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UPDATE: Skellerup lifts annual profit 23% to a record; shares hit new high

Thursday 16th August 2018

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Skellerup Holdings, the rubber goods manufacturer best known throughout rural New Zealand for its iconic 'red band' gumboot, lifted annual profit to a record as both its industrial and agri divisions boosted earnings. The shares hit a new high.

Profit increased 23 percent to $27.3 million in the 12 months to June 30, ahead of the company's forecast range of $24.5 million to $26 million, and up from $22.1 million last year, the Auckland-based company said in a statement. Its shares hit a record $2.12, and were recently up 4 percent at $2.09.

"The numbers were very strong and the outlook is positive so we will be upgrading our numbers as a result of that," said David Price, a broker at Forsyth Barr. "The prospects are quite good."

Skellerup refocused its industrial unit in recent years, reducing its exposure to the oil and iron ore industries following a collapse in commodity prices which dented demand for its products. It instead turned its attention to the less volatile potable water and wastewater industries, which it sees as having more stable and sustainable growth prospects.

Its agri unit remains a global leader in dairy rubberware design and manufacture, where growth is being driven by a growing Asian middle class and global demand for milk protein, and it also produces a range of rubber footwear, including 'red bands' which celebrate their 60th anniversary this year. 

 "We have had a record year and continued to deliver against a consistent and effective strategy," chair Liz Coutts said in the company's 2018 annual report. Coutts, who has just completed her first full year as chair, said the board is pleased with the broad-based growth achieved in the 2018 year. 

While based in New Zealand, Skellerup generates more than three-quarters of its revenue from international markets and manufactures more than three-quarters of its products outside the country as well.

The US, where President Donald Trump is introducing restrictions on trade, is the company's largest market and Coutts said it provides strong growth potential for both the agricultural and industrial businesses. She said supply chain flexibility gives Skellerup confidence it can adapt and mitigate the impacts of more restrictive international trade practices and continue to grow earnings.

Skellerup strengthened its balance sheet over the past year, reducing net debt by $5.1 million to $30.7 million, and said its capital expenditure had reduced to normal levels following completion of its Wigram manufacturing facility in 2016. Capital and intangible expenditure fell to $5.4 million in 2018 from $12.6 million in 2017, $38.9 million in 2016, and $20.4 million in 2015. Operating cash flow rose 33 percent to $28.3 million.

In the past year, the industrial division posted a 21 percent increase in earnings before interest and tax to $20.8 million. Revenue lifted 15 percent to $151.5 million as it focused on international markets. 

“We continue to enhance our operating platform and deploy the expertise we have in engineered polymer product, compound and tool design into customer focused development," chief executive David Mair said. "We have improved our execution and sped up our development activity enabling strong growth across international markets, particularly in the potable water industry.” 

Last month, the company bought a 35 percent stake in Wisconsin-based liquid silicone rubber maker Sim Lim Technic for US$1.1 million. Mair today said the investment provides Skellerup with valuable liquid silicone rubber capability for customers.

Meanwhile its agri division increased ebit 15 percent to a record $22.8 million on a 12 percent revenue rise to $89 million.

Mair said the result was due to growth in international markets and a buoyant New Zealand market after improved payouts to farmers. 

“International markets provide the best opportunities for growth and we are very pleased with progress in FY18," he said. "Our reputation and ability to consistently develop and deliver innovative and high-quality dairy consumables and animal hygiene products is critical to our success."

Skellerup will pay a final dividend of 7 cents a share on Oct. 11, taking the annual dividend to 11 cents from 9.5 cents a year earlier.

Ahead of today's results, the stock was rated an average 'buy', according to Reuters data.


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