Slowdown in construction affects sales of building material
Uponor to cut 200 jobs owing to poor economy and weak dollar
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The slowdown in the construction industry is already having a negative impact on building material suppliers. Plumbing and heating systems supplier Uponor reported a poorer result for its Finnish operations on Tuesday, while Ramirent, which rents machinery used at building sites, reported a weaker result already in late July.
Uponor’s problems stem mainly from the sluggish economy, and to some extent, from the weak US dollar. Turnover declined by 7.4 per cent in the second quarter of this year, to EUR 267 million, while the company’s business profit declined by more than one third over the same time the previous year. Profit stood at 10.8 per cent of turnover.
Uponor is hoping to cut costs by EUR 30 million. One way that it plans to achieve this goal is by cutting 200 jobs.
The decline in house construction by more than ten per cent this year is also affecting demand for cement, mineral wool, windows, and kitchen fixtures. Fewer authorisations have been given this year for the construction of business and office premises, which indicates a corresponding decline in office construction.
“Sales of cement in June and July was down by 15 per cent, and it is reflected in production in the concrete industry. Production of elements and ready-mixed concrete has declined. Last year there was a shortage of cement, but no more”, says Bo Salmén, head economist at the Confederation of Finnish Construction Industries.
Salmén also says that manufacturers of mineral wool insulation are also not having an easy time, as they are fairly dependent on the construction of small houses. Demand for insulation declined by nearly seven per cent in the eearly part of this yar.
The slump in construction has not had a very dramatic effect on the bottom lines of construction companies, however. The results of Skanska and YIT dipped slightly in the second quarter of the year, but turnover remained on on the upswing. The result for the early part of the year for Lemminkäinen was also slightly below last year’s numbers, but turnover surged to 24 per cent.
With housing construction declining, construction companies are focussing on other activities, such as building care and maintenance. YIT recently bought a company specialised in building technology, which operates in a number of European countries.
The relatively positive results have not insulated the construction companies from stock market turbulence, however.
Construction material manufacturers and machinery providers top the list of companies losing market value. During the past year Uponor has lost more than 60 per cent of its stock market value.
Ramirent and Cramo have lost more than 70 per cent, in spite of Cramo’s announcement on Tuesday that its second quarter result had grown to EUR 15.9 million. Cramo’s turnover rose by no less than 32 per cent to EUR 154 million, compared with the April-June period last year.
Builders have not done much better in the past six months. The construction companies Lemminkäinen and YIT have lost more than half of their stock market value, and Skanska has declined by more than one third.
The Swedish publication Dagens Industri wrote in late July that the figure indicating the ratio between the price of construction companies and their result is exceptionally low.
This can be an indication either that the stock is undervalued, or that the market expects the result of the companies to fall sharply.
Helsingin Sanomat
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| 13.8.2008 - TODAY |
 Slowdown in construction affects sales of building material |
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