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Plastics Packager RPC Sees Shares Fall On Cash-Flow Worries

By Steve Wynne-Jones
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Plastics Packager RPC Sees Shares Fall On Cash-Flow Worries

European plastic packaging leader RPC is stepping up capital investments, leading to a 4% decline in free cash flow in the year to end March and sending its shares to a two-year low on Wednesday.

The UK-based company said that full-year free cash flow was £229 million, with capital investments of £242 million, versus its guidance for £230 million, and set to rise to £250 million this year.

RPC said that it had spent on building inventory ahead of the key European agricultural selling season, between April and September, and invested in property, plants and equipment to expand its business – notably in China – and make it more efficient.

Organic Growth

The highly acquisitive company said that its use of capital "prioritises investing in organic and acquisitive growth and sustaining a progressive dividend policy".

Shares in RPC were down 12.9%, at 674.8 pence, by 08.08 GMT, at the bottom of the pan-European Stoxx 600 and their lowest point since June 2016.

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Jefferies analyst Cole Hathorn kept his buy rating on the stock, but cut his price target to 1050 pence from 1150 and said that the company would need to show improved cash conversion to return to a "trusted consolidator" status and qualify for an upward re-rating.

RPC, which has spent over $1.5 billion on acquisitions in the past two years, said that it would continue to evaluate buying opportunities, while it identified non-core business for sale, with a total of £209 million in revenue.

The company is seeking to sharpen its focus on higher-value plastics that can be recycled or reused, as Europe and other regions tighten regulations on plastics recycling, while this year China stopped accepting some lower-grade materials for recycling, decreasing their value.

RPC reported a 38% jump in full-year adjusted operating profit, in line with analysts' expectations, and gave new midterm targets for organic growth and earnings.

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Offload Businesses

It said that the businesses it wanted to sell, representing almost 6% of its total revenues, either lacked the scale they needed to be competitive or were outside its core areas of plastic packaging and technical components.

"These businesses are smaller strategic business units of larger entities acquired over the last four years," it said.

RPC said that it aimed to improve the adjusted operating profit of its core businesses, including its recent Nordfolien acquisition, by at least £50 million by 2021, and for its organic revenue to grow faster than the wider economy.

The company said that adjusted operating profit rose to £425 million in the year ended 31 March, while revenue rose by 36%, to £3.75 billion, compared with an average estimate of £3.69 billion.

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It added that the current financial year had started in line with management expectations.

News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.

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