Pact Group chairman Raphael "Ruffy" Geminder has played down the prospect of potential higher funding costs slowing the company's aggressive acquisition strategy despite the sell-off in global bond markets after the recent United States election.
Speaking after the specialty packaging manufacturer's annual general meeting in Melbourne on Wednesday, Mr Geminder said he believed interest rates would remain low in the medium-term and Pact will continue to scour the globe for acquisitions.
"You can't look at what has happened in the past two weeks as a proxy for what the future may look like," Mr Geminder told The Australian Financial Review. "I have a personal view that rates will be lower for longer, and we will operate in a low-yield environment for some time. The question is how low is low? Will we have a rate rise sometime? Probably. But regardless of a rate rise we are at historic lows and I don't think that will affect our ability to grow."
He said he had not been asked by shareholders to slow Pact's pace of acquisitions, the latest of which was the $90 million buy of Australian Pharmaceutical Manufacturers in September, despite criticism the company's 2016 record net profit of $85.1 million was fuelled mostly by four acquisitions made last financial year.
"Shareholders want return and value accretion. If we can acquire businesses that are accretive and we can integrate them and our business helps us grow...then we should continue doing that because it is good for all shareholders.
"The question is really what is your ability to grow organically versus what is your ability to grow by acquisition. It is very dangerous to just have a company that grows by acquisition and does not integrate well. Those companies eventually implode."
Sticking with target
Pact chief executive Malcolm Bundey said the pipeline for acquisitions remained strong and that the company would not drop its target of an acquisition achieving 20 per cent return on investment within three years. "We see more opportunities than less, which is great. We have discipline around M&A;, not just the implementation and the execution but the due diligence as well."
While Pact said trading conditions for it in the current financial year remained subdued, Mr Geminder said the market had "overreacted" in selling down vitamins companies such as Blackmores and Swisse, now 83 per cent owned by Chinese group Biostime International, both of whom are Pact clients.
"I think the market is assuming that overall demand is no good, whereas domestic demand is very good," he said. "Those businesses are first a domestic business, and the export is a very nice long-term opportunity and if you believe the Asian thematic then the outlook for those businesses is quite phenomenal. I'm not sure the market is giving them enough credit for what they have built."
Growing domestic demand across Asian markets was also a reason for Pact not being hit hard by incoming US president Donald Trump's move to shelve the Trans-Pacific Partnership trade deal, he said. "We've got businesses in south-east Asia, north Asia and China where we are seeing growth. And those businesses are mostly servicing the domestic economy, so you may not see an impact at all."
Mr Geminder was also forced to defend Pact's remuneration practices, after a significant protest vote against the awarding of $1 million worth of share entitlements to Mr Bundy. About 18 per cent votes cast at the AGM were against the award as recommended by proxy adviser ISS, which had said Pact had not "provided any compelling explanation for the award aside from stating that this is part of Mr Bundey's initial employment arrangements".
"We've had a mixed reaction to that particular resolution," Mr Geminder admitted. "To attract and retain great talent you need a combination of ways to reward great talent. I don't get fussed about what I pay people, as long as they deliver the results."
Pact shares closed down 3¢ to $6.01, and are up 20 per cent since January 1.
