Stand by for acquisitions, says Pact Group’s Raphael Geminder

Pact Group has built its success on acquisitions and expects the Asian company Dynapack will be its next buy.Raphael Geminder’s Pact Group is stepping up the search for acquisitions to drive sales and profit growth and has reaffirmed its full-year prospectus forecasts despite a flat interim result.
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”The M&A story [mergers and acquisitions] is not over with this business,” Mr Geminder, Pact’s non-executive chairman and major shareholder, said on Wednesday after unveiling the first results since a $1.7 billion initial public offer in December.

Over the last 10 years, Pact’s earnings before interest, tax, depreciation and amortisation have grown at a compound annual rate of 18.6 per cent, fuelled by acquisitions, innovation and cost control. In recent years, however, earnings growth has slowed, and in the six months ending December, EBITDA (before one-off costs) rose just 0.4 per cent to $99.6 million.

Mr Geminder said four acquisitions after the IPO, together with new contracts and cost savings, would help the packaging company achieve its full-year prospectus forecast for EBITDA of $196.7 million ($201.9 million on a pro forma basis).

”A leopard doesn’t change their spots – for the better part of 10 years we’ve been a highly acquisitive company,” Mr Geminder told Fairfax Media.

”We have a track record over a long period of time of highly accretive M&A and we are not going to change our conduct in that regard,” he said. ”We’re going to continue to seek out good opportunities, but our first priority is to deliver the June 30 result.”

Statutory net profit before significant items slipped 4 per cent to $21.7 million and Pact posted a bottom line loss of $2 million after booking $26.2 million in one-off costs associated with the IPO. That raised $650 million and enabled Mr Geminder to cut his stake to 40 per cent.

Pro forma net profit before one-off costs was $45.8 million, representing 55 per cent of the $83.5 million full year pro forma prospectus forecast, reflecting seasonality.

The interim result fell short of market forecasts and Pact shares, issued at $3.80, fell 16¢ to $3.40.

Revenues rose just 0.2 per cent to $567.6 million after the loss of volumes from a major customer in the second half offset higher prices in Australia and 3.4 per cent sales growth offshore.

Deutsche Bank analyst Mark Wilson had forecast 11 per cent earnings growth and 3 per cent sales growth.

Intrinsic Investment Management portfolio manager William Morgan said Pact had a strong management team with a proven history of long-term growth.

”That growth happens in fits and spurts. The current half-year result is simply a temporary flat spot on the way to good full-year prospectus-forecast growth,” he said.

Mr Geminder said Pact would look at acquiring a leading Asian packaging company, Dynapack, after the June-year results.

Dynapack is 50 per cent owned by Mr Geminder and 50 per cent owned by Indonesia’s Hambali family. Pact has signed a memorandum of understanding that gives it an exclusive opportunity to negotiate to buy Dynapack within 12 months.

No interim dividend was declared, but directors reiterated their intention to pay a 9.5¢-a-share dividend in October.

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