Diversified manufacturer and importer GUD Holdings provided some reassurance for jittery investors yesterday.
The world hasn't ended because of the volatility on global stockmarkets: Australian consumers are still spending, Christmas looks like it was pretty good and earnings for the full year should rise to the top end of its previous guidance of an increase of 10% to 15%.
On top of that GUD says shareholders can expect an increased final dividend after lifting interim payout 3c a share to 30c a share, while there's the prospect of capital management initiatives if possible acquisitions do not pan out.
CEO Ian Campbell said the continued improvement in earnings "will be driven by new product activity in Sunbeam, on-going improvements in Victa and Oates and the positive underlying trend for the Davey brand in Water Products.
"We are well positioned to move on acquisitions or implement capital management strategies, as opportunities arise."
So it's no wonder the shares jumped 95c after the news to a day's high of $10.20, in a market that wanted to go backwards all day. The company's profit announcement which reveals a modest rise of just over 7% in revenue became a 31% rise at the EBIT level and almost 18% after tax: all an indication of a solid improvement in margins and good hold on costs.
The shares ended at $9.83, up 6% or 58c.
Net earnings for the December half were $17.51 million – up 17.87% on the same period of 2006-7. That was on revenue for the six months to December 31, of $285.34 million, up just over 7%..
The after tax result included a $6 million charge for the restructuring of the Oates cleaning products business.
Earnings Before Interest and Tax jumped 31% to a record $38.3 million from $29.2 million in the first half of 2006-07.
"We expect growth in full year trading EBIT (earnings before interest and tax) to be at the top end of our previously advised guidance range of 10 to 15 per cent," GUD managing director Ian Campbell said in a statement accompanying the report.
"Given our balance sheet strength, shareholders can expect an increased final dividend.
"Trading EBIT margin improved to 13.4% from 11.0% and gross profit margin rose to 38.2% from 36.7%. The strong profit performance was underpinned by the benefits of outsourcing activities, improved seasonal conditions, the higher Australian dollar and selected market share growth, " he said.
The 11% increase in interim dividend, to 30c share, was comfortably covered by a 37% increase in earnings per share to 39.2c, excluding the restructuring charge. Reported earnings per share increased 18% to 29.2c per share.
Mr Campbell said "The 31% increase in trading EBIT on a 7% growth in sales highlights the benefits of tight cost controls and the effects of recent outsourcing initiatives in Victa, Oates and Ryco New Zealand.
"The result in our Water Products division was disappointing. Water restrictions have severely impacted demand for our spa and pool products in the Australian market."
"Our balance sheet remains strong, with net debt declining to $108.2 million from $113.8 million and interest cover rising to 8.1 times. This provides us with the flexibility to undertake further acquisitions or implement some of the capital management options available to us.
"The key business of GUD is the Consumer Products division with the Sunbeam range at the core. EBIT (before restructuring) was up 85% to $20.9 million, despite a rise in product cost from Chinese manufacturers.
"Sunbeam's sales and profits increased as a result of market share growth in New Zealand and continuation of market leadership in Australia. Higher product costs from predominantly, Chinese suppliers, were offset by the strengthening Australian and New Zealand currencies.
"Victa reaped the benefit of recent business structure reconfiguring, to a source and assemble operation. Strong demand in the local market, driven by improved grass growing conditions, led to higher sales and profits. Additionally, the initiative to broaden Victa's product range to allied, powered garden products is underpinning revenue and profit growth.
"Similarly, the Oates cleaning products business reported improved results due to a combination of sales growth from increased business with the supermarket channel, relinquishing distribution of the loss-making Bissel product range and early benefits from the outsourcing program. Oates announced the closure of two manufacturing facilities during the half year resulting in a $6.0 million charge.
"The Water Products division saw EBIT fall 20% to $8.5 million in the half year. The company said "the lower result follows a 50% lift in profit last year and reflects the impact of water restrictions on demand in local markets for pools and spas. The core Davey business performed solidly, benefiting from growth in new markets and new areas of activity, especially rain water harvesting and domestic water treatment.
"The Water Products businesses including Spa-Quip, Contamination Control and Monarch Pool Systems, are being integrated into one unified management structure. Additionally, all activities are being consolidated under the Davey brand, reflecting its strength in both local and offshore markets.
"These initiatives will result in operational efficiencies and product growth opportunities in future periods.
"The Automotive Products arm saw a 27% rise in EBIT to $10.2 million with the transitioning of the Ryco business to a fully outsourced model is complete and the benefits are evident in improved margins and profit. Wesfil's geographic spread of distribution centres and superior customer service has led to sales and profit growth.
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