As plastics and packaging group Astrapak enters the second phase of its two-year restructuring strategy, CEO Robin Moore on Tuesday downplayed the group’s headline earnings loss of R14.6-million for the year to February 28, 2014, saying the results were affected by “substantial exceptional and nonrecurring items”.

As the first year of the turnaround plan had focused on releasing cash, setting the platform for the future and affording the group “time to execute on the rest of the strategy”, he said the company had seen the addition of significant costs – which were “essential” to strategic recovery – in the short- to medium-term.

“As part of the plan, we have implemented significant changes, as well as having to deal with the issues and restructuring after the devastating fire at East Rand Plastics, in Brakpan. Accounting for the insurance proceeds, as well as the impacts of the restructuring and turnaround actions, has complicated this set of results,” Moore commented.

He added that the benefits of management actions and strategy would begin to manifest during the 2015 financial year.

Notwithstanding the full-year loss, Moore reported further that the company had made good progress on its two-year recovery programme, noting that the “big changes were now behind us” and a new operational and leadership structure was in place.

“In addition to the actions already taken, other strategic options continue to be evaluated,” he said.

Despite “rationalisation”, Astrapak said it would retain a national presence but would shift its focus to end markets, prioritising the creation of operations of scale, which it hoped would lead to sustainability and enhanced client partnerships.

MARGIN SQUEEZE

Looking more closely at the group’s finances, Astrapak’s revenue from continuing operations rose 3% to R2.53-billion, while gross profit from continuing operations fell 9.3% to R514.1-million, largely owing to the increased cost of working at fire-hit East Rand Plastics, a write-off at coated film manufacturer Barrier Films and “various clean-up costs”.

Loss of profits at East Rand Plastics was, to an extent, reimbursed by the insurers, but, at R83.9-million, the negative financial impact of these items was material in relation to the 2014 result.

The group further revealed that there were a number of “insurance-related and restructuring” items that negatively impacted the overall result.

“In addition to the aforementioned R83.9-million, a further R51.1-million in exceptional items, consisting of asset impairments and an insurance estimate adjustment, as well as additional restructuring and headcount reduction costs of R25.9-million, were expensed. These costs are aligned with the objectives of the recovery plan,” Astrapak said in a results statement.
 
The group pointed out that it had managed its cost base “well” in an inflationary environment, with selling, administration and distribution costs increasing by 2.2% to R 511.9-million.

“There is scope for a reduction in this cost base as the operational performance starts improving,” it held.

Consequently, profit before interest, tax, depreciation and amortisation from continuing operations of R145.6-million decreased by 42.5%, with the margin declining to 5.8% from 10.3%.

The depreciation charge fell 10% to R104.6-million.

Profit from continuing operations before exceptional items fell a hefty 70.1% to R40.9-million, while an after-tax loss of R28.3-million was recorded by the discontinued Packaging Consultants business.

The R81.7-million total loss attributable to shareholders equated to 67.5 c a share, while the headline loss from continuing operations attributable to shareholders of R14.6-million resulted in earnings a share dropping from 25.4c in the prior year to 12.1c in the period under review

The company did not declare a dividend for the 2014 fiscal period.

RIGIDS & FLEXIBLES

Looking more closely at Astrapak’s business segments, the company reported that its key portfolio companies grew volumes, with volumes in its Rigid Plastics division up 6% to exceed R2-billion for the first time.

Central coordination of pricing and procurement proved beneficial, while a 19% weakening of the rand over the period put pressure on polymer and distribution costs.

Revenue from its Flexible Plastics segment was managed down in line with the strategy to consolidate the product range and the footprint, driving continuing revenue down 24% to R640.5-million.

“On conclusion of the insurance claims process following the East Rand Plastics fire, work has begun to reposition Flexibles as a smaller but more profitable business,” Moore commented.

OUTLOOK

Looking ahead, the CEO said the first phase of the strategic recovery had cleared the way for improved performance and focus had now shifted to completing the strategy and building operations of scale for core-end markets to meet internationally benchmarked norms for multinational and other customers.

“An improved financial result is budgeted for in 2015, the final year of the turnaround phase, and the group is on track to meet its medium-term return aspirations,”Moore concluded.