Managing Directors Business Review

Outlook

Nuplex’s businesses are well established, set to weather any short–term economic storm and take advantage of the inevitable recovery.

The Company’s performance for the 2008/09 financial year will be impacted by the global economy. Inflation, particularly in emerging markets, is rising and may have the effect of reducing demand. Mature markets seem destined to enter a period of uncertainty as global business struggles to cope with the impact of scarcity of debt facilities and with higher costs.

While major business segments are largely unaffected by the normal cyclicality of markets, demand for the Company’s products reacts to general economic conditions. If Gross National Expenditure (GNE) falls across the world, performance will suffer; conversely, when GNE starts to grow, this will be reflected positively in the Company’s results.

Throughout the latter part of 2007/08, month-to-month demand varied more than usual. Some months were particularly poor, but were inevitably followed by a really good month, the average of the two being around normal. This created a feeling of uncertainty, but by year-end there was no evidence from monthly performance data to suggest upcoming doom. The first quarter of the new financial year will show the near-term direction of market demand and provide the basis of guidance at the Annual General Meeting.

There are a number of positive things within the control of the Company that will impact the 2008/09 results. In particular, additional contributions to the performance of the Resins segment are expected to come from investment already made in:

• manufacturing capacities in Europe and the US for resins with low environmental impact
• full-year benefit of the G-Cure® technology and business asset acquisition, bringing manufacture in-house resulting in significant efficiencies
• efficiency programmes across the Group with the dual goal of increased capacity and lower production cost
• expansion of composites resin capacity in Australia to bring in-house product currently manufactured by a third party, and as a consequence materially lower operating costs
• new technologies to satisfy the demands of a “greener” world for which approvals have been received or are expected

Crude and vegetable oil prices have retreated from recent highs and will in due course take pressure off raw material pricing. There will continue to be cost pressures as particular products go through their own supply/demand cycles and all resin manufacturers will face identical conditions. It is expected that the industry will remain sufficiently disciplined to recover any upward effect on costs from raw materials and the additional impacts of energy, labour and transportation. The health of downstream markets, largely as a consequence of demand, will determine Nuplex’s success in achieving these goals.

Prospects for continued turnaround of the Specialties segment remain high, with a number of new agencies to broaden both the product offering and target market, and several significant development projects nearing completion. The business is also focused on regional expansion.

Acquisitions continue to represent an avenue for growth, and this strategy that has proven successful in the past will be continued. A number of opportunities remain under consideration.

The principal trading currencies of the Group are the Australian and US dollars and the Euro, which are fairly equally distributed through the 90 per cent of Group profit earned outside New Zealand. A positive contribution will result should the current weakness in the New Zealand dollar continue, with overseas earnings translated at a more beneficial rate than the past year.

Investment made in people, plant and technology will provide the platform for continuing growth.