Pro-Pac’s profit warning
BILLIONAIRE Raphael Geminder’s Pro-Pac Packaging has slashed its interim profit forecast by almost half, blaming labour shortages, shipping delays and inflation as the small-cap packaging company becomes the latest victim of the forces unleashed by the Covid-19 pandemic.
The packaging group is the latest business to see its profits shrink due to the economic impact of the pandemic with the growing problem for many corporates of labour shortages now starting to bite into profits.
Pro-Pac operates a diversified distribution and manufacturing network throughout Australia, New Zealand, and Canada and supplies packaging products and services into industries such as primary produce, food and food processing, agriculture and fast moving consumer goods. It is 51.6 per cent owned by Mr Geminder, whose other ASX-listed businesses is packaging group Pact Holdings.
Pro-Pac, whose market capitalisation is $135m, on Monday issued a trading update for the first half that followed a forecast issued in November that said the company was expecting December-half underlying profit to be flat with the previous year result of $7.1m.
However, Covid-19 pressures have worsened and ProPac is now expecting the pretax profit for the first half to take a $3m hit resulting in underlying profit of around $4m.
Pro-Pac said since the November earnings guidance, the impacts of the pandemic, particularly the impacts on global supply chains and labour costs, had continued.
These were impacting ProPac’s businesses in various ways including labour shortages that continue to hit the flexibles packaging business, and capacity constraints that have limited the business’s ability to convert work in progress.
The group said an influx of orders prior to the introduction of the December price increases would result in a delay of the recovery of inflationary costs by about a month.
“Pro-Pac is in the process of installing additional capacity in printing and laminating, and a variety of other actions have been taken to alleviate bottleneck issues, which are expected to help improve efficiency, service to customers and top line growth. Pro-Pac also continues to develop its labour supply strategies to address shortages.”
Its industrial business continued to be impacted by global transport delays, with shipping companies unable to provide assurances on the delivery of Pro-Pac orders. It said the rigid packaging business was performing largely in line with expectations.
Shares in Pro-Pac closed on Monday down 15.5c, or 9.34 per cent, at $1.505.