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Valspar paints a grim picture

18 Feb 2013 THE AGE - ELI GREENBLAT MANUFACTURING



THE fragile condition of Australia's residential property market is expected to continue for the rest of the year with no signs of a recovery in the economically vital sector, the chief executive of one of the world's biggest home paints makers said.

Gary Hendrickson, chairman and chief executive of US paints group Valspar, said the company's Australian business - built around its Wattyl brand - had a 15 per cent decline in volumes for the first quarter, with weakness in the local market dragging down its performance in the region.

Mr Hendrickson told analysts in an earnings update that he held little hope of a recovery in the Australian residential property market.

"I would expect Australia to continue to be weak throughout, potentially throughout the remainder of the year because there is no signs of improvement in the residential housing market in Australia," Mr Hendrickson said.

The sale of paint is a key leading indicator of the strength of the residential property sector, especially new housing construction, but also gives an insight into the current mood of homeowners as purchasing paint is one of the cheapest forms of updating or renovating a room.

The earnings season has thrown a spotlight on the troubled residential property market after Boral, the nation's biggest building materials supplier, unveiled a $25.3 million loss for the first half due to weak market conditions and some restructuring costs. Mirroring the materials company's bearish outlook, Stockland, Australia's biggest residential property developer, posted a $147 million loss for the first half, a worse than expected result for the company.

Mr Hendrickson said Valspar's volumes had declined 15 per cent for the first quarter of the 2013 financial year. The paint maker, which books revenue of about $400 million a year in Australia, was also hurt by a restructure of its store network.

He estimated that the paint market for new homes was down about 8 per cent for the quarter.

The long-term average for housing starts in Australia is 155,000 but the most recent trends show starts of closer to 140,000.

The Australian Industry Group and Housing Industry Association Performance of Construction Index for January highlighted that the downturn in the national construction industry had continued into the new year.

According to the index, both activity and new orders contracted at steeper rates in January. Seasonally adjusted the index retreated 2.6 points in January to 36.2.