Skellerup lowers earnings guidance; sees demand recovering

The pandemic saw Skellerup's costs rise and demand dwindle for some of its products. Photo / File

Skellerup Holdings lowered its annual earnings guidance after the Covid-19 pandemic saw its costs rise and demand dwindle for some of its products.

"Prior to the Covid-19 outbreak, Skellerup was on track for a record result in FY20," it said, which would have trumped its record net profit of $29.1 million in the June 2019 year.

"Having absorbed increased costs of operation and demand interruption in the final quarter we expect to deliver a full year NPAT in excess of $28m," it said in a statement.

Despite the downgraded earnings outlook, demand remained strong for its agricultural division, with its New Zealand and UK facilities providing essential food grade consumable products for customers around the world.

Meeting that demand was challenging due to "changes in layouts to operate safely and the changes to shift patterns and staff impacting on our capacity and increasing costs," the company said.

Skellerup had to overcome at least two week's lost production at its largest facility in Wigram, and faced additional costs while also paying staff who were unable to work either because of health issues or age.

However, the company said it's now operating at 90 per cent of its previous maximum capacity, and "we have improved productivity more quickly than anticipated to meet demand and consequently we have returned $1.5m in wage subsidy payments."

Bigger hit

The hit was bigger at its industrial business, which serves a more diverse range of customers.

The gradual implementation and continuation of lockdowns in some countries sapped demand in late March and April for Skellerup products into applications such as water and wastewater infrastructure, it said.

Similarly, the slump in oil and gas prices reduced demand for products used in applications supporting that industry.

During May and June, however, "we have seen a rebound in overall levels of demand as restrictions have eased and activity increased across the world."

Skellerup also noted that the "strength and quality of our customer base in both divisions combined with our efforts over the past year to improve payment terms, mean that despite a slight increase in provisioning, our operating cash flow is very strong, our debt low, and our balance sheet robust."

The shares closed at $2.12 yesterday, and have fallen 11.3 per cent over the past 12 months.