Market Reacts Strongly to Futuris Announcement

Submitted by Craig Strzelecki on 26 June, 2008 - 14:20

Markets reaction to announcement from Futuris Corporation was sharp and devastating after it announced that its full year profit would be lower by nearly 20 percent. It also flagged it's non-performing and non-core assets on sale. The scrip remained battered throughout the day to close down at 36.5 cents or 27 percent at 97 cents which was lowest since August 2005. The shares have fallen nearly 55 percent this year. The company also warned that a quick recovery was doubtful and forecasted that the profits would by around $85 to 90 million in 2008-09. It had projected a profit of $101 million earlier this year. However, it promised that the earnings before interest and tax would be able to meet the market expectations of $166 million to $182 million.

According to Les Wozniczka, Chief Executive, Futuris Corporation, the company products faced stiff competition from no-doc or riskier low-doc products which were available to the customers at the peak selling time i.e. end of the financial year. He also added that company did not need to issue equity to reduce debt and has the capacity to make significant debt reduction.

The overall losses were clearly attributed to poor performance by the managed investment schemes (MIS), expected losses from beef producer Australian Agriculture Company and higher interest costs. The current MIS sales were around $35 to 40 million as against last year's record of $61.5 million. The current financial year closes shortly which leaves little room for making bagging any exorbitant hike in the sales. Analysts further blamed the depressing equity market for lower MIS sales as lower capital gains reflect less liquidity in the market for investments in such instruments.

Chairman of Futuris Corporation, Stephen Gerlach, dividend for 2008 was expected to remain unaffected and revised guidance represented underlying earning per share of 10.6 to 11.2 cents. The company also promised that it would sell it's non-performing and non-core assets to cope with the lower profits this year. Futuris has failed to sell its 43 percent stake in AAco last month but the offer still remain open for any fresh bids.