Hellaby downgrades earnings outlook, citing economic, market conditions

Tuesday 1st December 2015

Hellaby Holdings, the diversified investment company, downgraded its estimate for annual earnings, citing variable economic and market conditions across its major markets.

Annual trading profit before interest, tax, depreciation and amortisation is expected to be "broadly in line" with the $59.1 million it reported last year, the Auckland based company said in a statement. At its annual meeting two months ago, the company said it expected to beat last year's profit.

It reiterated that earnings were likely to fall in the first half of the financial year, with trading ebitda of between $16.5 million and $20.5 million in the six months ending Dec. 31, "well below" the $28.7 million in the year earlier period. The first-half dividend is likely to be unchanged from the year earlier payment of 9 cents per share, it said.

"While the overall New Zealand economy is growing, the farming/agriculture market is depressed to flat and Australian economic conditions and confidence remains depressed," the company said. "The USA has also been variable, especially in the oil and gas segment, and major Middle East economies and refineries have been affected by the variability in oil and gas pricing. This volatility is expected to continue for the remainder of this financial year."

Hellaby, which owns 15 businesses, wants to sell some of its assets and use the capital to expand its business in the core areas of automotive, equipment and oil and gas services. It's also seeking to reduce volatility in its earnings.

"There is an opportunity for targeted expansion in our key markets funded by the recycling of capital from the rationalisation of some assets," said managing director Alan Clarke, who started in the role last month. "I would describe it as incremental rather than fundamental change. In addition, an exposure to lumpy earnings in some parts of the business requires a resetting to drive a stronger base of more stable, repeatable and predictable earnings.”

In the first half of the current financial year, the automotive business is expected to post an improved result. Sales at the oil and gas services division are expected to be "well down" due to delays in several large contracts which are now scheduled for the second half of the year, and the equipment division will also have lower sales due to a marked slowing in overall capital equipment spend along with a drop in business confidence in New Zealand's agriculture and farming sector, it said.

The first half will also be lower in its footwear division which has experienced a steady decrease in trading at its Number 1 Shoes chain, it said.

However the second half is expected to show "significant growth" from the year earlier period as the oil and gas services group benefits from delayed contracts and planned refinery shutdowns, the equipment group realises earnings benefits from several new business initiatives in the construction sector and as the automotive division benefits from a full period contribution from its Australian-based JAS Oceania investment.

Hellaby shares last traded at $3.08 and have slipped 2.2 percent so far this year.

BusinessDesk.co.nz

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