Packaging billionaire Raphael Geminder says he would be willing to consider mergers, roll-ups and major acquisitions to help Pact Group, Australia's largest plastic packaging manufacturer, achieve its $5 billion sales target within five years.
"We will do whatever is in the best interests of shareholders whether it's a roll-up, an acquisition, a merger - as long as it's accretive - whatever combination works we'll be open minded," Mr Geminder told investors on Wednesday after Pact released its maiden results after a $1.7 billion initial public offer last December.
Pact, which makes plastic and steel containers for the food, beverage, personal care and chemical industries, reported a net profit of $57.7 million in 2014, beating prospectus forecasts, after booking a one-off tax benefit, cutting costs and reaping the benefit of recent acquisitions.
Sales for the year ended June rose 3.6 per cent to $1.14 billion, falling slightly short of prospectus forecasts of $1.15 billion, due mainly to the loss of a milk bottle contract with Parmalat last year and softer agricultural conditions in Australia.
However, statutory earnings before interest and tax and one-off items rose 4.8 per cent to $147 million, beating a prospectus forecast of $146.1 million, as the company cut costs, recovered higher resin prices and completed the acquisition of bolt-on acquisitions.
Pact acquired Cinqplast Plastop and Viscount China from interests associated with Mr Geminder at the time of the IPO.
Underlying net profit rose 13.5 per cent to $59.7 million, compared with a prospectus forecast of $52.6 million. Pact booked one-off costs of $26.2 million, but also reported a $19.2 million one-off tax benefit, which swelled bottom line profits to $57.7 million compared with a prospectus forecast of $25.5 million.
The initial public offer raised $650 million, valuing the company at $1.7 billion including debt, and enabled Mr Geminder to cut his stake by almost half to 40 per cent.
The shares traded above their $3.80 issue price for the first time earlier this week, but slipped 4¢ to $3.82 after the result, which was in line with market forecasts.
Pact shares have been weighed down by investor concerns over related party transactions and corporate governance issues.
Pact chief executive Brian Cridland and Mr Geminder put paid to these concerns, however, saying the company had robust corporate governance and related-party protocols in place.
Pact's decision to turn down an opportunity to buy an Indonesian packaging company, Dynapack, which is 50 per cent owned by Mr Geminder and has sales of $235 million, showed that corporate governance protocols were working.
Mr Cridland said the board - which has four independent directors - had reviewed the potential Dynapack acquisition and raised concerns about the price and future returns.
"The board has some concerns the financial metrics of the potential transaction may not meet the company's criteria," Mr Cridland said. Pact has a 20 per cent return hurdle for new investments.
Mr Geminder indicated that Dynapack's shareholders were unlikely to reduce their price.
"From Dynapack's perspective the market in Asia is very resilient and very fragmented and as far as price goes valuations are very rich," he told The Australian Financial Review.
Both Mr Cridland and Mr Geminder said there was no shortage of growth opportunities if Pact did not proceed with the Dynapack deal. These ranged from organic growth from product innovation and winning new contracts to geographic expansion and "transformational" mergers and acquisitions.
Mr Geminder, the son-in-law of late Visy Group chairman Richard Pratt, wants to transform Pact into a $5 billion enterprise during the next five years, with operations in five regions - Australia and New Zealand, Asia, Europe, North America and possibly South America.
"We are constantly looking and are constantly aware of what's around and what might be around," said Mr Cridland, pointing to Pact's six-fold growth in revenues over the past 12 years.
Most of the major growth opportunities were in Asia, where the rigid plastic packaging market was estimated to be worth $US58 billion - compared with $US3 billion in Australia and New Zealand - and growing 10 per cent year-on-year.
There were also opportunities to grow organically and via acquisition in Australia and New Zealand, Mr Cridland said, pointing to the recent $35 million acquisition of plastic wheelie-bin maker Sulo.
"There are lots of dialogues that happen all the time," Mr Geminder said. "We know the targets and partners we're interested in."
Pact said current trading conditions were in line with expectations. Revenue growth was expected to be consistent with GDP growth in the international businesses and "benign" in Australia. Margins were expected to remain stable, while the acquisition of Sulo would boost sales and earnings.
UBS analyst Ramoun Lazar said investors were likely to applaud the board's prudence regarding the Dynapack option and the full-year result should alleviate concerns after a subdued first-half result.
The company declared a final dividend of 9.5¢, partly franked, payable October 3.
About 117 million shares worth about $440 million will be released from escrow after the results.
Mr Geminder's Geminder Holdings has said it has no intention of selling its shares and sees itself as a long-term investor.
