Pact Group share price tumbles on 25% profit decline and halved dividends in FY22

The Pact Group share price is bleeding 7% after the rigid packaging plastics manufacturer delivered its FY22 full-year results.

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Key points

  • The Pact Group share price is bleeding today after the rigid packaging plastics manufacturer delivered its FY22 full-year results
  • Profit is down 25% and dividends have been halved in FY22 
  • A continuation of various challenges means underlying EBIT will only "grow slightly in FY23"

The Pact Group Holdings Ltd (ASX: PGH) share price is bleeding today after the rigid packaging plastics manufacturer delivered its FY22 full-year results.

The Pact Group share price opened at $2.03 this morning, down 6.9% on yesterday's closing price of $2.18. The shares have since fallen to $2.01, down 7.8% for the day so far as investors digest the news.

Pact Group is the largest rigid packaging plastics manufacturer in Australia and New Zealand, with a growing footprint in Asia.

Let's take a look at their results.

Pact Group share price slides on profit drain

Here are the key points of Pact's results:

  • Revenue of $1.838 billion, up 4% on the prior corresponding period of FY21 (pcp)
  • Underlying earnings before interest and tax (EBIT) of $156 million, down 15% on pcp
  • Underlying net profit after tax (NPAT) of $70 million, down 25% on pcp
  • Net debt of $561 million, $24 million lower than pcp
  • Final dividend of 1.5 cents per share with 65% franking to be paid on 10 October.

Pact Group said revenue was up due to "solid demand for sustainable packaging and recycled products".

It said a 25% drop in underlying NPAT was "due in part to the absence of one-off revenue in the Contract Manufacturing segment recorded in FY21".

The underlying EBIT for the contract manufacturing segment was in the negative at ($4 million) in FY22 compared to $24 million in FY21, a 117% drop.

The EBIT was down but in line with the guidance that Pact Group provided in its 1H FY22 update.

The total dividends paid in FY22 will amount to 5 cents per share compared to 11 cents in FY21.

What else happened in FY22?

Pact talked up its cost recovery initiatives, saying they "broadly offset" increased material prices and labour costs due to supply chain challenges and "the cost of the continuing impact of COVID-19".

In an investor presentation released with the results today, Pact Group said its vision was to "lead the Circular Economy through reuse, recycling and packaging solutions".

Progress on its circular economy strategy in FY22 included acquiring Synergy Packaging, a specialist manufacturer of PET and 100% recycled PET packaging for health and beauty packaging.

It also commenced operations at Circular Plastics Australia, a PET recycling facility in Albury-Wodonga. The facility has international food grade certification and produces recycled resin for Pact Group's joint venture partners.

Pact Group aims to be the largest PET plastic recycler in the Australasian market. In its statement, Pact said its recently announced sustainability partnership with Woolworths Group Ltd (ASX: WOW) is "proof that the company is the end-to-end provider of recycled content into recycled packaging".

Pact Group has set an emissions target to reduce scope 1 and 2 emissions by 50% by 2030 in Australia and New Zealand from an FY21 baseline. It also aims to increase its average recycled plastics to 30% by FY25.

The Pact Group share price halved in FY22. It reached a 52-week high of $4.63 in August 2021 after the company released its FY21 full-year results. It reached a 52-week low just last month of $1.80.

What did management say?

Pact Group managing director and CEO Sanjay Dayal said:

We achieved sound revenue during the 2022 financial year, against the backdrop of a challenging market and tough economic conditions. While we continue to see escalating demand for recycled content, our performance was impacted by higher costs of both input materials and labour, as well as additional costs due to the ongoing impact of COVID and supply chain disruption.

We were able to recover some of these costs during the latter half of the year and will continue to do so and our focus remains on cash flow generation.

What's next?

Pact Group said it expected a continuation of supply chain availability issues, rising raw material costs, and elevated energy prices in 1H FY23 before normalisation in 2H FY23.

As a result, the company expects underlying EBIT to "grow slightly in FY23".

Pact Group share price snapshot

The Pact Group share price is down 21% in the year to date.

This compares to a 7.5% fall in the S&P/ASX All Ordinaries Index (ASX: XAO).

The Pact Group has a market capitalisation of approximately $750 million.

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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