Pact Group Holdings Ltd (PGH) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Pact Group's Full Year Results Briefing. I'm Sanjay Dayal, the Chief Executive Officer of Pact Group. Through the support of technology, I'm joined today by Richard Betts, our Chief Financial Officer. Today, we are in different locations, managing as many are the challenges of border closure and stage 4 lockdown in Melbourne. Today, I'll share with you the highlights of our full year results and our progress on sustainability. Before handing to Richard to take you through the group financial and segment performance. I will then return to talk to you about our near-term strategic priorities. We'll be pleased to take questions at the end of the presentation. Turning to Slide 5 and our FY '20 Headline Results. We have delivered solid financial results in a period of significant uncertainty. At a headline level, the group reported revenue of $1.8 billion, a statutory net profit after tax of $89 million, underlying NPAT of $81 million, up 5%; EBITDA of $302 million, up 1% on a comparable basis. Free cash flow generation of $71 million, up 81% on a comparable basis. A reduction in net debt of $70 million and an improvement in leverage to 2.6x and the resumption of dividend. The Board has determined to pay a final dividend of $0.03 franked to 65%. Moving to Slide 6, Key Business Highlights. As you have undoubtedly heard many times this reporting season, FY '20 was an unprecedented period. We face the uncertainty of COVID-19 and the challenges of other macro events, including drought in our first half and the impact of bushfires during the Australian summer. Through these challenges, we have driven improvements in our controllables and our balance sheet. And we have captured new business opportunities. We delivered solid organic growth in our reuse platform and in the hygiene category in our contract manufacturing business. In our Packaging segment, we delivered underlying volume growth in New Zealand and in Asia, we are leveraging the benefits of consolidating our regional closures platform. We control our cost and pricing was well managed. We recovered pricing lags from prior periods. Our group margins improved. I'm particularly pleased by the strong cash flow performance. And reduction in debt, which has given us further balance sheet headroom to drive our strategic initiatives. Our results illustrate the resilience of our diversified portfolio and our balance sheet discipline. We now have increased confidence, and the Board has resumed dividends. Moving to Slide 7 and progress on strategy. Alongside driving improvements in our operating performance, we have been clearly focused on progressing our strategy. In February, I provided detail of our new strategy to lead the circular economy. Pact has special positions in the circular economy, which enables it to lead change in the industry and deliver sustainable competitive advantage. We have industry-leading packaging capability to improve plastics sustainability through innovation and product design. And the scale and technical know-how to provide a meaningful offtake sink for recycling materials. We are a leading plastic recycler, well positioned to lead the change needed to close the loop on plastics. And we have solutions through our reuse platforms that meet the growing need for alternatives to single-use packaging. Here are some highlights of our work in the period. We have completed the critical first steps in the turnaround of the Australian packaging business. We have transformed the operating model to align accountabilities to our customer needs. Our new operating model will promote deeper segment knowledge and improve the customer experience. We have appointed strong leadership to lead transformation of our business and deliver change in the way we operate. We have entered an agreement to acquire Flight Plastic, a leading PET recycler in New Zealand with a competitive position in the Fresh Food segment. We formalized a joint venture agreement with Cleanaway and Asahi, which will develop PET recycling capability in Australia. In our reuse business, we have grown our pooling revenues by 27%, and we have expanded our reuse platform to support a major new contract in the U.S.A. and we consolidated our regional closures platform and invested in new capability in Asia. These are very pleasing achievements, particularly given the additional challenges we have managed through the period. In February, I announced we had commenced a sale process with respect to our contract manufacturing business. This process has been suspended due to COVID-19 but will recommence. Moving to Slide 8 and our response to COVID-19. The group's COVID-19 response plan is focused on protecting the health and safety of our employees, and supporting our customers and the community during this difficult time. Our plans have been effective in protecting our people and our business. I'm proud of the commitment demonstrated by our people across our broad geographic footprint to continuing the safe and efficient operation of our facilities. Given the uncertainty that COVID-19 created, it was prudent to ensure we took steps to safeguard our balance sheet. Across our portfolio, we managed discretionary spend tightly and control our cash with discipline. Working capital management was outstanding. Our results in the period illustrate the resilience of our business. Our diversified portfolio performed well. During the COVID-19 period, volumes in most consumer sectors in Australia, New Zealand and Asia were resilient. Whilst we had some benefit from higher supermarket demand, this tended to moderate by the end of the period. Some categories outperform such as homecare and hygiene, while others underperformed, including fruit trays where packing restrictions impacted demand. Beverages were also lower, impacted by country lockdowns, particularly in Asia. Volumes into the industrial sector were down, impacted by end market demand disruption for packaging, and the delay of several bin and infrastructure projects in our material handling sector. Demand from the retail sector was weak with hanger reuse services well down. In our contract manufacturing segment, the hygiene category outperformed. Here, the business responded rapidly to meet supply shortages of hand sanitizers, expanding manufacturing capacity and establishing a reliable raw material supply chain. Volumes in the period were up significantly. While demand moderated by the end of the period, volume in this category is expected to remain above historical levels. Moving to Sustainability on Slide 9. Firstly, Safety. I'm incredibly saddened to report fatality in the period. Paul Pita, a valued team member at our Albany site in New Zealand died in a tragic incident in May. We have supported detailed investigation of the incident and have implemented procedures to prevent a similar incident at any facility in the future. The lost time injury frequency rate at the end of the period was 4.0, improved from 4.7 in FY '19 and the lowest achieved in 6 years. This result illustrates we are gaining momentum in improved safety culture and processes across the organization, and I'm committed to ensuring this continues. The group proudly supports the communities in which we operate. We provided support to the community through the COVID-19 pandemic with a supply of much-needed hand sanitizer to overcome local supply shortages. For the most vulnerable members of the community, we have provided donations of this important product through several local charities. Care for the environment and the world in which we live is central to our strategy. We have set a target to achieve 30% recycled content across our portfolio by 2025. In pursuing this target, we are working with our customers on product innovation, investing in new manufacturing technology to improve the use of recycling materials and establishing capability to provide local recycled raw materials. With those opening remarks, I will now hand over to Richard to run through the financials in more detail. I will then return to talk to you about our strategic priorities and outlook. Richard?

Thank you, Sanjay, and good morning, everyone. As Sanjay highlighted, we are pleased with the performance of the business in this financial year. Group sales revenue of $1.8 billion was broadly in line with the prior year. Against a backdrop of volume, challenges included COVID-19, this is a very pleasing result. We saw good growth in both the Materials Handling and Pooling and Contract Manufacturing segments and in our Packaging and Sustainability segment, we delivered growth in New Zealand and Asia, however, challenging trading conditions in Australia continued to impact negatively on its demand. Group EBITDA of $302 million was up 1% on the prior year after excluding the impact of AASB 16. Earnings were improved in the Materials Handling and Pooling and the Contract Manufacturing segments. However, earnings in the Packaging and Sustainability segment were lower. EBITDA margins improved, driven by disciplined pricing, favorable mix and cost efficiencies. EBIT was 1% higher and NPAT was 5% higher, excluding the AASB 16 impact, and ROIC improved to 12.6%, up from 11.1%. Operating cash was strong and the balance sheet was well managed. Gearing improved to 2.6x, down from 3x in the previous corresponding period and well within our targeted range. EPS for the period was $0.267, well up on the prior year. Given the operating conditions in the second half resulting from COVID-19, this is a very pleasing performance. Turning now to group EBITDA on Slide 12. Group EBITDA at $302 million was up 1%, excluding AASB 16, a great result in a challenging operating environment. We delivered favorable mix, improved pricing and cost efficiencies. The recovery of resin pricing lags across the plastics business improved earnings by $6 million. Improved efficiency increased earnings by $5 million. After reflecting the higher cost to serve during the COVID-19 period, which impacted several of our businesses. The result included an additional 4 months of tick, which provided an incremental earnings benefit of $6 million. The impact of lower volumes was $14 million due to lower volumes in the Australian packaging business and COVID-19 related volume impacts in the Industrial and Retail sectors. This offset strong organic growth in our Crate Pooling business and in Contract Manufacturing and modest underlying growth in New Zealand and Asia. Mix was favorable with increased revenues from Pooling and reuse services and growth in the higher-margin hygiene category in Contract Manufacturing. Turning now to our balance sheet on Slide 13. We are pleased with the strength of our balance sheet and the improvement in net debt in the period. Net debt at the end of the period was $614 million, an improvement of $70 million versus the previous corresponding period. This is an outstanding result, illustrating disciplined balance sheet management and strong operating cash flows. Gearing at the end of the period was 2.6x, well down on the previous corresponding period and well within our targeted range of less than 3x. We have significant undrawn debt capacity of $341 million, which together with improved gearing, will support the delivery of the group's strategic agenda. Turning now to cash management on Slide 14. In a COVID-19 environment, we have delivered operating cash flow conversion of 88%, which is in line with the prior year. Operating cash flow was $206 million, slightly up on the prior year. Against the backdrop of COVID-19, working capital management was very good, highlighted by the fact that overdue receivables at the end of the period was below the prior year. Capital expenditure was managed tightly with some nonessential capital delayed through half 2 due to COVID-19. Our capital spend is now assessed through a prioritization framework aligned to strategy. Turning now to Page 15 and our approach to capital allocation. We shared this in February however, we have presented it today in a more prescriptive way. This framework promotes discipline in all our capital decisions and will ensure we maintain a strong balance sheet. In relation to the model, I make the following points. Spend on sustenance capital will be prioritized. We have set ourselves a benchmark of 70% of depreciation. Over the near term, this will be important in rebuilding the competitiveness and efficiency of our packaging platform, a key strategic priority for the group. Our gross spend will be prioritized based on ROIC returns with a hurdle of 15% implemented, and we are targeting a dividend payout ratio of more than 40% of NPAT before significant new items. Our intention is to maximize shareholder value by targeting a group ROIC of 15% by 2025. In the period, we delivered ROIC of 12.6%, an improvement on the 11.1% in the prior year. Moving to Slide 17 and the segment results for our Packaging and Sustainability segment. The Packaging segment delivered EBITDA of $138 million, down 11% on the prior year. We managed the challenges of COVID-19 well, delivering underlying growth in Asia and New Zealand, and we made good progress on the turnaround in Australia. Which Sanjay will touch on in greater detail later in the presentation. Through COVID-19, volumes in most consumer packaging sectors were resilient. Volumes in the industrial sector were, however, down, impacted by the end market demand disruption of our customers. The negative impact of COVID-19 to the segment was around $5 million. The underlying performance of the business was impacted by continuing volume challenges in our Australian business. Volumes in the dairy, food and beverage sector were all down, and the health and wellness sector remained weak. Whilst we had some benefit from the easing of drought conditions in the second half, overall industrial volumes were down on the prior year. Pricing, however, was disciplined, and we recovered pricing lags from the prior periods. Moving to Slide 18 and the Materials Handling and Pooling segment. FY '20 was an excellent year for this segment with the successful start-up of the crate pooling services into the ALDI supply chain and the expansion of reuse services in the U.S.A. for the TIC business. Revenue was up 6% and EBITDA up 10% despite the impact of COVID-19. Margins were also improved due to favorable mix. During COVID-19, crate pooling volumes were slightly improved, with strong demand for fresh produce. However, several bin and infrastructure projects were delayed and demand from the clothing retail sector was weak with hanger reuse services well down. The adverse impact of COVID-19 to this segment was around $7 million. Lower bin and infrastructure projects also adversely impacted earnings. Infrastructure sales were impacted by lower sales to the NBN as the rollout nears completion. And there were fewer council bin rollout in the year. Crate pooling revenue was strongly improved and reuse services were up with higher revenue into the U.S.A. following the start of the new contract. Partly offset by weak clothing retail demand in Australia through the year. Efficiency was strong and pricing was disciplined with the recovery of prior period pricing lags. EBITDA margins improved to 17.7%. Moving to Slide 19 and the Contract Manufacturing Segment. Contract Manufacturing segment delivered an outstanding result with EBITDA of $40 million, up 60% on the back of strong volumes in the hygiene category and improved platform efficiency. EBITDA margins at 10.1% were up 3.4 points on the previous corresponding period. The hygiene category outperformed with volumes up significantly. The business responded rapidly to meet strong hygiene demand by expanding manufacturing capability and establishing a reliable, localized manufacturing supply chain. The supply chain was very well managed, though some higher cost to serve were incurred due to the rapid ramp-up required to meet the strong demand. Whilst demand in the hygiene category moderated at the end of the period, demand is expected to remain above historical levels going forward. Demand from the health and wellness sector was weak, with volumes well down on the prior year, impacted by customer destocking. Outside of Hygiene, the business benefited from the diversification of the customer portfolio and innovative go-to-market approaches, improved customer reach. Underlying efficiency was significantly improved through several projects targeting manufacturing efficiencies and pricing discipline was a key focus. That concludes my comments on the financials. I will now hand back to Sanjay.

Thank you, Richard. I would now like to talk about the key initiatives we are working on in executing our strategy. Pact's vision is to lead the circular economy. Presented here on Slide 21 is our strategy on a page, which clearly summarizes our aspiration and targets, our key priorities and the enablers require to win. Our 3 core priorities are: strengthen the core by strengthening our balance sheet and improving the competitiveness of our core packaging business. Expand reuse and recycling capability. And leveraging regional scale. Delivery of these priorities represents a significant value creation opportunity for the company in addition to an important step in delivering our own sustainability aspirations. Moving ahead to Slide 22. Our strategy is a little over 6 months old. And as I shared in my opening remarks, we have already made great progress. We'll continue to maintain this momentum. Our key initiatives for FY '21 are listed here. I will provide more detail on these initiatives in the following slides. Moving ahead to Slide 23. Here are some details on the work we are doing on the turnaround of our Packaging business, which I believe is integral to delivering value in the circular economy. Phase 1 of our turnaround has established a structure and leadership to support a customer-centric organization. Phase 2 will drive improvements in our competitiveness. We will continue to improve our core business fundamentals. I'm really pleased with the improvements we have already made on safety, quality, delivery and cost. We will continue to invest in our platform capability. And we will develop segment strategies that will enable us to win in the market through differentiation, improve our margins and sharpen our focus on growth opportunities. Moving ahead to Slide 24. We are undertaking a detailed strategic assessment of our market segments, in which we will examine each of our segments through both an internal and external lens. Through the internal lens, we will assess operational and financial performance at a product, customer and segment level. Through the external lens, we will assess market and macro trends, competitor and customer behavior, and industry benchmarks. Our assessment will inform our segment's strategies. Importantly, they'll also guide our investment decisions with respect to manufacturing and innovation capability. The competitiveness of our manufacturing platform in several areas has been impacted by underinvestment for a number of years. Our segment strategies will help determine our investment priorities as we work to lift our competitiveness and establish the capability required to support the needs of our customers. We'll prioritize investment to support new technology and innovation. Changing customer preferences, improved use of recycled materials and automation and efficiency of the platform. I'm confident that these actions will provide the pathway to lift performance. Moving ahead to Slide 25. We have made good progress in expanding our recycling capability, which will be a key differentiator for Pact in the market. To meet the target of 30% recycled content across our portfolio by 2025, we will require in excess of 60,000 tonnes of recycled raw materials. The initiatives we have already undertaken provide a significant step in achieving this target. Increasing our recycling capacity from around 30,000 tonnes to 50,000 tonnes by 2022. These initiatives include: we have formalized arrangements with Cleanaway and Asahi. To jointly develop recycling capability in Australia. Trading as Circular Plastics Australia, the joint venture will construct a new recycling facility with capacity to recycle the equivalent of 1 billion 600 ml PET bottles each year. Expected to be operational by 2022. The facility will lift Australia's PET recycling capacity by 50%. The recycled materials will be used to produce new food and beverage packaging. We have entered an agreement to acquire Flight Plastics, a leading provider of packaging for fresh food segment and New Zealand's only packaging manufacturer with integrated recycling capability. These arrangements complement the acquisition of Australian Recycled Plastics, which we had made in the first half. These initiatives provide a step-change in our capability to provide customers food-grade recycled content and established for us an important competitive advantage. Moving ahead to Slide 26. The ANZ fresh food segment is estimated to be $600 million market. In this segment, there is increasing demand for sustainable packaging. Capability to supply packaging from recycled raw materials that are supporting the local circular economy will be a competitive advantage. The segment is exposed in some categories to import threats. The acquisition of Flight provides an exciting opportunity for Pact to establish a strong advantage in this segment through the supply of sustainable packaging. Flight's integrated recycling and manufacturing capability and well-established customer relationships will significantly enhance Pact competitive position in this attractive segment. The acquisition will give Pact access to over 5,000 tonnes of recycled PET to sell into food-grade packaging in the ANZ region. Purchase consideration represents a 5.8x multiple and is EPS accretive in year 1. The acquisition is a compelling opportunity strongly aligned to our strategy. Moving ahead to Slide 27, increasing penetration of reuse solutions. Our strategy has reconfirmed the huge opportunity we have in scaling up our position in returnable produce crate pooling and garment hanger reuse. Both reuse platform represent a sustainable alternative to single-use packaging. FY '20 was a significant year in expanding both our pooling and reuse platforms. With these expansion now both operational, our strategic focus has shifted to driving organic growth through increased filtration. In our Pooling platform, we have identified potential to lift penetration rates in existing produce categories from around 47% to up to 70% over the strategy period. In addition, we can expand the produce categories we support and enter new fresh produce loops, such as eggs and protein. In TIC, our garment hanger reuse business, we have the potential to expand further in offshore markets. We have established a strong platform in Asia with the scale to support services globally. Moving to Slide 28, Accelerating the Development of the Circular Economy. In February, I spoke of the importance of collaboration across the value chain in the development of an effective circular economy. Government, industry and the community must be working together to develop an effective ecosystem supportive of change. The ban on export of plastic waste and the elimination of plastic shopping bags from our supermarkets contributed to heightened awareness of the need to improve plastic waste management practices through a local circular economy. COVID-19 has also had an impact, during period of COVID locked down consumers have spent more time at home, producing more packaging waste than the pre-COVID days. Research commissioned by Pact completed in July 2020, indicated that consumers are becoming more concerned about the waste that they produce. 80% of Australian consumers express concern about the environmental impact of their waste, 2/3 feel guilty about the packaging waste their household produces. Consumers are increasingly focused on sustainable outcomes, and more than half are willing to pay a premium for Australian sourced recycled content. Governments are also more focused on the circular economy. The development of the circular economy not only represents an environmental solution to a waste problem but also an economic solution. It is a self-sustaining industry that can create both jobs and valuable raw materials while solving the problem of waste. The government have demonstrated their continued commitment to this through significant funding. Recently, the Australian government announced a $600 million commitment to the circular economy through the recycle modernization initiative. We remain confident that there is an effective ecosystem developing that will drive accelerated change in the circular economy with capability across the plastics value chain, this change will provide a significant opportunity for Pact. Turning now to our outlook for FY '21 on Slide 30. We expect our diversified portfolio to be resilient with, trading in the first quarter of FY '21 in most sectors to be generally in line with recent trends. The duration and economic impact of COVID-19 is uncertain. An update on trading will be provided at the AGM on 18 November, 2020. Finally, turning on to Slide 31, our commitment to our strategy. To conclude, we believe, through our strategy, we can deliver significant long-term value for all stakeholders. I want to reinforce the targets for which I'll be holding myself and my team accountable. By 2025, we will deliver top quartile shareholder returns, ROIC above 15%. And the company's sustainability promise of 30% recycled content across its portfolio. We will maintain a strong balance sheet and ensure that our investments and divestments are clearly aligned to strategy. We will target the payments of dividend to our shareholders in line with our dividend policy. We have performed well in FY '20, and we have clear plans for the future. I remain confident in the capability of Pact to achieve its vision. That concludes today's presentation. We will now take questions.

[Operator Instructions] Our first question comes from the line of Brook Campbell-Crawford from JPMorgan.

My question is strained CapEx. I think in the half year, back in February, you -- through the chart or a slide in the presentation, talking about $700 million of CapEx through to FY '24. Can you just provide an update on that, if that's still the plan? I might have missed it. And if you do deploy that level of CapEx, are you still able to pay dividends over that period?

Our analysis indicates that over the period of time, we will be able to manage that $700 million. And that aligns with the growth forecast that we've got with the business. Although as you'll see, even during the period when you hit a period like we have where we got exposed to COVID-19, we were able to pull back on some of that capital. But our expectation is that we will return to spending in terms of overall CapEx around about $100 million in the next financial year. I think the important thing is in terms of the capital, we outlined on Slide 15 of the presentation, a capital allocation model. What I think you will see is that there has been a lot of work done around the discipline associated with how we spend our money, ensuring that we're focused on our sustenance capital and that there is a reinvestment in a portfolio that I think we talked about at February that has become aged, and we're very focused on moving to the next level in terms of efficiency. And even in terms of the growth capital, ensuring that they meet our ROIC hurdle. So all the way through whilst we've got targets out there in terms of how much money we want to spend and how much we think we need to spend. I think the important thing is it's backed by a prioritization model that is very disciplined and focused about ensuring that the -- any capital we spend is done in an effective way and will add value for shareholders.

And just if I may just add, in terms of the Board is definitely committed to going to a dividend payment, which is based on our policy, which is greater than 40%. So there is no doubt that we'll be balancing the dividend payment with our investments, and I feel confident that we can actually manage both quite well, looking at what our plans are.

That's great. Just a couple of follow-ups, actually, on that one. Firstly, just around maintenance CapEx, targeting 70% depreciation. Just wondering if that's no -- and particularly given you've acknowledged through a period there wonder investments, I would have thought you'd need to invest in line, if not more, than D&A to remain competitive and then make sure you don't sort of lose share. So what do you think 70% is it enough?

Look, I think there's an assumption in there that even within the growth capital that is needed, it will provide a level of sustaining platform performance as well. So I think it's going to be a balance, not every piece of capital that is required as a result of growth is just purely in terms of incremental growth. It will also help to improve the quality of our underlying platform as well, which is why we've chosen that number of 70%.

And if I may just add there, I think the way to think about capital investment, it's not sustained. I think Richard mentioned it clearly, but it's not just that you invest to stand still, so to say. That's purely what sustenance is, that nothing changes. You're just managing your capital to keep on servicing as you are servicing today. The way in the packaging industry, as I've understood, is that as you upgrade or you put sustenance capital, you're actually continuously upgrading the platform and modernizing it at the same time, increasing the speed, for example, increasing the efficiency, including the customer experience. So it is sustenance, but you will find that what you end up with has -- is -- will also give you some growth and efficiency improvements as well.

That's great. And one final one for me. Just around the recycled resin prices, interested to know how they've trended recently, how they dropped in line really with resin prices kind of if you were thought and your assumptions around the returns you're hoping for these new investments really in producing recycled revenue, maybe put in a lower spot price. Are you still able to hit your return hurdles? Or do you need an increase really in that benchmark to make sure you hit those returns?

No. We've been conservative in relation to the return that's generated. We're assuming that there is obviously going to be a premium over virgin resin prices. But I think that's an appropriate premium against both the current market conditions and then what even against a rising resin market. But we have been very conscious of the fact that there is going to be a change in that profile over the years in terms of as virgin resin becomes a less desirable product. But I think the key to this is ensuring that we are generating an appropriate value from recycled resin in order to meet our customers' needs and requirements.

And all 3 to -- the expansion that we have talked about recycling, all 3 of them actually meet our hurdles or exceed our hurdles, which is the joint venture with the Asahi and Cleanaway as well as the Flight acquisition and the one which we did in the first half, all 3 meet our hurdles.

Our next question comes from the line of John Purtell with Macquarie Group.

Sanjay and Richard. Just had a couple of questions. In terms of the comments around, obviously, very strong result from contract manufacturing. Just in terms of the comments about demand moderation there. You sort of expect things sort of a sequential decline from what was a very elevated sort of level in the second half? Just trying to sort of get a sense of sort of what moderation means in context?

Yes. Look, I think, John, as we all understand that there was a period of time where that got to very, very elevated levels. And I think the important thing in terms of our exposure in the whole hygiene category has been that what we have done very effectively through that period of time is that I think as a business, we showed a nimbleness that allowed us to mobilize very quickly. But more importantly, it allowed us to -- we have invested in high-speed filling capability. We've localized our supply chain there. And we've also developed some pretty innovative go-to-market strategy. I think where we see this is -- the overall demand will moderate and moderate quite significantly. But I think a lot of that takes out, what I would call the [ gender neutral ], who decided that at the end -- very quickly they would ramp up to meet demand. We see ourselves as a long-term player in this space. And I think more importantly, some of the capability and the supply chains that we've invested in not only demonstrate our ability to meet the demand in hand sanitizer and hygiene but a whole host of other areas that we can capitalize on through the work, we've done an investment in the high-speed filling in the localized manufacturing and also some of our strategies around B2B and B2C. So I think whilst generally, the hand sanitizer category will moderate quite significantly. I think our benefits associated with that will not be as significant as the overall decline in the hand sanitizer business is where we're calling it.

And look, just a follow-up. Obviously, you've indicated today that you're sort of recommencing the sale process for Contract Manufacturing. So sort of notwithstanding the recent strength of that segment, it hasn't changed your strategic view around that. And then the second part of that, are you looking to sell potentially in part within that business?

So John, in terms of strategy, I mean, clearly, we ran a strategy process. As you know, we came out with it in February. Nothing's really changed from that. We believe that the business is in better hands with someone else. It's a good business, no doubt, but we have got other, so to say, plans for Pact going forward, which we have articulated in the strategy. So that's not changed. What was the other question you wanted to ask? Sorry, John.

It was -- just around whether you'll seek to sell probably ideally as a whole? Or will you look to potentially split up the Contract Manufacturing business for sale?

For me, it's really all about value. I'll see what works in terms of value. I haven't really like being rigid about that either way. We have to recommence the process, see what comes our way, but it's a very valuable business, there's no doubt, and I'm very keen to get that value. Richard, do you want to add something to that?

No. Look, I mean, I think we're ambivalent from that perspective, John. But I think it would be fair to say that logically selling that as a portfolio asset to somebody makes the most sense. I think in terms of just generally, what the last quarter has shown is, there will be a much greater demand for localized manufacturing and securing of supply chains. And we've always seen this as a high quality business, and I think this period has demonstrated that. As Sanjay said, though, that doesn't necessarily mean that we are the right owners for this business, particularly in an environment where I think it has great opportunities to be captured for it, and we have great opportunities in terms of moving into the circular economy. And I think being able to sell that business and somebody else owning us and taking advantage of that, I think, just means it is a better quality asset that we put on the block for sale. I think, is our view in it, but it doesn't change our strategic intent.

Our next question comes from the line of Owen Birrell with Goldman Sachs.

I guess my question was around working capital benefits or other cash flow benefits. You've obviously delivered a pretty good performance in the last half. Just wondering if there's any sort of big shifts that we can expect in the first half of '21?

I think one of the things that we've been extremely disciplined about how we've managed working capital through this period. We've been very focused in a period where many businesses are under stress that we've expected that our customers have paid us. We've expected that we paid our customers -- our suppliers. I think certainly in terms of the first half, no different to any other year, we move into a period of -- we go into our seasonal high from a working capital perspective. So we will expect to see that there will be slightly increase by December, as it is every year. But I think the impact of that in the 6-month period, may not be as high as it has been in prior years because as I said, we did do a lot of work, and we were very focused on ensuring that all suppliers were paid and all our customers paid us. And so -- but certainly, Owen, there will be the normal seasonal impact in terms of the first half. But we feel pretty comfortable about the operating levels on an annualized basis as to where we sit today.

Okay. And can I ask, is there any further resin lag coming through into first half '21? I mean...

No. No. Look, I think we've seen a period where -- although resin prices have fallen, we've seen a period where it's stabilized and pretty much any form of lags have exited out of the system at this stage.

And can I ask just on the TIC contribution during the period? You sort of called out weak retail trends, which we can all see. But you did note that it was sort of -- there was a really good incremental contribution from the new U.S. contract. I'm just wondering if you can call out what the contribution was for TIC as a whole for the period and what the incremental contribution was from that new U.S. contract with doing that.

Yes. Look, I don't want to go into specific of contracts, as you're aware. But obviously, in terms of the TIC performance through the period, we got an incremental contribution from the TIC business of about $6 million associated with the 4 months in the beginning where we didn't have in the previous corresponding period. However, that business, as you would imagine, was quite heavily impacted by COVID-19. That whole clothing fashion for quite a few -- we had a situation initially where our sorting facilities in China were basically shut in sort of February and March. And then we had the period where the retail stores were shut here in Australia and even in the U.S. And so the negative impact of the COVID period was about $7 million from a down perspective. But what we did see in the second half was -- excluding COVID, there was a -- retail in Australia certainly has come off. But as we've now ramped up into, and we are still in that ramp-up phase for the contract in the U.S. We started to see good volumes coming through from that at the back half of the 6 months. And so we would expect that to continue into the next 6 months.

And just in that, I guess, the U.S. outlook for TIC, can you give us a sense of what you're seeing on the ground in terms of usage trends? Are they getting better out of that the mold that we saw around April?

Yes. Certainly, we see an improvement in TIC. We -- it started like last month, so to say. And in particular, in the U.S., it is pretty good. So we have to see how it plays out, as you know, with the COVID situation. But right now, it's pretty optimistic, I have to say, in terms of the demand that we are getting across for the TIC business.

Okay. And just one final question from me. Sanjay, you called out some investment that you made into the Asian rigids business. I'm just wondering what that was.

So partly, it is -- so what we have done is we have integrated the whole closures business, the Australian closures as well as the CSI business, which we had bought a few years back into one leadership. And what we have -- what we are doing now is to optimizing in terms of the efficiency of how to operate in that. So parts of the business, for example, which we used to manufacture here in Australia, we have moved some of it into manufacturing in Asia. And making it much more efficient. Because remember, closures is an area where you can actually nest. So it's easy for closures to travel, unlike say bottles. So what -- by integrating that, there are certain sort of products, which you can make cheaper in Asia and bring them. So we make it in our own business in China and bring them. So that's the sort of investment, which we have put in there. So that's for the closures in terms of the whole closures business, which we have integrated. The second thing we've done is we've also expanded or in the process, both in Nepal as well as in India, in terms of putting new closure lines there as well. So there is a lot of growth there. And we have very strong relationships with beverage companies over there and a lot of demand. So that's the other part of it. So there are 2 aspects to it, which are leading to that growth.

Ladies and gentlemen, there are no further questions at this time. And this does conclude today's teleconference. Thank you for your participation. You may now disconnect, and have a wonderful day.