Packaging market leader Pact Group has cited the drought, weaker demand from the agri and food & beverage sectors, and higher raw material and energy costs as contributing to its FY19 loss.
Following the results announcement, Pact's stock dropped 16.9 per cent to $2.31 -- with Sydney Morning Herald reporting it was the day's biggest loser on the ASX 200 -- and cutting the company's market value by $162 million.
Pact Group MD and CEO, Sanjay Dayal, who took the helm in April this year, said, “FY19 was a very 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 unique and 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.