Pro-Pac (ASX:PPG) downgrades FY22 guidance

Pro-Pac Packaging (ASX:PPG) has downgraded its profit guidance for the 2022 financial year largely due to operational issues in the Flexibles business.

Last month, the packaging company said that it expects a profit before tax of $5 million in FY22, which represents an earnings before interest and taxes of $12.1 million. However, the company said today that this will not be the case, largely due to persistent operational and performance issues in the Flexibles business.

This includes resin costs, which have continued to increase at a greater rate than recovery through sell price increases, as well as productivity at the “hard flexibles” plants in Melbourne. The company pointed to the need to rapidly upskill in a technically complicated environment, while there are structural limitations on attracting and retaining labour in an environment still impacted by Covid-19.

There has also been a downward adjustment of $4.5 million relating to a restatement of inventory and debtors balances. As a result, Pro-Pac expects its FY22 underlying profit before tax to be a loss of $2.9 million.

Pro-Pac also announced that it had completed the sale of its Rigid packaging business to a subsidiary of TricorBraun.

It was advised in April that the sale consideration would be $56 million. However, by mutual agreement, Pro-Pac will retain the business Trade Debtors and Trade Creditors, which will result in a similar cash outcome but a lower purchase price.

Regarding Pro-Pac’s near-term goals, the company plans to focus predominantly on reducing costs and right-sizing other parts of the business.

Shares are trading 7 per cent lower at 53 cents.