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NZ nappy competition weighs on earnings for Asaleo, company behind Libra, Sorbent, Treasures

Thursday 23rd February 2017

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Asaleo Care, the Australian stock exchange-listed maker of household brands such as Libra, Sorbent, Purex and Treasures, posted a 22 percent drop in annual profit with revenue declining as it faced more competition in the New Zealand nappy market.

Profit fell to A$59 million in 2016, from A$75.6 million a year earlier, on a 2.6 percent drop in revenue to A$605.9 million, the nappy, toilet paper and tampon maker said in figures released to the ASX. 

Just over half of Asaleo's earnings come from its personal care category which encompasses the Libra, Tena and Treasures brands, while the remainder comes from its tissue segment which includes Sorbent, Purex, Handee and Deeko.

The company has 383 employees in New Zealand with manufacturing facilities in Kawerau and Te Rapa, and distribution centres in Auckland and Christchurch. Revenue from the New Zealand operations shrank 5.7 percent to A$146.1 million in the year. 

The company is forecasting low single-digit growth in underlying net profit and underlying earnings before interest, tax, depreciation and amortisation in 2017, along with low-to-mid single digit growth in underlying earnings per share. In 2016, underlying net profit was A$64.6 million, while underlying ebitda was A$130.7 million.

Underlying revenue from personal care dropped 5.3 percent to A$182.7 million in the year, with underlying ebitda down 7.1 percent to A$66.9 million. In May 2016, Asaleo cut prices for its incontinence and feminine products by about 20 percent at major customers Coles and Woolworths. The introduction of that pricing model resulted in one-off implementation costs in the first half, but has stabilised its sales and second-half earnings for those products were in line with the first half, it said.

Its underlying revenue for baby care products including nappies declined 11 percent "due to deeper and more frequent discounting activity required in New Zealand to protect market share". The company experienced intense competition in New Zealand from its largest competitor which adversely impacted volumes and prices, it said. 

In its tissue segment, underlying revenue fell 1.4 percent to A$423.2 million and underlying ebitda fell 12 percent to A$63.8 million, with "increased competitive intensity" in the consumer tissue market.

Asaleo's assets include the tissue business of Carter Holt Harvey, acquired in 2004, and other Australasian paper assets that date back to early last century. The business was 100 percent owned by Sweden's Svenska Cellulosa Aktiebolaget (SCA) in 2004 before SCA sold 49.5 percent in 2012 to private equity firm Pacific Equity Partnership. Its 2014 IPO raised A$656 million at A$1.65 a share.

The stock last traded at A$1.51, up 4.9 percent today but down 6.2 percent in the last year.

The company will pay a dividend of 6 Australian cents a share, for a total dividend of 10 Australian cents for the year. That takes its dividend ratio to 94 percent of net profit, ahead of its target payout band of between 70 percent and 80 percent.

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