Half Year Result Slightly Up On Expectation
Half Year Result Slightly Up On Expectation Despite USA Underperforming
Performance Highlights to 30 September 2007
- Total Group operating revenue up 24.6% to $43.2m and EBITDA up 7.2% to $7.1m
- Group NPAT of $3.8m in line with previous half year with minor adjustments from implementation of International Financial Reporting Standards (IFRS)
- UK acquisition of Deva completed 1 September, contributing first month revenue of $4.9m and EBITDA of $0.4m; integrating well
- Australian shower and tapware division EBITDA up 44.0% to $1.3m and sales up 14.5% to $13.2m
- Australian NEFA valving business transitioned to direct Methven distribution, contributing to EBITDA loss of $0.4m as expected
- Methven New Zealand EBITDA up 1.9% to $6.3m and sales up 7.4% to $21.8m
- Methven USA loss of $0.5m as forecast; no improvement expected in second half but action being taken to reduce deficit
- Interim dividend 5.7cps to be paid on 14 December 2007
Methven Group has reported a satisfactory result, slightly ahead of guidance, for the six months to 30 September 2007 despite the forecast losses from the fledgling USA operation and has declared an interim dividend of 5.7cps in line with last year.
“International expansion plans, including the integration of the recent UK acquisition, Deva Tap Company Limited, have progressed to plan, however, our USA operation has continued to underperform,” Group CEO, Rick Fala said.
Group EBITDA of $7.1 million was up 7.2% (up 1.3% excluding Deva) over the corresponding period, reflecting sustained growth in Australian shower and tapware profitability, partly offset by costs associated with the transition of the Australian valving business to direct distribution through Methven Australia. The continued investment in innovation and new product launches, including the proprietary Satinjet Maia beauty shower and losses in the USA, are also reflected in the result.
Group NPAT of $3.8 million was on a par with the previous half year result after minor adjustments from the implementation of IFRS. Before IFRS and acquisition adjustments Group NPAT was up 2.8% on prior year, principally due to the impact of one month’s contribution from Deva ($0.1m after financing costs).
Group operating revenue increased 24.6% to $43.2 million (10.5% or $38.3 million excluding Deva).
Mr Fala said the completion of the Deva acquisition on 1 September 2007 represented a major strategic milestone, expanding Methven’s international scale and reach through established distribution channels and operations in the UK market.
“While Deva contributed only modestly to Group earnings in the first month post-acquisition, the outlook for this business remains positive and its integration into the Methven Group is progressing well,” he said.
“However, Methven’s start up operation in the USA, while on forecast, is not showing the improvement we would like as our narrow USA product offering has failed to gain traction in traditional plumbing merchant channels despite the commitment of significant in-market resources. Costs are being rationalised and initiatives are under way to broaden the product range and use alternate distribution channels. “
Despite the expected increased year on year loss in the USA and additional development and marketing costs relating to the new Maia ‘beauty shower’ product, Mr Fala said Methven was still targeting full year earnings marginally ahead of 2006-07 before factoring in Deva’s business.
“The additional profit contribution from Deva, net of funding costs, is expected to be in line with pre-acquisition expectations and we look forward to a full year’s contribution in 2008-09,” he said.
Cost pressures on materials and wages were likely to continue through the second half but Mr Fala said Methven was anticipating maintaining margins through further efficiencies from outsourcing and more favourable exchange rate cover on offshore purchases.
“The impact of the global credit crunch has had a major effect on the US building sector and we are seeing signs of it in the UK and New Zealand markets. However, we expect a slowdown rather than a significant fall. We will continue to watch the situation carefully,” he said.
Key initiatives which we believe will deliver
future benefits include:
- establishing our own NEFA valving sales infrastructure
- launch of the Satinjet Maia beauty shower
- steps being taken to significantly reduce USA losses
- Group procurement initiatives
- new product releases
- introduction of Satinjet to the UK
“While the outlook suggests relatively soft demand in all key markets we believe these initiatives all auger well for Methven maintaining profit growth momentum in 2008-09 and beyond,” Mr Fala said.