Nuplex profit down at 'cyclical lowpoint'

By Phil Boeyen, ShareChat Business News Editor

Friday 24th August 2001

High costs and a tough housing market have taken their toll on resin company Nuplex's (NZSE: NPX) full year profit.

Although sales rose 6% to $406 million for the year ended June, earnings before interest, tax, depreciation and amortisation fell 10% to $47.4 million and net profit was down 21% at $13.15 million.

Chairman Fred Holland says the earnings drop was attributable to three factors - high raw material costs which were not fully recoverable, reduced demand from the Australasian housing sector, and a loss from the Australian Medical Waste business acquired in January.

The surplus was also affected by abnormal items of $1.2 million for the known cost of future site remediation work and for the write down of plant.

Mr Holland says the rise in the petrochemical raw material costs for resins, driven by strong northern hemisphere demand, high crude oil prices and weak domestic currencies, continued through most of the year.

"These factors are cyclical events and some relief was in sight by year-end.

"Soft demand from the construction industry on the company's major client base made it impossible to fully recover cost increases although this effect was cushioned by market share growth, particularly in Vietnam."

Mr Holland says the extent of the construction industry downturn in Australia was unexpected and is seen as temporary.

"Demand from that client base associated with the building industry virtually dried up after September last year with a recovery to more normal demand in May. This seven-month period included what is traditionally the peak season for the performance chemicals business segment."

In Vietnam the company yielded a positive bottom line for the first time with sales revenue more than double the previous year.

Sales revenue in the company's environmental division increased by 37% as demand for special waste services grew and included six months contribution from the new Australian medical waste business.

However the company says the newly acquired business suffered operational difficulties leading to unexpected losses.

"The turnaround of the Australian medical waste business, while in hand, will take time before it fulfills its potential," says Mr Holland.

Nuplex's construction products business, which is mainly New Zealand-based, suffered from bad debts arising from the collapse of several Auckland construction companies.

It also was caught in a squeeze between rising costs and falling demand, and increases in material costs could not be fully recovered due to a general slow down in the industry.

Mr Holland says the company is viewing the past year as a low point in the business cycle and two major negative factors - raw material cost pressures and the dramatic slump in the Australian construction industry - are already moving in a positive direction.

"The fundamentals for the future are seen as generally positive.

"The directors are committed to continue a policy of growth to maintain our relevance in an increasingly regional, if not global investment market, and will seek to take opportunities to increase investment in core businesses in Australia and New Zealand as they arise. The success in Vietnam is also giving increased confidence in targeted investment in the Asian region.

Despite a lower profit directors have declared a final dividend of 7 cents per share, bringing the full year to 15 cents, the same as last year.

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