Pact Group saw its full year revenue rise by six per cent to $1.95bn, but ended the year $7m in the red, as it booked a $53m non-cash impairment on expected plant replacement in its Packaging and Sustainability segment.
While reported net profit after tax fell into negative territory, Pact’s underlying net profit after tax was $45m, although that was a 36 per cent drop on last year’s $70m.
Revenue for the year rose on the recovery of costs and volume growth, increasing demand for sustainable packaging in the Packaging & Sustainability segment, the biggest of its business at $1.282 billion in FY 23, and contract wins in the Contract Manufacturing segment, which had a turnover of $357 million in this FY.
The group says its revenue was slowed from further growth by tightening economic conditions, softer demand from Asia, and weather events across Australia and New Zealand.
Pact’s underlying EBIT of $145m was within the revised guidance range provided on 15 May, and seven per cent below last year, as a result, says the company, of the flow-on effects of challenging environmental conditions, increases in labour costs, and in domestic supply chain costs.
Pact has just sold half of its Crate Pooling and Crate Manufacturing business to Morrison & Co, a global infrastructure investment manager. Completion is expected later this calendar year, subject to regulatory and other approvals. Pact will retain 50 per cent ownership of the business via a joint venture.
The cash proceeds from the sale net of transaction costs, duties and taxes are in the order of $160m, with a further earn out of $20m. Pact will initially pay down debt with the net cash proceeds. Net debt now sits at $586m, some $25m higher than last year, and operating cash flow was $291m reflecting a focus on reducing inventory and on generating cash.
Sanjay Dayal, MD and CEO of Pact Group, said, “It is pleasing to report revenue growth despite challenging economic conditions. The impact of increasing inflation is reflected in softening demand for consumer products which has impacted particularly on volumes in our Packaging & Sustainability segment where we produce high-quality packaging containing recycled content.”
The group said continued investment in multiple recycling platforms will result in stranded and redundant plant and equipment as Pact's strategic intent is to invest in new plant and equipment to build scaled rHDPE packaging solutions including in the Dairy & Beverage category. The new platform will access rHDPE produced at the Laverton joint venture facility it runs with Cleanaway.
Dayal said the group has experienced a change in customer buying patterns with a move towards bulk and private label buying, which has had a positive impact on its Contract Manufacturing segment.
Pact has invested $34m in a new high speed liquid filling line for the contract manufacturing business, which will be up and running at its Horsley Park facility by Q2 2024.
“The capital programme was accelerated to enable our packaging platform to manufacture product containing a high percentage of recycled content at scale in response to the commitment we have made to Woolworths Group, Aldi Australia, and our other key customers. Our focus here over the coming year will be on upgrading our Dairy & Beverage platform to meet growing demand for milk bottles made from local recycled resin,” Dayal said.
The Packaging & Sustainability segment reported revenue growth of six per cent to $1.28bn, but a reduction in underlying EBIT of eight per cent to $102m.
“The reduction in underlying EBIT in this segment reflects increases in costs including domestic freight and labour,” Dayal said. “Packaging Australia recorded particularly strong growth in Health & Personal Care in both the core business, and in the recently acquired Synergy Packaging operations, and reflects a trend towards health and beauty retail.”
Looking outside Australia, he said, “Packaging New Zealand’s Fresh Food and Dairy & Beverage businesses performed well, despite weather events impacting supply of product, which was somewhat offset by a slow-down in Steel Drum volumes.
“Our Asian closures business performance was in-line with the prior year, reflecting a significant slowdown in demand for carbonated drink closures out of China, offset by growing demand in Australia, India, Nepal and parts of South-East Asia.”
The Materials Handling & Pooling segment reported revenue down two per cent to $347m, with a decline in underlying EBIT of 19 per cent to $40m.
“Despite growth in volumes in our crate pooling and SULO bins businesses in Australia, in line with the result reported at the half year, the Retail Accessories division of our Materials Handling & Pooling business was significantly impacted by a downturn in the US, European and Australian garment retail sectors,” Dayal said.
“We have removed costs out of the Retail Accessories business and have invested over the year in the crate pool and in machinery to manufacture SULO bins, on the back of strong contract wins to produce bins for a fourth bin rollout programme. The outlook for this segment is positive.”
The Contract Manufacturing segment reported growth in revenue of 17 per cent to $357m and underlying EBIT of $3m. Dayal said, “This is a very pleasing result, which reflects primarily volume growth ahead of the launch of the Horsley Park high speed liquid facility later this calendar year. We have also repriced and won contracts providing further positive momentum for Contract Manufacturing.” He confirmed that Pact has pre-sold the capacity in this facility.
Dayal said Pact’s strategy to lead in the circular economy “continues to progress” and said the four components required for a successful circular economy – raw material availability, recycling infrastructure, finished goods manufacturing, and demand for packaging containing recycled content – are all advancing.
