Managing Directors Business Review

Specialties

With year-on-year growth of 66 per cent, the Specialties business group was a major contributor to the highly successful 2007/08 result. The group is essentially Australasian-based, but is currently seeking an entry point into the Asian region.

The principal business segment, Specialty Products, was able to show its true potential following closure of the Seven Hills facility, and Polychem and Multichem performed well as they have since joining the group. Increased profits were delivered by Masterbatch operations, and only Construction Products underperformed.

Improvements achieved by Specialty Products over the past two years have been excellent. The onerous task of converting Seven Hills-based businesses required transitioning some units from a manufacturing to a distribution model and disposing of other units that did not fit with future strategy. In addition, blending facilities were installed at Botany, enabling production to be shifted from Seven Hills early this year. The management team responsible for this can take a bow - a tough job, well executed.

This closure of Seven Hills was a catalyst for future efficiency gains and for building a large and sustainable agency and distribution business focused on chemicals, plastics and life sciences.

Life sciences’ products range from functional additives and quality ingredients for the food industry, to actives for the pharmaceutical and related industries. They are differentiated by a requirement for high compliance management procedures throughout the supply chain – importation, storage and transport – and technical and formal documentation to ensure traceability and to meet strict regulatory standards. With its in-house compliance professionals, Nuplex provides Principals with a secure, value-added approach to the market – and a point of difference.

Business in this sector grew across the board, assisted by new agency arrangements and by acquisition of a small trading operation that expanded market potential.

In the plastics segment, good results were achieved, but the market is changing. Growth in traditional areas of packaging and engineering-grade plastics was partially offset by a supplier withdrawing a key product from its range, resulting in the loss of a significant parcel of long-term business. Some planned relocation of manufacturing from New Zealand will have a further impact in the near term, but new agencies and a substantial development pipeline suggest that historical growth patterns are likely to continue.

The Chemicals segment saw the major benefits of rationalisation. Market conditions in some traditional areas, particularly in New Zealand, were soft, and continuing consolidation of the international chemical industry resulted in some agency churn. However, this worked both ways and on balance it appears that current arrangements do not disadvantage the business. Some opportunities could not be fully satisfied, with product shortages limiting supply to the Australasian region.

Masterbatch is a supplier to the plastics industry, providing colour and additive packages. The focus was on operational excellence and maintaining appropriate value through pricing. Results improved as a consequence. These operations are recognised as leaders in customer response and delivery time, which provide key points of difference. The Vietnam manufacturing unit continued to perform and a business model for Asia is in final development.

In Construction Products, the New Zealand market responded positively to break-through resin flooring technology, which addressed odour issues often found with traditional materials, without compromising quality. These products have the potential to open up a much broader market. Demand from the primary industries segment remained strong and the Nuplex brand retained its leadership and preferred specification status.

New product ranges for commercial flooring, and penetration of previously untapped markets for safety flooring, gave the resilient segment of the business an uplift. Overall, all areas of the flooring business were strong.

Waterproofing sales continued to grow into the tanking and roofing areas of commercial buildings, and demand for the diverse range of functional products supplied by this business unit to the commercial and industrial construction sector was solid.

By contrast, the lightweight cladding and plaster business deteriorated further, with demand retreating on a combination of lower residential housing starts and a substantial switch in cladding preferences. It is expected that, by repositioning this operation with a product range more aligned with the market’s present needs, performance will improve in the mid-term.