Packages Limited jumped back into profits in 2009. The firm said on Wednesday it earned Rs4 billion in the year ended December as against a loss of Rs195 million in the year before.
But don jump off the seat in excitement just yet. The paper and board maker is still under pressure, thanks to sliding margins that resulted in heavy operational losses.
Sales revenue strengthened by 15 percent during 2009, but cost of sales soared a whopping 22 percent owing to increase in raw material prices arising from average depreciation of rupee by 17 percent, year on year, that made its imports expensive.
Higher depreciation on property, plant and equipment acquired for the purpose of various capacity expansion projects in the past few years amid increases in rent, fuel and power costs also weighed on the firms operational performance.
Thankfully, however, the firms bottom-line was saved by greater investment income - stemming from a one-off gain (Rs8.8 billion) made on disposal of investment in Tetrapak Pakistan Limited. This helped offset the impairment charges of Rs1.79 billion booked on its investments in Nestlé.
The fall of 1.61 percent in the firms stock price on Wednesdays trade shows that investors don seem to appreciate its financial performance. Yet, the worst may be over for Packages.
Proceeds from the sale of Tetrapak have already been used to offload Rs5 billion worth of long-term loan in addition to a short-term liability of Rs2.8 billion, as a result of which finance cost during 2009 came down by 23 percent. This implies relatively better interest coverage in subsequent years.
Meanwhile, the companys capital expenditures on capacity expansion and the construction of power plant will likely start reaping fruits in the years ahead. It should be of great interest to shareholders to see how the company realizes higher volumetric sales and cost efficiencies down the line.
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PACKAGES LIMITED
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Rs (mn) 2009 2008 % chg
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Net sales 14,043 12,224 15%
Cost of sales 13,736 11,281 22%
Gross profit 307 943 -67%
Gross margin 2% 8% -72%
Administrative exp 467 512 -9%
Distribution & marketing cost 444 362 23%
Other operating exp 118 0.324 Na
Other operating income 385 336 15%
Impairment charged on AFS investment 1,793 0 Na
Finance cost 1,278 1,662 -23%
Investment income 9,179 948 N.A
PAT 4,063 (195) N.A
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Source: KSE Announcement
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