Skellerup's profits soar 31 per cent on back of industrial unit

Profit rose to $11.7 million in the six months ended December 31, 2017, from $8.9m the previous year. Picture / Christine Cornege

Skellerup Holdings lifted first-half profit 31 per cent thanks to a "standout" performance from its industrial unit which boosted earnings 40 per cent, and it forecast an increase in full-year profit.

Profit rose to $11.7 million, or 6.06c per share, in the six months ended December 31, 2017, from $8.9m, or 4.63c, in the year earlier period, the Auckland-based company said. Revenue rose 20 per cent to $116.7m. The company forecast full-year profit of between $24.5m to $26m, up from $22.1m last year.

Skellerup's industrial unit has shown steady improvement over recent years after the company reduced its exposure to the oil and iron ore industries following a collapse in oil and iron ore commodity prices which dented demand for its products.

That prompted the company to turn its attention to the less volatile potable water and wastewater industries, which it sees as having more stable and sustainable growth prospects. Meanwhile, earnings at its agri division rose a "solid" 13 per cent, it said.

"We are very pleased to report an excellent result for the first half of FY18, underpinned by a standout performance from our industrial division, which continues to make an increasing contribution to Skellerup's growth," chair Liz Coutts said in the half-year report.

"The improvement in revenue and earnings can be attributed to the reshaping of our operations around the world; continuous and efficient product development and reducing exposure to industries affected by commodity cycles.

"It is extremely encouraging our growth is broad-based and continuing to gather momentum."

Earnings before interest and tax at Skellerup's industrial division increased to $10m from $7.2m as revenue rose 21 per cent to $73.7m.

"We have continued to build our position with key original equipment manufacturers," said chief executive David Mair.

"This has led not only to growth in our share of their business but also opportunities for new product development. At the same time, we have better aligned our development processes to ensure we are completing new product designs in less time."

At the company's agri division, ebit rose to $9.5m from $8.4m as revenue lifted 18 per cent to $43.1m.

"This growth reflects our continued success in developing innovative and high-quality dairy components and specialist footwear designed and manufactured to meet the specific needs of customers," Mair said.

"As our home market, New Zealand remains hugely important to us, but increasingly opportunities for growth are to be found overseas."

Skellerup will pay an interim dividend of 4c a share on March 22, up from 3.5c in the year-earlier period.

While the latest dividend payment will be fully imputed, future dividends are likely to carry only partial imputation of about 60 per cent as the company's earnings growth is largely coming from its international operations.

Skellerup shares last traded at $1.80, and have gained 12 per cent over the past year. Two analysts have a 'hold' recommendation on the stock and one has a 'strong sell', according to Reuters data.