Skellerup first-half profit slips on weaker agri unit, lowers full-year forecast

Profit fell 0.9% to $9.6 million in the six months ended December 31.

Skellerup Holdings' [NZX: SKL] first-half profit edged lower and it pulled back expectations for the full year as weakness in its agricultural business weighed on improved earnings from its industrial unit.

Profit fell 0.9% to $9.6 million in the six months ended December 31, while revenue increased 9% to $107.6 million, the Auckland-based company said in a statement. It lowered its expectation for annual profit to about $23 million, down from an earlier forecast of $24 million to $26 million, and compared with $21.9 million last year.

Skellerup's industrial division, which supplies polymer products, boosted earnings as increased sales to customers supplying US water supply infrastructure and premium tapware offset a slowdown in sales to customers in oil and gas exploration. However, earnings slid at its agricultural unit, which provides rubber products to the dairy industry, as stronger sales in overseas markets failed to offset subdued New Zealand demand for dairy rubberware and footwear.

"It is satisfying to see the investment we have made in our US growth strategy continuing to deliver tangible benefits to the bottom line," chief executive David Mair said.

Still, he said a drop in global milk prices had affected Skellerup's agricultural division.

"The drop in forecast pay-out for New Zealand dairy farmers has resulted in some deferral of spending, which has slowed our local sales of dairy rubberware and footwear. However, as previously noted, many of our products are essential consumables, so we expect a recovery but the exact timing is difficult to forecast."

For the agricultural unit, earnings before interest and tax fell 13% to $8.4 million even as revenue lifted 4% to $41 million. Overseas sales had boosted revenue. However, they came at a higher cost, which weighed on earnings, Mair said.

Capital expenditure in the agri unit stepped up to $7.5 million from $2 million the year earlier, as the company develops a new 19,000sq m factory at Wigram, Christchurch. It leases its current Woolston site, adjacent to one it owns that was affected by liquefaction after the Christchurch earthquakes.

The new integrated dairy rubberware facility, its biggest ever capital project, is progressing in line with expectations with the fitout scheduled for completion in May and the transfer of manufacturing over the ensuring 12 months, it said.

In the industrial unit, ebit gained 11%  to $7.6 million as revenue lifted 12% to $66.6 million. The company expects sales of new products now in production to bolster the unit further in the second half of the year.

Skellerup will pay a 3.5c dividend on March 23, unchanged from the same period a year earlier.

Its shares last traded at $1.43 and have slid 5.3% so far this year. The stock is rated a 'hold', according to the average of three analysts polled by Reuters.