Boom in packaging

ECONOMIC-PROFITABILITY ANALYSIS: the ability to do business
An analysis of the packaging sector, based on a representative sample of 22 companies of various sizes consistently tracked over three years, reveals a continued increase in year-on-year sales. In the last year examined, turnover rose significantly by 32.3%, from EUR 1,594 million to EUR 2,109 million. Gross operating profitability, measured by EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation), also saw substantial growth in absolute terms (+51%) and as a percentage of the added value produced. Specifically, the percentage of added value rose from 9.97% to 11.44%. It is important to note that the increases in absolute value and relative weight should not be compared with each other. The first figure clearly indicates that EBITDA has grown “in tandem with” and “at a faster rate than” the volume of business. The second figure confirms that profitability has improved for the same volume of business. Maintaining and increasing profitability in such a commercially favourable market demonstrates effective operational management, which is crucial for growth. But how was this profit achieved? A closer look at the income statement reveals a decrease in the percentage of Added Value. This decrease can likely be attributed to higher purchasing costs that were not passed on to customers, as well as possible discounts relating to increased sales volumes. Despite this, the percentage increase in EBITDA stems from an improvement in the ratio of added value to personnel costs. While employee costs rose numerically by approximately 5%, the added value also increased numerically by nearly  19%. Remember that this Added Value to Personnel Cost ratio is fundamental to a company’s operating results. This pursuit of optimising this ratio distinguishes the quality of economic management and, consequently, the effectiveness of overall management. In this segment, labour accounts for 46% of the added value generated. A natural consequence of this is the significant increase in turnover per employee, which rose from EUR 397,000 to EUR 513,000, while the average added value per employee is approximately EUR 131,000.
Continuing the analysis of the income statement, we observe that part of the profit improvement is offset in the EBIT (Earnings Before Interest and Taxes), which is net of depreciation and amortisation. As a result, while the percentage of Final Profit has increased, it does so to a lesser extent, rising from 5.09% to 5.98% relative to Production Value. 
All of this is summarised in the pie chart on the “How to work economically” page of the full Analysis Report, which is designed for those who may find the balance sheet numbers challenging to understand. In this chart, the red slice of the pie representing potential economic and operational improvements is quite small, at just 7% (including the pink slice for rents and leases). In contrast, the green slice, which reflects factors already optimised by effective economic management in this sector, accounts for 97%.

FORECAST ECONOMIC ANALYSIS: statistical impact on results, for or against management.
Statistical “forecasts” concerning the potential EBITDA percentage for the following year’s budgets (2023) indicate a 68% probability that this value will remain within the range of 9.9% to 13% of revenues. The probability of favouring either end of this range is essentially balanced. This balance stems from the fact that the percentage weight of EBITDA has fluctuated “randomly” within these values over the last three years. As a result, there has been no clear statistical trend to suggest a continuation or possible rebounds. It is similar to how a stock price moves in a so-called “sawtooth” trend, characterised by a sideways fluctuation where neither direction predominates. Perhaps it would be more appropriate to focus on the significant sales push of the past two years, which has been substantial enough to create a statistical possibility of a slowdown. As always, it’s important to remember that these are not forecasts in the true sense of the word, but merely “statistical possibilities” shaped by the inherent forces and reactions within any data trend. Consequently, management can influence these “forecasts” in either direction, though their actions will, in turn, also be influenced by the outcomes—whether positively or negatively.

FINANCIAL ANALYSIS: the ability to sustain the business
The financial situation of this sector is clearly illustrated in the lowest row of the circular graphs on the right side of the balance sheet analysis. These graphs show that there are no financial debts to the banking system; instead, any debts are in the form of loans between companies within the same group, typically managed by holding companies, as highlighted by the red horizontal bar graph. These debts are on an upward trend but remain well-contained as a percentage of turnover, staying within 10%.  Overall, this indicates a stable financial situation with the potential to utilise credit for future needs. However, the Financial Structure graph in the full report reveals some financial imbalance concerning maturity. In fact, the Net Working Capital is negative because not all medium- to long-term investments are financed by debts of similar duration. This imbalance is not particularly concerning, as all financial debts are intra-group, thus allowing for “in-house” management of maturities. It is worth noting, however, that some external holding companies, not included in this analysis, may have more urgent debts and maturity dates with the banking system.
The Financial Cycle of receipts and payments has deteriorated due to a shorter deferral period from suppliers, decreasing from 126 to 104 days.  
The financial situation is summarised figuratively in the pie chart on the “How to Pay” page of the full analysis report. In this chart, the red slice—representing the proportion of financial factors that can be improved—is significant, at 36%. In other words, 36% of the factors affecting optimal financial management have the potential for improvement. However, this is somewhat mitigated by the fact that all debts are internal to the corporate groups (at least according to the financial statements analysed).
Despite this rise in debt, investments have significantly reduced as a percentage of sales, dropping from 14.6% to 6.7%. Yet, in absolute terms, the decrease was smaller due to the significant growth in turnover.  

RATING ANALYSIS: quality and reliability summarised in a single indicator
The rating tables of the full Report highlight a maximum quality rating reflected by two rating methods at the top of the relevant page: the Mediocredito Centrale rating method and the Basel III-based method. While the discrete rating assessment of 2.5 derived from Altman's Z score (ZSA) falls within the mid-range of this method, it does not indicate any serious issues. Instead, it simply indicates that the risk is not exactly close to zero.
Reinforcing a positive assessment of the sector’s reliability, the rating—calculated using methods and measures based on the scale typically used by S&P and simplified by our methodology—still indicates an excellent AAA+ rating (this rating can be easily accessed by scanning the QR code at the bottom right of the one-page balance sheet analysis of the sector).

ANALYSIS OF EQUITY VALUE: shareholder value
We conclude this analysis by determining the sector's Equity Value, which represents the average value for shareholders of this sector. This calculation treats the entire sector as if it were a single company, combining two aspects: the equity value (representing what would need to be purchased to start a new company from scratch) and the operating value (representing the amount that would need to be paid, including goodwill, to achieve similar results if starting a new company from scratch).
The following stock market multipliers correspond to the resulting absolute Equity Value: 
Enterprise value over EBITDA (EV/EBITDA) = 6.7 times;
Price/Earnings (P/E) = 10.2; 
Price/Book Value (P/B) = 1.6. 

Furthermore, purchasing at this price would require a Financial Leverage of 1.3 times. This means the buyer would effectively buy 1.3 times the value of the purchase price by financing the excess amount with the company’s debts.

(Article by Alfredo Ballarini, Studio di Finanza Aziendale, www.toptiles.it - October 2024)