Transpaco, the manufacturer, recycler and distributor of paper and plastic packaging products, is making headway in its strategy to own properties housing its manufacturing operations.
However, the company said it is battling to cope amid excessive load-shedding with “extraordinary expenses” being incurred including a R6m diesel bill, which has dampened its outlook.
The share price of the R868m JSE-listed packaging group has gained more than 50% over the past three years and 15% in 2023.
The group recently reported operating profit in the year to end-June was up 13.3% to R252.5m with a slight increase in operating margin to 9.7%.
Group revenue rose 10.8% to R2.6bn, bolstered by a 7.4% rise in the plastics division and a 15% increase in the paper and board segment. Subsequently, the board declared a final gross cash dividend of R1.75 per share, resulting in total dividends of R2.60 for the year to end-June, up from 215c.
“Transpaco’s healthy balance sheet is attributable to the group’s continued sound investment strategy, considered capital allocation and strict working capital management,” the firm, led by Phillip Abelheim, said.
However, the Johannesburg-based manufacturer said “substantially greater” load-shedding during the second half impeded its performance. This resulted in “extraordinary expenses” including R6m on diesel, exceptional repairs and maintenance, overtime and excessive scrap levels, with no relief in sight.
Due to elevated energy prices, load-shedding, excessive fuel prices, interest rate increases and difficulties obtaining raw materials, Transpaco said it expects trading to remain challenging.
“The negative impact of load-shedding on Transpaco during the reporting period is expected to continue for the foreseeable future,” the firm told investors at the end of August. “Although partial replacement of electricity capacity has been installed, Transpaco’s level of usage precludes sufficient substitution through generators or solar energy.”
Load-shedding has hit manufacturers hard and many are unable to sustainably rely on alternative power sources, despite prioritising investment in them, money which should be going into growth.
While electricity minister Kgosientsho Ramokgopa has vowed that SA will see “a significant improvement” by the end of 2023, industrial companies are reeling from higher input costs, quality control issues and lower profitability.
Transpaco chair Derek Thomas is hopeful that some of the reforms enabling private sector investment will lead to positive investment outcomes for the generation sector.
Despite the challenges, however, it remains positive about opportunities for growth even though the economy is flat and consumers have reduced spending.
Competing against Nampak, Mpact and Mondi in the packaging sector, Transpaco’s customers are scattered across the retail, industrial, agricultural, mining, pharmaceutical and motor sectors. It said it would continue its “proven business strategy” of targeting organic growth, maintaining strict financial control and identifying and pursuing appropriate acquisitions.
Transpaco is positive about the finalisation of its purchase for R44m of the Gauteng property from which its cores and tubes businesses operate in the 2024 financial year.
The acquisition is in line with the company’s strategy and preference to own the properties in which it operates. In December 2020 it bought the premises where another of its divisions is located.
While Thomas has acknowledged that this places an additional asset burden on the group balance sheet, conversely it “provides us with an invaluable certainty in relation to our operational environment. We can invest in enabling infrastructure in line with our priorities,” he said.
According to its most recent annual report, the group that was first listed on the JSE in 1987 has eight production facilities, three trading facilities and employs more than 1,500 people.
Transpaco’s plastic products division on the East Rand, which includes flexibles, recycling and specialised films, contributes the bulk of revenue at more than 50%, while paper and board products, which includes Britepak and the cores and tubes division, account for the rest of the revenue base.
Transpaco’s share price was unchanged at R29 on Monday, giving it a market cap of R868m.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.