Packages reaping fruits of expansion

The operations of Packages Limited are back in positive territory. Thanks to strong topline growth and improvement in gross margins, the company reported an operating profit of Rs92 million in the first quarter against a loss of Rs237 million in the same period last year.
However, despite improvement in business health, the companys net profit of Rs320 million in the current period is way lower than Rs 6,335 million earned last year, owing to a higher base affect.
Packages had booked a whopping one-off gain (Rs8.8 billion) last year, when it sold off its entire stake in Tetrapak Pakistan Limited.
Benefiting from various capacity expansion projects in the past few years, the firms volumetric sales grew sharply in the first quarter.
Likewise, growing demand for packaging and paper products in Sri Lanka, Dubai and African countries lifted the companys export revenue to Rs399 million from Rs66 million in the same period last year. Consequently, the share of firms overseas sales in total revenue jumped to 7 percent from 2 percent last year.
Fortunately, in the face of rising input costs, mainly pulp prices, Packages was able to improve its gross margin, owing to larger economies of scale, better capacity utilization and higher output prices. Moreover, value added products in the companys sales mix helped it fetch higher prices.
Improvement in operational efficiencies reduced the ratio of administrative expenditures to sales to 2.3 percent from 3.2 percent during the corresponding period last year.
Looking ahead, rising pulp prices, due to supply disruptions in Chile, will remain a threat for the company, as prices are hovering around $918 per ton, close to its all-time high of $1000 per ton; set in 1995. Company officials expect pulp prices to ease during third and fourth quarter of current year, however, if that doesn happen; the firms margins may eventually be squeezed.

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PACKAGES - Rs (bn)             1Q10    1Q09   % chg

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Net sales                     5,043   3,208     57%

Cost of sales                 4,700   3,181     48%

Gross profit                    342      27     n.a

Gross profit margin              7%      1%     n.a

Admin exp                       115     104     11%

Distribution & marketing cost   144      97     48%

Operating profit margin          92    -237     n.a

Finance costs                   299     335    -11%

Investment income               741   9,027    -92%

Profit                          320   6,355    -95%

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Source: Company Results

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