Vertex Group Ltd Meets 1/2 Year Forecasts
Vertex Group Ltd Meets Revised Forecasts For Half Year
Vertex Group Ltd has announced results for the six months ending 30 September 2002 are in line with the revised forecast released to the Stock Exchange on 4 September 2002.
The Group achieved FOB sales of $41.9 million, 10% below the prospectus forecast and in line with the revised forecast of $41.7 million. EBIT of $4.6 million was 12% below prospectus forecast, slightly ahead of the revised forecast of $4.4 million and 17% ahead of the previous corresponding period. The key impacts on the earnings shortfall all occurred in the second quarter.
The Company announced an interim dividend of 6.1 cents, fully imputed for NZ tax residents, payable on 16 January 2003. Books close on 20 December 2002. The dividend is based on the underlying earnings of the business before adding the one off costs of the Project New Age business streamlining programme which are expensed in arriving at the result for the period.
The sales shortfall, as previously detailed, was caused primarily by customer delays in new product launches, reduced demand from exporters and the effects of the Australian drought on a number of customers supplying the agriculture industry. Lower than expected volumes and short-term demand variability with some customers have made production efficiencies harder to achieve. The main business units whose earnings performance was affected were Technical Injection and Securefresh. In addition the effect of a strengthening currency had a small impact by reducing the booked value of sales.
With lower sales and profitability, net cashflow has been below forecast. The final stages of the New Age project have brought unbudgeted costs; however the benefits of this project are now starting to be delivered. In addition, capital expenditure exceeded prospectus forecasts mainly due to bringing forward the purchase of a $1.6 million new forming machine. This is now installed in the Albany foam plant and has increased New Zealand manufacturing capability to meet high demand for "open cell" foam meat trays.
The Company has also announced the appointment of Sandy Maier as a director to replace Doug Mckay who had to resign from the board due to assuming a new employment role. Sandy brings a wealth of experience to the Company and we welcome his appointment. The Board acknowledges Doug’s invaluable input and wishes him the best in his new role.
The Company, as a result of its earlier profit forecast announcement, is being reviewed by both the NZSE Market Surveillance Panel and the Securities Commission. The Company is fully co-operating with all parties and will make announcements as and when appropriate. The inquiries do result in costs for the Company that are not budgeted and accordingly were not incorporated into the forecasts.
OUTLOOK FOR THE YEAR Significant external factors remain as key issues. These include the impact of a strengthening currency (which reduces the top line sales revenue and has some net effects on margins), the ongoing drought conditions on the East Coast of Australia and weather conditions in New Zealand, which affect our agricultural linked customers, and the timing and quantity of agricultural exports from New Zealand. A number of actions already in place will have a positive impact on the second half trading results and partially offset these factors. Revenue and margin pressures remain evident in the mature business segments of dairy, industrial and rigid tray production.
An internal focus on ‘closing the gaps’ relative to the prospectus forecast has also been implemented together with regular board updates. There have been some positive outcomes which include: The new Irwin machine commenced commercial production on November 11, adding annual sales capacity of over $4 million. This is a significant move for the company. Technical Injection has moved to new premises in Hamilton and is implementing a full financial and operational review. Prototype production runs have been completed for two new customers in health and agritech. The Naenae household products division is now delivering EBIT above plan as a result of the New Age restructuring plan and good sales volumes. Also, better than forecast margins are being achieved in our Industrial blowmoulding businesses in Hamilton. Securefresh has demonstrated its patented long-life chilled meat packaging on faster thermoforming case-ready machines to several major customers in both Australia and New Zealand. This technology has been well received and the Company is confident of converting this interest into sales. November sees the completion of New Age, with benefits in increased margins apparent already. In December, the Movex IT system goes live in Technical Injection followed by full go-live on 1 April 2003. While this is later than anticipated it ensures the system is well developed at implementation. Completion of these major projects frees up more management time to address trading and growth opportunities in New Zealand and Australia.
In light of these factors the directors remain confident that the challenges of the second six months can be met and the revised forecast and full year dividend of 14.2 cents per share remain valid.