GUD Lifts Interim Dividend After Solid Rebound

The market loved the better than expected interim results from GUD Holdings (GUD) as the company showed that the big slide in first half earnings a year ago was well behind it.

The interim report a year ago reflected the impact of one off losses of nearly $15 million from restructuring the Sunbeam and Dexion operations. In the latest half year GUD showed that that surgery had done the trick, with losses staunched and signs of positive returns.

As a result of that improvement, the company lifted its first half profit 16% and says it is on track to meet its full year earnings guidance, which could be a rare event this reporting season given the sluggish economy in the past year and expectations of similar conditions this year.

GUD says it made a profit of $17.28 million for the six months to December 31, and it more than tripled when the previous year’s $4.8 million when nearly $15 million of restructuring costs were taken into the accounts.

As a result the company says it is on track to lift annual earnings by up to 22% to between $55 million and $60 million.

The shares jumped more than 5.6% to $7.18 yesterday, in a market mostly weaker for much of the day’s trading.

GUD 1Y – GUD lifts profit 16%

Also helping investor confidence was news of a lift in interim dividend to 20c a share, fully franked, from 18c previously.

The company said the higher dividend represents a payout of 82% on basic earnings per share of 24.4c. But the dividend remains well below the 26c a share paid for the first half of the 2012-13 financial year.

Underlying EBIT was up by 16% to $27.9 million, reflecting the initial benefits from the various profit improvement plans in place across the group’s businesses. With the exception of the Oates division, all businesses reported an increase in underlying EBIT on the same period last year.

Revenue for the half year, at $297 million, was essentially steady on the same half in the prior year. Every business recorded revenue growth with the exceptions of Sunbeam and Davey, GUD said.

During the period GUD entered into joint venture arrangements with the US‐based Jarden Corporation in which it sold a 49% shareholding in its Sunbeam small appliance business and acquired a 49% stake in Jarden Consumer Solutions’ Asian sales operations. The joint venture commenced in November 2014.

GUD said, “The joint venture provides opportunities for Sunbeam to access Jarden’s extensive brand and product portfolio to grow in its traditional markets while providing scale benefits in procurement and buying power.

“We have previously articulated and quantified plans to improve profitability across GUD’s businesses and we are pleased with the progress, as evidenced in these results,” Managing Director Jonathan Ling said in yesterday’s statement.

“Underlying EBIT increased 16% with profit growth recorded in all businesses, with the exception of Oates. It is encouraging that our previously identified underperforming businesses – Dexion and Sunbeam – made an improved contribution in this half,” Mr Ling said.

“While the group reported a flat sales result, every business has implemented innovation programs aimed at delivering new products that will support sales growth towards the end of this year and into FY16” he said.

“I am also excited by our Sunbeam joint venture with Jarden. This provides us with significant scale synergies and considerable growth opportunities, which should start to feature in FY16,” he added.

In a breakdown on the company’s divisions, GUD said:

Dexion underlying EBIT increased 499% to $2 million

Whilst revenue remained relatively flat, due partially to delays in major project commencements, the operating performance benefited from the profit improvement plan and the relocation of the Kings Park rack manufacturing operation to the Malaysian factory.

Dexion’s order pipeline remains strong at $69 million.

Kings Park was closed during the half and the focus is on optimising operational performance in Malaysia now that the relocated machinery is installed and commissioned.

The new roll forming line, which was installed towards the end of FY14, commenced full operation and the business holds a strong order bank for products from this plant.

Dexion Commercial reported strong profit growth due to a combination of improved market conditions, the exit from the Elite Built business and the final closure of local manufacturing.

Sunbeam underlying EBIT increased 208% to $2.5 million

Underlying EBIT improved due to the contribution from profit improvement initiatives, in particular those relating to freight and logistics costs.

Sales declined due to a lack of new products, an issue that is being addressed through a combination of the Jarden joint venture and a reinvigorated new product program.

Substantial upside exists in Sunbeam through introducing Jarden products to the Australian and New Zealand markets, sales potential for Sunbeam’s products in Asia and through further contributions from the various elements of the profit improvement plan.

Davey EBIT increased 7% to $4.9 million

Despite softness in the Australian swimming pool and firefighter market segments, Davey reported a 7% growth in EBIT due to the contribution from its profit improvement plan. The most significant contributor to this was efficiencies identified and captured in freight and logistics costs.

The profitability analysis performed at Davey highlighted substantial opportunities to improve returns from the swimming pool segment of Davey’s business. As a result remedial actions have been put in place and Davey is in the process of separating the swimming pool business for reporting clarity and accountability purposes.

Automotive Products EBIT increased 5% to $16.2 million

The Automotive business, comprising the leading brands Ryco, Wesfil and Goss, generated a record EBIT result of $16.2 million, with all brands contributing.

Revenue increased 6% due to a combination of new product launches and market share gains. EBIT to sales margin remained solid at 32%.

Oates EBIT declined 5% to $5.6 million

Oates recorded sales growth of 3% due to activity in the hardware and commercial market segments. This was partially offset by a decline in grocery. The business reported an improving sales trend late in the half.

The EBIT contribution from the sales growth was offset by foreign exchange effects on cost of goods sold and price increases have been applied to negate these over the year.

Lock Focus EBIT increased 1% to $0.5 million

Financial performance at Lock Focus was broadly consistent with the previous corresponding period. New product initiatives are expected to contribute to second half results.

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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