Nuplex lowers its earnings forecast

Competition in Australia and New Zealand has prompted Nuplex to downgrade its earnings before interest, tax, depreciation and amortisation (ebitda) expectations for the full year; a downturn including restructuring costs and foreign exchange losses.

The industrial resin and plastics additive manufacturer had predicted ebitda at the lower end of its guidance range of $130 million to $145 million, but yesterday slashed that further to between $121 million and $125 million.

From its earlier half-year to December report, lodged in May, Nuplex booked a decline in sales from $828.7 million a year ago to $815.2 million, while after-tax profit fell from $12.6 million to $12.5 million.

Nuplex' shares were down more than 6%, at $3.15 following the announcement.

But chief executive Emery Severin said yesterday he expected the full-year, after-tax profit to be ''similar'' to last year's $42.9 million and Nuplex' dividend to be replicated, given ''underlying business performance and cash flow outlook for the next six to 12 months''.

''It is disappointing to see the impact of ANZ's [combined Australia and New Zealand's] unexpected weaker performance, including the accounting adjustments, more than offset the improvement in EMEA [Europe, the Middle East and Africa] and the steady growth in Asia,'' he said.

The estimated negative foreign exchange impact of about $2 million was from the strengthening of the New Zealand dollar during the past five months, while the downgrade included net costs of $2.4 million associated with the ANZ restructuring costs.

Mr Severin said Nuplex expects ANZ Resins segment ebitda to be down between 35% to 40% compared with the same period last year and the Australian and New Zealand focused Specialties segment ebitda to be down between 45% to 50%, ''primarily reflecting margin pressure in both segments''.

In its half-year report last month, Nuplex said during the past three years its ANZ division faced challenging conditions as many of its markets had been affected by declining levels of activity, increased competitive pressure and structural change from the strength of the Australian and New Zealand currencies forcing manufacturers to move offshore.

To better position Nuplex ANZ, it was streamlining the manufacturing network and reorganising the businesses into leaner, more focused business units.

''This programme involves reducing Nuplex's ANZ capacity by 30% through consolidating Nuplex's seven ANZ production sites into four.

"It will deliver realised cost savings in the next financial year of approximately $5.6 million, and then ongoing, annualised cost savings of $6.5 million,'' the company reported in May.

Mr Severin said yesterday because of a weaker ANZ performance in May, and expected for the balance of the year from further weakness in Australia, ANZ's ebitda would be down about $4 million, compared with previous expectations.

''Whilst volumes have been in line with expectations, management expects the margin pressures to continue,'' Mr Severin said.

Trading conditions in Europe had been better than management's expectations, and improved during the past four months, while Europe, the Middle East and Africa, ebitda was expected to be up between 15% to 20%, year on year, in local currency.

Asia has performed in line with management's expectation for steady growth, ebitda expected to be up between 10% and 15% year on year in local currency, while in America, business had been on track to deliver modest ebitda growth.

Nuplex is scheduled to deliver its full-year result on August 14.

simon.hartley@odt.co.nz

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