Tri-Pack Films Limited (PSX: TRIPF) was established in 1993 as a public limited company. It was initiated as a joint venture between Mitsubishi Corporation of Japan and Packages Limited of Pakistan to produce Biaxially Oriented Polypropylene (BOPP). In 2008, the company set up its first CPP line and in 2014, the company commenced the project of Cast Polypropylene Line-2. The company claims to own 66 percent of the market share in BOPP and 38 percent market share in CPP.
Their packaging offerings cater to food and beverage companies as well as non-food entities such as lamination, over wrapping, bag making, etc. They sell in the domestic markets as well export globally, although domestic sales make a large part of their total sales. Some of their export markets include Bangladesh, Middle East, Kenya, South Africa, etc.
Shareholding pattern
A considerable part of the company is owned by associated companies, undertakings and related parties. Nearly 63 percent of shares are held by Packages Limited. Another key shareholder of the company is the local general public at 21 percent followed by 'others'. The remaining ownership is distributed between the remainder categories as depicted in the table.
Historical operational performance
Tri-Pack Films Limited's top-line has registered continuous growth in the last decade with the exception of CY15 and CY16, while CY16 was the most profitable year, recording the highest profit margins.During CY14, TRIPF's top-line increased by almost 14 percent, while in volumetric terms the top-line registered a growth of 11 percent. The overall economy was marred by political instability and energy shortages along with a poor law and order situation. Moreover, the industry faced the menace of illegal imports which adversely affected margins and volumes, in general.
The share of cost of sales in the total revenue for CY14 was the highest recorded at 91 percent. This was due to an increase in raw material cost and the effect of inflation, which reduced in the future. Profitability was further worsened by an increase in finance cost which eventually led the company to incur loss of Rs200 million for the year.
In CY15, TRIPF's sales revenue declined by 12 percent. The company's top-line is largely driven by FMCG growth. It is observed that during the year, FMCG volumes were lower hence resulting in 3 percent decline for TRIPF's sales volume. Moreover, according to the company's annual report for the year, about 7 percent of the BOPP demand was catered by illegal goods smuggled via the Afghan transit trade. Combined with this, the oversupply in the CPP segment and fluctuation in the price of raw materials rendered the task of product pricing a challenge. An across the board control on costs resulted in a profit for the year of Rs498 million as compared to a loss of Rs200 million in the preceding year.
The external economic and political conditions remained positive during CY16. The company's top-line reduced only marginally by 1.5 percent due to a decline in the selling price which in turn was a result of falling prices of raw materials. While costs increase in certain areas of operation, a significant contributing factor to the highest recorded profit margins in a decade was the decline in cost of sales, consuming 83 percent of the revenue, lower from 84.5 percent in CY15. In addition, finance cost also reduced significantly, nearly halved, when calculated as a percentage of total revenue. This was on the back of better cash generation, hence a cutback in short term borrowing. Collectively, it resulted in a net profit of Rs755 million.
During CY17, some relief was seen in the illegal trade, although it was not entirely eliminated. Due to better business conditions, the consumer's willingness to spend increased which created demand and hence growth in the market. This coupled with improved security situation allowed for a 4 percent increase in top-line. However, this could not be reflected in margins because of an incline in prices of raw material by 11 percent. Moreover, the oversupply also did not allow for the increase in costs to be passed on to the consumer.
CY18 was a year of uncertainty and instability with regard to the general elections and future of the economy. The macroeconomic situation was also adversely affected by an increase in gas prices and policy rates and a devaluation of the PKR. Yet the company managed to grow its net revenue by nearly 8 percent on the back of an increase in selling price while volumes had actually declined as a result of a closure of one of the company's major line for the purpose of up gradation.
The increase in top-line however did not result in an improved bottom-line due to a rise in costs observed in all the areas; the cost of sales consumed nearly 90 percent of the revenue which caused the GP margin to reduce from 14 percent in CY17 to 10percent in CY18.
Quarterly results and future outlook
Between the nine months ended CY18 and CY19, TRIPF registered a growth in top-line of almost 8 percent while an increase of 5 percent was noted in volumes. During CY19, the economy experienced challenging times with high inflation and policy rates, and significant efforts to document the economy. However, the strict laws imposed on the unregistered sector adversely impacted the demand since it made a large portion of the market. The inflationary pressures along with change in tax laws eventually led the company to incur a loss of Rs393 million during 9MCY19.
As per the company's recent report, it foresees a recovery in volumes with the stabilization of the currency and the economy at large. Since TRIPF's demand is derived from the growth of FMCG, a stabilization in the economy would encourage consumer spending and hence the company's demand. With a focus on operational and cost efficiency the company will be able to recover from the period of loss.
============================================================== TRIPF: Quarterly results ============================================================== Rs (mn) 9MCY18 9MCY18 YoY ============================================================== Net revenue 10,623 9,851 7.84% Cost of sales (9,524) (8,769) 8.61% Gross profit 1,099 1,082 1.57% Distribution costs (337) (278) 21.22% Administrative expenses (248) (228) 8.77% Operating profit 514 576 -10.76% Other income 46 39 17.95% Other expenses (1) (21) -95.24% Finance cost (668) (338) 97.63% Profit/(loss) before taxati (109) 256 -142.58% Taxation (284) (22) 1190.91% Profit after taxation (393) 234 -267.95% EPS (10.14) 6.03 ==============================================================
Source: Company accounts
============================================================== TRIPF: Pattern of shareholding as at December 31, 2018 ============================================================== Categories of shareholders % ============================================================== Directors, CEO, their spouses and minor children 2.22 Associated companies, undertakings and related parties 62.98 Insurance companies 1.91 Modarabas and mutual funds 1.92 General public: Local 21.36 Foreign 2.58 Others 7.03 ============================================================== Total 100 ==============================================================
Source: Company accounts
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CY13 CY14 CY15 CY16 CY17 CY18
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Return on equity (%) 1.5 (12.20) 23.6 19.9 14.5 4.2
Return on capital employed (%) 10 9.5 22 22 21.1 14.7
Current ratio (times) 0.9 0.9 0.8 1.1 0.9 0.9
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Source: Company accounts
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