Canadian Plastics

Royal plans restructuring after posting Q2 losses

Canadian Plastics   



Royal Group Technologies Ltd. is pointing to the increased price of materials as the reason its profits fell drastically in the second quarter (Q2) of 2005, compared with the same time last year....

Royal Group Technologies Ltd. is pointing to the increased price of materials as the reason its profits fell drastically in the second quarter (Q2) of 2005, compared with the same time last year.

“I would note that we’ve only been able to recover a portion of those raw material costs with finished product selling price increases,” said Mark Badger, vice-president of marketing and corporate communications with Royal in Woodbridge, Ont. “We’ve offset some of it, but not all of it.”

Net sales for Royal in Q2 2005 were $549 million compared with $555 million a year ago. However, net earnings reached only $18.6 million, down almost 50 per cent from Q2 2004’s $35.5 million.

The accounting scandal that rocked Royal earlier this year had no effect on the company’s profits, Badger noted. However, the relatively strong Canadian dollar did play a small role in Royal’s decreased profits, he added.

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On June 11, the U.S. Securities and Exchange Commission (SEC) formally announced it is looking into Royal’s past accounting practices and disclosures. Information about the investigation is not available to the public.

In its Q2 2004 report, released August 11, Royal said the SEC’s investigations could produce results that would have a material impact on the Royal Group and its previously reported financial statements.

As well, on July 15, Royal announced a broad restructuring plan for the company.

“Second quarter financial results underscore the necessity for change,” said Lawrence J. Blanford, president and CEO of the Royal Group, in a statement. “Through restructuring our business unit portfolio, pursuit of profit improvement initiatives and development of full potential strategic plans for our core businesses, we have the opportunity to substantially improve Royal’s financial performance and create greater shareholder value.”

The first step of this plan came on July 28, when the firm indicated its intent to divest its 60 per cent stake in Royal Alliance, a producer of injection molded polypropylene (PP) housewares, indoor storage products, pet care products and garden furniture.

Other non-core divisions of Royal’s business including its wholly-owned Baron Metal Industries, Roadex Transport, and the firm’s Polish subsidiary, are also up for sale, Badger said.

Another part of the plan involves devising strategic plans for the firm’s core business unit, and finally, exploring new ways to finance the company, he said.

However, Badger assured Royal is not in danger of going under.

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