Corporates: Downgrades

Sydney, Nov 14, 2008 (ABN Newswire) - Negative reactions were the order of the day to yesterday's flood of downgrades or other news. A near 6% drop in the market, after Wall Street's lurch set the tone.

Statements from a range of companies set the tone, as we have seen with the separate report from the Commonwealth Bank and from Westpac and St George.

Although property group, Lend Lease tried hard to be positive; the market looked at its earnings outlook statement and gave it the thumbs down.

The shares sank more than 12% in morning trading before coming back a touch to finish down 9%, or 70c at $7.10.

It said its earnings should be down in line with previous guidance, and revealed it had taken its King of Prussia shopping mall in the US off the market.

Lend Lease owns 50% of what's America's third biggest mall. But the company's comments that it would not be "forced sellers" worried investors.

"Lend Lease is not a forced seller of assets, and will not sell assets at sub-optimal values to meet profit targets,'' the company said in a statement to the ASX.

But what also worried the market was Lend Lease's statement that it would have to sell assets to meet that earlier guidance.

While the company said it would not proceed with the sale of its King of Prussia shopping mall in the United States because the price was not high enough, it still was negotiating other potential transactions necessary to help it meet guidance targets.

"Lend Lease is in negotiation on a number of other potential transactions which, if successfully completed, will enable it to meet its earlier guidance," the company said. 

That was taken to mean the operating performance was weaker than expected and that if these other asset sales were not done, profits would drop further.

Lend Lease reiterated that earlier guidance full-year operating profit will fall 10% to 15% in the year to June 30, 2009, compared with $447.2 million earned in 2008. That could put net earnings at around $380 million in 2008-09, providing conditions don't worsen any further in its key markets of Australia, the US and UK.

Lend Lease said it had cash reserves of more than $800 million at October 31, and will take a $272 million write-down on its retirement business in the UK.

But analysts said lend Lease was heading towards a loss for the first time in its 50-year history, after being forced to write off $490 million from the value of its assets due to deteriorating market conditions.

In the year to June 30, 2008, Lend Lease reported a statutory profit of $265.4 million.

Yesterday's 'paper' write-down of $272 million eliminates that profit figure this financial year.

Included in the cut in asset values is the goodwill on the Crosby housing group, based in Britain, and Lend Lease's 4.3% stake in property group FKP, which has dropped from $4.32 a share to $1.12. That was a $30 million write-down.

Given the reductions are "paper" values, the operating profit, estimated to be about $380 million, will stay broadly unchanged. The board is also reviewing the dividend policy.

But brokers said they were more concerned with Lend Lease's decision to shelve plans to sell its half share in the shopping mall King of Prussia. That was to have been a part of the 2008 profit. 

"Unprecedented financial market conditions make it prudent to take pro-active steps to adjust our balance sheet and investment outlook so we are in a good position to explore opportunities as markets recover,'' Chief Executive Officer Greg Clarke (who is departing as soon as a replacement is found) said in the statement.

Lend Lease acquired its share of FKP at an average price of $4.32 per share. The current share price is $1.12. Stockland has a 14% stake in FKP, but is now stalking GPT.

Radio group, Austereo says its first half results will be slightly lower than the previous comparable period as advertising revenue dries up.

That's a downgrade for the operator of the struggling Triple M network and stations including 2DAY FM in Sydney and Fox FM in Melbourne.

In August, Austereo forecast earnings to continue growing this financial year after buoyant ratings and advertising revenue helped drive a 5% rise in 2008 earnings.

At the time, it reported net profit of $48.8 million, saying it expected a rise of up to 3% in radio advertising sales in capital city markets in the December half year of the 2009 financial year.

No more, it like so many other companies in the media have been mugged by reality.

Yesterday, chairman Peter Harvie revised those industry estimates downwards at the company's AGM.

"Based on the market year-to-date figures, it is our belief that the July-December `08 half capital city revenue will be around minus 3.5%," Mr Harvie said.

"We also believe that Austereo's first half financial results will be slightly below the previous comparative period.

"We are confident of the strength of radio in challenging times."

Austereo shares drifted down 5c to $1.30.

Staying with the media and Fairfax Media's AGM heard nothing but gloom and groans in Melbourne yesterday.

Some staff, current and former, complained about all the job cuts and other changes, some shareholders complained about management salaries and disclosure, and others didn't like the way earnings were going.

But Fairfax, like every other company, is hostage to the slumping economy, domestically or globally. Being in business is a tough place to be at the moment.

While Fairfax Media CEO, David Kirk was helping send the share price to a new low of $1.59 yesterday by confirming that earnings in the first half will be down, the publishing industry was full of rumours about the September quarter circulation figures, released last night for this morning's papers.

The shares ended down 10.5c, or 6% at $1.625.

They make poor reading with the national papers (The Australian and Australian Financial Review) again are strong, but state based papers, Monday to Friday and again Sundays, were weak.

The slump in newspapers and magazines that accelerated in the June quarter spilled into the September three months and kept going.

Fairfax management should have been aware of the latest ABC figures at the AGM in Melbourne today. Perhaps that's why chairman Ron Walker told the meeting in his address that "We foresee tough trading conditions for some time".

On Fairfax's current performance, Mr Kirk told the meeting:

"In late August this year at the time of reporting our 2008 results, I said that advertising markets had slowed since the start of the financial year. Global events and the flow on to economic activity in Australia and New Zealand have resulted in continued weakness in these markets.

"In the first quarter of the current financial year, EBITDA was below the same period last year by mid-teen percentages.

"However trading performance has improved in the second quarter. EBITDA in the second quarter to this point is below the same period last year by mid single digit percentages. This is not a result of strengthening revenue. 

The improvement is driven by strong cost reductions. We are confident of continued strong cost performance across the Group.

"The current low levels of business and consumer confidence together with continuing uncertainty and volatility in financial markets makes it very difficult to predict trends for the crucial Christmas trading period and beyond. 

However, Fairfax is better positioned today than at any time in its recent history to face these challenging times," Mr Kirk said.

In effect, Fairfax is cost cutting its way to break even.

Thanks to the merger with Rural Press, Fairfax's revenue rose 34% to $2.92 billion in the Nine 2008 year with net profit after tax of $386.9 million, up 47%.

From the resources sector, a falling oil price and an indifferent update saw investors take the axe to Woodside Petroleum's share price in yesterday's 4% plus sell down.

Oil prices fell to new 21 month lows yesterday and overnight as global demand falls: the world price eased under $US56 a barrel.

The company's forecast of record profits in 2008 and the contrast with the falling oil price only served to undermine investor beliefs, especially when Woodside indicated capex would rise next year but production would remain steady.

Woodside forecast its 2009 production at between 81 and 86 million barrels of oil equivalent (mmboe), roughly the same as the 2008 production range of 81-84 mmboe in the third quarter production report last month.

Shares fell more than 7% or $3.09 to $36.90. They had hit a high in May on the soaring world oil price, but have slumped as the oil price has fallen. They are now down 20% since January.

"We expect 2008 profit to exceed the previous record posted in 2006," Lawrie Tremaine, Woodside's chief financial controller, told investors at a briefing yesterday.

Woodside's net profit before one-off items in 2006 was $1.396 billion. Analysts are expecting Woodside's 2008 net profit before one-off items to more than double from the previous year to $2.4 billion.

Woodside also forecast its 2009 capital expenditure to be around $7.3 billion, up 32% from an estimated $5.5 billion in 2008.

That rise will happen with higher spending on its $12 billion Pluto liquefied natural gas (LNG) project in Western Australia.

Sonic Healthcare Ltd got knocked down in the rush for its fund raising which was upped to $425 million from an original target of $350 million.

And yet, despite the positive nature of the boost, the shares were sold off yesterday, losing around 4.5%, or 59c) to $12.41. That's down from the $13 they were trading at before the issue on Wednesday.
The raising was bigger than expected, following strong demand from investors in Australia and overseas.

"The proceeds will be used to enhance Sonic's growth and financial flexibility by providing headroom to pursue synergistic acquisitions and to further strengthen our balance sheet," chief executive and managing director Colin Goldschmidt said in a statement to the ASX.

Dr Goldschmidt reiterated that Sonic's operations remain robust and reaffirmed its guidance for earnings per share growth of at least 10% in fiscal 2009.

The private placement of shares will result in the issue of about 36.6 million ordinary shares at $11.60 each.


 

AIR publishes a weekly magazine. Subscriptions are free at http://www.aireview.com.au