Profits decline for Tri-Pack

Tri-Packs performance so far this year doesn exactly match the outstanding gains the packaging film company has been making quarter after quarter. The firms financials for the first quarter ended March 31, 2012 show sluggish revenue growth, resulting into a constriction of profit margins.
Tri-Pack is a major supplier to the fast-moving consumer goods industry. The company has been directly benefiting from the rising demand of packaged goods in Pakistan, which is led by the growth momentum of the multinationals and some local businesses in the FMCG sector. The toplines of Nestlé, Engro Foods and Unilever have all grown in double-digit during the quarter under review.
However, Tri-Packs net sales increased by a paltry 2.39 percent during 1QCY12. Tri-Packs sales cater largely to the domestic market, where its BOPP and CPP films are in much demand. The volumetric sales of the packaging films are expected to pick up in the subsequent quarters, starting with the ongoing summer season.
Despite slowdown in topline growth, the cost of sales rose by a larger 5.21 percent during the quarter; thereby exhausting 83.77 percent of net sales, 225 bps more than same period last year. Resultantly, the cost pressure pulled the resulting gross margin down to 16.23 percent, from 18.48 percent a year earlier.
Two of the companys major raw materials in packaging films production are crude oil and polypropylene granules, whose international price fluctuations have a direct bearing on the Companys cost of sales.
The operating expenses show mixed pattern. The distribution expenses had increased by only 1.21 percent. But the administrative expenses grew by over a quarter to reach Rs45.7 million in 1QCY12, seemingly due to rising payroll expenses & advertising. The two expense heads consumed 4.14 percent of net sales, 32bps more than last year. Hence, the operating margin slipped by 256bps to 12.09 percent. The firms non-operating performance is a rather decent one. Other income, the sum of incomes from financial and non-financial assets and exchange gains, increased by nearly 70 percent to Rs11.1 million. Other expenses declined by 30.19 percent to Rs22.95 million. The finance cost also went down by 17.3 percent due to lower payments of mark-ups.
Tri-Pack witnessed a double-digit decline in its profitability and closed the first quarter with a net profit of Rs170.4 million, with a decline of 109bps in net margins. In its notice to the KSE, the company reported a net gain of Rs36.33 million on account of cash flow hedging, which raised the comprehensive income to Rs206.76 million during the period.
At this pace, it will be difficult for Tri-Pack to surpass the Rs782.6 million net profits scored during CY11. Much depends on the continued increase in packaged goods demand during coming quarters. The planned expansion in BOPP films production capacity by another 40,000 MT during 2HCY12 may also increase the output. However, the raw materials prices would still weigh heavy on profit margins.

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Tri-Pack Films Limited

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Rs (mn)                  1QCY12    1QCY1 1      Chg

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Net Sales                2,447     2,390      2.39%

Cost of sales            2,050     1,948      5.21%

Gross profit               397       441    -10.07%

Distribution expenses       55        54      1.21%

Operating Profit           295       350    -15.53%

Finance costs               23        28    -17.33%

PAT                        170       192    -11.42%

Net margin                6.96%     8.05%         -

EPS (Rs)                  5.68       6.41   -11.39%

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Source: KSE announcement