Pact Group Holdings

Pact Group Holdings

Pact Group Holdings (ASX: PGH), Australian-based packaging manufacturer, provided an update earlier today in relation to the impairment of their non-cash assets.

After review of its carrying value of its assets, Pact Group now expects to recognize impairments to non-cash assets worth between $310-$340 million (after-tax) in the group’s 2019 half-year accounts.

The non-cash assets include ‘Packaging’ assets and Goodwill, both based in Australia. Goodwill will be impaired by $220-$240 million whilst the company’s Australian Packaging assets will be impaired by $90 – $100 million.

The impairment was deemed necessary owing to more modest assumptions by company management regarding the growth and discount rates. Further, Pact Group needed to account for challenging trading conditions and a moderated long term outlook of its Australian business.

Direct consequence of the impairment, Pact Group projects a reduced EBITDA for the 2019 full financial year, to range between $230 million and $245 million. This modest range reflects the uncertainty of the speed of revenue recognition, the efficiency of projects as well as the rates at which the input costs can be recovered.

Continuing on the issue of input costs (a major operating cost for manufacturing companies), Pact Group notes that its Australian business had been impacted by heavy costs and a simultaneous decrease in demand for its goods; hence compelling the company to reassess the carrying value of assets, inevitably leading to their impairment.

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The company is poised to release its half-year report for 2019 on 20th February. Meanwhile, the market has reacted negatively to the overall pessimistic news and already reflects the impairment announcement made today.

A disappointing update has been reflective in the company’s share price movements today, closing at the bottom of the ASX200. Nonetheless, given the rather poor last twelve months for the company, investors should keep caution, particularly ahead of its half-year report release next week (20th February).

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