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MaxiTrans sees first half profits tumble

Business and economic conditions viewed as growing steadily tougher

 

Listed trailing equipment firm MaxiTrans has recorded an interim net profit after tax (NPAT) of $1.06 million, 86 per cent down compared with the previous first half’s $7.75 million.

It was a much steeper fall than the 9 per cent slide in revenues to $185 million.

Of the business segments, Trailer Solutions saw revenues of $130 million for profits after tax of $6.2 million, compared with $162 million and $11.4 million respectively in the previous first half.

For Parts & Components, it was $69 million and $4.7 million compared with $61 million and $4.1 million.

In common with other listed transport-related firms, the first half was marked by a strategic review leading to a number of developments.

The impacts here included:

• loss on sale of MTC in China of $1.6 million, inclusive of costs. The funds released from this sale subsequently allowed the group to fund the acquisition of 80 per cent of Australasian Machinery Sales, known as Trout River Australia, in December

• enterprise resource planning (ERP) system implementation costs that cannot be capitalised, of $1.03 million. The ERP system went live in all Australian manufacturing sites in October and the roll-out is continuing into the MaxiParts and service businesses

• transaction costs associated with the Trout River Australia acquisition and assessing other strategic opportunities, as well as disposal costs for the sale and leaseback of the Queensland manufacturing facility at Richlands, of $240,000. “As part of the manufacturing footprint review and in order to move the Queensland manufacturing facility to a more efficient and higher capacity leased site, the Board has decided to release capital from the sale and leaseback of Richlands,” the company says.


Read how MaxiTrans picked up Trough River Australia, here


“The directors of MaxiTrans acknowledge that the financial performance of MaxiTrans has been disappointing to shareholders,” MaxiTrans chairman Robert Wylie states.

“The recent changes to the business, particularly the capital allocation decisions, are for the long term benefit of shareholders and will ultimately allow MaxiTrans to build a platform which is less exposed to the Australian transport capital expenditure market.

“Active reviewing of where and how MaxiTrans allocates capital will continue with a view to providing more sustainable returns to shareholders.

“While the implementation of the new ERP system has taken longer than originally anticipated, the legacy business systems were no longer supportable and needed to be replaced. The longer term benefits are compelling.

“The directors of MaxiTrans remain committed to the ongoing capital allocation review process and thank MaxiTrans shareholders for their ongoing support.”

But ongoing business and other conditions have also combined to make for a tougher operating environment, particularly but not only for bulk transport products.

Thus drought has hit the agricultural market heavily, while expenditure on the east coast infrastructure projects has been at a slower rate than anticipated.

This, overlaid with the recent falls in housing starts, is expected to reduce demand for MaxiTrans construction-focused products.

The company notes wider economic factors at play , including smaller customers remaining cautious, as reflected in the most recent National Australia Bank business confidence surveys, although “larger fleet quotation levels have remained marginally above long run levels”.

As the company usually observes in the lead-up to a federal election, political uncertainty is also negatively impacting the buying decisions of some customer segments, in particularly smaller fleets and owner-drivers.

“These general conditions have contributed to a slowing of new trailer registration growth over the second half of calendar 2018, which looks set to continue in calendar 2019,” MaxiTrans says.

“Recent quotation and order intake levels remain subdued and the normal post-Christmas recovery is slower than prior periods. Q4 production is currently underpinned by the imminent timing of a number of larger fleet opportunities rather than normal quotation levels.”

The timing of those orders is seen as a risk to full-year performance and MaxiTrans is now implementing strategies to manage this risk if required.

However, the Australian trailer business is expected to benefit from the recovery of production deferred from the second quarter and the retention of some margin accretion associated with price rises initiated in July 2018.

The initial gains from the ERP system deployment are still expected to be realised towards the end of this financial year.

New Zealand will continue improving profitability levels as the traditional third quarter order cycle of key customers supports fourth quarter volumes. Expectations remain for “solid” full-year growth in the MaxiParts business.

“The growth rate in the second half is expected to dampen – due to a stronger H2 prior year comparator and continued softness in the base market – but will remain positive,” the company concludes.

 

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