GUD reports: earnings down and Chinese rebates to raise prices

By Martin Vedris

SYDNEY: GUD Holdings Limited, the parent company of Sunbeam, today reported a $33.6 million net profit after tax for the year ending 30 June 2007 and warn of price increases in FY2008 due in part to the cessation of Chinese export rebates.

According to a company statement released today, the group EBIT before restructuring costs was slightly ahead of forecast at $60.2 million but it was five per cent lower than the previous year’s contribution of $63.6 million. EBIT in the second half increased seven per cent to $31.0 million over the first half contribution of $29.2 million.

The full year net profit after tax of $33.6 million was 16 per cent lower than the previous period reflecting a $2.4 million after tax charge for restructuring the New Zealand automotive business, a 34 per cent increase in net interest expense to $9.0 million and the five per cent dip in Group EBIT.

EBIT performance was affected by an adverse result in Victa due to the drought, underperformance within Oates and the mark-to-market foreign exchange hedging costs disclosed in the first half. The benefits to trading margins of a stronger Australian dollar were largely offset by higher input costs.

The result included a 12 per cent increase in sales to $518.7 million largely due to growth of 54 per cent in water products’ revenue to $148.8 million. Water products’ EBIT increased 29 per cent to $19.1 million.

“Water products is a strongly growing business benefiting from buoyant markets, new products and acquisitions,” managing director Ian Campbell said.

“Revenue and EBIT have more than doubled since FY04 and we expect further growth as water conservation and household water supply and treatment markets expand.”

“Sunbeam maintained strong returns and its long standing market leadership position as it continues to penetrate new segments with new products,” Campbell said.

“Victa and Oates underperformed within our Consumer Products business but both have adopted strategies that are expected to generate improvements in FY08.”

The company’s EBIT in consumer products was considerably down by 22% to $25.6 million.

Sunbeam’s contribution was in line with last year excluding FX hedging costs despite higher raw material, new product development and marketing costs.

Victa was impacted by the adverse effects of the drought but is now well advanced in transitioning to a more profitable business model. The brand continues to hold clear market leadership in Australia and strong growth is evident in New Zealand.

Victa warehousing has been taken in-house and customer service levels have improved. Improved returns are expected in FY08 as more product is sourced from offshore and as the business benefits from new Victa branded products in the broader garden products market.

Oates’ contribution was impacted by the underperforming Bissell product range, and competitive market conditions. Oates strengthened its position in the commercial/contractor market segment and, during the year, relocated to a purpose built distribution centre and head office.

The Oates business has completed its make-versus-buy analysis and will be restructured in FY08. Australian manufacturing will be closed and the Bissell distributorship will be terminated. A one-off restructuring charge of $5.9 million after tax will be incurred in FY08, including $2.9 million of cash costs. The Oates restructuring will generate a rapid payback consistent with prior GUD restructuring programs.

The company stated that the outlook for the consumer products segment is positive with FY08 EBIT expected to rise around 20 per cent despite further increases in raw material costs and the cessation of Chinese export rebates.

“A stronger earnings outcome, before the Oates restructuring, in FY08 will be driven by organic growth in water products and margin improvement and sales growth within Sunbeam,” Campbell said.

“Our growth profile will also benefit from our well advanced business improvement programs in Victa, Oates and Automotive,” he said.

“EBIT before restructuring charges should rise in a range of 10% to 15%.”

“We expect to maintain our consistent dividend growth record.”

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