Restructure Delivers For GUD Holdings

GUD Holdings has revealed a recovery in earnings for the six months to December 31, reporting a 61% improvement in profit to $28.4 million as it completed several years of restructuring.

The company said net after tax profit from continuing operations was up a more modest 16% to $25.8 million.

Directors lifted the interim dividend to shareholders by 14% to 24 cents a share.

The continuing operations include the Automotive businesses and Davey pumps and associated products, with Oates being re-classified as a discontinued operation following the November 2017 announcement of its sale.

Revenue from continuing operations was up 11% to $195 million with this growth coming from both Automotive and Davey.

Earnings before interest and tax (EBIT) from continuing operations was $39.9 million, up 12% from last year’s $35.7 million. Included in this was $0.2 million of significant items, principally related to acquisition transaction costs.

Net debt was $194 million at the end of December, but this was cut by $80 million on January 2 this year following receipt of the Oates transaction proceeds.

An higher interim dividend represents a payout of 80% on basic earnings per share from continuing operations.

“Organic revenue and earnings growth was evident in both Automotive and Davey, exemplifying the focus on product innovation across the group,” Managing Director Jonathan Ling said in yesterday’s statement.

“This result highlights the continuing strong performance of our automotive businesses, which has been complemented with the recent acquisition of the AA Gaskets group and six month’s contribution from IM Group,” he said.

Mr Ling went on to say that “the sale of Oates completes the repositioning of GUD’s portfolio. Since 2014 we have sold four businesses, providing proceeds totalling $164 million. We have reinvested these funds, together with some additional capital, into Automotive interests, for a total commitment of $258 million.”

“It is clear that, with the recent automotive acquisitions, we continue to demonstrate a well-defined path to value creation. We are buying well, and the businesses have performed well since acquisition. We have a proven practice for securing margin expansion in the acquired businesses and there is potential for future consolidation of operations providing substantial synergy benefits,” Mr Ling said.

Looking to the second half Mr Ling “we are expecting improved contributions from both Davey and Automotive.” “This will come from the innovation activities that are in place across both businesses which will provide a portfolio of new products and services for both existing and new market segments,” he said.

“In addition, the AA Gaskets and IM Group businesses will provide a full six months contribution to the Automotive results, while further profit improvement at the IM Group is expected as it becomes more integrated with Ryco.”

“We anticipate that Davey will report a stronger second half due to the innovations mentioned, along with channel expansion and further product cost reductions.”

So far as profit forecasts are concerned, Mr Ling said the company told the AGM in October that it was expecting an underlying EBIT in the year to June 2018 "of between $90 million and $94 million on a like-for-like basis.”

“Since that time the Oates divestment has occurred, and we have acquired the AA Gaskets business. As a result of these portfolio activities it is expected that underlying EBIT for the full year will now be around $90 million, including seven months’ contribution from AA Gaskets and only six months from Oates.”

“Additionally, the full year result will include a one-off after-tax profit contribution of around $47 million arising from the sale of Oates,” Mr Ling stated.

The shares fell 11 cents to $12.26.

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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