Profits: GWA, Western Areas Tell Similar Stories. —
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Profits: GWA, Western Areas Tell Similar Stories.

February 15 2012 - Australasian Investment Review – (AIR)

The downside of the domestic economy and the minerals sector were seen yesterday in the results of midcap building products group GWA and nickel miner Western Areas.Both were hit by weak demand (and in the case of Western Areas, lower prices) in the six months to December.

Take GWA Group it said yesterday first-half profits were down 60% due to lower building and renovation activity, thanks mostly to the impact of restructuring costs taken in the six month period.

The company revealed a more sedate 9% fall in earnings before interest and tax for continuing operations to $44.8 million for the half year.

That smaller fall better reflected the company’s experience during the year and that was underlined by directors leaving the interim dividend unchanged at 9.5c.

GWA said net profit (after one-off items) for the period ending 31 December 2011, was $13.3 million, down from $33.2 million in the December 2010 half year.

The drivers behind the profit fall were a $7.5 million after-tax loss related to restructuring expenses and a $6.7 million loss from the cost of discontinuing some parts of the business.

Revenue from continuing operations of $315 million was in line with same period last year

“GWA completed the sale of its commercial furniture business Sebel on September 30, 2011, and the North American sanitaryware business in December.

“The half has been successful in terms of finalising the sale of non-core businesses, which will allow us to focus on the Australian building fixtures and fittings sector,” said Peter Crowley, GWA Group’s managing director, in yesterday’s statement.

Mr Crowley said the building sector had been in a “serious downturn” since early 2011.

In August last year, the company said it would shed 8% of its workforce, or 169 people, and yesterday the company said the restructuring process had so far resulted in a 7% cut in job numbers, which was “slightly ahead of target”.

A further 2% reduction in the company’s workforce is expected in the second half of the year, the company revealed in a presentation to analysts and investors.

He said the benefits of the restructuring would be reflected in the results for the 2012-13 financial year and future periods.

“Sales by the Bathrooms & Kitchens segment decreased by 11%, with EBIT before restructuring costs down 13% from $41.2 million to $35.9 million,” GWA said in yesterday’s statement.

“Sales were adversely impacted by the cessation of government stimulus spending and the general reduction in building and renovation activity.

“Sales by the Door & Access Systems segment increased by 63%, due to the inclusion of Gliderol, with EBIT before restructuring costs reducing by 4% to $8.4 million.

“Competitive pressure has caused some margin compression and market share loss in the Gainsborough door hardware business. We are working to improve Gainsborough’s position through new market offers, like the Electronic Access System launched in December.”Sales by the Heating & Cooling segment fell 14%, due to lower demand for environmental water heating products and a slow summer season for evaporative coolers. Despite the lower sales activity, EBIT remained flat at $7.2 million due to cost improvements.”

GWA shares fell 6.8% or 17c to $2.31, despite the confident message of the unchanged interim dividend.

Nickel miner Western Areas NL  said yesterday that earningsfell 64% in the December half year, thanks to a slide in demand and the world price for the metal.But a recent strengthening in world prices, if sustained, could boost its financial performance in the current second half of the 2012 financial year and go someway to offsetting the weak first half.

Western Areas made a $24.1 million net profit in the six months to December 31, down from $67.2 million in the previous corresponding period.

The nickel price averaged $US8.51 ($A7.95) per pound in the six months to December, down from $US11.61 ($A10.85) per pound in the comparative six-month period.

“Consequently NPAT for the half includes a negative quotation price movement of A$13.3m,” the company said yesterday.

Nickel prices for January were significantly higher, and were heading towards $US9.50 ($A8.88) per pound, managing director Dan Lougher said in yesterday’s statement.

“If this continues over the rest of the year, Western Areas shareholders can expect a strong finish to the financial year,” he said.

Nickel sales of 11,230 tonnes in the first half were down 4.4% from the previous corresponding period, despite a 9.3% rise in production of nickel ore to 33,651 tonnes of nickel in the six months to December 31.

With that fall and the slump in world prices, revenue for the first half dropped 35% to $149.1 million from $230.9 million in the same period in the previous year.

And to match the slide in earnings, Western Areas halved its interim dividend, declaring an unfranked distribution of 5c per share.

The company reported a substantial increase in high grade resource inventory at Spotted Quoll underground (in WA) to a total (inferred + indicated) mineral resource of 3,054 million tonnes at an average grade of 5.9% nickel containing 179,000 tonnes nickel.

Western Areas’ shares fell 3.3% or 19c to $5.56.

This Information is provided to you by the Australasian Investment Review (AIR). Subscriptions are free.AIR reports about financial markets and investment products in the widest sense possible. The AIR website and all its contents is prepared for general information only, and as such, the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Individuals should therefore talk with their financial planner or advisor before making any investment decision.


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