Asaleo Care more than doubles profit after COVID panic-buying

Asaleo Care isn’t paying an interim dividend, despite the paper towel and hygiene product maker doing well in the pandemic.

Toilet paper and paper towels were stripped from store shelves when panic buying swept the country.

Hygiene product manufacturer Asaleo Care will not pay an interim dividend, despite posting a strong half-year profit of $18.8m on the back of increased demand for its products, preferring instead to pay down debt.

The result, more than double last year’s net profit of $7.3m, was driven by a strong increase in retail demand for its products, including Libra pads in Australia and Sorbent toilet paper in New Zealand. Segment revenue rose 15.6 per cent to $103.6m.

The company sold its Australian toilet paper and tissue business to Solaris paper in 2018.

The increase in demand was attributed to the panic buying which swept Australia and New Zealand early in the COVID-19 pandemic, with all categories excluding the recently abandoned loss-making NZ diaper business experiencing double-digit growth.

The company said it was able to keep pace with increasing demand by ramping up domestic production, although the benefits of the pandemic “began to unwind in the second half”.

Chief executive and managing director Sid Takla said the “long-term” effects of COVID-19 would likely be beneficial for the business, with consumers increasingly preferring “single-use” hygiene products like paper towels over hand dryers and more keenly aware of the companies that manufactured products domestically.

Meanwhile, lower pulp costs helped make increased production in the first half more profitable, with margins expanding by 290 basis points, lifting retail EBITDA 31.6 per cent to $25m.

Speaking to The Australian, Mr Takla said the ability to manufacture its Australian products out of its Springvale facility in Victoria would provide a long-term benefit to the company in the post-COVID economy.

“The consumer sentiment we’re seeing both from research we have conducted or research our retailers have shared with us is that there’s a strong sentiment supporting local manufacturers,” Mr Takla said.

“We saw that when COVID-19 hit, our competitors who import their products saw their supply pipelines dry up.

“So the assurity of the local supply chain is a big driver of that sentiment, but also there is a higher awareness about the need to support local jobs and support local industries.

“We are the only local manufacturer of feminine care and incontinence products. We see this as a competitive advantage now.”

Sid Takla, CEO Asaleo Care

Also contributing to the strong result was the direct sale of products to businesses and aged care homes scrambling to become COVID-19 safe, with revenue for the sector growing 4.6 per cent to $111.3m.

Like the retail sector, the initial spike in sales was tempered once the lockdown had set in, with people spending more time away from the office and nursing homes feeling more secure in the level of their supplies.

Asaleo Care’s TENA suite of incontinence products saw growth of 11 per cent, driving a 17.3 per cent increase in EBITDA for the sector to $24.4m.

Mr Takla said “there isn’t a direct correlation between the consumption of incontinence products and COVID-19,” attributing higher sales to an “increased focus” on providing quality care in the aged care sector.

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The company said the benefits seen during panic buying and lockdowns will continue to “unwind” over the rest of the year. It forecast a full-year underlying EBITDA in the upper end of $84m-87m.

However, Mr Takla said that a rebound in the business to business sector was possible once restrictions in Australia lift further, noting that sector performance in New Zealand rebounded strongly when restrictions were lifted.

“As soon as New Zealand came out of their lockdown measures, we saw an immediate spike in away from home activities and in fact sales in June and July were strong in New Zealand,” he said.

The decision not to declare an interim dividend was made to reduce net debt, which currently sits at $118.9m, down 14 per cent year-on-year to a leverage ratio of 1.4 times EBITDA.

The company paid a full-year dividend of 2c a share in April.

The decision not to pay a dividend, it is really driven by the uncertainty of current times,” Mr Takla said.

“We want to ensure that our balance sheet is rock solid. We also want to ensure that all dividends have a level of franking credits attached to them, and this isn’t something we could provide in this half.”

Mr Takla said future priorities included “organic growth” through the development of new products in the Libra and TENA lines, but said a strong balance sheet placed the company in a position to make an acquisition if the right opportunity came along.

“I have been flagging to the market that we are doing a lot of homework around inorganic growth, but we’re definitely not rushing to that,” he said.

“It’s a secondary focus.”

In a note to clients, Citi analysts predicted full-year EBITDA of $88m and lifted their target price to $1.30 a share, but said slightly higher inventory levels and future advertising spend could drag on performance.

“We expect a positive reaction to the result with better underlying gross profit margins and more favourable outlook given its sales exposure and lower pulp prices,” the analysts said.

Asaleo Care closed at $1.04 on Tuesday, up 8.33 per cent.