Australasian resins maker Nuplex Industries says it will close factories and cut its payroll by just under 10 per cent to align the business with what it expects to be a deep decline in the manufacturing, building and construction sectors.
One-off costs arising from the restructure would reduce the company's net profit by about $17.0 million in the current financial year, Nuplex said.
The full benefits of the restructure will be about $5.6m pretax a year by the 2015 financial year. The progressive closure of sites over the next two years will incur redundancy costs of $3.95m, write-downs of obsolete equipment of $8.05m, and provision for site clean-up and remediation of $4.35m.
The company's president for Australasia, Sam Bastounas, declined to say exactly how many jobs were involved, but he said just under a 10th of the company's 800 staff would go. About two thirds of Nuplex's operations are in Australia and about a third are in New Zealand.
Nuplex's earnings are split equally between the manufacturing sector and the building and construction sector.
Bastounas said Nuplex did not suffer directly from the high New Zealand and Australian dollars, but said that many of its manufacturing customers were battling with import substitution brought about by the currencies' ongoing strength.
"This issue is not so much about our competitiveness - it is about demand that has been impacted by our customers' customers," he told APNZ.
The other driver of Nuplex's earnings - building and construction - was also suffering, but for different reasons.
"While Christchurch does hold some promise in the medium term, the view is that there is still an ongoing malaise in the building and construction sectors, both in New Zealand and in Australia," he said.
Chief executive Emery Severin took an equally bearish view.
"It is likely that demand levels in both the manufacturing and construction sectors will be lower than in previous economic cycles as manufacturing customers and their customers continue to move offshore due to the impact of the ongoing strength of the Australian and New Zealand currencies," he said in a statement.
After an eight-month review of its operations, Nuplex said it would close its high-temperature plant at Penrose and would close its Onehunga factory within two years.
The shares dropped by 22c, or 6.9 per cent, at $2.96, on the back of the news, but the stock was at upper end of its 52-week range of $2.11 to $3.23.
BT Funds Management portfolio manager Matt Goodson said today's announcement should not have come as a surprise because the company had been battling the effects of the strong New Zealand and Australian dollars for many years.
"It is just another example of very strong currencies hollowing the old industrial sectors of the New Zealand and Australian economies," he said.
"Some of their key customers have greatly lowered their production in Australasia," he said. "They simply don't have the customer based that they once had," he said.
The restructure will see the company consolidate and upgrade sites at Penrose, Botany in New South Wales, Wacol (Queensland) and Springvale (Victoria).
The sites at Canning Vale in Western Australia, Wangaratta (Victoria) will close over the next two years, but Nuplex's plans to spend $13m on plant upgrades.
The New Zealand dollar, which traded today at US82.86c, is once again marching higher and many currency strategists predict the currency will move higher still.
Westpac expects the next "resistance" point in the kiwi to be US83.5c.
Nuplex is about 12 per cent owned by Australian fund management company, Allan Gray Australia Pty Ltd -- formerly Orbis Investment Management - which also has significant stakes in takeover target Fisher and Paykel Appliances and Air New Zealand.
