Pact price plummets on poor results

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Packaging operation Pact Group has taken a pounding on the ASX with its stock price dropping 17 per cent on the back of poor results which saw its net profit after tax drop by 18 per cent to $77m.

The company cited the drought, weaker demand from the agri and food and beverage sectors, and higher raw material and energy costs as contributing to its disappointing results, which saw $162m wiped off its market value.

Pact booked a statutory net loss after tax of $290m, which came from having significant items after tax expense of $367m including after-tax non-cash asset impairments of $327m.

Group revenue rose by 10 per cent to $1.8bn compared to $1.67bn last year.

Challenging year: Sanjay Dayal, Pact Group CEO
Challenging year: Sanjay Dayal, Pact Group CEO

Pact Group MD and CEO, Sanjay Dayal, who took the helm in April this year, said, “FY19 was a challenging year, with earnings impacted by higher raw material and energy costs and weaker demand conditions in some sectors [notably agriculture].

“Pleasingly pricing improved in the second half, and resin costs reduced. This enabled us to recover some of the adverse pricing lags which had impacted earnings in recent periods," Dayal said.

“We continued to manage our controllables, delivering significant efficiencies in our operations and reducing overheads. 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."

He cited the recent contract win with Aldi as a success story for its crate pooling business, which has delivered growth.

“Our partnership with Aldi is testament to the service quality and capability we have developed in our pooling business. It has been an outstanding achievement."

The growth in its pooling and reuse businesses, in addition to growth in its recycling operations, are proof positive of the increasing importance of sustainability to Pact's customers, according to Dayal.

"I am excited by Pact’s growing capabilities which reduce the impact of plastics on the environment," 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.

Materials handling volumes were adversely impacted by fewer available infrastructure projects. Bin volumes were improved in the second half.

Contract manufacturing volumes were down versus the pcp with weaker demand in the home care category due
largely to customer offshoring. Health and wellness was flat versus the pcp following a weak second half impacted
by customer destocking.

Dayal has ordered a strategic review of the business, which is underway, saying a lot of work remains to be done.

"We need to drive further improvements in safety, efficiency, quality and delivery. This will enable us to grow our core business and improve our capital returns.

He said the company's direction will be guided by the outcomes of the strategy review.

"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. My clear priority is to maximise long-term shareholder value,” he said.

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