'Tentative recovery' lifts Kingpsan sales

Insulation and construction materials group Kingspan said trading in the first four months of 2011 beat last year, as more favourable weather conditions and tentative recovery in European markets helped sales volume grow by 12 per cent.

Overall, the company said group sales of €439.3 million were 33 per cent up on last year, including the impact of the acquisition or CRH’s European insulation business. Excluding the effect of these purchases, this figure reduced to 20 per cent.

Some 2 per cent of growth was accounted for by positive currency exchange and 6 per cent was accounted for by price.

However, the percentage operating margin remained the same as raw material prices rose during the period.

The company said the Irish market, which accounts for about 4 per cent of the group’s sales, was flat.

However, other markets showed better performance. The UK remained solid, showing a gradual improvement in residential construction and an increase in refurbishment activity.

Meanwhile, in Europe, the German market was particularly strong, with European markets showing what Kingspan described as “tentative” signs of recovery.

In North America, Kingspan’s businesses showed good performance, despite the flat construction market.

Across its divisions, Kingspan said revenues from its insulated panels rose by 27 per cent compared to a year earlier. However, orders weakened in April, and its order book at the end of the month was “modestly” ahead of April 2010. Kingspan said this indicated lower sales growth for the remainder of the second quarter.

Insulation board sales were up 16 per cent, excluding the CRH acquisition, and 74 per cent overall.

Meanwhile, sales of Kingspan’s environmental and renewables products rose 21 per cent in the period as sales in mainland Europe were strong.

“Whilst volumes are buoyant in the division, margins are under some pressure year on year due to the impact of raw material inflation,” Kingspan said.

The group said operating income for the first half of the year will probably be "favorable" to that of a year earlier.

"The second quarter's pipeline would indicate the continuation of the delicate economic recovery, particularly in the UK and North America, whilst our businesses in Germany and Australia are expected to be strong through mid-year," the company said.

Order books are "solid" even as input prices continue to rise, it said.

Davy Stockbrokers said it was a positive statement from Kingspan, but noted that the period under review benefitted from an easy comparison base.

"The forecast adjustment bias is clearly on the upside on the basis of the group's start to the year. For example, were Kingspan's operating margin for 2011 overall to come in unchanged, results would be over 15 per cent better than what we are currently expecting, other things being equal," said analyst Flor O'Donoghue in a note.

"The Kingspan share price has, like many other building product companies, underperformed this year on worries over the impact of rising input prices. Our view has been that greater visibility on price management and integration of the CRH deal was needed before we changed our 'neutral' rating. Evidence on both so far is positive and this should help the stock recover at least some of its underperformance."

Additional reporting: Bloomberg