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19 April 2010
JSE packaging and recycling group Transpaco Limited, South Africa’s largest manufacturer of retail plastic bags, today announced a 41,8% increase in interim turnover to R353,4 million for the six months to December 2007. The Packaging Division contributed notably to the growth in turnover, benefiting from strong demand. In addition the recently acquired Cape-based retail plastic bag factory (“the acquisition”) boosted turnover by expanding Transpaco’s existing activities in the retail plastic bag market.
Operating income increased by 30,5% to R29,1 million from R22,3 million. Profit after tax of R14,7 million translated into headline earnings per share of 52,6 cents, compared to 52,3 cents at the same time last year. CEO Phillip Abelheim says this was lower than anticipated as a result of the integration of the acquisition taking longer than expected and a shortage of raw material at the Recycling Division.
Transpaco has declared an interim dividend of 10 cents a share on par with this time last year.
Abelheim says: “The acquisition was substantial with the switching from predominantly imported products to our own local production proving to be a complex undertaking. To enable the plant to become fully operational we reconstructed the business, re-employed retrenched staff, employed additional new staff and improved infrastructure and controls.”
He is confident the acquisition will be a strong growth driver going forward. “Production is approaching satisfactory levels with Transpaco’s locally manufactured product virtually replacing imported retail plastic bags, improving operations.” He adds that the acquisition gives Transpaco a manufacturing and distribution presence in the Western Cape which is ideally suited for potential export opportunities.
He says continued pressure on turnover due to raw material shortages at the Recycling Division is being successfully addressed and is expected to ease in the second half of the year. A major source of raw materials for the Recycling Division is post-consumer waste collected by individuals in the informal sector. “We are enabling the start up of new BEE buy-back centres for post-consumer waste, which will establish a sustainable network to supply Transpaco and in addition promotes enterprise development.” He explains that increasing costs of virgin raw materials are driving demand for recycled material. The group is focusing on current areas as well as other regions where collection is currently not taking place.
Transpaco has been affected by Eskom’s power shortages. However, Abelheim says management has been proactive in identifying and implementing solutions with service providers to deal with interruptions at the group’s manufacturing facilities. “Industry in the areas in which we operate has held discussions with service providers and agreement has been reached and tested in practice for controlled voluntary shutdowns rather than adhoc power cuts.”
Looking ahead he is optimistic about growth prospects. “The additional machinery commissioned at Britepak, Transpaco’s printed folded carton division and at the group’s pallet stabilisation film business Specialised Films, should start to yield benefit during the next twelve months.” He adds that the Cape-based factory will have been properly operational for a full six months and shortages of post-consumer waste raw material will have been addressed.
However he points out that should the cost of virgin raw material used in operations other than the Recycling Division spiral, this could constrain margins. “Barring this or other unforeseen circumstances the group should deliver real growth in earnings per share for the full year to June 2008.”
Abelheim concludes that the group will pursue further acquisitions when appropriate to enhance existing operations or expand its product offering.
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