Pact Group saw its profits nudge upwards in the first half of FY 2020 on the back of stronger offshore margins, as sales slipped from decreased contract packaging work.
The packaging manufacturer reported revenue of $886m for the period, a 3 per cent decline on the same period last year. However, the company’s net profit after tax before significant items was $37m, up 4 per cent compared to $36m in the prior corresponding period. The company’s EBITDA was reported at $145m, up 2 per cent on the same period last year.
The company said the improved margins were delivered through “the improved recovery of prior period pricing lags along with strong cost control and overhead management".
Pact Group managing director and CEO Sanjay Dayal said while it had been a difficult period in the Australian businesses from a demand perspective, the offshore operations saw improved margins, a stronger balance sheet and commissioning of several key growth initiatives.
Dayal said underlying demand in the Australian packaging businesses remained challenging.
“In the industrial sectors, adverse macro-economic impacts continue to weigh on demand. This includes direct and indirect impacts from drought in Australia,” he said. “Demand in our consumer sectors remained subdued, whilst volumes in the health and wellness sector were adversely impacted by customer destocking. Health and wellness demand also adversely impacted our contract manufacturing business, with volumes down significantly on the prior year.”
The CEO said that while volumes were down, the company’s margins improved. “The resin cost environment improved, and we have continued to recover some of the adverse pricing lags that impacted earnings in prior periods,” Dayal said. “We managed our controllables, delivering significant efficiencies in our operations and reducing overheads. Benefits from site rationalisations undertaken in the prior year have delivered in line with expectation.”
“From a demand perspective, we delivered modest growth in our offshore operations, with both New Zealand and Asia improved,” he said. “Our materials handling segment saw strong volume uplift with the commencement of pooling services to Aldi. Our existing pooling volumes remained solid.”
Dayal said the company commenced crate pooling services into the Aldi fresh produce supply chain. “These operations have performed incredibly well,” he said. “Volumes and earnings have been in line with expectation, and customer feedback has been outstanding.”
During the first half of this financial year, the company reviewed its strategy and established a vision to “lead the circular economy through reuse, recycling, and packaging solutions”. The strategy sets three priorities: strengthen the core; expand reuse and recycling capability; and leverage regional scale. Dayal said the vision clearly aligns the company’s special capabilities to industry needs. “The plastics industry is changing rapidly, and our strategy sets clear priorities regarding our response to this change. Plastics sustainability is not only a social and environmental need. It is an economic necessity,” he said.
“Pact is positioned to lead the packaging industry through transition to the circular economy. We have industry-leading packaging capability to improve sustainability through product design, and the scale to provide a meaningful offtake ‘sink’ for recycled materials. We have the recycling capability to collaborate across the value chain to turn plastic waste into a valuable resource. And, we have solutions through our reuse platforms that meet the growing need for alternatives to single-use packaging.”
The company has also signed a memorandum of understanding with Cleanaway and Asahi to develop local plastic recycling capability. See our full coverage of this development here.
