Metroglass shareholders query Australian division, executive pay

Friday 26th July 2019

Metro Performance Glass chair Peter Griffiths was forced to again defend the company’s position in Australia after giving lacklustre earnings guidance for the 2020 financial year.

The company, which makes 80 percent of its revenue in New Zealand, has forecast group earnings before interest and tax of $25-$27 million in the year ending March 31, 2020, after posting ebit before significant items of $25.2 million in the 2019 March year.

Griffiths said that in the 2020 financial year, the Australian unit would reduce its $4.4 million loss before interest and tax to a “minimal” loss, adding that New Zealand earnings would be “dragged down less” than last year.

One shareholder said he was mortified by the company’s “horrific debt” - the company has promised to slash its $83.3 million of debt by $15 million next year - and says Metroglass should stick to its knitting at home. He queried whether the company had the “testicular fortitude” to get out of Australia if need be.

Griffiths responded that the company had a timeline and was constantly reviewing the situation across the ditch. Metroglass purchased Australian Glass Group in September 2016 for $A43.1 million and in its first full year it had an operating profit of $2.9 million.

Following shareholder questioning, Griffiths told BusinessDesk it was reasonable to assume that investors wouldn’t put up with a third operating loss.

“At that time we would have to consider what is going on, and there are a range of factors that might change our view,” he added. Forsyth Barr's prediction from May is that Australian losses will continue for four years.

Griffiths also explained that the company was motivated to reduce debt and that it would go nowhere near breaking its banking covenants at three times earnings before interest tax and depreciation.

The chair was also by questioned by shareholder Jenny Miller on chief executive pay following former chief executive Nigel Rigby’s $2.86 million payout when he left last year.

While Rigby had been paid out more money to increase the length of his restraint of trade, shareholders were told that Metroglass had to go to the Employment Relations Authority alleging it had been breached.

Griffiths said that after mediation he had assurances from Viridian Glass and its owner Cresent Capital that the restraint of trade would not be breached.

However, it expires at the end of this year.

Griffiths told shareholders not to worry new chief executive Simon Mander. “He’s cheaper than Nigel and is doing a better job.”

Mander has a base salary of $650,000 which is more than the $550,000 starting point Rigby had, but the package is also made up of various short- and long-term incentives.

Shareholders also expressed concern over competition from NBR Rich Lister Mitchell Plaw's Architectural Profiles Limited - APL - opening a new factory in the middle of next year.

Metroglass said it expects a reduction in sales to APL's affiliated window fabricator customers, which this financial year contributed $25 million, or almost 12 per cent, of its local revenue. Forsyth Barr estimates that by the 2024 financial year Metroglass will have lost $27 million in revenue to this competitor.

Griffiths said the environment would be challenging for APL because it would face dealing with a highly-customised, fragile product that had to be turned around with short lead times. He said the market, which punished Metroglass shares by almost a quarter of their value around the time of the announcement, was being overly pessimistic about the competition.

One shareholder said the company should pretend that competitors didn’t exist, like other companies do, and that it was the media’s fault for writing about APL.

Forsyth Barr analyst Matt Henry said today’s guidance is as expected, given the New Zealand business has been broadly flat for three or four years now.

Henry is cautious of headwinds in the softening Australian construction market.

The “Australian business is a small player in the fragmented and highly competitive Australian downstream glass industry, where the profit pool has been decimated by overcapacity and import competition.”

Henry said in a note that performance appears to be stable but there is “limited evidence of material positive progress.”

Shares in Metroglass dropped by 5 percent to 37 cents, having traded at 86 cents this time last year.

(BusinessDesk)

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