GWA braces for challenging year, after full-year profit slumps 53pc

The bathroom fittings maker flagged weak construction market conditions through fiscal year 2021.

Bathroom fittings businesses will suffer if construction demand falls.

Australia’s declining housing market has stifled demand for renovation products even as Australians in lockdown turn to DIY home improvements.

In its full-year results on Monday, GWA Group chief executive Tim Salt said that a hit to consumer confidence, combined with a recent drop in house prices, meant people are less prepared to put money down on an off-the-plan property.

“Renovations tend to happen when people are either buying a house or selling a house,” Mr Salt told The Australian.

“As the number of houses being sold starts to drop, then the number of renovations goes down.

“People aren’t doing many renovations because they aren’t buying and selling existing houses either.”

GWA Group shares slumped to close down 10.5 per cent on Monday, at $2.47 a share, making it the session’s worst performing stock on the S&P/ASX200 Index.

The fall came as the bathroom fittings maker flagged weak construction market conditions through fiscal year 2021 and announced a slump in full-year profits.

The company behind bathroom brands Caroma, Clark and Dorf said that while trading through July had been slightly ahead of the same period a year ago, market conditions are expected to remain challenging due to the uncertainty created by the COVID-19 pandemic.

The coronavirus crisis had accelerated the effects of what was already a general slowdown in the housing market, and an uptick in DIY projects during the COVID-19 restrictions had not been enough to make up for a slump in the number of big renovations, the company warned.

“Unfortunately someone who is doing a DIY a job is probably going to spend $500 rather than $5000 or $10,000 renovating a bathroom, so overall we’ve seen a net decline in the whole renovation space even through the DIY and replacement has actually gone pretty well,” Mr Salt said.

GWA Group booked net profit after tax down 53 per cent to $43.89m for the year through to June. Net profit after tax in the prior year included $50.8m in profit from the sale of the Door & Access Systems business, which was offloaded in July 2018.

Net profit after tax from continuing operations, which strips out profit from that sale, lifted 1 per cent for the period.

GWA declared a final dividend of 3.5c a share fully franked, compared with 9.5c a share in the prior year and well below consensus expectations of 5.4c per share.

Underlying earnings before interest and tax was $71.8m, 6 per cent below Bloomberg consensus estimates of $76m.

GWA did not receive any JobKeeper payments in Australia, but did receive about $1m government assistance in New Zealand and in the UK where staff were furloughed.

“In a very challenging year, with significant uncertainty and a strong focus on the health and wellbeing of our people, GWA delivered a disciplined result in fiscal year 2020,” Mr Salt said.

“Our top line was significantly impacted by lower construction activity, merchant destocking in the first half, and the impact of the COVID-19 pandemic and lower than expected merchant restocking in the last quarter of the year.”

The company estimated that the coronavirus crisis resulted in a $22.2m hit in revenue and an $8.6m drop in earnings for the 2020 financial year.

Still, Mr Salt said that the company’s integration of tap and showerhead maker Methven Group, which it acquired in 2019, had already started to deliver cost savings and that GWA had continued to implement its growth strategy.

“Our relationships with trade partners continue to improve through joint business planning and core range extensions for Caroma, Clark and Methven brands and enable us to respond to changing consumer buying dynamics,” he said.

“We continue to drive growth in commercial segments through increased collaboration with our customers to capture segment opportunities including aged care and commercial renovation and replacement.”

Mr Salt said that interestingly, GWA had seen a lift in interest for its touchless products, as well as solutions allowing users to monitor water usage.

“We’re certainly seeing an uptick in enquiries around touchless from the whole hygiene aspect that’s playing out the moment,” he said.

“We’re just about to launch some new toilets that will actually have what we call germ guard which is basically a glazing that kills 99 per cent of germs and bacteria.

“We believe that that is perfectly in tune with what consumers are looking for right now.”