West Perth-based industrial company Schaffer Corporation Ltd has announced a net profit increase of 26 per cent to $10.3 million for the 2006-07 financial year, up from the $8.1 million earned in the previous financial year.
West Perth-based industrial company Schaffer Corporation Ltd has announced a net profit increase of 26 per cent to $10.3 million for the 2006-07 financial year, up from the $8.1 million earned in the previous financial year.
The company's business increased significantly with the inclusion of its Limestone Resources business, with higher earnings from its building products division being driven by the Western Australian property boom.
While company revenue only increased 2 per cent to $147.7 million, earnings per share were up 26 per cent to 73 cents per share.
The full text of a company announcement is pasted below
Schaffer Corporation Limited (ASX: SFC) today announced a net profit after tax (NPAT) of $10.3 million for the 2007 financial year - a 26% increase on the previous corresponding period ($8.1 million).
SFC will pay a final ordinary dividend of $0.25 per share (fully franked), which brings the ordinary dividend for the 2007 financial year to $0.50 per share (fully franked) (FY 2006: $0.50 per share (fully franked)).
Key dates in relation to SFC's final dividend are as follows:
- SFC's shares commence trading ex-dividend 9 September 2007
- Record date for final dividend 13 September 2007
- Payment of dividend 18 September 2007
SUMMARY FINANCIAL PERFORMANCE
30-Jun-06 | 30-Jun-07 | Change | |
Revenue ($M) | 145.3 | 147.7 | + 2% |
NPAT ($M) | 8.1 | 10.3 | + 26% |
Earnings per Share ($) | 0.58 | 0.73 | + 26% |
EBITDA ($M) | 21.1 | 23.9 | + 13% |
EBIT (net interest) ($M) | 15.9 | 19.1 | + 21% |
Ordinary Dividend per Share ($) | 0.50 | 0.50 | |
Return on Capital Employed | 17% | 17% |
Revenue increased slightly to $148 million (FY 2006: $145 million).
The Building Products division's revenue increased significantly with the first time inclusion of the Limestone Resources business and increased activity for Delta. Earnings before interest and tax (EBIT) for the Building Products division were $8.7 million (FY 2006: $6.6 million, a 32% increase), principally driven by the buoyant Western Australian economy.
SFC's joint venture property investments provided a stable contribution to SFC's result. Earnings for the automotive leather division increased to $6.0 million (FY 2006: $4.8 million) with significantly lower restructuring costs associated with the establishment of Howe's Slovakian and China cutting plants.
OPERATIONS SUMMARY
EBIT Contribution by Division (Jun-07)
Building Products | 47% |
Leather | 32% |
Investment Property | 10% |
Other | 11% |
BUILDING PRODUCTS
The Building Products division reported revenue of $55.1 million (FY 2006: $39.0 million) and EBIT of $8.7 million (FY 2006: $6.6 million), which represents a second successive record result for the division.
Pre-cast supplier Delta continued to benefit from exposure to the strong Western Australian economy. Delta is the market leader in technically-engineered concrete products in Western Australia, supplying pre-cast and pre-stressed concrete products to a variety of commercial, infrastructure and resource projects.
UrbanStone supplies a premium range of paving products for the national market through its established distribution network of sales offices across Australia. While UrbanStone delivered another excellent result (again driven by its exposure to the Western Australian market), its performance was restrained by a subdued New South Wales market.
Limestone Resources, which SFC acquired in July 2006, is Western Australia's largest producer of reconstituted and natural limestone products. During the financial year, Limestone Resources focused on improving its long-term operational efficiency, with $1.5 million in capital expenditure. Limestone Resources has vast raw material reserves and increases the product range available for distribution through UrbanStone's national distribution network.
After the end of the financial year, in July 2007, SFC announced the acquisition of Archistone Pty Ltd (Archistone), the Western Australian market leader in reconstituted limestone block walling. Archistone distributes its product range from retail sites in Osborne Park, Wangara, Mandurah and Jandakot and has reconstituted limestone manufacturing facilities at its Gingin quarry and factory in Neerabup. The Archistone product range is complementary to UrbanStone and Limestone Resources and SFC expects it to increase the division's revenue
by approximately A$12 million in a full year.
The Archistone transaction also included options to purchase the retail properties currently leased by Archistone in Wangara and Mandurah, and another under development in Yangebup, which, in combination with the retail property in Osborne Park that SFC acquired in August 2006, will significantly strengthen the division's distribution network.
SFC's strategy is to build value in the Building Products division through the expansion of the division's product range, development of its retail offering through the launch of UrbanStone Central concept stores and by acquiring the retail properties from which the division operates.
LEATHER (HOWE)
Leather division EBIT increased to $6.0 million (FY 2006: $4.8 million) due to lower restructuring costs associated with the establishment of Howe's Slovakian and China cutting plants being incurred. Revenue for the division decreased to $84 million (FY 2006: $98 million) with lower automotive leather sales to the US market and the August 2006 closure of Gosh. The decline in automotive leather sales to the US was partially offset by sales improvements to Europe and Asia.
Global market conditions continue to impact on the division's performance: - In the US, import badged vehicle brands are now outselling the Detroit 3 (General Motors, Ford and Chrysler) for the first time in US auto sales history
- Upward price pressures on hides
- Intense price competition due to production overcapacity
- Significant and widespread cost cutting programs at the original equipment manufacturer level
- Appreciation of the Australian dollar relative to the Euro and the US dollar.
Despite those conditions, the division's repositioning over the past two years has secured its competitive future with the successful relocation of labour-intensive activities to low cost countries (Slovakia, China and Mexico). These offshore facilities provide:
- Significantly lower labour costs than in Australia
- A local sales presence for the division's key markets (Europe, Asia and the US)
- Improved customer response times.
Approximately 50% of the division's revenue is generated in US dollars and 40% in Euros. A substantial amount of that revenue receives a natural hedge from associated costs incurred in those currencies. The remaining unhedged revenue is exposed to movements in the US dollar and Euro against the Australian dollar. Division EBIT alters by approximately A$380,000 for each Euro cent and A$200,000 for each US cent that the Australian dollar strengthens or weakens against those currencies.
PROPERTY
SFC's investment property leasing operations continued to provide a consistent contribution with EBIT of $1.9 million and $1.2 million of cash.
At 30 June 2007, SFC held joint venture interests in eight commercial and retail properties conservatively valued at approximately $38 million, with $20 million of associated debt. After balance date, SFC has sold a property at 71 Queens Road, Melbourne. The sale will generate approximately $1.3 million of EBIT in the first half of the 2008 financial year.
SFC's 15% interest in the successful Mindarie Keys residential land subdivision north of Perth generated EBIT of $2.0 million. The remaining lots at Mindarie Keys are currently under development, resulting in associated earnings being biased towards the second half of the 2008 financial year. SFC expects to receive approximately $2.5 million of EBIT and $3.5 million in cash over the next 18 months, as the Mindarie Keys development is completed.
The Building Products Division is positioned to deliver further revenue growth. It remains leveraged to Western Australia's robust economy and continues to build scale, range and distribution with:
- the integration of Limestone Resources and the acquisition of Archistone,
- the launch of the UrbanStone Central concept stores and
- an expanded product range available through more outlets.
In the first half of the new financial year, SFC expects earnings to be restrained by advertising, display upgrade, rebadging and integration expenses associated with the launch of UrbanStone Central.
In the Leather Division, the repositioning of the business and relocation of all cutting activities has successfully reset the division's cost base. The division's subsequent objective is to rebuild scale and its three offshore cutting facilities provide the ideal platform from which to increase its share in the European, Asian and US markets.
In the medium term, significant opportunities exist for the leather division to win new business.
In the interim, the division's earnings will be adversely impacted by volatility in the Australian dollar and hide costs. For the first half of the 2008 financial year, SFC expects the leather division's earnings to be materially below the previous corresponding period.
SFC expects that its investment property leasing activities will continue to generate solid returns. The sale of 71 Queens Rd, Melbourne should contribute approximately $1.3 million of EBIT to earnings in the first half of the 2008 financial year. SFC does not expect any significant contribution from Mindarie Keys in the first half due to stock unavailability.
Earnings from Mindarie Keys will be biased to the second half, when stock lots can be brought to market.
At Group level, SFC continues to target long term shareholder value by focusing on return on capital employed, cash flow and dividends. While last year's results were relatively evenly spread between the two halves, SFC expects earnings in the 2008 financial year to be biased toward the second half.
Given the Board's payout ratio policy of balancing returns to shareholders with the need to fund growth in the Building Products Division, the Board presently intends to maintain dividends for the 2008 financial year at $0.50 per share.