Kingspan feels the squeeze as profits slump

Kingspan Group is the latest big name casualty of the credit crunch with the Irish-headquartered business posting a 70% drop in pre-tax profits for the year ended December 31, 2008.

Worst hit was the group’s offsite and structural division, which accounts for 14% of overall sales, with Kingspan chief executive Gene Murtagh blaming the slowdown in new-build housing for a 29% drop in sales to €233.3m

“The drought in housing construction has severely impacted the performance of this business in 2008,” said Mr Murtagh. “In Ireland, new house activity has shrunk in excess of 70% since the peak in 2007, while new house activity has declined by over 60%.”

Mr Murtagh was cautiously optimistic about the prospects for off-site construction, particularly in the UK and Ireland where there was a push towards more energy-efficient buildings.

“That trend augurs well for the future of the majority of Kingspan’s products, including those in this segment,” said Mr Murtagh. “Near term, however, the scale of the decline in construction has and will continue to depress this business.”

Mr Murtagh said that operating costs had been reduced to an “absolute minimum” and that production had stopped in five of the division’s nine locations. Kingspan Off-Site’s timber frame factory in Tredegar closed last summer.

Kingspan, which operates the Kingspan Century timber frame operation, Kingspan Off-Site and Potton housebuilding businesses, saw group turnover fall 10% to €1.67bn from €1.86bn last year, while pre-tax profits dropped from a record €224.2m in 2007 to just €68.1m this time.

The falls were despite a cost reduction programme implemented last year to provide the group with an appropriate cost base to “meet the anticipated economic headwinds”.

Sales of the group’s insulated panels were less badly hit, experiencing a drop of 5% with sales of €724m – or 43% of group turnover. The UK business proved “comparatively robust” compared with the Irish market which fell 28% across the year.

“2009 will present greater challenges than the year gone by and the prime focus is cost and cash management through the organisation,” said Mr Murtagh. “The group has the benefits of a strong balance sheet and cash flow and the correct product mix to leave it well positioned in the longer term.”