Methven posts 32% drop in first-half profit

Methven, the shower and tapware designer, posted a 32% drop in first-half profit after a major supplier in its biggest market Australia shut down, but says it's on track for a stronger second half.

Net profit fell to $3.2 million in the six months ended December 31, from $4.7 million a year earlier, as sales fell 5.7% to $49.9 million, the Auckland-based company said in a statement.

The profit weakness reflected the impact of significant one-offs in the first quarter, the company said, with the second quarter showing significant improvement. It has maintained full-year guidance for revenue growth of at least 5% but expects net profit growth to be at the lower end of its 10-20% range, with both numbers on a constant currency basis. 2015 full year net profit was $7.7 million, while revenue was $105.8 million.

The company's Australian segment showed weakness, with 1.5% revenue growth to $A20.1 million which the company described as below expectations, and a 21.4% drop in earnings before tax (ebit) to $A1.3 million. That was caused by "the biggest fire sale in Australian corporate history" with the December closure of Masters, the second largest DIY retailer in the country, which came after "months of clearance activity that undermined rest of market demand and impacted our sales into other customers," Methven said.

Margins in Australia were also dragged by Australian dollar devaluation against the US dollar, though the company increased prices in December and expects those to support profit recovery in that segment.

In New Zealand, revenue was flat at $17.8 million, with a major customer reducing stock holding, while ebit fell 4.2% to $2.2 million, which Methven said was driven by it investing $600,000 in the business and it expects to recover in the second half.

UK sales rose 5.2% to £5.9 million while ebit rose 25% to £264,000. Group operations, which include manufacturing in China and New Zealand, had a 53.7% ebit drop to $1.2 million, due to a supplier issue limiting its factory output from Heshan.

The company declared a 4c dividend, payable on March 31, in line with last year's interim dividend. The shares last traded at $1.32, up 10.9% in the last year.

(BusinessDesk)