Investment, property development and construction group Stockland has blamed poor market conditions for a 35% drop in profit, and has warned of difficult times ahead over the next financial year.
In an announcement to the Australian Stock Exchange on Wednesday, the company says full year statutory profit for financial year 2011/12 came in at $487 million, down 35% on the previous year.
The company says the result reflects a number of factors, primarily unrealised ‘mark to market’ adjustments on financial instruments – essentially accounting adjustments whereby companies are required to re-value financial assets if necessary to reflect proper market value, resulting in write-downs where the book value of the assets reflect current market values.
In Stockland’s case, these write-downs reflect the relatively weak state of the property market at the moment.
Stripping out these types of adjustments, however, the company still recorded a 7% drop in underlying profit ($676.1 million) as weak margin pressures impacted the company’s residential and commercial portfolio.
Stockland Managing Director Matthew Quinn says the result is not bad in light of difficult circumstances.
““This is a reasonable result in what continues to be a very challenging operating environment” he says, adding that the company retained relatively low levels of gearing as well as tight control of costs and has undertaken significant restructuring to improve efficiency.
The results were driven by difficult conditions in the residential and office/industrial markets, where weak selling conditions continue to depress margins.
By contrast the company’s retail portfolio, which recorded profit growth of 8% and a high occupancy rate of 99.4%, held up surprisingly well in the midst of weak retail conditions.
Going forward, the company warns of tough times ahead over the next financial year, with further falls in profit likely this year.
“The major uncertainty in our outlook is the state of the residential market” the company says in its announcement.
“The new housing market remains soft and lower mortgage rates are not yet having the same positive impact as occurred in previous cycles. As a result, the short-term earnings outlook remains highly uncertain, and unless residential market conditions improve significantly within the next few months, FY13 EPS [Earnings per share] is likely to be lower than FY12”.
Stockland’s fall in profit is the latest indication that profit margin pressures continue to bite throughout the industry.
As seen from the most recent Performance of Construction Index report, industry profit margins continue to contract as weak selling conditions depress prices even as costs continue to rise.
Stockland’s profit drop follows Leighton Holdings’ announcement on Tuesday of a drop in net profit after tax from $340 million in the six months to June 2011 to $115 million in six months to June this year.