First half results at Pact Group were above guidance, as the company swung back into the black on an eight per cent rise in revenue, with strong performance in the Packaging and Sustainability division.
Pact recorded revenue of $998m, up from $927m in the same period last year, with reported net profit after tax at $24m, compared with a $21m loss for the same period last year.
Underlying EBIT of $75m was three per cent above the guidance range issued at the AGM in November. It was up by three per cent to $57m in Packaging and Sustainability, up by 72 per cent in Contract Manufacturing to break even, but down by 35 per cent in Materials Handling and Pooling to $18m, leading to an overall eight per cent dip in EBIT.
Revenue growth was driven by Packaging & Sustainability, which accounts for 72% of the group's business and reported revenue of $661m, reflecting a growing demand for sustainable and recycled products. Growth in Contract Manufacturing was on the back of new contract wins and repricing of existing contracts. Materials Handling and Pooling suffered from a dramatic slowdown in online sales of clothing in the US and Europe, although Australia remained stable.
Speaking to analysts and investors on the results, Sanjay Dayal, CEO and managing director of the business, described the results as ‘solid’ and said they had been achieved despite an unreliable supply chain and in challenging conditions.
Focusing on the company’s environmental strategy he said, “I couldn’t be happier with all we are achieving with sustainable products” as he reeled off a long list of projects the company was currently investing in, including three major recycling facility builds and a high-speed line installation.
Dayal said Pact expects to make investments of $120m in the current six months, across factories in Altona, Laverton and Horsley Park.
The PET recycling facility at Altona, the biggest of its kind in Victoria, is seeing equipment being installed currently and will be on stream in June or July.
The company’s new recycling site in Laverton is on course to open in May and the high speed filling plant in Horsley Park, which Dayal said will bring a "step-change" to liquid filling for the group's contract manufacturing business, is scheduled to open in the first quarter of the 2024 financial year.
Dayal also announced the group had converted the memorandum of understanding with retail giant Woolworths into a signed deal for Pact to supply recycled packaging for Woolies’ own brand products, with the deal signed this morning.
The company saw a sales surge in the final six weeks of the half year, which it expects to continue in the second half. It says demand for sustainable packaging in particular is strong.
Dayal said supply chain issues were easing, with shipping reliability returning to levels seen before the shipping crisis, which, as the company is reliant on imported resin, is crucial. He said adverse weather had impacted the Australian agricultural sector in the first six months, but that too now seemed to be calming down.
On the three main divisions of the business Dayal said, “The Packaging and Sustainability segment performed well with growth in both revenue and underlying EBIT. We have more work to do in cost recovery and removing costs, despite this, Packaging Australia’s nine per cent increase in revenue reflects a more stable supply chain towards the end of the half, cost recovery, and increasing demand for sustainable packaging.
“Packaging New Zealand’s fresh food business reported strong volume growth and its dairy business had record sales in December on the back of a late growing season in New Zealand.
”Our Asian closures business reported mixed results by country reflecting the varying conditions in the region including improved performance in India and Nepal, and a sugar shortage in the Philippines causing a short-term closure of soft drink manufacturing.
“The Recycling business reported revenue growth reflecting strong demand for recycled resin and flake, and our newly acquired Synergy Packaging business performed ahead of plan.
“We anticipate a strong second half in this segment, primarily in Packaging New Zealand where the later growing season will drive volume growth in the dairy business.”
The Materials Handling & Pooling segment reported revenue down 4 per cent to $179m and a decline in underlying EBIT of 35 per cent to $18m.
“Despite a stable performance in Australia, the Materials Handling & Pooling business was significantly impacted by a downturn and destocking in the US and Europe garment retail sector, in addition to reduced demand from China during Covid lockdowns. Volume in the pooling business was impacted by adverse weather conditions impacting growing regions in Australia and New Zealand,” said Dayal.
He added, “We expect improvement in the Materials Handling & Pooling segment with our Sulo bins business expected to report growth through the second half on the back of significant local council contract wins. We expect recovery in our pooling business with a recent return to stable weather and we are hopeful of a recovery in the Retail Accessories business in the fourth quarter as the US and Europe garment retail sectors recover and China rebounds from Covid lockdowns.”
The Contract Manufacturing segment reported growth in revenue of 18 per cent to $177m and underlying EBIT loss of $200,000. “These results reflect repricing of contracts and new contract wins, particularly in the health and wellness business. The second half of the year will see the full impact of these contract wins and repricing, and we expect to report positive EBIT in this business for the full year,” said Dayal.
Looking to the full year results, Dayal said EBIT would be ‘slightly ahead’ of the previous year, with Australia, New Zealand and Asia all performing well, with the agriculture sector in particular expected to have a stronger second half.
Pact did not pay a dividend for the half year, it said it was focused on managing rising costs and preserving cash for its factory investments, but Dayal said the board’s ‘intention’ was to make a full year dividend payment.
