Pleasing Full Year Result Ahead of Expectations

Announcement 15 May 2007

Pleasing Full Year Result for Methven Ahead of Expectations
Methven Group Performance Highlights 2006-07

* Group operating revenue of $70.4 million, up 21.0 percent
* Group EBITDA of $13.4 million, up 8.5 percent
* Group Net profit after tax of $7.3 million, up 7.9 percent
* Australian shower and tapware sales up 54 percent
* New Zealand sales up 8.8 percent
* Group result includes USA start-up loss of $970,000 in line with half year guidance and expectation
* Final dividend of 5.69 cents per share to be paid on 29 June 2007 in addition to interim dividend of 5.72 cents per share paid in December 2006

Methven, New Zealand’s leading designer, manufacturer and supplier of showerware and tapware, has reported a pleasing full year result with growth in turnover, earnings, profit and dividend that exceed earlier market advice.

Despite more challenging market conditions, including margin pressure from unprecedented rises in the cost of raw material, and increased infrastructure and market development expenditure, Methven maintained impetus to deliver a net profit after tax, up almost 8 percent on the previous year to $7.3 million for the year ended 31 March 2007.

“Methven had a strong second half with growth and revenue momentum in Australasia, driven from offering a full range of Methven branded showers, tapware and valving products and very strong consumer support for the proprietary Satinjet range,” Managing Director Rick Fala said in releasing the 2006-07 full year results on Tuesday, May 15.

“We have distinct, branded, water saving products to appeal to different price points and segments, supported by a tailormade sales, marketing and service infrastructure.”
Group operating revenue increased to $70.4 million, up 21.0 percent, with EBITDA of $13.4 million, up 8.5 percent, largely as a result of very strong year on year growth in Australia.

Off-shore sales accounted for 43 percent of Group operating revenue in 2006-07 year and Methven’s aim is to continue to build its core design, branding, supply, marketing and distribution capabilities to drive growth internationally.

At the same time it will work to consolidate its leadership in New Zealand where it has 40 percent market share and sustain growth in Australia. Methven currently has an estimated 30 percent of the target showerware market, with the proprietary, water efficient Satinjet shower products now well established as a preferred consumer choice.

Methven’s distribution start-up in the United States reported an operating loss of $970,000 in line with expectations and earlier advice.

“US consumer research on Satinjet, conducted in November 2006, is very encouraging but the priority remains to bed down an effective distribution, sales and marketing model that reaches through to retail and the consumer,” Mr Fala said.

Methven intends to widen its American product offering, including launching a new and highly distinctive Satinjet product range late in 2007.

“On-going investment in developing the USA market will be tightly managed against defined project milestones and success criteria,” he said.

Unprecedented increases in raw material costs, particularly brass, offset much of the savings from outsourcing in the 2006-07 year, but Mr Fala said Methven was well positioned to benefit from further gains in 2007-08 from its global manufacturing outsourcing programme to long established partners in China.

As a USD net importer, Methven has benefited from the relative strength of the NZD although this has been partially offset by the impact of a high NZ/AUD exchange rate on its Australian dollar earnings. At this stage Methven’s USD cover for the 2007-08 year is at slightly better rates than realised in respect of the 2006-07 year.

Group cash flow remained healthy although working capital requirements have increased in line with growth in sales and higher manufacturing out-sourcing and raw material costs.

A fully imputed final dividend of 5.69 cents per share is intended to be paid on 29 June 2007 on top of the interim dividend of 5.72 cents per share paid in December 2006. This represents a 7.7 percent gross dividend yield on the current share price of around $2.20 per share. Given the company’s minimal debt level the directors intend to retain the current dividend ratio at 80 percent at this point.

Market Review

New Zealand
* Sales of $40.5 million, up 8.8 percent, with a key contributor market price rises necessitated by raw material cost increases
* EBITDA of $12.3 million, up 5.2 percent (includes head office head office investments in design, marketing and an on site logistics team in China to oversee outsourcing programme)
* Satinjet sales up 41 percent
* Nefa valve sales up 17.2 percent (excludes Australian valve exports)
* Focus on the more stable renovation and replacement market
* Offer a full range of showerware, tapware and valving that appeal to consumers and the trade

Australia
Showers and tapware
* Shower and tapware sales $23.7 million, up 54.0 percent
* EBITDA of $2.1 million, up 174.0 percent
* Satinjet sales up 181 percent and accounts for over 20 percent of Australian shower sales
* Recognised as the top performing water efficient shower by Australia’s leading consumer magazine, Choice.
* Methven benefited from initiatives to encourage and incentivise consumers to buy water saving showers with $2.6 million in lower margin, non-Satinjet shower sales
* Now well established sales, distribution and operating infrastructure delivering returns
Valves (ex New Zealand)
* Sales of $5.3 million, up 22.7 percent, to recover position
 Establishing dedicated in-market sales and distribution to drive market share growth

USA
* EBITDA loss of $970,000 in line with expectation and half year guidance
* Profitability may take longer to reach than initially targeted due to lag in sales take off
* Challenge is to displace incumbent supplier’s products with narrow, new product and style offering - and without the benefit of existing merchant relationships
* US consumer research on Satinjet encouraging with focus to bed down an effective distribution, sales and marketing model and widen the American offering with new product launches late in 2007

Strategic Focus

* Design and development of proprietary platform technologies and products
* Brand development and execution
* Expanded global distribution reach
* Development of an internationally competitive supply chain

“Methven’s strategy to deliver sustainable profitable growth will continue to be driven by the company’s ability to take proprietary branded and differentiated shower experiences to world markets,” Mr Fala said.

“A priority for Methven is to leverage its higher margin, proprietary branded products like Satinjet to achieve greater geographic reach by acquiring established and complementary businesses, entering into third party distribution agreements and/or developing its own start up operations,”Mr Fala said.

Developing a compelling band story and world class design capabilities were progressing well while outsourcing and global logistics functions were being developed to the level required to support targeted international expansion.

“The continued migration of Methven’s mass manufacturing to world-class, cost effective partners who can rapidly upscale production and deliver direct to customers, is on schedule.” he said. “Our business model retains New Zealand as the design hothouse and test market with a manufacturing and production engineering capability to ensure speed to market of new proprietary products.”

Outlook

Methven is gearing up for an exciting year ahead, Mr Fala said.

“We’re targeting continued growth in New Zealand and Australia, which remain the engine rooms for the company’s sales and profitability. Work will continue to gain traction in the USA and opportunities are progressing to gain a beachhead in the United Kingdom.”

A series of launches of new and consumer appealing branded shower products has been programmed throughout the year to reinforce Methven’s positioning as a leader in the creation of innovative and distinctly designed products and experiences and to further improve the international appeal of the Methven offering.

Methven’s Annual Report will be distributed in late June.

Commentary and financials are available on www.methven.biz

ENDS

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