Managing Directors Business Review

Cash flow and capital expenditure

Operating cash flow of $75.4 million, compared to $14.2 million last year, was achieved on the back of good working capital control. Investment in inventory was stable, a good result as this represents a reduction in real terms with unit costs continuing to rise year-on-year. Further opportunities exist for inventory reduction and will continue to be a focus to minimise investment and storage costs.

Receivables increased from a combination of higher revenues and an extension in debtor days. The concentration of major manufacturers within the coatings industry has seen strong pressure on historical trading terms, but there is no evidence that any increase in bad debt risk will result from this. A corresponding increase in payables provided an offset.

Capital expenditure projects primarily targeted growth and efficiency. Only 35 per cent of total spend was used for stay-in-business and compliance capital.

Manufacturing at the Avondale and Seven Hills sites ceased early in the year and demolition and remediation are in progress at both sites. Regulatory clearance on the Seven Hills site should be available in late 2008, with Avondale clearance probably delayed a few months. On receipt of such clearance, the sites will be in a position to recover value.