When the going gets tough, some decide that it’s too much to get going and take a backseat instead. That’s the case of the kitchen appliances and consumer products company Shriro Holdings (ASX: SHM), which has decided to shut its kitchen appliances business in the Australian market in light of growing competition, rising inflation and the loss of a major retailer.
For Shriro, the kitchen appliances segment has become super competitive with many well-capitalised global manufacturers wanting a piece of the action in this industry. The revenue from kitchen appliances was $37 million for the 12 months to 28 February 2023, and the Company’s margin has been increasingly squeezed in the kitchen appliances products. Market pressure resulted in kitchen appliances becoming a loss-making part of Shriro’s business.
Ultimately, it was the loss of a major retailer for the Omega brand which pushed Shriro to exit the kitchen appliances product category in Australia.
The Company will now restructure the business, which involves closing its Dandenong warehouse, resulting in some one-off costs in FY23. This will ensure the business continues to operate efficiently and will offset the impact of the loss of revenue. As per its announcement, the exit will not negatively impact Shriro’s profit, but there will be a release of cash from the debtors and inventory of approximately $12 million, collected in the first half of 2024.
In H1 FY23, the Company’s revenue fell about 12% on H1 FY22 to $84.4 million. Its earnings fell by 14.5% to $12.4 million, and its profit fell by 23.2% to $6.3 million. Its cash position also reduced by about half, from $12.8 million in H2 FY22 to $6.3 million.
The reductions are a result of multiple factors, including the exit of the sink and taps brand Blanco, slower seasonal goods sales with a cooler than anticipated Australian summer, impacting Everdure by Heston BBQ products, and lower commercial appliance sales impacted by home building delays and labour shortages.
To cut its losses, the Company will focus on the global expansion of its seasonal businesses, like its BBQ products, its distribution business with Casio (the calculator and watch brand) in Australia and New Zealand and Pioneer (NZ), its New Zealand appliances division and organic and inorganic growth opportunities.
Its growth strategy also comprises launching new products and undertaking EBITDA-accretive acquisitions that focus on consumer-related goods.
In the coming months, Shriro expects that appliance margins will remain under pressure owing to increased market stock supply, labour shortages and competition. But it is counting on the New Zealand appliances division to trade well and keep the money coming in. Plus, it is hoping that cost pressures, such as salaries and local logistics distribution, may be somewhat offset by reducing import container rates and weakening Japanese yen.
Even so, uncertainty ranks high. With rising inflation, consumer spending is declining, and it might further impact Shriro’s performance in the coming months.
Alinda is a Business Reporter for The Sentiment
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