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Wattyl Limited Presents Results for the Year to June 30, 2005

Published on 2005-08-29. Author : SpecialChem

Wattyl Limited, the paint and surface coatings group, announced a profit after tax before non-recurring items of $10.8 million for the year to 30 June 2005, compared with $18.4 million in 2003/04.

Profit after tax including non-recurring items was $10.0 million, compared with a loss of $28.3 million in 2003/04 when earnings were affected by losses and provisions related to divestment of the company's remaining US operations.

Positive net cash flow of $30.2 million before financing activities resulted in net debt of $10.6 million and a net debt:equity ratio of 6%. This compares with net debt of $20.3 million and a ratio of 11% at June 2004.

The directors have declared a fully franked ordinary final dividend of 2 cents per share (2003/04: 10 cents), reflecting the lower profitability and in accordance with the company's policy of paying dividends equivalent to between 80% and 100% of net profit, and a fully franked special dividend of 5 cents per share (2003/04: 5 cents), payable on 15 September 2005 to shareholders on the register at 8 September 2005. This will bring total dividends for the year to 22 cents per share, including special dividends of 10 cents per share. The bonus share plan will apply without discount for registered shareholders and the company intends to buy back shares equivalent to the number issued under the plan to prevent any dilution. The dividend reinvestment plan will remain suspended.

Results summary for the year to
30 June 2005
$ million
30 June 2004
$ million
Change
%
Sales
  • reported
  • excluding US

438.1
421.4

523.6
439.8


(4)
EBIT (earnings before interest and tax)
  • reported
  • before non-recurring items

14.1
17.4

(17.1)
30.9


(44)
Interest
(1.3)
(1.9)
32
Profit before tax reported
12.8
(19.0)
Income tax
(2.8)
(9.3)
Profit after tax
  • reported
  • before non-recurring items
  • excluding US and non-recurring items

10.0
10.8
9.9

(28.3)
18.4
25.7


(41)
(61)
Total dividends for the year (cents)
22.0
30.0
(27)

Dr John Nolan, managing director, said: "While the overall result is unsatisfactory for a business such as this with good brands and strong market positions, in Australia the Solver network performed satisfactorily considering the market 'slow down' and the New Zealand business continued to perform well. As announced in June, we have completed a detailed review of all aspects of our Australian business to identify opportunities to reduce fixed costs, improve productivity and restore the company to acceptable and sustainable levels of profitability. Action taken so far will reduce annualised costs by $7 - $8 million, and this has resulted in a restructuring charge of $5.2 million after tax in our 2005 accounts.

We expect to be able to identify further cost reductions in the current financial year. While these may result in a further restructuring charge, we would expect net short term financial benefits.

Following these changes, Wattyl's fixed cost base in Australia will be at a level which would enable the business to trade at more acceptable levels during the economic cycle. The company's strong balance sheet and low debt provide a robust platform for this restructuring.”

Australia

Results summary for the year to
30 June 2005
$ million
30 June 2004
$ million
Change
%
Sales
365.7
387.4
(6)
EBIT - excluding non-recurring items
9.1
31.4
(71)

Australian sales declined in line with the market, due to slower house construction and renovation activity. Sales of industrial products were also affected by reduced demand. Earnings were affected by the failure to reduce the Australian cost base as demand weakened and to increase prices sufficiently to recover higher raw material and labour costs. There were also some customer supply difficulties caused by manufacturing and planning issues which impacted on sales. These issues are now being addressed through the implementation of a new planning process and improved manufacturing performance.

A number of new products were launched during the year, including a new formula for the i.d interior wall paint range. This formula has no odour and repels stains and represents a significant advance in Australian coatings technology.

New Zealand

Results summary for the year to
30 June 2005
$ million
30 June 2004
$ million
Change
%
Sales
55.7
52.4
6
EBIT - excluding non-recurring items
7.6
6.3
21

The New Zealand business performed well, with a 21% increase in earnings as a result of higher sales and successful cost savings programs. The New Zealand coatings market began to slow in the second half, but Wattyl maintained its strong market position. New product programs supported by extensive advertising and expanded distribution will remain a key focus for the business.

USA

Results summary for the year to
30 June 2005
$ million
30 June 2004
$ million
Change
%
Sales
16.7
83.8
n/a
EBIT - excluding non-recurring items
0.7
(6.8)
n/a

The US business was divested in September 2004.

Non-recurring items

The reported result includes the following non-recurring items with a net charge against profit of $0.8 million (post tax):

$ million
Write back of exit provision for the US business
This resulted from the recovery of debtors from the previous US business.
6.5
Australian restructure costs
As reported above.
(5.2)
Profit on sale of Australian surplus property
The sale of the Moorabbin property was finalised during June 2005.
0.6
Impairment – Pascol trade name
The company reviews the valuation of trade names on a regular basis. Due to lower trading activity, the valuation of the Pascol trade name was reduced from $7.5 million to $5.5 million. This is a non-cash item.
(2.0)
Provision for settlement of claims
A detailed review of current claims led to an increase in provisions to cover potential future costs.
(0.7)
Total 'non-recurring items'
(0.8)

Outlook

Dr Nolan said: "While demand for paint and surface coatings is likely to remain subdued for the next 12 months due to the projected decline in residential housing demand, the cost savings we have made are expected to result in improved earnings in FY2006. Further cost reductions in Australia which are under consideration will, if they proceed, lead to non- recurring items; but, together with the changes already made, they will result in a more efficient cost base and more acceptable earnings performance."

Source: Wattyl Limited


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