Decreasing packaging volumes impact Pact Group’s earnings

The Pact Group (ASX:PGH) has reported a $290 million loss in statutory NPAT for the 2019 financial year, attributing a decrease in packaging volumes and higher raw material and energy costs as reasons for the decline.

Its EBITDA was down three per cent to $231 million, compared to the same time last year, while its NPAT was down 18 per cent to $77 million.

In a statement on the ASX, the company’s recently appointed managing director and CEO, Sanjay Dayal, said FY19 was a “very challenging year” for the company.

“Earnings [were] impacted by higher raw material and energy costs and weaker demand conditions in some sectors,” he said.

“Packaging volumes were down on the pcp, impacted by weak agricultural demand due to drought conditions in Australia and generally subdued demand in the dairy, food and beverage sectors in Australia and New Zealand.”

However, Dayal mentioned that improved pricing and a reduction in resin costs in the second half of the year enabled the company to recover some of its adverse pricing lags.

“We continue to manage our controllables, delivering significant efficiencies in our operations and reducing overheads,” he said.

“We made meaningful steps in the transformation of our packaging network with the closure of two facilities in the second half, the rationalisation of another and the establishment of an import channel to support supply in several product categories.”

Dayal said the company delivered growth in its crate pooling business and the inking of a recent long-term contract with Aldi for produce crate pooling services beefs up that segment of its business.

“This arrangement commenced, on schedule earlier this month. Our partnership with Aldi is testament to the service quality and capability we have developed in the pooling business,” he said.

“The growth opportunities in our pooling and reuse business, in addition to growth in our recycling operations, illustrates the increasing importance of sustainability to our customers.”

The company’s group revenue of $1.8 billion for the year was an increase of 10 per cent to the pcp, which Dayal said was driven primarily by the Asian acquisition and the acquisition of TIC Retail Accessories.

“Earnings benefited from the Asian and TIC acquisitions and the delivery of efficiency. These improvements were offset by lags in recovering higher raw material prices in the first half, along with significant increases in Australian energy cost versus the pcp and lower overall net volumes.”

Going into the future, he mentioned that the company will drive further improvements in safety, efficiency, quality and delivery.

“This will enable us to grow our core business and improve our capital returns,” Dayal said.

“Our future direction will be guided by the outcomes of the strategy review I have commenced. This review will clarify the activities and operations which are core to Pact’s continued success and will guide future resource allocation and capital investment.”

At the time of publication, the company’s shares were trading at $2.28.

 

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