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Mercer Group expects FY earnings to fall on hiring intention

Mercer Group expects annual earnings to decline as it employs more staff; shares drop

By Tina Morrison

Feb. 28 (BusinessDesk) –Mercer Group, the stainless steel fabricator, expects annual earnings to decline this year as it invests in more staff in anticipation of future earnings growth. The shares dropped 4.8 percent.

Mercer expects earnings before interest, tax, depreciation and amortisation of about $2 million in the year ending June 30, down from $2.5 million last year, the Auckland-based company said in a statement. First half EBITDA slipped 19 percent to $1.1 million as the company employed more staff.

The company’s shares fell 1 cent to 20 cents, making them the second-worst performer on the New Zealand stock exchange All Ordinaries Index today.

“The directors believe the company should continue to invest in people and technology to drive sales growth and increase profitability in the medium term,” the company said. “The investment in people will impact earnings for 12 months as we front load the expense to lift medium term performance.”

When announcing its annual earnings last year, Mercer said it expected better earnings this year as it focused on improving its operating performance following a restructuring and repositioning of the company in 2012. In the first half, net profit dropped 31 percent to $407,000 as revenue slipped 2.3 percent to $21.4 million. Staff costs rose 9.7 percent to $6.8 million.

During the first half, the company gained an extra $1.7 million in funds from the issue of new shares at 5 cents apiece, and subsequent to the Dec. 31 balance date, it has received a further $1.2 million from the issue of new shares at 7 cents each.

Mercer said the funding supports its near term organic growth aspirations and it is currently considering an acquisition it believes would be complementary to its business. It didn’t provide further details.

No dividends were paid in the first half, consistent with the year earlier period.

The company said its largest stainless business reported a 67 percent drop in EBITDA to $642,000 and a 17 percent drop in revenue to $14 million as some jobs didn’t achieve expected margins, the move of Titan manufacturing to Christchurch took longer than expected and as it increased staff in advance of expected Titan and Mercer equipment growth. A stronger second half is expected as the order book is full through to the end of June but the unit will face higher costs as it continues to invest in staff, it said.

Its interiors unit, which supplies sinks, basins, tubs, toilets and similar products, also posted lower earnings, down 39 percent to $64,000 as increased staff costs outpaced a 19 percent rise in sales to $4.7 million. The company’s secondary distributor in Australia was put into administration in January owing Mercer money, the company said, without providing details.

Mercer’s corporate unit turned to a profit of $305,000 from a loss of $724,000 in the year earlier period as it booked new sales of $996,000 after signing a license agreement with a large multinational North American company for its S-Clave technology.

Meanwhile its medical unit, which supplies equipment for sterilisation, washing and disinfection, posted a six-fold increase in earnings to $97,000 as it boosted sales 57 percent to $1.8 million. That is expected to grow in the second half, the company said.


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