Pental inks distribution deal for Duracell batteries

Pental ASX PTL distribution deal Duracell batteries
The licensing agreement includes supplying customers such Coles, Costco, Target, IGA, FoodWorks and Priceline.

Household products manufacturer and distributor Pental (ASX: PTL) has won an Australian and New Zealand distribution deal for the renowned battery brand, Duracell.

The licensing agreement was inked with Duracell’s owner, US conglomerate Berkshire Hathaway (NYSE: BRK.A), and will commence from 1 September for a period of three years.

The deal includes supplying Duracell products to stores such as Coles, Target, IGA, FoodWorks, Priceline and Costco.

Pental currently manufactures and distributes a range of home cleaning products, soap and other consumer products including the White King, Jiffy, Softly, Pears, Velvet and Sunlight brands in Australia and New Zealand.

Pental chief executive Charlie McLeish said Duracell fitted well with the company’s stable of brands and would be positive for Pental’s market position.

“We are extremely proud to be part of an organisation built around one of the world’s most iconic brands,” he said.

Swinging into the red

The distribution deal is positive news after the company announced its financial results for the 2018 financial year, reporting a loss after tax of A$27.84 million. This is a complete flip from the previous year, which saw a A$5.85 million profit.

Gross sales were down 7.85% to A$108.43 million and underlying EBITDA also fell 38.42% to A$7.34 million.

The total loss also reflects a A$29.45 million non-cash goodwill impairment based on the changing market trading environment and costs relating to the resolution of its dispute with the Australian Competition and Consumer Commission (ACCC) a few months ago.

The company came under fire back in April over the marketing of its White King bathroom wipes, falsely claiming the product was “flushable” and would disintegrate like toilet paper.

Pental was consequently fined A$700,000 by a Federal Court ruling and was also ordered to pick up the ACCC’s legal costs amounting to A$110,000.

The company declared a final dividend of A$0.009 per share, bringing the total dividend for the fiscal year to A$0.015.

This is a reduction of almost 54% compared to the 2017 financial year, although it is worth noting the payout ratio of 78.5% on underlying net profit after tax is greater than the payout ratios of the last two years.

Defensive strategy

According to Pental, the consumer goods market in Australia has undergone a significant transformation with price reduction campaigns making “half price” the norm.

In order to defend its shelf space, the company invested heavily in price-matching initiatives during the 2018 financial year which impacted profitability, as expected.

While net sales revenue fell, Pental said the strategy did however allow it to maintain shelf space and product rankings.

In addition, the company said it was taking other initiatives to preserve profitability, including a focus on expenditure control and improving manufacturing efficiencies.

Pental shares were up 9.68% to A$0.34 on today’s Duracell announcement by midday trade.

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