Interim Profit Down but Cashflow Up

Performance Summary for six months ended 30 September 2011

• Group NPAT down 25.4% from $4.3 million to $3.2 million
• Improved Net Debt position by 10.8% from $19.5 million to $17.4 million
• Challenging market conditions results in Group Operating Revenue down 13.7% from $62.8 million to $54.2 million and,
• EBITDA1 down 18.8% from $8.4 million to $6.8 million
• UK operation returns to profitability
• Asia hotel and new distributor sales showing promise
• Rapid decline in Australian residential market and continuation of low housing activity in New Zealand negatively impacted performance
• New designs achieve international recognition and acclaim
• Operational efficiency improvements put in place with gains to come in second half
• Interim dividend of 4.5 cents per share to be paid on 30 December 2011.

Interim NPAT had been expected to benefit from continued growth in Australia to offset the anticipated softening in the New Zealand market. However, Interim NPAT was down 25.4% on prior year to $3.2 million due to the unexpected 2nd quarter slump in Australian demand.

A fall in Group Operating Revenue of 13.7%, reflected soft conditions in all markets and led to a half year result of $54.2 million, down from $62.8 million. EBITDA1 was $6.8 million, down 18.8% from $8.4 million in the previous period.

Despite this Methven delivered an increase in operating cashflow resulting in a 10.8% reduction in net debt from $19.5 million to $17.4 million. This was achieved through improved working capital management and reduced capital expenditure.

“Careful management has ensured that Methven has remained profitable in these difficult times. The company is lean, and well positioned to weather further uncertainty and pursue new sources of growth,” Methven Group Chairman, Phil Lough said.

The rapid decline in building and renovation activity in Australia, combined with delays to the Christchurch and Queensland rebuild programmes and a slow residential construction sector in New Zealand, had caused this result. On the positive side, Methven’s UK operation returned to profitability and the company’s investment in Asia hotel and distributor sales is showing signs of growth.

Mr Lough said that the Group’s cash position was solid and that Directors have recommended an interim dividend of 4.5 cents per share be paid on 30 December 2011, in line with the June 2011 final dividend.

Outlook to March 31, 2012

“Full year NPAT is now anticipated to be between around $6.0 million and $8.0 million, in line with guidance given in October,” the Chairman said. “This compares to the prior year’s reported profit of $4.7m or $6.7m before one-offs.

“Market conditions in our core markets are not expected to improve in the near term. However, the 2nd half of the year will see us consolidate the hard won gains in turning around our UK business, achieving operational and product rationalisation savings across the Group and improving shower market share in our core markets.”

Controlled expansion of Methven Group’s Hotel and Asia initiatives, seeding distributor opportunities in other markets, continued positive trading cash flows and improved working capital management meant that Net Debt was expected to reduce 20% on the previous year.

Strategic progress

Group CEO, Rick Fala, said management had been focussed on restructuring to meet reduced market demand in a post recessionary environment. Product rationalisation by standardising the Methven product range is expected to create additional savings and inventory reductions across the Group.

“This combined with the successful reinstatement of UK credit insurance cover giving us security on receivables, reducing debt and a good cash position has positioned us well to manage international economic instability,” Mr Fala said.

These efficiencies were expected to be a positive influence on the second half year result.

In addition Methven had continued to pursue new growth opportunities and new product development concentrated on enhancing the shower experience. “We are on track to deliver three new Satinjet shower products with two complementary tapware ranges in the second half of this year,” Mr Fala added.

“Housing builds and renovation in our core markets of the UK, Australia and New Zealand have been low and at some stage we expect a correction. Methven Group is well positioned to take advantage of pent up demand, and also rebuilding programmes resulting from the Queensland floods and Christchurch earthquakes,” he said.

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1EBITDA is earnings before interest, tax, depreciation, amortisation and impairment, adjusted for non-operating foreign exchange gain/(loss).