricity volume sold by the Company in New Zealand was 4,032 GWh compared with 4,540 GWh in the year to 31 March 2008 mainly due to the restructure and volume reduction of a large industrial contract. Customer numbers increased to 227,000 at 2009 year end from 222,000 a year earlier.
The New Zealand electricity market was volatile through the first half of the 2009 financial year with a combination of low wind production, low hydro inflows and reduced HVDC transmission capacity causing significant increases in wholesale prices. The major South Island hydro storage lakes remained at lower than average levels through until September 2008 which elevated wholesale electricity prices for a number of months.
While TrustPower was negatively impacted through the first quarter because of these market conditions, it was favourably impacted in the second quarter due to high inflows into its own catchments which enabled the Company to run its hydro generation plant strongly during a period of high prices.
The second half of the financial year has seen above average inflows into key South Island hydro catchments and storage levels being quickly replenished and remaining at above average for the remainder of the financial year. Consequently, wholesale electricity prices have fallen significantly.
The Company’s New Zealand generation production of 2,127 GWh for the year was up 5 per cent on the previous year but around 190 GWh down on long term average. Total hydro production was up 96 GWh (7 per cent) on the previous year due to significantly higher North Island hydro production (up 204 GWH or 37 per cent) off-set by a 107 GWh (12 per cent) decline in South Island hydro production. Wind production was up 2 per cent on the previous year but was down 11 per cent on expected long term average performance. Most of this shortfall occurred in the autumn months of the first quarter.
Below average wind production during the third quarter from the Snowtown Wind Farm contributed to a 16 GWh (6 per cent) lower than expected output for the 2009 financial year of 254 GWh. All 47 turbines have now passed final acceptance testing under the turbine supply contract. The Company is pleased with the successful execution of the first stage of this wind farm which is the Company’s first project constructed outside of New Zealand.
Following the introduction of International Financial Reporting Standards (“IFRS”), the accounting standards require that certain changes in the fair value of financial instruments be reflected in the Income Statement.
TrustPower utilises various financial instruments to hedge electricity price risks, foreign currency risks and interest rate risks to which it is exposed. While the Company utilises valid economic risk management instruments to hedge these risks, these instruments must also meet the stringent criteria prescribed under IFRS in order to qualify for hedge accounting. For those instruments that do not qualify for hedge accounting, the change in fair value is recognised in the Income Statement.
The financial instruments in TrustPower’s portfolio that do not qualify for hedge accounting are mostly interest rate swaps and Energy Hedge Market transactions. Due to the significant drop in long term interest rates in both New Zealand and Australia over the second half of the financial year there has been a significant fair value reduction in the interest rate hedge portfolio.
Return on average equity, adjusted for fair value movements on financial instruments but including the impact of the revaluation of generation assets was 8.8 per cent (last year 7.9 per cent).
Group operating cash flow was $214.2 million for the 2009 financial year versus $161.0 million in the previous year.
Taking into account the shortfall in production from the Company’s own generation assets and volatile wholesale prices in the first half of the financial year, the result was good.
TrustPower has a policy of independently reviewing the value of its generation assets at least every three years. The last valuation was completed as at 31 March 2007. However, IFRS require that key valuation inputs are re-examined annually and if there has been a material change then a revaluation must be undertaken.
TrustPower has determined that there have been material changes in forward electricity prices to warrant a revaluation being completed. Additionally, a number of generation projects were completed since the last revaluation namely, Tararua Stage III wind farm, Deep Stream hydro and the Snowtown Wind Farm.
Consequently, Deloitte Corporate Finance has independently valued the Group’s generation assets as at 31 March 2009.
The financial impact of the revaluation has been an uplift in generation asset values of $259.7 million.
$204.1 million has been accounted through the revaluation reserve in equity with the balance of $55.6 million accounted as an increase to deferred tax liability.
During the financial year TrustPower successfully raised $100 million of seven year subordinated bonds from retail investors. TrustPower is one of only three corporate issuers that have successfully raised subordinated debt over the last two years and is testimony to the Company’s investment brand and conservative capital structure.
Debt (including subordinated bonds) to debt plus equity was 33.9 per cent at year end, including the impact of the revaluation of generation assets, versus 34.3 per cent in the previous year.
TrustPower continues to maintain high levels of committed credit facilities. Including subordinated bonds the Company currently has NZD equivalent of 1 billion of committed debt funding in place. As at 31 March 2009 Group net debt was $705 million. Given the ongoing uncertainty in financial markets the Company has recently accepted refinancing offers for $100 million of bank facilities due to mature in July 2009 together with a $20 million increase. These facilities are expected to be extended to July 2011 and are in the final stages of documentation The Government is undertaking a review of the climate change legislation. A government select committee is due to report to Parliament shortly and the Government has advised that it intends to have an amended Emissions Trading Scheme (“ETS”) enacted by September 2009. However, the Government has also indicated that it would like to see harmonisation, where possible, with the proposed Climate Pollution Reduction Scheme (“CPRS”) that the Australian Government was targeting to introduce by July 2010. The Australian Government recently announced that the introduction of the CPRS will be delayed to mid 2011. It is likely that the CPRS will not be approved by the Australian Senate without the support of minor parties. This could cause further delays in finalising an amended ETS in New Zealand.
The Australian Government has announced that it will increase the Mandatory Renewable Energy Target (“MRET”) from 9,500 GWh per annum to 45,000 GWh by 2020 and for the scheme to remain in place through to 2030. The extension of this scheme will support new renewable energy development in Australia, in particular wind development which is currently viewed as the most economic renewable generation option. Legislation is expected to be passed to extend the scheme by July 2009.
On 1 April 2009, the Minister of Energy and Resources announced that there will be a ministerial review of the electricity market. The stated objective of the review is to improve the performance of the electricity market and its institutions and governance arrangements. The review will consider the findings of a number of recent or upcoming reviews and investigations including the pending Commerce Commission reports on wholesale and retail competition. A Technical Advisory Group of six experts has been appointed to support the review process and advise the Minister. A discussion paper is expected to be provided to Cabinet in June and released for public consultation in July. Any legislative change arising from the review is expected to be enacted by June 2010.
Good progress has been made on a range of growth options in New Zealand and Australia.
TrustPower currently has consents for 420MW of wind farm development in the South Island and is well advanced with a further 118 MW of South Island hydro consents at Arnold and Wairau.
In Australia, the TrustPower Group has planning consent for up to another 235 MW of capacity at the Snowtown Wind Farm and is awaiting approval for an extension to the 48 MW Myponga Wind Farm planning consent.
TrustPower is progressing negotiation with a small number of parties that have appealed the Arnold consent with the objective of avoiding another costly Environment Court process.
The Wairau consent appeal will inevitably go through an Environment Court process and a hearing has been scheduled for October 2009. The Company is undertaking further analysis in preparation for this process.
Good progress is being made in reaching agreement with landowners for potential wind farm developments at a number of New South Wales, Victoria and South Australia sites.
Forecast capital expenditure in the 2010 financial year is expected to be around $38 million which includes generation expenditure undertaken as part of the Company’s 10 year asset management plan, small hydro enhancement projects and implementation of the Company’s new customer care and billing system.
Generation development costs to be expensed in the 2010 financial year are projected to be around $7 million continuing the high level of investment in growing the Company’s portfolio of investment options.
TrustPower is working to ensure that it is in a position to progress renewable projects should the Company conclude that shareholder value is likely to be created.
The first stage of TrustPower’s IT systems upgrade has been completed with a new financial reporting system successfully implemented shortly after year end. Design work for the new customer care and billing system is well underway with a first stage completion target date of early March 2010.
The Directors are pleased to announce a final dividend of 17 cents per share, partially imputed to 9 cents per share, payable 8 June 2009 (record date of 29 May 2009). This together with an interim dividend of 16 cents per share provides a total payout of 33 cents per share for the 2009 financial year compared with 30 cents per share for the 2008 financial year, representing dividend growth of 10 per cent. The Company anticipates ongoing growth of normal dividends.
The Company also paid a 10 cent unimputed special dividend in December 2008. The Directors have approved a further unimputed special dividend of 10 cents per share with the same record and payment dates as the final dividend. The Company believes that following the payment of the final and special dividends it is positioned to pursue growth opportunities.
New Zealand hydro storage is currently around 124 per cent of average for this time of year and TrustPower’s hydro storage lakes are also at above average levels. The current New Zealand hydro storage position should ensure a comfortable level of electricity supply to meet demand over the 2009 winter.
While it is too early to make predictions about the 2010 financial year, it is worth noting that the Company is well positioned to meet its customers’ needs and to pursue further development of electricity generation assets when it is economically justifiable.
BJ HARKER CHAIRMAN
TrustPower Limited Audited Financial Results for the Year Ended 31 March 2009
TrustPower’s consolidated underlying surplus after tax excluding fair value movements on financial instruments which are inherently volatile and prior year adjustment for change in tax rate was $118.8 million for the year ended 31 March 2009. This represents an increase of 28 per cent compared with $92.6 million for the same period last year.
Earnings before interest, tax, depreciation, amortisation and fair value movements on financial instruments (“EBITDAF”) grew by 25 per cent to $260.0 million from $208.0 million in the previous year.
Profit after tax attributable to the shareholders of the Company was $105.1 million compared with $98.1 million for the prior year. This includes the impact of fair value movements on financial instruments and prior year adjustment for change in tax rate.
Operating expenses including energy and line costs increased 11 per cent on the previous year, primarily driven by higher wholesale electricity costs during the first half of the year.
Operating revenue of $785.4 million increased 15 per cent on the previous year as a result of higher energy prices charged to those customers paying spot market prices through the first half of the year together with a $17.0 million revenue contribution from telecommunication services, $8.4 million from sale of carbon credits and $24.2 million from the Snowtown Wind Farm in South Australia.
Total electricity volume sold by the Company in New Zealand was 4,032 GWh compared with 4,540 GWh in the year to 31 March 2008 mainly due to the restructure and volume reduction of a large industrial contract. Customer numbers increased to 227,000 at 2009 year end from 222,000 a year earlier.
The New Zealand electricity market was volatile through the first half of the 2009 financial year with a combination of low wind production, low hydro inflows and reduced HVDC transmission capacity causing significant increases in wholesale prices. The major South Island hydro storage lakes remained at lower than average levels through until September 2008 which elevated wholesale electricity prices for a number of months.
While TrustPower was negatively impacted through the first quarter because of these market conditions, it was favourably impacted in the second quarter due to high inflows into its own catchments which enabled the Company to run its hydro generation plant strongly during a period of high prices.
The second half of the financial year has seen above average inflows into key South Island hydro catchments and storage levels being quickly replenished and remaining at above average for the remainder of the financial year. Consequently, wholesale electricity prices have fallen significantly.
The Company’s New Zealand generation production of 2,127 GWh for the year was up 5 per cent on the previous year but around 190 GWh down on long term average. Total hydro production was up 96 GWh (7 per cent) on the previous year due to significantly higher North Island hydro production (up 204 GWH or 37 per cent) off-set by a 107 GWh (12 per cent) decline in South Island hydro production. Wind production was up 2 per cent on the previous year but was down 11 per cent on expected long term average performance. Most of this shortfall occurred in the autumn months of the first quarter.
Below average wind production during the third quarter from the Snowtown Wind Farm contributed to a 16 GWh (6 per cent) lower than expected output for the 2009 financial year of 254 GWh. All 47 turbines have now passed final acceptance testing under the turbine supply contract. The Company is pleased with the successful execution of the first stage of this wind farm which is the Company’s first project constructed outside of New Zealand.
Following the introduction of International Financial Reporting Standards (“IFRS”), the accounting standards require that certain changes in the fair value of financial instruments be reflected in the Income Statement.
TrustPower utilises various financial instruments to hedge electricity price risks, foreign currency risks and interest rate risks to which it is exposed. While the Company utilises valid economic risk management instruments to hedge these risks, these instruments must also meet the stringent criteria prescribed under IFRS in order to qualify for hedge accounting. For those instruments that do not qualify for hedge accounting, the change in fair value is recognised in the Income Statement.
The financial instruments in TrustPower’s portfolio that do not qualify for hedge accounting are mostly interest rate swaps and Energy Hedge Market transactions. Due to the significant drop in long term interest rates in both New Zealand and Australia over the second half of the financial year there has been a significant fair value reduction in the interest rate hedge portfolio.
Return on average equity, adjusted for fair value movements on financial instruments but including the impact of the revaluation of generation assets was 8.8 per cent (last year 7.9 per cent).
Group operating cash flow was $214.2 million for the 2009 financial year versus $161.0 million in the previous year.
Taking into account the shortfall in production from the Company’s own generation assets and volatile wholesale prices in the first half of the financial year, the result was good.
TrustPower has a policy of independently reviewing the value of its generation assets at least every three years. The last valuation was completed as at 31 March 2007. However, IFRS require that key valuation inputs are re-examined annually and if there has been a material change then a revaluation must be undertaken.
TrustPower has determined that there have been material changes in forward electricity prices to warrant a revaluation being completed. Additionally, a number of generation projects were completed since the last revaluation namely, Tararua Stage III wind farm, Deep Stream hydro and the Snowtown Wind Farm.
Consequently, Deloitte Corporate Finance has independently valued the Group’s generation assets as at 31 March 2009.
The financial impact of the revaluation has been an uplift in generation asset values of $259.7 million.
$204.1 million has been accounted through the revaluation reserve in equity with the balance of $55.6 million accounted as an increase to deferred tax liability.
During the financial year TrustPower successfully raised $100 million of seven year subordinated bonds from retail investors. TrustPower is one of only three corporate issuers that have successfully raised subordinated debt over the last two years and is testimony to the Company’s investment brand and conservative capital structure.
Debt (including subordinated bonds) to debt plus equity was 33.9 per cent at year end, including the impact of the revaluation of generation assets, versus 34.3 per cent in the previous year.
TrustPower continues to maintain high levels of committed credit facilities. Including subordinated bonds the Company currently has NZD equivalent of 1 billion of committed debt funding in place. As at 31 March 2009 Group net debt was $705 million. Given the ongoing uncertainty in financial markets the Company has recently accepted refinancing offers for $100 million of bank facilities due to mature in July 2009 together with a $20 million increase. These facilities are expected to be extended to July 2011 and are in the final stages of documentation The Government is undertaking a review of the climate change legislation. A government select committee is due to report to Parliament shortly and the Government has advised that it intends to have an amended Emissions Trading Scheme (“ETS”) enacted by September 2009. However, the Government has also indicated that it would like to see harmonisation, where possible, with the proposed Climate Pollution Reduction Scheme (“CPRS”) that the Australian Government was targeting to introduce by July 2010. The Australian Government recently announced that the introduction of the CPRS will be delayed to mid 2011. It is likely that the CPRS will not be approved by the Australian Senate without the support of minor parties. This could cause further delays in finalising an amended ETS in New Zealand.
The Australian Government has announced that it will increase the Mandatory Renewable Energy Target (“MRET”) from 9,500 GWh per annum to 45,000 GWh by 2020 and for the scheme to remain in place through to 2030. The extension of this scheme will support new renewable energy development in Australia, in particular wind development which is currently viewed as the most economic renewable generation option. Legislation is expected to be passed to extend the scheme by July 2009.
On 1 April 2009, the Minister of Energy and Resources announced that there will be a ministerial review of the electricity market. The stated objective of the review is to improve the performance of the electricity market and its institutions and governance arrangements. The review will consider the findings of a number of recent or upcoming reviews and investigations including the pending Commerce Commission reports on wholesale and retail competition. A Technical Advisory Group of six experts has been appointed to support the review process and advise the Minister. A discussion paper is expected to be provided to Cabinet in June and released for public consultation in July. Any legislative change arising from the review is expected to be enacted by June 2010.
Good progress has been made on a range of growth options in New Zealand and Australia.
TrustPower currently has consents for 420MW of wind farm development in the South Island and is well advanced with a further 118 MW of South Island hydro consents at Arnold and Wairau.
In Australia, the TrustPower Group has planning consent for up to another 235 MW of capacity at the Snowtown Wind Farm and is awaiting approval for an extension to the 48 MW Myponga Wind Farm planning consent.
TrustPower is progressing negotiation with a small number of parties that have appealed the Arnold consent with the objective of avoiding another costly Environment Court process.
The Wairau consent appeal will inevitably go through an Environment Court process and a hearing has been scheduled for October 2009. The Company is undertaking further analysis in preparation for this process.
Good progress is being made in reaching agreement with landowners for potential wind farm developments at a number of New South Wales, Victoria and South Australia sites.
Forecast capital expenditure in the 2010 financial year is expected to be around $38 million which includes generation expenditure undertaken as part of the Company’s 10 year asset management plan, small hydro enhancement projects and implementation of the Company’s new customer care and billing system.
Generation development costs to be expensed in the 2010 financial year are projected to be around $7 million continuing the high level of investment in growing the Company’s portfolio of investment options.
TrustPower is working to ensure that it is in a position to progress renewable projects should the Company conclude that shareholder value is likely to be created.
The first stage of TrustPower’s IT systems upgrade has been completed with a new financial reporting system successfully implemented shortly after year end. Design work for the new customer care and billing system is well underway with a first stage completion target date of early March 2010.
The Directors are pleased to announce a final dividend of 17 cents per share, partially imputed to 9 cents per share, payable 8 June 2009 (record date of 29 May 2009). This together with an interim dividend of 16 cents per share provides a total payout of 33 cents per share for the 2009 financial year compared with 30 cents per share for the 2008 financial year, representing dividend growth of 10 per cent. The Company anticipates ongoing growth of normal dividends.
The Company also paid a 10 cent unimputed special dividend in December 2008. The Directors have approved a further unimputed special dividend of 10 cents per share with the same record and payment dates as the final dividend. The Company believes that following the payment of the final and special dividends it is positioned to pursue growth opportunities.
New Zealand hydro storage is currently around 124 per cent of average for this time of year and TrustPower’s hydro storage lakes are also at above average levels. The current New Zealand hydro storage position should ensure a comfortable level of electricity supply to meet demand over the 2009 winter.
While it is too early to make predictions about the 2010 financial year, it is worth noting that the Company is well positioned to meet its customers’ needs and to pursue further development of electricity generation assets when it is economically justifiable.
BJ HARKER CHAIRMAN
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