Methven Profit Surges on back of UK Acquisition

Media Release                                                                                                   28 May 2008

Methven Profit Surges on back of UK Acquisition

Performance Highlights for the year ended 31 March 2008

·           Group NPAT up 27.7% to $9.8m from $7.6m (up 36.6% to $10.5 million from $7.7m excl. amortisation) in line with H/Y guidance

·           EPS up 22.8% to 18.3 cps from 14.9 cps (up 30.7% to 19.6cps from 15.0 cps excl. amortisation)   

·           Total Group operating revenue up 63.0% to $114.8m from $70.4m and EBITDA up 41.0% to $18.9m from $13.4m

·           Methven New Zealand EBITDA up 3.6% to $12.7m and domestic sales up 2.3% to $41.4m

·           Australian NEFA valving business transitioned to direct Methven distribution, contributing to EBITDA loss of $0.6m as expected

·           Australian shower and tapware division EBITDA up 70.3% to $3.5m; sales up 21.6% to $27.3m

·           UK acquisition of Deva completed 1 September, contributing revenue of $37.3m and EBITDA of $5.1m, slightly ahead of budget despite market downturn

·           Methven USA loss of $1.2m as forecast; action taken to significantly reduce deficit

·           Additional market development costs of $0.6m relating to launch of world’s first beauty shower, Maia, to extend reach into new personal care category and distribution channels

·           Final dividend of 6.0cps to be paid on 27 June 2008 in addition to 5.7 cps interim dividend

Methven Group has delivered a pleasing performance for the full year to 31 March 2008.  Profits were up 27.7% to $9.8 million on the back of very strong growth in Australian shower and tapware sales, combined with seven months’ trading contribution from recently acquired UK-based Deva which came in slightly ahead of forecasts.

The surge in Group profitability is on the back of operating revenue up 63.0% to $114.8 million (up 10.0% to $77.4 million excluding Deva) and EBITDA of $18.9 million, up 41.0% (up 2.9% excluding Deva) over the prior year.  This corresponds to year on year growth in earnings per share of 22.8% to 18.3 cps (based on average shares on issue).
“We maintained our record of consecutive year on year profitable growth and continued to make further substantial progress in our strategy to evolve into a truly global company,” Group CEO, Rick Fala said.  

“The Group result was in line with half year guidance and reflects the increasing geographic spread of Methven’s revenue sources to reduce exposure to any single market. It also shows the effectiveness of the global business model that focuses on the development of unique and competitive world leading shower and tapware designs that deliver luxurious experiences, yet at the same time are eco-friendly, energy and water efficient.”

Directors have declared a fully imputed final dividend of 6 cps to be paid on 27 June 2008 to bring the total dividend for the year to 11.7 cps.  The dividend is in line with Board policy to maintain the cents per share payment at or above previous levels while also enabling reasonable reductions in borrowings over the medium term following the $59 million acquisition of Deva in September 2007.  Post Deva acquisition net debt of $32.6 million was negotiated with fixed bank margins and UK interest rates considerably more favourable than those prevailing in New Zealand.

Mr Fala said the acquisition of the well established UK bathroomware supplier, which immediately trebled Methven’s international scale and reach, was delivering promising results.

Despite tough trading conditions and a severe downturn in the housing market, the UK business (Deva) performed slightly ahead of expectations, generating sales of $37.3 million and EBITDA of $5.1 million for the seven months since acquisition.  This result in local currency of £2.0 million was also ahead of expectations, demonstrating the capability of the UK team to win market share in adverse conditions by providing an excellent and competitive product range, combined with high levels of service.

“Although early days, it is expected that Deva will successfully distribute Methven’s flagship proprietary Satinjet shower ranges throughout the UK in a similar manner to what has been achieved in Australia,” Mr Fala said.

Deva’s marketing network has also been extended to the Middle East where a new sales office will open in mid 2008 in Dubai following success in securing US$1.2 million in initial orders to supply tapware to a development project.

Looking to Methven’s core market, New Zealand, domestic sales grew by 2.3% to $41.4 million in a softening market.

However, Mr Fala said the strength of Methven New Zealand’s performance for the 2007-08 year was not fully reflected in its 3.6% increase in EBITDA to $12.7 million as Head Office carried all Group overheads, research and development and global marketing costs.

Market development costs attributable to the breakthrough Maia beauty shower were $592,000.  The personal care and beauty shower features a unique Vitamin C cartridge that eliminates chlorine from water. Chlorine fades hair colour and dries out the skin.  Maia will also come with moisturising and aromatherapy shower infusions that will generate a new revenue stream.

“This strategic investment will take us beyond the traditional bathroom fittings market and also into personal care and beauty channels.  The benefits are expected in the 2008-09 year when development costs will significantly reduce and sales and contribution are targeted to increase,” he said.

New Zealand is likely to remain Methven’s core profit generator in the medium term and its performance will continue to be vital to Group profitability. 

“We intend to continue to work hard to consolidate our position and profile in our home market with a full offering of showerware, including new Satinjet releases, tapware and valves, to meet different segments and price points.”

Mr Fala said that Methven, the acknowledged domestic market leader, was not immune to economic climate swings and higher interest rates, lower house sales and reduced consumer confidence would likely dampen even the more stable renovation and replacement segment.

“In anticipation, we’ll be focusing on broadening the competitive appeal of our offering, including introducing Deva products to the value end of the market while identifying opportunities for cost containment and cost reduction, not just in New Zealand but throughout the business,” he said.  “Our international expansion strategy and opportunities to gain market share offshore does provide greater diversity of revenue sources to reduce our dependence on New Zealand.”

Methven Australia continued to grow strongly and profitably in the year under review with more of the same expected despite flatter trading conditions.

“We successfully leveraged our sales and marketing infrastructure and unique offering in what to date is proving to be our most promising growth market,” Mr Fala said.  “Satinjet products have continued to win market share as their luxurious and energy and water conserving benefits become more widely known to make them the shower of choice. “

Australian shower and tapware sales were up 21.6% to $27.3 million with EBITDA up 70.3% to $3.5 million.  In Australian Dollar terms, sales were up 23.8% and EBITDA up 73.4%.  This was in line with Methven’s stated intention to focus on lifting bottom line profitability and margins rather than sustaining the aggressive sales growth of 2007.

“Critical to maintaining momentum will be the launch of the high end Satinjet Tahi shower system and tapware products that have distinct points of difference, functionally and aesthetically, and eco-friendly appeal,” Mr Fala said.

As expected, the changeover transition of the Australian NEFA valving business from a third party to Methven’s own dedicated, in-market distribution and sales team has affected short term profitability with a loss of $642,000 for the year.

Mr Fala said the new structure would quickly bring benefits as was the case with the Australian shower and tapware division when Methven put in place its own sales infrastructure in 2006-07.

The full year loss of $1.2 million for the United States start up was in line with budget with the impact of recent cost rationalisation and restructuring offsetting the extremely disappointing sales performance to date.

“We are now about to launch our expanded and very distinctive USA range on the strength of securing high calibre sales representation and a focus on securing sales for Satinjet showers on the parched West Coast (Northern and Southern California),” Mr Fala said. “With overhead and marketing costs pruned, USA market losses are expected to significantly reduce in 2008-09.

“Our long term strategy is to find the right partnerships and alliances to expand distribution and brand presence.”

The launch of the world’s first personal beauty shower, Maia, with New Zealand model and personality, Rachel Hunter, as spokesperson, supported by a leading dermatologist and beauty specialist, has seen Methven gain a public and media

This product, as well as aromatherapy and shower infusions under development, is to be sold through personal care and beauty channels.  Current stockists include Barney’s department stores and the Bliss Spa Group, as well as the bathroom boutique channels Methven USA is targeting.  

In addition to the launch of Maia, the revolutionary, proprietary Tahi shower system and tapware range has been developed for release in the new financial year to build on the Methven premium brand offering and experience. 

Outlook

Methven expects to continue to achieve earnings growth in 2008-09 through the contribution of a full year’s trading from the UK business and sustained growth in Australia which, with prudent business wide cost controls, would offset a weaker New Zealand market.

“Our sound financial base, depth of capabilities and skills and international spread of markets, combined with our appealing proprietary products, mean Methven is well placed to weather an economic downturn and grow strongly as conditions improve,” Mr Fala said. 

The focus for the coming year would be to:

Maintain margins and control costs in New Zealand; consolidate leadership in the renovation market, including launching select and complementary Deva tapware products; expand the high end range
Continue to build proprietary product sales and profitability in Australia
Boost Deva’s contribution in the challenging UK market with the launch of Satinjet; exploit the potential of the Middle East market
Broaden the US offering to gain sales traction and stem losses through significantly reducing market spend
Gain procurement and supply efficiencies to offset inflationary pressures
Further sharpen attention on cost containment throughout the group

Mr Fala said that while there would be some weakening in demand in the short term, with the exception of Australia, Methven’s longer term prospects had never looked better.  The proprietary offering, branding, international distribution channels and supply chain management were all developing strongly to position the business as a design centric, competitive, global player. 

“We are immensely proud of our credible performance record to date in delivering on our promises to our shareholders both in terms of financial performance and the strategic development and internationalisation of our business,” Mr Fala said.

Methven Group’s Annual Report will be released in late June 2008. 

ends 

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