Far slimmer and planning to earn more with less

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.