Transpaco margins feel the pinch

Packaging group Transpaco shaved its interim dividend as tough trading conditions squeezed margins.

Results released on Tuesday showed Transpaco — which operates plastics and paper packaging facilities — limiting the decline in headline earnings to 5.4% at 168c per share in the half-year to end December.

The company, which has traditionally been a strong cash generator, reduced the interim dividend to 45c per share from 48c per share in the previous interim period.

The dividend reflects a fair degree of caution around the outlook for the packaging operations, covered a conservative 3.7 times by headline earnings.

Transpaco’s turnover for the interim period declined 3% to R877m. Directors indicated that the plastics division, which experienced price deflation, was the main drag on top line.

The operating margin was squeezed to 8.95% from 9.11% previously. Transpaco CEO Phil Abelheim said margin pressure was partially offset by “stringent well-managed expenses”.

The larger plastics division dropped turnover 3.5% to R640m, while the paper segment reported a slight decline in sales, from R240m last year to R238m. The respective profit margins were 8.1% and 8.4%.

Operational cash flow for the interim period turned negative to the tune of R2.8m.

After dividends, interest and tax was paid, there was a net cash outflow of nearly R43m. This reduced Transpaco’s cash on hand from R99m at the end of June to R36.5m.

Looking ahead, Abelheim said Transpaco’s balance sheet remained robust, with the company sticking to a strict working capital management strategy. He pointed out that Transpaco’s gearing improved slightly to 6.2% from 8% last year.

THE PLASTICS DIVISION, WHICH EXPERIENCED PRICE DEFLATION, WAS THE MAIN DRAG ON TOP LINE