Pact Group achieved 4% revenue growth in the 2021/22 financial year, driven by solid demand for sustainable packaging and recycling products, but profits slumped by 86% on soaring input costs.
Sales overall were $1.84bn, underlying EBIT was down by 15 per cent to $156m, underlying net profit after tax was down by a quarter to $70m, while reported net profit after tax fell to $12m, from $88m last year.
It has been a challenging year for Pact Group, one that MD and CEO Sanjay Dayal describes as “unprecedented”. As a packaging manufacturer supplying the FMCG sector, the effects of a pandemic-strapped economy have been compounded by soaring input and labour costs – notably plastic resin – and supply chain disruption impacting Pact, its suppliers and its customers. Dayal said the group had managed to pass on most of the increased costs, but still had to absorb $17m worth itself.
So while there’s been escalating demand for recycled content produced by Pact, delivering “sound revenue growth”, economic and supply chain challenges have impacted performance.
Speaking to Ausbiz on the results Dayal said, “We were able to recover some of these costs during the latter half of the year and will continue to do so, and our focus remains on cash flow generation. Our inventory was elevated during the second half of the year as we made the prudent decision to slowly increase these levels, to ensure our customers received their orders on time, despite the supply chain challenges. We are now in the process of reducing these levels as shipping reliability and raw material pricing begin to show signs of stabilising.”
Dayal said it’s likely that the challenging conditions will continue until Christmas, with signs of stabilisation expected in the new year (second half of FY23), although he notes that prices of resin will likely stabilise at an elevated level.
The dip in underlying profits to $70m was attributed in large part to absence of one-off revenue in the Contract Manufacturing segment recorded in FY21, the division falling to a $4m loss, with Pact set to sell the business as soon as it has turned it around. Pact has now exited the hand sanitiser business, and wrote off $17.8m worth of inventory in the process.
He remains buoyed by the company’s progress towards executing its stated strategy to lead the circular economy, with one recycled content manufacturing plant already commissioned (Circular Plastics Australia (PET) recycling facility in Albury-Wodonga), and two more under construction in WA and Victoria.
Circular Plastics Australia has attained international food safety approval and commenced supplying high quality food grade recycled resin to Pact, which has introduced a range of innovative new packaging and closures products during the year that it is producing at scale, including 100% recycled PET milk bottles for Norco, 30% recycled HDPE milk bottles for Meadow Fresh. It has also developed fully recyclable PET protein trays and films for the New Zealand market.
“We are well on our way to being the leading supplier of food-grade recycled packaging in Australia,” Dayal said.
A significant deal that will see Pact’s on-the-ground delivery of recycled content packaging at a large scale is the recently announced partnership with Woolworths Group. Pact is to supply more than 18,000 tonnes of recycled plastic resin for recyclable plastic packaging per annum, and the partnership will also see a significant increase in the use of pooling crates by the retailer.
In FY 22, Pact also acquired Synergy Packaging for approximately $20 million, which will strengthen its position in sustainable health and beauty packaging.
BY THE NUMBERS:
- Group revenue was $1.838 billion for the year, up 4% on FY21, on the back of solid demand for sustainable packaging. Underlying earnings before interest and tax (‘EBIT’) was $156 million, in line with the guidance previously advised at 1H22 and down 15% on pcp.
- Underlying net profit after tax (‘NPAT’) was $70 million, down 25% on the pcp due in part to the absence of one-off revenue in the Contract Manufacturing segment recorded in FY21. The Company maintained gearing of 2.7x, within its target range, with net debt at $561 million, $24 million lower than pcp, and operating cash conversion of $253 million.
- The Packaging and Sustainability segment reported revenue growth of 7% to $1.209 billion and underlying EBIT growth of 5% to $110 million.
- The Materials Handling and Pooling segment reported revenue growth of 3% to $354 million and a decline in underlying EBIT of 8% to $50 million.
- The Contract Manufacturing segment reported a decline in revenue of 5% to $306 million and underlying EBIT loss of $4 million.
- Pact share price has fallen by more than half during the year, down from $4.32 a year ago to $1.99 today.
