Skellerup issues profit guidance

Skellerup Holdings shares (NZX: SKL) lost 4% this afternoon as the industrial rubber products supplier announced its profit guidance for the year.

At today's annual meeting in Auckland, ceo David Mair said the company's 2013 profit guidance is between $22 million to $24 million this year.

That is the same figure as last year – but the company beat that guidance with a $24.7 million after-tax net profit in the year ended June 30 this year, an increase of 22%.

Mr Mair says sales are expected to be slightly down, but it is investing in its products and it is trying to break into new markets.

"We've got more opportunities than, I think, we can deal with. The question is how well we deal with those."

The shares fell 4.1% to $1.66 and have gained 25% this year.

Skellerup's agricultural business faced a rebound in the US once the North American drought subsides, though the company pointed to a slowdown in China and zero capital spending in Europe.

A deteriorating Australian housing market and ongoing woes in Europe meant its industrial business faced slow trading conditions, it said.

"We have had a very good run in recent years which is encouraging. It looks like we are facing a challenging year ahead," chairman Selwyn Cushing said in speech notes published on the stock exchange.

"What is essential to understand is that the restructuring of Skellerup is about building a strong platform to take this business into the future and make it as good as it can be."

The company is investing in what it calls organic growth opportunities as it seeks to become a "focused international manufacturer and supplier of high quality products," Sir Selwyn says.

Key recent changes include a two-year project to relocate its Christchurch dairy manufacturing site and moving its foam manufacturing plant from Christchurch to Vietnam.

Despite recent bumper shareholder returns, Sir Selwyn warns of some bumps ahead.

He says the share price was 50.51c at the start of 2010. Shares in the industrial rubber products supplier (NZX: SKL) last traded at $1.73 and 19.5 cents of dividends have been paid over the three years.

He challenged shareholders to name a better investment.

However, he warned world markets remain difficult and challenging. The company, with bumper returns, strong cash position and low debt levels, could still strike trouble.

"There will be bumps along the way caused by things we can't control."

Sir Selwyn decried criticism of the company's light debt position – $4.5 million down from 2007's $106.1 million. The main reason for its conservative debt approach has been the Christchurch earthquakes, he says.

In September, Skellerup announced it had tapped Rakon executive Graham Leaming as its chief financial officer.

The stock is rated an average 'buy' based on three analyst recommendations compiled by Reuters, with a median target price of $1.83.