Nuplex plan two factory closures in Auckland, job cuts, writedowns

BUSINESSDESK: Nuplex Industries will close four factories in Australia and New Zealand in the next two years as the trading outlook dims, eliminating as many as 80 jobs in a restructuring effort that will slice $17 million from forecast 2013 profit. The stock dropped about 7.2%.

Nuplex will shut factories at Onehunga and its high-temperature plant at Penrose in Auckland, Canning Vale in Western Australia and Wangaratta in Victoria after an eight-month review of its operations and markets, the company says in a statement to the NZX today.

After the changes, production will be concentrated on three sites: Botany in New South Wales, Wacol in Queensland and the Penrose site. It will spend about $13 million upgrading the remaining plants.

Job losses will amount to "less than 10%" of the 800 workers in Australia and New Zealand, split evenly across the two countries, says Sam Bastounas, Nuplex's president for Australasia.

"We believe we have a sustainable manufacturing base here" even as "market demand for our products has come down somewhat", he says. The plants earmarked for closure "really are not scalable".

Redundancy costs would be $3.95 million and other costs are $8.05 million to write down obsolete equipment and clean-up and site remediation of about $4.35 million, the company says. It will also write down the carrying value of its RPC Pipe Systems venture, previously called Fibrelogic, by $5.6 million.

"It is likely that demand levels in both the manufacturing and construction sectors will be lower than in previous economic cycles as manufacturing customers and their customers continue to move offshore due to the impact of the ongoing strength of the Australian and New Zealand currencies," chief executive Emery Severin says.

"In construction, while activity will recover at some point, demand conditions remain subdued."

Nuplex says the full benefits of the restructuring would be about $5.6 million a year, with this reflected in the 2015 year.

"The manufacturing base of Australia and New Zealand is under pressure because of the high currencies and the weak economies," says James Lindsay, equities manager at Tyndall Investment Management. "If they can consolidate down their plants to other locations then that's probably the best thing to do."

The drop in the shares today may reflect the costs of the restructuring and the impact on profits short term, he says.

The kiwi is currently at 82.70 US cents, near a six-month high, while the Australian dollar was last at US$1.0436. Shares of Nuplex fell 23 cents to $2.95 on the NZX today and have climbed 39% this year.

The shares were rated a "hold" based on the consensus of six recommendations compiled by Reuters, with a price target of $2.96.

The company has not previously given a forecast for 2013 earnings. At its annual results it said earnings before interest, tax, depreciation and amortisation would benefit from the completion of its NuLeap programme, increased capacity in Vietnam of $US500,000 to $US1 million, a full-year contribution from Viverso of at least 12 million euros and from Nuplex Masterbatch of $A5 million.

Net profit in 2012 fell 6% to $62.5 million.

In 2013, per-share earnings would reduce by about 8.6 cents, of which 6.9 cents would be non-cash items. Restructuring would add 1 cent to earnings per share in 2014 and 2 cents in 2015, it says.