No quick fix for Astrapak

Astrapak's Chief Executive Robin Moore is hoping to bring the company back to profitability after a significant restructuring programme. Image: Astrapak

The focus of his clean-up of the plastics packaging manufacturer has been restructuring on a grand scale. Moore's approach bears the stamp of his 27 years with Nampak, most of them spent engineering turnarounds.

In Astrapak, his moves have included bringing cohesion to a fragmented company, beefing up management, culling non-core business units and reducing drastically its exposure to the cut-throat flexible packaging sector.

But it has come at a cost, which is reflected in a trading update for Astrapak's year to February in which shareholders are braced for a plunge in headline profit of between 425% and 435%. This indicates a loss of 45c/share.

Though most of the loss relates to non-recurring items and discontinued operations, of concern is that continuing operations, mainly rigid plastic packaging, also took strain. Astrapak warns that it is expecting to make a small headline loss with a fall of between 60% to 80% in continuing operations profit before interest and tax.

A clearer picture will emerge only when results are published, says Richard Court, Analyst at RECM, which has a 10% stake in Astrapak. But he concedes: "The trading update is disappointing."

Hitting profitability was margin pressure caused by sharply higher raw material costs and pressure from fast-moving consumer goods producers facing stalling sales growth.

In the interims to August last year, Astrapak reported a slump in the rigid plastics unit's trading margin from 7,8% to 4,2%. Astrapak could improve its margins and show a strong recovery, but the key factor is its ability to grow sales volumes - not an easy task in times of weak demand.

Source: Financial Mail via I-net Bridge