Nuplex posts record jump in profit as China buys high-margin chemicals

Thursday 25th February 2010

Nuplex Industries announced a record 477% increase in interim profit, driven chiefly by strong demand growth from China. The shares rose 1.8% to $3.39.

“On the demand front, clearly there was significant demand growth in China, and all that growth was in high-end sophisticated product areas which carry high margins,” Nuplex managing director John Hirst told BusinessWire. “We also saw demand recovery in the ASEAN region, which also gave us a big boost.”

Net profit rose to $34.6 million in the six months ended Dec. 31, from $6 million a year earlier, the company said in a statement today. Per-share earnings fell to 18.2 cents from 19.4 cents, reflecting the issue of new stock when Nuplex strengthened its balance sheet last year.

The turnaround follows difficult operating conditions for Nuplex in the preceding business cycle, when a weakening kiwi dollar during the recession drove up the value of its overseas debt and forced the company to renegotiate its lending facilities. It sold shares at a deep discount and paid down debt, putting it in a stronger position to ride out the downturn.

“The board is delighted with the rapid turnaround in the company’s performance in achieving record results despite the difficult trading conditions in many markets,” said Nuplex chairman Rob Aitken.

“This strong profit and cash flow will enable the company to return to its normal pattern of dividend payments, and directors have declared an interim dividend of 10 cents per share, which represents 54% of operating profit after tax,” he said.

Operating profit jumped 200% to $35 million in the first half and cash flow increased to $53.9 million from $44.3 million.

Hirst said prospects for the second half of the year had started well with overall sales following a similar pattern to the last quarter, though he said there were “mixed messages” from different markets.

Demand from China and ASEAN markets is expected to continue growing, and the company is upbeat about the sustained economic recovery in Australian and New Zealand.

Europe is expected to stage a gradual recovery, although manufacturing data from Germany over the past month and weak economies in the south of the continent remain concerns to a broad recovery, he said.

Nuplex is also cautious on the US market, citing little evidence to indicate that the recession is over, but is optimistic about prospects in the medium term in the construction and industrial manufacturing sectors.

Upward pressure on raw material prices and the strengthening of the US dollar would force Nuplex to increase prices in the near future.

“Historically we have been very successful in recovering prices, so as we move forward we do expect prices to go up, but revenue to go up as well, leaving us with more working capital,” Hirst said. “At the same time there is an underlying confidence that we are not going to see demand going backwards and that markets will continue to recover. If we don’t get there fully on margin we’ll get there by more demand and volume.”

Businesswire.co.nz

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