Pact Group 2023 revenue up, but EBIT and NPAT down from PCP

Pact Group (ASX: PGH) has released its full year financial results for 2023, reporting revenue growth of six per cent on the prior corresponding period (PCP) to $1.949 billion but an underlying EBIT of $145 million (down seven per cent from the PCP) and an NPAT loss of $7 million.

Pact Group said its revenue growth results from recovery of costs and volume growth, which was achieved despite tightening economic conditions, softer demand from Asia and weather events across A/NZ.

Contract wins in the contract manufacturing segment also led to its increase in revenue.

It added that its EBIT was affected as a result of the flow on effects of these challenging environmental conditions and increases in labour and domestic supply chain costs.

As for its NPAT loss, Pact Group attributed that to a non-cash impairment of $37 million (after tax) of property, plant and equipment in the packaging and sustainability segment The impairment is primarily related to the expected replacement of plant and equipment across multiple platforms in Australia.

In addition, the company said its gearing was three times and reflects an accelerated capital expenditure program over the year which funded platform upgrades to enable the production of products with high recycled content at scale.

Its net debt at $586 million was $25 million higher than the PCP, and operating cash flow was $291 million, which it said is reflecting a focus on reducing inventory and on generating cash.

Pact Group managing director and CEO Sanjay Dayal said, “It is pleasing to report revenue growth despite challenging economic conditions. The impact of increasing inflation is reflected in softening demand for consumer products which has impacted particularly on volumes in our Packaging and Sustainability segment where we produce high-quality packaging containing recycled content.

“We have experienced a change in customer buying patterns with a move towards bulk and private label buying which has had a positive impact on our Contract Manufacturing segment.

“Our gearing remained elevated at the end of the year reflecting the acceleration of our capital program, with $125 million invested in capital during the period net of federal government funding from the Modern Manufacturing Initiative program. 

“The capital program was accelerated to enable our packaging platform to manufacture product containing a high percentage of recycled content at scale in response to the commitment we have made to Woolworths Group, Aldi Australia and our other key customers.

“Our focus here over the coming year will be on upgrading our Dairy and Beverage platform to meet growing demand for milk bottles made from local recycled resin. Our operating cash flow of $291 million was a highlight and reflects our disciplined approach to reducing working capital.”

Segment results

Within its Packaging and Sustainability segment, Pact Group reported revenue growth of six per cent to $1.282 billion and a reduction in underlying EBIT of eight per cent to $102 million. 

“It is pleasing to report revenue growth in the Packaging and Sustainability segment given the challenging economic conditions with demand for consumer products softening later in the year,” Dayal said.

“The reduction in underlying EBIT in this segment reflects increases in costs including domestic freight and labour. Packaging Australia recorded particularly strong growth in Health and Personal Care in both the core business and in the recently acquired Synergy Packaging operations and reflects a trend towards health and beauty retail.

“Packaging New Zealand’s Fresh Food and Dairy and Beverage businesses performed well despite weather events impacting supply of product, which was somewhat offset by a slow-down in steel drum volumes.

“Our Asian closures business performance was in-line with the prior year, reflecting a significant slowdown in demand for carbonated drink closures out of China offset by growing demand in Australia, India, Nepal and parts of South-East Asia.” 

The Materials Handling and Pooling segment reported revenue down by two per cent to $347 million and a decline in underlying EBIT of 19 per cent to $40 million.

“Despite growth in volumes in our crate pooling and SULO bins businesses in Australia, in line with the result reported at the half year, the Retail Accessories division of our Materials Handling and Pooling business was significantly impacted by a downturn in the US, European and Australian garment retail sectors,” Dayal said. 

“We have removed costs out of the Retail Accessories business and have invested over the year in the crate pool and in machinery to manufacture SULO bins on the back of strong contract wins to produce bins for a fourth bin rollout program. The outlook for this segment is positive.”

The Contract Manufacturing segment reported growth in revenue of 17 per cent to $357 million and underlying EBIT of $3 million.

“This is a very pleasing result which reflects primarily volume growth ahead of the launch of the Horsley Park high speed liquid facility later this calendar year. We have also repriced and won contracts providing further positive momentum for Contract Manufacturing,” Dayal added.

Strategic update

Dayal also mentioned that the company will continue to progress its strategy to lead in the circular economy.

“Our focus over the year remained on upgrading our packaging platforms to allow us to produce high-quality packaging containing recycled content at the scale required by our customers, including Woolworths Group and Aldi Australia,” Dayal said.

“To ensure we have access to the recycled resin required to manufacture that packaging, we continued to invest in the new joint venture recycled resin manufacturing facilities in Altona (PET) and Laverton (HDPE), which will add further capacity to that produced by the Circular Plastics Australia (PET) joint venture which is fully operational in Albury.

“We also invested in our crate pool to meet demand from existing customers, in our mobile garbage bin manufacturing capacity to fulfil contracts we have won with local councils for additional bin rollouts, and in a new facility in Horsley Park, NSW, containing a high-speed liquid filling line increasing our capacity to produce liquid laundry, health and personal care products.

“I am delighted to advise that we have reached agreement with Morrison & Co to partner with them in our Crate Pooling and Crate Manufacturing business. This is a great outcome for our customers as we accelerate their Circular Economy solutions.”

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