Packages limited (PSX: PKGS) was established in 1957 as a joint venture between the Ali Group of Pakistan and Akerlund & Rausing of Sweden, to convert paper and paperboard into packaging for consumer industry. Today it is one of Pakistan's leading packaging solution providers, operating on a business to business model.
It has two major business units under its packaging division: folding cartons and flexible packaging. Packages folding cartons division provides packaging for different sectors such as pharmaceutical, tobacco, personal care, confectionary, home care products and food. Its flexible packaging business provides detailed graphics, lamination for plastic films, aluminum foil, paper, multi-layer blown film extrusion, standalone spout inserted bags, sleeves and ice cream cones.
In 1982 Packages started its tissue paper line under the brand name Rose Petal which was later expanded to include toilet paper, kitchen roll and table napkins. Currently its brands names include Tulip, Maxob, Double Horse and Zzoop.
Last year, the company invested Rs 540 million to upgrade its flexible packaging line and Rs 105 million on it downstream operations of lamination, slitting, and bag-making. It also inaugurated Packages Mall which offers a cinema, food court, Hyperstar, and 180 brands. Packages also bought the remaining 35 percent shares held by Stora Enso in its subsidiary Bulleh Shah Packaging (pvt.) limited and made it a fully owned subsidiary.
Currently, a joint venture company OmyaPack (Pvt) Limited is in its final phase to set up a commercial production facility and is targeted to commence operation in the second quarter of the current fiscal year. Its purpose is to supply a range of high quality ground calcium carbonate products specifically tailored to meet local and regional markets.
Industry overview
The paper and packaging industry in Pakistan started with Adamjee Paper Board in 1956 when the first plant of the sector was set up. While Pakistan did not having a single paper manufacturing plant in the country at the time of independence, by 2001 the industry was catering to almost 80 percent of domestic demand.
Due to extremely low density of forests in Pakistan, there is difficulty in maintaining supply of wood pulp required for production of paper and paperboard. This is why Pakistan's paper industry uses mostly non-wood fibrous material such as wheat straw, baggase and river grass. Major imported raw materials include wood pulps, polyethylene and packaging films.
There are about 100 units in the formal and informal sectors combined, having a capacity of approximately 650,000 tons a day, as per the latest data available. Punjab has the most units since it has a relatively abundant supply of underground water as well as availability of the primary raw material, wheat straw.
The paper and paperboard's contribution to the LSM is marginal at 2.3 percent; however the industry grew at the rate of 7.2 percent in the last fiscal year as per SBP's report. As the LSM grew by over 5 percent, it positively impacted the paper and paperboard industry which supplies the packaging of products. Growth in the FMCG sector in particular positively impacts the paper and paperboard industry.
Financial overview
The highest ever sales were registered in 2010 with exports growing by 64 percent through loss from operations was at Rs 104 million. The following year sales decreased to a decade low because of planned shutdown of paper machines for capacity expansion during the first half of 2011, increase in gas curtailment and load shedding, boiler operational issues, unprecedented rise in imported wood pulp and local wastepaper prices and a fire incident in the second half of the year. Despite that, profit from operations rose to Rs 872 million.
In 2012, sales and profits stabilized and Packages signed an agreement with Stora Enso Oyj Group of Finland to enter into 50/50 joint venture in its subsidiary Bulleh Shah Packaging (Pvt.) Limited to enable continuous growth and technical development of its paper & paperboard segment. As a result, in 2013 paper and paper board and corrugated businesses were discontinued under Packages Limited and continued under Bulleh Shah Packaging.
In 2014, sales increased marginally. Focus was on strengthening working capital cycle and taking initiatives to rationalise inventory levels and trade debts. In 2015 Packages saw a significant jump in sales and profits. It also introduced its new brand Maxob in line with its strategy to diversify and enter into new high growth markets.
Review CY17
Sales have continued to rise along with gross profit margin but profit from operations has been declining since 2015. In 2017, sales increased by 8 percent as compared to 2016 but profitability declined due to increase in raw material costs and conversion costs that were not fully passed on to the customers. Profit from operations is lower also because of increase in expenses of advertisement of consumer products.
Its main division is packaging operations which saw an increase of 6 percent in its top line due to volumetric growth. However, inflationary fixed costs raw material price increased saw a decrease in EBITDA by 12 percent as compared to CY16. The consumer products division saw growth in sales of 14 percent which led EBITDA to rise by Rs 53 million. Improved capacity utilization and operating cost control initiatives also contributed to increase in profitability.
Future outlook
Packages is on its way to become a well-diversified company with ventures ranging from malls, consumer products and packaging solutions for businesses. Its main business remains the packaging division which is flourishing currently.
Furthermore, the FMCG sector, a major driver of packaging demand, is seeing double digit growth while increase in awareness of hygiene and urbanisation all boost demand for packaging. All these growth drivers bode well for Packages future prospects.
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Packages Limted
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Rs (mn) CY17 CY16 YoY
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Sales 18,105 16,839 8%
Cost of sales (25,852) (19,062) 36%
Gross profit 6,039 5,434 11%
Administrative expense (1,716) 1,428 -220%
Distribution and marketing expenses (1,692) (1,226) 38%
Other income 246 408 -40%
Other operating expenses (588) (444) 32%
Profit from operations 2,290 2,744 -17%
Financial charges (1,176) (1,495) -21%
Invesment income 5,972 6,054 -1%
Gains/loss related to business combinations 4,965 0 N/A
Profit before tax 12,258 7,013 75%
Tax 1,458 1,662 -12%
Profit after tax 10,800 5,351 102%
EPS - diluted Rs 111 54 106%
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Source: company accounts
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Pattern of shareholding (as at June 30, 2017)
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Categories of shareholders Shares held %
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Directors, CEO, and their spouse and minor child 2,367,230 2.65
Associated Companies, undertakings and related p 32,100,020 35.91
Banks and other financial institutions 3,089,474 3.46
Insurance companies 5,889,404 6.59
Modarabas and Mutual Funds 12,131,225 13.57
Shareholders holding 10% 21,133,101 23.64
General public
a. Local 19,797,487 22.15
b. Foreign 6,690,241 7.49
Others 7,314,423 8.18
Shareholders holding 5% or more voting rights
IGI Insurance Limited 21,133,101 23.64
Stora Enso AB 5,396,650 6
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Source: company accounts
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