Pact Group will divest its Contract Manufacturing division, in a move which CEO Sanjay Dayal says will simplify its portfolio and sharpen its focus on the core packaging business.
Pact's Contract Manufacturing business reported $372m in sales in the 2018-19 financial year, and posted an EBITDA of $25m. It includes the combined businesses of Jalco, Pascoe’s, and Australian Pharmaceutical Manufacturers servicing major brand owners, supermarkets and hardware stores.
According to Dayal, the move to divest the division comes after a detailed strategic review of Pact’s business, including its portfolio.
“Contract Manufacturing is an attractive business that enjoys leading positions in sectors with strong growth potential. However, Pact’s success over the longer term is dependent on our ability to deliver organic growth and restore margins in the core packaging business while growing our materials handling and sustainability businesses.
“Divesting Contract Manufacturing will simplify the portfolio and sharpen our focus on driving improved returns in the remaining Group. Importantly, divestment will strengthen our balance sheet and improve our financial flexibility,” he said.
Pact Group last year posted a $290m loss overall, citing the drought, weaker demand from the agri and food & beverage sectors, and higher raw material and energy costs as contributing to the 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 $162m.
Dayal announced the strategic review following the results, saying its outcome would shape the direction of the company.
“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.
“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.