Summary Report. Good progress on sales, profits and new international distribution. OVERVIEW HIGHLIGHTS FOR THE PERIOD ENDED 31 DECEMBER

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Gyles Lloyd
5 years ago
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1 Summary Report FOR THE PERIOD ENDED 31 DECEMBER Good progress on sales, profits and new international distribution. NZ $000 Constant Currency 2 Variance % Sales revenue 52,902 48, % 4.1% EBIT 7,143 5, % 14.2% NPAT 4,676 3, % 18.2% NPAT % of sales 8.8% 7.5% 1.3 ppts Net debt 21,354 23, % HIGHLIGHTS Net Profit After Tax (NPAT) increased 26.8% to $4.7m. Total Group sales growth of 8%. 8% sales growth and market share growth in NZ. 6.4% sales growth and market share growth in Australia. Aio range supporting growth and continuing to win awards. New international distribution agreement in 5 test markets leveraging global IP. Heshan factory performing in line with expectation. Leadership transition completed. New Group leadership team complementing existing capability to help drive performance. Strong net operating cashflow of $6.6m Net debt reduced by 9.7%. Fully imputed interim dividend of 4.0 cps to be paid on 31 March Full year guidance maintained. NPAT growth expected to be towards the top end of range (15-25%). OVERVIEW Methven NPAT improved by 26.8% in the half year ended 31 December 2015 and 18.2% on a constant currency basis. Chairman Phil Lough stated These results are very encouraging and are important steps on the journey to deliver sales of $130 million by June 2018 and earnings towards our longer term target of 10% of sales. Headline sales growth was delivered in both New Zealand and Australia over the prior period, with the 8% growth in New Zealand being a particular positive. We continue to systematically improve the business and our ability to deliver market leading initiatives while refining our operating model to maximise sustainable returns to our shareholders commented Mr Lough. Methven also announced that it has agreed new international distribution in 5 new markets. The opportunity has always been to leverage earnings from our global IP in new markets without adding complexity, and these tests allow us to do exactly that added Mr Lough. Earnings growth was delivered in Australia, UK and Group Manufacturing (Heshan and NZ) and while NZ market earnings were slightly down year-on-year, the annualised impact of price increases passed in December are expected to offset this impact. Net debt reduced by 9.7% which was encouraging, and highlighted good controls despite higher than desired stock levels. Methven remain comfortably within all our banking covenants and are pleased to have renewed our facility with our bankers during this period. Methven will celebrate its 130th year in 2016 and join a very special group of global businesses that were founded in David Banfield, Group CEO, commented 2016 is an extremely exciting year for Methven as we aim to show that the spirit of innovation that was a foundation of the business in 1886 is alive and well and driving more world-leading innovation in 2016 and beyond. Given the performance delivered in the first half and the outlook forecast for the second half, the Board were pleased to announce a 4.0 cps fully imputed Interim dividend that will be paid on 31 March This is in addition to the special dividend paid in December 2015 and the final dividend expected to be paid in September Outlook for the year ending June Methven changed its balance date during the period from March to June This has resulted in the financial statements contained on pages 21 to 30 being for a period of nine months to 31 December 2015 with a comparative period of six months to 30 September It is acknowledged that this makes comparative reporting less meaningful. As a result, all financial highlights included within the commentary on pages 4 to 17 are for the six months ended 31 December 2015 against the same period in the prior year. 2 Variance when foreign subsidiary results are translated into New Zealand Dollars at the same foreign exchange rate as the prior year. Guidance for the full year to 30 June 2016 was maintained (Sales up at least 5%, NPAT up 15-25% and net debt down) with NPAT growth expected to be towards the top end of the range.

2 Aio range supporting growth and continuing to win awards.

Business Review Our Goals for the year ending 30 June 2016 Revenue growth in NZ REVENUE GROWTH IN NZ The 8% revenue and market share growth that we have experienced in New Zealand is very encouraging

3 Business Review Our Goals for the year ending 30 June 2016 Revenue growth in NZ REVENUE GROWTH IN NZ The 8% revenue and market share growth that we have experienced in New Zealand is very encouraging and has been delivered across all categories, showing solid progress. Strong sales and profit growth in UK Profitable growth in Australia Earnings yes/ Revenue 2H STRONG SALES AND PROFIT GROWTH IN THE UK Revenue fell by 5.8% year-on-year, however new national and international distribution that will come on line in the second half will reverse this impact. Earnings were up by 240% and EBIT sales ratio improved by 2.7 ppts as the refined business model showed positive results. Successful launch of Aio incremental to Satinjet 8 Deliver at least US$2 million annualised earnings from Heshan Successful relocation of our Manufacturing and Head office in NZ 130 year plans implemented to underpin brand equity and relevance September launch PROFITABLE GROWTH IN AUSTRALIA SUCCESSFUL LAUNCH OF AIO INCREMENTAL TO SATINJET DELIVER AT LEAST $2 MILLION IN ANNUALISED EARNINGS FROM HESHAN Solid sales performance and earnings growth as our refined business model delivered expected performance. Aiming to become the most awarded product in the history of Methven. Sales are proving to be very encouraging and have been the catalyst for us increasing our international footprint. Equally encouraging that cannibalisation of Satinjet is below modelled scenario, showing that we have two experiences that consumers love. Earnings in line with expectations though working capital above desired level. Successful transition of leadership from previous owner of Invention Sanitary to new CEO. Award from local government at end of SUCCESSFUL RELOCATION OF OUR MANUFACTURING AND HEAD OFFICE IN NZ Expecting to be completed by June 2016 with ongoing cost in line with current site. 130 YEAR CELEBRATIONS Set to commence in September 2016.

4 The Aio tapware range utilises lead and heavy metal free brass - an industry first.

5 Dividend Market Review The directors were pleased to declare a fully imputed interim dividend of 4.0 cps to be paid on 31 March 2016, in addition to the 3.0 cps special dividend paid on 31 December This dividend reflects the growth in earnings from current performance along with forecasted performance for the remainder of FY16. This dividend represents an annualised gross yield of circa 10%*. The payment date is 31 March 2016, with a record date of 18 March NEW ZEALAND c NZ $000 Sales revenue 17,797 16, % 8.0 EBIT 2,338 2, % 12 Cents per share c 8.0% HY c 9.0% HY13 Dividend per share (net) 5.95c 8.0% HY14 Gross dividend yield* 5.56c 10.0% HY % HY16 incl special Imputation credit per share * Gross dividend yield is calculated using the closing share price on balance date. EBIT % sales 13.1% 14.3% -1.2 ppts Our Goals in FY16 Increase our Revenue Grow sale and share of Tapware Successful launch of Aio incremental to Satinjet 130 year plans implemented to underpin brand equity and relevance September launch 13 Win online Very pleased to report revenue up 8.0% to $17.8 million. Revenue growth was positive across all product categories and regions, with Aio being a catalyst for renewed brand awareness and growth in key groups. Website traffic grew by 145% versus the prior year. EBIT was in line with prior year s actuals due to the significant impact of the weakening NZ$. Price increases have been passed to the trade to offset this impact over the next twelve months.

6 AUSTRALIA UNITED KINGDOM AU $000 GB 000 Sales revenue 19,816 18, % EBIT 1,646 1, % EBIT % sales 8.3% 7.6% 0.7 ppts Sales revenue 5,629 5, % EBIT % EBIT % sales 3.7% 1.0% 2.7 ppts Our Goals in FY16 Our Goals in FY16 Profitable revenue growth Strong sales and profit growth Earnings yes/ Revenue 2H 14 Grow sales and share of Tapware Sales revenue increased 6.4% with a mix of price and volume growth. Tapware underperformed, though new ranges launched in late 2015 are showing a very encouraging trend. Aio has performed very strongly. Significant weakening of AU$ impacted earnings, though EBIT was up 15.9% due to sales growth and operational cost savings. EBIT % of sales up 0.7 ppts in line with our new business model assumptions. Launch with one new major UK customer Successful launch of Aio incremental to Satinjet Successful launch of Aio incremental to Satinjet 130 year plans implemented to underpin brand equity and relevance September 130 year plans implemented to underpin brand equity and relevance launch Win online New range launched Nov15 Win online Revenue fell by 5.8% as distribution increases and new contracts were delayed. New distribution 2H16 September launch Sales growth expected in the second half, as new national and international distribution agreements commence. EBIT growth of 240% was encouraging as the business model was amended to meet future expectations. The revised cost base improved EBIT % by 2.7 ppts. A new showroom, training academy and office were opened in the period, giving a launch pad for the Methven brand within the UK at the same net cost as the old office. 15

7 CHINA MARKET SALES GROUP OPERATIONS (Including NZ and China Manufacturing) NZ $000 NZ $000 Sales revenue % EBIT % EBIT % sales 0.7% 54.2% ppts Sales revenue - external customers % Sales revenue - internal customers 16,618 13, % EBIT 2,543 1, % EBIT % sales 15.0% 12.7% 2.3 ppts Our Goals in FY16 New business model to deliver profitable growth Includes: - Both NZ and China manufacturing operations. - R&D and other Group support functions. 16 Successful launch of Aio incremental to Satinjet Enhanced Branded presence in China Market Online sales test Activity to start in 2H Activity to start in 2H Activity to start in 2H The new business model was implemented in China with the distribution focused on Shanghai, Shenzhen and Guangzhou. Customer tests in all areas will commence in the second half. Back office functions have been consolidated into the Heshan finance team for added efficiency. - External export sales out of NZ. EBIT growth reflects the earnings from Methven Heshan along with margin from exports and royalties from sales of Aio and other products manufactured in New Zealand. 17

2016 full year earnings outlook Guidance for the full year to 30 June 2016 was maintained with NPAT growth expected to be towards the top end of the range:

Methven 130 In July 2015, the business launched its new strategy Methven 130 with the aim to deliver $130 million of sales by 2018 and NPAT growth towards the

8 2016 full year earnings outlook Guidance for the full year to 30 June 2016 was maintained with NPAT growth expected to be towards the top end of the range: Group NPAT growth of 15% to 25%. Group revenue growth (constant currency) of 5% or more. Group net debt reduction. Methven 130 In July 2015, the business launched its new strategy Methven 130 with the aim to deliver $130 million of sales by 2018 and NPAT growth towards the longer term target of 10% of sales. In the first six months of this three year plan, good progress has been made on achieving these targets and sales and earnings are currently in line with expectations. 18

Performance summary FOR THE YEAR ENDED 31 MARCH 2015

Performance summary FOR THE YEAR ENDED 31 MARCH 2015 Constant currency NZ $000 2015 2014 Variance % Variance % 4 Sales revenue 96,349 96,720-0.4% 0.7% EBITDA 1 12,682 11,286 12.4% 13.4% NPAT 3 5,690 4,708