After registering net profits earlier in March, Packages Limited is back at making losses again. Half-yearly company results put net loss at Rs209 million, owing to a dismal second quarter performance. The companys export business nosedived during 1HCY11, declining by 82 percent year-on-year. This is one of the major reasons why overall sales grew by a paltry 2.3 percent, despite a growth of 9.3 percent in domestic net sales. Various divisions at the company have showed mixed results. With the FMCG industry enjoying double-digit growth in the wake of increased demand for packaged goods, the companys packaging division has benefitted significantly in recent years. The division has been a star performer in 1HCY11, achieving a sales growth of 42 percent. The company believes that this segment would grow further owing to a growing consumer industry, focussed marketing, internal efficiencies and a better product mix. While the consumer products division at Packages also achieved sales growth of roughly 20 percent, it is the companys paper and board division which is responsible for colouring the income statement red. During 1HCY11, this divisions sales dropped by nearly Rs2 billion compared to same period last year. According to information disseminated by the company, shutdown of a brown paper machine, for capacity expansion, led to the drastic fall in output. Moreover, energy shortages and unfair competition from imported paper sold at throwaway prices also debilitated the divisions performance. The firms cost of sales has also been under immense pressure, eating up over 95 percent of revenues in 1HCY11, due to significant increase in raw material prices. International price of wood pulp, which accounts for roughly half of the cost of total raw materials for Packages, grew to an all time high average price of $916 per metric ton during 1HCY11. Prices of local waste paper also rose during the period. Adding to the ado, high-cost furnace oil had to be used owing to gas shortages. Consequently, the companys EBITDA dropped by Rs244 million in 1HCY11 and the gross margin dropped to five percent, from seven percent a year earlier. Higher depreciation charges of Rs779 million and a rise of 25 percent in finance costs to Rs750 million didn help either. Even the investment income could not provide a breather to the bottom line this time around, as it fell by 11 percent over the same period last year. The company believes that with stabilisation in the prices of local waste paper and international wood pulp, operating performance will improve in the coming months. Moreover, the brown paper machine up-gradation project has been completed, which would enhance the output. The company is looking at offsetting the impact of energy shortages by using alternate energy resources. Per capita consumption of packaged goods is set to expand in current economic environment which is forcing a majority of households to change their spending pattern from high value consumer items to low-priced, high volume goods. Packages may continue to be the industry leader; however, its profitability is a matter of concern. Strict cost controls and better working capital management need to be in order.
=================================================== PACKAGES LIMITED =================================================== Rs (mn) 1HCY11 1HCY10 chg =================================================== Net Sales 9,991 9,761 2% Cost of sales 9,508 9,117 4% Gross profit 483 643 -25% Administrative expenses 323 260 24% Distribution & marketing 286 300 -5% Other operating income 218 111 96% Finance costs 750 596 26% Investment income 702 790 -11% PAT -209 279 -175% EPS (Rs) -2.48 3.30 ===================================================
Source: KSE notice
Comments
Comments are closed for this article.