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$10m power bill hike for Pact

Friday, 17 August 2018
By Graham Osborne
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Packaging manufacturer Pact Group, chaired by billionaire Raphael Geminder, suffered a sharp drop in its share price after posting an 18% fall in profit despite a 13% rise in revenue for the year ending June 2018.

‘Challenged by the macro environment’: PACT CEO Malcolm Bundey.

Group sales revenue of $1,674 million increased 13% or $199 million compared to the pcp. Statutory profit was 18% lower at $74 million, with net profit (before significant items) down 5% to $95 million. Pact Group shares fell by more than 20% at the close of trading yesterday.

“The Group delivered solid organic growth in the contract manufacturing, sustainability and infrastructure sectors and improved rigid packaging volumes into the health and wellness sector,” Pact told the ASX. “This was partly offset by lower materials handling volumes, due to raw material shortages following a major supplier plant outage across May and June, and lower rigid packaging volumes, impacted by a major customer plant closure in the dairy sector, and drought conditions in the agricultural sector.”

Pact MD and CEO Malcolm Bundey, said: “Our strategic growth initiatives have performed well, with revenue and earnings in line with expectations. Integration of our acquisition in Asia is on schedule and our Australian crate pooling business is fully commissioned and operating in line with expectations. We have been challenged by the macro environment, and this is reflected in our earnings.

Raw material input costs, especially the rising price of resin, have been challenging, Bundey said. “Whilst we have disciplined raw material cost recovery mechanisms across our business, earnings have been adversely impacted by time lags.

“Energy prices in Australia also increased sharply in the second half and, as we anticipated, recovering these additional costs has been difficult. Consequently, our earnings reflect significant unrecovered energy costs.”

Pact said its Australian energy costs jumped 40% in the second half of the financial year, representing an increase of $10 million.

“Against these headwinds, we have been strongly focused on driving efficiency,” Bundey said. “We have delivered improvements in the business through our operational excellence programs and we have commenced transformation of our rigid packaging network.

“Our diversified portfolio has mitigated the impact of volume softness in some sectors. Solid organic growth in the contract manufacturing, sustainability and infrastructure sectors offset the impact of lower materials handling and rigid packaging volumes in the period. We expect to achieve higher revenue and earnings in FY2019, subject to global economic conditions.”

Pact also announced the $122 million acquisition of TIC Retail Accessories (TIC), a closed loop plastic garment hanger and accessories re-use business. The deal is expected to be completed in October 2018.

TIC, established in 1989, has “transformed the garment hanger industry,” eliminating significant waste from single-use plastic hangers and accessories by pioneering a closed loop re-use program.

TIC’s re-use program supplies plastic garment hangers and accessories to garment manufacturers. The hangers and accessories are collected after sales from retail stores, sorted and then distributed back to the garment manufacturers for re-use. The program significantly reduces waste in the supply chain, with re-use rates of up to 80%.

“The acquisition of TIC is a unique opportunity to further leverage our demonstrated capability in closed loop asset pooling and plastics manufacturing,” said Bundey. “TIC adds scale to our portfolio and expands our Asian platform. TIC’s sustainability agenda is strongly aligned with the Group’s commitment to providing innovative ways to assist our customers to meet their sustainability objectives.”

Pact Group Holdings Ltd (PGH) is a manufacturer of packaging and other products with 64 manufacturing plants across Australia, New Zealand, Asia and USA. PGH converts primarily rigid plastic, resin and steel into packaging and related products that service customers in the food, dairy, beverage, chemical, agricultural, industrial and other sectors.

 

 

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