More overseas production for Methven

Bathroom products maker Methven Group is aiming to increase overseas production as it seeks to build international sales.

Managing director Rick Fala told the company's annual general meeting today that outsourcing was needed to gain efficiencies and make it possible to quickly increase production.

"We'll continue to manufacture some products in New Zealand for testing and refining before we release them internationally, but outsourcing is now a core activity for us and it will accelerate," he said.

"We have to have product available in large volumes and be able to deliver it on time, every time, to a customer's specifications.

"We also have to mitigate the rising costs of core material, including brass, and are currently scoping other opportunities to gain savings, which of course includes identifying lower cost suppliers."

Methven had contract manufacturing partners in Italy and China with credible skills, production capacity, quality assurance, logistics systems and track records in large scale trade and exporting.

"We will work with them to produce and deliver selected products. We will also benefit from their ability to negotiate more attractive freight rates than we can as a small player in big markets."

Methven's Satinjet shower technology would be the trailblazer for expansion into chosen international markets, starting with the US and Europe, followed by Britain and Asia, Mr Fala said.

The 2006-07 year was shaping up to be challenging.

Some further market softening was expected in New Zealand, although Methven was reasonably well-placed given its relative focus on the still active renovation and upgrade segment.

In Australia the company expected continued growth with improving profitability in mid- to high-end tap and showerware and to consolidate its No 2 position in valving, he said.

"But it will be tougher going as our competitors appear to be paying us greater attention."

European sales were expected to be modest as the Satinjet offering was being customised to French and Italian consumer specifications.

The focus in the US would be on establishing market infrastructure with a gentle start to sales and momentum gathering towards the target of achieving profits in the second half of 2007-08.

Methven expected the first half of 2006-07 to be in line with the strong first half performance of last year, Mr Fala said.

But an anticipated lift in Australian earnings would be substantially offset by US establishment costs which were not being incurred in the same period last year.

For the second half of the year the company was targeting increased profitability on the back of cost efficiencies from production outsourcing and expected sales momentum from new product releases.

That would include forecast modest sales contributions from the US market.

Methven recorded a net profit after tax of $6.8 million for the 12 months to March 31, compared to $6.5m in the same period a year earlier.

By lunchtime no shares had traded today in Methven after closing yesterday at $1.65, having ranged between $1.19 and $1.71 in the past year.

- NZPA