Kingspan expects 10% fall in profits

INSULATION SPECIALIST Kingspan expects operating profits in the first six months of this year to come in 10 per cent below the €30 million recorded during the same period in 2009.

The Cavan-based group, which has operations in Europe, the US and Australia, told shareholders at its annual general meeting yesterday the harsh weather in January and February hit sales and earnings, but said activity has picked up in the months since.

It added that this improvement is likely to continue, and taking into account the weakness in the early part of the year it estimated that the group’s operating profit for the first half of 2010 would decline by around 10 per cent.

Kingspan’s chairman, Eugene Murtagh, pointed out after the meeting in Dublin that it meant the business was still making around “€1 million a week in profits”. The group’s businesses, insulation panels, boards, and flooring, depend mainly on new building, which has dropped sharply across its main markets over the last three years.

The group has the resources to spend up to €300 million on acquisitions, and Mr Murtagh said yesterday it has been looking at two medium-sized companies.

He said the price had to be right, and added that potential sellers’ expectations were a little too high at the moment. “We would be expecting a little bit more value in this sort of recession,” he said.

Mr Murtagh explained this was because the group is focused on the higher end of its sector.

When it published its 2009 accounts in March, the group said it was optimistic that it could purchase at least one substantial rival by the end of this year.

Mr Murtagh said it could not be confident that it would make a deal this year, but stressed the group had the capability to do so.

Kingspan is facing increases in raw material costs, particularly steel. This became more expensive in recent months on the back of a hike in iron ore prices on world markets, largely due to the fact that trade in the commodity is controlled by a handful of players. The group is likely to see pressure on margins as a result. Mr Murtagh said there was generally a two-three month lag between increases in ore and steel prices.

This in turn could hit expected earnings from individual supply contracts as these are priced in advance. “We’d like to see stable raw material prices instead of volatile prices,” he said.

Kingspan’s statement yesterday said market conditions in Britain have been stable this year, with some improvement in home building and a solid performance in commercial construction.

Trade in Europe was weaker than in 2009 in the early months, but has begun to improve. Non-residential business in North America has been solid, but office-building has fallen, the group said.