Nuplex targets more flexibility in NZ manufacturing

The difficulties of maintaining a strong manufacturing operation in New Zealand were once again highlighted at Nuplex’a annual meeting today, but the company has no current plans for any further redundancies or possible factory closures.

Nuplex chairman Rob Aiken highlighted the review of the company’s New Zealand infrastructure and the issue of its origin at the resin maker’s meeting.

He said many of its traditional customers had moved to lower cost operations offshore and Nuplex could remain as a supplier to these customers sourcing product from its Asian facilities in particular.

The company has already made some staff redundant over the past year as part of the overall restructure needed to get the company through its worst trading period in its 50-year history.

But chief executive John Hirst – who announced today he will step down from Nuplex after four decades with the company next year – told NBR there was no certainty the current review would result in further redundancies or factory closures.

“At the moment we are just looking at it and it may just be the way the local operation is set up that has to change to give the greater level of flexibility in the way we operate. If there is not enough of a market in New Zealand to fully utilise the assets, we can make them to sell them overseas, but they may need to be more efficient to make that worthwhile.”

With sales now stabilising at levels well below historic highs, he said there was a real possibility that the local manufacturing base may be permanently impacted by the past year.

“It was already struggling before the sales dropped off, and there has already been the loss of many small manufacturers that will likely never return. We are seeing patches of positive growth coming up, but we’re not certain if the market will recover sufficiently to maintain the current manufacturing infrastructure.”

The company is also investigating its domicile and could move its registration across the Tasman, but Mr Hirst waved this off as a “complete non-event”.

“The overall company would not be affected. It just means corporate costs can be paid by Australian arm of the business, which can easily handle them, rather than the New Zealand office, which can’t.”

Nuplex's better than expected sales in the first three months had seen it increase its ebitda expectation from $100 million to between $100 million and $110 million, and it is now expecting an after-tax profit of $36 million to $44 million.

Its Chinese operations were the only area to see sales growth during the past year and Mr Hirst said Asia was a strong part of the company’s future, but not the only one.

“It’s an area where we have to be there and just get out there. It’s grabbed a lot of attention, but we’re also expecting a stronger performance in Australasia, where we continue to produce decent hunks of cash.

“I’ve also got a solid feeling about Europe, and we should see some results once we get through our restructuring there.”

Nuplex did not rule out the possibility of future acquisitions at the meeting, even though Mr Hirst said the mergers and acquisitions field had been “as dead as the dodo” for the past year.

“There is nothing of any substance to report at this stage, but I’m just sensing the phone will be ringing more often in the future, it’s just my feeling that it’s about to get triggered loose. Especially when the banking community haven’t fully dealt with some of the semi-toxic loans on their books, so they’ll be pushing companies into sorting that out and we could see more assets coming up for sale.”

The shareholders at today’s meeting appeared satisfied with the company’s share movement and sales slump over the 12 months, but questions were raised over the company’s handling of its bank covenant issues earlier this year.

Mr Aiken acknowledge this issue was a “grey area”, but downplayed the importance of revealing any potential covenant breaches.

Mr Hirst told NBR the board and executive were comfortable with their actions over the issue and said they would not have acted any differently if they went through the same process.

“There were some pretty negative impacts when the analyst came to the conclusion we were going to breach the covenant and the timing was particularly bad. But the company was not at risk and the banks did not show too much concern. We first started discussing it with the banks in December last year, and they decided it could wait until after Christmas, so there was never any real problem.”