Methven expects 15pc leak in profit

Rick Fala says it is better to concentrate on the three key markets after pulling the plug on the United States market. Photo / Greg Bowker

Bathroom fittings maker Methven says its profits will be down by 15 to 20 per cent in the coming year as trading conditions in Britain and New Zealand deteriorate.

Chief executive Rick Fala said the forecast, made at the company's annual meeting in Auckland yesterday, was geared particularly towards the troubled UK market. "We're just being cautious at this stage."

Methven said its Australian market was showing strong improvement in sales and profitability.

The company made a $10 million net profit in the year to March, up 3.1 per cent on the previous year.

But it said the first half of the 2009-2010 year would be trying, with underlying profits expected to be down by 20 to 25 per cent.

On the positive side, it expected to reduce net debt by 30 per cent for the six-month period, and by 20 per cent for the year overall.

Fala said it was a continuation of the company's debt reduction programme which saw debt shrink by 18 per cent in the past year.

Methven had pulled the plug on its fledgling United States operation, and losses were expected to reduce from last year's $900,000 to closer to break even at the end of the current financial year, he said. "In this recessionary period it's better to concentrate on our three key markets."

It had invested a lot in building up its sales and marketing infrastructure in Australia, where it was already seeing an upturn.

At home the outlook was not so bright. The renovation sector was down around 10 per cent and "we just can't afford that", he said.

But the company saw growth opportunities. The hotel retrofit segment showed promise as struggling hotel operators sought to cut costs by using more water and energy-efficient fittings.

Its new shower infusion product was edging past targets. The product, which costs around $150, did not require a plumber to fit it and was "an affordable luxury", Fala said. It is being sold at Auckland's Smith & Caughey department store and the company hoped to move into other high street retail outlets.

Meanwhile, Fala said the company would defend action being brought by the Commerce Commission over ads for its Satinjet shower heads.

The commission says Methven breached the Fair Trading Act by claiming the heads saved more water and energy than they do.

Methven said once the issue was pointed out it changed its advertisements to make it clear the savings referred to high-pressure water flows.

Methven shares closed down 11c to $1.31 yesterday.

HIGHS & LOWS
* Methven predicts net profit will fall 15 to 20 per cent in the current year.
* But net debt will be reduced by 20 per cent.
* Dividends to be maintained at current levels.
* Conditions worsening in the UK, sales and profitability expected to reduce in New Zealand, but Australia going strong.