Reviving UK operation top priority for Methven

Methven Chief Executive Rick Fala. Photo / Dean Purcell

Tap and showerhead maker Methven, which has trimmed full-year profit guidance in the face of sluggish demand, says its "absolute priority" is to improve the performance of its British operation.

After predicting a lift in profitability in July, the company yesterday revised that forecast to be in line with the $7.8 million it reported in its last full-year result.

Methven chairman Phil Lough said "momentum for improved performance" was expected in the 2011-12 financial year.

The firm's share price closed down 5c at $1.58 last night.

Methven chief executive Rick Fala said the UK was the most depressed of the firm's markets.

Operating revenue in that country fell 29.7 per cent on the prior comparable period to £10.1 million ($21 million) during the six months to September 30.

"We have a business that's gone from £3 million ebitda [earnings before interest, tax, depreciation and amortisation] just over two years ago to a break even position," Fala said. "The key reason for that is the depressed state of the economy [in Britain]."

He said the Auckland-based manufacturer would be able to improve the performance of its British business by keeping a lid on costs.

"That's the number one target for me and the team," Fala said.

Craigs Investment Partners analyst Selwyn Blinkhorne said Methven's half-year UK performance was worse than he had expected.

But the poor result in Britain was offset by better performances in New Zealand and Australia, he said.

Methven reported a 7.7 per cent reduction in half-year group operating revenue to $62.8 million.

Net profit was up 8.3 per cent on the prior comparable period at $4.5 million before one-off costs resulting from the restructuring of its UK operation were taken into account.

Profits were up only 2 per cent at $4.3 million when the costs were taken into account.

Fala said sales to Australian hotels were progressing well, while Asian and European hotel markets were proving more difficult to crack.

Overall, Australia remains the bright spot in Methven's markets with half-year revenue up 10.1 per cent to A$20.4 million on the prior period.

New Zealand's economy was stagnant at historically low levels, the company said, with few signs becoming apparent of a sustained recovery.

Operating revenue in this country was down 2.6 per cent to $21.9 million.

New Zealand ebitda was unchanged from the prior period - at $5.4 million - as cost reductions offset the drop in revenue.

Fala said the increasing numbers of new building and renovation permits were being issued in this country, although they were not being translated into sales of Methven's products.

"We believe people are sitting on permits and looking for signs of real improvement [in the economy] to happen before they actually go and start spending," he said.

Forsyth Barr analyst John Cairns said the trimming of Methven's profit guidance was not unexpected given the challenges in the firm's markets.

"I think the company is well positioned," he said. "It's got a strategic focus of differentiating its products through design and its got a good pipeline of new product coming through."

Methven will pay a partially imputed half-year dividend of 5.5 cents a share on December 31.

METHVEN

Six months to September 30

Operating revenue
* 2010 - $62.8m
* 2009 - $68m

Ebitda
* 2010 - $8.4m
* 2009 - $8.5m

Net profit
* 2010 - $4.3m
* 2009 - $4.2m