GUD Earnings Up, Pulls Breville Bid

By Glenn Dyer | More Articles by Glenn Dyer

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GUD Holdings called off its bid for rival appliance group Breville and revealed a solid 46.4% jump in first half earnings yesterday.

Better cost control and especially, lower interest payments, helped produced the recovery in earnings for the group.

As a result GUD increased its first half dividend to 28 cents per share from 27 cents the year before.

But it is still well down on the 33c a share paid in the first half of 2007-08.

Net profit rose to $24.8 million for the six months to December 31 compared with $16.9 million in the prior corresponding period, GUD said in a statement to the ASX yesterday.

The company said earnings before interest and tax (EBIT) rose 14% to $37.3 million, compared to the upgraded guidance earlier this month for a rise of at least 10%.

That was after a 6% rise in revenue for the period to $251.5 million.

Chief executive Ian Campbell said in the statement the result was due to an improvement in profitability across the business and the consequence of management actions taken over the last 12 months.

"One of the pleasing aspects of these results is a consistent improvement in profitability across all our businesses," Mr Campbell said.

"This improvement reflects the consequence of management actions taken over the last twelve months in response to the volatile market environment. A combination of selective price increases, product cost reductions and tighter overhead controls were successfully implemented across the GUD group.

"In addition, our focus on tight working capital management led to an improvement in cash flow and to a substantial reduction in net debt, at a time when our debt requirements are at their seasonal peak," he said.

The company generated operating cash flow of $20.7 million, mainly due to the $19.6 million reduction in the working capital.

"The solid trading conditions we experienced in the first half are expected to continue through the balance of the current financial year," Mr Campbell said.

"Whilst we expect the results to further benefit from the higher exchange rate we are concerned about higher commodity prices and increasing labour costs in China feeding through into product costs and the potential impact from an appreciating Chinese currency.

"Further increases in interest rates may result in slowing demand for some of our businesses although the relatively stable

"We continue to pursue acquisition opportunities to complement future growth, with a strengthening balance sheet providing the capacity to do so."

"The first half results benefited from our focus on costs, product innovation, active brand management and tight working capital controls and these will continue to support growth in the second half.

"Our expectation is that full year EBIT will be within the range of $64 million to $68 million."

The biggest contributor to EBIT growth was GUD’s water division, which increased earnings 41% to $11.8 million for the six month period.

The consumer division, GUD’s biggest, increased EBIT by 5% to $17.1 million, while the Automotive division grew earnings 6% to $10.4 million.

GUD said it was still on the hunt for acquisitions after abandoning its all share offer for Breville Group Ltd.

That action followed the decision by the Australian Competition and Consumer Commission to block the proposed takeover.

"We continue to pursue acquisition opportunities to complement future growth, with a strengthening balance sheet providing the capacity to do so," Mr Campbell said.

Breville Group meanwhile took the opportunity of the GUD move to upgrade both half-year and full-year earnings guidance, following a stronger than expected performance in the first half of fiscal 2010.

Breville said it now expected underlying earnings before interest, tax, depreciation and amortisation (EBITDA) in first half year to be around $30 million, up from $25.1 million in the prior corresponding half, and $32 million excluding an onerous lease obligation that it faces.

"These preliminary half year results follow a stronger than expected performance across Breville’s core Australian and North American businesses," the company said in a statement.

Breville said it expected full year earnings for fiscal 2010 to be $43 million to $46 million, up from $33.6 million in fiscal 2009, and $46 million to $49 million excluding the lease issue.

Breville earlier had forecast earnings of $38.7 million and $41.1 million respectively.

Breville chief executive officer, Stephen Audsley, said in a statement that the company’s performance in November and particularly December was well ahead of expectations, and affirms the company’s strategy of focusing on innovative products and leveraging those products across multiple geographies.

GUD shares fell on the news of the abandonment of the Breville bid, but then rose after the interim results were released.

They ended up 2% or 19 cents at $9.30.

But Breville shares fell 5.5c, or more than 3%, to $1.625.

Glenn Dyer

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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