The era of double-digit growth seems to be over for Tri-Pack Films Limited. The companys performance, thus far in CY12, is markedly different from previous years when it had posted outstanding top line growth and profitability gains quarter after quarter. Financials for the half year-ended June 30, 2012 show a dismal operating performance that has constricted the profit margins. Packaging films produced by the company (e.g. BOPP and CPP films) are an essential raw material for the FMCG industry. Yet, despite the continuing growth momentum in consumer goods industry, Tri-Packs net sales increased marginally by 2.78 percent in 1HCY12 over same period last year. It appears that the expectations of volumetric growth during the peak summer season didn quite materialize. On the other hand, cost of sales grew by 5.33 percent over 1HCY11; well in excess of topline growth. Consequently, 83.45 percent of net sales were consumed by these costs in 1HCY12, which is 201bps above the percentage last year. Major chunk of these costs is incurred on raw materials like crude oil and polypropylene granules, whose rising international prices have beset the Company. Resultantly, the gross margin shed 201bps to drop to 16.55 percent in 1HCY12. The ensuing margins worsened owing to slippages in operating efficiency as both the distribution costs and administrative expenditures grew in double digits during the period. Collectively, the two expenditure heads exhausted 4.19 percent of net sales in 1HCY12, which is 61bps more than what they ate up during the same period last year. The impact was a further dilution in operating margin, which declined by 263bps to reach 12.35 percent in 1HCY12. Non-operating performance somewhat improved over the comparable period last year. Other income, which is the sum total of incomes from financial and non-financial assets and exchange gains, increased by 30.65 percent to reach Rs21.8 million. Other expenses also declined by 26.3 percent to settle at Rs49.8 million. An increase of 22.8 percent in finance costs, however, wiped out these gains to an extent. After booking a 23.3 percent lower corporate tax payment over 1HCY11, Tri-Pack closed its half-yearly books with a net profit figure of Rs338.3 million - 13 percent lower than the corresponding period last year. Net margin dropped 122bps to come down to 6.67 percent during the period. The share price dropped by 1.45 percent to close at Rs196.5 yesterday (Wednesday). Things may start to look good for the packaging film manufacturer in the coming quarters if demand picks up and price pressure is passed on. The management expects to ramp up its BOPP films production capacity by another 40,000 tons by the last quarter of this year, which will enhance the output. Yet a lot depends on the prices of raw materials and operational efficiency.
=================================================== Tri-Pack Films Limited =================================================== (Rs mn) 1HCY12 1HCY11 chg =================================================== Net Sales 5,070 4,933 3% Cost of sales (4,231) (4,017) 5% Gross profit 839 915 -8% Distribution cost (116) (102) 14% Operating Profit 626 739 -15% Finance costs (82) (67) 23% PAT 338 389 -13% Net margin 6.67% 7.89% EPS (Rs) 11.28 12.97 -13% ===================================================
Source: KSE notice
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