Skellerup lifts annual profit on water focus and improved dairy market

Skellerup has reduced its exposure to the oil and iron ore industries after a collapse in oil prices mid-way through 2014.

Skellerup Holdings lifted annual profit 8 percent as the rubber goods manufacturer reaped the benefits from refocusing its industrial unit away from the volatile oil and iron ore industries and into the potable water market, and its agri unit saw increased demand as dairy product prices improved.

Profit rose to $22.1 million, or 11.47 cents per share, in the 12 months ended June 30, from $20.5 million, or 10.65 cents, a year earlier, the Auckland-based company said in a statement. That's at the top end of its forecast for profit of between $20 million to $22 million. The latest profit includes $25,000 of relocation costs due to the 2011 Canterbury earthquakes, compared with $145,000 of costs a year earlier. Revenue slipped 1 percent to $210.3 million.

Skellerup has reduced its exposure to the oil and iron ore industries after a collapse in oil prices mid-way through 2014 and a plunge in iron ore prices dented demand for its products, hurting revenue and earnings for its industrial division. Those sectors now make up less than one fifth of the industrial unit's earnings, from more than half of its earnings five years ago, as Skellerup invested in the potable water and wastewater industries, which now generate more than half of the industrial unit's earnings.

"Over the past few years, our Industrial Division team have put a lot of work into developing new products that meet clearly defined customer needs, with a particular focus on the potable water market," said chief executive David Mair. "Growing populations, changing weather patterns, ageing infrastructure and increasingly stringent environmental standards are creating further opportunities for us in New Zealand and abroad, and I am confident we have the people and products to profitably capitalise on those opportunities."

Meanwhile, earnings at the company's agri division picked up in the second half of the financial year as global commodity prices improved, prompting farmers to lift their spending.

"Steady improvement in dairy commodity prices over the second half of the past year resulted in farmers spending on deferred maintenance and increasing milk production," Mair said. "This boosted earnings in both New Zealand and in our major overseas markets. Current indications suggest that momentum is set to continue."

For the agricultural unit, earnings before interest and tax rose to $19.8 million from $18.8 million, while revenue remained little changed at $79.2 million from $79.6 million, which Mair said reflected an improvement in the profit margin due to a favourable shift in market and product mix.

In the industrial unit, ebit rose to $17.1 million from $15.3 million even as revenue slipped to $131.2 million from $132 million.

"We have focused on improving our operational performance, and this work is starting to show in our financial results," Mair said, adding that he was confident it was capable of further improvement in the 2018 financial year.

Skellerup will pay a final dividend of 6 cents per share on Oct. 12, taking the total dividend for the year to 9.5 cents, ahead of the 9 cent payment a year earlier.

More than three-quarters of Skellerup's revenue is earned outside of New Zealand. In the latest year, revenue In North America edged down 1 percent to $57.2 million, slipped 4 percent to $49.7 million in Australia, advanced 1.5 percent to $46.3 million in New Zealand, edged down 1.6 percent to $26.1 million in Europe, dropped 20 percent to $11.5 million in the UK and Ireland, and advanced 16 percent to $14.3 million in Asia.

Its shares rose 2.4 percent to $1.70 and have advanced 26 percent over the past year.

(BusinessDesk)