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Nuplex targets half billion dollar Asian sales within five years

Thursday 19th September 2013

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Industrial and residential coatings manufacturer Nuplex is targeting sales from its Asian operations of $500 million a year in the year to March 31, 2018, the company says in a strategic update presentation posted as an NZX disclosure.

In a section entitled "looking ahead three to five years", Nuplex lays out the extent of recent strategic investments in Australia, Thailand, China, Vietnam and shortly in Russia, to create what it calls a "repeatable framework" for entry in other fast-growing emerging economies, including Turkey, India, and Brazil.

While the company puts no revenue numbers against its projections, it shows Nuplex positioning for different parts of the coatings market in different Asian markets, focusing specifically on the powerhouse Indonesian island economy of Java.

It is also investing in both production and laboratory facilities in China.

Nuplex reported a 31.4 percent drop in net profit after tax for the year to June 30 of $42.9 million on Aug 15, reflecting flat New Zealand trading conditions and falling demand in key Australian and European markets.

However, chief executive Emery Severin outlined plans for an increase in Asian regional production capacity by the end of next year, through the commissioning of a third Chinese plan, new plant at its Indonesian manufacturing site, and additional capacity to a powder resin joint venture in Thailand.

Nuplex also continues to look for an acquisition to enter the Russian market, and the presentation suggests Turkey is seen as the next cab off the rank for Nuplex's significant footprint in Europe. While India and Brazil are somewhat on the backburner for the moment, the presentation shows Nuplex has started considering its options in newly liberalising Myanmar.

The presentation shows the strategy's early impact as sales from Australia and New Zealand in the 2013 financial year were 26 percent of earnings before interest, tax, and depreciation, compared with 41 percent in the 2010 financial year, when the current strategic renewal kicked off.

At the same time, cost reduction strategies in Australia and New Zealand are over-delivering in aggregate against target, although new capital expenditure in the unit is up from a budgeted $13 million to $20.5 million because of additional investment at its Wacol, Australia, site.

Its German plant at Bettfeld, acquired in the $129.5 million October 2011 purchase of Viverso from Bayer Material Sciences, delivered 12.5 million Euros ebitda, against a target of 12 million Euros.

In China, industrial coatings markets are forecast to grow at a 9 percent compound average growth rate between 2011 and 2015, and at 6 to 8 percent CAGR for industrial coatings in Indonesia.

In Vietnam, Nuplex claims market leadership and sees the total industrial and architecture paints and coatings market growth to around US$1 billion by 2015. Across all its markets, Nuplex is targeting 4 to 7 percent CAGR through to the end of the 2018 financial year, with volumes shifting decisively to emerging markets.

In the latest financial year, 37 percent of total volume produced went to Australia, New Zealand or the American market. Some 26 percent went to Asia, and 38 percent to emerging markets, including Russia.

By 2018, those proportions are forecast to be 28 percent for the traditional home and American markets, 32 percent in Asia, and 40 percent in emerging markets.

As a group, Nuplex is targeting annual return on funds employed to rise from 11 percent in the year just ended to 16 percent or higher.

That means getting Australia-New Zealand returns to around 16 percent, instead of 7 percent for reins at present, getting European returns from 12 percent last year to above 16 percent, and maintaining Asia and American returns at above 18 percent.

Nuplex has traded in the last year as low as $2.75 and as high as $3.52 in the last year. The shares were trading at $3.40 this morning on the NZX, up 8.6 percent compared to a year ago.

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