Archive | Securities – NZ

Hassall to chair Fletcher Building, 4 new directors named

Fletcher Building Ltd will have a new chair & 4 new directors on 1 September. 2 directors will retire.

Sir Ralph Norris will step down as chair, replaced by Bruce Hassall (pictured at right), who was appointed as an independent director on 1 March 2017.

The 4 new directors, all independent, are Barbara Chapman, Robert McDonald, Doug McKay & Cathy Quinn. The company also intends to appoint an extra Australian director.

2 directors will retire – Alan Jackson by rotation at the annual meeting, after 9 years, and Cecilia Tarrant on 1 September, after 7 years, to allow an additional director to be appointed to the board as it oversees the implementation of the new Fletcher Building strategy.

Sir Ralph said the appointments would strengthen the board’s expertise & diversity.

Expertise is an important factor, because it was the lack of board expertise in the construction sector that was most notable in the collapse of the company’s vertical construction performance. The company is exiting that part of its business – 4 projects left to complete.

Sir Ralph said today: “While our original intention was to seek a director with construction experience, with our appointment [as chief executive] of Ross Taylor, who has considerable expertise in this area, our decision to exit the vertical construction sector and a new strategy in place, we believe the appointments we have made will best support the company’s new strategic direction.”

Mr Hassall has extensive experience across both public & private sectors. He was chief executive & senior partner at accountancy firm PricewaterhouseCoopers NZ. He will relinquish his role as chair of the audit & risk committee.

The new directors:

Barbara Chapman.

Barbara Chapman, BCom: Ms Chapman retired after 7 years as managing director & chief executive of ASB Bank Ltd, and previously as group executive human resources & group services for the Commonwealth Bank of Australia. Barbara recently joined the boards of Genesis Energy Ltd & NZME Ltd as an independent director.

She began her career with the Commonwealth Bank Group in 1994 and has held senior executive roles responsible for marketing, communications, human resources, retail banking & executive leadership in New Zealand & Australia.

She has also chaired Oxfam NZ and been a director of Oxfam International, was an inaugural trustee of the NZ Equal Employment Opportunities Trust and chaired it for several years and is an inaugural member of the “25 Percent Group”, which aims to increase diversity at senior management levels & within New Zealand boardrooms.

Rob McDonald.

Rob McDonald, BCom, FCA: Mr McDonald retired as Air NZ Ltd’s chief financial officer at the end of 2017 after 24 years with the airline. He was appointed group financial planning manager in 1993, group treasurer in 1995 and chief financial officer in 2004.

He’s an independent director of Contact Energy Ltd and will take over the chair there on 1 September. He’s a director of Chartered Accountants of Australia & NZ and will chair Fletcher Building’s audit & risk committee.

Doug McKay.

Doug McKay, BA, ONZM, CMinstD: Mr McKay was the first chief executive of the new Auckland Council in 2010, on a fixed term until 2012. Before that, he had an extensive background in leading large organisations in both New Zealand & Australia, including senior roles at Carter Holt Harvey Ltd, Lion Nathan Ltd & Goodman Fielder Ltd, and as chief executive at Sealord and chief executive & executive chairman of Independent Liquor (NZ) Ltd. He chairs the Bank of NZ & Eden Park Trust and is an independent director of

Cathy Quinn.

Genesis Energy Ltd, IAG NZ Ltd & the National Australia Bank.

Cathy Quinn, LLB, ONZM: Ms Quinn is a commercial & corporate lawyer. She leads the mergers & acquisitions and private equity teams and the China practice at Minter Ellison Rudd Watts, and has chaired the firm for 8 years. She’s a director of Tourism Holdings Ltd and a board member of the NZ Treasury & the NZ China Council.

Progress pleases Norris

Sir Ralph Norris presenting the annual result last August.

Commenting on the appointments, Sir Ralph Norris said: “When I announced that I would step down as chairman in February I committed to first completing the chief executive transition & board refresh I had commenced, and I am pleased with the progress that has been made.

“Our chief executive, Ross Taylor, is now firmly established in the role and has led the development of a focused strategy that aims to deliver long-term growth for shareholders. Our balance sheet has been strengthened following a successful capital raising, and the company is on track to deliver 2018 financial guidance.

“Bruce Hassall will bring strong & steady leadership as Fletcher Building’s new chairman, and will complete the board refresh with the appointment of an Australian director in the coming months.

“Our 4 new independent directors are high calibre individuals who bring a mix of commercial, operational & governance expertise, which will greatly enhance the experience & diversity of the board.

Attribution: Company release.

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Australia the next big focus for Fletcher, offsite construction an innovation example

Fletcher Building Ltd chief executive Ross Taylor said in a presentation in Sydney yesterday the group intended to grow its Australian business over the next 5 years to be bigger than its New Zealand construction & building products business.

To do so, he expects to take a leaf out of the New Zealand business’s success, the vertical integration & intercompany trading which make up 11% of its business here but only 3% in Australia.

Fletcher Building chief executive Ross Taylor.

Mr Taylor & chief financial officer Bevan McKenzie gave 2 presentations, to media and then to analysts, on the company’s 5-year strategy.

At the end of the first presentation, Mr Taylor said: “We’d expect, 5 years out, Australia to be bigger than New Zealand. You’ve got to say that’s the vision for Fletcher Building. That puts a marker here, that we want to be bigger in Australia.”

In a pre-presentation story on the documents yesterday, I characterised the strategy as spring-cleaning. After one streamed presentation and going through the similar documentation presented to analysts, that remains a reasonable view of it.

Some of the “strategy” amounts to exhortation to do better, as in this from Mr Taylor: “25% of our businesses have a culture of innovation. We need to drive this to 100% over the next couple of years.”

The company has already announced parts to be sold – Formica and the Roof Tile Group.

Fletcher has stopped seeking new work for its commercial vertical construction business, the exceptionally troubled part of the Building + Interiors division, and will continue to wind it down.

That leaves the strategy focus on getting the remaining New Zealand businesses to perform better, and lifting output in Australia. The starting point is the departure of about 90 staff – either gone or leaving – and the repositioning of the multi-business structure, with new appointments, titles & selection of business segments to command.

From the outside, what do you see in Fletcher Building? If it’s not in your segment of the market but might decide to enter it, you need to be wary of possible outcomes. In New Zealand construction-related business beyond the troubled commercial construction segment, Fletcher is not looking at downsizing.

At one point, Mr Taylor said Fletcher would assess “everything we do through a customer lens” [versus the control temperament which has driven the Fletcher business model for decades]. But mostly the presentations were about clarifying business portfolios and driving the businesses within them harder.

How the strategy looks

Below are excerpts from the presentations, with some explanatory comment.

Any portfolio decisions need to position us to take advantage of key macro trends:

Product innovation:

  • Green & efficient buildings: regulation & changing consumer preferences drive innovation in energy efficiency
  • Moving into an era of advanced functional materials & more resilient systems

Service & channel innovation:

  • Personalised service expectations are growing. Customers interact with a brand (not a channel) and expect the same experience no matter what channel
  • Incumbents & new low-cost entrants offering digital services & online purchasing to end consumers

Labour productivity:

  • Pre-assembled structures reduce the need for onsite labour and speed up construction times
  • Value shift in favour of larger manufacturing entities able to invest in offsite production facilities

Global supply chains:

  • Low cost country (LCC) sourcing for inputs continues to present large cost reduction opportunities
  • Globalisation of competition from LCC producers & Western players threaten share & margin erosion

Continuing to manage multiple platforms across multiple geographies from a capital & capability perspective was likely to be challenging. Therefore we have decided to focus the business.

Our starting point: a portfolio made complex through lack of a clear strategy.

With Fletcher Building at only 15% of the overall NZ market & 1% of Australia in residential, non-residential and infrastructure & other, there are ample opportunities to grow share and pursue new “adjacencies”.

Adjacencies? What Mr Taylor presented was a chart (below) showing market segments where Fletcher Building has a presence, and those where it doesn’t – and therefore might expand.

“Our first priority will be to refocus on our core, and actively defend and grow NZ Building Products & Distribution.

“In New Zealand, we will continue to leverage businesses that are complementary to our core and strong performers in their own right. Golden Bay Cement-Winstone is a strong performer. The core adds value by generating pull-through. Residential & Development is a strong performer that adds value to the core by generating pull-through and driving innovation (eg, panelisation). In Construction, we have strong market positions and generate pull-through, but we have to get it performing.”

The decision to exit market sectors

“Finally, we had a choice to make. We had 2 legitimate plays relative to the core, but we couldn’t do both given constraints around capital & capability.”

Option 1: Turn around & grow Australia as a natural extension to the Fletcher Building core
Option 2: Drive Formica to full potential with focus & capital
The decision: Australia is the preferred growth platform.

Intercompany sales

An important factor was a comparison between the opportunity to drive sales between Fletcher companies. At Formica the opportunity was minimal, whereas in Australia it was high. Compared to intercompany sales in New Zealand – $660 million, 11% of total sales of $6.2 billion – Australian intercompany sales last year were worth only $80 million, or 3% of $3.1 billion total sales.

From there, the vision, and that is “to be the undisputed leader in NZ & Australian building solutions – with Products & Distribution at our core”. Under that heading, Mr Taylor pointed to “where to play” and then to “how to win”.

Where to play:

Refocus on the core:

  • Defend & grow NZ Building Products & Distribution
  • Leverage complementary positions in Concrete & Residential

Stabilise Construction:

  • Close out B+I within provisions
  • Grow infrastructure & roading businesses

Strengthen Australia:

  • Achieve a successful turnaround
  • Replicate select NZ positions in Australia

Exit non-core businesses:

  • Divest Formica & Roof Tile Group

From there, Mr Taylor said the next step was “how to win”, which came with 5 bullet points:

  • A simpler & leaner, decentralised operating model
  • Innovating to achieve continuous improvement and take advantage of key macro trends
  • Disciplined performance improvements in safety, sustainability, procurement & operations
  • Growth capex focused on strategically important, high returning business units
  • Adding infills & adjacencies.

He said Fletcher Building saw 3 broad stages to advance those intents over the next 3 years (June balance dates):

2019: stabilising – turnaround or exit
2020: solid performance
2021: growth

Cutting central control

One key element of these changes is to reduce “an overweight central overhead” – that “overhead” will be moved closer to the front line for an annualised cost saving estimated at $30 million, expressed this way: “Moving front line-focused activity back to the divisions & business units to better serve our customers, control risks & grab opportunities”.

Mr Taylor said: “25% of our businesses have a culture of innovation. We need to drive this to 100% over the next couple of years.”

Existing examples of innovation include:

  • Laminate exterior cladding
  • Mobile PVC manufacturing
  • Gypsum-based rigid air barriers
  • Benchtop, roofing & façade integrated photovoltaics
  • Lightweight flooring systems
  • Self-cleaning steel roof panels
  • 3D concrete printing

Offsite construction impetus

“Panelisation” – more factory completion of buildings or building components – fell under the heading of labour productivity rather than innovation. Mr Taylor said the company had completed 2 successful prototypes, had tested modularised vertical construction and was looking for a factory site in Auckland. He expected it would cost $15-20 million to build.

“We’ve trialled panels on a number of houses. Of the 1000 houses we’re doing, we’ve got 300-350 houses/year we can panel – you can’t do it on every house. We’re testing it on our own houses. Over the next 12 months it will be operating fully.

“You get savings when you get scale of throughput and you drop it [the house construction timeframe] from 22 weeks to 9.”

The big projects

On the group’s lossmaking issues with vertical, large commercial construction, chief financial officer Bevan McKenzie said confidentiality agreements meant it wasn’t for Fletcher to make announcements. However, he said the Building + Interiors division had completed 7 of 16 projects it had underway when the company revealed the division’s exponential lossmaking last year, 5 more would be completed this year and 4 would be completed in 2019, including the major pair in Auckland, SkyCity Entertainment Ltd’s NZ International Convention Centre and Precinct Properties NZ Ltd’s Commercial Bay redevelopment of the old Downtown Shopping Centre.

Link:
21 June 2018, Fletcher Building strategy presentation slides

Earlier stories:
21 June 2018: Fletcher Building strategy amounts to a spring clean – board announcement tomorrow
20 April 2018: Institutional bookbuild puts $1.35 premium on Fletcher shares
18 April 2018: Big Fletcher fundraiser plus divestments intended to stabilise construction’s fallen giant
4 April 2018: Lenders give Fletcher Building 2-month waiver extension
2 March 2018: Fletcher gets US waiver, still negotiating funding terms
21 February 2018: Fletcher half-year loss $322 million
14 February 2018: Another $486 million of losses for Fletcher Building, and Norris resigns
8 February 2018: Fletcher Building warns of worse to come
19 January 2018: Regulator clears Fletcher Building of continuous disclosure breach
27 October 2017: Sheppard turns Fletcher meeting into “absolution or exorcism” exercise
25 October 2017: Fletcher issues guidance, names new chief executive
21 September 2017: 
A year on, Fletcher board still has ‘construction nous vacancy’ pencilled in
17 August 2017: 
‘Fessed up, time to move on, says an unconvincing Fletcher boss
21 July 2017: 
Fletcher Building takes axe again to construction earnings, Adamson ousted
20 March 2017: 
Fletcher Building cuts earnings guidance by $110 million
19 March 2017: 
Fletcher Building to explain construction loss Monday morning
22 February 2017: 
Fletcher Building net up 2% after site closures

Attribution: Company presentation, live stream.

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Fletcher Building strategy amounts to a spring clean – board announcement tomorrow

Fletcher Building Ltd confirmed its revised strategy today, but will make another announcement about board changes tomorrow.

The key part of today’s strategy announcement is a rejigging of senior executive jobs, including more appointments to the top tier, the executive team.

The company has already said it will sell 2 businesses, Formica & Roof Tile Group. It’s appointed Macquarie Capital Ltd as advisor on selling Formica.

The “strategy” amounts to a spring clean for an outfit that likes to gather businesses as it goes along, then finds it’s a structural mess.

The strategy statement: Fletcher Building confirms diversity out, simpler & leaner in with focus on NZ, Australia

Fletcher Building chief executive Ross Taylor.

Fletcher Building Ltd chief executive Ross Taylor said today the company had confirmed its strategy, “which is designed to improve financial & operating performance by focusing its portfolio on the New Zealand & Australian markets and introducing a simpler & leaner operating model”.

Mr Taylor said: “Fletcher Building is currently one of the most diversified building materials companies in the world, with operations spanning multiple geographies, sectors, value chains & product lines.

“As we announced to the market in April, we have made the decision to focus our portfolio by divesting our Formica & Roof Tile Group businesses and focusing our capital & capability behind the New Zealand & Australian markets.

“While we don’t expect these markets to experience the same levels of growth they have seen in recent times, we do expect them to remain stable, and with only 15% share of the New Zealand market & 1% in Australia, there is plenty of opportunity to deliver more from our existing operations.

“In New Zealand our focus will be on growing our core operations in building products & distribution, leveraging our strong positions in the concrete value chain & residential construction, and returning construction to sound operating performance by closing out remaining Building + Interiors (B+I) projects within provisions, and profitably growing our infrastructure & roading businesses.

“We will leverage global trends in product, service & channel innovation to deliver more value for our customers right across our portfolio. Taking one example, with our planned investment in a new panelisation plant in Auckland, we will aim to deliver homes more efficiently for a supply-constrained market.

“In Australia we are targeting a significant improvement in the operating & financial performance of our existing businesses and, in time, we will seek to expand our portfolio as we have done in New Zealand through targeted acquisitions.

“We see the strategy being delivered over 3 broad stages. In the 2019 financial year (to June 2019) we will focus on stabilising & turning around our existing businesses, while divesting Formica & Roof Tile Group. By the 2020 financial year we should be well positioned to deliver solid performance across the portfolio, and from the 2021 financial year onwards we want to be achieving strong revenue & earnings growth year on year.

“With successful implementation of the strategy, we aim to deliver above-market revenue growth & improved operating margins over the medium term.”

Mr Taylor said that, to enable the new strategy, Fletcher Building would:

  • target investment behind its most strategically important & highest returning businesses
  • increase its focus on innovation
  • pursue improvements in procurement, operational efficiency & working capital, and
  • introduce a simpler & leaner decentralised operating model.

The company will introduce the new operating model on 1 July and aims to:

  • reduce overheads across the group by $30 million/year
  • empower businesses at the front line, and
  • deploy a new divisional structure that will align businesses to the new strategy.

The changes to structure have resulted in a number of new appointments to the Fletcher Building executive team , which will also be effective from 1 July:

  • Dean Fradgley, distribution chief executive, has been appointed to the newly created role of chief executive Australia. All Australian businesses will now sit within this one division
  • Bruce McEwen, PlaceMakers general manager, will join the executive team as chief executive of distribution NZ, which includes PlaceMakers & Mico
  • Ian Jones, GBC Winstone general manager, will join the executive team as chief executive of the newly created Concrete Division, which includes Golden Bay Cement, Winstone Aggregates & Firth
  • Hamish Mcbeath, Fletcher Steel general manager, will join the executive team as chief executive of the newly created Steel Division, which includes all the company’s New Zealand steel businesses
  • David Thomas will continue as interim chief executive of the revised Building Products Division, while a permanent replacement is recruited
  • Steve Evans will continue as chief executive of the Residential Division
  • Michele Kernahan will continue as chief executive of the Construction Division
  • Claire Carroll has been permanently appointed as the chief people & communications officer
  • All other corporate function executive roles remain unchanged.

There is no change to the estimated 2018 financial year ebit (earnings before interest & tax) for the group (excluding B+I & significant items) of $680-720 million and no change to the estimated B+I ebit loss of $660 million announced on 14 February.

Mr Taylor said the 2018 result was likely to include a number of significant items, including:

  • restructuring charges associated with the implementation of the new operating model (a charge of between $85-95 million)
  • a gain on the sale of Fletcher Building’s 20% stake in the Dongwha processing plant through Laminex NZ (a gain of about $12 million), and
  • a likely impairment of the carrying values of the Rocla & Roof Tile Group businesses.

Fletcher Building will announce its financial results for the year ending next week (30 June) on Wednesday 22 August.

Attribution: Company release.

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Fletcher Building to present strategy live online from Sydney on Thursday

Fletcher Building Ltd will present its strategy to investors & analysts in Sydney on Thursday at 11am NZ time (9am Sydney time).

The webcast will be screened live online and will be available later on replay on the company website.

Head of communications Leela Gantman said today investors would be able to ask questions live via the webcast facility: “While every endeavour will be made to answer all the questions that are submitted, this may not be possible due to time constraints, and is at the discretion of Fletcher Building management.”

The company will release its annual result on Wednesday 22 August.

Links:
Live webcast
Replay

Attribution: Company release.

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Augusta industrial fund closes oversubscribed

Augusta Capital Ltd confirmed yesterday that the Augusta Industrial Fund closed oversubscribed with $75 million raised.

Managing director Mark Francis said the acquisition of the initial properties in the portfolio was to be settled later in the day.

As part of the capital raising, Augusta Capital has subscribed for 7.5 million shares and intends to hold a 10% stake as a long-term investment.

Mr Francis said a limited number of investors were reinvesting their funds from other Augusta-managed properties which have sold and would settle in the next month. As a result, Augusta will hold a limited number of shares for the next 2 weeks and then transfer to those investors.

He also said Augusta had received a large number of applications at the close.

The initial portfolio consists of 12 Brick St, Henderson; 862 Great South Rd, Penrose; 20 Paisley Place, Mt Wellington; and The Hub, Seaview, Wellington.

Together, that initial portfolio will have the following key features:

  • a weighted average lease term to expiry of 8.7 years
  • 100% occupancy
  • a diversified mix of 15 tenants, and
  • a 60% weighting to the Auckland industrial market.

Augusta will receive establishment & underwriting fees in connection with the offer as well as ongoing management fees consistent with the NPT Ltd management agreement, which Augusta entered in March.

Image above: 862 Great South Rd, Penrose, back on to Auckland’s Southern Motorway. The area marked in green will be redeveloped.

Earlier stories:
25 May 2018: Transformation hits Augusta bottom line, but confident company lifts dividend
1 May 2018: Augusta industrial fund set to open next week
27 March 2018: Augusta settles NPT management rights payment
12 March 2018: Augusta gets agreement to add 4th building to industrial fund
2 March 2018: Augusta delays industrial fund launch to get fourth property in

Attribution: Company release.

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Updated: Chow Group to delist

Published 7 June 2018, updated 8 June 2018:
Chow brothers John & Michael lifted their combined holdings above the 90% threshold for compulsory purchase of their NZAX-listed company, Chow Group Ltd, on 31 May and said today (8 June) they intend to complete compulsory acquisition within 3 weeks – by Friday 29 June.

The brothers lifted their holdings from 88.592% to 90.09% on 31 May and said then they would delist the company.

The share price was stuck on 5.8c for the few sales through May, rising to 6c last Wednesday.

Sharemarket operator NZX Ltd still says on its website the NZAX (NZX alternative market) “is the marketplace for small to medium-sized, fast-growing businesses seeking a safe & efficient capital-raising facility”. It says much the same about its NXT market, launched in 2015 to replace the NZAX.

But a year ago the NZX decided to can both its junior markets, forcing participants on to its main board.

Chow Group listed in early 2016 through the reverse takeover of RIS Group Ltd, one of the shell companies listed on the NZAX by broker Brett Wilkinson.

Earlier stories:
17 June 2016: Chow Group records $8 million profit as listed company
11 November 2015: Chows use RIS Group to backdoor list property portfolio

Attribution: Company announcement.

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Oyster goes unconditional on Central Park purchase

The Goodman Property Trust’s $209 million sale of the Central Park Corporate Centre to a joint venture led by property fund manager Oyster Property Group Ltd has gone unconditional.

The trust’s manager, Goodman (NZ) Ltd, announced the sale last November, when one condition remained – Overseas Investment Office approval. Oyster is 50% owned by the ASX-listed Cromwell Property Group.

Settlement is scheduled for 29 June.

Goodman (NZ) chief executive John Dakin said in November the sale represented a significant milestone in the repositioning of the Goodman trust, marking the last of its major identified asset sales.

The property fronts Great South Rd beside the Southern Motorway at the Ellerslie-Panmure roundabout in Auckland.

Earlier stories:
17 November 2017: One condition left on Central Park sale, and Air NZ extends at Fanshawe St
10 November 2017: Big property sale follows first-half profit setback for Goodman

Attribution: Company release.

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NPT scores miserable result, adopts Augusta strategy of repositioning assets

NPT Ltd, which has struggled to gain either critical mass or momentum since its inception as a listed trust in 1994, reported a miserable annual result yesterday, as shareholders’ funds again declined.

The answer is to adopt the more aggressive style of its new manager & 18.85% shareholder, Augusta Capital Ltd: buy properties to reposition, redevelop & lease – and sell rather than remain a passive investor.

Once its $47 million sale of the AA Centre to SkyCity Entertainment Group Ltd settles in July, NPT will be down to a portfolio of just 3 properties worth a combined $124.6 million – the Eastgate shopping centre in Christchurch, 22 Stoddard Rd retail centre in Mt Roskill, Auckland, and Heinz Wattie’s national distribution centre in Hastings. The company sold Print Place in Christchurch in March for $8.25 million – 25% less than its $11 million carrying value.

Augusta also started life as a small portfolio owner and was destined to stay that way unless it changed its strategy. It’s sold down all but the remaining 2 parts of the Finance Centre in Auckland (scheduled to settle on 1 April 2019), and now manages $1.85 billion of assets held by syndicates & NPT.

Without the $4.5 million sale of its management rights to Augusta, right on balance date, NPT would have struggled to make a profit. Including those management rights, its net profit after tax was $3.095 million – $22,000 more than in 2017.

NPT chair Bruce Cotterill said in the company’s annual results announcement yesterday revaluations had reduced net tangible assets by $2.95 million ($1.65 million last year). In both 2017 & 2018, NPT paid out about $5.8 million in dividends. Shareholders’ funds have dropped by $5.5 million in 2 years, and just under $20 million in the last 3 years, to $114.3 million.

Mr Cotterill, appointed independent chair in April 2017 when Augusta staved off Kiwi Property Group Ltd’s bid for control, said operating earnings for the 12 months to March 2018 were consistent with the previous year, but revaluations & the $2.97 million loss on disposal of assets had reduced net tangible assets by 2.3%.

“We are confident that the position of the existing portfolio is now sustainable & positioned for value add-related growth moving forward.

“With Augusta, the board have now identified a defined value-add strategy in which the company will seek to acquire properties with the potential to reposition, redevelop & lease; all with the aim of creating future value. The future strategy differentiates NPT from the sector and provides a framework for relative outperformance,” he said.

Other points from the annual result:

  • Net operating income after tax, down 1.4% to $5.8 million ($5.88 million)
  • Adjusted funds from operations up 4.1% to $6.15 million ($5.9 million)
  • Gearing (loan:value ratio) 26.6% (33.1%)
  • Net tangible assets/share 70.6c (72.3c)
  • Basic & diluted earnings/share up 1c to $1.91
  • Portfolio occupancy 97.4% (96%) due to higher occupancy at Stoddard Rd and the sale of Print Place
  • Weighted average lease term 4.4 years (4.6 years)
  • An unchanged final quarter dividend of 0.9c/share has been declared; total dividends paid for the year are also unchanged at 3.6c/share; payout ratio is 95% based on adjusted funds from operations of $6.15 million

Earlier stories:
27 March 2018: Augusta settles NPT management rights payment
21 March 2018: Francis talks about a livelier future for NPT
20 December 2017: NPT accepts 25% cut to sell Christchurch property
15 October 2017: SkyCity buys AA Centre to consolidate precinct control
28 August 2017: Cotterill sees opportunity for NPT as tenants quit

Attribution: Company release, presentation, annual report.

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Goodman upbeat as it forges ahead with repositioning

The Goodman Property Trust produced a very upbeat annual report on Monday, although every shift on the performance summary – apart from net asset backing – was downward.

Once again, half the profit came from revaluations (as projected in March), which many listed entities have highlighted over the years to bolster otherwise ordinary returns. Goodman, however, tends to work its properties much harder, rather than sitting back waiting for the cyclical valuation windfall.

The trust’s manager, Goodman (NZ) Ltd, has been busily building & filling space at its Highbrook business park in East Tamaki, and (post-balance date) has just sold out of the VXV office precinct between Fanshawe St & the lighter basin on the downtown Auckland waterfront for a $323.9 million share of the $635 million sale.

Goodman has also been repositioning its portfolio. It sold 3 properties for $243.9 million during the year, leased 200,000m² of space and began 7 new development projects, including 24 new warehouse facilities, with a total project cost of $164.8 million.

5 years of disciplined growth, says chair

Management company chair Keith Smith said: “We have pursued a disciplined growth strategy over the last 5 years, selling assets to fund the trust’s development projects. It has rebalanced the portfolio and deleveraged the balance sheet, transforming the trust and positioning it for sustainable long-term growth.”

Once current development projects & contracted sales are completed, the trust’s $2.2 billion portfolio will be 99% invested in Auckland industrial property.

Chief executive John Dakin said: “We’re divesting our remaining office assets and developing high quality estates such as Highbrook. It is a deliberate strategy that reflects the positive investment characteristics of this type of property and the strong growth profile of the country’s largest city.”

On the balance sheet, it’s meant a 12.6% cut in the loan:value ratio to 25.6%, or an 18.3% cut in the ratio to 25% on a look-through basis.

In Goodman Group terms that’s high gearing – the ASX-listed Goodman Group, owner of the NZX-listed company’s manager, has kept its gearing below 20% for 5 years, and had it down at 5.9% in 2017.

The New Zealand trust’s pretax statutory profit was $207.2 million (including look-through[1] valuation gains of $106.3 million), compared to $220.5 million (including look-through valuation gains of $114.7 million) in 2017.

After tax, operating earnings fell 4.2% to $101.6 million ($106 million).

  1. Look-through valuation is a non-GAAP measure that includes the trust’s proportionate share of Wynyard Precinct Holdings Ltd, the joint venture with GIC that owns the VXV portfolio, which has been sold to Blackstone Group LP funds, subject to Overseas Investment Office & freehold landowner approval.

Links:
Goodman Property Trust
Annual report, operational highlights

Earlier story:
29 March 2018: Goodman looking at record portfolio revaluation

Attribution: Company release, annual report, Goodman Group.

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Transformation hits Augusta bottom line, but confident company lifts dividend

Augusta Capital Ltd continued its transformation in the year to March from being a direct property investor towards its aim of becoming New Zealand’s leading & most diversified property funds management specialist.

One impact was the 80% drop in revaluation gains to $799,000 ($4.12 million the previous year). Those gains are unrealised, but are a handy prop for company results as the market rises.

Key points from the financial year to March:

  • Total assets under management grew 10% ($168 million) to $1.85 billion – 99 properties
  • Total comprehensive income for the year, net of tax, fell 60% to $3.2 million ($8 million) due to lower investment property revaluation gains & the deferral of the Augusta Industrial Fund launch date
  • 14% reduction in adjusted funds from operations (non-GAAP measure) to $5.8 million, equating to 6.6c/share (7.7c/share).
  • Exit of 2 Finance Centre assets – 2 remaining properties settle on 1 April 2019
  • 3 new single-asset funds launched, raising $125 million of equity
  • 23% growth in recurring annualised base management fees, which are now $6.96 million
  • New funding structure executed, which is now aligned to the company’s future strategic direction
  • Net assets/share reduced to 96c (98c), primarily driven by the writedown in value of NPT shares
  • Basic & diluted earnings/share fell 60% to 3.67c (9.15c)
  • Increased stake in NPT to 18.85% and then secured the NPT management contract
  • Invested in specialist talent to support business growth & new fund initiatives
  • 4th quarter dividend of 1.5c/share, supported by the increase in recurring earnings.

Reflects transformation stage, says Duffy

Augusta chair Paul Duffy said the result reflected the nature of a business in the late stages of a significant transformation: “The total comprehensive income after-tax result is also symptomatic of the fact Augusta is progressively selling down all directly held properties from which the company’s revenues have historically been derived. The result should reflect the bottom of a transition cycle to establishing a more resilient earnings profile from a greater pool of Australasian-based property funds.

“The board believes this is a tipping point in terms of transitioning Augusta’s earnings. The volatility we’re seeing here has been well signalled previously, but the recurring annualised earnings continue to grow. 2 new funds have also been added to the managed portfolio, as well as 3 new single-asset vehicles.”

Managing director Mark Francis said the total comprehensive income after-tax & AFFO performance was impacted by the deferral of the Augusta Industrial Fund launch as a fourth asset was secured and more time was taken to allow for the capital raising. The income derived from establishing the fund will be recorded on settlement, expected to be 15 June.

“The prior year also reflected valuation gains at the Finance Centre based on the contracted sale terms, and the remaining assets are held at similar values this year net of transaction costs.

“The long-term growth fundamentals are encouraging. The resilience being built into Augusta’s earnings is critical to the future of the business.

“Encouragingly, we realised just over 10% growth in funds under management during the period under review. The pipeline has been created and we are actively pursuing a number of investment opportunities in the Australian market too.”

Rental income reduced due to the sale of Augusta House in July but this was offset by income derived from warehousing the Hub asset for the Augusta Industrial Fund.

Funds management

Mr Francis said: “The income benefits derived from the progress made this year will be realised in future income years. Momentum has continued with 2 new funds added to the managed portfolio, broadening our product offerings.

“Often in the funds management industry costs are incurred before the wealth is created for both the investor & manager. Corporate costs increased as we sought the necessary capability to grow & source new opportunities.”

Investment asset income of $1.77 million was realised from positions taken in the Augusta Value Add Fund No 1 Ltd (Value Add Fund) & NPT Ltd: “This income replaced the loss of rental income from the Finance Centre divestment. Income derived from capital investments & commitments was stronger in the 2018 financial year through active use of the balance sheet, at the same time maintaining capability to facilitate new deals.”

Balance sheet transformation

Augusta now has a new funding structure consisting of 3 facilities aligned to the new balance sheet – property, investment & funds management (working capital). It can also source further funding for warehousing of assets or underwriting of offers.

Following the divestment of the Finance Centre, capital will be released to grow the funds management business, and will include:

  • Acquisition or launch of new fund management initiatives
  • Warehoused assets – prior to the transfer to a managed fund
  • Underwriting capability in respect to new offerings or capital raises, and
  • The ability to invest in new products or investments which Augusta manages to create an alignment of interests.

Group gearing was 31.2% of gross asset value (26.6%).

Dividend

The board resolved today to pay a fourth quarter cash dividend of 1.5c/share, up from 1.375c in the December quarter. It’s fully imputed with credits of 0.583c/share attached. Dividends for the full year total 5.625c/share (5.5c/share in 2017). The dividend pay-out ratio was 85% (71%). The board expects the 2018-19 dividend to be 6c/share, up 9.1%.

Outlook

Mr Francis said earnings would reflect the strong start to the 2019 financial year, based on the current pipeline of opportunities: “The challenge remains in sourcing compelling product for our investors, but Augusta is as well placed as anyone to do this. Current market conditions remain buoyant, with deals continuing to be transacted at historically low yields.

Near-term strategic operating priorities include:

  • Settlement of the Augusta Industrial Fund on 15 June
  • Launch of the 96 St Georges Bay Rd offer, which will be a single asset vehicle
  • Launch of further investment funds, details to come
  • Identifying further capital sources & distribution channels
  • Further expansion into Australia, and
  • The sale of the final 2 assets of the Finance Centre transaction will be complete in April 2019, providing further balance sheet capability.

Attribution: Company release.

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