Sunbeam, Dexion Toast GUD Earnings

Shares in GUD Holdings (GUD) lost 10% yesterday after the Sydney-based consumer and industrial products company cut its full year earnings guidance after reporting unexpected losses from its Sunbeam appliances joint venture and in the fully-owned Dexion racking business in the December-half.

The shares ended down 9.7% at $7.13, after falling more than 12% to a day’s low of $6.85.

The Dexion problems forced the company to impair the value of the division’s assets by $15 million, which accounted for most of the $18.5 million write down taken in the first half.

As a result, the company reported net profit after tax of $1.7 million for the December 31 half year compared with the $17.3 million earned in the six months to December 31, 2014. After the goodwill write-off earnings before interest and tax fell to $17.2 million in the latest half.

GUD’s underlying net profit for the six months ending December 31 was up 11% to $19.6 million and underlying EBIT rose 33% to $37.2 million, boosted by the acquisition of auto electrical business Brown & Watson last July.

Directors though are maintaining interim dividend at 20 cents a share, despite the lowered guidance for the full year.

GUD 1Y – GUD H1 profit slips

CEO Jonathan Ling now expects the company to earn between $82 million and $88 million before interest, tax and one-off charges for the June 30 year compared with previous guidance of $90 million and earnings of $58.9 million in 2015.

While GUD’s Davey water pumps and Brown and Watson businesses performed well, the latter contributing $28 million to profits, Sunbeam slumped from a $2.5 million profit to a loss of $1.7 million after GUD deferred raising prices to recoup higher costs triggered by the weaker Australian dollar.

And the Dexion operation also dived into the red, losing $21.5 million compared with a profit of $2 million previously due to weak demand for shelving and racking systems in Australia and unrecovered overhead costs in Malaysia.

Thanks to the acquisition of Brown & Watson, revenue improved by 20% to $356 million (including $58 million of sales in Brown & Watson). Sales growth in the half was reported in Automotive (excluding BWI), Davey, Oates and Sunbeam.

“The pleasing aspect of this set of results is the contribution from the BWI acquisition, which has added to the continuing growth that is evident in our Automotive business. The integration of BWI into GUD is progressing to plan and its financial performance was a little better than our expectations at the time of the acquisition,” Mr Ling said in yesterday’s statement to the ASX.

"BWI has repositioned GUD with the Automotive businesses now being the dominant contributor to the results,” Mr Ling continued.

“Both Davey and Oates reported profit growth on last year, however the financial performances of Sunbeam and Dexion have provided us with challenges,” Mr Ling said.

“Recognising that getting Dexion to acceptable levels of return is taking longer than anticipated, we have written down Dexion’s goodwill by $15 million and taken a write-down on obsolete and slow moving inventory of $4 million pre-tax.

"Dexion’s performance in the half was negatively affected by weak project demand in the Australian racking products market and unrecovered overhead costs associated with operating the Malaysian factory at volumes below its break- even position.

Whilst sales in Sunbeam improved in the half, and market share was maintained, the decision to defer price increases, to offset the effect of the lower currency on product costs, constrained profit performance. Sunbeam’s overhead costs were tightly managed and were at a lower level than last year,” Mr Ling said. Sunbeam will lift prices 8% in February.

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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