Rusty market hits GWA profit

Rusty market hits GWA profit

Bathroom and kitchen fixture distributor GWA Group (ASX: GWA) has beaten the market's performance in Australia but that was not enough to prevent a 69 per cent fall in profit for the first half. 

The decline in statutory net profit after tax (NPAT) to $23.6 million would have been less pronounced if it weren't for a $14 million cut in revenue as retailers de-stocked inventory against the backdrop of a weaker trading environment.

Earnings before interest and tax (EBIT) was within guidance at $38.1 million, representing a 2.6 per cent drop compared to what GWA estimates as a market-wide decline of 6 per cent.

"There was further weakness in the residential segment in Australia in the second quarter; however, despite that we achieved a result in line with the 1H FY20 EBIT guidance provided at the AGM in 2019," says GWA managing direcor Tim Salt.

"The business continues to demonstrate its resilience in the face of challenging market conditions.

"We continue to invest in key initiatives to capitalise on the expected upturn in Australian market conditions in early FY21."

Last year's NZD$118 million (AUD$113 million) acquisition of New Zealand-based showers and taps maker Methven has helped delivered cost savings while the newly incorporated business' own earnings have lifted 50 per cent due to a solid performance in NZ, an improved market share in the UK and continued growth in Asia.

Investments have been made in GWA's core portfolio, particularly in the key 'renovation and replacement' segment, and its water usage management platform 'Smart Command' is now installed in 36 sites with a "significant bank of additional projects in the pipeline".

"We are now developing further international expansion options for Caroma Smart Command through GWA-generated leads and leveraging Methven's footprint across South East Asia and China," says Salt.

"New Distribution Centres in Vic, Qld and WA complement the investment previously made in NSW and enable integration of the Methven portfolio. The centres enhance customer service and provide a base for the improvement in operating efficiencies in FY21 and beyond."

Normalised EBIT guidance of $80-85 million has been maintained for FY20, with expectations low interest rates and easier access to credit set to provide a solid platform for growth.

In the commercial segment, GWA's forward order bank remains strong and higher than the prior corresponding period, particularly in the eastern states.

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