Dexion Drags Down GUD

Shares in industrial products group, GUD Holdings eased 2.1% yesterday after more accounts cleaning and impairments saw it swing to a net loss in the 2015-16 financial year after writing down the value of its Dexion storage-systems business by $75.7 million.

But shareholders shouldn’t be too fussed by the account cleaning – look what the board did to dividends: the board declared a final dividend of 23 cents a share, bringing the full-year payout to 43 cents up from 42 cents paid for the 2014-15 financial year.

GUD Holdings reported a net loss of $43.0 million in the 12 months through June, compared to a profit of $33.2 million a year ago. The latest impairments followed 18.5 million of write downs in the interim figures, most of which was related to goodwill in Dexion

Underlying net after tax profit from continuing operations jumped 36% to $44.4 million with strong contributions from the automotive businesses and Davey Water Products, partially offset by a loss in Dexion.

"The Sunbeam appliances business was reclassified as a discontinued operation following the announcement of the sale of GUD’s interest in the joint ventures, which completed on 1st July 2016. Sunbeam’s revenues and underlying EBIT contribution are excluded from the comparative analysis for the continuing business, “ directors said yesterday.

Group revenue from continuing operations was up 20% to $595.5 million including a $117.4 million contribution from recent acquisition, Brown & Watson. Revenue growth was reported in Davey, Oates and the established automotive businesses, Ryco and Wesfil.

"The underlying EBIT including Sunbeam’s $2.2 million, was $80.8 million, marginally below the guidance range provided at the half year,” directors commented.

Under newish CEO, Jonathan Ling, GUD has been reshaping its portfolio, reducing exposure to household appliances and expanding its presence in the auto parts industry that is experiencing strong revenue growth.

A year ago, GUD Holdings bought Brown & Watson International Pty Ltd., which supplies lighting, electrical and battery products for autos, for $220 million. An extra payment (or earn out) will be required to be paid to the vendors because the company’s performance has been at the required levels in the purchase agreement.

It finally quit its long time stake in Sunbeam, the consumer products group and earlier this month, GUD completed the sale of its 51%, and its 49% stake in Jarden Consumer Solutions to joint venture partner US-based Sunbeam Products for $35.4 million in cash.

Now, it is the turn of Dexion to be jettisoned?

GUD said yesterday the recent trading performance of Dexion combined with its near-term outlook had triggered the latest impairment.

"Dexion reported lower revenue due to a lack of major projects in the Australian racking market and lower demand in the commercial products market. Dexion’s underlying EBIT was a loss of $3.8 million for the year.,” directors said.

The business is now in GUD’s books at just $44 million.

Net debt at year end was $168 million, down $23 million from December. On July 1 2016, cash of $35.4 million was received from the sale of the Sunbeam joint ventures.

In addition the total Brown & Watson earn out payment of $20 million will be paid in August (effectively financed by the cash for the Sunbeam stake).

“While Dexion’s performance was disappointing and difficult decisions have been taken in respect of its carrying value, there were a number of offsetting positives in our other businesses in these results,” managing director Jonathan Ling said in yesterday’s statement.

Mr Ling identified solid growth in revenue and earnings for the company’s car-parts businesses that supply mechanics workshops, used-car yards and other consumers. He said GUD Holdings retained substantial firepower to support expansion of these businesses and potential deals in the new financial year.

“Overall we are anticipating underlying earnings to grow again the current year,” Mr Ling said.

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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