Metroglass profit dips on Aussie expansion costs, capex looms

MPG shares dropped 18 percent in one day on Feb 3 after it downgraded its earnings expectations.

Metro Performance Glass delivered a $19.4 million net profit for the year to March 31, down from $21.3 million a year earlier, as it absorbed the costs of a major acquisition in the Australian market and the impact of declining building activity in Canterbury and a dip in Wellington activity after the Kaikoura earthquake last November.

Reflecting the Australian Glass Group acquisition last September, total revenue rose 30 percent to $244.3 million, with earnings before interest, tax, depreciation and amortisation, normalised to exclude $1 million of one-off expenses associated with the purchase coming in 20 percent higher than the previous year, at $44.9 million.

The company will pay a final dividend of 4 cents per share, fully imputed for New Zealand shareholders, to equal total dividends in the previous year of 7.6 cents per share, with company signalling it is assessing AGG's "short‐to‐medium‐term capital requirements to allow it to achieve its significant potential over the medium term" and that capital expenditure will increase in New Zealand in the year ahead to meet requirements in the upper North Island.

"While it is still early days for us, AGG has proved a sound investment to date," said chief executive Nigel Rigby in a statement to the NZX. "Both sales and ebitda (came) in ahead of our expectations for the seven months to 31 March 2017."

Seven months' trading from AGG contributed revenue of $30.5 million and ebitda of $4.7 million and would have contributed $52 million and ebtida of $9 million, had MPG owned the asset for the whole of the financial year.

MPG shares dropped 18 percent in one day on Feb. 3 after it downgraded its earnings expectations, but chairman John Goulter said in statements today the company was in a development investment phase that came with "some initial cost and will provide improved returns over time" and allow the company to "defend itself against import competition for the long term".

The shares closed yesterday at $1.39, having fallen 21 percent in the last year. MPG listed on the NZX at $1.70 per share in 2014.

The company supplies about half the New Zealand market for construction sector glass but is stronger in residential than commercial glass supply, with focus turning to building commercial revenues, along with a push into the growing market to retro-fit existing windows with double glazing.

Rigby said executing MPG's strategy was "made more challenging by the strong customer demand the company is experiencing and the dramatic changes we are seeing in glass products and glass processing technologies".

"While catering for strong growth in both volume and product complexity, we also need to further focus on automation, processes, and costs across the New Zealand business - from manufacturing to procurement, glazing and logistics. We are assessing the investment required to meet these challenges."

MPG's forward orders for commercial glass were steady at $28.8 million at year end, "as our increased delivery of projects matched new contracts being won", said Rigby, with average contract sizes in the commercial market running at around $100,000.

Looking ahead, Goulter gave no figures but said "strong residential and commercial construction markets, particularly in the upper North Island, as well as the growth opportunities available across the Tasman, will underpin improved results in the 2018 financial year".

However, it anticipated softer Australian market conditions in the year ahead.