Profit Decline Poses Questions for Schaffer Corporation’s Dividend Sustainability

Overview of Financial Performance

Schaffer Corporation Limited (ASX – SFC) has released its preliminary final report for the financial year ended 30 June 2025, revealing a mixed performance. The company recorded a modest 1.5% increase in total revenue, reaching $229.7 million, driven primarily by growth in its Automotive Leather segment. However, net profit attributable to members declined by 10.3% to $24.3 million, reflecting pressures on margins and increased expenses.

Despite the profit dip, Schaffer has maintained its dividend policy, declaring a fully franked final dividend of 45 cents per share, consistent with the prior year’s final dividend. This brings the total dividend for the year to 90 cents per share, signaling confidence in the company’s cash flow and capital management.

Segment Performance and Revenue Drivers

The company’s diversified operations span Automotive Leather, Building Materials, and Group Investments. The Automotive Leather segment showed notable revenue growth, contributing $185.5 million, up from $181.9 million in the previous year. Building Materials and Group Investments segments remained relatively stable, with revenues of $27.9 million and $3.6 million respectively.

Geographically, Europe and Asia remain key markets, with Europe generating $161.9 million in revenue, and Asia $23.6 million. Australia’s contribution was steady at $33.3 million. The company’s revenue recognition reflects a mix of goods transferred at a point in time and services rendered over time, consistent with industry norms.

Profitability and Expense Analysis

Gross profit improved to $56.1 million from $52.4 million, but increased marketing and administrative expenses, along with finance costs, weighed on the bottom line. The company’s net rental income rose slightly, supported by investment property revaluations. Other income included gains and losses from financial assets and foreign currency movements, contributing to overall earnings volatility.

Depreciation and amortisation expenses remained significant, reflecting ongoing investment in property, plant, and equipment. Employee benefits expenses increased marginally, indicating stable workforce costs despite inflationary pressures.

Balance Sheet and Cash Flow Highlights

Schaffer’s balance sheet remains robust, with net tangible asset backing per ordinary share increasing to $17.44 from $16.45. Total assets grew to $453.8 million, supported by investments and property holdings. The company’s cash position improved slightly to $40 million, although net cash from operating activities declined to $30 million from $47.7 million the previous year.

Investing activities reflected continued capital expenditure and portfolio adjustments, while financing activities included borrowings and dividend payments. The company’s financing facilities increased to $105.2 million, with $21.5 million unutilised at year-end, providing liquidity flexibility.

Outlook and Market Implications

While the accounts are currently under review and not yet audited, Schaffer’s results suggest a cautious but steady operational footing amid a challenging economic environment. The maintained dividend payout underscores management’s commitment to shareholder returns. Investors will be watching closely for the final audited results and any commentary on future growth strategies, particularly in the Automotive Leather segment and investment fund management.