InvestSMART

Material world hits a wall

BUILDING products group Alesco Corporation has warned investors to expect an even tougher year ahead with the residential housing market and consumer confidence both expected to weaken further.

BUILDING products group Alesco Corporation has warned investors to expect an even tougher year ahead with the residential housing market and consumer confidence both expected to weaken further.

In comments which could set the tone for the building materials sector as the companies reporting season kicks off, Alesco's chief executive Peter Boyd said the outlook for the industry was only going to get tougher.

"My sense is that [trading conditions] will be more challenging in 2012 than they were in 2011," he said. "Forecasts around housing completions are to the negative and with consumer confidence levels on the decline that's likely to affect products going into the renovation sector."

The impact of plummeting consumer confidence levels on retail sales has been well-publicised, but the gloom and the fear of possible future interest rate rises has also prompted investors to put off big decisions like home purchases or renovations.

With the impact of government stimulus draining out of the economy, weak housing approvals and stagnant auction clearance rates have prompted analysts at Nomura and RBS to predict the number of new houses being built next year to fall by more than 10 per cent to below 140,000. Housing starts were at 130,000 during the worst of the global financial crisis.

Alesco reported a net profit of $13.6 million, a sharp turnaround from a $124.3 million loss last year, which included significant writedowns on its loss-making water products business.

Alesco has since jettisoned the water division and also sold its Marathon Tyres during the year as Mr Boyd, who took over as chief executive in May last year, persisted with his turnaround plan.

Shares in Alesco yesterday surged 5.6 per cent to $2.84, but have lost about a quarter of their value since the start of the year. Shareholders were lifted by news they receive a 5.5? special dividend from the proceeds of the sold businesses, bringing the company's final dividend to 12.5?.

On a continuing operations basis, Alesco reported a 3 per cent fall in sales to $534.1 million, but earnings before interest and tax rose 9 per cent to $36.5 million, largely on the back of improved margins in its garage doors division, which has benefited from the strong Australian dollar by outsourcing manufacturing to China.

Mr Boyd said Alesco would continue to manage costs and look at small bolt-on acquisitions as a possible way of growing earnings.

But Alesco's loss-making kitchen products business, Parbury, dragged on earnings as it continued to shed market share.

"I've got to say the problem [in Parbury] is bigger than I first anticipated," Mr Boyd said.


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