Packaging group Astrapak suffered “unrecoverable” losses of R30-million in the six months ended August 31, as a result of a strike in the manufacturing industry that forced a month-long closure of nearly all of the group’s converting operations and contributed to the group’s headline earnings loss of R40.1-million.

Describing the strike, which was marred by intimidation, vandalism and violence, as one of the worst experienced by the group in South Africa since the politically charged 1980s, CEO Robin Moore told investors on Monday that the group had been forced to declare force majeure on several of its contracts, despite the implementation of a number of contingency plans.

He cautioned that the company would not take the impact of labour unrest “lying down”.

“As a result of the strike, we have downsized and are implementing disciplinary action. This will [also] lead to mechanisation and automation, as we can’t take these things lying down and will do whatever we need to do to service our clients and protect the business going forward.

“A rising capital equipment-to-labour ratio is inevitable,” he commented.

He added that a difficult trading environment, however, was “no longer” an excuse for hiding a lack of competitiveness.

“As we move along our business improvement journey, we continue to identify areas of noncompliance to good business practices and, where this is found, we hold individuals to account and take the required corrective actions,” Moore noted.

RESTRUCTURING GAINS
He added that the company, which was 18 months into its two-year recovery plan, was not yet able to reflect the gains being made through the reengineering of the group, saying that the full benefit of the restructure would likely begin to emerge by the end of the current fiscal year.

Cash conservation and working capital management remained focus areas, enabling Astrapak to pursue its turnaround plan without increased gearing.

“The focus remains on optimising people and assets where Astrapak has scale and technological advantages and where it has the credentials to engage with customers in a partnership of equals.

“Any business that does not, or has no prospect of, meeting our criteria for future optimal returns will not form part of the Astrapak portfolio,” he said.

One such business was the Hilfort Plastics operation, which was sold to Boxmore Plastics during the six months under review.

Consultations had also begun with stakeholders over the closure of the group’s Denver-based moulding operation and the rationalisation of its East London-based facilities, in line with previously stated commitments to deal with four underperforming rigids operations.

In addition, the reorganisation of the three remaining flexible operations was complete and these were now well-equipped for the end-markets on which they were focused.

DIVISIONAL SHOWING
Looking to Astrapak’s divisional performance, the group reported that polymer consumption fell 6.6% to 29 396 t and that low-margin businesses were eliminated.

Net revenue from the rigids business rose 11% to R862.2-million, comprising 75% of net revenue on a continuing basis.

Selling price increased 6% a ton, with volumes up 5%, as the moulding subdivision benefitted from targeted strategic capital expenditure and long-term supply contract success.

Over the six months, the group consolidated its injection moulding equipment on one site in KwaZulu-Natal, while its manufacturing capacity at the East London-based operation was being “streamlined”.

Following the sale of Hilfort, the group’s polyethylene terephthalate footprint shrank, leaving the remaining exposure under review. Forming performed in line with expectations.

Further, continuing revenue from the flexibles division fell 14% to R283.7-million following reorganisation, while selling price rose 22% a ton, though volumes fell 29%.

“The division now has three sites of scale within focused sectors. Where appropriate, these businesses now have the necessary British Retail Consortium and food safety accreditations and have either finalised or are in the process of finalising the required product approvals for their targeted end-markets,” outlined Moore.

ATTRIBUTABLE LOSSES
He, meanwhile, acknowledged that overall statutory reported earnings remained poor, with an attributable loss of R52.3-million and a headline earnings loss of R40.1-million.

The total loss attributable to shareholders equated to 43c a share, with 25.8c attributable to continuing operations and 17.5c attributable to discontinued operations.

A R24.6-million headline loss from continuing operations attributable to shareholders equated to 20.3c apiece.

“Costs related to the rationalisation strategy, including those where consultations were currently taking place, were provisionally accounted for and amounted to R33.2-million,” added Moore.

Group revenue from continuing operations rose 3.5% to R1.15-billion, while gross profit fell 13.5% to R186.6-million and profit before interest, taxes, depreciation and amortisation from continuing operations dropped 58.3% to R47.6-million.

Similarly, profit margin declined to 4.2% from 10.3% in the first half of the prior year.

Astrapak did not declare a divided for the six months.

SOFT MARKETS
Looking ahead, Moore expected markets to remain soft, but noted that the “big changes” made by the group placed it in a better medium to long term competitive position.

“Our efforts are paying off in winning long-term supply contracts. We will not chase sales at the expense of return, but rather look to consolidate our existing areas of focus,” he noted.