Going down

Australian drum and pail producer National Can Industries (NCI) has announced 2008 sales of A$175.2m ($146.8m), down 3.7 per cent on the A$182m achieved in 2007, and a net post-tax profit of A$6.7m, down 45 per cent from last year’s figure of A$12.2m. However, after excluding significant one-off items in each year, the company reports that the comparable profit in 2008 was only 3 per cent below the 2007 mark.

In terms of its home market, where NCI operates eight manufacturing plants supplying metal and plastics packagings to the paints, chemicals, aerosol, industrial and food packaging sectors, managing director Michael Tyrrell reports that demand “was generally flat across major segments” with sales revenues falling slightly to A$131m. “Last year’s changes to imported tinplate supply saw the remaining sheeting volumes move offshore. Cost pressures emerged for key inputs, including raw materials, freight and energy. Escalating commodity prices particularly impacted on global steel prices with a significant price increase advised for tinplate late in the second half,” he explains, adding that operating costs were also higher due to the implementation of a new ERP system.

Across the Tasman Sea in New Zealand, where NCI maintains three plants producing metal cans, drums and closures, the company saw its sales fall 14 per cent to A$37m, “reflecting the withdrawal from selected export markets made unprofitable by the strong local currency”. Despite this, earnings “recovered after the difficulties of the previous year with operating costs coming under improved control” and one-off costs “associated with the closure of a manufacturing site and consolidation of operations at an existing company site” amounting to A$1.4m after tax.

Sales and earnings were also lower than the previous year in Fiji, where the company operates a steel can and drum manufacturing plant in Suva. Tyrrell puts this down to “continued sluggish post-coup economic activity”. However, things were somewhat better in Papua New Guinea, where NCI operates a steel can, drum and closure manufacturing facility in Lae. Clocking up a sales increase of 30 per cent there, the company benefited from “a surge in mining and exploration activity” that boosted demand for petroleum drums and resulted in higher volumes and corresponding earnings “despite a strong rise in distribution costs”.

NCI also achieved its targeted reductions in lost-time accidents and injury rates, “building on the sustained improvement in the company’s overall OH&S performance in recent years”. The overall financial position of the company also remains strong, with Tyrrell revealing that net working capital rose over the year by A$6m “as the creditor’s level returned to normal after the transition to imported tinplate purchases on extended payments terms was completed”.

Regarding the future, he reports that “market conditions look uncertain with forecasts of a slowdown in Australia and deteriorating conditions already evident in New Zealand”. On top of this, “significant raw material price increases for tinplate and plastic resin have been advised which could impact demand for some products and place pressure on margins”. On the whole, while “the benefits from recent capital expenditure and plant rationalisations are expected to counter some of the downside risks”, the company’s directors do not anticipate seeing any noticeable improvement in earnings next year.

www.nci-ltd.com