Turnover was down 3.6% from the period last year, mainly on a 5.5% fall in volumes, which the company largely attributes to strikes in July.
"The consumer economy remains under pressure and demand has softened in a number of markets," the company said in a statement on Friday, 30 September 2011.
It said that this had caused customers to exert pressure on pricing, while competition in the industry had been fierce.
But widespread strikes in the industry were made worse by industrial action at a number of the group's biggest customers during July and August, which both halted and limited deliveries.
Astrapak said industrial action affected 80% of operations over about 10 working days, hitting both revenue and profit. "Astrapak looks a little disappointing, but management was very clear in guiding us on the effects of strikes and the tough trading environment," Vanessa van Vuuren, small cap portfolio manager at Sanlam Investment Management, said on Friday.
But the company said capital spending was well under way at numerous of its flexible plastics businesses, with product testing at an advanced stage.
"We remain confident that these investments will improve the prospects for the flexible division and the group as a whole into the future," Astrapak said.
"In addition, previously delayed growth projects had now commenced and should positively impact the second half of the financial year," the company said.
The group said that the drop-off in earnings reflected the increased cost of operations, which are primarily energy, labour and distribution costs, and that input price increases were difficult to pass on in the competitive market.
Costs associated with selling, administration and distribution decreased 7.1% over the period, largely because of management controls, but also because of lost revenue from industrial action.
An 11.2% reduction in net interest paid helped allay the subdued operational performance, the increased capital investment, and difficult working capital conditions. Gearing, measured by net interest-bearing debt to equity, decreased from 40.2% in the previous year to 39.1%, while net debt increased to R406m from R383,5m last year.
Management said it would continue to focus on cash generation and prudent capital allocation, along with improved treasury and working capital management.
The packaging manufacturer also said that it expected markets to remain challenging over the next six months.
Source: Business Day
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