Hellaby : Provides FY16 Trading Update and Guidance

Hellaby Provides FY16 Trading Update and Guidance

• As signalled, on-going oil and gas market volatility has impacted second half trading and Hellaby's FY16 consolidated full year earnings are now expected to be below previous guidance.
• New CEO to be appointed to the Resource Services Group.
• Board currently intends to maintain FY16 full year dividend at FY15 level.

Hellaby Holdings Limited (NZX: HBY) advises that its full year earnings for the year ending 30 June 2016 are now expected to be below previous guidance, primarily due to the ongoing volatility and challenging conditions in the international oil and gas market.

Following a soft first half year for the Resource Services Group, further refinery shutdown delays have continued to affect the timing of international contracts. As a consequence, whilst second half earnings will be an improvement on the first half, full year earnings for this Group will be significantly down on the last financial year.

The positive sales growth seen in the Automotive Group in the first half has continued. Higher year on year earnings are expected, including a full year contribution from JAS Oceania and a two-month contribution from Premier Auto Trade, both of which operate in the Australian auto electrical market. The full year result for the Group will include the investment into the start-up initiative in Truck and Trailer Parts in FY16, as well as an impact from the weaker NZ dollar.

The Equipment Group is expecting year on year sales growth, driven mainly from increased truck servicing revenue. This higher revenue is at reduced margins, partly because of the sales mix change, and partly because of the weaker NZ dollar. This will affect full year earnings, which are expected to be slightly down on the last financial year.

The Footwear Group continues to struggle in a very soft and difficult retail environment and several options for this Group are currently under investigation.

The comparative year on year result reflects the divestment of Elldex Packaging in May 2015 and the corresponding loss of earnings from this business in FY16 (FY15: $2.0m EBITDA, $1.3m EBIT).

The full year Hellaby result will also include corporate office restructuring costs as recently reported and operational cost saving initiatives across the group which have been implemented in recent months and will be expensed in the current period.

Taking the above into account, the company now expects a consolidated Trading EBITDA[1] for FY16 of $43 million to $47 million (FY15: $59.1m) and a Trading EBIT[2] of $28 million to $32 million (FY15: $44.7m).

The Board has considered the likely level of annual dividend for FY16 and having taken into account both the above trading update and the Board's view of the future sustainable earnings for the core Groups, it is the Board's current intention that the FY16 annual dividend will be held at the FY15 level.

Hellaby Managing Director and CEO, Alan Clarke, said: 'FY16 will be a transition year for Hellaby. The very challenging conditions in the oil and gas market are the main contributor to the lower expected full year result. In addition, there are one off restructuring costs, investment into the start-up loss making initiative in Truck and Trailer Parts and no contribution from Elldex Packaging which was sold at the end of the last financial year.

'Our focus for the remainder of this financial year is to work with our very large Resource Services customers around the world to confirm scheduled shutdowns in the next three to six months; resource and complete current jobs; and drive additional cost savings synergies. Considerable effort is also being made to progress opportunities to broaden our specialist maintenance revenue streams into adjacent areas of our customers' industrial processing operations.'

To anchor this change process, a new CEO is being recruited to head the Resource Services Group. Andy Wells, the current CEO and a founding partner of Contract Resources, will step aside to take on the position of executive director in a business development and technical advisory role.

Looking Ahead

Alan Clarke concluded: 'FY17 will see our new strategy in place as we move to become a long term committed owner of targeted core business Groups, which have attractive organic and acquisition growth prospects in large scalable markets.

'We have undertaken an in-depth strategic review and identified a number of new initiatives and investment opportunities for our Groups and further announcements are likely to be made in coming months.

'Hellaby's balance sheet is strong and we are well-resourced to deliver attractive and growing medium-to-long term shareholder value.'