"Due to profit on sale of glen waverley?
Would you have preferred them to exclude that benefit and report underlying?
This might make the constant increase in EBIT difficult to replicate next year, but I’m sure they’re expensing a lot(some?) of the duplication with the new factory."
Not just Glen Wavery, but also the profit on the sale of their 51% interest DGL Camel in China (the accounting for this is a bit tricky, because they consolidate DGL Camel in their accounts, which means they reflect 100% of the profit from the sale of their interest above the line, as well as the $9.3m restructuring provision they've taken in respect of the rest of the "Other Businesses" segment, which they have booked to "Employee Benefits Expense" and "Other Expenses" in the P&L).
[Refer Note 10 on page 35 of the Appendix 4D financial report for details]
Also, they are calling out $1.2m of "one-off other project costs" being excluded from Underlying Corporate Costs, which I think is nonsense.
So, overall, I don't think this result is result is up to DLX's usual high standards, quality-wise.
One of the redeeming aspects of the company's performance in the half was that the EBIT margin in the Paints and Coatings business remained largely unchanged at 18.65 (pcp = 18.7%) despite "significant raw material prices increases", despite the duplicated costs during the transition to manufacturing at Merrifield, the debut depreciation charge following Merrifield commissioning, and without them really leaning too heavily on their own product pricing levers.
As Merrifield ramps up, and as management invokes the pricing power of DLX paint products, watch that EBIT margin ratchet up in coming periods.
DLX Price at posting:
$7.95 Sentiment: None Disclosure: Held
