Skellerup lifts 1H profit 31%, citing 'standout' performance from industrial unit

Thursday 15th February 2018

Skellerup Holdings shares jumped to a record after the rubber goods manufacturer lifted first-half profit 31 percent thanks to a "standout" performance from its industrial unit which boosted earnings 40 percent.

Profit rose to $11.7 million, or 6.06 cents per share, in the six months ended Dec. 31, 2017, from $8.9 million, or 4.63 cents, in the year earlier period, the Auckland-based company said in a statement. Revenue rose 20 percent to $116.7 million. The company forecast full-year profit of between $24.5 million to $26 million, up from $22.1 million last year.

Skellerup has refocused its industrial unit over recent years, reducing its exposure to the oil and iron ore industries following a collapse in commodity prices which dented demand for its products, and instead turning its attention to the less volatile potable water and wastewater industries, which it sees as having more stable and sustainable growth prospects. In the latest period, 36 percent of its industrial division revenue came from water and waste areas, while just 7 percent came from the exploration and mining industries. Meanwhile, earnings at its agri division rose a "solid" 13 percent.

"We are very pleased to report an excellent result for the first half of FY18, underpinned by a standout performance from our industrial division, which continues to make an increasing contribution to Skellerup's growth," chair Liz Coutts said in the half-year report. "The improvement in revenue and earnings can be attributed to the reshaping of our operations around the world; continuous and efficient product development and reducing exposure to industries affected by commodity cycles.

"It is extremely encouraging our growth is broad-based and continuing to gather momentum."

Skellerup shares soared 8.3 percent to a record $1.95.

"Following a period where they undertook a strategic review and made some changes, it's all really starting to come good for the company now and the market is really liking it," said Grant Williamson, director at brokerage Hamilton Hindin Greene in Christchurch. "This is new territory for the share price and so it's got investors pretty excited. The outlook does look particularly good for the company. "

Earnings before interest and tax at Skellerup's industrial division increased to $10 million from $7.2 million as revenue rose 21 percent to $73.7 million.

The company said it improved its cost structure and operating leverage, leading to higher earnings, and highlighted growth in water and waste in the US and roofing and fasteners in the US and the Asia/Middle East regions.

"We have continued to build our position with key original equipment manufacturers," said chief executive David Mair. "This has led not only to growth in our share of their business but also opportunities for new product development. At the same time, we have better aligned our development processes to ensure we are completing new product designs in less time."

At the company's agri division, ebit rose to $9.5 million from $8.4 million as revenue lifted 18 percent to $43.1 million.

Skellerup said that growth in dairy product sales were driven by demand for consumables and animal hygiene products in international markets, while the New Zealand market remained "solid" following a very strong end to the 2017 financial year.

For its footwear segment, the New Zealand market was strong, helped by favourable weather as well as growth into the hardware and industrial safety channels. Growth continued in technical products, with the company citing the fire, di-electric and forestry industries, noting it had secured a large order for fire boots in the UK.

"This growth reflects our continued success in developing innovative and high-quality dairy components and specialist footwear designed and manufactured to meet the specific needs of customers," Mair said. "As our home market, New Zealand remains hugely important to us, but increasingly opportunities for growth are to be found overseas."

Skellerup will pay an interim dividend of 4 cents a share on March 22, up from 3.5 cents in the year-earlier period.

While the latest dividend payment will be fully imputed, future dividends are likely to carry only partial imputation of about 60 percent as the company's earnings growth is largely coming from its international operations.

Ahead of today's results, two analysts had a 'hold' recommendation on the stock and one had a 'strong sell', according to Reuters data.

(BusinessDesk)

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