AMG Packaging is out with flat results for the year to August with profits of $49 million up about 4 percent from 2012, even as revenues from goods sold climbed 24 percent to $444 million as a result of a 16 percent increase in the volume of items sold.
The company reported improvement in gross profit which increased by 32 percent compared to the 2012 figure of 31 percent as it grew faster than sales. Increased administrative cost ate up just about all of the improvement in increased efficiency in the factory operations. This was due mainly to what management attributed to a revision to wage package, as there was no increase since 2009. Gross profit margin increased to 33 percent in the year from 31 percent in 2012 and 26 percent in 2011. In 2010 the margin was at 32 percent.
August quarter | Data indicates a 37 percent jump in revenues to $128 million but that was not enough to prevent a fall in profits in the quarter to $14 million versus $16 million in the 2012 quarter as just about all major areas of cost rose sharply. Raw material cost is up 49 percent, direct manufacturing cost grew by 42 percent, administration grew 36 percent, finance cost rose 197 percent and depreciation by 71 percent.
Negatively, return on equity fell in the year to 18.6 percent versus 22 percent in 2012 and 24.5 percent in 2011, clearly an area where work is needed. The company is working to improve efficiency and expansion of production by investing in new machines. During the year the company expended money on roof relays and some other items that have an one-off effect and not likely to be repeated in the coming year and should free the profit going forward. They are also moving to use LPG instead of placing total reliance on the electric grid, which they say will reduce energy cost in the coming year.
Management, in their report to investors, indicated that a multi-functional machine on order will replace older manual ones and a rotary die cut machine is being manufactured. Both are expected to be functional in the November quarter of 2013. These machines are expected to increase production and enhance the quality of products.
Finances | Current assets of $209 million including cash of $34 million is more than adequate to cover current liabilities of $71 million. Inventories climbed sharply to $93 million from $75 million in 2012 but it represents just under one and a half months of raw material cost.
Money borrowed rose to $85 million, an increase on the $29 million at the end of the prior year, with most of the increase used to fund expansion of the factory and added machinery. The debt compares favourably with equity of $291 million.
The stock recently declined to $3.50 and became weak sometime after the third quarter numbers were released suggesting minimal growth in the bottom line. Notwithstanding, the junior market has been exhibiting softness across most stocks. As such there could well be further decline in this stock price as there does not seem to be any major buying interest currently.
Insider call | With the expansion and modernisation that is underway and the tendency for sales to be boosted by increased volume the stock should be an attractive buy as a medium to long term investment around $3 per share.
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