G3 warns UK souvenir unit faces earnings hit over looming price hikes

Wednesday 3rd May 2017

G3 Group's British souvenir business faces a "significant profit downgrade" that has the NXT-listed mail operations and document manager's board trying to figure out ways to mitigate the decline.

The Auckland-based company reported its fourth quarter key operating metrics today - the lower disclosure obligations required of firms on NZX's NXT market - which showed the company's profit margins were largely in line with its targets for the year ended March 31. Those targets were increased in April when G3's recently acquired Tidy Files document management and Small Worlds UK tourist souvenir businesses generating stronger sales and wider margins than expected.

G3 said it was pleased with the "sound operating and financial performance" New Zealand and Australian document management and business mail services. However, the UK tourist collateral business faced "a significant industry wide cost increase" from a major supplier.

"The new pricing would result in a significant profit downgrade for that business unit and the directors are considering how it may be mitigated," chief executive Mark Brightwell said in a statement.

G3 reported a gross margin of 24.7 percent in the year ended March 31 and an operating margin of 22.3 percent, just short of the 24.8 percent and 22.4 percent targets, which had been 22 percent and 20.2 percent before the upgrade.

The company's inventory turnover was 27.5 days, compared to the 27.4 days target. That had been increased from 22 days due to a relatively high stock held by the Tidy Files and Small World businesses on their acquisition, and after a one-off build up of inventory at its mail unit took longer to clear than expected.

The NXT-listed shares last traded at 64 cents and have gained 3.2 percent so far this year. The company was the first to join the new NXT market in June 2015, listing its 53.8 million shares at 75 cents.

The company is made up of New Zealand Mail, Send, Pete's Post and Fastway Post, which provide business mail services, and Universal Mail, a UK-based tourist stamp operation. Its document management brands include Filecorp, Eureka, Formfile Records Management, Rocket Mail, Tidy Files, and the tourist collateral business added Small World Scotland in December.

(BusinessDesk)

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