Acquisitions and strength in the home renovations market has helped industrial and building products group, Alesco Corporation ride out an essentially flat home building industry to report a 16.7% rise in first half profit, with expectations of more to come in the second half.
The company also had to battle the impact of two interest rises and the higher interest rates from the credit crunch from August onwards.
Alesco, which supplies a wide range of products to industry and to the building and renovations markets in Australia and New Zealand said net earnings came in at $31.47 million, after earnings before amortisation of a record $35.1 million for the half year to November 30.
Alesco declared an interim dividend of 31c, up from 27.5c in the same period last year while earnings per share (EPS) were 42.6c, up 3.1% on capital expanded in $225 million equity raising last year to help finance the purchase of water supplies group, Total Eden McCrackens.
Group earnings before interest, tax and amortisation (EBITA) BITA was $60.4 million, up from $46.9 million, in the first half. Group revenue rose 52.9% to $540.15 million because of the two big acquisitions in 2007.
The company said the 2007 purchase of the hardware and components supplier Lincoln Sentry in February and water products supplier Total Eden McCrackens in August, contributed to earnings growth, with a greater focus on the renovation sector in Australia offsetting the impact of a subdued housing market.
Alesco said its outlook for the second half was positive, with EPS expected to be "significantly higher," despite the uncertainty about housing and possible future interest rate increases.
"Consistent with previous guidance, the board reaffirms forecast EPS growth in the fiscal 2008 year at a slightly higher rate than the 12.2 per cent experienced in fiscal 2007," Alesco said.
Alesco says it expects earnings growth to come from a relative improvement in its garage doors and openers division (after a restructuring in January) and continued growth in its building products, and construction and mining divisions.
August's acquisition of Total Eden McCracken's provided a four month EBITA contribution of $9.2 million in the first half and will continue to contribute positively to second-half earnings
The acquisition program contributed to earnings growth and portfolio diversity, including greater focus on the renovation sector in Australia, offsetting the impact of the subdued new housing market
Streamlining of the Alesco Building Products divisional management structure and the turnaround of Garage Doors & Openers division underway with a new management team in place, further "cost out" restructuring undertaken in January 2008 and price increases in March 2008
Alesco also expects an improved performance from its scientific and medical division and a full six-month contribution from its water products and services division.
Chief executive Justin Ryan said that in terms of the trading environment, most of the drivers for Alesco's businesses looked positive, and every business was now ahead of the prior corresponding period.
"The renovation focus continues to deliver results, and we think there are excellent prospects for our water products and services business," he said.
But he said the trading environment in New Zealand did not look as attractive, and Alesco was reducing exposure to that market over time to focus on Australia, particularly the high-growth markets of Queensland and Western Australia.
"Having said that, we do not expect the current debt environment to have any effect on our business," he said.
Alesco said its building products and construction and mining divisions had performed well in the first half due to strong activity in the renovation and infrastructure markets.
"The new housing markets, in both Australia and New Zealand, continue to experience flat trading conditions and, as a result, have had a negative impact on businesses with exposure to this segment, most notably the garage doors and openers division," the company said.
In Australia, renovation activity was 7% higher than a year ago, while housing starts were up 1% in the year to October 2007.
In New Zealand, where Alesco derives about 5% of its revenue from housing, the renovation and new housing markets grew slightly in the year to September 2007, ahead of an expected downturn this year.
The building products division generated EBITA of $19.3 million, up from $11.4 million, while construction and mining earnings rose to $14.8 million, from $13.6 million. Garage doors and openers fell to $13.1 million, from $17.7 million. Water products and services posted EBITA of $9.2 million, and scientific and medical was flat at $8.1 million.
ALS shares rose 40c to $9.65 after being up 85c in early trading.
