Astrapak gains momentum after restructuring

Astrapak CEO Robin Moore reports acceptable interim results for the group for the half-year to 31 August 2015Astrapak reported overall acceptable interim results for the half-year to 31 August 2015, in the context of a weak trading environment. This is according to Astrapak CEO Robin Moore, who notes the group is making pleasing progress with its cash position and debt reduction. ‘This is work in progress, but we’re building momentum,’ he cautions.

The interim results indicate Astrapak’s turnaround strategy continues to gain traction, with attributable profit of R20,1 million and profit per share at 16,6 cents versus a comparative loss of 43,2 cents.

The results at a glance

Strategic appraisal

Astrapak is mid-way through a five-year turnaround strategy to right-size the business and deliver sustained profit. Moore comments: ‘We’re firmly focused on finalising the exit from non-core businesses and remove expenses deliberately incurred to facilitate this recovery. We’re steadily bringing operations up to internationally benchmarked returns. The group is on track to an optimally right-sized overhead structure.’

A significant amount of costs associated with the turnaround remain in headline earnings and were recorded as normal running expenses, while discontinued operations continue to incur costs until ownership changes.

According to Moore, results continue to reflect both continuing and discontinued operations. The process of closure, disposal and consolidation is proceeding to plan, with further cash proceeds to be realised during the period.

‘Improved cash flow from operations, cash released from working capital, reduced capital expenditure and cash inflows on disposals enabled the group to considerably reduce gearing to six per cent. This is the healthiest financial position reported by the group in many years and positions it to take advantage of potential growth opportunities.’

Trading review

Astrapak indicates general economic conditions deteriorated. According to Moore, this made the timeliness of business reengineering that much more appropriate.

Astrapak experienced delays on a multi-year contract for a major international customer in the personal care market as a result of design changes and technically demanding specifications. In preparation, Astrapak made available factory capacity in the Eastern Cape and KwaZulu-Natal, and has absorbed costs. The benefits from this contract will be seen in the second half of the financial year.

The group reports that the discontinuation of the Bronkhorstspruit plant is proceeding satisfactorily. The adjacent deodorant ball factory will be consolidated at the JJ Precision site in Pinetown in the second half.

‘These initiatives and new investments have the strategic purpose of reengineering Astrapak as a streamlined specialist in moulding and forming plastic packaging technologies, manufacturing for customers in the relatively defensive categories of personal care, toiletry, dairy, spreads, catering, confectionary and automotive lubricants.’

Outlook

Trading conditions would remain challenging. Moore notes however that a smaller, stronger group is well placed to benefit from a solid contract pipeline and entrenched positioning in largely defensive market categories.

He reports that Astrapak has started work on a significant new multi-year supply agreement with a large multinational FMCG customer, as previously advised on the stock exchange news service. ‘Additional multi-year contracts are in place with well-known local and international FMCG customers.’

Significant benefits were expected after budgeting for higher capex in 2016 to support multi-national customers in return for long-term contracts. After these commitments, replacement capex will be in line with depreciation.

Moore concludes: ‘We anticipate further cash inflows in the second half associated with sales of assets, which should result in a pro forma ungeared statement of financial position. The board will then assess appropriate use of surplus cash. An improved second-half result is targeted.’


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