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Methven cuts full-year guidance, says earnings growth to stall

Monday 29th November 2010

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Methven cut its full-year guidance, saying earnings growth will stall because the economic recovery is grinding slower than expected.

The lack of profit growth contrasts with the company's prediction in July of "a creditable improvement" in full-year earnings. Profit is likely to match last year's $7.8 million. Methven today posted a 2% gain in first-half profit of $4.3 million even as operating revenue fell 7.7% to $62.8 million.

"New Zealand market conditions, and to a lesser extent Australia, are not expected to improve to the degree that we had thought in July 2010," chairman Phil Lough said. "In addition the UK is now forecast to end the year close to break-even as we implement the turnaround strategies that will create sustainable profitability."

As a supplier of tapware, the company is closely tied to the pace of home building and renovation work in its key markets of New Zealand, Australia and the UK, where the business has been restructured and a new CEO appointed after the loss of a key customer. The company today described the UK market as "depressed" and New Zealand as "stagnant" with "few signs of recovery." Australia remains the bright spot, even while demand there eases.

The company will pay a first-half dividend of 5.5 cents a share, unchanged from a year earlier. The shares were unchanged at $1.63 in trading today.

In New Zealand, the company's biggest market, sales fell 2.6% to $21.9 million and earnings before interest, tax, depreciation and amortisation was unchanged at $5.46 million, excluding foreign exchange adjustments.

Methven held EBITDA unchanged by cutting costs as revenue fell. It said there were "no signs of market recovery" even as figures show a 15.6% gain in building permits, year on year and a 7.9% advance in renovation permits.

In Australia, sales rose 10% to A$20.4 million and EBITDA soared 214% to A$2.3 million, as margins widened and increase turnover of showerware and tapware, while its Nefa valve sales fell 25%.

Operating revenue in the UK dropped 30% and the company reported an EBITDA loss of 100,000 British pounds including restructuring costs.

The company's net debt rose 6.4% to $19.5 million, better than the 15%-to-20% increase it had forecast.

Chief executive Rick Fala, said repositioning the UK business to become a "high value, premium, Methven branded operation" was "an absolute focus."

"Success in turning around our UK operations will reduce the drag on earnings and set the course for strong growth in group profitability," he said.

The company has appointed Steve Lee, former CEO of Bristan, the largest UK tapware supplier, to manage its UK business.

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