Mercer halves full-year earnings forecast on increased costs, slow sales

Rodger Shepherd, Mercer Group Chief Executive
Mercer Group 12-month price history (NZX.com)

Mercer Group [NZX: MGL], the stainless steel fabricator, cut its full year earnings guidance in half after slower than expected sales growth and higher staff costs in anticipation of future growth.

Auckland-based Mercer said it expects earnings before interest, tax, depreciation and amortisation to be about $1 million for the year ending June 30, down from its February forecast of $2 million and last year's Ebitda of $2.5 million. In the first half, Mercer had Ebitda of $1.1 million.

The company said slow sales growth and delayed stainless steel contracts had combined with costs taken on in anticipation of growth, denting profit. Mercer wants to expand to the North American titan market and has previously signalled staff hiring would impact earnings over the coming year.

"This growth is taking somewhat longer to develop, however progress is being made and the directors are confident with the plan being pursued," the company said in its statement today.

Mercer hired former senior Fairfax New Zealand and PMP executive Rodger Sheppard to head the company in 2011 after a strategic review of the business.

The company had a series of setbacks during the global financial crisis in 2008, when it was caught out with too much debt on its books and halted repayments to South Canterbury Finance, when Alan Hubbard was a cornerstone shareholder, after breaching its banking covenant.

In January Milford Asset Management snapped up a 5.2 percent stake in the company after a dispute between Hubbard's widow and the statutory managers of the various Hubbard entities was settled last year.

The metal producer said today it will receive $1 million in funding over the next two years from the Callaghan Institute, the government innovation fund, for its sterilization technology, S-Clave. It will use the cash for development with the aim of bringing it to market in the next two to three years.

Mercer shares last traded at 17 cents and have gained 6.3 percent so far this year.

(BusinessDesk)

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