Profits: GUD Can Thank Dexion Buy For Interim Result

The interim results from consumer and industrial products supplier GUD Holdings just about says it all insofar as current soft business and economic conditions are traveling.

GUD's brands include Sunbeam household electrical goods, Davey water pumps, Wesfil automotive filters, Oates cleaning products and Dexion storage products. All delivered a result that summed up the economy and business conditions.

The company's consumer business built around the Sunbeam appliances group saw earnings fall, the water business saw earnings drop, the automotive products business enjoyed a small rise and industrial products saw a big improvement thanks to the impact of the Dexion takeover in the previous financial year.

The bottom line is that GUD saw earnings ease marginally in the first half, and the company is forecasting a small improvement in full year profit.

GUD reported a net profit of $23.04 million for the first half of the 2011-12 financial year, down 1.3% on the first half of 2010-11.

Revenue for the six months ended December 31, 2011, rose 3.7% to $311.1 million, boosted by a full six-month contribution from Dexion, which GUD acquired in September 2010.

Looking to the rest of the financial year, GUD managing director Ian Campbell said in a statement, "Trading conditions for (GUD's) consumer and water (businesses) are expected to remain difficult through the second half and we continue to invest in new product activity to assist in offsetting these competitive conditions.

"Our balance sheet position remains sound, and we retain a strong focus on both product and overhead cost controls in all businesses.

"At this point, we anticipate producing a full-year underlying EBIT (earnings before interest and tax) slightly ahead of FY11 (2010/11 financial year), with a stronger second-half contribution from Dexion and a continued solid performance from (the) automotive (business)."

That cautious confidence allowed GUD to lift interim dividend to 30c a share, from the 29c paid in the previous first half. Both are fully franked.

That takes the dividend back to pre-GFC levels, another point from the result that belies much of the gloomy talk about weak business conditions.

The shares eased 4c to $7.31.

Mr Campbell said, "The gross profit margin has been maintained at 41.2% of sales despite increasing product cost pressures.

"Underlying EBIT was down 10% from last year's record to $39.1 million.

"The underlying EBIT to sales margin was 12.6%, down from 14.6%, due to a combination of the full six months' contribution from Dexion and margin declines in the Consumer and Water businesses," Managing Director Ian Campbell said in yesterday's statement.

"Businesses exposed to the Australian retail trade continue to experience a difficult trading environment and this is evident in the results from our Consumer business, where we reduced prices to maintain competitiveness and volumes."

"Although the Dexion business experienced record low levels of major project activity since the acquisition, encouragingly it has won a substantial $60 million of new projects in November and December with more project confirmations expected in the second half," he said.

"These orders are not reflected in the current half's results and their impact will be seen in the latter part of FY12 and into the next financial year.

"Underlying EBIT margin for the group remains healthy at just under 13%.

"Although this is below our long term average, the improvements anticipated in Dexion's margin will support a recovery in EBIT performance," Mr Campbell said.

"Pleasingly we have been able to restore the interim dividend to the pre-GFC level of 30 cents per share, despite having an increased number of shares on issue. Our objective remains to improve dividends over time," he said.

Looking at the performance of the company's businesses:

Consumer Products Underlying EBIT down 15% to $19.3 million

Sales declined by 8% due to a combination of Sunbeam Australia reducing prices to maintain volumes and shelf exposure, in an increasingly competitive small appliance market, and Oates losing listings as a major retailer shifted its focus to a housebrand-only offer.

Gross profit margin is in line with last year and overhead costs are down over the period reflecting tight management control over these variables.

Sunbeam expects that further price reductions will not be necessary in the second half despite prevailing tight retail conditions.

Water Products Underlying EBIT down 26% to $5.2 million

Similar to the full year results, the financial performance of Davey is solely related to depressed demand conditions as reflected in sales levels. Gross profit margin is in line with last year and costs have been actively and closely managed.

The La Niña weather effect has persisted in the current year, albeit at a weaker level than in 2010, and this has led to ongoing reduced demand.

There was some evidence of a sales recovery in December 2011 and the business is planning a number of significant new product launches in the current half.

Automotive Products EBIT up 4% to $14.2 million

The Automotive business continues to perform soundly with 4% growth in both sales and EBIT. In the current half this growth was generated principally by Wesfil which continues to benefit from its national warehouse network and high customer service levels.

Industrial Products Underlying EBIT up 45% to $2.8 million

Sales and profit have increased due to the inclusion of two additional months of trading from Dexion. Dexion's performance is not currently at the levels anticipated due to the record low levels of demand across most markets.

The business has been undergoing restructuring in both FY11 and FY12. The restructuring costs incurred in the first half relate to further projects in the Industrial segment of Dexion, while the transformation of the Commercial arm to a predominantly product import business continued, the costs of which were accrued for in FY11.

Benefits from the restructuring activities are evident in improving gross profit margins, but financial performance has been restricted by low demand, especially for major warehouse projects. This changed in November 2011 when projects that had been delayed or deferred for a prolonged period were finally confirmed.

Further project confirmations were received in December leading to a much improved order bank. Additional orders are expected to be confirmed in the current half. The financial impact of the current order bank has not been reflected in the first half's results. The benefits will accrue in late FY12 and over FY13.