Methven's purchase of a Chinese manufacturing facility will give the company a competitive edge and full control over its supply chain, says chief executive Rick Fala.
The Avondale-based tap and showerware maker announced yesterday that it will acquire Invention Sanitary - based in Heshan, Guandong province - for a maximum of US$10 million.
Fala said the company had never owned an overseas manufacturing facility in its almost 130-year history.
Invention Sanitary was established 12 years ago to exclusively provide Methven's tapware and valve products after the company shifted some of its manufacturing operations to China.
A supply agreement granted the NZX-listed firm first right of purchase in the event of a sale by the plant's owner, Hui Zhuang, who is preparing to retire.
"We're already well integrated with Invention Sanitary but this [the acquisition] will just make that linkage even better - we'll control the full supply chain now, which is a major benefit for us," Fala said.
Capturing additional manufacturing margin from owning the plant would also make Methven more competitive.
"We're very confident now that with that manufacturing margin we can compete internationally," Fala said.
Invention Sanitary would move into a new, 14,000sq m factory in Heshan - three times the size of its existing site - in October.
He said the Chinese plant employed 130 staff - slightly more workers than Methven's New Zealand operation.
A Methven staff member would go to China to act as the factory's general manager following the purchase.
Meanwhile, he said trading conditions were improving, particularly in this country, although business was tough in Australia, where the market was being hit by heavy discounting that impacted margins.
The company reported a net profit of $5.1 million for the 12 months to March 31 this year - a 20.3 per cent decline on the 2012 result.
Shares closed up 3c at $1.30 last night.