New profit downgrade hits Vertex shares

By ELLEN READ

Shares in plastics container maker Vertex tumbled yesterday as the company announced another downgrade of its expected earnings.

After closing at $1.65 on Wednesday, Vertex shares fell to $1.51 by the end of trade yesterday.

This followed news that the company now expects earnings for the year to March 31 before interest and tax to come in between $9.2 million and $9.6 million compared with a September estimate of $10.1 million.

The Securities Commission is already looking into an earlier Vertex profit downgrade, and says it will look at yesterday's announcement to see if it should be taken into account in that investigation.

The company blames weak consumer demand, high raw material costs and a strong New Zealand dollar for the latest reduction in its forecast earnings.

Vertex exports 20 per cent of its production, primarily to Australia.

It says domestic consumer demand for some dairy products has weakened over the summer and trading conditions for consumer packaging in commodities are becoming more difficult as those sectors face drought and declining returns.

A new contract for $1.2 million of business with a key dairy customer will not take effect until April.

Vertex says it remains committed to the payment of a final dividend, subject to the impact of external factors. It is also considering a dividend reinvestment scheme.

Managing director Paddy Boyle said the financial performance of the company was reviewed each week, and a re-forecast of the outlook was done each month.

"What we said today is where we believe we will end up [for the year]," he said yesterday.

The company also said it was considering buying a complementary business. Boyle said he could not comment further as the continuous disclosure environment New Zealand companies now operate in means individual briefings or comments are unwise.

The shares listed at $2.05 last July but fell sharply in September after an initial profit warning just weeks after its $61 million float.

The market quickly made its feelings on that clear - the company's share price dived 25 per cent in a day, to $1.38.

That warning, coming so soon after listing, prompted the Securities Commission investigation.

The commission will not say when its inquiry will be completed but Boyle expects a finding to be announced within weeks.

Yesterday's bad news followed a couple of weeks of heavy buying in Vertex shares as two rival parties jockeyed for position.

Corporate veteran Sir Selwyn Cushing's foray into Vertex ended on Wednesday when he sold a 7.6 per cent stake for $4 million.

South Island businessman George Gould emerged victorious, having lifted his stake to 19.85 per cent.

Boyle welcomed Gould as a substantial shareholder, noting his"successful track record as an investor in companies with growth potential".