PRESENTATION TO INVESTORS & ANALYSTS Half Year results and outlook David Banfield - Group CEO Jannine Mountford - Group CFO 1 March 2018 For 6 months 1 July 31 December 2017
New Zealand tapware underperforms, international sales accelerate, and Fit 4 the Future on track to deliver.
Fix, transform and grow Fix performance in the New Zealand market Transform our core operations and processes through our Fit 4 the Future programme (FFF) Simplification, Integration and Automation. Grow shareholder value and create a more robust business by generating significant international sales and earnings. Progress to date: Fix - Good management of margins and cost. Re-launch tapware proposition planned for May and a product roadmap of NZ relevant innovation and technology on the way, with significant innovation to land late FY18 and FY19. Transform FFF plan tracking to target. Good work on in-sourcing, improving margins. 1,000 SKUs removed, freeing up cash. Operational automation creating efficiencies. Grow International sales and earnings accelerating, with 61% of Group EBIT now generated in international markets.
Summary for the 6 months ended 31 December 2017 Revenue finished the half year at $52.8m, a 5.7% increase on the same period FY17, and a 2.9% increase in constant currency. EBIT 1 of $5.1m, broadly flat on the same period FY17 and down 3.1% in constant currency. NPAT finished at $3.2m, flat with HY17 on a reported basis and down by $134k in constant currency. Normalised NPAT (excluding investment in Fit 4 the Future ( FFF )) increased by 11.8% or 7.2% in constant currency. Net debt 2 reduced by $2.2m or 8.6%, and cashflow from continuous operations improved by 56% due to improved inventory control and SKU reduction activity supporting organisational simplification. Our business transformation plan Fit 4 The Future has made good progress and is on track to deliver to target. $516k in one-off costs was invested in the programme over this period. Interim dividend of 4.0 cents per share payable on 29 March 2018. Guidance for the year ending 30 June 2018 is maintained. 1. Earnings before interest and tax (EBIT). Refer to the reconciliation of EBIT to the consolidated income statement in note 4 of the financial statements. 2. Refer to the reconciliation of net debt to the consolidated balance sheet in note 9 of the financial statements. 3. Constant currency is the previous year s individual trading entities performance in their local currency translated into NZ$ at the current year s fx rates. These rates are GBP/NZD 0.5379 (PY 0.5625), AUD/NZD 0.9141 (PY 0.9523) and RMB/NZD 4.7275 (PY 4.8308). 4
Summary (cont d) for the 6 months ended 31 December 2017 Revenue in New Zealand declined by 10.4% as tapware category sales continued to underperform and demand normalised in the Canterbury region. $1.35m of this negative performance occurred in the first quarter, with market tests showing improved results in Q2. We will relaunch our core trade tapware in May and our new tapware range in Q4 FY18/Q1 FY19. In addition, our first significant new technology in tapware innovation in recent years will launch in Q1 FY19. EBIT impact was minimised due to Fit 4 the Future initiatives. Customer-facing investment was maintained. International sales accelerated year-on-year, increasing by 10% to $36.8m in this period and international EBIT by 58% to $3.1m. This represents 70% of Group revenue and 61% of Group EBIT, as FFF initiatives ensured that the top-line sales and market share growth flowed through to earnings. Australia recorded revenue and market share growth, with sales up 7.5% (A$1.5m) over the period due to range extensions and contract wins. EBIT improved by 75.9% as we achieved better operating leverage, and margin benefits flowed through. UK revenue grew by 12.6% and EBIT by 15.2% as volume margin benefits flowed and Methven-branded share of total sales increased. Gross margin was negatively impacted by GBP/USD exchange rate over the period, with price increases passed on to the trade in January to offset. Encouraging performance in both USA and China. 5
Group financial performance for the 6 months ended 30 December 2017 NZ $000 REPORTED PERFORMANCE 6 months ended December 2017 Unaudited 2016 Unaudited Variance % Sales revenue 52,770 49,911 5.7% Earnings before interest and tax 1 5,129 5,090 0.8% Net profit after tax 3,198 3,196 0.1% NPAT % of sales 6.1% 6.4% -0.3 ppts Net debt 2 22,899 25,061-8.6% Excluding Fit 4 the Future investment Net profit after tax 3,573 3,196 11.8% NPAT % of sales 6.8% 6.4% 0.4 ppts Sales of $52.8m, up 5.7% reported and 2.9% in constant currency. NPAT finished at $3.2m, flat with HY17 reported and down by $134k in constant currency. Net Debt reduced by $2.2m, and cashflow from continuous operations improved by 56% due to improved inventory control and SKU reduction activity supporting organisational simplification. 6
Group financial performance for the 6 months ended 31 December 2017 NZ $000 CONSTANT CURRENCY PERFORMANCE 6 months ended December 2016 2017 Restated Unaudited Unaudited Variance % Sales revenue 52,770 51,276 2.9% Earnings before interest and tax 1 5,129 5,295-3.1% Net profit after tax 3,198 3,332-4.0% NPAT % of sales 6.1% 6.5% -0.4 ppts Net debt 2 22,899 25,202-9.1% Excluding Fit 4 the Future investment Net profit after tax 3,573 3,332 7.2% NPAT % of sales 6.8% 6.5% 0.3 ppts Sales of $52.8m, up 5.7% reported and 2.9% in constant currency. NPAT finished at $3.2m, flat with HY17 reported and down by $134k in constant currency. Net Debt reduced by $2.2m, and cashflow from continuous operations improved by 56% due to improved inventory control and SKU reduction activity supporting organisational simplification. 7
Group financial performance as at ended 31 December 2017 Net Debt 2 decreased to $22.9m 6 months ended 31 December NZ $000 2017 2016 Variance % Net debt 22,899 25,061-8.6% Capital expenditure 1,019 1,425-28.5% Working capital 23,615 21,911 7.8% Inventories 23,348 25,376-8.0% Working capital turn 4.2 5.0 Net Debt decreased to $22.9m, down $2.2m or 8.6% Inventory reduced by $2m or 8% Capex: Reduction timing-related in this half. 8
Dividend Interim dividend of 4.0 cps to be paid on 29 March 2018. Pay-out ratio of 92%. No imputation credits will be attributable for this period. 9
Business Review Our Goals in FY18 Profitable growth in New Zealand and Australia Achieved Australia, Not achieved NZ Double digit growth in UK Achieved H1, margins impacted by GBP Fit 4 the Future fixed cost savings realised Good progress on cost savings Fit 4 the Future manufacturing in-source delivering margin improvement Tapware innovation launched in Australia and New Zealand First products showing margin Improvements Due to launch late Q4 FY18 Heshan utilisation and productivity increase Productivity improvements Improvement in Group NPAT % to sales Flat year-on-year 10
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Methven 130 Methven 130 remains the strategic focus for the organisation and we retain our target to increase sales to $130m by June 2020, and to improve NPAT ratio to sales towards our 10% goal. We aim to grow core market sales to $117m over the period (core markets being NZ, Australia and UK) and to improve sales ratio towards 10%. We are targeting new international market sales of $13m. Sales of proprietary technology in showering, and our international business model, will drive margin expansion. Our Fit 4 the Future programme is designed to deliver a 300 bps (3%) improvement in margin and a $3m reduction in fixed costs to support international expansion. At 25% time gone, 52% of our profitability and 39% of our efficiency projects are in execution or have been completed. 12
Markets
Market review NZ NZ $000 6 months ended December 2017 Unaudited 2016 Unaudited Variance % Sales revenue 15,943 17,802-10.4% EBIT 2,292 2,239 2.4% EBIT % of revenue 14.4% 12.6% 1.8 ppts Our Goals in FY18 Revenue growth in New Zealand Revenue -10% Fit 4 the Future fixed cost savings realised Fixed costs reduced by $330k Fit 4 the Future manufacturing in-source delivering margin improvement Margin improved by 1.9 ppts Tapware revenue growth Not achieved SKU reduction supporting simplification SKU count reduced by 29% 14
Market review AU AU $000 6 months ended December 2017 Unaudited 2016 Unaudited Variance % Sales revenue 21,619 20,109 7.5% EBIT 2,274 1,293 75.9% EBIT % of revenue 10.5% 6.4% 4.1 ppts Our Goals in FY18 Revenue and market share growth Achieved: Revenue +7.5% % EBIT improvement EBIT improved by 76% Digitisation Activity in progress Tapware revenue growth Double digit growth but below expectations SKU reduction supporting simplification SKU count reduced by 40% 15
Market review UK GB 000 6 months ended December 2017 Unaudited 2016 Unaudited Variance % Sales revenue 6,662 5,919 12.6% EBIT 304 264 15.2% EBIT % of revenue 4.6% 4.5% 0.1 ppts Our Goals in FY18 Double digit growth in UK Achieved 10% excluding international sales Tapware market share growth On track Digitisation Specification site, 1 handset trial launched Category captaincy Appointed category captain by major partner Improved EBIT to sales ratio Good progress 16
China & S.E. Asia Sales NZ $000 6 months ended December 2017 Unaudited 2016 Unaudited Variance % Sales revenue 507 81 525.9% EBIT 3 (89) -103.4% EBIT % of revenue 0.6% -109.9% 110.5 ppts Our Goals in FY18 30 40 high quality distributors China 22 distributors now operational - 30 agreed Business model Proof of Concept - Revenue First distributor on track for RMB 750k 1m pa Business model Proof of Concept EBIT Break-even achieved in H1 New market launch in SEA New markets launched Singapore & Malaysia 17
Group Operations segment (including NZ and China manufacturing) NZ $000 6 months ended December 2017 Unaudited 2016 Unaudited Variance % Sales revenue - internal & external customers 12,275 15,424-20.4% EBIT (230) 1,177-119.5% EBIT % of revenue -1.9% 7.6% -9.5 ppts Segment includes all group functions and both manufacturing sites. Performance negatively impacted by year-on-year change in NZ market inventory and performance of tapware (in NZ) impacting factory throughput. NZ market inventory levels decreased during the current period by $0.5m verses an increase during prior comparative year of $2.7m, which affected year-on-year factory recoveries. These are forecast to recover in H2. 18
Questions?
Disclaimer This presentation contains not only a review of operations, but also some forward-looking statements about Methven Limited and the environment in which the company operates. Because these statements are forward looking, Methven Limited s actual results could differ materially. Although management and directors may indicate and believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that the results contemplated in the forward-looking statements will be realised. Please read this presentation in the wider context of material previously published by Methven Limited. 20
methven 2018 Half Year Results and Outlook
Non-GAAP Financial information Reconciliation of Net Debt to the consolidated balance sheet As at 31 December NZ $000 2017 2016 Bank facility loans 28,449 28,225 Finance leases 625 806 Less: cash and cash equivalents (6,175) (3,970) Net debt 22,899 25,061 22