BUILDING MATERIALS and insulation company Kingspan has warned its operating profit will drop by one-third this year as a result of the sharp downturn in the building sector. Trading next year is “almost certain” to bring even tougher challenges, the firm said.
Kingspan said the effects of the contraction in the global economy became more evidence in September and October, compounding difficulties presented by the contraction in the construction markets and rising prices for raw materials.
“This has resulted in further reductions in construction activity, particularly in the UK and Ireland. Residential construction in these markets has remained weak and activity in the commercial sector has slowed markedly during the period,” the firm said.
“This trend has been caused largely by the significant tightening of development funding and a sharp reduction in consumer confidence. In contrast to this, activity in the commercial and industrial sectors in western and central Europe remained robust.
“The sectors which Kingspan serves in North America also displayed more resilience than other sectors in the period.”
Shares in Kingspan, down almost 77 per cent in the last 12 months, finished 11.46 per cent weaker at €3.276 in Dublin last night.
Davy analyst Flor O’Donoghue said Kingspan’s forecast of a full-year drop of 33 per cent in operating profit implied a likely decline of 45 per cent in the second half of the year as operating profit dropped 21 per cent in the first half. “Given a circa 45 per cent fall in [second half] 2008 earnings, a fall of a similar magnitude or even more looks very possible in 2009. Hence, we may be looking at an earnings per share forecast for next year of 35 cent or under .”
Kingspan has initiated a restructuring programme in a number of its business units. “Non-recurring exceptional items related to restructuring and related costs will impact the result for the current year by approximately €25 million,” the company said.
Sales are down 9 per cent in the 10 months to October, but are down 3 per cent on a constant currency basis. Kingspan said it completed a five-year syndicated revolving credit facility for €330 million with its bankers in September. “At 31 October the group had total facilities of €580 million. Net debt at October 31st was approximately €330 million.”
