Far slim­mer and plan­ning to earn more with less

Financial Mail - Investors Monthly - - Analysis - Stafford Thomas

When Robin Moore joined As­tra­pak as its CE in Oc­to­ber 2012 he took on the mon­u­men­tal chal­lenge of res­cu­ing the plas­tics pack­ag­ing man­u­fac­turer from loom­ing dis­as­ter. Moore, who en­gi­neered many suc­cess­ful turn­arounds dur­ing his 27 years with Nam­pak, is prov­ing up to the chal­lenge.

“We have con­cluded the first [two-year] phase of the turn­around and I am happy with what has been achieved,” says Moore, who took over as CE from Marco Baglione. “There is still work to be done, but the bulk of our strat­egy is in place,” he says.

The task he as­sumed was to bring or­der to a group brought to­gether through ac­qui­si­tions Ray Crewe-Brown ex­e­cuted dur­ing his ten­ure as CE be­tween 1997 and 2008. Crewe-Brown cre­ated SA’s largest plas­tics pack­ag­ing com­pany, but left a le­gacy of 23 com­pet­ing busi­ness units op­er­at­ing un­der their own brands. Moore says: “We will end the re­struc­tur­ing with nine fo­cused man­u­fac­tur­ing en­ti­ties com­pared with the pre­vi­ous 23.”

Cen­tral to Moore’s strat­egy is to fo­cus on niche, high-tech mar­ket seg­ments where As­tra­pak will, as he puts it, hold lead­ing po­si­tions and achieve man­u­fac­tur­ing scale and op­ti­mal re­turns. In the process Moore has swung a big axe, ex­it­ing sec­tors that do not fit the strate­gic bill.

Also high on his agenda is de­fend­ing As­tra­pak against rapidly grow­ing com­pe­ti­tion from for­eign en­trants. “Our strat­egy is to be out of the way of new for­eign ar­rivals. They are dramatically re­shap­ing the com­pet­i­tive land­scape,” he says.

A key move in its strate­gic re­align­ment has been As­tra­pak’s exit from the flex­i­ble pack­ag­ing sec­tor, where com­pe­ti­tion is in­tense. It is a route Nam­pak has also cho­sen, dis­pos­ing of its flex­i­ble plas­tics unit in March to a new en­trant to SA, Aus­tralian pack­ag­ing heavy­weight Am­cor.

A far slim­mer As­tra­pak is emerg­ing from its re­struc­tur­ing. In its year to Fe­bru­ary 2014 rev­enue from con­tin­u­ing op­er­a­tions came in at R1,4bn, al­most half the R2,6bn level it would have been had op­er­a­tions sold that year been in­cluded.

“As­tra­pak’s group rev­enue has halved, but with the strate­gic ob­jec­tive of earn­ing more on less turnover gen­er­ated by fewer fixed as­sets and far fewer peo­ple,” noted Moore in a state­ment.

As­set sales have also brought cash pour­ing into As­tra­pak — R148m in the lat­est fi­nan­cial year and R79m in the pre­vi­ous year. An added boost was an in­sur­ance claim of R150m re­ceived in 2014.

“There is still R149m to come from con­cluded as­set sales and be­tween R250m and R300m from as­sets ear­marked for sale,” says Moore.

Cash inflow has done won­ders for As­tra­pak’s bal­ance sheet, which was bur­dened by net debt of R557m, equal to 57% of eq­uity, when Moore be­came CE. By

Fe­bru­ary 2015 net debt on con­tin­u­ing op­er­a­tions had been whit­tled down to R193m, 19% of eq­uity. “Gear­ing is bud­geted to fall to neg­li­gi­ble lev­els,” says Man­ley Diedloff, group chief fi­nan­cial of­fi­cer.

The re­sults of Moore’s re­struc­tur­ing ef­forts have yet to be trans­lated into As­tra­pak’s re­sults. In its year to Fe­bru­ary the pack­ing group re­ported head­line EPS (HEPS) loss of 2,1c (R2,5m) on con­tin­u­ing op­er­a­tions. How­ever, this was down from a com­pa­ra­ble HEPS loss of 9,7c in the pre­vi­ous year.

As­tra­pak’s lat­est re­sults were also put un­der pres­sure by heavy re­struc­tur­ing costs and a R30m blow sus­tained as the re­sult of a one-month strike. Moore is look­ing to “a con­sid­er­ably im­proved re­sult in 2016”. For the medium term, a tar­get of 7% to 10% has been set for op­er­at­ing mar­gin. On con­tin­u­ing turnover of R1,4bn this would gen­er­ate an op­er­at­ing profit of be­tween R98m and R140m.

The share price is trad­ing at a 12-year low. It re­flects a mar­ket that has by and large writ­ten As­tra­pak off as an in­vest­ment. How­ever, as War­ren Buf­fet once ob­served in a share­hold­ers’ let­ter: “The time to get in­ter­ested [in a share] is when no one else is.”

Though As­tra­pak is not a low-risk in­vest­ment, for bolder in­vestors on the hunt for a share with a big re­cov­ery po­ten­tial it is worth close con­sid­er­a­tion.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.