Astrapak strategy bears fruit as interim profit rises, via Engineering News

Packaging company Astrapak on Thursday reported a 25.4% year-on-year increase in its profit to R27.6-million for the six months ended August 31, while its revenue rose 15.2% year-on-year to R734-million.

The increases came on the back of the company having exited all noncore businesses and surplus assets, CEO Robin Moore explained in a statement, adding that the company had also eliminated high corporate costs it deliberately incurred to implement its long-term strategy.

Part of this restructure required closure of the Johannesburg head office, with a more suitable support structure being established in Durban, with about R30-million in yearly corporate costs expected to be eliminated by February 2017.

Speaking at the company’s results presentation, in Johannesburg, on Thursday, company MD and CFO Manley Diedloff said the Astrapak had received R173-million from the sale of its noncore assets.

“[Since the sales], we have seen a significant improvement in the operations of our three remaining operations, they are now profitable and cash-generative and we are now operating at industry benchmarks,” he noted.

Despite a weak macroeconomic backdrop, difficult trading conditions and intense competitor activity, Astrapak’s average selling prices improved by 8% to R55.27/kg, a function of both mix and price recovery.

The increase in revenue also comes from improved volumes owing to strong relationships across a much narrower, but clearly defined, customer base; as well as specifically commissioned new projects that have started to show commercial results during the second quarter – particularly in the moulding division, where volumes were up 6%.

Astrapak’s three largest markets, according to revenue generation, are now food, personal care and toiletry, andautomotive.

Moore described the benefits of concentrating on these three key service areas, noting that they were relatively resistant to poor economic conditions and benefited from growing urbanisation and investment by government in bulkinfrastructure and sanitation.

Gross contribution margin from continuing operations for the interim period was 54%, compared with 55% in the six months to August 31, 2015. Moore said this was pleasing, considering that the cost of input materials was notably impacted by a higher oil price, as well as a weak and volatile rand.

The oil price increased from $30/bl to just below $50/bl during the period under review, with polymer prices also increasing, and the rand being extremely volatile but with a weakening bias.

At the results presentation, Moore highlighted that the company also faced other challenges such as political uncertainty, customer and consumer price sensitivity, low business confidence and rising dollar polymer prices.

Moore explained the negative impact of such movements on the period under review. “Our raw material prices in rand have, therefore, been variable within shorter periods than is normally experienced. But because our pricing adjustments are typically only quarterly, this variability has accentuated any contract price adjustment lags.”

Cost of sales for continuing operations increased 15.5% to R569-million, with the included depreciation charge increasing by 6.5% to R36.7-million, reflecting capital investment made in support of major projects and customers.

However, the depreciation charge declined as a percentage of sales to 5%, from 5.4%, as revenue from related contracts started to increase and capital outlays required for long-term multinational customer contracts were completed.

Gross profit increased by 14% to R164.7-million; with a gross profit percentage of 22.4%.

Earnings before interest, taxes, depreciation and amortisation from continuing operations increased by 13.9% to R64.3-million, while after-tax profit increased by 65.5% to R9.9-million.

The headline loss from continuing operations attributable to ordinary shareholders improved 26.6% narrowing from a loss of 6.4c to a loss of 4.7c.

Astrapak is also progressing with the sale of its remaining three flexibles businesses and it currently has R300.8-million as net realisable value of assets classified as held for sale, which, when sold, will strengthen the balance sheet and result in a net cash position for the group.

While the results for the interim period under review were lower than expected, underlying operating performance in the continuing businesses in the second quarter was 49% higher than in the first quarter of the financial year.

Moore said the company was budgeting for a substantially better second half of the financial year. “Returns from major customer projects are beginning to reflect in the results and should accelerate, and costs are reducing and will fall further.”

From a packaging investment point of view, Moore noted that multinationals would continue to look at South Africa as a potential market, particularly with other markets on the continent experiencing recent volatility. “Over time, we will see some more international competitors arrive here.

Source: http://www.engineeringnews.co.za/article/astrapak-strategy-bears-fruit-as-interim-profit-rises-2016-09-29/rep_id:4136

Photo: Astrapak CEO Robin Moore. Photo by Duane Daws