2012 annual report CONTENTS
2 Financial Highlights 3 Chairman’s Report 6 Chief Executive Officer’s Report 9 Review of Financial Performance 10 Safety, Health and Environment 14 Business Overview 18 Our Business at a Glance 21 Review of Strategy 28 Board of Directors 30 Executive Team 33 Corporate Governance Report 44 Financial Report IBC Corporate Directory
CREATing THE CHEMISTRY behind EVERYDAY PRODUCTS EVERYWHERE Nuplex products play a pivotal role in our lives as key ingredients of Nuplex is a leading global resin manufacturer with operations in Australia, New Zealand, those products that Europe, Asia and North America. In Australia and New Zealand, Nuplex is also bind, enhance and a leading chemicals distribution company. protect houses, cars, From our modest beginnings in Auckland in 1952, we have gone from strength to strength boats, swimming pools, by organic growth and acquisition to become a global force with sales in over 80 countries. furniture, fabrics... The demand for our products is enormous and increasing by the day, especially in the the list goes on and on, emerging markets. Our mission is to succeed in this highly down to newspapers competitive business by a strong strategic focus on sustainable growth in selected and tissues. markets and product lines, and by a relentless pursuit of excellence in everything we do.
2012 annual report 1 highlights
• Earnings before interest, tax, depreciation and • NuLEAP, our operational improvement program, amortisation (EBITDA) were $131.0 million, delivered $14 million in benefits, exceeding 2013 in line with prior year EBITDA of $130.9 million financial year target of $10 million • Net profit attributable to shareholders $62.5 million • Viverso, the recently acquired German resin down 6% on the prior corresponding period (pcp) manufacturing business delivered EBITDA of • Earnings per share (EPS) of 31.8 cents per share, $10.4 million (EUR 6.3 million), ahead of its forecast down 7% on pcp contribution of EUR 5 million • Full year dividend maintained at 21 cents per share • New capacity in Vietnam was commissioned on time and in line with its budgeted cost of US$7.5 million
Revenue (in $mil) EBITDA (in $mil) 12 1616 12 131
11 1575 11 131
10 1460 10 139
09 1494 09 92
08 1532 08 122
operating profit (in $mil) npat (in $mil) 12 66 12 63
11 68 11 67
10 71 10 64
09 24 09 17
08 53 08 48
regional sales (%) regional ebitda (%)
AUSTRALIA 34% AUSTRALIA 25%
ASIA 21%
NZ 5% NZ 10% ASIA 16%
AMERICAS AMERICAS 12% 9%
EUROPE 31% EUROPE 37%
2 NUPLEX INDUSTRIES LIMITED Chairman’s report
“these are exciting times as we implement the initiatives to grow and add value that will create a stronger nuplex with improved returns and increased earnings.” In the 2012 financial year Nuplex delivered a pleasing performance, particularly when taking into consideration the challenging market conditions we experienced across our global operations. Additionally, significant progress was made in relation to the execution of those strategic initiatives undertaken in the previous year. These were designed to increase and add value for shareholders through the pursuit of our overarching ambition to be the leading, trusted, independent global resins manufacturer, as well as a leading specialty chemicals supplier in Australia and New Zealand.
rob aitken Chairman
2012 annual report 3 CHairman’S REPORT
Resilient earnings Strengthening existing operations In these uncertain economic times, strengthening Globally, it was another year of challenging market Nuplex’s existing operations by improving its conditions, particularly in Australia and New Zealand operational performance is critical to ensuring the where low levels of construction activity and subdued Group’s long term success. manufacturing activity reduced demand for Nuplex’s products. Through focusing on safety, employee engagement and improving operational effectiveness through Importantly, the combination of Nuplex’s rigorous performance improvement programs such as NuLEAP, Nuplex is continually evolving to become an geographic and product diversity and the increasingly efficient and lean organisation. actions taken under NuLEAP to control During the year, the Board visited a number of the Group’s operations, and I am pleased to report costs and deliver efficiencies enabled there is a great deal of progress and enthusiasm for the delivery of resilient earnings. implementing NuLEAP from within. Earnings before interest, tax, depreciation and Investing in profitable growth opportunities amortisation (EBITDA) of $131 million was in line with We continue to work towards growing Nuplex last year’s EBITDA, as the additional earnings from by expanding our capacity in emerging markets, acquisitions made during the year, the benefits of consolidating our market leading positions in developed NuLEAP (our operational improvement program) and economies, as well as investing in market development improved product margins offset lower volumes. and innovative R&D. Strong financial position Whilst these opportunities are varied in Reflecting the strength of Nuplex’s cashflows, the their nature, their common purpose is to Board is pleased to declare a final dividend of 11 cents per share, making the total dividend for the year build market leading positions in select 21 cents per share. markets and product segments. Being able to maintain this year’s dividend in line with To ensure we are well positioned to take advantage of the prior year is a particularly pleasing outcome given the attractive growth rates of the emerging markets of the softer operating conditions when compared with Asia and South East Asia, we continued with projects the previous year. to increase Nuplex’s capacity in Vietnam and China. Following the Viverso acquisition, Nuplex’s gearing In April 2012, we took a significant step towards increased to 28% at the end of the 2012 financial year, doubling Nuplex’s regional capacity by the end of the from 12% at the end of the prior period. 2014 financial year through the commissioning of the At these levels, Nuplex’s Balance Sheet has an new capacity at our existing site in Vietnam. appropriate level of gearing in the context of our The next step-up in Nuplex’s regional capacity will operations and it is well within the Board’s target net come from the commissioning of the new third site debt to net debt plus equity ratio of 20% to 35%. in China, which is expected to be towards the end of 2013. Safety, Health & Environment During the year we acquired Viverso, a resins and Safety continues to be a key priority across the Group putties manufacturer, from Bayer MaterialScience for and we remain focused on achieving our safety goal of a total acquisition price of EUR 69 million. Located ‘Zero Harm’ to all employees, contractors, communities at Bitterfeld, in Eastern Germany, this state-of-the- and environment in which we operate. art manufacturing site provides direct access to the While disappointingly the number of Lost Time Injuries German domestic market and increases our proximity to increased during the year, our Total Injury Frequency the emerging economies in Central and Eastern Europe. Rate improved by 30%. The acquisition of Viverso consolidated Strengthening and Growing Nuplex’s position in Europe as a top Working to generate improved four resins supplier and the leading and sustainable returns for shareholders We are now in the second year of our strategy aimed solvent borne acrylic resins producer. at generating improved returns to shareholders by: Following the Board’s visit to the new site at Bitterfeld • Strengthening the existing operations through the in May 2012, I am pleased to report that the integration pursuit of operational excellence; and is progressing well. Your Directors were particularly • Building market leading positions to deliver impressed with the high quality of the assets, the calibre sustainable future earnings growth. of employees, market position and growth opportunities.
4 NUPLEX INDUSTRIES LIMITED Shareholders can be confident that this acquisition is Consistent with the Board’s commitment to aligned with our strategy of building market leading achieving this outcome, the mandate of the Board’s positions and, as a result, places our European Remuneration Committee was extended and the operations in a significantly stronger position to committee was renamed the Human Resources deliver medium term growth. Committee (HRC). In Australia and New Zealand, Nuplex is now the The HRC mandate now covers talent management, leading supplier of colour and plastic additives following succession planning, and employee diversity and the acquisition of Acquos’s masterbatch operations culture, while still covering executive remuneration for A$21 million and their subsequent integration with and the Group remuneration framework. Culamix, our pre-existing masterbatch operations. Summary We continue to invest in innovative R&D This is an exciting time for Nuplex as we execute those and market development activities in our initiatives put in place to create a stronger Nuplex. four key areas of performance coatings, Through focusing on what can be controlled, Nuplex is meeting the near term challenges of current markets, water borne coatings, powder coatings whilst at the same time building a sustainable business and composite resins. for the future. On behalf of my fellow Board members I would like The complementary nature of the Viverso product to thank shareholders for your ongoing support. portfolio further strengthened our position in Through Nuplex’s strategic initiatives and recent performance coatings, and our R&D team sees acquisitions we have the right building blocks in place a number of potential development opportunities to continue to work towards delivering shareholders arising from the recently acquired products. improved returns and sustainable earnings growth. People I would like to thank all our employees for their continued efforts and commitment during the year. It has been a very busy year and it is through their hard work and talent that Nuplex has been able to deliver a solid result for shareholders. rob aitken Our employees are the key to Nuplex’s Chairman success and the Board is committed to ensuring we attract, engage and retain the highest calibre people to our organisation.
2012 annual report 5 CHiefair mexan’ecutiveS REPORT officer’S REPORT
“to have generated robust earnings despite the challenging market conditions reflects the resilience of our strategy.” I am pleased to report that during the year we progressed our strategy to build a stronger Nuplex and add value through investing in profitable growth opportunities. We are now in the second year of our strategy to strengthen and grow Nuplex, and this year’s operating performance reflects the benefit of the initiatives implemented last year. Importantly, we were able to deliver resilient earnings to shareholders notwithstanding the challenging operating conditions. To generate earnings of a similar level to last year’s despite the weaker market conditions, particularly in Australia and New Zealand, reflects the strength of our geographic and product diversity as well as the benefit of the acquisition of Viverso, the German based resins and putties producer acquired during the year.
EMERY SEVERIN CEO
6 NUPLEX INDUSTRIES LIMITED Sales within the Specialties segment were up 1% (2% in At the core of Nuplex’s ability to deliver constant currency) due to inclusion of the acquired Acquos robust earnings and progress our masterbatch operations for nine months of the year. EBITDA for the Specialties segment was down strategy despite the difficult market 12% (11% in constant currency) as the segment’s conditions, is the hard work and two businesses, Nuplex Specialties and Nuplex Masterbatch were impacted by reduced demand from commitment of Nuplex’s employees. the manufacturing, construction and construction Our employees are central to our success and on behalf related markets. of Nuplex’s management team, I would like to extend my thanks to each and every one of them for their EXECUTING ON OUR STRATEGY valuable contribution during the year. Last year we developed and undertook initiatives designed to enable Nuplex to deliver on its strategy OVERVIEW to generate improved returns and grow earnings to Resins shareholders over the medium term. In our largest operating segment, the global Resins Over the past 12 months we made good progress segment, EBITDA was up 3% to $110.3 million towards delivering on our strategy through the (8% in constant currency) due to the positive execution of those initiatives which are focused contribution from the Viverso acquisition. on strengthening and profitably growing Nuplex by: Excluding the contribution from Viverso, EBITDA • the delivery of operational excellence in the areas was down 6% (1% in constant currency) as margin of safety, employee engagement and improving the management, cost control, and NuLEAP benefits way we work; and largely offset the 5% decline in segment volumes. • investing in profitable growth opportunities in emerging markets, market development and Pleasingly, Resin segment unit margins innovative R&D and disciplined strategic acquisitions were up 6% in constant currency terms, that secure market leading positions. reflecting pricing actions taken to Strengthening Nuplex through operational excellence recover past period increases in raw Safety - ‘Zero Harm’ material costs and the benefit of Across the Group, we continued to work towards our safety vision of ‘Zero Harm’. Encouragingly, our total nuleap initiatives. reportable injury rate continued to decline. On a region by region basis conditions were mixed. However, there is still much work to be done, • In Australia and New Zealand, volumes were particularly as we had an increase in the number of lost significantly impacted by the further decline in the time injuries during the period. This was largely the Australian construction sector. Additionally, the result of an increase in strains and sprains particularly ongoing strength of the Australian dollar continued in Australia and New Zealand and we are determined to drive the structural change in the manufacturing to improve in this area going forward. industry as Nuplex’s customers’ customers continue to Regrettably, there was a serious incident at our source products from and move operations offshore. site in the United Kingdom. A full investigation was • In Asia, excluding Viverso volumes, volumes were flat undertaken and the lessons learnt were implemented year on year as softer economic conditions in China across all of Nuplex’s manufacturing sites. resulted in reduced demand from the Automotive People - One Global Team OEM sector. We continued to focus on how we can bring together • In Europe, reduced exports to the Middle East and our 1,800 employees located in 11 countries as Asia, as well as reduced demand from customers One Global Team. based in Southern Europe were partially offset by In addition to delivering efficiency benefits, a number steady demand from customers based in Northern of initiatives implemented during the period also had Europe. a symbolic significance in relation to fostering our • In the Americas, volume growth in the second half One Global Team approach. partially mitigated the weak start to the year as These included the implementation of a global intranet, manufacturing and the automotive industry continued the integration of our multiple Australian and to recover. New Zealand based agency and distribution businesses Specialties into one single group called Nuplex Specialties and the The Australian and New Zealand based Specialties adoption of a single logotype for all Nuplex operations, segment was also impacted by the same tough market in all regions, across all businesses. conditions faced by the Resins segment operations in the region.
2012 annual report 7 CHief executive officer’S REPORT
NuLEAP Building market leading positions Improving the way we work Australia and New Zealand In these difficult market conditions, ensuring that we The formation of Nuplex Masterbatch through the are operating as efficiently and effectively as we can is integration of the acquired Acquos masterbatch critical to our strategy to add value through delivering operations and Nuplex’s own masterbatch operations, operational excellence, and, via NuLEAP, we are doing Culamix, is largely complete. just that. As was the experience of all Nuplex’s Australian and New Zealand operations, Nuplex Masterbatch Now in its second year, NuLEAP delivered experienced difficult trading conditions which impacted $14 million in additional benefits in the volumes and earnings in its first nine months of operation. Restructuring initiatives are expected to bring this 2012 financial year which was in excess business into line with expectations during 2013. of its $10 million expected for the period Europe, Middle East and Africia and highlights the internal momentum Having announced the acquisition of Viverso in October, 2011, we took ownership on 31 December 2011 and behind the program. began integrating the operations and product portfolio Pleasingly, in addition to making a positive contribution immediately. to our financial performance, it is improving our medium The operations have been re-named Nuplex and we term competitive position. have been able to confirm that the anticipated sales ANZ operational review and growth opportunities are as expected. As announced in our 2012 interim financial results Consistent with our disciplined acquisition criteria, in February 2012, the ongoing structural change in as forecast, this acquisition was EPS accretive in its Australian manufacturing and the current weakness first six months of Nuplex ownership and pleasingly, in the construction sector led to the commencement Viverso’s EBITDA contribution of EUR 6.3 million of a major review of our Australia and New Zealand exceeded our EUR 5 million forecast. operational network. The review is focused on assessing that we have the LOOKING AHEAD appropriate level of through-the-cycle-capacity in place. Our strategy to deliver on our ambition remains the By doing so, we will be ensuring our operations will same – we are continuing to strengthen and grow be well placed to weather weaker market conditions Nuplex through the pursuit of operational excellence such as we are currently experiencing. In addition, the and building market leading positions in select market review will ensure that we have the capacity to meet segments through organic growth, innovative R&D customers’ needs when markets recover. and disciplined strategic acquisitions. The outcome of the review will be announced by the end of 2012. Importantly, we remain committed to In the coming year, our performance operating a safe and profitable business in ANZ, will be supported by the delivery of as it still forms an integral part of our business. incremental benefits from NuLEAP, Growing Nuplex through profitable growth Increasing our capacity in emerging markets and a full 12 month contribution from During the year we continued to increase our capacity Nuplex Masterbatch and Viverso. and presence in the emerging markets of Asia and Whilst business conditions around the world are likely Central and Eastern Europe by: to remain challenging, we will continue to navigate • increasing our capacity at our site in Vietnam; these near term market conditions through remaining • progressing the design and approval process focused on what we can control. In turn, this will for the new third site in China; ensure we are well placed to capture the earnings • entering into an agreement to form a joint venture upside when conditions improve. in Russia; and • acquiring the Viverso operations at Bitterfeld, Germany.
EMERY SEVERIN ChIEF EXECUTIVE OFFICER
8 NUPLEX INDUSTRIES LIMITED REVIEW OF FINANCIAL PERFORMANCE
SALES REVENUE CASH FLOW • Sales revenue was $1.616 billion up 3% on the prior • Cash flow from operations was $48 million, down corresponding period (pcp). Assuming exchange rates from $60 million in the pcp, primarily due to increased were unchanged over the year sales revenue was up working capital requirements in Viverso. 6.9% on pcp reflecting: - The contribution from Viverso in the second half of the DIVIDEND 2012 financial year and Acquos from 1 October 2011 • The directors have declared a final ordinary dividend - Pricing actions taken to recover higher raw material of 11 cents per share, representing a 66% payout costs. ratio of NPAT attributable to shareholders: - Full year dividend of 21 cents per share, in line with EBITDA prior year full year dividend. • EBITDA was $131.0 million, in line with prior year • The dividend will not carry any New Zealand $130.9 million. Assuming exchange rates were imputation credits and not be franked for Australian unchanged EBITDA was up 5% on pcp driven by: shareholders. - The contribution from Viverso • The Dividend Reinvestment Plan will be reinstated. - NuLEAP initiatives There will be no discount to the price applied to the - An improvement in Resins segment unit margins. ordinary shares issued under the Plan. • Excluding the contribution from Viverso, EBITDA was $120.6 million, down 8% on pcp. Half of the decline BALANCE SHEET was due to the impact of the stronger New Zealand Working Capital dollar. Assuming exchange rates were unchanged • Reflecting the inclusion of Viverso, the working EBITDA from existing operations was down 4% on capital to sales ratio was 16.5%, up from 15.1% pcp due to: in the pcp. - 5% decline in Resins segment volumes particularly Debt Facilities due to weaker volumes in ANZ (down 12%) • Nuplex’s average cost of debt reduced to - Sales in the ANZ Agency & Distribution business approximately 7% from 12% in the pcp, reflecting: within the Specialties segment were down 10% on pcp. - In August 2011, Nuplex completed the renegotiation of its bank facilities through to August 2014. The facilities were aligned to Nuplex’s ongoing needs INTEREST and reduced to A$200 million from A$300 million. • Net interest expense was $14.0 million, down from • In June 2012, Nuplex announced the redemption of $16.6 million, as the benefits of the 2011 refinancing the Capital Notes on 15 September 2012 using funds partially offset the additional costs of debt raised to from existing bank facilities. fund acquisitions. • In July 2012, US$105 million was raised in the TAX EXPENSE US Private Placement market. • Tax expense was $19.3 million. The effective tax rate - Maturing in 2019, these notes have a coupon rate of 23% was lower than the 25% in the prior year due of 6.125% and were used to retire the short term to the impact of the realisation of tax losses in the financing facility used to acquire Viverso. United Kingdom. 2013 financial year OUTLOOK DEPRECIATION AND AMORTISATION • Current challenging business and market conditions • Depreciation and amortisation was $27.8 million, up expected to continue. 24% from $22.4 million in the pcp due to the impact • Assuming a continuation of current market of the acquisitions of Viverso and Acquos. conditions, EBITDA forecast benefit from: - Completion of NuLEAP program OTHER AND UNUSUAL ITEMS - The new capacity in Vietnam (forecast to be • Other and unusual items totalled $7.4 million and between US$0.5 and US$1 million), included the transaction costs of acquisitions - A full 12 month contribution from Viverso undertaken during the year as well as losses of (forecast to be at least EUR 12 million) and Nuplex $3.7 million arising from Nuplex’s 50% ownership Masterbatch (forecast to be A$5 million). in Fibrelogic, a manufacturer of wide diameter pipes used in infrastructure. NET PROFIT • Group net profit after tax (NPAT) attributable to shareholders was $62.5 million, down 6% on pcp. Assuming exchange rates were unchanged over the period, NPAT attributable to shareholders was down 1%.
2012 annual report 9 SAFETY, HEALTH AND ENVIRONMENT
Through the pursuit of excellence in safety, we are making progress towards a safer workplace. Nuplex is committed to achieving its safety, health To embed its ‘Zero Harm’ culture during the year and environment (SHE) target of ‘Zero Harm’ to its Nuplex continued to invest in developing and employees and contractors. implementing a global best practice management Underpinning the Group’s commitment to this target system through: is the Group’s belief that it is a fundamental right of • The recruitment of additional SHE personnel. Nuplex employees and contractors to be safe in the • The rollout of intense safety leadership training workplace. programs for Senior leaders. To achieve its ambition Nuplex is building a culture • The rollout of a more comprehensive Personal of ‘Zero Harm’, where, through the commitment of Protective Equipment Policy across the Group. leaders, employees and contractors and rigorous • The introduction of a safety observations program processes and procedures, we strive to embed safe at all sites and supported with training for first line behaviour in every action, every day. supervision. A guiding principle of building such a culture • The licensing of a Group SHE Management System is that every employee and contractor from Orica. • Rollout of improved separation of people and moving working at Nuplex is responsible for his or vehicles at all sites. her safety and the safety of anyone else in the surrounding area.
NUPLEX GERMANY: LABORATORY QUALITY CONTROL TESTING AT BITTERFELD
10 NUPLEX INDUSTRIES LIMITED This year we continued to progress towards our safety vision of ‘Zero Harm’ to our employees, communities and the environment in which we operate.
Lost Time Injuries (LTI) Lost Time InjurY FREQUENCY RATE (LTIFR) A lost time injury is a work related injury that results in This is the number of lost time injuries per million hours worked. an employee being unable to work for at least one shift. 12 10 12 2.8
11 4 11 1.25
10 6 10 2
09 12 09 4
08 27 08 8
Total Reportable injury Rate (TRIR) Injury Severity Rate (ISR) This is the sum of LTIs, medical treatment injuries and This is the number of days lost due to LTIs per million hours worked restricted work cases per million man hours worked. and gives the measure of the seriousness of work injuries and the impact of the ‘return-to-work’ program.
12 9 12 135.2
11 12.8 11 37.14
10 17.6 10 50.23
09 14 09 27
08 20 08 50
Energy Consumption Rate (GJ/t) Water Consumption Rate (M3/T) This is the total consumption of energy from natural gas, petroleum This is the total water used in the process which is not fuel oils and electrical power supply per tonne of product produced. harvested and/or recycled per tonne of product produced. 12 2.335 12 1.296
11 2.44 11 1.23
10 2.5 10 1.28
09 2.63 09 1.44
08 2.48 08 1.42
Waste Generation Rate (KG/T) Greenhouse Gas Emission RateS This is the total waste arising from the operations and which (tonnes of CO e/production tonne) leaves the sites for further treatment and disposal, per tonne 2 This is the total emissions mass produced by the operations, of product produced. expressed in CO2 equivalents, per tonne of product produced. 12 8.4 12 0.273
11 6.57 11 0.277
10 8.51 10 0.286
09 8.70 09 0.307
08 12.25 08 0.284
2012 annual report 11 SAFETY, HEALTH AND ENVIRONMENT
SAFETY PERFORMANCE Through efficiency initiatives implemented as part of NuLEAP, the Group’s operational improvement Nuplex’s key safety performance measures reflect that program, Nuplex improved its water, energy and waste whilst progress is being made, there is still work to be consumption efficiency. Initiatives undertaken during done. Nuplex’s Lost Time Injury Frequency Rate (LTIFR) the year include: increased to 2.8 per million hours worked from 1.2 in the previous year. • Water - At the sites in Silvertown, UK, and Canning Vale, For the 12 month period ending 30 June Australia, rainwater tanks have been installed to allow harvesting and reuse of water. 2012, 20 of Nuplex’s 26 sites were Lost • Energy Time Injury (LTI) free and there were no - In Australia, energy usage audits have been LTI’s in the Americas. conducted and followed up with energy saving measures such as upgrading insulation and installing The increase in Nuplex’s LTIFR was largely the result energy efficient water pumps. of a rise in muscle strain and sprains in Australia and - Nuplex’s site at Wacol, Australia, is participating New Zealand. Nuplex is determined to improve its in the Queensland Government’s Smart Energy performance in this area and in the coming year there Savings Program. will be a concentrated focus on reducing manual handling risks. - At both Nuplex’s sites in the US, new and improved energy efficient cooling towers were installed. Nuplex’s Total Reportable Injury Frequency Rate (TRIFR) declined to 9.0 per million hours worked from • Waste 12.8 per million in the previous period. The result, when - At Surabaya, Malaysia, and Silvertown, UK, work compared to that of the previous year, represents an is underway to assess how to upgrade the on-site overall improvement of 30%. waste water treatment process. Regrettably, there was a serious incident at the - At Botany, Australia, air emissions were reduced Group’s powder resins manufacturing site in the United through the upgrading of the control of product Kingdom. A full investigation of the incident was transfer processes. conducted and a report submitted to the SHE Board - At both sites in the US and Nuplex’s site in Sub-Committee and the Board. The Netherlands, the chemical storage containment The findings of the investigation have led to the systems were upgraded. implementation of increased safety measures and In Australia, based on the low level of direct emissions improvements at all of Nuplex’s sites and reflected from its operational sites, Nuplex is not liable to directly in the increase of the severity rate during the year. pay the recently introduced carbon tax. ENVIRONMENT Nuplex continues to find ways to reduce Nuplex’s commitment to achieving a ‘Zero Harm’ its energy usage. culture equally reflects the Group’s belief that the communities and the environments in which it CONTAMINATION operates should not be adversely affected by its operations and products. Nuplex met its environmental obligations during the 2012 financial year in relation to site remediation as work continued in remediating three Australian and one New Zealand legacy contaminated sites. Australia The Botany site in New South Wales had equipment installed to prevent the migration of contaminated ground water beyond the site’s boundary. This equipment is now in operation, and samples are independently monitored and the results are continuously reviewed in conjunction with the EPA. Seven Hills is a dormant site in Western Sydney that was previously home to the APS manufacturing and distribution facility acquired by Nuplex in 2002. This Nuplex the site has since been decommissioned and the plant netherlands: laboratory and buildings demolished. The majority of remediation testing work has been completed and management is currently at bergen op zoom developing a plan to clean up the balance of the development contamination and divest the site. centre
12 NUPLEX INDUSTRIES LIMITED raw materials store in bitterfeld, germany
Investigation activities continued on the Cheltenham, All sites in New South Wales are implementing the Victoria, site. Ongoing discussions with the changes as required by the new Protection of the Environmental Protection Authority, consultants and Environment Operations (General) Amendment interested potential purchasers have enabled Nuplex to (Pollution Incident Response Management Plans) develop a sale strategy for the site. Regulation 2012. New Zealand In New Zealand, Nuplex’s site at Onehunga, received its Resource Consent – Discharge to Air. The Avondale site is currently dormant. However, there are currently plans to recommission parts of this site as Asia it is anticipated that remediation will take some time to In China, Nuplex’s Suzhou site successfully renewed its complete. Safe Production Licence for a further three years. COMPLIANCE EMEA The Netherlands Government has increased its focus Nuplex operates in an environmentally sensitive on fire regulation, so during the year Nuplex has been industry and is very committed to protecting the working with the local authorities at the site in Bergen environment. op Zoom. The Company works with a number of The UK authorities are conducting their own investigation into the regrettable incident at Nuplex’s government environmental agencies and Silvertown site. The findings are due to be released in uses independent auditors to monitor the 2013 financial year. progress in ensuring ongoing compliance. Americas During the year, Nuplex’s Louisville Kentucky plant All sites maintained their operational certifications successfully renewed its storm water discharge permit. during the 2012 financial year. Additionally, it was agreed with the Louisville Australasia Metropolitan Air Pollution Control District that Nuplex In December 2011, at Nuplex’s Wangaratta site, located would investigate further upgrades to existing odour in regional Victoria, there was an odour emission as a control equipment and conduct additional odour testing. result of an unexpected reaction in a production vessel. As a minor participant in the US Environmental The chemicals involved were typical of those used in Protection Authority mandated cleanup of the dormant textile treatment and paint production. Ecological Systems Inc site in Indianapolis, Nuplex A full investigation was undertaken by the Company contributed $45,855.60 towards the settlement using independent experts and the recommended payment of the major responsible party. corrective actions have been implemented. This provides indemnity for Nuplex with regard The Environmental Protection Agency (EPA) is to any further action in this regard. investigating the incident.
2012 annual report 13 CHBUSINESSairman’ overviewS REPORT nuplex is a leading GLOBAL resins manufacturer AND speciality chemicals DISTRIBUTOR IN AUSTRALIA AND new zealand. We ARE STEADILY EXPANDING AS WE SEEK LEADING POSITIONS in selected markets and product categories. Our main focus is on resins used in surface coatings as well as composite materials, and chemicals used in construction and paper products. In Australia and New Zealand, building on our unique market position and core capabilities, we also have an agency and distribution business, and a plastic colour and additives business. 2012 was the year of execution in our three-year journey towards improved returns and sustainable earnings growth. Despite an extremely difficult environment, we managed to not only stay on track, but continue to improve our operational performance and invest for the future. Momentum is on our side and we are well poised to fully realise the benefits of our three-year strategy in the 2013 financial year.
14 NUPLEX INDUSTRIES LIMITED Our three-year journey 2011/plan & invest 2012/execute 2013/deliver
innovative R&D
zero harm growth in growing emerging markets
nuleap program strengthening
strategic acquisitions
one global team progress report ZERO HARM innovative R&D – Total reportable injury rate improved by 30% – Expanded product portfolio – Invested in additional safety, health and through Viverso acquisition environmental resources. – Global R&D overlay teams formed. ONE GLOBAL TEAM GROWTH IN EMERGING MARKETS – Improved staff engagement spread across – Vietnam: New plant commissioned on time 11 countries and on budget – Integration of Australian and New Zealand – Russia: Entered into an agreement to form a JV trading and agency businesses into a single with Kvil Group, a local paint and resin producer. business, Nuplex Specialties. strategic acquisitions Nuleap program – Acquired Viverso, a German based resins – Delivered $14 million in incremental benefits, and putties manufacturer which consolidated exceeding the target of $10 million our position as a leading resins supplier in Europe – On track to deliver $30 million in total benefits – Acquired Acquos’s masterbatch operations by the end of 2013 financial year. in Australia and combined with Nuplex’s existing masterbatch business, it has formed Australia and New Zealand’s leading masterbatch business.
2012 annual report 15 BCHUSINESSairman’ overviewS REPORT
Our businesses, products and markets
Americas EUROPE coating resins coating resins
Vehicle Metal Wood Marine & Decorative Automotive Vehicle Marine & Powder Refinish Protective OEM Refinish Protective
Wood Metal Decorative
16 NUPLEX INDUSTRIES LIMITED Our products are manufactured across our expanding global footprint and distributed in over 80 countries.
Our strategy is clear – to be a leading resins manufacturer in selected markets and product lines.
AUSTRALASIA coating and other resins
Metal Wood Decorative Adhesives Textiles Ink composites
Swimming Marine Infrastructure Transport Pools & Leisure paper
ASIA Tissue Packaging Newspaper coating resins construction products
Automotive Vehicle Metal Decorative Powder Flooring OEM Refinish specialties: composites trading & agency masterbatch
Casting Swimming Marine Sheeting Pools & Leisure Food & Surface Plastics, Healthcare & Colour Nutrition Coatings Rubber & Pharmaceuticals Additives Foam
2012 annual report 17 our business at a glance
RESINS Our largest business segment, Resins, consists of our global ‘Coating Resins’ operations which produce polymer resins for surface coatings used in consumer and industrial goods. It also includes Composites, Pulp and Paper, and Construction Products which are primarily Australia and New Zealand focused businesses. Our global resins segment generates % approximately 80 of earnings (including 6 months of viverso).
EUROPE, 2012 AUSTRALIA & MIDDLE EAST results NEW ZEALAND ASIA AND AFRICA (EMEA) AMERICAS total resins
Sales Down Down up up up 12.9% 0.2% 22.7% 3.3% 3.0% $402.7M $255.8M $504.5M $147.8M $1,310.8M
EBITDA Down Down up up up (Earnings before % % % % % interest, tax, Depreciation and 24.5 6.3 24.3 11.1 2.7 amortisation) $19.7M $26.6M $48.0M $16.0M $110.3M
Operational Volumes down 12%. Volumes up 4% due Volumes up 22% Volumes down 2%. insights Australian and New to Viverso volumes, reflecting the six month Automotive and Zealand construction underlying volumes contribution from Viverso. industrial markets sectors at cyclical lows. flat as Chinese Volume excluding Viverso improved in the second economy slows was down 5%. half of the year, partially Australian manufacturing relative to the past and infrastructure Steady demand from offsetting the weaker decades growth and first half. activity subdued South East Asian Northern Europe offset reflecting ongoing domestic demand by weaker demand from EBITDA (up 18% structural shift. was flat. Southern Europe and in local currency) lower exports to Middle Operational review increased due to Pricing actions taken East and Asia. improved unit margins, underway. to recover higher EMEA EBITDA excluding supported by strong raw material costs Viverso was flat (up 8% cost control and resulted in steady unit in local currency), unit NuLEAP benefits. margins but capacity margins, cost control and constraints and cost NuLEAP benefits offset inflation resulted weaker demand. in slightly reduced EBITDA. Viverso contributed $10.4m in EBITDA exceeding its forecast contribution.
Products’ Main markets Coating and Coating resins Coating resins Coating resins other resins Decorative, automotive Automotive OEM, Metal, vehicle refinish, Decorative, wood, metal, OEM, metal, vehicle vehicle refinish, marine and protective, adhesives, textiles, inks. refinish, marine and decorative, metal, decorative, wood. protective, wood, and powder, wood, marine powder. and protective.
Composites Marine & leisure, infrastructure, transport, Composites swimming pools. Marine & leisure, sheeting, swimming pools and specialised casting. Paper Newsprint, tissue, packaging and fine paper.
Construction products Residential construction, commercial fit-out and industrial flooring.
18 NUPLEX INDUSTRIES LIMITED SPECIALTIES Specialties consists of two businesses that operate in Australia and New Zealand. The largest is the Agency and Distribution business, recently renamed Nuplex Specialties, which acts as an agent for the sale and distribution of internationally manufactured products to a wide range of industries. Nuplex Masterbatch is also in this segment and produces concentrated colour and performance additives for the plastics industry. Our specialties segment serves a broad range of industries in Australia and New Zealand.
2012 results total specialties total GROUP
Sales up up 1.0% 2.6% $305.1M $1,615.9M
EBITDA Down up (Earnings before % % interest, tax, Depreciation and 11.8 0.1 amortisation) $20.7M $131.0M
Operational Revenue included 9 months of acquired Acquos business. Net profit after tax attributable to shareholders insights Earnings impacted by weaker demand from the Australian down 6% to $62.5m. and New Zealand construction and manufacturing sectors. Agency and Distribution - Sales down 12% in Australia and down 4% in New Zealand. - Steady demand for Food & Nutrition, Healthcare and Pharmaceutical products. - Tough conditions in Australia reduced demand for products used in plastics and coatings, as well as surfactants. - Formation of Nuplex Specialties complete: six brands integrated into one brand. Masterbatch - Sales slower than expected due to weaker Australian trading conditions. - Acquired Acquos masterbatch operations EBITDA contribution approximately A$1m.
Products’ Main markets Agency and Distribution Agriculture, Mining, Oil & Gas, Food & Nutrition, Cosmetics & Personal Care, Plastics, Construction, Coatings.
Masterbatch Concentrated colour and plastic additives.
2012 annual report 19 CHairman’S REPORT
20 NUPLEX INDUSTRIES LIMITED REVIEW OF strategy “we’ve made good progress towards delivering on our strategy to strengthen and profitably grow nuplex.” emery severin / ceo
We’ve focused, and will continue to focus, on generating sustainable earnings growth for our shareholders by: Strengthening Nuplex through the pursuit of operational excellence in the areas of: 1) Safety; 2) Employee engagement; and 3) Improving the way we work. Building market leading positions through: 1) Organic growth in emerging markets; 2) Market development and innovative R&D; and 3) Disciplined strategic acquisitions.
2012 annual report 21 REVIEW OF strategy
ONE GLOBAL TEAM Over the past 12 months, we’ve continued to introduce initiatives to enable our 1,800 employees, located across the world, to work together as One Global Team. As teams and individuals across the Group reap the We are introducing technology to facilitate global benefits of working together, employees are embracing employee collaboration such as the implementation our One Global Team approach. For example: of a single intranet. • Recently formed global account teams are seeing Additionally, during the year, we progressed the rollout the benefits of working together to better service the of our single global enterprise resource planning system regional needs of multinational customers. which when complete will bring all our operations onto • Through cross regional collaboration, the R&D ‘overlay’ one technology platform. teams are introducing Nuplex’s regionally developed innovative products across our global operations.
Nuplex Germany: Bulk raw material tanks at bitterfeld site NuLEAP Over the past 18 months, NuLEAP has improved the way we work. Through increasing our efficiency and improving our effectiveness across the business, NuLEAP is underpinning our pursuit of operational excellence. This year, NuLEAP delivered $14 million in benefits They have varied from ideas that could be implemented exceeding the program’s 2012 financial year target within months, such as simplifying reactor cleaning of $10 million. processes, to initiatives that required planning and investment, such as the restructure of the Australian in the last two years, NuLEAP has added and New Zealand based Composites business. value through the delivery of over As well as delivering measurable benefits, a key objective of NuLEAP was to set the foundation for $17 million in benefits, and is on track to a continuous improvement culture. deliver its program target of $30 million. Now, 18 months later, this foundation has been laid and NuLEAP’s rigorous framework has been embedded Since its implementation, a wide variety of into the way we work. This foundation will be used to improvements have been undertaken in all areas of support the pursuit of operational excellence as we the business including sales, operations, logistics, move beyond NuLEAP in the years to come. warehousing, procurement, network efficiencies, and capacity utilisation.
22 NUPLEX INDUSTRIES LIMITED building value We are laying the foundations for future growth through building market leading positions in selected markets and product groups. These market leading positions are being built through This process is taking longer than anticipated, but we profitable investments in organic growth projects are making headway and anticipate construction of the in emerging markets, innovative R&D and market US$35 million plant will commence by the end of 2012. development activities as well as strategic disciplined Our plans for a new fourth site in Southern China have acquisitions. been put on hold. However, as our growth strategy is focused on serving the domestic market, which will ORGANIC GROWTH IN EMERGING MARKETS continue to grow as the economy industrialises, we Our customer value proposition underpins our ability continue to investigate where our next site should to successfully grow in emerging markets. be built. Vietnam Russia In the first major milestone for our emerging markets In Russia we signed an agreement to form a Joint capital expenditure program, the new waterborne plant Venture (JV) with Kvil Group, a Russian paint and resins at our site in Vietnam was commissioned in May 2012, producer. Initially Nuplex will invest EUR 2.5 million on time and on budget. to form a sales and marketing partnership. This project has been a highlight for Nuplex as it was In 2014, subject to market conditions, a greenfield completed safely in only 18 months and provides the manufacturing site will be built in Belgorod, Russia. additional capacity so Nuplex can continue to be a leading supplier of resins for decorative paints and other BY MOVING INTO RUSSIA VIA A JOINT non-coatings applications in this emerging economy. VENTURE, WE ARE ABLE TO TAKE A LOW RISK APPROACH TO BUILDING AN ON-THE-GROUND PRESENCE IN THIS EMERGING MARKET. From this site, the JV will be well positioned to supply high quality resins to the multi-national coatings nupex companies who are currently increasing their local vietnam: Reactor presence, as well as supply high quality resins to the floor inside growing local paint companies. the new plant at India ho chi minh city site Given the structure of the market in India, our current strategy is to increase our presence through supplying China it from our sites in South East Asia. As part of In China, we continue to progress the development increasing our sales presence, in early 2012 we hired application for the construction of our new third site a dedicated representative who is based in Mumbai. at Changshu, west of Shanghai.
2012 annual report 23 REVIEW OF strategy
the acquired viverso site located in bitterfeld germany, now renamed nuplex BUILDING MARKET LEADING POSITIONS We took ownership on 31 December 2011 and began THROUGH STRATEGIC ACQUISITIONS the integration process immediately. The integration of the German based operations into Nuplex Masterbatch our existing European operations is progressing in line In October 2011, we acquired Acquos’s masterbatch with management expectations and the operations operations for $20.9 million. The acquired assets were were re-named Nuplex at the beginning of April 2012. integrated with Nuplex’s own Culamix operations to form Nuplex Masterbatch, now Australia’s and New Zealand’s leading supplier of colour and performance additives to the plastics industry. The integration has progressed in line with expectations and will be completed early in the 2013 financial year. Given the tough trading conditions currently being experienced in the Australian manufacturing sector, management is focused on optimising the cost base of this business.
Nuplex Germany nuplex germany: During the year we acquired Viverso, a German inside the based resins and putties manufacturer from plant at the Bayer MaterialScience for a total acquisition cost bitterfeld site of EUR 75 million. The state-of-the-art site at Bitterfeld in Eastern This acquisition is a strong strategic fit Germany is considered one of the leading resins plants for Nuplex as it strengthens Nuplex’s in the world. Importantly, having an on-the-ground presence in position in Europe as a leading resins Germany will enable Nuplex to have greater access supplier and the leading supplier of to the German industrial markets as well as greater access to the growing emerging markets of Eastern solvent borne acrylic resins. and Central Europe.
24 NUPLEX INDUSTRIES LIMITED RESEARCH and DEVELOPMENT Nuplex has built a strong reputation for delivering high quality, innovative products through our extensive R&D capabilities. Combined with our ongoing post-sales support, our In addition to the team working at the Innovation customers know we are committed to developing Centre, at each of Nuplex’s four R&D centres located products that provide solutions to meet their specific in Australia, New Zealand, The Netherlands and the challenges. US, our highly skilled teams of polymer chemists and chemical engineers are working hard, developing both Building market leading positions via R&D solutions to our customers’ particular challenges and Our ongoing investment in R&D is a key component new innovative products that meet our customers’ of our strategy to continue building market leading specific needs. positions in our selected markets and products. Once developed and commercialised, our innovative Through our R&D program we are able to further products are supported by the technical centres located strengthen and build on our existing leading niche in each country where Nuplex manufactures. market positions through the ongoing delivery of Our R&D commitment extends beyond the innovative technologies and products in the areas of: development phase and continues into every batch we • Performance coatings; manufacture. Supporting our reputation for consistently • Waterborne coatings; delivering on-specification products, every batch of • Powder coatings; and manufactured product is put through a detailed quality control process so that our customers know they can • Composite resins. rely on Nuplex products to perform as expected in their Approximately 10% of Nuplex’s employees are own manufacturing processes. engaged in R&D activities. Globalisation of our regional R&D technologies Our focused R&D program is driven by our Over the years, within each of our regions, our dedicated and highly skilled R&D teams have customers demand for high-performing established a long track record of developing innovative industrial applications that boost their solutions for our customers. We are taking the opportunity to maximise the value of these regionally customer’s productivity and quality, developed technologies and products by introducing as well as the increasing demand for them throughout our global operations. During the year, for each of our four key product areas, environmentally friendly products. ‘overlay’ teams were formed. These ‘overlay’ teams At the centre of our R&D framework is the Innovation include representatives from both our sales and R&D Centre, attached to the University of Wageningen divisions in each of our four regions working together in The Netherlands. Here the team is focused on to harness regionally developed technologies as well researching new technologies that will provide the basis as direct global R&D programs. for the next generation of market leading products.
Nuplex, The Netherlands: the Synthesis Lab at Bergen op Zoom
2012 annual report 25 REVIEW OF strategy
Our global ‘overlay’ teams have seen Strengthening our R&D portfolio through Viverso The acquisition of Viverso’s R&D portfolio provides a early success in identifying new number of growth opportunities and has expanded our own R&D portfolio through a combination of new and opportunities in Asia for our existing complementary technologies. technologies and products. The new technologies have strengthened a number of Over the past 12 months, examples of regional our existing leading market positions and opened up technologies leveraged into Asia include the new end-product markets. For example, the addition introduction of Australasian developed waterborne of polyester putties further enhances our leading textile technologies and high end decorative coating market position in Vehicle Refinish, as well as opening resins as well as European developed high performance up new opportunities in the protection and repair of metal coatings used in industrial goods such as trains construction materials such as marble. and machinery. As a German based producer, historically, Viverso’s products were predominantly sold in Europe. via our global network we are able to increase sales of the acquired Viverso products in Asia, the Americas and ANZ. Pleasingly, customers in Asia and the Americas have responded positively to the newly introduced heritage Viverso products such as those based on hydrophobic polyols technology used in hygienic flooring and water environmental proofing of construction products. testing of The expansion of Nuplex’s R&D portfolio through paint samples Viverso’s complementary technologies has widened Building a regional R&D centre in China Nuplex’s product offering in a number of areas where During the year, planning to build an R&D Applications Nuplex already has leading market positions, including Centre in China at our existing Suzhou site began. vehicle refinish, high end metal coatings used in The Centre will enable Nuplex to provide its Asian transportation and agricultural equipment as well as customers with tailored products that meet their wood and furniture coatings. needs just as we do in our other three regions. Expected to cost US$2 million, construction will occur during the 2013 financial year.
ARTIST’S IMPRESSION OF THE NEW NUPLEX R&D APPLICATIONS LAB IN SUZHOU, CHINA
26 NUPLEX INDUSTRIES LIMITED CASE STUDY ONE: SETAQUA®ECO5000 An innovative decorative resin used for trim paint. Over the last decade, changing consumer preferences Responding to our customers’ needs, Nuplex have been driving the shift within the decorative paint market from solvent borne to waterborne products. undertook the challenge to develop a Reflective of this trend, today, almost all broadwall waterbased trim paint that delivered the same paints are waterborne products. performance characteristics as a solvent However, within the decorative coatings market, the borne trim paint. shift from solvent borne trim paints to waterborne has As a result, the Australian based R&D team, utilising plateaued as the waterborne trim paints have been recently developed technology from Nuplex’s European unable to deliver the same performance characteristics R&D team, as well as their own extensive capabilities of solvent borne products, for example, in areas such in waterborne resins, was able to meet this challenge as high gloss finish, limited retouch time and inferior by developing innovative technology resulting in the adhesion to various surfaces such as metal. recently launched SETAQUA®ECO5000. SETAQUA®ECO5000 allows Nuplex’s customers to meet their customers’ increasing demand for waterborne coatings that deliver the same high gloss appearance as solvent borne paint. It also has longer retouch time than traditional water borne options and excellent adhesion to all surfaces.
CASE STUDY TWO: SETALUX 17-2319 Increasing our customer’s customers’ productivity. In vehicle body repair shops all over the world, the speed with which the repairs can be completed determines the productivity and profitability of the business. Our customers are continually looking to offer their customers products that save them repair time and increase their businesses output. Through our targeted R&D focus on performance coatings SETALUX 17-2319 was developed. Extending our market leading position in vehicle refinish coatings, SETALUX 17-2319 is a high gloss resin used in top coats where adhesion and corrosion resistance are important. In addition to providing excellent adhesion and corrosion resistance, this new product meets our customer’s customers’ challenge by improving productivity through removing the need for a primer coat, therefore saving significant time and labour costs in the vehicle body repair process.
2012 annual report 27 board of directors
ROB AITKEN Emery Severin DAVID JACKSON Chairman and Independent Director, Managing Director and Chief Executive Independent Director, based in Sydney, Australia. Officer, based in Sydney, Australia. based in Auckland, New Zealand. Joined the board in July 2006, Joined the Board as Managing Joined the Board in November 2006. and became Chairman in Director and Chief Executive Officer David’s professional career with Ernst November 2008. in April 2010. & Young spanned 33 years including Rob has over 25 years’ experience Between 1977 and 1986 Emery a period as Chairman. in senior management roles with was an officer in the Australian His focus was to major national and manufacturing, industrial marketing Regular Army and during this international clients including export and distribution businesses in period completed a B.Sc. (Hons) in focused agribusiness, fast moving Australia, Asia, North America Chemistry and was also awarded a consumable goods, retail, forestry and Europe. Rhodes Scholarship achieving a and manufacturing clients. D. Phil in physical chemistry at Most recently this has been Through his professional career Oxford University. as Executive General Manager he has had extensive international Southcorp Water Heaters and In 2007, Emery completed the experience in Asia, United Kingdom, Southcorp Appliances and prior to Harvard Business School Advanced USA, and South America. that as President of the Formica Management Program. David is an independent director Corporation. Emery joined BHP Steel in 1986 of Fonterra Co-operative Group He is a non-executive Director of holding a range of line management Limited and Pumpkin Patch Limited Rubicor Group Limited and Alesco positions in Australia and S.E. Asia. and Chairman of The New Zealand Corporation Limited. In 1996 he joined Boral Limited, Refining Company Limited. Rob is an ex officio member of the where he held senior management He is Chairman of The Dame Malvina Audit, Human Resources and Safety, roles including Executive General Major Foundation. Health & Environment Committees. Manager Australian Construction A member of the New Zealand Materials and President Boral USA. Institute of Chartered Accountants Emery returned to Australia in 2010 since 1975 David was awarded a to take up his new role at Nuplex. Fellowship in 1994. He has had a significant involvement with the professional activities of the Institute over many years. David is Chairman of the Audit Committee.
28 NUPLEX INDUSTRIES LIMITED BARBARA GIBSON Peter Springford Jeremy Maycock Independent Director, Independent Director, Independent Director, based in Melbourne, Australia. based in Auckland, New Zealand. based in Brisbane, Australia. Joined the Board in September 2008. Joined the board in September 2009. Joined the board in September 2011. Barbara is a former senior executive Peter spent 30 years in the forest Jeremy has over 35 years’ experience with Orica Limited (previously and building products industries. in the building and construction ICI Australia). He is currently a director of The industry and is the Chairman of AGL Her last position was as Group New Zealand Refining Company Ltd, Energy Limited and Port of Brisbane General Manager, Chemicals Group. Rakon Ltd, NZ Wood Products Ltd, Pty Limited. She has extensive experience in the NZ Frost Fans Ltd, and is Chairman of Having begun his career with Shell development of technology based McKechnie Aluminium Solutions Ltd. Oil in the UK and New Zealand, businesses in Australia and overseas. He is a trustee of The Graeme Dingle he has held a number of senior management positions with multi- Barbara is a non-executive director of Foundation. national corporations, principally with GrainCorp Limited, and Chairman of Peter is the Chairman of the Safety, Holcim Ltd and most recently as Warakirri Asset Management Pty Ltd. Health & Environment Committee CEO and Managing Director at and a member of the Audit In 2003 Barbara received the CSR Limited. Centenary Medal for services Committee. He holds a Bachelor of Engineering to Australian Society in Medical (1st Class Hons) in Mechanical Technology. She is a member of the Engineering, and has completed Australian Academy of Technological Stanford University’s senior executive Sciences and Engineering. and finance management programs. Barbara is the Chairman of the Jeremy is a Fellow of the Institute of Human Resources Committee and Professional Engineers New Zealand, a member of the Safety, Health & and a Fellow of the Australian Environment Committee. Institute of Company Directors. Jeremy is a member of the Human Resources Committee.
2012 annual report 29 executive team
Emery severin Ian Davis James Williams Sam Bastounas Clive Deetlefs PAUL DAVEY Managing Director Chief Financial Vice President, Regional President vice president Vice President, and Chief Executive Officer, based in General Counsel & – Australia and Operations, based Human Resources, Officer, based in Sydney, Australia Company Secretary, new zealand, based in melbourne, based in Sydney, Sydney, Australia Ian joined Nuplex based in Sydney, in Melbourne, Australia Australia See previous page in 2009 as Chief Australia Australia Clive joined Nuplex Paul joined Nuplex for details. Financial Officer. James joined Prior to being in 2010. in 2010 as Vice A Chartered Nuplex in 2009 appointed Regional Clive is a Chartered President Human Accountant, Ian in the role of President, Australia Professional Resources. has over 30 years’ General Counsel and New Zealand Chemical Engineer Previously Paul has experience in public & Company in 2011, Sam and also has a held HR leadership accounting and Secretary. James had been Chief Bachelor’s Degree positions in senior financial has over 25 years’ Operating Officer in Business/ multinationals such roles in commerce. experience in for the Australasian Accounting as Nestlé, Glaxo The commercial commercial law based Functional Economics. Wellcome and roles have and corporate Materials and In addition he is a senior consulting predominantly been administration, Specialties Certified Six Sigma roles within Ernst & in manufacturing and has worked as operations. Master Black Belt. Young and Mercer. and include legal counsel and He has held a He has 23 years’ These roles have experience in company secretary number of roles experience in senior all had regional Australia, New in a number of with Orica and ICI manufacturing accountability – Zealand, China and large publicly listed in the past and roles including based in Australia, the United States. companies and spent two years in Switzerland, the UK major corporates. process and project Prior to joining Asia as CFO of a engineering, multi- and South Africa. Nuplex, Ian was James was joint venture in the plant operational Paul has a BA and CFO of Tenix Pty previously a partner late 1990s. management, and Post Graduate Ltd and before that, in a medium-sized Sam holds a BSc regional supply honours degree General Manager law firm in Sydney (Hons) in Chemistry chain operations. in Business Finance of Rheem before leaving and an MBA, both He has global Administration. Australia Pty Ltd. private practice to from Monash work in-house. experience, having University in worked in South James holds Melbourne. Africa, the UK, degrees in In 2007 he the Netherlands, Commerce and completed the the United States, Law and is a Fellow AMP at the Asia, as well as of the Institute Wharton School Australia. of Chartered in the United Prior to joining Secretaries in States and in 2009 Australia. Nuplex, Clive was completed his the Global Six graduate diploma Sigma and Lean at The Australian Manufacturing Institute of Lead for Monsanto Company Directors. based in the United States.
30 NUPLEX INDUSTRIES LIMITED Paul Kieffer HASAN SHAFI Ruben Mannien Mike Kelly William Weaver Regional President Vice President, Regional President Regional President Vice President, – Europe, Middle Corporate – Asia, based in – Americas, based in Technology, based East and Africa Development and Shanghai, China Louisville, USA in Bergen op Zoom, (EMEA), based in Planning, based in Having joined Akzo Mike joined Nuplex the Netherlands Bergen op Zoom, Sydney, Australia Nobel as a member through the William has the Netherlands Hasan joined of their graduate acquisition of Akzo been overseeing recruitment Nobel’s Coating Paul joined Nuplex Nuplex in 2010, Nuplex’s global in the role of Vice program in 1997, Resins operation R&D activities through the Ruben joined in 2005 and has acquisition of Akzo President Corporate since 2008, having Development and Nuplex following over 30 years’ previously been Nobel Coating the acquisition of experience in the Resins in 2005. Planning. Nuplex Resins’ their coating resins coatings industry. European R&D Prior to joining Paul joined Akzo operations in 2005. manager. He holds Nuplex, Hasan was Before being Nobel in 1987 and a BSc (Hons) a Principal with Prior to being appointed to was appointed Chemistry from A.T. Kearney, a appointed Regional Regional President, General Manager the University global management President for Asia Americas in 2011, of the European of Lancaster consulting firm, in in 2011, Ruben was Mike had been Resins operations and a MSc in its Sydney office. General Manager running Nuplex’s in 2002, and held for China for three North and South Polymer Science this role until his For over ten years, years, and before American resins and Technology appointment to Hasan consulted to that, Director operations since from the London Regional President clients in Australia, General in Vietnam 2002. School of Polymer in 2011. New Zealand, for three years. Technology. SE Asia, China and Mike holds Throughout his During his career, the United States. Prior to moving into a Bachelors career he has held senior management in Business William’s areas of a number of roles Hasan has a PhD roles in Asia, Ruben Administration focus have spanned in production, sales in Mechanical held a number of from the University several of Nuplex’s and marketing Engineering from global raw material of Illinois, and key product as well as senior the University of procurement roles. graduate MBA areas including management. Newcastle, a BSc studies from powder coatings, in Aeronautical Ruben has a Paul completed Master of Science Northwestern automotive his degree in Engineering from University. in-mould and the Middle East in Industrial Mineral Processing Engineering and industrial coatings, & Metallurgy at Technical University as well as in Turkey and Management the Technical Science from composite resins. University, Delft in an MBAE from William joined the Ross School the Eindhoven The Netherlands. University of Nuplex following its of Business, acquisition of Akzo University of Technology, in the Netherlands. Nobel’s Coating Michigan. Resins operations in 2005, having joined Akzo Nobel in 1994.
2012 annual report 31 contents
33 Corporate Governance 44 Financial Report 45 Auditors’ Report 46 Statements of Comprehensive Income 47 Statements of Changes in Equity 48 Statements of Financial Position 49 Cash Flow Statements 50 Notes to the Financial Statements 91 Five-Year Statistical Summary 92 Shareholder Information 94 Statutory Information IBC Corporate Directory
32 NUPLEX INDUSTRIES LIMITED Corporate Governance Report
1. Introduction 3. Role and Function of Senior Management Nuplex Industries Limited (Nuplex) is listed on the New The Board has delegated to the Managing Director Zealand Stock Exchange (NZX) and the Australian Securities responsibility for the conduct of the affairs and day-to-day Exchange (ASX). management of the Company. Delegation is subject to Nuplex has adopted the following governance principles as matters reserved for Board approval as detailed in the Board the benchmark against which it will implement its governance of Directors Charter. principles and practices: In addition, there are 10 senior executives reporting to the • The NZX Corporate Governance Best Practice Code; Managing Director who have been delegated the responsibility for managing key areas of the business including: operations • The New Zealand Financial Markets Authority’s Governance and production facilities, raw material purchasing, sales, Principles and Guidelines; and marketing, distribution, technology, research & development, • The ASX Corporate Governance Principles and financial and treasury management, strategic planning, human Recommendations (2nd Edition). resources, legal and compliance, investor relations, regulatory This report contains details of Nuplex’s corporate governance affairs and corporate governance. practices. The performance of the Managing Director and senior executives is reviewed periodically by the Board, and by the 2. Role and Function of Board of Directors Managing Director in respect of executives against appropriate measures set by the Board, the Managing Director and the The Board of Directors (the Board) of Nuplex is elected by Human Resources Committee relative to the executive’s role. shareholders to direct and supervise the management of the The Human Resources Committee has oversight in relation Company. to the setting of goals to be achieved by senior executives in The Board establishes the strategic direction and objectives connection with both short‑term and long‑term incentive of the Company and sets the policy framework within which schemes and monitors the performance of senior executives the Company will operate. The Board appoints the Managing in relation to the achievement of those goals. In accordance Director, delegates appropriate authority for the management with this process, a performance evaluation for senior of the Company, and monitors management’s performance on executives has taken place during the reporting period. a regular basis. During the year under review, the executive management Nuplex has formally established the functions reserved to the structure of the Group was as follows: Board. These are contained in the Board of Directors Charter which is available in the Investor Relations section of the Company’s website (www.nuplex.co.nz).
Executive management structure of the Group Emery Severin Managing Director & Chief Executive Officer
Regional Presidents Group Heads Sam Bastounas – Australia & New Zealand Ian Davis – Also responsible for Chief Financial Officer • Global composites development Paul Davey – Mike Kelly – Americas Vice President, Human Resources Also responsible for Clive Deetlefs – • Global performance coatings development Vice President, Operations • Global Key Accounts Hasan Shafi – Paul Kieffer – Europe, the Middle East & Africa Vice President, Corporate Development & Planning Also responsible for William Weaver – • Global powder coatings development Vice President, Technology • Global Procurement Council Chairman James Williams – Ruben Mannien – Asia Vice President, General Counsel & Company Secretary Also responsible for • Global waterborne products development
2012 annual report 33 Corporate Governance Report – continued
4. Board Structure 5. Board Committees The Board is comprised of a majority of five non‑executive The Board has the following standing committees. Directors, all of whom are independent Directors. The The Chairman, Mr Rob Aitken, is an ex‑officio member of all Managing Director, Emery Severin, is the only executive Board committees. Non‑members of Board committees have Director. Non‑executive Directors are selected to ensure that a standing invitation to attend meetings of all Board a broad range of skills and experience is available. Mr Rob committees. Aitken is the current Chairman. During the year under review, Mr Michael Wynter retired as a non‑executive Director, with Nomination Committee effect from the 2011 annual meeting, having been replaced The Board’s practice has been that the full Board constitutes by non‑executive Director Mr Jeremy Maycock, who joined the Nomination Committee. From time to time the Board the Board in September 2011. establishes a sub‑committee to carry out the responsibilities The Board meets in accordance with a schedule prepared of the Nomination Committee. well in advance of the start of each calendar year; rotating The responsibilities of the Nomination Committee include between the Auckland office and other overseas facilities. the identification and nomination of suitable candidates to This enables Directors to become familiar with the Group’s fill board vacancies as they arise. The policy and selection market environment and manufacturing operations and to process for the appointment of Directors includes an meet employees. Board meetings follow procedures that evaluation of the skills, knowledge and experience of current ensure that all Directors have the necessary information to Directors, an evaluation of the competencies required of participate in an informed discussion on all agenda items. prospective Directors and the evaluation of prospective Senior managers make direct presentations to the Board on candidates against these requirements. A similar evaluation a regular basis to give the Directors a broad exposure to occurs in connection with the re-election of directors to management philosophies, capabilities and the key issues ensure that the Board has the requisite range of skills and facing the business and actions taken to address them. experience. In determining the mix of skills, the Nomination Any Director is entitled to obtain professional advice relating to Committee and the Board will have regard to the objectives the affairs of the Company or to his or her other responsibilities sought to be achieved in accordance with the Company’s as a Director. The full provisions in this regard are set out in Diversity Policy. the Board of Directors Charter and other Board Committee A description of the procedure for the selection and Charters. appointment of new Directors, including the policy for the The Board has established that all non‑executive Directors are nomination and appointment of Directors, is set out in the independent after taking into consideration their associations Nomination Committee Charter which is available in the as Directors and shareholders of the Company and as Investor Relations section of the Company’s web site Directors, officers or shareholders of other organisations. (www.nuplex.co.nz). Details of the Directors’ skills and experience, period of The Nomination Committee did not meet during the year appointment and their interests are disclosed on pages 28 under review. and 29 of this report. Audit Committee The Board has instituted a system to review annually the performance of the Board, its Committees and individual The Audit Committee is comprised of three independent, Directors. This process involves peer review and one‑on‑one non‑executive Directors, of whom one is the Company consultation between the Chairman and individual Directors. Chairman, ex officio. The Managing Director, the Chief In accordance with this process, an evaluation of the Board, Financial Officer, the internal auditor and the external auditors its Committees and the performance of directors took place attend meetings by invitation. within the reporting period. The composition of the Audit Committee during the last The Board has held 17 meetings during the year ended financial year was David Jackson (Committee Chair), 30 June 2012 with attendances recorded as follows: Rob Aitken and Peter Springford. The qualifications of the members of the Audit Committee are disclosed on pages 28 Name of Director No. of Meetings attended and 29 of this report. R M Aitken 17/17 The Audit Committee met on three occasions during the year B J Gibson 17/17 ended 30 June 2012 with attendances recorded as follows: D A Jackson 15/17 Name of Director No. of Meetings attended J C R Maycock 14/15 R M Aitken 3/3 E S Severin 17/17 D A Jackson 3/3 P M Springford 17/17 P M Springford 3/3 M R Wynter 5/5 The Committee has direct communication with and (Denominator indicates the number of meetings which took place in unrestricted access to the Group’s external auditors, the period during which the director held office.) the internal auditor and internal accounting staff. Where a director was unable to attend a meeting of the Board, The Committee’s responsibilities include: the director was afforded the opportunity to provide input to – Reviewing the half yearly and annual financial statements the Chairman in advance of the meeting. and reports and advising all Directors whether they comply with the relevant and appropriate laws, regulations and recognised accounting policies;
34 NUPLEX INDUSTRIES LIMITED – Obtaining formal sign‑off from the Managing Director and Remuneration packages are reviewed annually with the the Chief Financial Officer that the Company’s financial benefit of independent external advice to ensure that reports present a true and fair view, in all material respects, remuneration is competitive with like organisations within and are in accordance with applicable accounting standards; the jurisdiction in which an employee resides. The Human – Oversight of compliance with statutory responsibilities Resources Committee has taken steps to ensure that its relating to financial and stock exchange regulations and approach to the appointment and use of remuneration guidelines; advisers accords with legislative requirements in Australia. – Approval of other advisory services from the external During the last financial year, the Human Resources auditor; Committee was comprised of Barbara Gibson (Committee Chair), Rob Aitken, Michael Wynter and Jeremy Maycock, – Monitoring of corporate financial risk; who replaced Michael Wynter on his retirement in – Reviewing the Company’s accounting policies and reporting November 2011. requirements to ensure accuracy and timeliness and the The Committee has met on five occasions during the year inclusion of appropriate disclosures; ended 30 June 2012 with attendances recorded as follows: – To review the scope and outcome of the external audit. Name of Director No. of Meetings attended The Committee reports the proceedings of each meeting to R M Aitken 5/5 the Board. B J Gibson 5/5 The Audit Committee has the responsibility for making recommendations to the Board in connection with the J C R Maycock 3/3 appointment of the external auditor. The Audit Committee M Wynter 2/2 Charter requires the Audit Committee to ensure that the (Denominator indicates the number of meetings which took place in external audit lead partner’s term is limited to five years. The the period during which the director held office.) Audit Committee will monitor to ensure that the rotation of the external engagement partner occurs in accordance with The Charter of the HR Committee is available in the Investor this requirement. Relations section of the Company’s web site (www.nuplex.co.nz). The Audit Committee has a formal charter which is available in the Investor Relations section of the Company’s web site Safety, Health and Environment Committee (www.nuplex.co.nz). The Safety, Health and Environment (SHE) Board Human Resources Committee sub‑committee is comprised of three independent, non‑executive Directors of whom one is the Company (formerly the Remuneration Committee) Chairman, ex officio. In March 2012, the Board agreed to expand the The purpose of the Committee is to assist the Board in responsibilities of the former Remuneration Committee to discharging its responsibilities by assessing and monitoring encompass the following: the effectiveness of the Company’s safety, health and • Assisting the Board in the establishment of effective environment programmes, initiatives and policies with a view remuneration policies and practices including the setting, to ensuring compliance with all legislative and regulatory and reviewing the effectiveness of, the remuneration, requirements. recruitment, retention and termination policies and The composition of the SHE Committee during the last procedures for senior executives; financial year was Peter Springford (Committee Chair), • Making recommendations to the Board on all components Rob Aitken and Barbara Gibson. of the remuneration of the non‑executive directors; The Committee has met on six occasions during the year • Reviewing and making recommendations to the Board in ended 30 June 2012 with attendances recorded as follows: connection with the human resources policies and practices Name of Director No. of Meetings attended in the following areas: R M Aitken 6/6 – Succession planning for executive and senior management roles; B J Gibson 6/6 – Talent management including plans for appropriate P M Springford 6/6 development opportunities and training; The Charter of the SHE Committee is available in the – Diversity. Investor Relations section of the Company’s web site Consistent with the expanded role and responsibilities of the (www.nuplex.co.nz). Committee, its name was changed to the Human Resources US Private Placement Due Diligence Board Committee, in March 2012. Sub‑Committee The Human Resources Committee is comprised of three independent, non‑executive Directors, of whom one is the In order to deal with due diligence aspects relating to Company Chairman, ex officio. The Managing Director is not the raising of US$105 million of debt from the US Private a member of the Committee. Placement market, the Board resolved to establish a special Board Sub‑Committee comprised of the members of the With regard to the setting of remuneration, the Human Audit Committee. Resources Committee meets as required to review the remuneration of the Directors, the Managing Director and the The Committee met on two occasions during the year ended senior executives reporting directly to the Managing Director, 30 June 2012, with all committee members in attendance on before making recommendations to the Board. each occasion.
2012 annual report 35 Corporate Governance Report – continued
Special Board Sub‑Committee 1. Gender Diversity Targets A Special Board Sub‑Committee comprised of the Chairman, In FY2011, the percentage of females in the Company was the Chairman of the Audit Committee and the Managing 20% globally and the percentage of females in management Director was formed on two occasions, coinciding with the roles was 16.5%. For FY2012, an aspirational target of 20% finalisation of the half‑year and full-year accounts, females in management roles was set, towards which the respectively. Company would work over the next 12 months. At the end of The purpose of the Special Board Sub‑Committee on each FY2012, the overall percentage of females in the Company occasion was to approve adjustments made to the accounts has remained constant at 20%, whereas the percentage in and results release documentation, following meetings of the management has risen to 17.4%. Audit Committee and Board, and to approve the release of the FY11 FY12 final accounts and related documentation at the half‑year and % Females % Females % Females % Females full‑year, respectively. in Company in Mgt in Company in Mgt 20% 16.5% 20% 17.4% 6. Code of Conduct 2. Diversity Promotion The Board has established a policy (Code of Conduct and Ethics Policy) to give guidance to its employees and Directors To ensure that the diversity value is promoted globally across on how it expects them to conduct themselves when all our sites, a number of activities have been undertaken: undertaking business on behalf of the Company. • A program has been initiated to bring the value of diversity The Board has also established a “Whistleblower” Policy (and the other five Core Values) to life through behavioural to provide guidance and assistance to employees who may and awareness programs on site. wish to disclose information that relates to wrongdoing in the • A Nuplex Leadership Academy was launched in the FY2012 workplace and related work environment. aimed at our future leaders. This is an individually tailored The Code of Conduct and Ethics Policy is available in the program supporting our future leaders through a series of Investor Relations section of the Company’s web site online learning opportunities, 360-degree assessments and (www.nuplex.co.nz). coaching. Over half of the participants on this program are female. 7. Diversity Policy • Talent Management: A number of psychometric tools including HBDI, MBTI, 360-degree feedback and individual Nuplex has over 1,800 employees across 13 countries around coaching have been initiated across Nuplex. This has been the world and appreciates the value inherent in a diverse aimed at our leadership group and also our emerging female workforce. Our diversity is represented in various ways leadership irrespective of their seniority. including gender, age, origin, race, cultural heritage, language and physical ability. Based upon the Nuplex 2012 Employee • Development Plans: The Development Plans of all females survey, 51.7% of employees speak a home language other who are identified as high potential at the annual executive than English. The specific languages spoken and ratios are talent review discussions are to be reviewed by the CEO as follows: and VP, HR. Language % • Global and local policies have been reviewed to ensure that they are: English 48.3% (a) discrimination‑free and that; Dutch 16.3% (b) flexible employment practices specifically sympathetic Mandarin 12.2% to working women are in place. German 7.1% • Nuplex Global Employee Survey: The 2012 Nuplex Employee Survey completed by 65% of employees, Vietnamese 6.3% globally, indicated that 95% of respondents agreed that Bahasa Indonesia 6.1% Nuplex respected “employee diversity in culture, religion, Bahasa Malaysia 3.7% language and gender”. This was the highest scoring answer of all the survey questions posed. Nuplex acknowledges that promoting diversity across the Nuplex Group ensures that the talents of all our people are maximised to the fullest to ensure that we realise our 8. Trading in the Company’s Shares corporate goals. The Board has established a policy and procedure for the To this end, Diversity has also been established as one of guidance and direction of Directors, senior managers and Nuplex’s Core Values: employees on the laws governing share trading (Securities Trading Policy and Guidelines). “We value diversity in culture, age, gender, thinking styles and preferences.” Under the policy, Directors, senior managers and employees are advised that it is illegal to buy or sell ordinary shares, In 2011, a Diversity Policy was adopted by the Board and capital notes or other listed securities if they have material specific goals were identified for the Company. The goals are information that is not generally available to the market and, in two areas: if it were generally available to the market, a reasonable 1. Targets aimed at increasing the percentage of women in person would expect it to have a material effect on the price management roles across Nuplex, and of the Company’s listed securities. The policy contains 2. Undertaking specific actions to promote and nurture all provisions prohibiting entry into transactions in relation to forms of diversity across Nuplex. products which operate to limit the economic risk of security holdings in Nuplex.
36 NUPLEX INDUSTRIES LIMITED The policy also covers the notification procedures that must to the Board through the Managing Director. This includes be adopted by Directors and senior managers before they buy formulation of policies and procedures which cover the or sell the Company’s listed securities. identification, assessment, reduction, management and The Securities Trading Policy and Guidelines has been lodged monitoring of risk, as well as identifying any material with the ASX in accordance with ASX listing rule requirements, changes to the Group’s risk profile. These are required to and a copy is available in the Investor Relations section of the be reported to the Board at regular intervals. Company’s web site (www.nuplex.co.nz). • There is regular assessment by the Board and senior During FY2011, the Company amended the Share Trading executives of strategic risks affecting the Company’s Policy and Guidelines to comply with changes to the ASX operations and the establishment of controls to reduce Listing Rules, in particular, to provide for the “closed periods” their impact. This includes policies and procedures directed during which trading in securities may not take place. at maintaining all relevant registrations and approvals in relation to operating plant, processes, handling of materials that are hazardous or require traceability. On a regular basis 9. Communications and Disclosure the Board also reviews the Company’s internal controls and Nuplex has established a Communications and Disclosure risk management practices to ensure that they are adequate Policy to ensure compliance with NZX and ASX disclosure and reflect the Company’s risk profile. requirements and to ensure accountability for compliance at • Nuplex’s risk management policies require that risk a senior executive level. assessments are conducted for all major work initiatives, The Communications and Disclosure Policy is available in where new projects are undertaken and for new product the Investor Relations section of the Company’s website introductions. (www.nuplex.co.nz). • Nuplex’s risk management policies require that there is Nuplex has established a separate Shareholder periodic verification of risk controls at various levels across Communications Policy designed to promote effective the Company’s operations. communication with shareholders, and to encourage • The Company has established a range of policies and shareholder participation at the annual general meeting. procedures aimed at assisting in the management of risk Nuplex ensures that its Auditor attends the annual general across the Company’s operations. meeting and is in a position to answer questions about the audit of Nuplex’s financial information. • The Board satisfies itself that adequate external insurance cover is in place appropriate for the Company’s size and The Shareholder Communications Policy is available in the risk profile. Investor Relations section of the Company’s website (www.nuplex.co.nz). • The Board satisfies itself that adequate Safety, Health and Environmental Protection Policies and hazard assessments are in place and monitors performance. The SHE Board 10. Risk Management Sub‑Committee assists the Board in this process. Nuplex recognises that in order to achieve its business plans • The Managing Director and Chief Financial Officer also and strategic goals there must be a thorough understanding provide a declaration that the financial statements of the across the Group of the risks that may affect the ability of the Group present a true and fair view, in all material respects, Group to achieve those plans and goals. of the Group’s financial position and operating results. At the direction of the Board, Nuplex’s management has The Managing Director and Chief Financial Officer are able developed an enterprise risk management framework for the to make this declaration having regard to the Company’s oversight and management of material business risks which sound system of risk management and control. has been implemented and is being continually embedded • The Company has established an internal audit function across the Group. within the Group to assist the Company in carrying out the Nuplex’s Risk Management Framework incorporates key analysis and independent appraisal of the adequacy and principles covering Risk Governance, Risk Infrastructure and effectiveness of the Group’s financial risk management Oversight, and Risk Ownership to provide a structured and and internal control systems. The internal audit function transparent approach to managing risk across the Group. is independent of the external auditor. Through the development and implementation of this The Board requires management to report to it on whether framework, the Board ensures that there are appropriate risk risks are being managed effectively, and management has management and internal control systems which manage reported to the Board periodically during the financial year Nuplex’s material business risks. under review as to the effectiveness of the management of Throughout all of its business operations the Company has in material business risks in accordance with the risk place policies, processes and systems which are designed to management framework. identify, assess, monitor and manage material business risk. Accordingly, the Company’s policies are aimed at managing 11. Internal Financial Control and risk in the following ways: Risk Management • The Board of Directors has oversight of risk management The Board, assisted and advised by the Audit Committee, initiatives aimed at identifying risks which may have a monitors and approves the Company’s system of internal material impact on the Company’s business. financial control which includes clearly defined policies • The Managing Director and senior executives of the controlling treasury operations, capital expenditure Company are responsible for designing and implementing authorisation and risk management. The Board participates risk management and internal control systems which in the development of strategic plans, approves budgets and identify material risks that the Company faces as well as monitors performance monthly. managing risk across the Group, and are required to report
2012 annual report 37 Corporate Governance Report – continued
The Chief Financial Officer is responsible to the Managing remuneration packages that are aligned with the objectives Director for ensuring that all operations within the Company of the Company and its shareholders and comprise: adhere to the Board‑approved financial control policies. – A Total Employment Cost (TEC) element as defined below; The Managing Director and Chief Financial Officer have signed – For all managers, a Short Term Incentive (STI) payment a declaration stating: dependent on achievement of annual financial performance 1. That financial statements for year ended 30 June 2012 hurdles and specific operational objectives. present a true and fair view, in all material respects, of the – For senior executives reporting to the Managing Director, Group’s financial condition and operational results and are a Long Term Incentive (LTI) payment in the form of cash in accordance with NZIFRS; or ordinary shares in the Company applicable to senior 2. That the statement referred to in the preceding paragraph 1 executives based on achievement of performance criteria is founded on a sound system of risk management and aligned to the objectives of shareholders including growth internal control which implements policies adopted by the in Total Shareholder Return and Earnings Per Share. At the Board of Directors; and 2010 annual meeting shareholders approved the Company’s 3. That the Group’s risk management and internal compliance Performance Rights Plan and the grant of up 1,800,000 and control system is operating efficiently and effectively in Performance Rights to the Managing Director under the all material respects. terms of that plan, such grant to be made over a three-year period. 12. Remuneration – For other senior managers, a Medium Term Incentive (MTI) payment which is dependent on achievement of financial 12.1 Senior Executive Remuneration performance hurdles and specific operational objectives The policy of the Company is to reward the Managing Director which may be required to be achieved over a period in and senior executives and managers with competitive excess of 12 months.
Executive TEC and Short and Long Term Incentives The remuneration of the Senior Executives of the Company for year ended 30 June 2012 was as follows: Cash LTI Name Title TEC STI & MTI1 Other Share LTI Total
Currency AUD E Severin Chief Executive Officer 1,065,000 441,975 65,753 – 295,437 1,868,165 S Bastounas Regional President Aust & NZ 484,633 83,541 42,474 60,5792 80,717 751,944 I Davis Chief Financial Officer 448,190 98,154 77,250 – 74,647 698,241 J Williams VP General Counsel & Co Sec 337,984 75,032 18,031 – 56,304 487,351 C Deetlefs VP Operations 362,752 80,531 – – 60,418 503,701 P Davey VP Human Resources 339,950 74,449 – – 56,620 471,019 H Shafi VP Planning & Strategy 339,950 75,469 – – 56,620 472,039 Currency EUR P Kieffer Regional President EMEA 260,167 101,462 82,109 – – 443,738 R Mannien Regional President Asia 207,276 47,439 52,033 154,5833 – 461,331 Currency USD M Kelly Regional President Americas 327,827 117,092 68,336 – – 513,255 Currency GBP W Weaver VP Technology 141,193 30,925 44,233 – – 216,351
1. Amounts provisioned for payment subject to future performance hurdles; includes participation in MTI where Senior Executive was formerly a senior manager. 2. Retention payment. 3. Expatriate allowance.
38 NUPLEX INDUSTRIES LIMITED Interest in Performance Share Rights The table below shows details of Performance Share Rights over Nuplex Industries Limited ordinary shares in which Senior Executives of the Company hold relevant interests being Performance Share Rights issued in accordance with the rules of the Performance Rights Plan approved by shareholders at the 2010 Annual Meeting. Vested and Balance at Granted Exercised Lapsed Balance exercisable the start during during during at the end at the end Name of the year the year the year the year of the year of the year
E Severin 526,316 575,676 – – 1,101,992 – S Bastounas 146,312 157,178 – – 303,490 – I Davis 135,310 145,359 – – 280,669 – C Deetlefs 109,516 117,650 – – 227,166 – H Shafi 102,632 110,254 – – 212,886 – P Davey 102,632 110,254 – – 212,886 – J Williams 102,038 109,616 – – 211,654 –
Total Employment Cost (TEC) may include the following The Managing Director is entitled to annual LTI grant up components: to an amount of 100% of TEC subject to achievement of (i) Cash salary. performance hurdles. The initial grant was in the form of $900,000 cash pro-rated for the period from commencement (ii) The cost of the provision of a motor vehicle to a standard of employment until 30 June 2010. nominated by the executive and approved by the Board. At the 2010 annual meeting shareholders approved the (iii) Superannuation including compulsory and voluntary Company’s Performance Rights Plan and the grant of up contributions. 1,800,000 Performance Rights to the Managing Director (iv) Other non‑cash benefits nominated by the executive and under the terms of that plan, such grant to be made over a approved by the Board. three-year period. In 2010, 526,316 Performance Rights were (v) Fringe benefits tax payable in respect to any component granted to the Managing Director under the terms of the of TEC. Performance Rights Plan. In 2011, 575,676 Performance Rights were granted to the Managing Director. Executive and management salaries were reviewed with effect from 1 July 2011. In most cases, increases were in line Vesting of performance rights under the Performance Rights with cost of living increases, except in cases of promotion or Plan is subject to performance hurdles based on Earnings Per similar special circumstances. Share (EPS) growth and Nuplex’s Total Shareholder Return (TSR) performance relative to companies within the NZX50 Managing Director’s Remuneration Index over a measurement period of three to four years. The Managing Director’s remuneration consists of “Total Employment Cost” (TEC) as defined above, plus the short 2009 LTI Plan term and long term incentives referred to in the above tables. During the year ended 30 June 2010, the Company offered a cash‑based LTI incentive to senior managers. The LTI Plan Total Employment Cost (TEC) was designed to drive behaviour that grows business value For the year under review, the Managing Director’s TEC was over the longer term and to complement the shorter term AUD1,065,000 per annum. focus of the STI Plan. Incentives The 2009 LTI Plan, effective from 1 July 2009, is subject Under the terms of the employment agreement with the to performance hurdles based on Earnings Per Share Managing Director, he is entitled to receive incentive awards (EPS) growth and relative Total Shareholder Return over a as set out below calculated by reference to his TEC. measurement period of three to four years. In respect of the 1. Short Term Incentive (STI) 2009 LTI Plan grant, 50% of the grant was based on EPS and 50% on TSR. The amount of the STI payment in any year will be determined by the Board by assessment of the Managing Director’s In accordance with the terms of the Plan, Nuplex’s Total performance against financial and non‑financial targets set by Shareholder Return (TSR) performance has been measured the Board at the start of each financial year. For performance relative to companies within the NZX50 Index. TSR is defined outcomes at target level, the Managing Director would receive in the plan rules as share price growth and dividends paid and 50% of his TEC, and for performance outcomes at stretch reinvested (adjusted for rights, bonus issues and any capital level, he would receive a maximum of 100% of his TEC. reconstructions) measured over the measurement period. 2. Long Term Incentive (LTI) The EPS hurdle is triggered by a percentage growth in Nuplex’s compound annual growth rate in earnings per share The LTI Plan is designed to drive behaviour that grows over the measurement period. Target growth in EPS was 10% business value over the longer term and to complement the per annum from a starting base of EPS for the year ended shorter term focus of the STI Plan. 30 June 2009 of NZ19.18 cents.
2012 annual report 39 Corporate Governance Report – continued
The following tables set out the measurement of performance under the 2009 LTI Plan.
TABLE: 2009 LTI PLAN – PERFORMANCE SCORECARD (Relative TSR Percentile) 2009‑10 LTI FY09 Performance Payment Year 1 Year 2 Year 3 Cash Plan Actual Base Level Potential FY10 FY10-FY11 FY10-FY12
TSR vs NZX50 Index Actual TSR P98 P92 P80 Performance Threshold = P40 0% > P40 Required for Payment Target = P50 50% P50 Stretch => P75 100% P75
TABLE: 2009 LTI PLAN – PERFORMANCE SCORECARD (EPS CAGR*) (*Compound Annual Growth Rate) 2009‑10 LTI FY09 Performance Payment Year 1 Year 2 Year 3 Cash Plan Actual Base Level Potential FY10 FY11 FY12
EPS Actual EPS (cents) 8.8 19.2 33.7 34.2 31.8 Performance Threshold = 95% Tgt 0% 24.2 Required for Payment Target 50% 25.5 Stretch = 115% Tgt 100% 29.4 Based on the performance shown in the above tables, the award for the 2009 LTI Plan was at Stretch (100%) for both TSR and EPS targets.
Performance Rights Plan (2010 issue) Performance Hurdle: EPS Growth In 2010, Performance Rights were issued to senior executives The vesting scale for the EPS Tranche (50%) is as follows: in accordance with the terms of the plan as follows: Compound Annual Participant PR Issue Growth Rate Emery Severin 526,316 Performance Level (CAGR) in EPS Vesting % Ian Davis 135,310 < Threshold < 6% 0% Rob Harmsen* 146,312 Threshold 6% 0% Sam Bastounas 146,312 > Threshold & < Target > 6% & < 10% Pro rata Clive Deetlefs 109,516 Target 10% 50% Hasan Shafi** 102,632 > Target & < Stretch > 10% & < 16% Pro rata Paul Davey** 102,632 Stretch ≥ 16% 100% James Williams 102,038 Measurement to determine the extent of vesting of Total 1,371,065 performance rights issued under the Performance Rights Plan in 2010 will occur at the conclusion of the 2013 financial year. (* No longer a senior executive with Nuplex; 11 ** Issue to be pro‑rated to /12ths for one month delayed entry to plan). Vesting of Performance Rights issued under the Performance Rights Plan in 2010 is subject to the following performance hurdles: Performance Hurdle: Total Shareholder Return (TSR) The vesting scale for the TSR Tranche (50%) is as follows and is measured against the performance of companies in the NZX50 Index. Relative TSR Percentile (P) Performance Level Ranking Vesting % < Threshold < P40 0% Threshold P40 0% > Threshold & < Target > P40 & < P50 Pro rata Target P50 50% > Target & < Stretch > P50 & < P75 Pro rata Stretch ≥ P75 100%
40 NUPLEX INDUSTRIES LIMITED The following tables set out the current measurement of performance under the Performance Rights Plan (2010 issue).
TABLE: PR PLAN (2010 ISSUE) – PERFORMANCE SCORECARD (Relative TSR Percentile) 2010‑11 LTI Performance FY10 Performance Payment Year 1 Year 2 Year 3 Rights Plan Actual Base Level Potential FY11 FY11-FY12 FY11-FY13
TSR vs NZX50 Index Actual TSR P39 P37 (tbd) Performance Threshold = P40 0% > P40 Required for Payment Target = P50 50% P50 Stretch => P75 100% P75
TABLE: PR PLAN (2010 ISSUE) – PERFORMANCE SCORECARD (EPS CAGR*) (*Compound Annual Growth Rate) 2010‑11 LTI Performance FY10 Performance Payment Year 1 Year 2 Year 3 Rights Plan Actual Base Level Potential FY11 FY12 FY13
EPS Actual EPS (cents) 33.7 33.7 34.2 31.8 (tbd) Performance Threshold = 6% 0% 40.5 Required for Payment Target = 10% 50% 45.3 Stretch = 16% 100% 53.1
As at 30 June 2012, the performance scorecards above show that the LTI Performance Rights Plan (2010 issue) is below Threshold for both TSR and EPS targets.
Performance Rights Plan (2011 issue) Performance Hurdle: EPS Growth In 2011, Performance Rights were issued to senior executives The vesting scale for the EPS Tranche (50%) is as follows: in accordance with the terms of the plan as follows: Compound Annual Participant PR Issue Growth Rate Emery Severin 575,676 Performance Level (CAGR) in EPS Vesting % Ian Davis 145,359 < Threshold < 6% 0% Sam Bastounas 157,178 Threshold 6% 0% Clive Deetlefs 117,650 > Threshold & < Target > 6% & < 10% Pro rata Hasan Shafi 110,254 Target 10% 50% Paul Davey 110,254 > Target & < Stretch > 10% & < 14% Pro rata James Williams 109,616 Stretch ≥ 14% 100% Total 1,325,987 For the Performance Rights issued during the 2011‑12 financial year (2011 Performance Rights) the TSR and EPS Growth hurdles were set as follows: Performance Hurdle: Total Shareholder Return (TSR) The vesting scale for the TSR Tranche (50%) is as follows and is measured against the performance of companies in the NZX50 Index. Relative TSR Percentile (P) Performance Level Ranking Vesting % < Threshold < P50 0% Threshold P50 50% > Threshold & < Stretch > P50 & < P75 Pro rata Stretch ≥ P75 100%
2012 annual report 41 Corporate Governance Report – continued
The following tables set out the current measurement of performance under the Performance Rights Plan (2011 issue).
TABLE: PR PLAN (2011 ISSUE) – PERFORMANCE SCORECARD (Relative TSR Percentile) 2011‑12 LTI Performance FY11 Performance Payment Year 1 Year 2 Year 3 Rights Plan Actual Base Level Potential FY12 FY12-FY13 FY12-FY14
TSR vs NZX50 Index Actual TSR n/a n/a P35 (tbd) (tbd) Performance Threshold = P50 0% Required for Payment Target = P50 50% P50 Stretch => P75 100% P75
TABLE: PR PLAN (2011 ISSUE) – PERFORMANCE SCORECARD (EPS CAGR*) (*Compound Annual Growth Rate) 2011‑12 LTI Performance FY11 Performance Payment Year 1 Year 2 Year 3 Rights Plan Actual Base Level Potential FY12 FY13 FY14
EPS Actual EPS (cents) 34.2 34.2 31.8 (tbd) (tbd) Performance Threshold = 6% 0% 40.7 Required for Payment Target = 10% 50% 45.5 Stretch = 16% 100% 50.7
As at 30 June 2012, the performance scorecards above show that the LTI Performance Rights Plan (2011 issue) is below Threshold for both TSR and EPS targets.
Cash Rights Plan (2011) 2012 Performance Rights Plan and Cash Rights Plan – Having regard to the complexities of the laws associated Performance Hurdles with the issue of securities, including Performance Rights, For the Performance Rights and Cash Rights to be issued in countries other than New Zealand and Australia, in 2011 the during the 2012‑13 financial year (2012 Performance Rights), Board adopted a Cash Rights Plan to provide for the issue of the TSR and EPS Growth hurdles have been set as follows: a long term incentive to the four senior executives of Nuplex Performance Hurdle: Total Shareholder Return (TSR) who reside outside Australia and New Zealand. The vesting scale for the TSR Tranche (50%) is as follows and Under the terms of the Cash Rights Plan, participants are is measured against the performance of companies in the issued rights (Cash Rights), similar to rights issued under the NZX50 Index. Performance Rights Plan, except that on vesting the rights issued under the Cash Rights Plan convert into cash, rather Relative TSR than an issue of shares. Percentile (P) Performance Level Ranking Vesting % For the Cash Rights issued during the 2011‑12 financial year (2011 Cash Rights) the TSR and EPS Growth hurdles were the < Threshold < P50 0% same as for the 2011 Performance Rights, details of which are Threshold P50 50% set out in the preceding section of this report. > Threshold & < Stretch > P50 & < P75 Pro rata During the 2012 financial year, Cash Rights were issued to the Stretch ≥ P75 100% four senior executives who reside outside Australia as follows: Performance Hurdle: EPS Growth Participant Cash Rights Issue The vesting scale for the EPS Tranche (50%) is as follows: Paul Kieffer 101,988 Compound Annual Mike Kelly 98,869 Growth Rate Ruben Mannien 81,254 Performance Level (CAGR) in EPS Vesting % William Weaver 73,671 < Threshold <5% 0% Total 355,782 Threshold 5% 0% The current measurement of performance under the Cash > Threshold & < Target >5% & <9% Pro rata Rights Plan (2011) is the same as for the Performance Rights Target 9% 50% Plan (2011) as shown in the above tables. > Target & < Stretch >9% & <13% Pro rata Stretch ≥13% 100%
42 NUPLEX INDUSTRIES LIMITED 12.2 Directors’ Remuneration 13. Summary of Waivers granted by NZX There were no waivers granted under the listing rules of the Annual Fees NZX in the 12 month period preceding the date two months Fees paid to non‑executive Directors are fixed based on before the date of publication of this annual report. service during the year and do not include any Short Term or Long Term Incentives. 14. Statement on Governance Practices The maximum aggregate fees payable to non‑executive Directors was set at $1,000,000 by Ordinary Resolution of The Board has reviewed its governance practices against: Shareholders at the Annual Meeting held on 2 November 2007. • The best practice recommendations set by the ASX During the year ended 30 June 2012, there was no increase to Corporate Governance Council; the base fee per Director, the Chairman’s fees, or Board • The NZX Corporate Governance Best Practice Code; and Sub‑Committee fees. These remained as follows for the • The NZ Financial Markets Authority’s Principles and period under review (figures are in Australian dollars): Guidelines of Corporate Governance; Chairman’s fee 220,000 and is of the view that Nuplex is compliant with these codes. Director’s base fee 101,000 Audit Committee Chair 20,000 Audit Committee Member 10,000 SHE Committee Chair 15,000 SHE Committee Member 7,500 HR Committee Chair 15,000 HR Committee Member 7,500
Notes (i) Chairman’s fee set 1 July 2010. (ii) SHE Committee fees set as at May 2010. (iii) All other fees set 1 January 2010. (iv) Fees paid in Australian dollars from 1 July 2010. Following an external review, and taking into account that there had been no increase in directors’ fees since 1 January 2010 (and no increase in the Chairman’s fee since 1 July 2010), with effect from 1 July 2012, the fees payable to Directors were increased to the following amounts (figures are in Australian dollars): Chairman’s fee 240,750 Director’s base fee 107,000 Audit Committee Chair 24,000 Audit Committee Member 12,000 SHE Committee Chair 20,000 SHE Committee Member 10,000 HR Committee Chair 18,000 HR Committee Member 9,000 Remuneration paid to Directors during the year ended 30 June 2012 is disclosed in the Statutory Information section of this report on page 94 of this report.
Retirement Allowances Directors appointed to the Board after 30 June 2004 are not eligible to a retirement allowance. Following the retirement of non‑executive Director Michael Wynter, there is no Director in office who was appointed to the Board on or before 30 June 2004.
2012 annual report 43 FINANCIAL REPORT
“To deliver earnings in line with the prior year is a credible result considering the softer market conditions experienced in Asia and Europe and the particularly tough trading conditions faced in Australia and New Zealand.” EMERY SEVERIN / cEO
The Directors are pleased to present the Financial Statements of the Nuplex Group for the year ended 30 June 2012.
rob aitken david jackson Chairman director
17 August 2012 17 August 2012
44 NUPLEX INDUSTRIES LIMITED Independent Auditors’ Report to the shareholders of Nuplex Industries Limited
Report on the Financial Statements We have audited the financial statements of Nuplex Industries Limited (“the Company”) on pages 46 to 90, which comprise the statements of financial position as at 30 June 2012, the statements of comprehensive income, statements of changes in equity and statements of cash flows for the year then ended, and the notes to the financial statements that include a summary of significant accounting policies and other explanatory information for both the Company and the Group. The Group comprises the Company and the entities it controlled at 30 June 2012 or from time to time during the financial year. Directors’ Responsibility for the Financial Statements The Directors are responsible for the preparation of these financial statements in accordance with generally accepted accounting practice in New Zealand and to ensure that they give a true and fair view of the matters to which they relate and for such internal controls as the Directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (New Zealand) and International Standards on Auditing. These standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider the internal controls relevant to the Company and the Group’s preparation of financial statements that give a true and fair view of the matters to which they relate, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company and the Group’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Other than in our capacity as auditors we have no relationship with, or interests in, Nuplex Industries Limited or any of its subsidiaries. Opinion In our opinion, the financial statements on pages 46 to 90: (i) comply with generally accepted accounting practice in New Zealand; and (ii) comply with International Financial Reporting Standards; and (iii) give a true and fair view of the financial position of the Company and the Group as at 30 June 2012, and their financial performance and cash flows for the year then ended. Report on Other Legal and Regulatory Requirements We also report in accordance with Sections 16(1)(d) and 16(1)(e) of the Financial Reporting Act 1993. In relation to our audit of the financial statements for the year ended 30 June 2012: (i) we have obtained all the information and explanations that we have required; and (ii) in our opinion, proper accounting records have been kept by the Company as far as appears from an examination of those records. Restriction on Distribution or Use This report is made solely to the Company’s shareholders, as a body, in accordance with Section 205(1) of the Companies Act 1993. Our audit work has been undertaken so that we might state to the Company’s shareholders those matters which we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our audit work, for this report or for the opinions we have formed.
Chartered Accountants Sydney, 17 August 2012
2012 annual report 45 StatementS of COMPREHENSIVE income For the year ended 30 June 2012
Group Company (NZD in thousands) Note 2012 2011 2012 2011
Sales revenue 1,615,897 1,575,014 83,746 91,838 Cost of sales (1,278,835) (1,235,589) (62,723) (68,710) Gross profit 337,062 339,425 21,023 23,128 Other operating income 3 5,025 2,766 26,448 20,744 Distribution expenses (78,512) (76,953) (4,495) (4,569) Marketing expenses (85,657) (85,058) (8,299) (9,180) Administration expenses (68,705) (64,415) (8,849) (7,910) Other operating expenses 4 (9,605) (8,885) (2,342) (1,671) Operating profit before financing costs and share of profits/(losses) of associates 99,608 106,880 23,486 20,542 Financial income 2,440 1,797 19,212 10,444 Financial expenses (16,423) (18,374) (7,786) (7,068) Net financing costs 7 (13,983) (16,577) 11,426 3,376 Share of profits/(losses) of associates 12 (1,829) 1,907 – – Profit before income tax 83,796 92,210 34,912 23,918 Income tax expense 8 (19,289) (22,939) (2,899) (1,263) Profit for the year 64,507 69,271 32,013 22,655 Other comprehensive income Foreign currency translation differences for foreign operations (16,978) (8,338) – – Net gain/(loss) on hedge of net investment in foreign operation – 1,701 – – Effective portion of changes in fair value of cash flow hedges 1,212 (268) 296 (356) Income tax on other comprehensive income (335) (423) (83) 107 Other comprehensive income for the period, net of income tax (16,101) (7,328) 213 (249) Total comprehensive income for the year 48,406 61,943 32,226 22,406 Profit attributable to: Equity holders of the parent 62,533 66,543 32,013 22,655 Non‑controlling interests 1,974 2,728 – – 64,507 69,271 32,013 22,655 Total comprehensive income attributable to: Equity holders of the parent 46,480 60,069 32,226 22,406 Non‑controlling interests 1,926 1,874 – – 48,406 61,943 32,226 22,406 Earnings per share for profit attributable to the ordinary equity holders of the company: Basic earnings per share 9 0.32 0.34 Diluted earnings per share 9 0.30 0.33
To be read in conjunction with the notes to the financial statements on pages 50 to 90.
46 NUPLEX INDUSTRIES LIMITED Statements of CHANGES IN Equity For the year ended 30 June 2012
Statements of Changes in Equity for the year ended 30 June 2012 Group Company Attributable to equity holders of the parent Share- Share- based Non‑ based Share payments Translation Retained Hedging controlling Total Share payments Retained Hedging (NZD in thousands) Note capital reserve reserve earnings reserve Total interest equity capital reserve earnings reserve Total
Balance at 1 July 2011 364,244 1,200 (15,225) 201,236 (717) 550,738 9,994 560,732 364,244 1,200 82,543 (430) 447,557 Other comprehensive income Foreign currency translation differences – – (16,930) – – (16,930) (48) (16,978) – – – – – Effective portion of changes in fair value of cash flow hedges, net of tax – – – – 877 877 – 877 – – – 213 213 Total other comprehensive income – – (16,930) – 877 (16,053) (48) (16,101) – – – 213 213 Profit for the year – – – 62,533 – 62,533 1,974 64,507 – – 32,013 – 32,013 Total comprehensive income for the year – – (16,930) 62,533 877 46,480 1,926 48,406 – – 32,013 213 32,226 Contributions by and distributions to owners Performance Rights Plan 18 – 551 – – – 551 – 551 – 551 – – 551 Dividends paid 20 – – – (41,317) – (41,317) (1,700) (43,017) – – (41,317) – (41,317) Transactions with non‑controlling interests – – – – – – (3,112) (3,112) – – – – – Balance as at 30 June 2012 364,244 1,751 (32,155) 222,452 160 556,452 7,108 563,560 364,244 1,751 73,239 (217) 439,017
Statements of Changes in Equity for the year ended 30 June 2011 Group Company Attributable to equity holders of the parent Share- Share- based Non‑ based Share payments Translation Retained Hedging controlling Total Share payments Retained Hedging (NZD in thousands) Note capital reserve reserve earnings reserve Total interest equity capital reserve earnings reserve Total
Balance at 1 July 2010 349,664 – (8,932) 175,345 (536) 515,541 7,789 523,330 349,664 – 100,540 (181) 450,023 Other comprehensive income Foreign currency translation differences – – (7,484) – – (7,484) (854) (8,338) – – – – – Net gain/(loss) on hedge of net investment in foreign operation, net of tax – – 1,191 – – 1,191 – 1,191 – – – – – Effective portion of changes in fair value of cash flow hedges, net of tax – – – – (181) (181) – (181) – – – (249) (249) Total other comprehensive income – – (6,293) – (181) (6,474) (854) (7,328) – – – (249) (249) Profit for the year – – – 66,543 – 66,543 2,728 69,271 – – 22,655 – 22,655 Total comprehensive income for the year – – (6,293) 66,543 (181) 60,069 1,874 61,943 – – 22,655 (249) 22,406 Contributions by and distributions to owners Dividend reinvestment plan 20 14,580 – – – – 14,580 – 14,580 14,580 – – – 14,580 Performance Rights Plan 18 – 1,200 – – – 1,200 – 1,200 – 1,200 – – 1,200 Dividends paid 20 – – – (40,652) – (40,652) (2,781) (43,433) – – (40,652) – (40,652) Transactions with non‑controlling interests – – – – – – 3,112 3,112 – – – – – Balance as at 30 June 2011 364,244 1,200 (15,225) 201,236 (717) 550,738 9,994 560,732 364,244 1,200 82,543 (430) 447,557
To be read in conjunction with the notes to the financial statements on pages 50 to 90.
2012 annual report 47 StatementS of Financial Position as at 30 June 2012
Group Company (NZD in thousands) Note 2012 2011 2012 2011
Equity attributable to members of the parent company 20 Share capital 364,244 364,244 364,244 364,244 Share‑based payments reserve 1,751 1,200 1,751 1,200 Translation reserve (32,155) (15,225) – – Retained earnings 222,452 201,236 73,239 82,543 Hedging reserve 160 (717) (217) (430) Non‑controlling interests 20 7,108 9,994 – – Total Equity 563,560 560,732 439,017 447,557 Property, plant and equipment 14 311,008 282,919 18,574 18,960 Intangible assets 15 215,786 152,391 2,151 2,154 Investments in associates 12 11,716 4,946 – – Investments in subsidiaries – – 228,771 177,725 Trade and other receivables 11 – – 237,760 287,179 Deferred tax asset 13 8,075 8,292 – 199 Non‑current Assets 546,585 448,548 487,256 486,217 Inventories 10 234,354 196,508 15,342 15,598 Trade and other receivables 11 361,835 310,713 18,613 17,485 Income tax receivable 11,963 9,434 591 – Cash and cash equivalents 68,325 66,850 1,595 4,275 Current Assets 676,477 583,505 36,141 37,358 Total Assets 1,223,062 1,032,053 523,397 523,575 Borrowings 17 130,815 53,077 215 52,649 Employee provisions 18 22,947 20,887 204 543 Deferred tax liability 13 17,414 14,017 53 – Non‑current Liabilities 171,176 87,981 472 53,192 Borrowings 17 157,594 87,695 52,685 77 Trade and other payables 16 287,086 246,052 28,054 18,690 Employee provisions 18 21,306 23,936 1,453 1,744 Provisions 19 8,288 10,855 1,716 1,820 Income tax payable 14,052 14,802 – 495 Current Liabilities 488,326 383,340 83,908 22,826 Total Liabilities 659,502 471,321 84,380 76,018 Total Net Assets 563,560 560,732 439,017 447,557
To be read in conjunction with the notes to the financial statements on pages 50 to 90.
48 NUPLEX INDUSTRIES LIMITED Cash Flow StatementS For the year ended 30 June 2012
Group Company (NZD in thousands) Note 2012 2011 2012 2011
Receipts from customers (inclusive of goods and services tax) 1,692,633 1,652,319 94,029 102,531 Interest received 1,026 1,797 19,212 6,761 Payments to suppliers and employees (inclusive of goods and services tax) (1,606,946) (1,553,464) (88,444) (98,037) Interest paid (15,306) (18,437) (5,312) (6,778) Dividends received 1,251 1,334 – – Income taxes (paid)/received (24,236) (23,413) (1,280) 292 Net cash from/(used in) operating activities 28 48,422 60,136 18,205 4,769 Disposal of property, plant and equipment 481 41 – – Payments for property, plant, equipment and intangibles (31,546) (17,193) (602) (546) Receipts from loans to subsidiaries – – 21,034 13,700 Increase in investment in subsidiaries less cash acquired 26 (104,035) (12,706) – – Payments for purchases of businesses, net of cash acquired 26 (26,453) – – – Disposal of businesses, net of cash disposed of 3,954 – – – Net cash from/(used in) investing activities (157,599) (29,858) 20,432 13,154 Proceeds from borrowings 191,508 24,725 – – Repayment of borrowings (36,455) (40,552) – – Dividends paid to shareholders (43,017) (28,853) (41,317) (26,072) Net cash from/(used in) financing activities 112,036 (44,680) (41,317) (26,072) Increase/(decrease) in cash and cash equivalents 2,859 (14,402) (2,680) (8,149) Cash and cash equivalents at 1 July 66,850 82,063 4,275 12,424 Effect of exchange rate fluctuation (1,384) (811) – – Cash and cash equivalents at 30 June 68,325 66,850 1,595 4,275 Comprising: Cash balances 57,338 48,947 1,595 4,275 Cash on call deposit 10,987 17,903 – – 68,325 66,850 1,595 4,275
To be read in conjunction with the notes to the financial statements on pages 50 to 90.
2012 annual report 49 Notes to the Financial Statements For the year ended 30 June 2012
1. Statement of significant accounting policies Nuplex Industries Limited (the ‘Company’) is a Company registered and domiciled in New Zealand. The consolidated financial statements of the Company comprise the Company and its subsidiaries (the ‘Group’) and the Group’s interest in associated entities.
(a) Statement of compliance The financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice (NZ GAAP). They comply with New Zealand equivalents to International Financial Reporting Standards (NZIFRS), and other applicable Financial Reporting Standards, as appropriate for profit‑orientated entities. The financial statements also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The accounting policies set out below have been applied consistently to all periods in these financial statements, there have been no changes in the accounting policies during the year. The International Accounting Standards Board has issued a number of other standards, amendments and interpretations which are not yet effective, detailed below. The Group has not yet applied these in preparing these financial statements and will apply each in the period in which it becomes mandatory. Standard Description Mandatory for the year ending
NZ IAS 12 Amendments – Deferred tax: recovery of underlying assets 30 June 2013 NZ IAS 1 Amendments – Presentation of items of Other Comprehensive Income 30 June 2013 NZ IFRS 10 Consolidated Financial Statements 30 June 2014 NZ IFRS 11 Joint Arrangements 30 June 2014 NZ IFRS 12 Disclosure of interests in other entities 30 June 2014 NZ IFRS 13 Fair Value Measurement 30 June 2014 NZ IAS 19 Employee Benefits (amended 2011) 30 June 2014 NZ IAS 27 Separate Financial Statements (2011) 30 June 2014 NZ IAS 28 Investments in Associates and Joint Ventures (2011) 30 June 2014 NZ IFRS 7 Disclosures – Offsetting Financial Assets and Financial Liabilities 30 June 2014 NZ IAS 32 Amendments – Offsetting Financial Assets and Financial Liabilities 30 June 2015 NZ IFRS 9 Financial Instruments 30 June 2016
The above standards and interpretations are not considered likely to have a material impact for the Group.
(b) Basis of preparation The financial statements of the Group and Company comply with the Financial Reporting Act 1993 and the Companies Act 1993. These financial statements are presented in New Zealand dollars, which is the Company’s functional currency, except where stated otherwise, rounded to the nearest thousands. They are prepared on the historical cost basis except that previously revalued property, plant and equipment carrying values which on transition to NZIFRS have been deemed as cost, and the following assets and liabilities are stated at their fair values: derivative financial instruments. The consolidated financial statements have been approved by the Board of Directors on 17 August 2012. The preparation of financial statements in conformity with NZIFRSs requires management to make judgements, estimates and assumptions that effect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgements about carrying values of some assets and liabilities. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods. Information about the significant areas of judgement exercised or estimation in applying accounting policies that have had a significant impact on the amounts recognised in the financial statements are described below. (i) Valuation of goodwill and other intangibles The carrying value of goodwill is assessed at least annually to ensure that it is not impaired. This assessment requires management to estimate future cash flows to be generated by cash-generating units to which goodwill has been allocated. Estimating future cash flows entails making judgements including the expected rate of growth of revenues and expenses, margins and market shares to be achieved, and the appropriate discount rate to apply when discounting future cash flows. Note 15 of these financial statements provides more information on the assumptions management has made in this area and the carrying values of goodwill. As the outcomes in the next financial period may be different to the assumptions made, it is impracticable to predict the impact that could result in a material adjustment to the carrying amount.
50 NUPLEX INDUSTRIES LIMITED (ii) Recognition of deferred tax assets (c) Basis of consolidation The value of deferred tax assets recognised in the financial Accounting for business combinations statements involve a significant degree of judgement around The acquisition method of accounting is used to account for all the future profitability, ownership and legislative outcomes business combinations. impacting on the Group entity to which the assets or potential Control is the power to govern the financial and operating assets relate. In making the required judgements policies of an entity so as to obtain benefits from its activities. management take account of all circumstances of which they In assessing control the Group takes into consideration are aware and current economic forecasts which might have a potential voting rights that are currently exercisable. bearing on the tax situation of the entity concerned. Note 13 Acquisition date is the date on which control is transferred to these financial statements contains further information on to the acquirer. Judgement is applied in determining the tax losses the Group has incurred but not recognised as a acquisition date and determining whether control is deferred tax asset. transferred from one party to another. (iii) Doubtful debt provisions The Group measures goodwill as the fair value of the Provisioning for doubtful debts takes into account known consideration transferred including the recognised amount factors impacting specific debtors, as well as the overall of any non‑controlling interest in the acquiree, less the net profile of each Group company’s debtors portfolio. Factors recognised amount (generally fair value) of the identifiable such as the age of receivable balances, past collection history, assets acquired and liabilities assumed, all measured as at and the level of activity in customer accounts are taken into the acquisition date. account. Further information on the doubtful debt provision Consideration transferred includes the fair value of the assets is contained in note 21 to these financial statements. transferred, liabilities incurred by the Group to the previous (iv) Provisions and contingencies owners of the acquiree, and equity interests issues by the Identification, recognition and valuation of provisions requires Group. Consideration transferred also includes the fair value management to make judgements about the likelihood of of any contingent consideration and share‑based payment an amount becoming payable or an economic benefit being awards of the acquiree that are replaced mandatorily in the foregone, estimation of the value of the potential obligations business combination. If a business combination results in the based on available information and estimating when such termination of pre‑existing relationships between the Group obligations are likely to be settled. Where a range of possible and the acquiree, then the lower of the termination amount, outcomes exist, management must apply judgement in as contained in the agreement, and the value of the off‑market assessing the probability that any given outcome may element is deducted from the consideration transferred and occur. Note 19 to these financial statements gives further recognised in other expenses. information on the value of provisions recognised. As new Transaction costs that the Group incurs in connection with a contingencies can arise unexpectedly or existing items be business combination, such as finders fees, legal fees, due resolved at short notice, it is impracticable to predict how the diligence fees, and other professional and consulting fees are carrying value may be impacted over the next financial period expensed as incurred in the Group financial statements. but changes could result in a material adjustment to the A contingent liability of the acquiree is assumed in a business carrying amount. combination only if such a liability represents a present (v) Employee provisions obligation and arises from a past event, and its fair value can The Group is exposed to defined benefit obligations and long be measured reliably. service leave obligations that require significant judgements When share‑based payment awards (replacement awards) to be made in the calculation of the Group’s expected future are exchanged for awards held by the acquiree’s employees liability and its present value. Significant assumptions made (acquiree’s awards) and relate to past services, then a part include the expected asset growth rates, social security rates, of the market‑based measure of the replacement awards is pension and salary growth rates and the discount rates to be included in the consideration transferred. If future services are applied in calculating present values. For each significant required, then the difference between the amount included in defined benefit scheme a qualified external actuary is consideration transferred and the market‑based measure of engaged to provide a valuation based, where possible, on the replacement awards is treated as post combination externally verifiable assumptions. As the outcomes in the next compensation cost. financial period may be different to the assumptions made, Accounting for acquisitions of non‑controlling interests it is impracticable to predict the impact that could result in a material adjustment to the carrying amount. Acquisitions of non‑controlling interests are accounted for as transactions with equity holders in their capacity as equity (vi) Property, plant and equipment and finite‑life holders and therefore no goodwill is recognised as a result intangible assets of such transactions. In accounting for property, plant and equipment and finite‑life Subsidiaries intangible assets management is required to make judgements on the expected life of the asset, the likelihood of the asset’s Subsidiaries are entities controlled by the Group. Control obsolescence and the likelihood that the asset will continue to exists when the Group has the power, directly or indirectly, be utilised. Management reassesses useful lives at least to govern the financial and operating policies of an entity so as annually and considers whether indicators of impairment have to obtain benefits from its activities. The financial statements occurred that might necessitate impairment testing. Assessing of subsidiaries are included in the consolidated financial impairment where required may involve estimation and statements from the date that control commences until the valuation of future cash flows that an asset is expected to date that control ceases. generate and making assumptions thereon. As the outcomes In the Company’s financial statements, investments in of the next financial period may differ from the assumptions subsidiaries are carried at the lower of cost or recoverable made, it is impractical to predict the impact that could result in amount. a material adjustment to the carrying amount. 2012 annual report 51 Notes to the Financial Statements – continued For the year ended 30 June 2012
1. Statement of significant accounting policies are presented within equity in the translation reserve. If ineffective, it is recognised in profit or loss. Amounts – continued recognised in equity are released to profit or loss upon Associates disposal. Associates are those entities in which the Group has (e) Revenue and other operating income significant influence, but not control, over the financial and operating policies. Investments in associates are accounted Sale of goods for using the equity method and are initially measured at cost. Revenue from the sale of goods is measured at the fair value The consolidated financial statements include the Group’s of the consideration received or receivable, net of returns and share of the total recognised income, expense and equity allowances, trade discounts and volume rebates. Revenue movements of associates on an equity accounted basis, net of is recognised when the significant risks and rewards of any impairment losses, from the date that significant influence ownership have been transferred to the buyer, recovery of the commences until the date that significant influence ceases. consideration is probable, the associated costs and possible When the Group’s share of losses exceeds its interest in the return of goods can be estimated reliably, and there is no associate, the Group’s carrying amount is reduced to nil and continuing management involvement with the goods. If it is recognition of further losses is discontinued except to the probable that discounts will be granted and the amount can extent that the Group has incurred legal or constructive be measured reliably, then the discount is recognised as a obligations or made payments on behalf of the associate. reduction in revenue as the sales are recognised. Transfer of entities or assets under Group control Dividend income Business combinations arising from the transfer of assets or Dividend income is recognised in profit and loss on the date interests from one Group entity to another Group entity are the entity’s right to receive payment is established, which accounted for at the carrying amounts recognised previously is when the dividend is declared. Dividend income from in the Group’s controlling shareholders’ consolidated financial associates reduces the investment balance shown in the statements. consolidated statement of financial position. Transactions eliminated on consolidation (f) Expenses IntraGroup balances and any unrealised gains or losses or Operating lease payments income and expenses arising from IntraGroup transactions are eliminated in preparing the consolidated financial statements. Payments made under operating leases are recognised in Unrealised gains arising from transactions with associates profit and loss on a straight‑line basis over the term of the are eliminated to the extent of the Group’s interest in the lease. entity. Unrealised losses are eliminated in the same way Net financing costs as unrealised gains, but only to the extent that there is no Net financing costs comprise interest payable on borrowings evidence of impairment. calculated using the effective interest rate method, foreign exchange gains and losses, and gains and losses on hedging (d) Foreign currency instruments that are recognised in profit and loss. The interest Foreign currency transactions expense component of finance lease payments is recognised Transactions in foreign currencies are translated at the foreign in profit and loss using the effective interest rate method. exchange rate ruling at the date of the transaction. Monetary Interest income is recognised in profit and loss as it accrues, assets and liabilities denominated in foreign currencies at the using the effective interest rate method. balance sheet date are translated to the functional currency at the foreign exchange rate ruling at that date. Foreign exchange (g) Income tax differences arising on translation are recognised in the income Income tax on the profit or loss for the year comprises current statement. Non‑monetary assets and liabilities denominated and deferred tax. Income tax is recognised in profit and loss in foreign currencies that are stated at fair value are translated except if it relates to items recognised directly in equity or to the functional currency at foreign exchange rates ruling at other comprehensive income, in which case the income tax is the dates the fair values were determined. recognised therein. Current tax is the expected tax payable on Financial statements of foreign operations the taxable income for the period, using tax rates enacted or substantially enacted at the balance sheet date, and any The assets and liabilities of foreign operations, including adjustments to tax payable in prior years. goodwill and fair value adjustments arising on consolidation, are translated to New Zealand dollars at foreign exchange Deferred tax is recognised in respect of temporary differences rates ruling at the balance sheet date. The revenues and between the carrying amounts of assets and liabilities for expenses of foreign operations are translated to New Zealand accounting purposes and the amounts used for taxation dollars at rates approximating to the foreign exchange rates purposes. The following temporary differences are not ruling at the dates of the transactions. This would normally provided for: goodwill not deductible for taxation purposes, be the average foreign exchange rate for the reporting period, the initial recognition of assets and liabilities that affect or such shorter period for an entity or business acquired or neither accounting, nor taxable profit, and differences relating disposed of during the period. Exchange differences arising to investments in subsidiaries to the extent that they will on these retranslations are recognised in other comprehensive probably not reverse in the foreseeable future. The amount income and presented in the translation reserve. of deferred tax provided is based on the expected realisation or settlement of the carrying amount of assets and liabilities, Net investment in foreign operations using tax rates at balance date, or if known, tax rates at the Exchange differences arising from the translation of the net expected time of realisation or settlement. investment in foreign operations, and the related hedges and Tax losses and other deferred tax assets are recognised only deferred tax impact are recognised in other comprehensive to the extent that it is probable that future tax profits will be income to the extent that the hedge is effective and
52 NUPLEX INDUSTRIES LIMITED available against which the asset can be utilised. Deferred (j) Intangible assets tax assets are reduced to the extent that it is no longer Goodwill probable that the related tax benefit will be realised. Additional All business combinations are accounted for by applying the income taxes that arise from the distribution of dividends acquisition method. Goodwill represents amounts arising on are recognised at the same time as the liability to pay the acquisition of subsidiaries and associates, and represents the related dividend. difference between the cost of the acquisition and the fair (h) Earnings per share value of the net identifiable assets acquired. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is The Group presents basic and diluted earnings per share (EPS) allocated to cash‑generating units and is tested annually for data for its ordinary shares. Basic EPS is calculated by dividing impairment. In respect of associates, the carrying amount of the profit or loss attributable to ordinary shareholders of the goodwill is included in the carrying amount of the investment Company by weighted average number of ordinary shares in the associate. Negative goodwill arising on an acquisition is outstanding during the period. Diluted EPS is determined by recognised directly in profit and loss. adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares Intellectual property outstanding for the effects of all dilutive potential ordinary Expenditure on research activities, undertaken with the shares, which comprise convertible capital notes and prospect of gaining new scientific or technical knowledge, performance rights granted to employees. is recognised in profit and loss as an expense as incurred. Expenditure on product or process development activities, (i) Property, plant and equipment whereby research findings are applied to the development Owned assets of new or substantially improved products and processes, Items of property, plant and equipment are stated at cost or is capitalised if the product or process is technically and deemed cost less accumulated depreciation and impairment commercially feasible with the probability of future economic losses. benefits, the Group has sufficient resources to complete Cost includes expenditure that is directly attributable to the development and costs can be measured reliably. The acquisition of the asset. The cost of self‑constructed assets expenditure capitalised includes the cost of materials, direct includes the cost of materials and direct labour, any other labour and an appropriate proportion of overheads. Capitalised costs directly attributable to bringing the asset to a working development expenditure is stated at cost less accumulated condition for its intended use, the costs of dismantling and amortisation and impairment losses. Other development removing the items and restoring the site on which they are expenditure is recognised in profit and loss as an expense located and capitalised borrowing costs. as incurred. The cost of replacing part of an item of property, plant and Purchased agency portfolio equipment is recognised in the carrying amount of the item Agency agreements acquired are capitalised as intangible if it is probable that the future economic benefits embodied assets at a value based on a discounted cash flow analysis within the part will flow to the Group and its cost can be of their expected net worth at acquisition. The portfolio of measured reliably. The carrying value of the replaced part agreements is not considered to have a finite life, as is derecognised. The cost of the day‑to‑day servicing of agreements can be rolled over at the option of the Group, property, plant and equipment are recognised in profit or and it is reasonably expected that this will occur, and as loss as incurred. such the portfolio is not amortised. The portfolio is tested Gains and losses on disposal of an item of property, plant for impairment each reporting period and any impairment is and equipment are determined by comparing the proceeds recognised in profit and loss. from disposal with the carrying amount of property, plant and Other intangible assets equipment and are recognised within ‘other income’ in profit Other intangible assets that are acquired by the Group or loss. are stated at cost less accumulated amortisation and Leased assets impairment losses. Leases in terms of which the Group assumes substantially Amortisation all the risks and rewards of ownership of the leased asset are Amortisation is charged to profit and loss on a straight‑line classified as finance leases. basis over the estimated useful lives of the finite-life intangible Depreciation assets. Goodwill and intangible assets with an indefinite Depreciation is charged to profit and loss on a straight‑line useful life are not amortised but tested for impairment at basis over the estimated useful lives of each part of an item each annual balance sheet date. Other intangible assets of property, plant and equipment. Depreciation is classified as are amortised from the date they are available for use. Distribution, Marketing, Administration or other based on the The estimated useful lives for the current and comparative function of the underlying asset to which the charge relates. years are as follows: The land component of land and buildings is not depreciated. Intellectual property up to 15 years The estimated useful lives for the current and comparative Other up to 5 years year are as follows: Land and buildings 20 – 50 years (k) Trade and other receivables Plant and equipment 3 – 20 years Trade and other receivables are initially stated at fair value and are categorised as loans and receivables which are Motor vehicles 5 years subsequently measured at amortised cost less impairment.
2012 annual report 53 Notes to the Financial Statements – continued For the year ended 30 June 2012
1. Statement of significant accounting policies expense is adjusted to reflect the number of rights for which the service and non‑market vesting conditions are expected – continued to be met at the vesting date. The rights are both equity and (l) Inventories cash settled. Inventories are stated at lower of cost and net realisable value Defined contribution plans with due allowance for rework and/or obsolescence. Raw Obligations for contributions to defined contribution pension materials, packaging and inventories purchased for resale are plans are recognised as an expense in profit or loss in the valued on a weighted average cost basis. Manufactured periods during which services are rendered by employees. inventories and work in progress are valued at the cost of Defined benefit plans materials plus direct labour and factory overheads based on The Group’s net obligation in respect of defined benefit normal operating capacity, including all costs of bringing items pension and medical plans is calculated separately for each to their present location and condition. plan by estimating the amount of future benefit that employees (m) Cash and cash equivalents have earned or might receive in return for their service in Cash and cash equivalents comprise cash balances and call the current and prior periods. That benefit is discounted to deposits with original maturities of less than three months and determine its present value and the fair value of any plan readily convertible to cash. Bank overdrafts that are repayable assets is deducted. The discount rate is the yield at the on demand and form part of the Group’s cash management balance sheet date on government bonds that have maturity are included for the purposes of the cash flow statements. dates approximating to the terms of the Group’s obligations. The calculation is performed by a qualified actuary using the (n) Impairment projected unit credit method. When the benefits of a plan The carrying amounts of the Group’s assets, other than are improved, the portion of the increased benefit relating to inventories and deferred tax assets, are reviewed at each past service by employees is recognised immediately as an balance sheet date to determine whether there is any expense in the income statement. In respect of actuarial gains indication of impairment. If any such indication exists, and losses that arise in calculating the Group’s obligation the assets recoverable amount is estimated. For intangible in respect of a plan, to the extent that any cumulative assets that have an indefinite useful life and intangible assets unrecognised actuarial gain or loss exceeds 10% of the greater that are not yet available for use, the recoverable amount is of the present value of the defined benefit obligation and the estimated at each balance sheet date. An impairment loss fair value of plan assets, that portion is recognised in profit and is recognised whenever the carrying amount of an asset or loss over the expected average remaining working lives of the its cash‑generating unit exceeds its recoverable amount. employees participating in the plan. Otherwise, the actuarial Impairment losses are recognised in the income statement. gain or loss is not recognised. Impairment losses recognised in respect of cash‑generating Long‑term service benefits units are allocated first to reduce the carrying amount of any The Group’s obligation in respect of long‑term service goodwill allocated to cash‑generating units and then to reduce benefits, other than pension plans, is the amount of the future the carrying amount of other assets in the unit on a pro‑rata benefit, including on‑costs, and discounted to present value at basis. The recoverable amount of other assets is the greater discount rates appropriate to the local jurisdiction in which the of their net selling price and value in use. liability arises, that employees have earned in return for their service in the current and prior periods. (o) Equity Termination benefits Share capital is recognised at the fair value of the consideration received by the Company. Transaction costs Termination benefits are recognised as an expense when the attributable to the issue of ordinary shares are recognised Group is demonstrably committed, without realistic possibility directly in equity as a reduction of the share proceeds of withdrawal, to a formal detailed plan to terminate received. Dividends are recognised as a liability in the period employment before the normal retirement date. If benefits are in which they are declared. payable more than 12 months after the end of the reporting period then they are discounted to their present value. (p) Interest‑bearing borrowings Other Interest‑bearing borrowings are recognised initially at fair Vested sick leave, annual leave and bonuses are measured at value less attributed transaction costs. The attributed their nominal amounts, based on remuneration rates which transaction costs are amortised over the period of the are expected to be paid when the liability is settled. These borrowings on an effective interest basis. amounts are disclosed in current employee benefits. Subsequent to initial recognition, borrowings are measured at amortised cost using the effective interest rate method, (r) Provisions less any impairment losses. A provision is recognised in the statement of financial position when the Group has a present legal or constructive obligation (q) Employee benefits as a result of a past event, and it is probable that an outflow of Share‑based transactions economic benefits will be required to settle the obligation. Performance share rights are granted to senior management under the Nuplex Performance Rights Plan. The fair value (s) Payables of the rights is recognised as an employee expense with a Liabilities for trade payables and other amounts are carried corresponding increase in equity. The fair value of rights are at cost which is the fair value of the consideration to be paid measured at the grant date and spread over the vesting in the future for goods or services received, whether or period, taking into account the terms and conditions upon not billed. which the rights were granted. The amount recognised as an
54 NUPLEX INDUSTRIES LIMITED (t) Segment reporting impacts profit and loss. When the hedged item is a The Group determines and presents operating segments non‑financial asset, the amount recognised in other based on the information that is internally provided to the comprehensive income is transferred to the carrying amount CEO, who is the Group’s chief operating decision maker. of the asset when the asset is recognised. The ineffective part of any gain or loss is recognised immediately in profit and loss. An operating segment is a component of the Group that engages in business activities from which it may earn Hedges of net investments in foreign operations revenues and incur expenses, including revenues and The portion of the gain or loss on an instrument used to hedge expenses that relate to transactions with any of the Group’s a net investment in a foreign operation that is determined to other components. An operating segment’s operating results be an effective hedge is recognised in other comprehensive are reviewed regularly by the CEO to make decisions about income and presented in the hedging reserve in equity. resources to be allocated to the segment and to assess its Any ineffective portion is recognised immediately in profit performance, and for which discrete financial information and loss. is available. (w) Assets held for sale and discontinued operations Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, Immediately before classification as held for sale, the subsidiaries and businesses. measurement of the assets (and all assets and liabilities in a disposal Group) is brought up to date in accordance with (u) Financial instruments applicable accounting standards. Then, on initial classification Non‑derivative financial instruments as held for sale, non‑current assets and disposal Groups are recognised at the lower of carrying amount and fair value less Non‑derivative financial instruments comprise trade and other costs to sell. Impairment losses on initial classification as receivables, cash and cash equivalents, loans and borrowings held for sale are included in profit or loss, even when there and trade and other payables. is a revaluation. The same applies to gains and losses on Non‑derivative financial instruments are recognised initially at subsequent remeasurement. fair value plus, for instruments not at fair value through profit A discontinued operation is a component of the consolidated or loss, any directly attributable transaction costs. Subsequent entity’s business that represents a separate major line of to initial recognition non‑derivative financial instruments are business or geographical area of operations that has been measured at amortised cost using the effective interest rate disposed of or is held for sale, or is a subsidiary acquired method. exclusively with a view to resale. Classification as a A financial instrument is recognised if the Group becomes a discontinued operation occurs upon disposal or when the party to the contractual provisions of the instrument. Financial operation meets the criteria to be classified as held for sale, instruments are derecognised if the Group’s obligations if earlier. specified in the contract expire or are discharged or cancelled. Derivative financial instruments (x) Determination of fair values A number of the Group’s accounting policies and disclosures The Group uses derivative financial instruments to hedge its require the determination of fair value, for both financial and exposure to foreign exchange and interest rate risks arising non‑financial assets and liabilities. The following summarises from operational, financing and investment activities. In the major methods and assumptions used in estimating those accordance with its treasury policy, the Group does not hold fair values. Where applicable, further information about the or issue derivative financial instruments for trading purposes. assumptions made in determining fair values is disclosed in However, derivatives that do not qualify for hedge accounting the notes specific to that asset or liability. are accounted for as trading instruments. Derivative financial instruments are recognised initially at fair value (transaction Trade receivables and payables price). Subsequent to initial recognition, derivative financial Fair value is estimated as the present value of future cash instruments are stated at fair value. The gain or loss on flows discounted at market rates of interest where settlement remeasurement to fair value is recognised immediately is not expected within 12 months. in profit and loss except where the derivatives qualify for Secured bank loans hedge accounting, as described in policy (v). Fair value is taken to be the carrying value of these assets and The fair value of interest rate swaps is the estimated amount liabilities due to their short-term repricing. that the Group would receive or pay to terminate the swap at the balance sheet date, taking into account current Derivatives interest rates and the current creditworthiness of the swap For forward exchange contracts and interest rate swaps, counterparties. The fair value of forward exchange contracts independent third party valuations are used. is their quoted market price at the balance sheet date. Capital notes (v) Hedging Fair value is calculated based on discounted expected future Cash flow hedges principal and interest cash flows. Where a derivative financial instrument is designated as a Finance lease liabilities hedge of the variability in cash flows of a recognised asset The fair value is estimated as the present value of future or liability, or a highly probable forecasted transaction, the cash flows, discounted at current market interest rates for effective part of any gain or loss on the derivative financial homogeneous lease agreements. The estimated fair values instrument is recognised directly in equity. For cash flow reflect changes in interest rates. hedges, the associated cumulative gain or loss is removed from equity and recognised in profit and loss in the same period or periods during which the underlying exposure
2012 annual report 55 Notes to the Financial Statements – continued For the year ended 30 June 2012
2. Segment analysis The Group has two reportable segments, as described below. The reportable segments offer products and services with markedly different production processes and are managed separately. For each of the reporting segments the CEO reviews internal management reports monthly. The following summary describes the operations in each of the Group’s reportable segments. Inter‑segment pricing is determined on an arm’s length basis and eliminated on consolidation. Resins Global manufacture of synthetic resins for regional markets. Distribution of complementary functional materials. Specialties Manufacture and distribution of a range of functional materials for regional markets.
Geographical segments In presenting information on the basis of geographical segments, segment sales are based on the ultimate country of destination of the product, if known. Segment assets are based on the geographical location of the assets. Information about reportable segments 2012 2011 (NZD in thousands) Resins Specialties Total Group Resins Specialties Total Group
Sales to outside customers 1,310,788 305,109 1,615,897 1,272,848 302,166 1,575,014 Inter‑segment sales 263 8,215 370 5,787 Segment sales 1,311,051 313,324 1,273,218 307,953 EBITDA 110,362 20,676 131,038 107,464 23,441 130,905 Depreciation and amortisation (25,404) (2,392) (27,796) (21,094) (1,271) (22,365) Segment result 84,958 18,284 103,242 86,370 22,170 108,540 Net financing costs (13,983) (16,577) Share of profits of associates (1,829) 1,907 Non‑controlling interest (1,974) (2,728) Tax on operating profits (19,289) (23,174) Operating profit after tax 66,167 67,968 Acquisition related legal and consulting costs (3,033) – Earn‑out provision on Med‑Chem acquisition – (739) US waste water discharge costs and legal costs provision (142) (692) NZ Securities Commission proceedings costs – (229) Income tax benefit on non‑operating items – 235 US tax audit legal costs (459) – Net profit attributable to equity holders of the parent 62,533 66,543 Net profit attributable to non‑controlling interests 1,974 2,728 Profit for the period 64,507 69,271 Assets 926,075 208,624 1,134,699 772,723 174,755 947,478 Unallocated assets 88,363 84,576 1,223,062 1,032,053 Liabilities 292,002 47,625 339,627 260,372 41,358 301,730 Unallocated liabilities 319,875 169,591 659,502 471,321 Other segment information Equity accounted investments included in segment assets 9,374 2,342 11,716 2,442 2,504 4,946 Capital and acquisition expenditure 142,320 26,581 168,901 28,622 1,235 29,858
56 NUPLEX INDUSTRIES LIMITED Sales by destination Non‑current assets Geographic segments 2012 2011 2012 2011
New Zealand 141,483 159,071 44,389 47,197 Australia 536,011 581,819 216,788 217,630 Asia 289,976 284,320 57,197 47,970 Europe 482,131 393,853 207,834 116,127 Americas 166,296 155,951 20,377 19,625 Total Group 1,615,897 1,575,014 546,585 448,549
Revenues in the resins segment from one group of customers under common control amount to 12.3% of the Group’s total revenues.
3. Other income Group Company (NZD in thousands) 2012 2011 2012 2011
Gain on disposal of property, plant and equipment 133 – – – Dividends received from subsidiaries – – 25,523 20,744 Commissions, royalties and fees received 3,472 1,210 – – Rental income received 690 686 – – Other 730 870 925 – 5,025 2,766 26,448 20,744
Dividends received from subsidiaries Dividends recognised in Company other income represent the value of dividends declared by Nuplex Operations (Aust) Pty Limited and applied to intercompany loan accounts during the year.
4. Other operating expenses Group Company (NZD in thousands) 2012 2011 2012 2011
Loss on sale of property, plant and equipment 20 – – – Non‑recurring legal costs and settlements 674 1,087 83 1,305 Site remediation costs provided 86 520 – – Fees associated with acquisitions and integrations 4,041 – 2,259 – Amortisation of intangibles 3,938 2,381 – – Restructuring and retirement 604 3,930 – 251 Earn‑out provision on Med‑Chem acquisition – 739 – – Other 242 228 – 115 9,605 8,885 2,342 1,671
2012 annual report 57 Notes to the Financial Statements – continued For the year ended 30 June 2012
5. Personnel expenses Included in cost of sales, distribution, marketing, administration and other expenses are the following personnel expenses: Group Company (NZD in thousands) Note 2012 2011 2012 2011
Wages and salaries 142,952 136,235 12,879 12,772 Social security contributions 9,281 8,176 500 563 Contributions to defined contribution plans 12,607 10,642 – – Expenses related to defined benefit plans 18 1,487 473 – – Increase/(decrease) in liability for leave 2,337 1,323 (47) (10) Share‑based incentive scheme 551 1,200 210 210 Restructuring and retirement 604 3,930 – 251 Other benefits 2,123 2,206 – – 171,942 164,185 13,542 13,786
6. Auditors’ remuneration Group Company (NZD) 2012 2011 2012 2011
Audit services Auditors of the Company PricewaterhouseCoopers Australia (2011: KPMG): Audit and review of financial reports 854,950 641,000 256,485 298,000 Overseas PricewaterhouseCoopers firms (2011: KPMG): Audit and review of financial reports 638,340 731,000 70,000 77,000 1,493,290 1,372,000 326,485 375,000 Other auditors: Audit and review of financial reports 63,390 8,000 – – 1,556,680 1,380,000 326,485 375,000 Other services Auditors of the Company PricewaterhouseCoopers Australia (2011: KPMG): Taxation services 5,000 204,000 – – Other services 23,000 108,000 – – Overseas PricewaterhouseCoopers firms (2011: KPMG): Taxation services – 560,000 – 182,000 Other services 22,689 – – – 50,689 872,000 – 182,000
The lead auditors of the Group are PricewaterhouseCoopers Australia.
58 NUPLEX INDUSTRIES LIMITED 7. Financial Income and Expense Recognised in profit and loss Group Company (NZD in thousands) 2012 2011 2012 2011
Interest income from outside the Group 1,026 977 42 135 Interest income from subsidiaries – – 19,170 6,626 Foreign exchange gain 1,414 820 – 3,683 Financial income 2,440 1,797 19,212 10,444 Interest expense 15,205 16,268 5,092 6,632 Interest paid to subsidiaries – – 220 81 Foreign exchange loss 1,218 2,106 2,474 355 Financial expenses 16,423 18,374 7,786 7,068 Net financing costs 13,983 16,577 (11,426) (3,376)
8. Income tax expense Recognised in profit and loss Group Company (NZD in thousands) 2012 2011 2012 2011
Current tax expense Current year 19,575 22,589 2,730 1,269 Adjustments for prior years 250 (683) – – 19,825 21,906 2,730 1,269 Deferred tax expense Temporary differences (536) 1,033 169 (6) (536) 1,033 169 (6) Total income tax expense in profit and loss 19,289 22,939 2,899 1,263
Reconciliation between tax expense and pre‑tax net profit Group Company (NZD in thousands) 2012 2011 2012 2011
Profit before tax 83,796 92,210 34,912 23,918 Income tax using the New Zealand corporate tax rate of 28% (2011: 30%) 23,463 27,663 9,775 7,175 Increase in income tax expense due to: Non‑deductible expenses 825 809 270 311 Equity earnings of associates 805 – – – Tax losses not recognised – 32 – – Decrease in income tax expense due to: Dividends from subsidiaries – – (7,146) (6,223) Utilisation of previously unrecognised tax losses (1,053) (1,059) – – Effect of tax rate in foreign jurisdictions (2,085) (3,251) – – Tax losses recognised (2,677) – – – Equity earnings of associates (239) (572) – – Under/(over) provided in prior years 250 (683) – – Income tax expense/(benefit) on pre‑tax net profit 19,289 22,939 2,899 1,263
2012 annual report 59 Notes to the Financial Statements – continued For the year ended 30 June 2012
8. Income tax expense – continued Deferred tax recognised directly in equity Group Company (NZD in thousands) 2012 2011 2012 2011
Fair valuation of hedge accounted derivatives (335) (423) (83) 107 (335) (423) (83) 107
9. Earnings per share Group The calculation of basic earnings per share is based on: 2012 2011
Net surplus attributable to ordinary shareholders 62,533 66,543 Weighted average number of ordinary shares (in thousands of shares): Ordinary shares on issue at 1 July 196,748 192,233 Dividend reinvestment plan shares issued 8 October 2010 – 2,059 Dividend reinvestment plan shares issued 1 April 2011 – 417 196,748 194,709 Basic earnings per share 0.32 0.34 The calculation of diluted earnings per share is based on: Net surplus attributable to ordinary shareholders 62,533 66,543 Interest expense on convertible notes, net of tax 3,422 3,422 Net surplus attributable to ordinary shareholders (diluted) 65,955 69,965 Basic weighted average number of ordinary shares (in thousands of shares) 196,748 194,709 Effect of Performance Rights Plan 1,714 634 Effect of conversion of convertible notes 19,976 17,221 Diluted weighted average number of ordinary shares 218,438 212,564 Diluted earnings per share 0.30 0.33
10. Inventories Group Company (NZD in thousands) 2012 2011 2012 2011
Raw materials and consumables 58,246 54,863 4,090 4,906 Finished goods 180,749 149,073 11,615 11,253 Provision for stock obsolescence (4,641) (7,428) (363) (561) 234,354 196,508 15,342 15,598
Separately identifiable unmodified purchased inventory included in the above note may be subject to a retention of title clause in the normal course of business.
60 NUPLEX INDUSTRIES LIMITED 11. Trade and other receivables Group Company (NZD in thousands) 2012 2011 2012 2011
Current Trade receivables 318,725 288,089 13,780 15,544 Other receivables and prepayments 42,435 22,236 2,788 915 Receivables due from controlled entities – – 2,045 1,026 Fair value derivatives – Foreign currency swaps 675 – – – Fair value derivatives – Forward foreign exchange contracts – 126 Prepaid loan restructure fees – 262 – – 361,835 310,713 18,613 17,485 Non‑current Loans to controlled entities – – 237,760 287,179 – – 237,760 287,179
The Company’s loans to controlled entities bear market interest rates.
12. Investments accounted for using the equity method Investments in associates The Group has the following investments in associates: Reporting Ownership 30 June Principal activities Country date 2012 2011
Quaker Chemical (Australasia) Pty Limited Distributor of specialty products Australia 31‑Dec 49% 49% Innospec Valvemaster Limited Distributor of specialty products UK 31‑Dec 50% 50% Synthese (Thailand) Co Limited Manufacture and distribution of synthetic resins Thailand 31‑Dec 47.5% 47.5% RPC Pipe Systems Pty Limited Manufacture and distribution of GRP Piping Australia 30‑Jun 50% 82.2%
Share of Net associates’ assets as net profit/ Total Total reported by Share of Revenues Profit/(loss) (loss) Assets Liabilities associates associates’ (NZD in thousands) (100%) (100%) recognised (100%) (100%) (100%) net assets
2012 Quaker Chemical (Australasia) Pty Limited 17,652 2,043 1,001 7,027 2,335 4,691 2,300 Innospec Valvemaster Limited – – – 596 512 84 42 Synthese (Thailand) Co Limited 33,460 1,799 855 19,856 12,864 6,992 3,284 RPC Pipe Systems Pty Limited 11,808 (7,370) (3,685) 25,057 12,882 12,176 6,090 62,920 (3,528) (1,829) 52,536 28,593 23,943 11,716 2011 Quaker Chemical (Australasia) Pty Limited 17,143 2,864 1,403 8,566 3,547 5,019 2,459 Innospec Valvemaster Limited 1,091 (46) (23) 623 539 84 42 Synthese (Thailand) Co Limited 34,096 1,110 527 20,118 14,916 5,202 2,445 52,330 3,928 1,907 29,307 19,002 10,305 4,946
2012 annual report 61 Notes to the Financial Statements – continued For the year ended 30 June 2012
12. Investments accounted for using the equity method – continued
Results of associates Group (NZD in thousands) 2012 2011
Share of associates’ profit/(loss) before income tax (2,613) 2,724 Share of income tax benefit/(expense) 784 (817) Share of associates’ net profit/(loss) as disclosed by associates (1,829) 1,907 Share of associates’ net profit accounted for using the equity method (1,829) 1,907
Reconciliation of investment balance Group (NZD in thousands) 2012 2011
Balance at 1 July 4,946 4,371 Share of associates’ net profit/(loss) (1,829) 1,907 Dividends received (1,251) (1,334) Exchange translation difference (98) 2 Additional investment 9,948 – Balance at 30 June 11,716 4,946
13. Deferred tax assets and liabilities Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Group Assets Liabilities (NZD in thousands) 2012 2011 2012 2011
Property, plant and equipment 440 206 20,174 19,958 Intangible assets – 135 6,025 3,502 Receivables 270 944 591 17 Inventories 953 1,197 823 683 Employee benefits 9,998 10,169 – – Payables 1,820 1,925 – – Provisions 1,190 2,021 381 – Fair value derivatives 629 366 36 – Other items 3,410 2,165 19 693 Tax assets/liabilities 18,710 19,128 28,049 24,853 Set off of tax (10,635) (10,836) (10,635) (10,836) Net tax assets/liabilities 8,075 8,292 17,414 14,017
62 NUPLEX INDUSTRIES LIMITED Company Assets Liabilities (NZD in thousands) 2012 2011 2012 2011
Property, plant and equipment – – 1,357 1,280 Receivables 90 119 – – Inventories 102 178 – – Employee benefits 465 641 – – Payables 156 126 – – Provisions 479 509 – – Fair value derivatives 12 76 – – Other items – – – 170 Tax assets/liabilities 1,304 1,649 1,357 1,450 Set off of tax (1,357) (1,450) (1,357) (1,450) Net tax assets/liabilities (53) 199 – –
Movement in temporary differences during the year Group Company (NZD in thousands) 2012 2011 2012 2011
Balance at 1 July (5,725) (4,560) 199 86 Acquired in the year (5,286) – – – Recognised in profit or loss 536 (1,033) (169) 6 Recognised in equity (335) (423) (83) 107 Exchange adjustment 1,471 291 – – Balance at 30 June (9,339) (5,725) (53) 199
Unrecognised deferred tax assets Group Company (NZD in thousands) 2012 2011 2012 2011
Gross value of tax losses 8,516 22,284 – –
The tax losses will not expire under local legislation, subject to the local taxpaying entities meeting any conditions relating to continuity of business and ownership. Deferred tax assets have not been recognised in respect of these losses because it is not probable that taxable profit will be available in the immediate future against which the losses can be applied. The losses originate in Brazil (2012: NZD8,516,000 (2011: NZD8,252,000)) and the UK (2012: NZD Nil (2011: NZD14,032,000)).
2012 annual report 63 Notes to the Financial Statements – continued For the year ended 30 June 2012
14. Property, plant and equipment Group Company Land and Plant and Motor Under Land and Plant and Motor (NZD in thousands) buildings equipment vehicles construction Total buildings equipment vehicles Total
Cost Balance at 1 July 2010 185,240 253,767 6,456 1,394 446,857 17,068 28,949 35 46,052 Acquisitions through business combinations – 20,895 – – 20,895 – – – – Additions/transfers 834 7,958 977 1,463 11,232 10 556 – 566 Disposals (180) (2,902) (1,140) – (4,222) – (38) – (38) Effect of movements in foreign exchange (1,229) (2,340) (143) (78) (3,790) – – – – Balance at 30 June 2011 184,665 277,378 6,150 2,779 470,972 17,078 29,467 35 46,580 Balance at 1 July 2011 184,665 277,378 6,150 2,779 470,972 17,078 29,467 35 46,580 Acquisitions through business combinations 17,265 34,081 1,300 2,360 55,006 – – – – Additions/transfers 5,718 18,945 1,219 333 26,215 – 797 – 797 Disposals (424) (21,763) (643) – (22,830) – (420) – (420) Effect of movements in foreign exchange (4,614) (5,845) (288) 277 (10,470) – – – – Balance at 30 June 2012 202,610 302,796 7,738 5,749 518,893 17,078 29,844 35 46,957 Depreciation and impairment losses Balance at 1 July 2010 36,586 133,741 4,367 – 174,694 2,048 24,294 27 26,369 Depreciation charge for the year 3,509 15,602 765 – 19,876 316 970 3 1,289 Disposals/transfers (180) (2,902) (1,140) – (4,222) – (38) – (38) Effect of movements in foreign exchange (1,200) (1,064) (31) – (2,295) – – – – Balance at 30 June 2011 38,715 145,377 3,961 – 188,053 2,364 25,226 30 27,620 Balance at 1 July 2011 38,715 145,377 3,961 – 188,053 2,364 25,226 30 27,620 Depreciation charge for the year 3,757 18,568 458 – 22,783 316 844 2 1,162 Disposals/transfers (85) (1,009) (620) – (1,714) – (399) – (399) Effect of movements in foreign exchange (92) (1,079) (66) – (1,237) – – – – Balance at 30 June 2012 42,295 161,857 3,733 – 207,885 2,680 25,671 32 28,383 Carrying amounts At 1 July 2010 148,654 120,027 2,089 1,394 272,163 15,020 4,655 8 19,683 At 30 June 2011 145,950 132,001 2,189 2,779 282,919 14,714 4,241 5 18,960 At 1 July 2011 145,950 132,001 2,189 2,779 282,919 14,714 4,241 5 18,960 At 30 June 2012 160,315 140,939 4,005 5,749 311,008 14,398 4,173 3 18,574
Leased plant and machinery The Group leases plant and equipment under a number of finance lease agreements. At 30 June 2012, the net carrying amount of leased plant and machinery was NZD926,000 (2011: NZD955,000) for the Group and NZD282,000 (2011: NZD153,000) for the Company. The leased equipment secures the underlying lease obligations (note 17).
64 NUPLEX INDUSTRIES LIMITED 15. Intangible assets Group Company Intellectual (NZD in thousands) Goodwill Agencies property Other Total Goodwill Other Total
Cost Balance at 1 July 2010 115,139 31,837 25,737 5,580 178,293 2,650 208 2,858 Acquisitions through business combinations 715 – – – 715 – – – Other acquisitions – – – 6,030 6,030 – – – Effect of movements in foreign exchange 3,169 – (926) 192 2,435 – – – Balance at 30 June 2011 119,023 31,837 24,811 11,802 187,473 2,650 208 2,858 Balance at 1 July 2011 119,023 31,837 24,811 11,802 187,473 2,650 208 2,858 Acquisitions through business combinations 56,611 – 16,113 724 73,448 – – – Other acquisitions – – – 4,962 4,962 – – – Effect of movements in foreign exchange (8,431) – (3,039) (236) (11,706) – – – Balance at 30 June 2012 167,203 31,837 37,885 17,252 254,177 2,650 208 2,858 Amortisation and impairment losses Balance at 1 July 2010 18,093 – 12,084 1,782 31,959 500 203 703 Amortisation for the year – – 2,381 107 2,488 – 1 1 Effect of movements in foreign exchange 722 – (129) 42 635 – – – Balance at 30 June 2011 18,815 – 14,336 1,931 35,082 500 204 704 Balance at 1 July 2011 18,815 – 14,336 1,931 35,082 500 204 704 Amortisation for the year – – 3,938 1,075 5,013 – 3 3 Effect of movements in foreign exchange (221) – (1,458) (25) (1,704) – – – Balance at 30 June 2012 18,594 – 16,816 2,981 38,391 500 207 707 Carrying amounts At 1 July 2010 97,046 31,837 13,653 3,798 146,334 2,150 5 2,155 At 30 June 2011 100,208 31,837 10,475 9,871 152,391 2,150 4 2,154 At 1 July 2011 100,208 31,837 10,475 9,871 152,391 2,150 4 2,154 At 30 June 2012 148,609 31,837 21,069 14,271 215,786 2,150 1 2,151
Agencies Agencies disclosed above represent the fair value assessed at the time of acquisition of certain agency agreements acquired as part of the PML Holdings Limited group of companies and Med‑Chem business.
Amortisation charge The amortisation charge is recognised in the following line items in profit and loss: Group Company (NZD in thousands) 2012 2011 2012 2011
Administration expenses 1,075 107 3 1 Other operating expenses 3,938 2,381 – – 5,013 2,488 3 1
2012 annual report 65 Notes to the Financial Statements – continued For the year ended 30 June 2012
15. Intangible assets – continued Impairment tests for cash-generating units containing goodwill and capitalised agencies The following segments have significant carrying amounts of goodwill and capitalised agencies: Group Company (NZD in thousands) 2012 2011 2012 2011
Resins goodwill 135,122 87,463 2,150 2,150 Specialties goodwill 13,487 12,745 – – Specialties agencies 31,837 31,837 – – 180,446 132,045 2,150 2,150
For the purposes of impairment testing, goodwill and agencies are allocated to the groups operating divisions which represent the lowest level within the Group at which goodwill is monitored for internal management purposes. The recoverable amount of each cash‑generating unit (“CGU”) is based on value in use calculations. Those calculations use cash flow projections based on actual operating results, budgets and forecasts. Key budget and forecast assumptions, including market growth rates, wages growth rates and inflation are set based on independent economic forecasts for each relevant jurisdiction and approved at Board level. Detailed budgets and forecast cash flows are prepared for a two-year period and are extrapolated using the following growth rates, in accordance with current business plans and forecasts and with reference to long-term independent economic forecasts. Growth rate assumptions: Australian Resins 3% New Zealand Resins 2% Australia and New Zealand Specialties 0 – 3% Europe Resins 2% Americas Resins 1% China Resins 5%
The period over which cash flows are considered for each region is consistent with the Group’s long-term commitment and certainty of cash flows in each region. The following pre‑tax discount rates have been used in discounting the projected cash flows: Discount rates used: New Zealand 16.2% Australia 13.9% Europe 11.3 – 11.8% Americas 13.5% China 13.4%
There was a significant amount of headroom between the recoverable amount and the carrying value of goodwill by CGU and no impairment was recognised. Management does acknowledge that the value in use calculations are sensitive to changes in interest rates, earnings and foreign exchange rates varying from the assumptions and forecast data used in the impairment testing. As such, sensitivity analysis was undertaken to examine the effect of a change in a variable on each CGU. Management believes that any reasonably possible change in the key assumptions on which recoverable amount is based would not create a situation where the carrying value of goodwill allocated to a particular CGU would exceed its recoverable amount.
16. Trade and other payables Group Company (NZD in thousands) 2012 2011 2012 2011
Trade payables and accrued expenses 286,856 244,718 11,559 17,274 Trade payables and accruals owed to subsidiaries – – 16,454 1,162 Fair value derivatives – Forward foreign exchange contracts 230 1,334 41 254 287,086 246,052 28,054 18,690
66 NUPLEX INDUSTRIES LIMITED 17. Interest‑bearing loans and borrowings This note provides information about the contractual terms of the Group’s interest‑bearing loans and borrowings. For more information about the Group’s exposure to interest rate and foreign currency risk, see note 21. Group Company (NZD in thousands) 2012 2011 2012 2011
Current liabilities Bank loans 104,652 87,243 – – Capital notes 52,568 – 52,568 – Finance lease liabilities 374 452 117 77 157,594 87,695 52,685 77 Non‑current liabilities Bank loans 130,285 – – – Capital notes – 52,568 – 52,568 Finance lease liabilities 530 509 215 81 130,815 53,077 215 52,649 Financing facilities Bank loans 373,716 388,954 – – Facilities utilised at reporting date Bank loans 234,937 87,243 – – Facilities not utilised at reporting date Bank loans 138,779 301,710 – –
Terms and debt repayment schedule The terms and conditions of outstanding loans were as follows: Nominal interest rate (excluding fees) 2012 2011 Face Carrying Face Carrying (NZD in thousands) Currency 2012 2011 Maturity value amount value amount
Capital notes NZD 9.30% 9.30% Sep‑12 52,568 52,568 52,568 52,568 Bank loan NZD 3.08% – Dec‑12 25,663 25,663 – – Bank loan AUD 6.00% 6.42% Aug‑14 93,160 93,160 78,439 78,439 Bank loan EUR 0.80% – Dec‑12 78,989 78,989 – – Bank loan EUR 2.35% 3.04% Aug‑14 37,125 37,125 8,804 8,804 Total interest-bearing liabilities 287,505 287,505 139,811 139,811
Financing arrangements Capital notes Notice was given on 1 August that on the election date of 15 September 2012, the Company would redeem the notes for cash. The capital notes have an interest rate of 9.3% per annum. Revolving multi‑currency cash advance facilities Bank loans are denominated in New Zealand Dollars, Australian Dollars and Euro. The Group has two cash advance facilities, one expiring in August 2014 with an overall facility limit denominated in AUD of AUD200,000,000 (2011: AUD300,000,000) and a facility established in December 2011 with an expiry of December 2012 and a facility limit denominated in EUR of EUR75,000,000. The bank loans are subject to a negative pledge whereby Nuplex Industries Limited and a guaranteeing group of its subsidiary companies undertake to the lenders that they will not create or allow to continue any security interest over any part of its property other than in limited circumstances. The guaranteeing group comprises all wholly owned subsidiary companies except Nuplex Resins (Foshan) Co Limited, Nuplex Resins (Suzhou) Co Limited, Nuplex Resins (Thailand) Limited, Nuplex Industries (Hong Kong) Limited, Nuplex Producao de Resinas Ltda, and Nuplex Singapore Pte Ltd. Loans are drawn on a revolving facility and are drawn for periods of up to six months under the facilities and interest accrues at a rate fixed on the date of drawdown for that period. The Group’s borrowings are subject to various covenants pursuant to the financing arrangements with the Group’s bank lenders.
2012 annual report 67 Notes to the Financial Statements – continued For the year ended 30 June 2012
17. Interest‑bearing loans and borrowings – continued Issuance of US PP debt July 2012 Subsequent to the end of the financial year, the Group raised USD105 million of debt from the US Private Placement market (“US PP”) with settlement on 31 July 2012. The proceeds were converted into EUR via cross-currency swap and used to refinance the EUR75 million facility expiring in December 2012, which has now been cancelled.
Finance lease liabilities Finance lease liabilities of the Group and Company are payable as follows: Group Company Minimum Minimum lease lease (NZD in thousands) payments Principal Interest payments Principal Interest
2012 Less than one year 374 346 28 118 111 7 Between one and five years 530 499 31 215 199 16 904 845 59 333 310 23 2011 Less than one year 484 452 32 82 77 5 Between one and five years 532 509 22 87 81 6 1,016 961 54 169 158 11
The Group leases equipment under finance leases expiring from one to five years.
18. Employee provisions Group Company (NZD in thousands) 2012 2011 2012 2011
Current Bonus provisions 6,882 7,352 338 485 Liability for annual leave 12,517 11,126 1,115 1,259 Redundancy 71 3,436 – – Other 1,836 2,022 – – 21,306 23,936 1,453 1,744 Non‑current Present value of unfunded obligations 8,513 10,630 – – Present value of funded obligations 21,697 – – – Fair value of plan assets (14,850) – – – Present value of net obligations 15,360 10,630 – – Unrecognised actuarial amounts (2,508) (206) – – Recognised liability for defined benefit obligations (see below) 12,852 10,424 – – Liability for long‑service leave 9,476 8,424 204 314 Other 619 2,039 – 229 Total non‑current employee benefits 22,947 20,887 204 543
68 NUPLEX INDUSTRIES LIMITED Liability for defined benefit obligation The Group makes contributions to three defined benefit plans that provide benefits for employees upon retirement. The plans include retirement schemes in Germany and The Netherlands and a United States medical scheme. Movements in the net liability for defined benefit obligations: Group Company (NZD in thousands) 2012 2011 2012 2011
Net liability for defined benefit obligations at 1 July 10,630 16,064 – – Acquisitions 19,913 – – – Benefits and settlements paid (2,383) (4,485) – – Current service costs and interest 1,318 541 – – Employee contributions 87 – – – Actuarial (gain)/loss 2,328 118 – – Exchange adjustment (1,683) (1,608) – – Net liability for defined benefit obligations at 30 June 30,210 10,630 – –
Movements in plan assets: Group Company (NZD in thousands) 2012 2011 2012 2011
Fair value of plan assets at 1 July – 1,796 – – Acquisitions 15,092 – – – Employer contributions paid into the plan 313 80 – – Participant contributions paid into the plan 87 38 – – Benefits and settlements paid by the plan (93) (2,016) – – Expected return on plan assets 323 79 – – Actuarial gain/(loss) – 23 – – Exchange adjustment (872) – – – 14,850 – – –
Expense recognised in profit and loss: Group Company (NZD in thousands) 2012 2011 2012 2011
Current service costs (409) (90) – – Interest on obligation (909) (450) – – Expected return on plan assets 323 79 – – Actuarial gains/(losses) (492) (12) – – (1,487) (473) – –
The expense is recognised in the following lines in profit and loss: Group Company (NZD in thousands) 2012 2011 2012 2011
Cost of sales (1,157) – – – Marketing expenses – (76) – – Administration expenses (330) (397) – – (1,487) (473) – –
It is expected that the Group will make contributions to plans of NZD0.9 million and pay benefits from the plans of NZD0.3 million in the year ended 30 June 2013.
2012 annual report 69 Notes to the Financial Statements – continued For the year ended 30 June 2012
18. Employee provisions – continued Actuarial assumptions: Group Company 2012 2011 2012 2011
Discount rate 3.25 to 4.00% 4.75 to 5.50% – – Return on plan assets 4.20 to 4.30% 4.75% – – Pension increases 1.75 to 7.60% 2.00 to 13.20% – – Salary increases 2.50 to 3.00% 2.50% – –
Trend data 2012 2011 2010 2009 2008
Defined benefit obligation (30,210) (10,630) (16,064) (17,223) (17,892) Assets of the plans 14,850 – 1,796 1,626 2,205 Net obligation (15,360) (10,630) (14,268) (15,597) (15,687) Experience adjustments arising on plan assets – (23) 44 292 259 Experience adjustments arising on plan liabilities (58) (446) (184) (184) (293)
Share‑based Incentive Schemes The Company established in the prior year a Performance Rights Plan that entitles key management personnel to receive shares in the Company after a three or four year vesting period subject to TSR and EPS performance hurdles. The first tranche of the scheme was approved by shareholders in November 2010 and involved the issue of 1,371,668 rights with a vesting period commencing 1 July 2010 and tested for vesting at 30 June 2013 and 30 June 2014 if not fully vested at the earlier date, rights lapse at 30 June 2014 if unvested. The second tranche of the scheme was issued in September 2011 and involved the issue of 1,702,274 rights with a vesting period commencing 1 July 2011 and tested for vesting at 30 June 2014 and 30 June 2015 if not fully vested at the earlier date, rights lapse at 30 June 2015 if unvested. The rights are equally split into those tested against a TSR performance hurdle and those tested against an EPS performance hurdle and rights vest on a sliding scale depending on performance against targets set at grant in each case, subject also to continuing service with the Company. The grant date fair value of the rights was measured based on Monte Carlo sampling for those subject to a TSR hurdle. Expected volatility is estimated by considering historic average share price volatility. The inputs used in the measurement of those fair values were: 2012 2011
Share price at grant date: NZD2.84 NZD3.53 Risk-free rate (based on Govt bonds) 2.99% 4.26% Dividend yield 6.6% 7% Volatility 25% 26%
(Income)/Expense recognised in the income statement Group Company (NZD in thousands) 2012 2011 2012 2011
Performance Rights granted in 2011 financial year – equity settled (103) 1,200 8 210 Performance Rights granted in 2012 financial year – equity settled 654 – 202 – Performance Rights granted in 2012 financial year – cash settled 188 – – – 739 1,200 210 210
70 NUPLEX INDUSTRIES LIMITED 19. Provisions Group Company Site Site (NZD in thousands) restoration Other Total restoration Total
Balance at 1 July 2011 7,780 3,075 10,855 1,820 1,820 Provisions made during the year – 242 242 – – Provisions used or reversed during the year (1,398) (1,321) (2,719) (104) (104) Exchange rate adjustment (90) – (90) – – Balance at 30 June 2012 6,292 1,996 8,288 1,716 1,716 2012 Current 6,292 1,996 8,288 1,716 1,716 Non‑current – – – – – Total 6,292 1,996 8,288 1,716 1,716 2011 Current 7,780 3,075 10,855 1,820 1,820 Non‑current – – – – – Total 7,780 3,075 10,855 1,820 1,820
Site restoration Provisions for site restoration are made where the Group has an obligation to remediate a site on which contamination has occurred. Provisions are based upon prior experience and surveyors reports. The amounts are expected to be utilised within the year.
Other Other provisions include provisions for costs to defend legal claims.
2012 annual report 71 Notes to the Financial Statements – continued For the year ended 30 June 2012
20. Capital and reserves Reconciliation of movement in capital and reserves Group Attributable to equity holders of the parent
Share- based Non‑ Share payments Translation Retained Hedging controlling Total (NZD in thousands) capital reserve reserve earnings reserve Total interest equity
Balance at 1 July 2010 349,664 – (8,932) 175,345 (536) 515,541 7,789 523,330 Total comprehensive income for the year – – (6,293) 66,543 (181) 60,069 1,874 61,943 Shares issued 14,580 – – – – 14,580 – 14,580 Performance Rights Plan – 1,200 – – – 1,200 – 1,200 Dividends paid – – – (40,652) – (40,652) (2,781) (43,433) Non‑controlling interest in acquisition – – – – – – 3,112 3,112 Balance as at 30 June 2011 364,244 1,200 (15,225) 201,236 (717) 550,738 9,994 560,732 Balance at 1 July 2011 364,244 1,200 (15,225) 201,236 (717) 550,738 9,994 560,732 Total comprehensive income for the year – – (16,930) 62,533 877 46,480 1,926 48,406 Shares issued – – – – – – – – Performance Rights Plan – 551 – – – 551 – 551 Dividends paid – – – (41,317) – (41,317) (1,700) (43,017) Non‑controlling interest in acquisition – – – – – – (3,112) (3,112) Balance as at 30 June 2012 364,244 1,751 (32,155) 222,452 160 556,452 7,108 563,560
Company Share‑based payments Retained Hedging (NZD in thousands) Share capital reserve earnings reserve Total
Balance at 1 July 2010 349,664 – 100,540 (181) 450,023 Total comprehensive income for the year – – 22,655 (249) 22,406 Shares issued 14,580 – – – 14,580 Performance Rights Plan – 1,200 – – 1,200 Dividends paid – – (40,652) – (40,652) Balance as at 30 June 2011 364,244 1,200 82,543 (430) 447,557 Balance at 1 July 2011 364,244 1,200 82,543 (430) 447,557 Total comprehensive income for the year – – 32,013 213 32,226 Shares issued – – – – – Performance Rights Plan – 551 – – 551 Dividends paid – – (41,317) – (41,317) Balance as at 30 June 2012 364,244 1,751 73,239 (217) 439,017
72 NUPLEX INDUSTRIES LIMITED Share capital Company and Group (In thousands of shares) (NZD in thousands) 2012 2011 2012 2011
Fully paid ordinary shares On issue at 1 July 196,748 192,233 364,244 349,664 Dividend reinvestment plan – 4,515 – 14,580 On issue at 30 June 196,748 196,748 364,244 364,244
The holders of ordinary shares are entitled to receive dividends as declared from time to time, are entitled to one vote per share at meetings of the Company and participate equally on winding up of the Company.
Share‑based payments reserve The share‑based payments reserve comprises the equity impact of the Group’s Performance Rights Plan as disclosed in note 18.
Translation reserve The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations where their functional currency is different to the functional currency of the reporting entity, as well as from the translation of liabilities designated as hedges of the Company’s net investment in a foreign subsidiary.
Hedging reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of effective cash flow hedging instruments related to hedged transactions that have not yet occurred.
Dividends Dividends recognised in the current and previous years by the Company are as follows: 2012 2011 Imputation Imputation Cents per Total cents per Date of Cents per Total cents per Date of (NZD in thousands) share amount share payment share amount share payment
Interim current year ordinary 10.0 19,675 Nil Apr‑12 10.0 19,506 Nil Apr‑11 Final prior year ordinary 11.0 21,642 Nil Oct‑11 11.0 21,146 Nil Oct‑10 Total amount 21.0 41,317 21.0 40,652
Dividends include tax credits from the Company’s Imputation Credit Account as noted above. Dividends also include Australian franking credits at 50% of the maximum rate for the prior year interim dividend, 60% for the prior year final dividend and 50% of the maximum rate for the current year interim dividend. After the balance sheet date the following dividends were proposed by the Directors. The dividends have not been provided. Imputation Cents per Total cents per Date of (NZD in thousands) share amount share payment
Final dividend 11.0 21,642 Nil 12 October 2012
Imputation credits Group (NZD in thousands) 2012 2011
Balance at 1 July 1,095 1,915 Prior year adjustment (1) 175 Tax paid/(refunded) and interest applied 1,146 (995) Balance at 30 June 2,240 1,095
The Company is part of a New Zealand tax group with the Group’s other New Zealand domiciled entities. The imputation credit balance presented above represents that of the Group.
2012 annual report 73 Notes to the Financial Statements – continued For the year ended 30 June 2012
20. Capital and reserves – continued Australian franking credits Group (AUD in thousands) 2012 2011
Balance at 1 July 3,351 927 Franking credits attached to dividends received 381 441 Tax paid 5,518 8,840 Franking credits attached to dividends paid (8,571) (6,857) Balance at 30 June 679 3,351
21. Financial risk management Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the Group’s business. This note presents information about the Group’s exposure to those risks, the objectives, policies and processes for measuring and managing financial risks, and the Group’s management of capital. Further quantitative disclosures are included throughout these financial statements. The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s risk management policies are set to identify and analyse the risks faced by the Group, to set appropriate limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Board oversees how management monitors compliance with the Group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to risks faced by the Group.
Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers. Trade and other receivables The Group has a credit policy which restricts the exposure to individual trade debtors. Each new customer is analysed for creditworthiness before the Group offers payment and delivery terms. The review includes external ratings where available. Credit limits are established for each customer, representing the maximum open amount without requiring approval from senior management or the Board. The Board of Directors reviews the exposure to trade debtors on a regular basis. 12.3% of the Group’s revenue is attributable to one global group of customers under common control. Goods are sold subject to retention of title clauses, so that in the event of non‑payment the Group may have a secured claim. The Group does not require collateral in respect of trade receivables. Guarantees The Company has issued a guarantee to HSBC to enable associate company Synthese Thailand Co Limited to borrow up to USD5.6 million, and to RPC Pipe Systems Pty Limited securing an AUD17.5 million banking facility, as detailed in note 24. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: Group Company (NZD in thousands) 2012 2011 2012 2011
Trade and other receivables 361,160 310,588 16,568 16,459 Cash and cash equivalents 68,325 66,850 1,595 4,275 Interest rate swaps used for hedging: Assets 675 50 – – Forward exchange contracts used for hedging: Assets – 76 – – 430,160 377,564 18,163 20,734
74 NUPLEX INDUSTRIES LIMITED The maximum exposure to credit risk for financial assets at the reporting date by geographic region was: Group Company (NZD in thousands) 2012 2011 2012 2011
New Zealand 29,670 34,451 16,807 17,919 Australia 109,199 114,165 3 281 Americas 33,611 26,899 – – Europe 158,204 118,309 – – Asia 99,476 83,740 1,353 2,534 430,160 377,564 18,163 20,734
The ageing of trade receivables at the reporting date was: Group Company Gross Impairment Gross Impairment Gross Impairment Gross Impairment (NZD in thousands) 2012 2012 2011 2011 2012 2012 2011 2011
Not past due 267,100 (340) 251,476 (1,716) 9,507 – 12,714 – Past due 0 – 30 days 38,549 (9) 30,934 – 3,204 – 2,280 – Past due 31 – 90 days 10,355 – 5,534 (495) 913 – 449 – Past due 91 days or more 5,005 (1,935) 3,822 (1,467) 477 (321) 525 (424) Total 321,009 (2,284) 291,766 (3,678) 14,101 (321) 15,968 (424)
The movement in the allowance for impairment in respect of trade receivables during the year was: Group Company (NZD in thousands) 2012 2011 2012 2011
Balance at 1 July 3,678 4,649 424 361 Impairment loss recognised/(reversed) 651 (160) 84 153 Utilisation of existing provisions (2,003) (812) (187) (90) Exchange adjustment (42) 1 – – Balance at 30 June 2,284 3,678 321 424
2012 annual report 75 Notes to the Financial Statements – continued For the year ended 30 June 2012
21. Financial risk management – continued Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group ensures as far as possible that it maintains sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. In addition to the Group debt facility, companies in the Group maintain operating credit facilities for day-to-day operational purposes. The following are the contractual maturities of financial liabilities, including interest payments and excluding the impact of netting arrangements: Group Carrying Contractual 6 months 6‑12 1‑2 2‑5 (NZD in thousands) amount cash flows or less months years years
2012 Non‑derivative financial liabilities Bank loans 234,937 256,521 6,289 110,941 8,006 131,285 Capital notes 52,568 53,790 53,790 – – – Finance lease liabilities 845 904 187 187 340 190 Trade and other payables 286,856 286,856 286,856 – – – Derivative financial liabilities Forward exchange contracts Outflow 230 36,003 35,908 95 – – Inflow – (35,769) (35,675) (94) – – 575,436 598,305 347,355 111,129 8,346 131,475
Carrying Contractual 6 months 6‑12 1‑2 2‑5 (NZD in thousands) amount cash flows or less months years years
2011 Non‑derivative financial liabilities Bank loans 87,243 91,739 2,997 88,742 – – Capital notes 52,568 58,475 2,444 2,444 53,587 – Finance lease liabilities 961 1,016 242 242 330 201 Trade and other payables 244,718 244,718 244,718 – – – Derivative financial liabilities Forward exchange contracts Outflow 1,334 42,782 41,920 862 – – Inflow (76) (41,441) (40,602) (839) – – 386,748 397,289 251,719 91,451 53,917 201
76 NUPLEX INDUSTRIES LIMITED Company Carrying Contractual 6 months 6‑12 1‑2 2‑5 (NZD in thousands) amount cash flows or less months years years
2012 Non‑derivative financial liabilities Capital notes 52,568 53,790 53,790 – – – Finance lease liabilities 310 334 59 59 124 92 Trade and other payables 28,013 28,013 28,013 – – – Derivative financial liabilities Forward exchange contracts Outflow 41 4,526 4,526 – – – Inflow – (4,484) (4,484) – – – 80,932 82,179 81,904 59 124 92
Carrying Contractual 6 months 6‑12 1‑2 2‑5 (NZD in thousands) amount cash flows or less months years years
2011 Non‑derivative financial liabilities Capital notes 52,568 58,475 2,444 2,444 53,587 – Finance lease liabilities 158 170 41 41 43 46 Trade and other payables 18,436 18,436 18,436 – – – Derivative financial liabilities Forward exchange contracts Outflow 254 4,853 4,853 – – – Inflow – (4,598) (4,598) – – – 71,416 77,336 21,176 2,485 53,630 46
The following table indicates the periods in which the cash flows associated with derivatives that are cash flow hedges are expected to occur: Group Carrying Contractual 6 months 6‑12 1‑2 2‑5 5 years (NZD in thousands) amount cash flows or less months years years or more
2012 Currency swaps Assets 675 678 (293) 48 97 291 535 Forward exchange contracts Assets – 35,769 35,675 94 – – – Liabilities (230) (36,003) (35,908) (95) – – – 445 444 (526) 47 97 291 535
Carrying Contractual 6 months 6‑12 1‑2 2‑5 5 years (NZD in thousands) amount cash flows or less months years years or more
2011 Interest rate swaps Assets 50 52 32 20 – – – Forward exchange contracts Assets 76 41,441 40,602 839 – – – Liabilities (1,334) (42,782) (41,920) (862) – – – (1,208) (1,289) (1,286) (3) – – –
2012 annual report 77 Notes to the Financial Statements – continued For the year ended 30 June 2012
21. Financial risk management – continued Company Carrying Contractual 6 months 6‑12 1‑2 2‑5 5 years (NZD in thousands) amount cash flows or less months years years or more
2012 Forward exchange contracts Assets – 4,484 4,484 – – – – Liabilities (41) (4,526) (4,526) – – – – (41) (42) (42) – – – –
Carrying Contractual 6 months 6‑12 1‑2 2‑5 5 years (NZD in thousands) amount cash flows or less months years years or more
2011 Forward exchange contracts Assets – 4,598 4,598 – – – – Liabilities (254) (4,853) (4,853) – – – – (254) (255) (255) – – – –
The following table indicates the periods in which the cash flows associated with derivatives that are cash flow hedges are expected to impact profit and loss: Group Carrying Contractual 6 months 6‑12 1‑2 2‑5 5 years (NZD in thousands) amount cash flows or less months years years or more
2012 Currency swaps Assets 675 678 40 48 97 291 202 Forward exchange contracts Assets – 35,769 35,675 94 – – – Liabilities (230) (36,003) (35,908) (95) – – – 445 444 (193) 47 97 291 202
Carrying Contractual 6 months 6‑12 1‑2 2‑5 5 years (NZD in thousands) amount cash flows or less months years years or more
2011 Interest rate swaps Assets 50 52 42 10 – – – Forward exchange contracts Assets 76 41,441 40,602 839 – – – Liabilities (1,334) (42,782) (41,920) (862) – – – (1,208) (1,289) (1,276) (13) – – –
78 NUPLEX INDUSTRIES LIMITED Company Carrying Contractual 6 months 6‑12 1‑2 2‑5 (NZD in thousands) amount cash flows or less months years years
2012 Forward exchange contracts Assets – 4,484 4,484 – – – Liabilities (41) (4,526) (4,526) – – – (41) (42) (42) – – –
Carrying Contractual 6 months 6‑12 1‑2 2‑5 (NZD in thousands) amount cash flows or less months years years
2011 Forward exchange contracts Assets – 4,598 4,598 – – – Liabilities (254) (4,853) (4,853) – – – (254) (255) (255) – – –
Market risk The Group is exposed to the risk that changes in foreign exchange rates and interest rates will affect the Group’s income or value of financial instruments. The objective of managing these risks is to control exposures within acceptable parameters while optimising the impact on return. The Group utilises forward currency contracts and interest rate swaps in the ordinary course of business in order to manage these risks. All such transactions are carried out within the guidelines of the Group’s Treasury policy as set by the Board. The Group applies hedge accounting where permitted in order to limit volatility in profit and loss.
Capital management The Group’s capital structure comprises a mixture of equity, capital notes, bank debt of varying tenure and cash. The structure gives a balance between costs of each component, the liquidity risk, the quantum of unused facilities and tenure such that the Group has adequate facilities available at all times to meet its short and medium-term cash needs for operations, capital expenditure, financing and pursuit of growth opportunities.
Interest rate risk The Group has adopted a policy of ensuring that 40 – 100% of its exposure to interest rates to reset within a year is fixed, that 30 – 80% of its exposure to rates to reset from one to three years time is fixed and that 0 – 60% of exposure to rates to reset from three to five years time is fixed. The Board regularly monitors compliance with this policy. Interest rate swaps were used to convert the interest in floating rate borrowings to a fixed rate. The notional principal or contract amounts of swap instruments outstanding at balance date are as follows: (NZD in thousands) 2012 2011
Net interest rate swaps Group – 19,448 Company – –
The Group classifies interest rate swaps as cash flow hedges and states them at fair value. The swaps were taken out for a period of three years to reprice consistent with the underlying borrowings they hedged.
2012 annual report 79 Notes to the Financial Statements – continued For the year ended 30 June 2012
21. Financial risk management – continued Interest rate risk profile At the reporting date the interest rate profile of the Group’s interest‑bearing financial instruments was: Group Company (NZD in thousands) 2012 2011 2012 2011
Fixed rate instruments Financial liabilities 53,413 72,977 52,900 52,726 (53,413) (72,977) (52,900) (52,726) Variable rate instruments Financial assets 68,325 66,850 1,595 4,275 Financial liabilities 234,996 67,795 – – (166,671) (945) 1,595 4,275
Sensitivity analysis A change of 100 basis points in interest rates at the reporting date would have impacted equity and profit by the amounts shown below. The analysis assumes all other variables remain constant. The analysis is performed on the same basis for 2011. Group Company Equity Profit Equity Profit Equity Profit Equity Profit (Impact NZD in thousands) 2012 2012 2011 2011 2012 2012 2011 2011
100bp increase Variable rate instruments – (1,220) – 190 – 11 – 43 Interest rate swaps – – 66 – – – – – Cash flow sensitivity (net) – (1,220) 66 190 – 11 – 43 100bp decrease Variable rate instruments – 1,220 – (190) – (11) – (43) Interest rate swaps – – (67) – – – – – Cash flow sensitivity (net) – 1,220 (67) (190) – (11) – (43)
Effective interest rates and repricing analysis In respect of income‑earning financial assets and interest‑bearing financial liabilities, the following table indicates their effective interest rates at the balance sheet date and the periods in which they reprice. Group Effective Amount of interest interest rate 6 months 6‑12 1‑2 (NZD in thousands) rate hedged Total or less months years
2012 Cash and cash equivalents 0.94 – 68,325 68,325 – – Bank loans: AUD loan 6.00 – (93,160) (93,160) – – EUR loan 0.80 – (78,989) (78,989) – – EUR loan 2.35 – (37,125) (37,125) – – NZD loan 3.08 – (25,663) (25,663) – – Capital notes 9.30 – (52,568) (52,568) – – Finance lease liabilities (845) (173) (173) (499) (220,025) (219,353) (173) (499)
80 NUPLEX INDUSTRIES LIMITED Effective Amount of interest interest rate 6 months 6‑12 1‑2 (NZD in thousands) rate hedged Total or less months years
2011 Cash and cash equivalents 1.19 – 66,850 66,850 – – Bank loans: AUD loan 5.96 19,448 (78,439) (78,439) – – EUR loan 3.04 – (8,804) (8,804) – – Capital notes 9.30 – (52,568) – – (52,568) Finance lease liabilities (961) – (452) (509) (73,922) (20,393) (452) (53,077)
Company Effective Amount of interest interest rate 6 months 6‑12 1‑2 (NZD in thousands) rate hedged Total or less months years
2012 Cash and cash equivalents 2.00 – 1,595 1,595 – – Capital notes 9.30 – (52,568) (52,568) – – Finance lease liabilities (310) (56) (56) (199) (51,283) (51,029) (56) (199)
Effective Amount of interest interest rate 6 months 6‑12 1‑2 (NZD in thousands) rate hedged Total or less months years
2011 Cash and cash equivalents 2.02 – 4,275 4,275 – – Capital notes 9.30 – (52,568) – – (52,568) Finance lease liabilities (158) – (77) (81) (48,451) 4,275 (77) (52,649)
Currency risk The Group has exposure to foreign exchange risk as a result of transactions in currencies other than the functional currency of the transacting Group entity. The Group uses forward exchange instruments to manage elements of these exposures. Significant exposures occur primarily in USD, EUR and AUD. The Group aims to cover 80 – 100% of its three‑month forecast net currency exposure, up to 50% of its four‑ to six‑month net exposure and up to 25% of its seven‑ to 12‑month net exposure. Interest on borrowings is denominated in currencies that match the cash flows generated by the underlying operations of the Group. This provides an economic hedge and no derivatives are entered into in this respect.
Forecast transactions The Group hedge accounts its forward exchange contracts. These contracts are fair valued and any effective portion of hedge valuation movement is shown in the statement of changes in equity. The net fair value of these forward exchange contracts at 30 June was NZD(230,000) (2011: (NZD1,335,000)), comprising liabilities of NZD230,000 (2011: liabilities of NZD1,335,000) that were recognised in fair value derivatives. Contracts are taken out for periods of 1 to 12 months depending upon the timing of the anticipated foreign currency cash flows that the contracts hedge.
2012 annual report 81 Notes to the Financial Statements – continued For the year ended 30 June 2012
21. Financial risk management – continued Exposure to currency risk The Group’s exposure to foreign currency risk was as follows based on notional amounts: Group AUD USD EUR AUD USD EUR (NZD in thousands) 2012 2012 2012 2011 2011 2011
Non‑functional currency amounts Trade receivables and cash balances 298 23,594 23,243 697 17,195 26,918 Trade payables (2,099) (18,392) (21,509) (2,669) (17,940) (28,328) Gross statement of financial position exposure (1,801) 5,202 1,734 (1,972) (745) (1,410) Subsidiary net assets 288,571 83,213 128,040 273,238 71,051 122,908 Forward exchange contracts 1,305 24,636 4,814 1,231 26,218 4,948 Statement of financial position exposure 288,075 113,051 134,588 272,497 96,524 126,446 Profit in functional currency (1,571) 13,745 19,886 21,080 12,292 17,044
Company AUD USD EUR AUD USD EUR (NZD in thousands) 2012 2012 2012 2011 2011 2011
Trade receivables and cash balances 185 1,521 35 139 1,617 – Trade payables (407) (1,529) (73) (321) (2,033) (165) Gross statement of financial position exposure (222) (8) (38) (182) (416) (165) Forward exchange contracts 549 3,351 513 819 3,539 341 Statement of financial position exposure 327 3,343 475 637 3,123 176
The following significant exchange rates applied during the year: Reporting date Average rate mid‑spot rate 2012 2011 2012 2011
USD 0.80 0.76 0.80 0.82 AUD 0.78 0.77 0.78 0.77 EUR 0.60 0.56 0.63 0.57
Sensitivity analysis A 10% strengthening of the NZD against the following currencies at 30 June would have impacted equity and profit by the amounts shown below. The analysis assumes all other variables remain constant. The analysis is performed on the same basis for 2011. Group Company Increase/(Decrease) Equity Profit Equity Profit Equity Profit Equity Profit (NZD in thousands) 2012 2012 2011 2011 2012 2012 2011 2011
AUD (28,974) 337 (27,453) (1,911) (49) 22 (72) 18 EUR (12,988) (2,162) (12,421) (1,563) (45) 4 (30) 17 USD (9,095) (1,895) (7,920) (1,155) (303) 1 (302) 42
A 10% weakening of currencies versus NZD would have had an equal but opposite impact.
82 NUPLEX INDUSTRIES LIMITED Fair values The fair values together with the carrying amounts shown in the statement of financial position are as follows: Group Loans Other At fair and amortised Carrying (NZD in thousands) Note value receivables cost amount Fair value
2012 Trade and other receivables 11 – 361,160 – 361,160 361,160 Cash and cash equivalents – 68,325 – 68,325 68,325 Interest rate and currency swaps: Assets 675 – – 675 675 Forward exchange contracts: Assets – – – – – Liabilities (230) – – (230) (230) Bank loans 17 – – (234,937) (234,937) (234,937) Capital notes 17 – – (52,568) (52,568) (53,377) Finance lease liabilities 17 – – (845) (845) (1,002) Trade and other payables 16 – – (286,856) (286,856) (286,856) 445 429,485 (575,206) (145,276) (146,242) Unrecognised (losses)/gains (966)
2011 Trade and other receivables 11 – 310,588 – 310,588 310,588 Cash and cash equivalents – 66,850 – 66,850 66,850 Interest rate and currency swaps: Assets 50 – – 50 50 Forward exchange contracts: Assets 76 – – 76 76 Liabilities (1,334) – – (1,334) (1,334) Bank loans 17 – – (87,243) (87,243) (87,243) Capital notes 17 – – (52,568) (52,568) (55,449) Finance lease liabilities 17 – – (961) (961) (979) Trade and other payables 16 – – (244,718) (244,718) (244,718) (1,208) 377,438 (385,490) (9,260) (12,159) Unrecognised (losses)/gains (2,899)
2012 annual report 83 Notes to the Financial Statements – continued For the year ended 30 June 2012
21. Financial risk management – continued Company Loans Other At fair and amortised Carrying (NZD in thousands) Note value receivables cost amount Fair value
2012 Trade and other receivables 11 – 18,613 – 18,613 18,613 Cash and cash equivalents – 1,595 – 1,595 1,595 Forward exchange contracts: Liabilities (41) – – (41) (41) Capital notes 17 – – (52,568) (52,568) (53,377) Finance lease liabilities 17 – – (310) (310) (312) Trade and other payables 16 – – (28,013) (28,013) (28,013) (41) 20,208 (80,891) (60,724) (61,535) Unrecognised (losses)/gains (811)
2011 Trade and other receivables 11 – 17,485 – 17,485 17,485 Cash and cash equivalents – 4,275 – 4,275 4,275 Forward exchange contracts: Liabilities (254) – – (254) (254) Capital notes 17 – – (52,568) (52,568) (55,449) Finance lease liabilities 17 – – (158) (158) (164) Trade and other payables 16 – – (18,436) (18,436) (18,436) (254) 21,760 (71,162) (49,656) (52,543) Unrecognised (losses)/gains (2,887)
Estimation of fair values The methods used in determining fair values of financial instruments are discussed in note 1(x). NZ IFRS 7 dictates a hierarchy of valuation methods for determining the fair value of financial instruments, as follows: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Inputs other than level 1 quoted prices that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: Inputs for the asset or liability that are not based on observable market data. All of the Group and Company assets and liabilities valued at fair value are valued using level 2 methods. Interest rates used for determining fair value The entity uses the government yield curve as of 30 June 2012 plus an adequate constant credit spread to discount financial instruments. The interest rates used are as follows: 2012 2011
Capital notes 2.6% 3.5% Leases 7% – 8% 10% – 12% Interest rate swaps N/A 4.9% – 5.0%
All assets and liabilities measured at fair value are valued using inputs other than quoted prices that are observable for the asset or liability either directly (i.e. as prices) or indirectly (i.e. derived from prices).
84 NUPLEX INDUSTRIES LIMITED 22. Operating leases Non‑cancellable operating lease rentals are payable as follows: Group Company (NZD in thousands) 2012 2011 2012 2011
Less than one year 10,505 8,593 2,061 1,553 Between one and five years 14,664 6,827 4,800 2,812 More than five years 16,825 12,198 14,273 11,162 41,994 27,618 21,134 15,527
The Group leases a number of warehouse and factory facilities under operating leases. With the exception of New Zealand property leases, the leases typically run for a period of three to five years, with an option to renew the lease after that date. None of the leases include contingent rentals. During the year ended 30 June 2012, NZD11,256,000 was recognised as an expense in profit and loss in respect of operating leases (2011: NZD10,388,000).
23. Capital and other commitments Group Company (NZD in thousands) 2012 2011 2012 2011
Plant and equipment contracted but not provided for and payable: Within one year 10,703 1,917 – – 10,703 1,917 – –
2012 annual report 85 Notes to the Financial Statements – continued For the year ended 30 June 2012
24. Contingent liabilities US class action Proceedings purporting to be a class action were commenced in Kentucky in March 2010 in connection with alleged contamination of the area surrounding the plant of a wholly owned subsidiary in Louisville, Kentucky. The plaintiffs claim to represent a group of local residents. The claim is yet to be certified as a class action by the Kentucky court and does not specify an amount of damages.
US income tax A wholly owned subsidiary in the USA has been the subject of an audit of its 2007 income tax return. The IRS process is not yet completed, but at this stage of the process the IRS has indicated that it believes there is additional tax owing of approximately USD10,500,000 plus any fines and penalties that may be imposed. Nuplex considers that it has appropriately applied the applicable tax regulations, that no additional tax is payable, and is defending its position. As at the date of preparation of these financial statements, the IRS has not imposed any obligation on Nuplex to pay any tax in relation to this matter.
Negative pledge deed The Company and all the material wholly owned subsidiaries have entered into a negative pledge deed with the Group’s lenders whereby all Group companies that are party to the deed have guaranteed the repayment of all liabilities in the event that any of these companies are wound up.
HSBC guarantee The Company has issued a guarantee to HSBC to enable associate company Synthese Thailand Co Limited to borrow up to THB205 million (2011: THB205 million). Nuplex has discharged the JV partner Thai Urethane Plastic Co Limited from its indemnity against 48% of all losses, costs, damages, expenses, claims and demands which may be incurred or sustained by reason or on account of having given the guarantee. Nuplex granted this discharge as part of its commitment to increase the funds available to Synthese Thailand Co Limited to meet an obligation to purchase plant and equipment from Thai Urethane Plastic Co Limited. This transaction was executed in January 2008.
Weathertight Homes Resolution Plaster Systems Limited (PSL) has been notified of various claims against the Company under the Weathertight Homes Resolution Services Act 2002. PSL has provided for the costs of settlement of these claims as a current provision. PSL has denied liability for damages under these claims but has participated in the settlement process and contributed towards remediation as determined by the adjudicator without reverting to its full legal remedies as a gesture of good faith and to protect the reputation of its products suitability for purpose.
RPC Pipe Systems Pty Limited guarantee In connection with the Group’s joint venture interest in RPC Pipe Systems Pty Limited, Nuplex Industries (Aust) Pty Limited has provided a guarantee to Westpac Banking Corporation for up to AUD17.5 million to secure Westpac’s facilities to the joint venture. Nuplex Industries (Aust) Pty Limited’s position is secured by a registered charge over the assets of RPC Pipe Systems Pty Limited, which ranks behind a charge in favour of the bank. The Directors consider that no further provisions are required in respect of these matters as they are considered unlikely to result in future liability and/or the quantum of any future liability is not capable of reliable measurement.
86 NUPLEX INDUSTRIES LIMITED 25. Investments The subsidiary and associate companies comprise: Country of incorporation other % Held Principal activity Directors** than NZ 2012 2011 Asia Pacific Specialty Chemicals Manufacturer and supplier of specialty products, Limited additives and ingredients 1, 2, 7 Australia 100% 100% Cong Ty Nuplex Resins (Vietnam) Manufacture and distribution of synthetic resins 1, 2, 11, 13 Vietnam 100% 100% Nuplex Finance Holdings Limited Investment and group finance company 2, 7 100% 100% Nuplex Industries (Aust) Pty Limited Manufacture, import and distribution of synthetic resins and emulsions, metal driers, paper‑making chemicals and food ingredients 2, 7, 10 Australia 100% 100% Nuplex Industries BV Non‑operating holding company 2, 7 Netherlands 100% 100% Nuplex Industries UK Limited Non‑operating holding company 2, 7 UK 100% 100% Nuplex Operations (Aust) Pty Limited Non‑operating holding company 2, 7 Australia 100% 100% Nuplex Resins (Foshan) Co Limited Manufacture and distribution of synthetic resins 2, 3, 13 China 100% 100% Nuplex Resins BV Manufacture and distribution of synthetic resins 2, 5, 7, 8, 12, 15 Netherlands 100% 100% Nuplex Industries GmbH Non‑operating holding company 2, 5, 12 Germany 100% 0% Nuplex Resins GmbH Manufacture and distribution of synthetic resins 2, 5, 9 Germany 100% 0% Nuplex Resins Limited Manufacture and distribution of synthetic resins 2, 7 UK 100% 100% Nuplex Resins LLC Manufacture and distribution of synthetic resins 2, 4, 7 US 100% 100% Nuplex Resins (Suzhou) Co Limited* Manufacture and distribution of synthetic resins 2, 3, 13, 14 China 100% 100% Nuplex Resins (Thailand) Limited Non‑operating holding company 2, 7 Thailand 100% 100% Nuplex Sino Chemicals BV Non‑operating holding company 2, 7 Netherlands 100% 100% Plaster Systems Limited Manufacture of pre‑mixed lightweight and strengthening plasters 2, 7 100% 100% PT Nuplex Raung Resins Manufacture and distribution of synthetic resins 2, 3, 13 Indonesia 80% 80% Silvertown Land Holdings Limited Property holding company 2, 7 UK 100% 100% Synthese (Malaysia) Sdn bhd Manufacture and distribution of synthetic resins 2, 3, 5, 13 Malaysia 62% 62% Nuplex Industries (Hong Kong) Limited Non‑operating 2, 7 Hong Kong 100% 100% Quaker Chemical (Australasia) Pty Limited Distributor of specialty products 2, 10 Australia 49% 49% Innospec Valvemaster Limited* (formerly Octel Valvemaster Limited) Distributor of specialty products 1, 2 UK 50% 50% Synthese (Thailand) Co Limited* Manufacture and distribution of synthetic resins 2, 5, 13 Thailand 47.5% 47.5% Nuplex Operations (New Zealand) Limited (formerly PML Holdings Limited) Non‑operating holding company 2, 7 100% 100% Nuplex Specialties NZ Limited (formerly Polychem Marketing Limited) Import and distribution of specialty chemicals 2, 10 100% 100% Aushold Pty Limited Non‑operating holding company 2, 7 Australia 100% 100% Multichem Pty Limited Import and distribution of specialty chemicals 2, 10 Australia 100% 100% Nuplex Producao de Resinas Ltda Manufacture and distribution of synthetic resins 2, 4, 9 Brazil 100% 100% Nuplex US Holdings Limited Investment and group finance company 2, 7 100% 100% RPC Pipe Systems Pty Limited Manufacture and distribution of GRP piping 2, 10 Australia 50% 82% Nuplex Singapore Pte Ltd Administration 1, 2, 13, 14 Singapore 100% 100%
All the above companies have a balance date of 30 June, except companies marked “*” which are 31 December for statutory compliance purposes. ** Nuplex executives acting as directors of the above companies are as follows: 1 Emery Severin. 2 Ian Davis. 3 Lai Wei Young. 4 Mike Kelly. 5 Paul Kieffer. 6 Robert Skarvan. 7 James Williams. 8 Pieter Geuze. 9 Norm Stallard. 10 Sam Bastounas. 11 John Prineas. 12 Ardi van Wijk. 13 Ruben Mannien. 14 Clare Yong. 15 Steven van den Biggelaar.
2012 annual report 87 Notes to the Financial Statements – continued For the year ended 30 June 2012
26. Acquisition and disposal of subsidiaries and business assets Acquisition of interests in the year to 30 June 2012 The initial accounting for the following acquisitions has been determined provisionally as at 30 June 2012. In accordance with NZ IFRS 3, Nuplex has 12 months from the acquisition date to complete the allocation of the cost of the business combinations to the assets and liabilities acquired. It is not practical to determine the revenues and profit of the Group had the combination taken place at 1 July 2011. On 31 December 2011 Nuplex completed the acquisition of Viverso GmbH, its related operations and product groups from Bayer MaterialScience AG for an estimated purchase price of EUR69.3 million. The acquisition was funded by drawing on a newly established cash advance facility with a limit of EUR75 million and expiry of 22 December 2012. Borrowings under the facility are disclosed as current in the statements of financial position. With the exception of the aforementioned limit and expiry, the terms of the facility are substantially the same as the Group’s existing AUD200 million multi‑currency cash advance facility (see note 17). (NZD in thousands) 2012
The fair value of assets and liabilities acquired are as follows: Property, plant and equipment 43,424 Intangible assets 16,837 Deferred tax asset 1,166 Inventories 24,572 Trade and other receivables 12,431 Non‑current employee provisions (4,990) Deferred tax liability (6,452) Trade and other payables (25,105) Current employee provisions (2,680) Net identifiable assets and liabilities 59,203 Cash paid, net of cash acquired 104,035 Consideration payable 7,235 Goodwill arising on acquisition 52,067
On 30 September 2011 Nuplex acquired the business of Acquos Masterbatch for cash consideration of AUD20.9 million. (NZD in thousands) 2012
The fair value of assets and liabilities acquired are as follows: Property, plant and equipment 11,581 Inventories 11,903 Current provisions and employee benefits (1,575) Net identifiable assets and liabilities 21,909 Cash paid, net of cash acquired 26,453 Goodwill arising on acquisition 4,544
Disposal of interests in the year to 30 June 2012 On 24 June 2011 Nuplex formed a joint venture company (RPC Pipe Systems Pty Limited) with RPC Technologies Pty Limited to acquire Fibrelogic Pipe Systems (“Fibrelogic”). At 30 June 2011 Nuplex owned 82.2% of the equity of the joint venture company for which cash consideration of AUD11.1 million was paid. On 15 July 2011 Nuplex reduced its ownership of the joint venture company to 50% on sale of 32.2% of its equity ownership to RPC Technologies Pty Limited in return for cash consideration of AUD4.35 million. There was no gain or loss recognised as a result of this disposal.
88 NUPLEX INDUSTRIES LIMITED 27. Related parties The Company has a related party relationship with its subsidiaries and associates (see note 25) and with its Directors and executive officers.
Transactions with subsidiaries and associates Transactions with subsidiaries and associates are carried out on an arm’s length basis. The Group transacts in the normal course of business with its associates on commercial terms. In addition to dividends disclosed in note 12, the following amounts were received from associates during the year: (NZD in thousands) 2012 2011
Management fees 270 300 Toll manufacturing fees 1,701 1,544 Sale of goods and services 2,445 –
The following transactions are carried out between the Company and its subsidiaries: (NZD in thousands) 2012 2011
Sale of goods and services 3,500 3,748 Purchases of goods and services (5,408) (5,071)
• Dividends received from subsidiaries – refer note 3 • Interest received and paid – refer note 7 • Loans to subsidiaries and associates – refer note 11 • Current receivables – refer note 11 • Current payables – refer note 16
Transactions with key management personnel In accordance with the Company’s Constitution, in the prior year the Company had made provision for a payment upon the cessation of office of one Director who had been in office since prior to 1 May 2004, that provision was fully utilised in the current year. None of the key management personnel were members of the defined benefit retirement schemes referred to in note 18. The key management personnel compensation was as follows: (NZD in thousands) 2012 2011
Directors remuneration – short-term benefits 925 925 Executive officers’ remuneration: Short-term benefits 7,245 5,717 Post-employment benefits 461 324 Long term incentives 621 577 Termination and retirement benefits – 1,403 Share‑based payments accrued 987 1,200 9,314 9,221
During the year to 30 June 2012 the Nuplex executive team was restructured, resulting in an increase in the number of executive officers of the Group from eight to 11.
2012 annual report 89 Notes to the Financial Statements – continued For the year ended 30 June 2012
28. Reconciliation of the Net Profit with the Net Cash Flows from Operating Activities Group Company (NZD in thousands) 2012 2011 2012 2011
Profit for the period 64,507 69,271 32,013 22,655 Non‑cash items: Depreciation 22,783 19,876 1,162 1,327 Tax 19,289 22,939 2,899 1,263 Amortisation 5,013 2,488 4 1 Non‑current provisions (4,633) (2,654) (339) (74) Doubtful debts provisions (1,339) (385) – 127 Restructuring and remediation provisions 241 2,085 – – Intercompany dividends and interest – – (24,324) (20,744) Equity earnings of associate 1,829 (1,907) – – 43,183 42,442 (20,598) (18,100) Classified as investing/financing: Loss/(profit) on sale of property, plant and equipment (113) – – – (113) – – – (Increase)/Decrease in working capital: Receivables (49,053) (28,614) (555) (4,101) Inventories (8,362) 3,162 256 (105) Creditors 21,245 (4,046) 8,369 4,128 (36,170) (29,498) 8,070 (78) Income tax (paid)/received (24,236) (23,413) (1,280) 292 Dividend received from associate 1,251 1,334 – – Cash flow from operating activities 48,422 60,136 18,205 4,769
Reconciliation of statement of financial position working capital movements to operating cash flow 2012 2011
Creditors Creditors and Total and Total current working current working (NZD in thousands) Receivables Inventories provisions capital Receivables Inventories provisions capital
Balance as at 1 July 310,713 196,508 (280,843) 226,378 287,113 192,780 (272,957) 206,936 Balance as at 30 June 361,835 234,354 (316,680) 279,509 310,713 196,508 (280,843) 226,378 Statement of financial position movement (51,122) (37,846) 35,837 (53,131) (23,600) (3,728) 7,886 (19,442) Retranslation of foreign currency balances (8,472) (3,897) 7,974 (4,395) (7,331) 968 1,661 (4,702) Business investment/ divestment impacts 9,202 30,795 (23,896) 16,101 1,932 5,681 (13,405) (5,792) Movement in provision for doubtful debts 1,339 – – 1,339 385 – – 385 Movement in provision for obsolete stock – 2,586 – 2,586 – 241 – 241 Movement in provisions – – 310 310 – – (885) (885) Movement in hedges – – 1,020 1,020 – – 697 697 Working capital cash flow from operating activities (49,053) (8,362) 21,245 (36,170) (28,614) 3,162 (4,046) (29,498)
90 NUPLEX INDUSTRIES LIMITED Five-year Statistical Summary For the year ended 30 June 2012
(NZD in thousands) 2012 2011 2010 2009 2008 Earnings Sales 1,615,897 1,575,014 1,459,933 1,493,693 1,532,065 EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) 131,038 130,905 139,436 91,530 121,823 EBITDA as % of sales 8.1% 8.3% 9.6% 6.1% 8.0% Depreciation and amortisation 27,796 22,365 22,849 24,566 19,951 Interest (net) 13,983 16,577 20,706 31,028 24,467 Share of profits of associates 1,829 (1,907) (2,131) 42 (997) Minority interests 1,974 2,728 2,772 2,342 1,742 Tax on operating profits 19,289 23,174 23,796 9,966 23,275 Operating profit 66,167 67,968 71,444 23,586 53,385 Unusual items after tax 3,634 1,425 7,234 6,857 5,081 Net profit 62,533 66,543 64,210 16,729 48,304
Shareholder returns Equity 563,560 560,732 523,330 521,622 365,061 Operating profit as % of average equity 11.8% 12.5% 13.7% 5.3% 16.1% EBITDA as % of average total funds employed 17.1% 19.3% 19.5% 12.1% 17.4% Shares on issue at 30 June (’000) 196,748 196,748 192,233 189,798 81,719 Dividend per share (cents) 21.0 21.0 21.0 8.5 43.0 Dividend % of operating profit 62% 61% 56% 68% 65% NZ imputation per share (cents) 0.0 0.0 0.0 0.0 2.0 Australian imputation 24% 55% 59% 100% 100%
Asset Backing Total assets 1,223,062 1,032,053 1,004,294 1,046,749 1,099,449 Tangible assets 1,007,276 879,662 844,196 879,715 938,923 Net tangible assets (NTA) 347,774 408,341 363,232 354,588 204,535 NTA as % of tangible assets 34.5% 46.4% 43.0% 40.3% 21.8% NTA per share $1.77 $2.08 $1.89 $1.87 $2.50 Interest‑bearing debt (net of all cash) 220,084 73,921 72,360 129,194 352,660 Net debt as % of tangible assets 21.8% 8.4% 8.6% 14.7% 37.6% Debt as % of total funds employed 26% 11% 11% 17% 46%
2012 annual report 91 shareholder information For the year ended 30 June 2012
DIRECTORS’ SHAREHOLDINGS 2012 2011
Robert M. Aitken - beneficial 152,424 77,424 Emery S Severin - beneficial 240,000 120,000 David A. Jackson - beneficial 56,996 46,996 Jeremy CR Maycock - beneficial 30,000 – Peter M Springford - beneficial 19,979 19,979
Number of Percent of TWENTY LARGEST SHAREHOLDERS AS AT 28 AUGUST 2012 Shares Issued Capital
Accident Compensation Corporation 16,213,734 8.24 HSBC Nominees (New Zealand) Limited 8,890,110 4.52 JP Morgan Nominees Australia Limited 8,576,799 4.36 Citicorp Nominees Pty Limited 8,482,166 4.31 National Nominees Limited 7,610,735 3.87 National Nominees New Zealand Limited 7,241,809 3.68 AMP Investments Strategic Equity Growth Fund 6,158,510 3.13 Masfen Securities Limited 5,772,039 2.93 Citibank Nominees (New Zealand) Limited 5,201,095 2.64 HSBC Custody Nominees (Australia) Limited 4,681,216 2.38 HSBC Nominees (New Zealand) Limited A/C State Street 3,653,778 1.86 New Zealand Superannuation Fund Nominees Limited 3,643,609 1.85 JPMorgan Chase Bank NA 3,339,923 1.70 FNZ Custodians Limited 3,221,217 1.64 NZGT Nominees Limited – AIF Equity Fund 2,944,314 1.50 Investment Custodial Services Limited 2,342,201 1.19 Forsyth Barr Custodians Limited 1,573,164 0.80 Custodial Services Limited 1,435,533 0.73 Investment Custodial Services Limited 1,430,585 0.73 NZPT Custodians (Grosvenor) Limited 1,417,358 0.72 Total 103,829,895 52.77
92 NUPLEX INDUSTRIES LIMITED SUBSTANTIAL SECURITY HOLDERS (28 AUGUST 2012) The following persons are deemed to be substantial security holders in accordance with section 26 of the Securities Markets Act 1988 (as recorded in the Company’s Register of Substantial Shareholders):
Number of Percent of Shares Issued Capital
Orbis Group 25,427,788 12.92% Accident Compensation Corporation 15,209,602 7.73%
AMP Limited 14,010,932 7.12%
DISTRIBUTION OF SHAREHOLDERS AND SHAREHOLDINGS (28 AUGUST 2012)
Holding Range Holder Count Shares Percentage
1 to 1,000 1,744 865,952 0.44 1,001 to 5,000 3,784 10,610,590 5.39 5,001 to 10,000 1,981 14,583,041 7.41 10,001 to 100,000 1,909 44,716,690 22.73 100,001 to 1,000,000 79 18,559,867 9.43 >1,000,000 23 107,412,176 54.59 Total 9,520 196,748,316 100
There are 197 shareholders holding a total of 6,406 shares, holding bewteen 1 and 99 ordinary shares (a non-marketable parcel of shares under the NZX Listing Rules). There are 435 shareholders holding a total of 44,987 shares, with less than a marketable parcel of shares under the Listing Rules of the Australian Securities Exchange.
CLASSES OF SHARES AND VOTING RIGHTS The Company has fully paid ordinary shares on issue. At a general meeting every ordinary shareholder present in person or by proxy, attorney or authorised representative has one vote on a show of hands, and on a poll, one vote for every fully paid share held.
2012 annual report 93 statutory information For the year ended 30 June 2012
DIRECTORS The following Directors held office during the year ended 30 June 2012 Robert M Aitken Company Chairman; member ex‑officio of all Board Sub‑Committees Emery S Severin Managing Director Barbara J Gibson Human Resources Committee, Chair; member of the Safety, Health and Environment Committee David A Jackson Audit Committee, Chairman Jeremy C R Maycock Human Resources Committee (Appointed 1 September 2011) Peter M Springford Safety, Health and Environment Committee, Chairman; member of the Audit Committee Michael R Wynter Human Resources Committee (Retired 2 November 2011)
In accordance with Regulation 10.6 of the Company’s constitution, Barbara Gibson and David Jackson retire by rotation and, being eligible, offer themselves for re‑election.
MEETINGS During year ended 30 June 2012 Directors’ meetings were held and attended by Directors as per the following table: Human USPP Special Board Audit Resources SHE DD Sub‑ Board Sub‑ meetings Committee Committee Committee Committee Committee
Rob Aitken 17/17 3/3 5/5 6/6 2/2 2/2 Emery S Severin 17/17 – – – – 2/2 Barbara Gibson 17/17 – 5/5 6/6 – – David Jackson 15/17 3/3 – – 2/2 2/2 Jeremy Maycock 14/15 – 3/3 – – – Peter M Springford 17/17 3/3 – 6/6 2/2 – Michael R Wynter 5/5 – 2/2 – – –
Board meetings were held at the registered office of the Company and at subsidiary company premises. The Audit Committee met to discharge its responsibilities as outlined in the Audit Committee Charter. The Human Resources Committee met to discharge its responsibilities as outilned in the Human Resources Committee Charter. The SHE Committee met to discharge its responsiblities as outlined in the SHE Committee Charter. The USPP Due Diligence Committee was an ad hoc committee established to oversee the due diligence process in connection with the raising of debt funds by way of the US Private Placement. The Special Board Sub‑Committee was an ad hoc committee of the Board established on two occasions to approve the release of financial statements at the half‑year and full year reporting.
DIRECTORS’ REMUNERATION The following amounts were paid to each director in the form of remuneration and benefits (NZD except where specified otherwise): Rob Aitken $283,089 Fees for the 2012 financial year Barbara Gibson $158,916 Fees for the 2012 financial year David A Jackson $155,699 Fees for the 2012 financial year Jeremy C R Maycock $116,794 Fees for the 2012 financial year* Emery S Severin $1,868,165 (AUD) Total remuneration for the 2012 financial year** Peter M Springford $162,133 Fees for the 2012 financial year Michael R Wynter* $48,078 Fees for the 2012 financial year * In addition to Directors’ fees Mr Wynter received a * Includes $11,409.95 consulting fees paid prior to date of retirement allowance in the sum of $249,081.61. appointment. ** Includes provisioned amounts.
94 NUPLEX INDUSTRIES LIMITED SHARE DEALINGS The Board has received the following disclosures of dealings by Directors in the Company’s ordinary shares: Number of Shares Consideration Date
Acquisitions Robert Aitken 25,000 (on‑market) AUD51,471.30 4‑Nov‑11 25,000 (on‑market) AUD40,777.86 20‑Dec‑11 25,000 (on‑market) AUD49,404.29 15‑20‑Mar‑12 David Jackson 10,000 (on‑market) NZD26,200.00 28‑Feb‑12 Jeremy Maycock 30,000 (on‑market) AUD52,551.12 16‑Dec‑11 Emery Severin 60,000 (on‑market) AUD126,532.53 4‑8‑Nov‑11 60,000 (on‑market) AUD100,958.32 21‑23‑Dec‑12 Disposals Nil
DISCLOSURES OF INTEREST Robert M Aitken Director Alesco Corporation Limited Director Rubicor Group Limited Barbara J Gibson Chairman Warakirri Asset Management Pty Limited Director GrainCorp Limited David A Jackson Director Pumpkin Patch Limited Chairman The New Zealand Refining Company Limited Director Fonterra Co‑Operative Group Limited Chairman The Dame Malvina Major Foundation Jeremy C R Maycock Chairman AGL Energy Limited Chairman Port of Brisbane Pty Limited Peter Springford Chairman McKechnie Aluminium Solutions Limited Director The New Zealand Refining Company Limited Director Rakon Limited Director NZ Wood Products Ltd Director NZ Frost Fans Ltd Trustee The Graeme Dingle Foundation
DIRECTORS’ INDEMNITY INSURANCE As permitted by Regulation 13.4 of the Company’s Constitution, directors and employees have been insured against liability for any act or omission in their capacity as directors and employees. Insurance has also been obtained to indemnify directors and employees for costs incurred in defending or settling claims in such liability. The insurance does not cover liabilities arising from criminal actions. To comply with s162(8) of the Companies Act 1993, directors have certified that the cost of the insurance is fair to the Company.
2012 annual report 95 statutory information – continued For the year ended 30 June 2012
EMPLOYEE REMUNERATION During the year the following numbers of current and former employees, not being Directors of the Company received remuneration of at least NZD100,000. NZ Employees Overseas Employees
100,000 – 110,000 8 55 110,000 – 120,000 7 64 120,000 – 130,000 9 69 130,000 – 140,000 6 49 140,000 – 150,000 4 42 150,000 – 160,000 3 32 160,000 – 170,000 5 26 170,000 – 180,000 2 13 180,000 – 190,000 1 17 190,000 – 200,000 1 12 200,000 – 210,000 8 210,000 – 220,000 2 12 220,000 – 230,000 12 230,000 – 240,000 5 240,000 – 250,000 8 250,000 – 260,000 4 260,000 – 270,000 8 270,000 – 280,000 1 5 280,000 – 290,000 4 290,000 – 300,000 5 300,000 – 310,000 3 310,000 – 320,000 3 320,000 – 330,000 2 330,000 – 340,000 1 340,000 – 350,000 1 350,000 – 360,000 1 2 370,000 – 380,000 3 380,000 – 390,000 2 400,000 – 410,000 1 410,000 – 420,000 1 430,000 – 440,000 1 460,000 – 470,000 1 490,000 – 500,000 0 500,000 – 510,000 540, 000 – 550,000 3 570,000 – 580,000 1 580,000 – 590,000 1 650,000 – 660,000 1 710,000 – 720,000 1 850,000 – 860,000 1 940,000 – 950,000 1,010,660 – 1,010,670 1 1,990,230 – 1,990,240 1
96 NUPLEX INDUSTRIES LIMITED CONTENTS Corporate Directory
2 Financial Highlights 3 Chairman’s Report Directors Executive Management 6 Chief Executive Officer’s Report Robert Aitken, Chairman Emery Severin 9 Review of Financial Performance Emery Severin, Managing Director Managing Director & Chief Executive Officer 10 Safety, Health and Environment Barbara Gibson Sam Bastounas 14 Business Overview David Jackson Regional President, Australia and New Zealand 18 Our Business at a Glance 21 Review of Strategy Jeremy Maycock Paul Davey Vice President Human Resources 28 Board of Directors Peter Springford 30 Executive Team Ian Davis 33 Corporate Governance Report Auditors Chief Financial Officer 44 Financial Report PricewaterhouseCoopers Clive Deetlefs IBC Corporate Directory Vice President Operations Solicitors Mike Kelly Allens Linklaters Regional President, The Americas Bell Gully Paul Kieffer Regional President Europe, Middle East and Africa Insurance Brokers Ruben Mannien Marsh Limited Regional President, Asia Share Registrars Hasan Shafi Computershare Registry Services Limited Vice President Corporate Development and Planning Private Bag 92119 William Weaver Auckland Vice President Technology Bankers James Williams Vice President General Counsel & Company Secretary Westpac Banking Corporation Commonwealth Bank of Australia Australia and New Zealand Banking Group Limited CREATing Hong Kong Shanghai Banking Corporation Registered Office 12 Industry Road, Penrose THE CHEMISTRY behind Auckland 1061, New Zealand P O Box 12-841, Penrose, Auckland 1642, New Zealand Phone +64 9 579 2029 Fax +64 9 571 0542 EVERYDAY PRODUCTS [email protected] www.nuplex.com
Corporate Office Level 5, 182 Blues Point Road North Sydney NSW 2060, Australia Locked Bag No. 6 EVERYWHERE Botany 1455, NSW, Australia Phone +61 2 8036 0901 Fax +61 2 9666 3368
Designed and produced by 3C 2012 report
annual
NUPLEX 2012 ANNUAL REPORT www.nuplex.com