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Confident of packing a punch... Family at heart of the busines... Cardboard cores could open doors for Fra... Pay-back time for loyal shareholders... |
Confident of packing a punch
Packaging company Transpaco is set for growth after some lean years. CIARAN RYAN reports
PACKAGING company Transpaco is one of the more neglected shares on the JSE. It debuted on the JSE in 1987, along with scores of companies seeking to capitalise on the public demand for new scrip. Then came the crash followed by several years of indifferent financial performance. Transpaco hit the boards at 55c in 1987, trading between 40c and 50c until 1990, when it slipped to 20c. It was only in 1995 that the share showed a flicker of life, peaking at 135c in early 1996. But the best is yet to come, says managing director Phillip Abelheim. The group's newly commissioned bubble-pack plant could double the size of the company within 18 months, he believes. There is only one other major producer of bubble pack in South Africa, and Abelheim believes the arrival of a second large-scale producer will grow the total market. Transpaco's entry into this market has already resulted in a substantial drop in prices, creating a vast new market among consumers of protective packaging switching from substitute products. It has also ended a virtual monopoly in the local bubble-pack market. "We are at the start of a new growth phase," says Abelheim. "After a number of difficult years all divisions are operating well and the addition of the bubble-pack plant positions us for strong growth."
Transpaco comprises four divisions - Framen Paper, a core winding and paper converting business, Transvaal Paper, a general packaging distributor, Plastafrica, a manufacturer of polyethylene bags, and Bubble Pack. The origins of Transvaal Paper go back more than 50 years to pre-war Johannesburg, but it was only in 1969 that Sam Abelheim, the current chairman of Transpaco, acquired an interest in the company. He embarked on a programme of expansion by extending the product range and acquiring several competitors.
Transpaco was essentially a distributor and wholesaler of packaging products manufactured by others until its acquisition in the late 1970s of paper converting and printing machinery. At the same time it became apparent that the future of packaging was in plastics. In 1981 a small plastics factory was established to test the market. It comprised two extruders and a bag machine, capable of producing 20 tons of packaging a month. This was followed by the acquisition of Plastafrica in 1983. This has since become a substantial contributor to group earnings. The company listed on the JSE in 1987, one day after the market crash. It was an inauspicious beginning to its JSE career, aggravated by several subsequent years of volatile trading performance. A total of R2-million was raised through the listing, R1,2-million of which was invested in additional plant to meet the growing demand for carrier bags in the retail trade, and the balance to acquire the assets of Framen Paper. Framen has since emerged as one of the jewels in the Transpaco crown and is a consistently strong contributor to bottom-line earnings. In 1989 a failed company called Consumer Plastics, based in Mogwase near Sun City, came onto the market. Transpaco acquired the company by way of a Section 311 settlement with creditors, which took two years to finalise. Consumer Plastics was relocated to Johannesburg and its name changed to Bubble Pack, the vehicle used to launch the group's entry into the bubble-pack market two months ago. "Between 1989 and 1993 we were faced with a static raw material price in our plastics business which meant that the base of our business remained unchanged," says Abelheim. "The price of other packaging commodities increased by the rate of inflation or higher while we were faced with a fiercely competitive market which meant we could not obtain price increases." Around the same time Transvaal Paper acquired an opposition company, lifting monthly turnover from R2,5-million to R3,1-million. But along with this came increased expenses, an enlarged sales force and new branch offices in Bloemfontein, Cape Town, Durban and Nelspruit. When sales started to decline, expenses remained unchanged. "It is very easy to commit to higher expenses, but it is not that easy to reduce them," says Clive Vidergauz, Transpaco's group financial director. " It took us two years to get over this." Transvaal Paper showed a loss in 1992, although the group as a whole reported a R1,1-million pre-tax profit, buoyed by relatively strong performances from Framen Paper and Plastafrica. By 1994 Transpaco's difficulties were consolidated in a R338 000 pre-tax loss. By then the company had all but lost the support of an investment community grown weary of its rollercoaster performance. Management contemplated closing Transvaal Paper and the paper-converting side of the business, but decided against it because the company's extensive distribution network would prove invaluable in establishing a foothold in the bubble-pack market. The decision proved fortuitous - this year it expects to generate a modest profit of R400 000, following an extensive cost-cutting exercise. By the early 1990s Transpaco found itself in a predicament familiar to many South African companies emerging from decades of economic isolation and sanctions - plant and equipment was in serious need of an upgrade and margins came under pressure as companies with state-of-the-art equipment leveraged their competitive advantage. This year Transpaco initiated a new investment programme aimed at upgrading plant, the highest level of reinvestment in the group's history. Most of this was spent on the bubble-pack plant, which was fully imported from Europe. By 1995, there were signs of sustained earnings recovery in Transpaco's operating performance, lifting the share price from an all-time low of 17c to a peak of 135c in early 1996. The shares now trade at 108c on a price-earnings ratio of 5, well below the packaging sector average. Abelheim believes the shares deserve a better rating in view of the recovery and the prospects for growth.
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