Paints and adhesives supplier DuluxGroup expects its business will be fairly resilient to any downturn in the property market because people will still want to paint their houses.
DuluxGroup managing director Patrick Houlihan says 65 per cent of the group’s business relates to the 10 million existing homes in Australia, and 15 per cent relates to new housing.
Mr Houlihan said that over the last 20 years, volumes in the decorative paint market in which Dulux operates, were more closely linked to national GDP.
“When we’ve looked at factors over the years like interest rates, housing churn and housing prices, they’re all relatively secondary factors,” Mr Houlihan said on Wednesday.
“Even when housing turnover comes off, our strong evidence is that people stay in their homes longer, and they’re still doing jobs around the existing home.
“So we’ve not seen our business model exposed to the volatility (in the property market) that does happen over time.”
Mr Houlihan said the decorative paints sector was more of a staple than discretionary business where consumer spending was more volatile, and over the last 20 years Dulux had grown its decorative paints business in Australia and New Zealand “year in, year out”.
Mr Houlihan said new housing had peaked in Australia but there was still a solid pipeline of work given the lag between approvals and building starts.
Also, Dulux targets the premium to high end of the new housing market, which the company expects will be less volatile than the mass market.
DuluxGroup on Wednesday said it had lifted its net profit for the six months to March 31 by 14.2 per cent to $72.7 million, helped by a one-time tax provision writeback of $3.1 million but mainly boosted by strong performance in the Australia-New Zealand paints business.
Mr Houlihan said Dulux’s strong partnership with the likes of hardware giant Bunnings and Mitre 10 had helped the Dulux Australia-New Zealand business lift its retail market share.
Mr Houlihan said Dulux has about 60 per cent of the shelf space in the relevant product areas in Bunnings.
He said Dulux had decided to back Bunnings and Mitre 10 rather than Woolworths’ Masters big-box hardware chain – which is now closed – and Home Timber & Hardware outlets.
“We made a decision a few years ago to back those who back us,” Mr Houlihan said.
“In the big-box corporate hardware space we backed Bunnings who we’ve been aligned with for 25 years, and ultimately Masters no longer exists.”
DuluxGroup expects its 2017 full-year net profit will be higher than the $130.4 million profit in 2016, subject to economic conditions.
DULUX LIFTS HY PROFIT, DIVIDEND
* First-half profit up14.2pct to $72.7m
* Sales revenue up 3.5pct to $881.2m
* Interim dividend up 1.5 cents to 13 cents, fully franked