Pact Group inks Woolies recycling deal as net profits rebound
Infrastructure reporter
Feb 15, 2023 – 9.56am
Pact Group has signed its previously mooted deal with Woolworths to supply recycled materials for the supermarket chain’s own brand packaging, Pact chief executive Sanjay Dayal said as the company swung to an interim net profit of $23.9 million.
Pact, which is partially owned byRich Lister Raphael Geminder, and Woolworths revealed in July that they had entereda memorandum of understandingbut only inked a formal agreement for the recycling deal on Wednesday, Mr Dayal said.
More agreements with retailers are expected as governments and consumers push companies to shift towards recycling products, the CEO said.
“There are other retailers as well [who are] very keen to put recycled content in their products.”
Pact’s shares, which have lost 60 per cent of their value over the past 12 months, rose 4 per cent to trade at $1.06 per share after the company recovered from its year earlier losses, beating analysts’ expectations.
But the recycling, pooling and packaging group will not pay a dividend as it tries to manage rising costs and preserve cash.
Pact is investing in new recycling and production sites to keep up with demand for sustainable packaging and mobile garbage bins, Mr Dayal said.
“We are currently in the final stages of a larger than usual number of capital intensive projects,” he said. “All of these projects are closely aligned to a successful circular economy. This means we need to preserve our cash now to fund this program of work.”
The company, which reported a net loss of $20.8 million in the year earlier period, said underlying group earnings before interest and taxation (EBIT) fell 9.3 per cent to $75.4 million.
The decline was mostly due to a 35 per cent drop in its materials handling and pooling business – which supplies returnable crates and reusable plastic garment hangers – to $18.3 million.
One part of that business, which specialises in recycling and reusing hangers and security tags for the garment industry, is suffering from “a sharp slow-down” in the US and Europe clothing sectors as well as supply chain disruption in China.
But Mr Dayal said Australian consumer demand had remained “stable at a low level”.
Pact said it was managing higher raw material, energy, logistics and labour costs and putting up prices, but that there were delays in recovering some of the price increases.
Supply chain issues had eased towards the end of the six-month period with shipping reliability improving, giving the company more certainty over raw material supplies, including resin, and bring down inventory levels, Mr Dayal said.
Underlying earnings in Pact’s packaging and sustainability business rose 3 per cent to $57.3 million as volumes increased.
The contract manufacturing business, which benefited fromhand sanitiser manufacturingduring the early days of the COVID-19 pandemic, almost broke even in the six months to December, reporting a loss of $228,000 compared a loss of $812,000 a year earlier.
Pact is still reviewingthe troubled divisionbut believes market conditions are improving and that the business is turning around.
“The environment is probably a bit better than it has been for a while as things start to stabilise around the world,” Mr Dayal said.
Pact will not pay an interim dividend but plans to pay a full-year dividend. It paid a 3.5¢ dividend in the year earlier period.
Operating cash flow dropped to $98 million in the first half, down from $136 million a year earlier.
Pact reiterated its previous full-year earnings guidance, saying that underlying EBIT were expected to be “slightly ahead” of the previous year.
Source: AFR
P.S it's a few days old news so things might have slightly changed. It's worth noticing that during the meeting, there were questions asking about that contract manufacturing division, and this time instead of 'no comment' haywire, they said once that division can sellable, they might consider of selling it.
Also, in regards to their pooling sector, while SULO speeding up with producing council bins, I think they need to reshuffle the priority deck by reducing the production of clothes hanger in Europe? In US, while they suffered loss, but I think the business in US still have good news, comparing to Europe. If you can't cut everything, then reducing productions of clothes hanger in Europe to priortise for SULO? That's my opinion.
Told them to priortise on packaging sector nearly a year ago, and guess which sector pull up most of the profit like usual? Of course, there comes affect of single plastic use ban across the country and certain items will be removed and might have to relocate employees else where. But how about machinery? Can they re-ultilise those machines by shipping it to China for Carmen Chua or else where in Asia? Haven't heard those countries put in any serious ban in place yet. Also, Pact should be happy to sell or offload any tools or machinery to manufacturers that still producing those single plastic use item in Asia instead of writing down millions of dollars like they did with the hand sanitiser issue. At lease it could seriously reducing the write-down amount on their balance sheet.
(20min delay)