Challenges in contract manufacturing leads to loss for Pact Group

Pact Group has revealed its FY22 first half results ending 31 December 2021, announcing a loss of $21 million from a profit of $50 million in the previous corresponding period.

The company said this included a net after tax expense for underlying adjustments of $60 million mostly related to non-cash impairments and write-downs in the contract manufacturing segment, which saw a loss of $65 million.

It added that within the contract manufacturing segment, the recovery of significant cost inflation was challenging, and volumes were lower, with underlying earnings in the segment down by $14 million.

Pact Group managing director and CEO Sanjay Dayal said, “In the materials handling and pooling segment, we delivered good organic growth in fresh produce crate pooling and maintained solid volumes in garment hanger reuse, albeit volumes here were slightly down on the robust post-lockdown volumes delivered in the prior year.

“We made great progress in recovering higher freight costs, which particularly affected the supply chain business, however the price/cost equation was slightly unfavourable in the first half. Some operational inefficiencies arising from supply chain disruption also impacted earnings.”

“Trading in the contact manufacturing segment was challenging. Earnings were significantly impacted by higher raw material and supply chain costs and lower volumes.”

The packaging and materials handling segment, however, performed well, with the company delivering higher earnings with underlying EBIT up by three per cent.

The company delivered an underlying EBIT of $83 million, compared to $99 million the same time last year.

“The results in our packaging and materials handling segments in the period have been strong, despite widespread and persistent pandemic related challenges faced by the entire sector,” Dayal said.

“This includes significant cost inflation and widespread supply chain disruption impacting the availability of raw materials, pallets, and labour.

“In the packaging and sustainability segment, the closures, dairy and agriculture sectors performed particularly well. Increased demand for sustainable packaging in the fresh food segment also delivered growth.

“While supply chain challenges created some operational inefficiencies, this was mitigated by improvements in other areas. An intense focus on recovering increasing costs delivered outstanding results.”

Dayal also mentioned that the company has a “turnaround underway” and that the company is investing around $80 million over the next three years to enhance its manufacturing capability which includes enabling up to 50 per cent recycled content in milk bottles and 100 per cent recycled content in beverage bottles.

“While trading will remain challenging in the near-term, volumes are slowly improving through most channels after extended periods of lockdown, and we are implementing strategies to recover costs,” he said.

“We are making great improvements in our business fundamentals and this is underpinning Pact’s resilience. We continue to prioritise our customers, manage our margins and keep our people safe. Our strategy is delivering value.”

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