Hellaby Holdings Delivers Strong 2012 Result

Hellaby Holdings Limited

NZX / MEDIA RELEASE: 27 August 2012

Hellaby Holdings Delivers Strong 2012 Result; Third Year of Profit Growth

Hellaby group performance highlights for the year to 30 June 2012:

Trading EBITDA up 10% to $37.4 million

Trading EBIT up 13% to $30.1 million

NPAT up 26% to $19.3 million

Net debt 59% lower at $10.1 million

$28.9 million free cash flow generated

30% return on funds employed

29% total shareholder return

Investment company Hellaby Holdings Limited today reported significantly improved results for the 12 months to 30 June 2012, despite challenging trading conditions.

Net profit after tax (NPAT) for the year to 30 June 2012 rose by 26% to $19.3 million from $15.3 million a year earlier, even though revenues rose by only 6.1% to $497.7 million. Hellaby chairman John Maasland said: “Hellaby’s board and management are pleased to report a solid operational performance for a year which marked the company’s third successive year of significant profit improvement.”

“Despite strong economic headwinds, we achieved our goal to outpace the markets in which we operate. Sales growth was well ahead of broader economic growth and we saw a satisfactory uplift in profits, margins and return on funds from most subsidiaries.”

The board has declared a final dividend of 8 cents per share, fully imputed, for the year ended 30 June 2012, payable 19 October 2012. This brings the total dividend for the year to 13 cents from 10 cents per share last year. This is in line with the company’s dividend policy to pay around 50 percent of after tax profit.

Hellaby Managing Director John Williamson said: “The 2012 result clearly demonstrates the benefits to shareholders of Hellaby’s diverse portfolio. Hellaby has delivered a strong group result through outstanding performances from our Equipment and Footwear divisions, a steady performance from our Automotive division and a disappointing result from our Packaging business.”

Hellaby’s ongoing focus on operational improvement saw Trading EBITDA (group trading surplus before interest, tax, depreciation, amortisation and oneoff transactions) increase by 10% to $37.4 million from $34 million in 2011. This represents an EBITDA margin on sales of 7.5%, ahead of Hellaby’s 7% target. Trading EBIT (trading surplus before interest, tax and oneoff transactions) increased by 13% to $30.1 million from $26.8 million.

Net debt fell to $10.1 million from $24.5 million in 2011, taking gearing (total net debt to total net debt plus equity) to 6.3% from 15.5% in 2011, well within the company’s target gearing levels of 45% or below. Net interest costs nearly halved from $4.2 million to $2.2 million.

“This debt reduction was primarily driven by higher operating profits, which generated $28.9 million in free cash flow during the year. The group has generated a total of $178.5 million free cash flow during the five years since mid2007 under the present management team and board. We believe this is an outstanding achievement,” said Mr Williamson. Hellaby’s earnings per share were 25.9 cents compared to 22.6 cents per share last year. The full year result represents a 13.5% return on average shareholders’ funds, compared to last year’s 13.1%.

Divisional performance

All four divisions are now meeting key performance criteria to deliver a Return on Funds Employed (ROFE) – an internal measure of EBIT as a percentage of average working capital plus fixed assets (excluding goodwill) – in excess of 20.0%. For the 2012 year, group ROFE was 29.6%.

The Footwear division achieved a 21% EBITDA improvement to $11.8 million in tight trading conditions. Despite zero same store sales growth, both the Hannahs and Number One Shoes subsidiaries delivered considerably higher margins, profitability and free cash flow.

The Equipment division achieved an exceptionally strong profit improvement, due mainly to the operational restructuring of AB Equipment and 29% revenue growth following a severe downturn in the heavy equipment sector over recent years. EBITDA improved to $6.4 million from $2.6 million last year, with a corresponding improvement in working capital ratios.

The Automotive division continued to improve its profit performance in difficult and relatively flat market conditions. EBITDA for the year was $21.6 million, 3.7% ahead of the previous year. Revenues were likewise 3.7% above last year. The Packaging division, Elldex Packaging Group, returned a disappointing result. EBITDA decreased to $3.6 million and revenues declined by 4.3% with lower volumes into the supermarket, horticulture and dairy sectors. Steps have been taken to strengthen the company’s operational capability in both New Zealand and Australia.

As signalled at the half year, profitability was also impacted by oneoff costs relating to the consolidation of Elldex Packaging’s manufacturing into its larger Christchurch plant. This optimisation of the company’s manufacturing footprint is expected to improve future performance.

Investment approach

Mr Williamson noted that while there were no acquisitions during the year, Hellaby was actively seeking investment opportunities.

“With the business turnaround completed and our balance sheet reformed, we’re now looking to enhance our portfolio. As identified in our investment strategy, we’re targeting clearly defined sectors which complement our business mix, and will only make an acquisition that meets our shareholder value criteria.”

“While we haven’t yet secured a target that ticks all our boxes, we’ll continue to be patient and selective. We are confident that portfolio growth will begin in this financial year.” In late 2011 a leadership development programme commenced to develop and grow Hellaby’s talent pool. While this programme will require a considerable investment of time and money over several years, Mr Williamson said that the board believes it will be a quality longterm investment in building better businesses.

“Hellaby will ultimately be judged by the quality of its management teams.”

Outlook

Looking ahead, Mr Williamson said the company was very positive about its future. Hellaby’s immediate operational focus was to further improve the profitability of all its businesses regardless of economic conditions. The company was looking for particular improvement from Packaging, following the restructuring investment made over recent months.

“The New Zealand economy remains stubbornly flat. This however is simply the reality our businesses must deal with, and our challenge is to outpace our markets. We have taken considerable pride in achieving EBIT growth of 66% over the past three years despite revenue growth of only 4%.” Mr Williamson noted that Hellaby’s total shareholder returns were 29% for the year to 30 June 2012, compared to a negative NZX50 Gross Index return of (1%) for the same period.

“Hellaby is in good shape to continue to deliver on our investors’ higher expectations.”

ENDS

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