The building slump continues to take a toll on Sydney-based paint maker, Wattyl Ltd which said yesterday it will significantly expand its cost cutting program to try to offset falling revenue and earnings.
The company on Monday said sales revenue for the first quarter of its financial year was down about 5.5% on the same period in the previous year.
"Trading expectations in the current economic climate remain uncertain," it said.
"With the uncertainty of the trading environment, our expectation is an earnings result significantly less than last year, especially at the half year.
"To help offset the possible impact of lower sales revenue and higher input costs, we have significantly expanded our cost reduction program."
Wattyl is now seeking cost savings of about $20 million and expects to realise savings of about $10 million in the current financial year, mostly in the second half.
It said the cost reduction initiatives will incur one off costs this financial year of about $8 million, producing an immediate net benefit of $2 million.
Wattyl in August reported a 29.5% fall in 2008 net profit to $11.55 million and said it was going to target cost savings of $8 million to $10 million a year.
That profit slump was down from the $16.4 million earned in 2007.
"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," the company said at the time.
"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%.
Nothing seems to have changed, it seems. Wattyl said yesterday that sales for the September quarter fell 5.5% due to a range of changes occurring at some major corporate retailers.
"Nevertheless, after allowing for these customer driven changes, underlying demand has not improved," Wattyl said and first quarter sales in New Zealand sales were particularly affected by the slower economy.
"While this first quarter trading may not be a true guide, given the impact of the market changes underway, and in particular the importation of paint from Nippon, the company remains cautious on the outlook," it added.
"The prospects for the new housing sector in both Australia and New Zealand still remain pessimistic, with no improvements predicted for this current financial year."
Wattyl said increases to first home owner grants announced last week by the federal government were welcome but unlikely to cause any significant impact on demand in its market this year.
"We have implemented a number of important sales and market programs including the launch of the new Wattyl Colour Designer (colour selection system) and Interior Design paint offer.
"However, these may not be sufficient to recover, in the current year, the sales lost from the corporate retailers, at least without some improvement in market conditions.
"Input costs are also expected to increase more than originally anticipated."
Wattyl said the cost cutting program underway will place it in a position to benefit significantly when trading conditions recover.
But it warned that the "final outcome is dependent on the extent and length of the changes, and slow down, in the market; the success of our sales and market initiatives; and the effectiveness of the cost reduction program.
"At this stage we are not able to predict, with confidence, the full impact of these factors."
Wattyl shares ended the day steady on $1.07.
