EX-PACK CORRUGATED CARTONS PLC Financial Summary and Investment Analysis

Executive Overview

EX-PACK CORRUGATED CARTONS PLC is a Sri Lankan corrugated-packaging manufacturer serving FMCG, apparel, tea, seafood, food-processing and other industries, with subsidiary operations including Neptune Papers (Private) Limited. The business completed a major manufacturing modernisation in 2025 and is now focused on extracting capacity, productivity and cost benefits from the upgraded platform.

Periods covered: 12 natural quarters from Q3 2023 (2023-09-30) to Q2 2026 (2026-06-30), together with audited 12-month periods ended 2024-03-31, 2025-03-31 and 2026-03-31.

The central financial issue is a divergence between volume/capacity improvement and earnings/cash-flow deterioration. Sales volume rose 7% during the 12 months ended 2026-03-31, but revenue fell 1%, gross profit fell 19%, operating profit fell 65%, finance costs rose 91%, and the Group recorded a LKR 91.011 Mn pre-tax loss. Reported PAT of LKR 280.976 Mn was sustained by substantial tax reversals rather than operating profitability.

Q2 2026 showed early sequential improvement in operating performance, but the Group still recorded an LKR 8.074 Mn loss, while debt, inventory and cash-flow pressure increased materially.

Financial Performance

Revenue and Profitability Trends

Group figures, LKR Mn

*Q4 2025 PAT was boosted by a LKR 218.552 Mn tax credit despite PBT of only LKR 0.675 Mn.

The margin trend is clearly negative: quarterly GP margins have declined from approximately 20%-24% during 2023-2024 to 15%-17% recently.

Q2 2026 revenue increased 13% YoY, but cost of sales rose 15%, distribution costs 40%, administrative expenses 10% and finance costs 22%. Consequently, operating profit fell 28% YoY and PAT moved from LKR 34.921 Mn profit to LKR 8.074 Mn loss.

Sequentially, Q2 2026 gross profit increased 3%, operating profit recovered from LKR 84.727 Mn loss to LKR 102.686 Mn profit, and the pre-tax loss narrowed from LKR 199.179 Mn to LKR 8.074 Mn.

The provisional 2026-03-31 interim statement reported 12-month revenue of LKR 10,071.017 Mn; the audited annual report subsequently reported LKR 9,835.910 Mn, while gross profit and bottom-line results remained unchanged. Therefore Q1 2026 revenue-based QoQ comparisons should be interpreted cautiously.

Over the 2023-03-31 to 2026-03-31 annual periods, revenue CAGR was approximately -9.9% and PAT CAGR approximately -41.6%.

Balance Sheet Analysis

Balance-sheet expansion has increasingly been debt-funded. By 2026-06-30, approximately 80% of interest-bearing debt was classified as current.

From 2026-03-31 to 2026-06-30, debt rose 13.7%, inventory rose 17.5%, cash fell 47.0%, while equity slightly declined. The latest quick ratio is approximately 0.56x.

Equity growth during the audited 2026 period was partly non-operational: land/building revaluations added approximately LKR 488.250 Mn net of tax to revaluation reserves. LKR 1.143 Bn of land was also transferred from PPE to investment property.

Cash Flow Analysis

*Operating cash flow less PPE capex; LKR Mn.

Q2 2026 cash burn was driven particularly by a LKR 313.226 Mn inventory build and LKR 526.591 Mn reduction in payables. Financing inflows again offset much of the operating deficit.

The LKR 0.47 dividend per share for the 2026 annual period represented a 56% payout ratio, but dividend sustainability increasingly depends on restoring operating cash generation rather than additional borrowing.

Key Financial Ratios and Growth Indicators

For the audited 12 months ended 2026-03-31: ROE 7%, ROA 3%, operating margin 3.3%, current ratio 0.97x, quick ratio 0.61x, debt/equity 118%, finance-cost cover 0.77x, EPS LKR 0.84, NAVPS LKR 12.08, P/E 15.24x and P/B 1.06x.

The latest four reported quarters generated approximately LKR 10.372 Bn revenue, LKR 1.798 Bn gross profit and LKR 237.978 Mn PAT, but an aggregate pre-tax loss of approximately LKR 150.436 Mn. This difference highlights the importance of tax credits in reported earnings.

At 2026-06-30, the LKR 12.10 closing price versus NAVPS of LKR 12.05 implied approximately 1.00x P/B.

Economic and Market Context

Management described Sri Lanka's 2025 economy as recovering, with 5.0% real GDP growth, subdued inflation, easing interest rates and improving business confidence. These conditions benefited customers and supply-chain continuity.

However, roughly 60% of raw materials are imported, leaving the Group exposed to exchange rates, freight costs and geopolitical disruptions. Industry supply exceeds demand in some corrugated-carton segments, creating sustained pricing pressure despite economic recovery.

This explains why increased sales tonnage has not translated into stronger margins.

Future Potential and Outlook

The principal upside lies in monetising the new corrugator investment:

• Sales volume reached 25,130 MT, +7%, while production reached 23,811 MT.
• New machinery produced approximately 16% more output than the legacy machine on a single shift.
• Average speed reached approximately 195 metres/minute versus 230 metres/minute design capacity.
• Approximately 50% additional production capacity remains available.
• Electricity consumption was approximately 6% lower, while single-shift labour output improved about 10%.
• Lean, Kaizen and Six Sigma programmes, barcode inventory systems and factory-layout optimisation are expected to generate further benefits.
• The Group reported 140 customer relationships exceeding ten years and zero rejection upon delivery during the annual period.

The key question is therefore not capacity availability, but whether additional utilisation can be achieved without sacrificing pricing and while reducing unit costs sufficiently to offset finance costs.

Risks and Challenges

Management classifies economic conditions, raw-material/input costs and climate/environmental risks as very high risks. Pricing pressure, talent retention, environmental regulation and cyber-security are high risks.

Other important financial risks are:

• High and rising short-term borrowings.
• Finance expense exceeding operating profitability.
• Negative operating and free cash flow.
• Increasing inventory commitment.
• Margin compression from industry oversupply.
• Dependence on imported materials and international logistics.
• Earnings quality affected by tax reversals.

The auditor issued an unmodified opinion but identified trade receivables and land/building valuations as key audit matters. Trade receivables were approximately LKR 2.1 Bn net and represented about 21% of assets at 2026-03-31.

Shareholder and Corporate Information

Aberdeen Holdings (Private) Limited remained the controlling shareholder with 65.02% at 2026-06-30. Public holding was 34.57%, with 5,031 total shareholders and float-adjusted market capitalisation of LKR 1.394 Bn. The top 20 shareholders controlled 78.21%.

The Q2 2026 reported trading range was LKR 11.90-LKR 14.00, with a last traded price of LKR 12.10. Annual DPS declined from LKR 0.67 to LKR 0.62 and then LKR 0.47.

No material subsequent events or significant changes to contingent liabilities were disclosed in the latest interim report.

Investment Decision Indicators

Strengths

• Significant unused modern production capacity.
• Demonstrated volume, energy and labour-productivity gains.
• Long-standing customer relationships and diversified industry exposure.
• Q2 2026 operating profitability improved materially sequentially.
• Asset backing around the reported market price.

Weaknesses

• Persistent structural margin compression.
• Consolidated pre-tax losses in recent periods.
• Rising leverage and short-term funding concentration.
• Negative operating/free cash flow.
• Reported PAT materially supported by tax reversals.

Opportunities

• Higher utilisation of the new corrugator without major incremental capacity investment.
• Further Lean/Kaizen/Six Sigma productivity benefits.
• Sustainable packaging demand and more sophisticated export-oriented packaging requirements.

Threats

• Industry overcapacity and aggressive pricing.
• Raw-material, freight and currency volatility.
• Finance-cost burden and refinancing/liquidity pressure.

Overall assessment: EX-PACK CORRUGATED CARTONS PLC is currently a capacity-utilisation and financial-recovery case rather than an earnings-momentum case. Operational technology appears capable of supporting substantial growth, but the investment thesis depends on those capabilities translating into restored gross margins, positive operating cash flow and lower leverage. The strongest confirmation indicators would be sustained GP-margin recovery toward historical 20%+ levels, finance-cost cover comfortably above 1x, positive free cash flow and declining debt/equity. Continued losses, inventory-funded cash burn or further growth in short-term borrowings would materially weaken the financial profile.