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Early pain for long-term gain, says Astrapak of its FY showing

Early pain for long-term gain, says Astrapak of its FY showing

Photo by Bloomberg

16th April 2015

By: Natalie Greve

Creamer Media Contributing Editor Online

  

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Costs associated with packaging firm Astrapak’s sweeping restructuring programme have hurt the company’s financial performance for the year ended February 28, but were explained away by CFO and MD Manley Diedloff as a necessary evil in the company’s five-year plan to return to profitability.

“[The costs of the reengineering strategy] played havoc on our financial results… and
this has been a very difficult process, having had the added external challenges of
electricity supply and strikes, both of which caused the group to incur irrecoverable losses.

“But, while we didn’t fully achieve every target we set for ourselves, we’re happy with what we achieved,” he told investors at the company’s results presentation, in Sandton, on Thursday.

Exceptional costs over the 12-month period included R29-million for retrenchments, R39-million for the impairment of discontinued plastic process equipment, R35-million for impaired goodwill, R50-million for “clean up and corrective” actions, R30-million in strike losses and a R5-million gross contribution loss on electricity in the final quarter of the year.

The year under review concluded the first two-year phase of the turnaround plan, which saw the group exiting businesses that did not fit with its technology focus and long-term return criteria.

TECHNOLOGY FOCUS
Over the period, the group sold its flexibles and polyethylene terephthalate businesses, narrowing the business to nine manufacturing entities that focused on the moulding and forming of plastic packaging and related technologies.

As a result, the old segmental distinction of rigid and flexible plastic packaging would fall away, to be replaced by a unified structure with centralised support services.

“Our technology focus is deliberate and in keeping with both local and international developments as well as the arrival of foreign entrants that have dramatically reshaped the competitive landscape for local converters and customers.

“Astrapak’s strategy has taken account of this and our execution thereon has been correct and timely,” commented CEO Robin Moore

He added that some work remained to finalise the exit of noncore businesses and steadily eliminate expenses deliberately incurred during this recovery. The balance sheet was, thus, expected to be bolstered further in the 2016 financial year by cash received from the sale of these entities.

Cash inflow from the sale of businesses and assets disposed of over the past two financial years was R227-million, with R148-million realised in 2015 alone.

The statement of financial position at year-end reflected R689-million in assets held-for-sale, against which there were liabilities of R278-million.

“To put the rightsizing in context, yearly continuing operations revenue of R1.4-billion in 2015 compares with total group revenue of R2.5-billion, if discontinued operations are included, and R2.6-billion on the same basis in 2014.

“Astrapak group revenue has, therefore, halved but with the strategic objective of earning more on less turnover generated by fewer fixed assets and far fewer people in markets in which we hold leading positions and that can deliver acceptable returns. In future, we are targeting returns on sales, assets and capital employed that are benchmarked to
international packaging peers, particularly those in the field of our chosen technologies,” Diedloff explained.

FINANCIAL REVIEW
Astrapak posted an attributable loss of R143.3-million for the 2015 financial year, of which R111.3-million related to discontinued operations.

Of the headline loss of R86.5-million, R83.9-million related to discontinued operations, therefore, reducing the headline loss from continuing operations to R2.5-million from R11.7-million.

The total loss attributable to ordinary shareholders equated to 114.4c a share, of which 22.5c was attributable to continuing operations and 91.9c to the discontinued operations.

The headline loss from continuing operations attributable to ordinary shareholders equated to 2.1c apiece.

This despite group revenue from continuing operations increasing by 7.8% to R1.4-billion, while gross profit increased by 3% to R349.3-million.

Profit from continuing operations before exceptional items came in at R61.5-million – an increase of 49% compared with the prior year’s R41.4-million.

“A portion of costs associated with the turnaround are included in the headline earnings calculation and recorded as normal running expenses. Furthermore, discontinued operations continue to incur costs at the centre until such time as they are transferred to the new beneficial owners.

“These costs are gradually being eliminated as the strategic objectives are met and the group will have an extensively rightsized overhead structure going forward,” noted Diedloff.

Moore added that, while no divided had been declared for ordinary shareholders, the recommencement of dividend payments to ordinary shareholders remained “an important goal”.

Holders of preference shares continued to receive dividends in the normal course.

FUTURE PROSPECTS
Moore believed the value realised on the sale of its businesses during the first phase of the restructuring was an encouraging indicator of the potential intrinsic future value remaining in the core operations.

As the old segmental distinctions fell away, the group said the new, unified structure would focus primarily on providing packaging for the personal care and toiletry, dairy and spreads, catering and confectionary and automotive lubricant industries.

“The group has started the 2016 financial year on a positive note…and prevailing industry developments attest to the correctness of our strategy and we are well placed to compete.

“Markets served are expected to remain soft but we are achieving respectable levels of volume and pricing within the specific areas that we serve,” he remarked.

Moore added that the group’s efforts to secure long-term supply contracts had been successful, but noted that electricity supply remained an impediment to reliable manufacturing production and an additional burden on the cost of doing business.

“We take all mitigation measures that we are able to and coordinate with customers to ensure delivery is achieved,” he said.

During the next few months, Astrapak planned to complete its exit from noncore businesses and steadily continue to eliminate expenses incurred during the turnaround phase.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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