Eco Pack Limited (PSX: ECOP) was established as a private limited company in 1991. It was converted into a public limited company a year after and two years later it was listed on the stock exchange.
The company is essentially engaged in the business of manufacturing and selling of Polyethylene Terephthalate (PET) bottles and Preforms (an intermediate PET product) in Pakistan. It caters to renowned clients such as Coca Cola, Pepsi Cola, Murree Brewery, Gourmet Cola, etc. Its manufacturing plants are located in Khyber Pakhtunkhwa province, with a production capacity exceeding 300 million bottles and 400 million pre forms annually.
Shareholding pattern
A key shareholder of Eco Pack is the local public, owning about 66 percent of the shares, followed by the directors, CEO, their spouses and minor children holding a little over 31 percent. Of this, majority are held by Hussain Jamil and Ahsan Jamil who are the CEO and Non-Executive Director of the company, respectively. The remainder 3 percent is distributed between the rests of the categories as depicted in the table.
Historical operational performance
At the start of the decade, through the years FY08 to FY12 the Eco Pack went through a period of continuous losses. Gradually it became a profitable company, recording the highest net margin in FY18 after which profitability took a hit in FY19, reducing considerably.
During FY15, the top-line of the company declined by about 17 percent year on year. This was due to an unexpected interruption in logistics and supply chain caused by the sit-in protest and other politically related unrest which disrupted routes to and from the manufacturing facility, between Karachi and Hattar in Khyber Pakhtunkhwa.
Net revenue was also affected by a reduction in Resin price due to lower crude oil prices. Resin is a solid or liquid synthetic organic polymer used as the basis of plastics, adhesives, varnishes or other products.
In FY16, Eco Pack was able to grow its top-line along with reducing its cost of sales as a percentage of revenue thereby improving margins across the board. Since the demand for Eco Pack's product offerings is directly linked with the Beverage and Carbonated Soft-drinks (CSD) industry, any growth in latter trickles down to Eco Pack's performance.
During FY16, as per the company's annual report for the year, there was a double-digit growth in the beverage and CSD industry which is reflected in the sales of Eco Pack- increasing by almost 13.5 percent year on year. Moreover, the company was also able to reduce costs with a major reduction noticed in selling and distribution and finance cost as a percentage of revenue.
In FY17, Eco Pack managed to maintain its top-line growth at about 5 percent, while cost increased negligibly as a share of revenue. The growth in Preform sales at about 8 percent was a major contributing factor to the company's total sales. On the cost side, apart from the cost of sale remaining more or less similar, a further decline was observed in finance cost, making up about 2.5 percent of the revenue. This was possible due to the company's efforts of debt reduction and 'efficient utilization of working capital limits'.
During FY18, the top-line of Eco Pack grew remarkably by 50 percent year on year. This was achieved through competitive pricing; the higher sales meant that the company undertook higher production and utilized available capacity effectively, thus also reducing fixed cost per unit. Of the total sales, again the largest contribution was by Preform sales which increased by 114 percent as a result of an enhancement in Preforms production capacity. Thus the company recorded its highest net profit in a decade, at Rs 123 million.
During the second half of FY18, the currency was devalued which resulted in an increase in cost of imported materials such as petro-chemical derived raw materials, PET Resin, POL products and machinery spare parts etc. Hence, the cost of sales consumed about 89 percent of the net revenue.
Eco Pack Limited's top-line grew at 23 percent during FY19, while costs exhibited a more than a corresponding increase, hence the decline in margins. The currency devaluation by 36 percent, increase in petroleum prices by 35 percent which in turn increased truck freight by almost 12 percent together resulted in double digit inflation, directly affecting the consumer's purchasing power, hence demand for beverages and CSD and hence demand for Eco Pack's products. The inability to transfer the impact of increased costs to consumers in order to maintain future demand led to aggressively attempting to reduce costs wherever possible.
Another factor which affected the bottom-line was an increase in bank interest rates, with 3M KIBOR increasing from 6.92 percent to 12.97 percent. The effect can be seen an increase in finance costs year on year by nearly 90 percent. Despite the challenging business environment the company managed to stay afloat, recording a net profit of Rs 75 million for the year.
Quarterly results and future outlook
The first quarter of FY20 brought with it some signs of macroeconomic stability with current account deficit reducing, stability in the exchange rate among other factors. However, the prevalent conditions led to a reduction in purchasing and confidence of the consumer, with a focus on spending on essentials.
Thus the demand for a non-essential product like soft drink reduced significantly across the country. This can be seen with a quarter on quarter reduction in top-line by nearly 29 percent, while cost of sales consumed a large part of top-line- almost 97 percent.
Moreover, the company took a long term loan to finance the enhancement of Preform production capacity which escalated the finance cost of the company for the year.
With a slowdown in the demand for soft drinks and beverages, the financial performance of Eco Pack may remain compromised; however, it hopes to strive on delivering quality while curtailing costs to become profitable. Moreover, the investment in improving production capacity keeps the company one step ahead to deliver when the market absorbs the higher prices and the demand grows.
================================================================ Eco Pack Limited: Pattern of shareholding as at June 30, 2019 ================================================================ Categories of shareholders % ================================================================ Directors, CEO, their spouses and minor children 31.57 Banks, DFIs, NBFIs 0.031 Modarabas and mutual funds 0.57 Foreign investors 0.027 Others 1.724 Individual-local 66.082 ================================================================ Total 100 ================================================================
Source: Company accounts
================================================================ Eco Pack Limited: Quarterly results ================================================================ Rs (mn) 1QFY20 1QFY19 YoY ================================================================ Net revenue-LHS 781 1,099 -28.94% Cost of sales (755) (1,039) -27.33% Gross profit 26 60 -56.67% Selling and distribution expenses (7) (7) 0.00% Administrative expenses (23) (22) 4.55% Other operating income 13 5 160.00% Other operating expenses (12) (11) 9.09% Operating profit (3) 25 -112.00% Finance cost (38) (27) 40.74% Profit/(loss) before taxation (41) (2) 1950.00% Taxation 11 (12) -191.67% Profit/(loss) after taxation (30) (14) 114.29% EPS -0.86 -0.42 ================================================================
Source: Company accounts
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