Change takes toll at Fernz

By Mark Reynolds

A year of expansion and change has seen chemicals group Fernz record a 12 per cent slip in overall profit to $66.1 million for the financial year to the end of May.

But before allowances for one-time costs related to asset sales or purchases, Fernz's core results show it continued to benefit from an international expansion programme.

The overall profit in the latest year included $6.4 million from the sale of investments, while the previous year's overall earnings of $74.8 million included a one-time gain of $25 million.

Fernz chairman Bill Wilson said the changes over the financial year meant the company was now focused on its international crop protection business and industrial chemical operations. It is also beginning to see some returns from an involvement in the biotechnology industry.

"In the short term, good organic growth can be achieved from this [overall] operational base and returns from the intellectual property we own," Mr Wilson forecast.

The company expects turnover to increase only marginally over the current financial year, with newly purchased operations in North America and Europe to offset the loss of revenue from operations sold in this part of the world.

"Earnings before interest, taxation, depreciation and amortisation is expected to increase by a similar percentage to what was achieved in the 1999 financial year," Mr Wilson said.

Those EBITDA earnings were $171.8 million in the latest financial year, up 10.7 per cent from $155.1 million a year earlier. But Mr Wilson said having to pay full tax rates in the countries it has expanded into would impact on the the current year's overall result.

The tax rates in companies like France are considerably higher than Fernz's traditional New Zealand and Australian markets. Because of this tax change, the company is forecasting only a "marginal" rise in tax-paid operating profit for the year to the end of May 2000.

Fernz has already announced it plans to seek shareholder approval to move its corporate office from Auckland to Melbourne, to reflect the fact that more of its earnings come out of Australia. It also plans to move its balance date to June 30. Among the highlights during the latest year were the acquisition of Riverdale Chemical Co in Chicago, and the purchase of the European phenoxy herbicide business of Rhone Poulenc. The company also made a small strategic investment in IAMA, an Australian-listed rural distribution business.

Among segmental earnings for the year, Fernz's agricultural and chemical health operations recorded an 11 per cent rise in pre-tax profits to $45.9 million while industrial chemical pre-tax earnings improved 41 per cent to $26.3 million. The company's human health division reduced its losses to $5.3 million from $7.3 million.