Astrapak strategy pays off as interim profits rise

Robin Moore.

Picture: Financial Mail

The group’s after-tax profit from continuing operations jumped to R9.87m in the six months to August, from R5.95m a year ago.

Profit rose off higher revenue from its core markets in food, personal care and toiletries, and automotive products where Astrapak increased sales volumes and pricing.

These categories, which contributed the most to sales, were relatively resistant to poor economic conditions. They also benefited from growing urbanisation and government investment in bulk infrastructure and sanitation, Astrapak said.

The group is in the fourth year of its five-year turnaround strategy. It has exited the polyethylene terephthalate plastics market and is also divesting from the flexible film packaging, with assets for sale in businesses valued at R300m.

The net value includes residual properties from previously disposed businesses.

"We are starting to see the kind of improvement we were targeting," CEO Robin Moore said on Thursday.

Moore was confident Astrapak would achieve its targeted benchmark for earnings before interest, tax depreciation and amortisation of 12% to 15% from 8.8% by the financial year 2018.

This would be achieved as major contracts in the personal care industry were now being commercialised.

One of the contracts would generate turnover of R50m, Moore said.

Astrapak lists Unilever, Johnson & Johnson, Danone, BP and Shell as leading clients.

The period under review also saw Astrapak relocate its head office from Johannesburg to KwaZulu-Natal and realise further savings from the move by reducing its supporting offices in Durban to nine from 26.

By focusing on strategic areas and costs, Astrapak was able to counter pressures from increased competition as rivals reduced prices to either retain contracts or win new business.

Astrapak’s main rivals include Bowler Metcalf, Mpact, Nampak and privately owned packaging firm Polyoak.

The sharp focus on costs also offset pressures from rising prices of raw materials induced by the volatility of the rand and a firmer dollar.

Cratos Wealth portfolio manager Ron Klipin said Astrapak’s turnaround strategy finally appeared to be on track, despite extremely difficult trading conditions, currency volatility and a highly competitive market.

"From a financial point of view, the sale of noncore assets and properties, with additional asset disposals pending, will further strengthen the group’s balance sheet," he said.

Ian Cruickshanks, the chief economist at the Institute of Race Relations, commended Astrapak management’s strategic interventions, although he questioned whether the company could continue increasing its profit at the same rate.

"You have to look at business confidence and consumer spending. It is all in the doldrums," he said.