GUD Rides The Slump

GUD Holdings Ltd, the consumer and industrial products group, sees earnings improving in the 2010 year after it battled its way to hold underlying earnings to just a 1% fall in the June, 2009 financial year.

The company said in a statement to the ASX yesterday that underlying net profit for the year was down only 1% at $37.4 million despite competitive conditions, the huge swings in the Australian dollar and weaker economies in Australia and New Zealand.

"Demand for GUD’s products remained consistent with sales from continuing operations steady at $468.3 million versus $469 million last year. Within the Group growth was experienced by Oates cleaning products, Davey’s emerging water treatment products and the Ryco and Wesfil ranges of automotive aftermarket products," the company said.

Reported net profit after tax fell 7% to $34.8 million reflecting Victa’s strong contribution before being sold in 2008 and the impact of restructuring charges previously announced.

The market liked the news and ignored the 11% cut in annual dividend to 60 cents from 68 cents, with the payment of a final of 30 cents (38 cents in the last half of 2008).

That was after the interim was cut to 27 cents from 30 cents as the worst of the slump gripped the local and global economies in February.

The shares rose 5%, or 35 cents to $7.35, on a day when the overall market was up by less than 1%.

“In the latest year we responded to changed conditions. We reduced overhead costs, improved terms with offshore suppliers, edged up prices, reduced inventory and tightened working capital. We are very pleased to have recorded a sound result. 

"Consumers continue to support our range of leading brands,” GUD Managing Director Mr Ian Campbell said in the statement.

"During the period the Australian dollar fell from a high of over US$0.95 to below US$0.65 and more recently has bounced back to US$0.80. 

"These currency swings added significantly to currency hedging costs, pushed up the price of products and components from offshore suppliers, which squeezed margins, and increased the value of inventory on the balance sheet.

“We’ve been successful in partially offsetting the negative impact of weaker consumer sentiment and the extreme swings in the Australian dollar but more can be done. We are exploring all options to improve shareholder returns,” Mr Campbell said.

“GUD is strongly positioned to deliver positive future returns to shareholders. 

"The FY09 performance highlights the underlying strength of our leading brands and our flexible, lower risk business model,” Mr Campbell said.

“In an effort to maintain positive returns the management teams at each business continue to be focused on product innovation, cost reductions, brand management and tight working capital  management.”

“In the coming year markets will remain highly competitive but demand for our products is likely to remain sound and we are encouraged by the recent uptick in consumer sentiment. 

"Although we remain cautious on the macro environment and consider the rising trend in unemployment a threat, all our businesses are well positioned to benefit from any upturn in activity.”

“On current indications I expect the Group to achieve an improved financial performance in the FY10 financial year,” he said in the statement.

“GUD’s balance sheet is strong and provides a platform to drive additional growth as opportunities arise.”

With GUD having put its foot on 19% of appliance rival Breville earlier in the year, Mr Campbell’s comment about driving "additional growth opportunities’ off the back of a strong balance sheet, will get the market punting on GUD mopping up the rest.

GUD said its balance sheet was strong during the year due to a strong operating cash flow of $57.9 million.

Interest cover increased to 7.9 times from 6.7 times and net debt edged up only 5% to $90.6 million following proceeds from the $14 million Share Purchase Plan and the $18 million acquisition of the 19.4% stake in Breville Group Limited.

Here’s a summary of how each division performed from the company’s ASX statement. 

Consumer Products EBIT down 9% to $29.9 million

Both the 3% sales growth and the $29.9 million EBIT were satisfactory results in the weaker economy and in the competitive consumer products market environment.

Oates and Sunbeam both source a substantial proportion of their respective product ranges from offshore suppliers and were faced with significantly increased product costs as the Australian dollar devalued against the US dollar. This led to intense pressure on margins which was countered through price increases where possible and improved product purchasing arrangements.

Water Products EBIT increased 11% to $15.0 million

The growth in Water Products EBIT is due principally to a reduced cost base in the second half compared with the prior year. Significant costs were incurred in FY08 in reconfiguring the Monarch Pool Systems business and the benefits of these activities are now flowing.

Automotive Products EBIT down 1% to $19.3 million

The Automotive Products businesses reported a satisfactory result. Sales increased 10%, largely due to Ryco achieving broader distribution and Wesfil continuing to pick up business following the closure of National Parts in February 2008.


About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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