It was no wonder one of Australia’s biggest investors, Australian Foundation (AFI), sold down its stake in GUD Holdings (GUD) in the December half year after GUD yesterday produced a very weak interim report as its key Sunbeam division got caught up in the sluggish retailing environment and the still high value of the Aussie dollar.
GUD said yesterday that underlying net profit fell 31.4% to $14.9 million in the December half, thanks to weaker sales and margins in its Sunbeam Appliances business and a similar experience in its Dexion storage solutions arm. The poor returns from both groups more than offset stronger earnings from automotive products and water pumps.
After taking into account one off restructuring costs of $10.1 million at Sunbeam and Dexion, GUD’s net profit plunged 74% to $4.8 million.
As a result, the company chopped its interim dividend 38%, from 26¢ to a fully franked 18¢ a share, payable on March 6.
So it was good timing by AFI to sell more than $7.8 million worth of GUD shareholdings in the December half, according to the investment group’s interim report issued on Monday.
GUD issued its profit warning on Friday, December 13 and that saw the shares plunge to a four year low of $5.15. They have recovered to around $5.74 yesterday when they rose 2c.
In fact they shares are now back around where they were at the start of December. They nearly topped $6 earlier this month as investors shook off those December fears.
GUD’s current six million share on market buyback is no doubt helping to support the stock. GUD said 100,000 shares were bought back under the scheme in the half year.
And looking to the rest of 2013-14, the Sydney consumer and industrial products company maintained its guidance for a 20% slide in underlying full year earnings before interest and tax.
First half earnings before interest and tax fell 27% to $24.0 million, which was a bit better than the December guidance for a 30% drop.
Total sales declined 4% to $298 million with revenue growth recorded in Automotive and Water being outweighed by the falls in Consumer and Industrial.
GUD 1Y – GUD meets downgraded profit guidance, slashes dividend
“I fully expect to see improvements in performance being evident in the 2015 financial year,” said new managing director Jonathan Ling yesterday in outlining a five-point plan to restore earnings growth at the 57-year-old company, which is facing its third consecutive year of falling profits.
Mr Ling, who had previously run Fletcher Building, plans to reduce costs in GUD’s manufacturing businesses, improve supply chain costs in the importing businesses, invest in new product development, build brands and look for bolt-on acquisitions.
GUD owns small appliances brand Sunbeam and sells Davey water pumps, Dexion storage systems, Oates cleaning products, Ryco and Westfil automotive products and locks and security products.
The big worry is the $29 million jump in net debt to $114 million in the half year, compared to December 2012.
The company argues that "Net debt to equity remains conservative at 53%, while interest cover is a healthy 8.6 times (underlying EBITA to net finance expense)."
But the rise in debt was 34%, which at a time of weak margins, will focus analyst attention one ash flows and debt covenants, if any.
