Paintmaker Wattyl says it was caught up in intense competition caused by the downturn in the building industry which stopped the company passing on cost increases in the year to June 30.
As a result profit margins took a hit and earnings tumbled 31% fall because of its inability to raise prices.
And dividends have been cut with a lower final payment, and directors hold out little hope of any immediate upturn (based on the current level of housing approvals over the next year, that’s understandable).
"The housing outlook is uncertain in Australia with the latest HIA forecast predicting a further decline from 154,180 commencements during FY2007-08 to a forecast 145,340 during FY2008-09, a 5.7% decline. Falls are also expected in the New Zealand housing sector," the company said in its ASX profit statement.
Wattyl cut its final dividend to 3 cents, from 7 cents in 2007, due to its lower earnings. That took total dividend for the year to 10 cents a share, down a sharp 33% on the 15 cents paid last year.
Directors said the cut in the final dividend was made "Given the lower earnings, and after considering the higher capital requirements for FY2008-09.
And, unlike the optimists at Noni B (who are battling a depressed rag trade sector and sales) Wattyl directors say the poor outlook for the housing market means it is too early to give an indication of how it will fare in the new financial year. So we will probably have to wait until the AGM later this year.
Sales for the group were 1.5% below last year. In New Zealand sales were down 8.8%, and in Australia sales were down 0.5%.
That 1.5% drop took sales for the year to $420.3 million, while earnings before interest and tax (EBIT) slumped a large 24.9% to $23 million.
(Boral was also hurt by the slump in Australian housing, although its exposure to the wider resources and infrastructure businesses offset that).
"The result of $11.6 million reflects the continuing difficult trading conditions in both Australia and New Zealand, where housing activity has not improved over the prior year.
"Sales volumes in Australia were affected by the general economic environment particularly in the housing sector in NSW, increased competitive activity and changes that are occurring in the corporate retail sector.
"In an increasingly competitive market in Australia, net prices have remained at last year’s level. Without price improvement, productivity initiatives were not sufficient to fully offset general inflationary cost pressures."
Wattyl, which makes brands such as Solagard, Estapol and Taubmans, said it had lost 1% of its retail market share in Australia and NZ because of the stepped up competition.
`"The economic environment is uncertain and a changing competitive dynamic in the paint sector in Australia will be further compounded by the introduction of imported paint by a major corporate retailer,” chief executive John Nolan said.
He said the paint industry is facing substantial increases in input costs driven by higher oil and packaging prices and the company will try to mitigate this by cutting expenses across the business.
"Given the changes that are occurring in the marketplace, and the uncertain economic environment in which we are operating, including no anticipated improvement in the housing sector, it is too early to take a view on how the 2008/09 year will progress,” Dr Nolan said.
Dr Nolan said: “The economic environment is uncertain and a changing competitive dynamic in the paint sector in Australia will be further compounded by the introduction of imported paint by a major corporate retailer.
"Whilst we believe these changes will initially result in some lost sales, we anticipate this shortfall will be recovered progressively through the launch of the new colour system and interior offer, and promotion of our other key brands.
"The paint industry is faced with substantial increases in input costs driven by higher oil and packaging costs.
"To offset these increases we have significant activity underway to further reduce costs within the business, focusing on manufacturing and distribution, and a cost restructuring program across all other aspects of the business.
"For these cost initiatives we are targeting $8 to $10 million savings. We also have specific sales programs to underpin the initiatives for interior, Industrial, major projects and textures and our own store network.
Given the changes that are occurring in the marketplace, and the uncertain economic environment in which we are operating, including no anticipated improvement in the housing sector, it is too early to take a view on how the FY2008-09 year will progress.
However the market initiatives and the continued cost reduction focus will better position the business for when the market conditions improve.”
Wattyl shares were down 9.5 cents or 5.6% to $1.505 in trading yesterday.
Fund manager, Perpetual Ltd has warned that a continuation of the bear market conditions we saw in the June half of the 2008, in the current financial year, will hit profits and revenues once again.
The company yesterday reported a 29% fall in annual profit to $128.81 million, down from $182.1 million in the previous year.
And, its net operating profit fell 8% to $133.5 million, which was within its recent guidance for a result between $130 million and $140 million.
CEO David Deverall said the funds manager’s revenue and profitability for this financial year will be impacted if the current negative market conditions contin
