Kingspan shares drop 4.9% on profit warning

SHARES IN Cavan-based construction group Kingspan fell by 4.9 per cent in Dublin yesterday after the company issued a profit warning.

The shares closed at €8.54, having traded above €22 just nine months ago - a reflection of the slowdown in the Irish residential property market and the effect of the global credit crunch.

Kingspan said its 2008 earnings would be "appreciably behind the 2007 outcome", although it declined to put a figure on this.

"We need to see more of this year pass on before we put a figure on it," Kingspan chief executive Gene Murtagh said.

He said he expects 30-35,000 housing unit starts in Ireland this year and 40-50,000 completions.

"All it's going to need to [kick-start the market] is the right price adjustment. There is significant demand, it just needs to get released."

The company said it expects the slowdown to continue until late 2009. Mr Murtagh said Kingspan had adjusted its cost base in Ireland to reflect the slowdown.

He said its Irish workforce has been trimmed by 150 over the past three months to its current level of 1,500.

This was part of a package of measures aimed at trimming its cost base here by €7 million a year.

He said a Kingspan Century timber frame plant in Dungarvan has been mothballed, while another facility here will close shortly.

In addition, five plants in the North are being rationalised into one large, modern facility based in Portadown.

Kingspan Century, which makes timber frame houses, is currently operating at about 40 per cent of its peak about 12 months ago, Mr Murtagh said.

Its turnover has declined from about €80 million at the end of 2006 to around €35 million currently.

Kingspan indicated that this division was now close to breakeven after a difficult year.

Analysts trimmed their 2008 forecasts. Davy's earnings estimate for this year has been cut by more than 30 per cent from the original 112 cent level to 77 cent.

"It's going to be a tough few months for them," Davy analyst Flor O'Donoghue said.

"I think this will be be a very good long- term story, but right now people aren't going to take much notice of that."

Kingspan's negative outlook overshadowed strong results for 2007.

Turnover rose by 27.5 per cent to €1.86 billion, while its operating profit increased by 22 per cent to €236.7 million.

Its basic earnings per share was up 23 per cent to 110.5.

Kingspan said it achieved strong growth in insulated panels and boards in the UK, Ireland and central and eastern Europe.

It also achieved a "very strong" performance in access floors.

Kingspan: results

Turnover: €1,863m (+27.5 per cent)

Operating profit: €236.7m (+22 per cent)

Net profit: €224.2m (+21 per cent)

Basic earnings per share: 110.5c (+23 per cent)

Dividend per share: 25c (+31.5 per cent)

SUMMARY

Kingspan produced stellar results for 2007, but they were overshadowed by the gloomy outlook for the Irish and UK residential construction sectors both this year and next.