ferret's stock to watch: wattyl limited

Ferret's Stock to Watch: WATTYL LIMITED
08:23, Friday, 25 February 2005

A COMPANY THAT LOVES PEOPLE TO PAINT ANYTHING

Sydney - Friday - February 25: (RWE Aust Business News)
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OVERVIEW
********

Ferret's previous visit to Wattyl was in August last year when
the price was $3.37.

The heading on that review was "Difficult stock to know whether
to buy or sell".

The situation doesn't appear to have changed much in the interim.

Managing director Mr Ian Jackson is still somewhat pessimistic
about current prospects despite a credible result for the December
half-year and holding interim dividend at 15c, which includes a 5c
special.

Wattyl Ltd, the paint and surface coatings group,this week
reported a profit after tax of $13.9 million, up from $9.3 million in the
previous corresponding period.

The result included a $4.6 million write back from previous US
exit provisions and is in line with the company's guidance in December.

Positive net cash flow of $21.7 million (before financing
activities) reduced net debt to $7.6 million, resulting in a net debt to
equity ratio of 4 per cent.

This compares with net debt of $28 million and a ratio of 12 per
cent at December 2003.

Mr Jackson said "This result is as advised in December and
reflects a significant deterioration in Australian sales and earnings.

"It also saw mid single digit sales and earnings growth in New
Zealand and about two months of US trading, prior to the sale of the
business.

"Our Australian result was well below plan; however our positive
cash flow and very low debt places us in a strong position as we
restructure our Australian operations to reduce fixed costs and restore
acceptable earnings," the managing director declared.

SHARE PRICE MOVEMENTS
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Shares of Wattyl yesterday rose 8c to $3.50. Rolling high for the
year has been $4.33 and low $3.04. Dividend is 25c a share to yield a
handsome 7.14 per cent, although the question is how long will it last.

Mr Jackson continued, "As indicated at the annual general meeting
in October and in our earnings update in December, the Australian market
has seen weakening demand.

"Architectural and decorative market volume was down 3.5 per cent
for the December half with a more substantial contraction in retail
demand.

"At the same time margin has been affected by higher raw
material costs.

"To date we have not been able to pass on these cost increases to
our customers."

Mr Jackson said Wattyl's retail business was affected by retailer
consolidation and competitive new product activity during the period,
while its trade market position has been maintained and the trade paint
centre distribution network expanded by six outlets.

The industrial business was affected by market conditions, higher
solvent prices and some global raw material shortages.

Solver's performance was satisfactory in a difficult market.

"We have recently refreshed our product range with the launch of
four new products in the December quarter, including a breakthrough
formula for our i.d interior wall paint which has no traditional paint
odour and repels stains," Mr Jackson said.

"This product represents a significant advance in Australian
coating technology.

"We have also increased our focus on meeting key customers'
needs, introducing direct store distribution for one major retail group,"
he said.

With the US exit complete, Wattyl has embarked on a fundamental
and substantial reassessment of all facets of its operations to ensure
the business is at acceptable levels of profitability.

Part of this review includes manufacturing and logistics.

Sales grew 5 per cent with EBIT up 7 per cent.

Growth in the New Zealand coatings market has slowed over the
past six months, with Wattyl maintaining its market position.

Earnings improvement was the result of higher sales and
successful cost saving programs.

Advertising support also increased significantly over the
previous corresponding period.

Ongoing new product programs supported by strong advertising and
expanded distribution will remain a key focus for our New Zealand
business.

The US business was divested in September 2004.

A $4.6 million write back from the previous exit provision
resulted primarily from a pleasing recovery of debtors.

Turning to the future outlook Mr Jackson said: "We expect market
conditions to remain challenging in the second half and have a range of
actions underway to improve market share and recover cost increases.

"The company continues to have a strong balance sheet and
recognises the importance of making structural changes to reduce fixed
costs and improve long-term earnings," Mr Jackson added.

BACKGROUND
**********

Wattyl is a paint and surface coatings company that produces a
broad range of paints, varnishes, lacquers and special-purpose protective
coatings.

It was listed on the Australian Stock Exchange in 1959.

The company's products are used by individuals, contract painters
and industrial customers.

With operations in Australia and New Zealand, Wattyl employs more
than 2,000 people.

The company's origins date back to 1915 where, in an Australian
backyard, HR Walters developed a treatment for reviving French-polished
furniture.

This innovative product, known as Crystal Veneer, became an
immediate success and laid the foundation of Wattyl's future success.

Wattyl's portfolio of leading brands, covering all segments of
the paint and coatings market includes Solargard (exterior), Estapol
(timber), Killrust (metal finishes), i.d (interior), Pascol (interior and
exterior), Solver (interior and exterior) and Taubmans (New Zealand).

Through the past century, Wattyl has built on past innovations,
producing numerous technologically advanced, market leading products.

Industry demands and expectations continue to be met or exceeded
through the development and production of specialist products, including:

* protective coatings with long term exterior durability

* high performance marine coating systems

* UV-cured timber finishes

* specialised protective coatings that enable easy removal of
graffiti from treated surfaces

* special effect finishes for automotive wheels and components.

Its associated companies are Wattyl (New Zealand) and Solver
Paints (Australia).

This background was taken from the Wattyl website.

ENDS

Copyright © 2005 RWE Australian Business News. All rights reserved.