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Skellerup Reports Increased Profit

Skellerup Holdings Limited

Trading result for the year ended 30 June 2010

Key points

• Continuing Operations Revenue up 16.1% in second half, to finish full year in line with previous year at $180.7 million
• Continuing Operations Net Profit After Tax (NPAT) before abnormals up 48.7% to $14.5 million
• Significant second half improvement for both divisions, but particularly Industrial
• Net Debt reduced from $64.7 million to $26.6 million
• 2.5 cents per share dividend (fully imputed), to be paid on 21 October 2010

Skellerup has today announced a continuing operations audited Net Profit after Tax (NPAT) of $11.9 million for the year ended 30 June 2010 – an increase of $2.9 million, or 33.0%, on the previous year.

Trading NPAT was $14.5 million before abnormals, compared with $9.7 million for the year to June 2009 – an increase of 48.7%. Abnormals include one-off costs associated with the closing out of a non-trading FX derivative, payment to the Managing Director on leaving the Company and deferred tax adjustments as a result of tax legislation changes.

This pleasing performance results from a significant improvement in the second half trading environment, particularly for the Industrial division.

Group revenue for the second half of the year was up 16.1%, which had the effect of negating the disappointing first half revenue figures, so that revenue for the full year was in line with the previous year at $180.7 million.

As outlined in the half year report, the Group’s performance in the first half of the 2010 year reflected the continuing impact of the global recession, which had reduced demand for a wide range of Skellerup core industrial products for more than 12 months. A marked shift in trading conditions was felt in the third quarter and subsequently gained further momentum in the fourth quarter. The improvement in sales, together with our focus on operational efficiencies across the Group, produced the improvement in NPAT for the full year.

Features of the strong second half performance by the Industrial division were increasing demand for our core range of pipe rings, gaskets and appliance industry requirements, and growth in the supply of drive shaft couplings to the automotive industry. Sales for the second six months were 13% ahead of the first six months with divisional earnings 158% ahead at the EBIT level.
Agri division sales for the second six months were 9.3% ahead of the first six months with divisional earnings 40.1% ahead at the EBIT level. This reflected increasing demand for our core range of consumables including liners, tubing, filters and footwear, which is continuing into the new financial year.

Demand for items of a more capital nature, such as dairy vacuum pumps, remains suppressed as a result of lower investment in dairy conversions being carried out at present, despite the reasonably positive outlook for the dairy industry in general.

Debt Reduction and Capital Raising
Group debt reduced during the year from $64.7 million to $26.6 million – a reduction of $38.1 million, of which $20.7 million was provided by way of the successful 2-for-5 rights issue completed in October 2009.The balance of the reduction came from earnings, together with efficient management of working capital.
As at the end of the financial year, the percentage of debt to debt-plus-equity improved from 48% to 21%.

The Company’s dividend policy is to return to shareholders each year a total dividend payout within the range from 40% to 60% of NPAT.

Accordingly the directors have resolved to pay a final dividend of 2.5 cents per share, which will be paid on 21 October 2010 to shareholders on the register at 5pm on 8 October 2010. The Dividend Reinvestment Plan will be operative for the dividend payment.

Annual Meeting
Skellerup’s Annual Shareholders’ Meeting will be held at the Ellerslie Convention Centre, in Auckland, on Wednesday 27 October 2010 at 2.30 pm.

Long-standing Managing Director Donald Stewart departed the Group on 30 June 2010. Until a permanent replacement is announced, Mr David Mair, a Director of the Company, will be Acting Chief Executive Officer.

Looking Ahead
While we have had encouraging signs during the past six months that global markets for our industrial products are, by and large, recovering; and could continue to grow over the coming year, more recent economic data coming out of the USA and Europe, and to a lesser extent Australia, may mean that on going growth in these markets may be more gradual and indeed patchy than initially expected. However with the northern hemisphere summer vacation period now coming to an end the next few months may give us a better guide going forward.

In general the outlook for the Industrial division continues to be positive, with intensive product development in technical polymer products for niche markets driving the opportunity for growth in revenue from existing and new customers. There is also the prospect of some improvement in the demand for industrial vacuum pumps, the market for which has been one of the hardest hit by the recent economic downturn.

Provided the automotive market continues to recover, and there remains good growth in demand for roofing, plumbing, flow control and general industrial products, the Industrial division is positioned to carry on making a solid contribution to the bottom line.

We anticipate ongoing earnings growth from the Agri Division based on a continued steady increase in local and off shore demand for our range of essential dairy consumables. The prospect of increased demand for capital equipment may be delayed and now be somewhat dependent on a recovery in dairy prices that have softened significantly over the past four months.

In summary, while we consider that the outlook for the coming year is positive for both divisions, it is too early to anticipate that the growth achieved in the second six months to June 2010 can be sustained at that rate for any length of time into the new year given that some of the growth was in reality a result of customer re-stocking.
Taking all of the above into account and being cognisant of the somewhat uncertain global economic environment we are currently trading in we expect earnings at the NPAT level for the June 2011 year to be within the range of $16m to $17m.


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