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Mercer loss widens on poor H&C performance; recent trading better

Wednesday 29th August 2018

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Mercer Group says its two major operating divisions have good work flows and delivered an operating profit last month.

The group’s Mercer Stainless business delivered operating earnings of $1.1 million in the year through June, while the Haden & Custance machinery business is expected to sell its first system into the US red meat market by the end of 2018.

“Current workflows in both Mercer Stainless and H&C are good, and the company generated an ebitda profit in July, which was pleasing. We are looking to continue this momentum and have the workflows and operating structures to do so,” the Christchurch-based business said in a statement filed through NZX.

Mercer today reported a net loss of $7.9 million for the year ended June 30, from a $6.98 million loss a year earlier. The latest result included $3.2 million of write-downs against the Titan food slicer business.

The group loss before interest, tax, depreciation and amortisation narrowed to $1.42 million, from $3.47 million a year earlier. Revenue rose to $28.8 million, 8 percent more than a year earlier.

In June the firm warned that it could report a full-year operating loss due to the failure of Haden & Custance to meet growth forecasts that had proven overly aggressive. The general manager was replaced earlier this year and a new sales manager appointed to lead the business in the US.

Despite a 52 percent increase in revenue to $12.5 million, Haden & Custance reported a loss before interest, tax, depreciation and amortisation of $1.6 million, only marginally smaller than the year before.

Mercer attributed the loss to costs from expanding in the US, a number of large projects there that were delayed and a sales strategy that was too narrowly focused on a small number of players in the cheese industry.

Mercer said the business has now broadened its focus, including marketing to the red meat sector in the US. It has also re-entered the New Zealand and Australian markets with a view to offering greater automation options for the horticulture sector.

“We want to stress that H&C is an established business with a strong, loyal customer base, excellent reputation and true growth opportunities with its proven technology,” Mercer said. “The underperformance in the 2018 financial year was due to focus on too fewer customers coupled with increased costs. The refreshed, broader strategy is underway and the pipeline looks healthy with more breadth.”

Mercer shares fell 1 cent to 15 cents, taking their loss for 2018 to 70 percent.

Mercer is a major producer of stainless steel tanks, silos and equipment for the dairy, wine and food processing sectors. In the past two years it has expanded into automation technology to complement its food business and started developing a medical sterilisation business as a new income stream. 

In late 2016 it acquired Hastings-based Haden & Custance, a specialist manufacturer of automated cheese and butter processing systems that gets more than 90 percent of its revenue overseas. The $2.25 million purchase was part of a strategic shift toward higher-value manufacturing for food processing and packaging. 

The group’s full-year earnings improvement was driven by the Mercer Stainless fabrication business, its main arm. Sales there fell 14 percent to $18.5 million, but ebitda climbed to $1.06 million from a $298,000 loss a year earlier.

Mercer attributed the earnings improvement to a lower cost base and a better mix of higher margin work.

It is working to reduce its reliance on the dairy sector where it says a pullback in investment is underway. It has had some success in the wine sector but faces strong, established competition there.

“We are therefore focused on quoting only to levels where our business can be sustainable and looking to continue the diversification strategy.”

The firm said it is continuing to work through the process dealing with the September 2016 collapse of a milk silo the firm built at Fonterra’s Edendale plant. It is hoping for a conclusion within three months.

In November Mercer said the estimated the cost of the collapse to Fonterra was $20 million, but that no formal claim had been lodged against it at that point.


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