Nuplex says new business 'insulates' Russian unit
Nuplex Industries [NZX: NPX] push into Russia has a new lease of life as three multinational companies look to open plants in the world's 10th largest economy and the Russian government tries to encourage local production in the face of recession.
The Auckland-based company has invested $10 million building capacity in Russia and has flagged intentions to spend another $30-40 million to expand in what's been seen as a high-growth opportunity.
That's hit a speed bump as Russia grapples with a recession caused by global sanctions imposed by the European Union and the US over the nation's annexation of Crimea, and the sharp decline in oil prices.
The economic and geopolitical turmoil have meant Nuplex's Russian operations are "nowhere near where we would have liked it to have been or assumed it might have been a couple of years ago," chief executive Emery Severin told BusinessDesk. But the entry of three new multinationals will insulate the resins maker from that downturn,
Mr Severin says the reason Nuplex is still looking is a number of multinational companies are investing there and they import a lot of their resins requirements.
“There are three new multinationals opening up new plants - a couple almost immediately and one within the next 12 to 18 months. In a sense we're a little bit insulated from the broader economy because we're initially supplying the global multinationals who are investing there," he says.
New Zealand froze free trade negotiations with Russia, Belarus and Kazakhstan last year after being within reach of clinching a deal.
This week Ian Hill was named NZ ambassador to Moscow, a role he previously held between 2009 and 2012.
Government data shows New Zealand exports to Russia dropped 36% to $151.6 million in the year ended June 30, the lowest level since 2007, while the country's total investment in Russia fell to $29 million in 2015 from $33 million a year earlier.
Mr Severin says there has been a lot of focus from Russia's government to encourage local production in a bid to create self-sufficiency since the slump in oil prices and the imposition of sanctions.
"If you're a local producer you're in a more favourable position than if you're an importer," he says. "That's playing into our hands as we develop our business there."
At yesterday's annual meeting, chairman Peter Springford told shareholders the board recently visited the company's operations in Russia, which he acknowledged faces a higher investment risk owing to the geopolitical tensions and their economic impact on the Russian economy.
"Notwithstanding the risks, the board came away with the view that a 'first mover' advantage may be available in Russia today," Mr Springford says.
"We have encouraged management to come back to us with a fully developed plan to expand our activities there."
Nuplex forecast annual earnings before interest, tax, depreciation and amortisation to rise by as much as 22% in the 2016 financial year, pinning that growth on increased earnings in Asia, a weaker kiwi dollar and the benefits from restructuring its Australian and New Zealand units.
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