Hellaby warns first-half earnings likely to fall; still sees annual profit growth

Hellaby Holdings [NZX: HBY], the NZX-listed diversified investment company, still expects higher annual earnings in 2016, but warned the first-half will be down from the year earlier.

Managing director John Williamson told shareholders in Auckland that earnings growth will be weighted to the second half, mainly due to the spread and timing of some major projects in its Contract Resources oil and gas services business and affirmed guidance that it expects to beat its record annual profit in 2016. The shares fell 0.3 percent to $3 and have declined 4.4 percent this year.

At the company's annual meeting in Auckland today, chairman Steve Smith said Hellaby had a number of acquisitions in the pipeline this financial year, particularly in Australia, and will narrow future investment focus to three areas: oil and gas services, automotive, and equipment, which now account for around 90 percent of revenue.

The company, which owns 15 businesses, has already flagged plans to sell its footwear division, Hannahs and Number One Shoes, which it no longer sees as core to its portfolio. Both businesses are trading profitability despite declining revenue.

Williamson, who is leaving after eight years running the company, said the company expects good growth in Australia following the June purchase of the JAS Oceania auto parts wholesaler, which provides a scalable auto electrical distribution business across the Tasman.

He said he was proud that the acquisitions made during his time had delivered value to the group and that it would continue to be a patient investor.

"We never suffer from deal fever."

Hellaby's mergers and acquisition strategy sought earnings and geographic diversity in the portfolio, which has become less weighted to "New Zealand Inc", he said, but was focused on buying businesses of scale. Some businesses it had exited included textiles, barbeques, and electric metering.

NZ Shareholders' Association chairman John Hawkins questioned why Contract Resources, which Hellaby bought into in 2013, had a 17 percent return on funds employed when company policy was to hit at least 20 percent.

Williamson said it was below target because of the level of investment in plant and some projects being deferred to the new financial year, but he expected it to lift above 20 percent this financial year.

Shareholders received a final fully imputed dividend of 12.5 cents per share, taking the total dividend paid tomorrow to a record 21.5 cents after the board changed the pay out policy last year to 75 percent of net profit. Smith said that represented a gross dividend yield of 10 percent which was "a good return in today's market."

The company's debt to gearing ratio is sitting at 22 percent, below its limit of 45 percent, and the board was considering a share buyback programme as it didn't intend "holding excess capital for Hellaby for a lengthy time", Smith said.

The board remains disappointed with Hellaby's stagnating share price, which is well below analysts' and directors' own assessments of the company's intrinsinc value, he said.

Incoming managing director Alan Clarke, the former Abano Healthcare boss who takes over from Williamson on November 3, was among those taking advantage of the low share price, with his family interests acquiring 100,000 shares this week.

Williamson said the company is in better shape with a much clearer strategy than what he inherited in 2007.

He plans to seek a couple of "meaty directorships" and either a corporate leadership role at a listed company in New Zealand or to take a stake in a private company which he would also run.

"I want my hands on the steering wheel and personally want to own a share of the car," he said.

(BusinessDesk)