The GWA Group Ltd (ASX: GWA) share price will be on watch this morning following the release of the company's half-year earnings result.
What does GWA do?
GWA is involved in the research, design, manufacture, import and marketing of building fixtures and fittings to residential and commercial premises in Australia, New Zealand and selected international markets.
The group is the owner and distributor of an extensive range of market-leading bathroom and kitchen brands including Caroma, Methven, Dorf and Clark.
What did GWA announce?
For the six months to December 2019, GWA's normalised earnings before interest and tax (EBIT) came in at $38.1 million, within its $37-41 million guidance range.
However, EBIT was down 2.6% on the prior corresponding period (pcp) due to lower revenue in the weaker Australian residential segment, partially offset by accelerated cost savings and higher Methven synergies.
GWA estimated that the market declined approximately 6% on the pcp. In addition, the significant trade de-stocking experienced in Q1 FY20 was not reversed in Q2 FY20, reflecting tougher market conditions.
GWA continues to invest in growth initiatives in anticipation of near-term market improvement.
Market share was maintained in Australia (excluding Methven) with EBIT margin held broadly within the target range. Including Methven, market share actually increased.
Meanwhile, normalised net profit after tax came in at $24 million. The company noted that its ongoing robust financial position enabled it to declare a fully franked interim dividend of 8 cents per share, payable on 4 March 2020. This compares to the 9 cents that was declared in 1H FY19.
Ongoing operating cashflow was reported to be strong at $42.2 million.
Operational update
The Methven integration was reported to be progressing well, with New Zealand performance improving.
GWA's commercial forward order book continues to be strong and is said to be growing. The company's commercial order bank has accelerated its cost-out and efficiency improvements as part of the $9-12 million cost out program by FY21. $3 million savings were delivered in 1H FY20; ahead of the $2 million target.
Relationships with trade partners continued to improve through joint business planning and core range extensions. GWA continues to drive growth in commercial segments through increased collaboration with secondary customers to capture segment opportunities including Aged Care and Commercial Renovation and Replacement.
Key replacement achievements during the quarter included the roll-out and extension of Caroma Smart Command which is now installed in 36 sites with a significant bank of additional projects in the pipeline. The company is 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.
New distribution centres in Victoria, Queensland and Western Australia complement the investment previously made in New South Wales and enable integration of the Methven portfolio. The centres provide a base for the improvement in operating efficiencies in FY21 and beyond
Outlook
According to the company, trading conditions are expected to remain challenging in the short term. However, forward indicators including population growth, low interest rates, easier access to credit, and housing supply and demand moving back into balance are expected to provide a solid platform for growth.
With this, GWA is continuing to invest in key initiatives to capitalise on the upturn that it anticipates in Australian market conditions in early FY21.
