Nuplex Industries lifts first-half earnings

See also: Nuplex takeover process could take until June/July to finalise, CEO says

Nuplex Industries [NZX: NPX], which is in takeover talks with US-based Allnex Begium SA, lifted profit from continuing operations by 10% and upgraded its full year guidance of improved earnings.

Profit from continuing operations was $26.8 million in the six months ended December, from $24.3 million a year earlier. Sales from continuing operations rose 2.1% to $700.5 million.

The specialty chemicals maker will pay an interim dividend of 12c a share, meaning Allnex's proposed $5.55 a share offer reduces to $5.43. That's still a 41 % premium to the stock price before the Allnex approach was disclosed this week.

The two companies began talks last year about a takeover, which will occur through a scheme of arrangement. Allnex, which is controlled by Boston, Massachusetts-based private equity firm Advent International, has been granted a period of exclusivity for six weeks to negotiate terms.

Nuplex says it doesn't expect any material issues to arise from the due diligence process and will update shareholders in six to eight weeks. A merger of the two companies will create one of the world's largest makers of coating resins.

Net profit in the first half of $24.9 million included $2.5 million in significant expenses and a $1.9 million loss on the sale of its Avondale plant in New Zealand. It was down from the $37.3 million profit a year earlier, which included the benefit of significant items and discontinued operations worth $12.1 million.

The improved profit from continuing operations came on the back of a turnaround in the Australasian market after three years of restructuring, volume growth in Asia, and tight cost control.

Sales revenue growth benefited from a favourable exchange rate, and without the benefit of converting earnings to New Zealand dollars, it would have dropped 6.4% to $641.8 million, the company says.

Chief executive Emery Severin says looking through the exchange rate benefits, the underlying performance of the business strengthened as the first half progressed.

Its geographic diversification paid off with an increase in earnings in Australia, New Zealand, Asia, and the Americas offsetting a weaker result in Europe, the Middle East and Africa.

"The significantly higher Australia and New Zealand earnings are particularly pleasing. They reflect the full benefits arising from restructuring and streamlining the business over the past three years," he says.

Ebitda for Australia and New Zealand was up 210% to $9.3 million. Sales rose 2% to $156.5 million although coating resins volumes, which account for around 45% of sales in the region, were down as resins previously produced in New Zealand for sale into China were transferred to the new Changshu site.

The share price is currently trading at $4.98 after reaching a seven-year high of $5.26 earlier in the week on news of the takeover.

Nuplex's board has upgraded its ebitda guidance for the full year to between $145 million and $157 million, compared to a range of $140 million and $155 million previously. This is mainly on the basis of an expected stronger half in Europe, the Middle East, and Africa.

Mr Severin says Nuplex expected the full benefits from recent restructuring to be reflected in the 2017 and 2018 financial years and he's confident it will achieve its target of return on funds employed of greater than 16% by the end of the 2018 financial year. Return on funds employed is currently at 14.8%.

(BusinessDesk)