Skellerup delivers solid performance

Skellerup delivers solid performance and benefits from key market focus.

Key points for the six months ending 31 December 2015

• Revenue of $107m up 9% and NPAT of $9.6 million at similar level to prior corresponding period (pcp), with mixed performance within the group.

• Industrial Division revenue up 12% and EBIT up 11% on pcp. Growth in sales in international markets boosted sales and earnings. Sales of recently completed new product developments will see this increase continue in the second half of the year.

• Agri Division revenue up 4% and EBIT down 13% on pcp. Stronger sales in overseas markets did not offset the subdued NZ demand for dairy rubberware and footwear.

• Interim Dividend maintained at 3.5 cents (fully imputed ) per share

• Capital investment in the new integrated Dairy Rubberware facility at Wigram is progressing in line with expectations. Fit out is scheduled to be completed in May 2016. The transfer of manufacturing will occur in a staged process over the ensuing 12 months.

Summary

A continuing focus on key overseas markets has delivered increased revenue for Skellerup for the six months to 31 December 2015, although tough market conditions for some traditional customers have resulted in a first half net profit after tax of $9.6 million at a similar level to pcp. As planned Skellerup has moved to a net debt position of $17.4 million with $19.1 million invested in the new Wigram facility over the past 6 months.

Financial Summary Half year endedHalf year endedPercentage$000 Unaudited31 December 201531 December 2014ChangeRevenue107,55498,7129%Earnings before interest and taxation13,73114,025-2%Net profit after taxation9,6419,725-1%Earnings (cents per share)5.005.04-1%Dividend (cents per share)3.503.50-Cash (Net debt)-17,6007,778

Industrial Division

Chief Executive Officer David Mair said Skellerup’s decision to invest in its US operations had boosted revenue and earnings for the Industrial Division. In particular, increased sales to OEM customers supplying US water supply infrastructure and premium tapware had more than offset a slowdown in sales to customers involved in oil and gas exploration, a result of the continuing decline in global oil prices.

“It is satisfying to see the investment we have made in our US growth strategy continuing to deliver tangible benefits to the bottom line,” Mr Mair said.

Sales of civil, plumbing and roofing products in Australia and Asia have also increased, while sales into the West Australian mining sector were steady as expected. The slump in oil prices and corresponding slowdown in activity in the oil and gas exploration sector affected vacuum system sales.

The second half of the year will benefit from increased sales of a number of new product developments now in production, including the first delivery of Gulf Rubber couplings to a tier one European car manufacturer.

Agri Division

Mr Mair said that the reduced international milk price affected Skellerup’s Agri division.

“The drop in forecast pay-out for New Zealand dairy farmers has resulted in some deferral of spending, which has slowed our local sales of dairy rubberware and footwear. However, as previously noted many of our products are essential consumables so we expect a recovery, but the exact timing is difficult to forecast.”

In contrast, Mr Mair noted that overseas sales in the first half of the year were strong, enabling the Agri Division to record a slight increase in revenue, however the higher costs of sales in delivering to international markets caused a reduction in Agri Division EBIT compared to the previous year.

Work at Skellerup’s new integrated Dairy Rubberware Development and Manufacturing facility at Wigram continues to progress well. The new on-site Distribution Centre will soon be in use, while manufacturing operations will transition following scheduled completion in May 2016. Capital investment in the facility remains in line with expectations.

Dividend

Skellerup’s Board has resolved to maintain the interim dividend, declaring a 3.5cps pay-out, fully imputed. This will be paid out on 23 March 2016 to shareholders on the register at 5.00pm on 10 March 2016.

Outlook

Chairman Sir Selwyn Cushing said Skellerup’s results represented a solid performance in what remained a difficult market.

“The changes we have made to our Industrial Division over the past couple of years are paying off. We have achieved good growth in the US helped by investments being made to upgrade water infrastructure and also in Australia through careful expansion of our product range into civil applications. Further improvements are expected in the coming six months”

Sir Selwyn said the outlook for the Agri Division was harder to project, with low global milk prices likely to have some impact on the timing and quantum of farmer spend between May and July 2016, the off-season for most New Zealand dairy farmers.

Overall, Skellerup projects a net profit after tax of approximately $23 million for FY16, a five percent increase on the $21.9 million recorded in FY15.

ENDS

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