Nuplex posts flat first half profit, warns full year earnings will be at lower end of range

Nuplex site in Suzhou, China.

Nuplex Industries, the specialty chemicals maker, failed to increase first half profit and warned full-year earnings will be at the lower end of its forecast range as it cuts management jobs at its underperforming Australian and New Zealand units.

Net profit was $12.59 million in the six months ended Dec. 31, from $12.62 million in the year earlier period, the Auckland-based company said in a statement. Full-year earnings before interest, tax, depreciation and amortisation will be at the lower end of its $130 million to $145 million range, from $126 million the year earlier, it said.

Nuplex expects to accrue costs of $2.4 million in the second half of its financial year to reorganise its Australian and New Zealand units where weakness is weighing on growth in the Asia, America, Europe, Middle East and Africa regions. In the first half, sales from its main resins business in Australasia fell 20 per cent pushing earnings from the region down 25 per cent.

"It's disappointing that earnings have remained flat over the past three years, particularly since we have invested significantly in growth via acquisitions," said chief executive Emery Severin. "The continued structural decline of the ANZ markets and together with the strengthening of the New Zealand dollar against most of our trading currencies over the past four years has been the overwhelming cause of Nuplex's flat earnings."

Shares in Nuplex fell 3.7 per cent to a six-week low of $3.35, making the stock the worst performer on New Zealand's benchmark NZX 50 Index today.

Nuplex plans to reorganise the structure of its business in Australia and New Zealand into two "leaner" business units comprising resins and specialties and will cut 30 jobs, to improve returns, Severin said.

The change is expected to cost about $3.4 million this financial year and produce savings of about $1 million, he said. In the 2015 financial year the change should mean about $5.8 million of savings.

The streamlining of Nuplex's manufacturing network, started in late 2012, remains on track to reduce capacity by 30 per cent and realise $6.5 million in annualised cost savings in the 2016 financial year, the company said.

Its NuLeap cost cutting programme is forecast to deliver $15 million of savings a year, up from an earlier estimate of $12 million, the company said today.

Nuplex expects to deliver its 16 per cent target return on funds employed within the two year period between the 2016 to 2018 financial years through improving profitability in Australia and New Zealand and growth in the rest of the world, Severin said. In the first half, it achieved an 11.2 per cent return, up from 9.8 per cent in the year earlier period.

In the first half, resin earnings rose 17 per cent in Asia, 4 per cent in Europe and 2.2 per cent in the Americas, Nuplex said. It gets about 80 per cent of sales from its resins business.

"The outlook for Asia, Europe and America remains positive for Nuplex," Severin said.

Nuplex took a $14 million after-tax charge in the first half related to receivables and bank guarantees on its investment in the RPC Pipe Systems Fibrelogic joint venture, citing weaker business conditions ahead of plans to sell its interest to its partner before June 30. Total one-time charges in the latest half of $14.6 million compare with $13 million in charges the year earlier period.

First-half profit before one-time items of $26 million was lower than First NZ Capital's estimate of $27 million and compares with $24.5 million in the year earlier period.

Nuplex will pay an unchanged 10 cents a share dividend on April 3.