Pact Group Holdings Ltd (ASX: PGH) reported flat earnings before interest, tax, depreciation and amortisation (EBITDA) growth for the first half of FY2018, in-line with guidance provided at the company's AGM in November. Other key numbers from the announcement include:
- Sales revenue of $808.1 million, up 11.1% on the previous corresponding period (pcp)
- Expenses of $692.1 million, up 13.5% compared with the pcp
- EBITDA of $120.7 million, down 0.1% compared with the pcp
- EBITDA margin of 14.9%, down from 16.6% in the pcp
- Net profit after tax of $44.1 million, down 12.2% compared with the pcp
- Interim dividend of 11.5 cents per share, in-line with the pcp
While the result doesn't look great from a statutory earnings perspective, it is in-line with management's expectations and is affected by acquisitions that Pact completed earlier this month.
An 11.1% increase in group sales is promising for the company, which attributed the improvement to "transformation growth initiatives undertaken in the prior year and improved underlying sales." Pact's new Australian crate pooling business was completed on time, performing above company expectations in terms of earnings and was a key contributor to higher revenue for the period.
Pact reported solid underlying growth from its Australian operations where sales revenue increased 18.4%, but that was partly offset by lower volumes in International markets and revenue fell 10.3% for that segment.
Operating cash flow remained strong and actually improved upon the same period in 2017, while the company's net debt position also improved due to the capital raising completed late last year. Interest coverage ratio remained stable however it is interesting to note that a significant amount of interest-bearing debt is now current, with a $376.9 million loan facility maturing in July 2018. As at 31 December 2017, Pact's current liabilities were double that of current assets.
Pact CEO Mr. Malcolm Bundey stated the full year outlook remained unchanged and the company expects to achieve "higher revenue and earnings (before significant items) in FY2018, subject to global economic conditions."
Foolish takeaway
While Pact has reported in-line with expectations, I find it difficult to get too excited about a company experiencing low earnings growth and a challenging operating environment while still trading at 17x trailing earnings per share.
For investors seeking exposure to the packaging industry, I suggest taking a look at Orora Ltd (ASX: ORA) instead.
