AMG Packing profit surges on efficiency gains
AMG Packaging and Paper Company recorded an 81 per cent increase in earnings on slightly less revenue during its first quarter ended November 2015.
The $29-million net profit posted for the three-month period represented 19 per cent of sales, which at $149 million was one per cent or $2 million below the comparative quarter in 2014.
The marginal decline in revenue reflected a change in the manufacturer's mix of corrugated paper products, ahead of its entry into the toilet paper market. The company expects this latest move to bring in an additional US$3 million annualised - $370 million at the current exchange rate - should it meet its first year target of 10 per cent of the tissue import market. Annual sales now stand at $630 million.
The 'Tishoo' and 'Fluff' brands are scheduled to hit the market in March, according to General Manager Michael Chin.
The manufacturer's revenue already doubled since it listed in 2011.
What's more, its efficiency gains from its expansion drive have led to greater profitability.
For example, the company spent almost the same amount of money on fuel ($12.7 million) last financial year as it did in 2012, even though sales were 77 per cent higher.
The plant was converted to burn LPG in 2014 and energy prices have fallen since. During the three months to November 30, LPG prices were, on average, a third less than year-earlier levels.
Chin said that the management of overtime and the purchasing of new machinery that decreased repairs and maintenance costs also resulted in improved gross margin, which grew from 17 per cent when AMG listed to 24 per cent last year. Gross profit as a proportion of sales stood at 34 per cent during the quarter on review, while 19 per cent of sales made it to the bottom line.
The market appears to have responded favourably to AMG's performance in recent times. After the stock price reached a high of $5.75 a share in 2011, having listed at $2.88, it gradually fell to $1.90 by the end of 2014. It rose gradually and then sharply in 2015, reaching $7 at the end of the year. AMG's closing price on Wednesday was $12.90.
The push into toilet paper and tissue products is a timely move, particularly as its full tax break comes to an end this calendar year, after which it will pay 12.5 per cent tax on profit.
The latest expansion thrust also brings AMG capital spend close to $300 million since going public in 2011, but the company has managed to consistently grow its working capital surplus position (which stood at $238 million at the end of November 2015, compared with $44 million as at August 31, 2011).
It also maintains a strong cash position - $88 million at the end of the review quarter - while keeping its debt relatively low.
AMG opted to take on an additional $100 million in borrowings for the purchase and installation of equipment that will be used for the toilet paper operations. That put total long-term debt at $118 million at the end of November 2015, or about 29 per cent of the company's capital base.