Methven said annual profit fell by almost a quarter in a "very disappointing year" but expects 2018 to deliver 10 per cent profit growth as the shower and tapware designer starts a new business plan.
Net profit fell 24.5 per cent to $5.8 million, or 15.1 per cent on aconstant currency basis, in the year ended June 30, the Auckland-based company said in a statement. Revenue fell 5.4 per cent to $100m while net debt rose 23 per cent to $27m.
When Methven reported first-half earnings in March, with a 32 per cent drop in profit for the first six months of the year and sales down 5.7 per cent, the company said it was on track for a stronger second half and maintained guidance for annual profit growth of between 10 and 20 per cent. That was revised in May when it said it hadn't recovered from a weak first quarter and expected annual profit to drop by up to 15 per cent from 2016's $7.7m on a constant currency basis.
The first quarter was weak following the December 2016 closure of Masters, the second-largest DIY retailer in Australia, as well as supply disruption from the company's factory in China and a major NZ customer changing stock holding, chief executive David Banfield said. "The inability to recover the Q1 shortfall emphasised the need to simplify the business and ensure increased agility for the future so as to be able to weather any unforeseen events."
"Whilst we understand the cause of these one-offs, it's still important to recognise these results are not in line with our expectation, nor in line with the momentum that we felt in 2016 prior to these one-offs," Banfield said. "Huge efforts were made to mitigate these impacts over H2 FY17 in order to recover the shortfall and deliver on top line growth, but ultimately these efforts proved unsuccessful during this period. The inability to recover the Q1 shortfall emphasised the need to simplify the business and ensure increased agility for the future so as to be able to weather any unforeseen events."
In its results announcement the company launched a new business transformation plan, which it aims to deliver a 300 basis point improvement in gross margin; a 10 per cent reduction in fixed costs; and to decrease the sales required for breakeven by $1m per month. In 2017, earnings before interest and tax as a percentage of revenue was 12 per cent, down from 12.9 per cent in 2016.
The plan has three elements: streamlining market teams, consolidating manufacturing to improve margins, and simplifying processes for operational efficiency.
The company said it is expecting annual net profit growth of 10 per cent on a constant currency basis, with more information to be given at its annual meeting in November.
