Investors punish Pact for a lack of organic growth

Concerns about Pact Group’s growth saw shares in the Geminder-backed company hit a more than 12-month low yesterday.

Raphael Geminder, left, with Malcolm Bundey. Picture: Aaron Francis.

Concerns about Pact Group’s ability to deliver organic growth saw shares in the Raphael Geminder-backed company hit a more than 12-month low yesterday, as it delivered a 6 per cent lift in full-year profit.

For the full year, sales revenue rose 6.8 per cent to $1.4 billion, but all of the growth came from acquisitions, such as the $41 million purchase of the family-owned Pascoe Group.

Taking out the growth from acquisitions, sales revenue actually fell 2.8 per cent. Net profit rose to $90.2m in the year.

Pact has made a determined push into contract manufacturing over the past two years, and the segment now represents over 20 per cent of the company’s revenue.

Chief executive Malcolm Bundey said investments in 2017 provided solid pathways for future growth and that it was a “transformational year”.

“We have invested over $200m in new growth initiatives which have transformed our product and service portfolio in sectors offering attractive growth opportunities.

“While demand conditions across some sectors in which we operate remain subdued, we believe our strategy will continue to drive growth. We expect to achieve higher revenue and earnings (before significant items) in FY2018, subject to global economic conditions,” he said.

For the year, rigid packaging volumes were down, adversely affected by “subdued consumer demand in the dairy, food and beverage sector, customer destocking in the health and wellness sector and the incremental impact of prior year contract losses.”

In New Zealand, the relocation of manufacturing operations offshore also affected volume, though demand in the NZ dairy sector improved in the second half, helping to offset weakness in the earlier part of the year.

Mr Bundey said the Australian market had suffered competitive pressures in the year.

“The business lost some customers and what we’ve got to do is be market-competitive and make sure we retain and extend those customer contracts, and we’ve got to drive efficiencies to maintain margins,” Mr Bundey said.

Investors pushed the share price more than 5 per cent lower to $5.48 amid fears that the company will struggle to generate growth without acquisitions.

The company will pay a final dividend of 11.5c per share, 65 per cent franked, bringing the full-year dividend to 23c per share. It represents a 9.5 per cent increase on last year’s payout.