Paint, coatings and adhesives maker DuluxGroup expects its fledgling market in China to remain subdued, in line with general economic conditions there.
Dulux on Wednesday reported a healthy rise in overall annual earnings but took a $9.2 million hit on goodwill at its China and Hong Kong business.
It was the second hit in two years, with a $10.2 million impairment charge recorded in 2013/14 against Dulux's DGL Camel joint venture there.
The group expects markets in China and Papua New Guinea to remain soft in fiscal 2015, with DGL focused on selling speciality coatings and adhesives rather than Dulux paint.
Managing director Patrick Houlihan said China was still a small part of DuluxGroup's operations, describing it as a medium-to-long-term proposition.
The joint venture generates about $70 million in annual sales in China, compared to group sales of $1.6 billion.
"The China market certainly has softened," Mr Houlihan told reporters.
"Whilst we see GDP (gross domestic product) growing around seven per cent, in terms of the property side of the market, it's actually cooler than that.
"Hong Kong, in particular, has been slow relative to where it's been in recent years."
Mr Houlihan said while Dulux had taken the goodwill charge on its China business, margins had improved and it made fewer losses than it did a year ago.
"We're relatively close to break-even at the moment," he said.
Dulux booked a 39.4 per cent rise in group net profit to $104.5 million for the year to September 30, up from $75 million.
Excluding non-recurring items such as the China charges, and costs associated with the acquisition of building products and garage door supplier Alesco, net profit rose 21.4 per cent to $111.9 million.
Dulux said market indicators for its key markets were largely positive and it expected that 2015 net profit will exceed $111.9 million.
Dulux's 2014 result was driven by strong profitable sales growth in Australia and New Zealand, where the group does a majority of its business, and a full 12-month contribution from Alesco.
The group's largest business, the Australia-New Zealand paints and coatings division, lifted sales 6.1 per cent to $821.6 million.
Mr Houlihan said the result reflected the group's focus on premium market segments such as home improvement and renovation.
Those markets generated 62 per cent of group revenue.
"We remain positive about the outlook for this generally resilient part of the market in Australia and New Zealand," Mr Houlihan said.
Dulux also benefited from strong growth in new housing, but the group was less focused on this market segment, which generates 18 per cent of Dulux's revenue.
Shares in DuluxGroup were three cents lower at $5.57 at 1316 AEDT.
RENOVATORS AND ALESCO BOOST DULUXGROUP
*Net profit of $104.5m, up 39pct from $75m in 2012/13
*Revenue of $1.6bn, up 8.1pct from $1.48bn
*Fully franked final dividend 10.5 cents a share, up from 9.5 cents
