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Methven shares gain as strong exports boost profit, expects NZ recovery in 2019

Wednesday 29th August 2018

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Methven lifted annual profit 22 percent as the tapware designer earned more from international sales while New Zealand weakened, though it expects better domestic growth in 2019. 

The company's shares rose 3.9 percent to $1.08, having dropped 5.5 percent this year. 

Net profit rose to $6.6 million in the year ended June 30, from a restated $5.4 million in 2017. Earnings before interest and tax lifted 20 percent to $10.7 million as revenue rose 5 percent to $105.1 million and expenses dropped 2 percent to $34.9 million. 

As in the first half, the company's sales lagged in New Zealand in the year, but it made gains in market share in all its international markets.

New Zealand sales fell 7.2 percent to $32.5 million in the year on tapware underperformance and demand from Canterbury normalising from the strong levels after the earthquakes. Methven said it saw strong signs of New Zealand sales stabilising in the fourth quarter, with sales broadly flat year-on-year, and it believes new products will help deliver robust domestic growth.

Methven forecasts international growth to accelerate in 2019 and the New Zealand market to recover lost share. It said it will give an update on that guidance at its annual shareholder meeting.

It maintained its sales target for $130 million by June 2020 and a net profit-to-sales ratio of 10 percent, compared to 2018's 6.9 percent. It aims to grow sales from its core markets - New Zealand, Australia, and the UK - to $117.1 million in that time, from $103 million in 2018, with the remainder to come from China and Southeast Asia.

Methven also said it would add manufacturing capability to its New Zealand factory in the year ahead, which would "give us a significant regional competitive advantage and further support sales in Australian and New Zealand markets."

In the latest year, Methven's international sales rose 11.6 percent. Australian sales rose 3.7 percent to $44.3 million and ebit increased 32.9 percent to $4.2 million. Methven said while it grew Australian market share, second half growth "slightly lagged behind our expectations" with new product launches delayed until the 2019 financial year. 

In the UK, revenue rose 8.9 percent to $26.7 million and ebit was up 31 percent to $1.5 million. Methven said gross margin was negatively impacted by the GBP/USD exchange rate over the period, though it is forecast to recover in FY19. In China, sales rose to $1.4 million, from $187,000 in 2017, and ebit was $189,000, which Methven said was ahead of its expectations.

"Our ongoing focus is to fix the issues that caused underperformance in New Zealand, transform our operations and margins through our FFF programme, and accelerate international growth," said chief executive David Banfield. "Whilst immaterial at present, the signs in China are extremely encouraging, with a strong pipeline of projects in development backed up by proof that we can deliver at or above our short term 10 percent ebit target for the China market."

Methven spent $870,000 on its 'Fit 4 the Future (FFF)' restructuring programme in the year, and said it expects $1.6 million in ebit benefits from the programme in 2019 before any reinvestment. It is aiming to improve its margins by 300 basis points over a two-year period and cut fixed costs by $3 million through the restructuring.

The board declared a 4 cent final dividend, from 3 cents a year earlier, payable on Sept. 28. That adds up to an 8 cent dividend for the year, from 7 cents in 2017.


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