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Wattyl announces results for the year to 30 June 2006

Published on 2006-08-22. Author : SpecialChem

Wattyl Limited, the paint and surface coatings group, announced a profit after tax from continuing operations before non-recurring items of $13.3 million for FY2006. This is an improvement of 23% over FY2005 ($10.8 million) and compares with $11.2 million forecast in its January 2006 Target's Statement issued in response to the takeover offer by AEP ("Target's Statement").

Profit after tax from continuing operations including non-recurring items was $4.3 million (FY2005: $4.2 million).

The directors have declared a fully franked final ordinary dividend of 6 cents per share (FY2005: 2 cents), payable on 22 September 2006 to shareholders on the register at 8 September 2006. This will bring ordinary dividends for the year to 14 cents per share fully franked (FY2005: 12 cents), in line with the company's policy of paying dividends equivalent to between 80% and 100% of net profit after tax before non-recurring items. The bonus share plan will apply without discount for registered shareholders and, to prevent any dilution, the company intends to buy back shares equivalent to the number issued under the plan. The dividend reinvestment plan will remain suspended.

The final dividend is in addition to the fully franked special dividend of 40 cents per share to be paid on 15 September 2006, as previously announced.

Cash flow from operating activities of $3.1 million was impacted by increased working capital to improve delivery performance to customers and costs relating to the restructure and take over advice and compliance costs.

Net debt increased to $26.7 million at 30 June 2006 (2005: $10.6 million), resulting in a net debt:equity+debt ratio of 14.4%. (2005: 6.0%). Following payment of the previously declared special dividend of 40 cents, gearing ratio is expected to increase to approximately 33%.

Dr John Nolan, managing director, said: "The year has been one of positive change for Wattyl. In June 2005 a major restructuring program was announced to reduce fixed costs across the business and to create single, focused sales, marketing and technical teams to maximise opportunities across Wattyl Australia's four operating units. Other initiatives included improving supply performance to our customers and further rationalisation of the product range.

"These projects have essentially been completed and, while the underlying performance has improved compared to last year, we are focussed on ensuring the full benefits from these activities are realised in FY 2007."

Improved pricing across all segments offset a slight decline in volume which resulted from a decline in the housing market and lower renovation activity.

Earnings benefited from the initial impact of the cost restructure initiatives as well as from significant improvements in the delivery performance to our customers.

There was increased investment in national advertising to further strengthen and rebuild consumer demand for key Wattyl brands. Updated external Woodcare and Killrust product ranges were launched across Australia, and market demand for Wattyl's i.d interior product with no residual paint odour continued to increase.

The New Zealand market began to slow during the second half of the financial year and the performance reported in AUD was impacted by the weakening of the NZD, particularly over the second half.

Sales in local currency were maintained at the same level as FY2005. Higher raw material prices were not passed on fully to the market, although they were partly offset by cost reductions.

Non-recurring items

Takeover advice and compliance costs incurred in relation to both the AEP takeover offer which lapsed on 3 April 2006 and the Barloworld takeover offer which lapsed on 20 July 2006 were estimated to be $5 - $7 million in the April 2006 Target's Statement issued in response to the Barloworld takeover offer.

Previously estimated non-recurring costs, including the takeover advice and compliance costs, were $10.8 to $12.8 million before tax.

Outlook

Dr Nolan commented, "We have made good progress with the restructuring and are confident of realising the full impact of the cost savings during FY2007.

"Our business plans are targeting, and management remains focussed on achieving, the forecast FY2007 EBIT of $36.6 million as detailed in the January 2006 Target's Statement. However demand in FY2006, relative to the previous year, was flat and current indications from the Housing Industry Association ("HIA") are that any recovery in the housing sector will be slower than previously anticipated. The Target's Statement forecast was based on the September 2005 HIA outlook predicting a 3.7% improvement in 2007 Australian dwelling starts; the June 2006 HIA outlook indicates an improvement of only 1.5%. With this trend, some of the planned volume growth could be at risk with a possible reduction of around $4 million in forecast FY2007 EBIT; but, we are looking at ways to offset this impact through reduced costs and other sales initiatives.

"Looking further ahead, we still have opportunities to improve earnings as we consolidate the restructured business and continue to address our production costs, stock levels and warehouse and distribution costs."

Source: Wattyl Limited


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