Durban - Astrapak, the second-biggest listed packaging group in the country, had launched a range of degradable domestic refuse bags in an industry race to clean up the environment, Ray Crewe-Brown, the chief executive, said at the weekend.
Bill Naude, the executive director of the Plastics Federation, has criticised the use of degradable plastic shopping bags, which could encourage littering.
But the federation has approved degradable bags destined for landfill sites - the market segment targeted by Astrapak.
Crewe-Brown said that while the bags' contribution to group performance would be small, the technology used to manufacture the household and garden bags under licence from UK-based Symphony Plastics could be used to make other environmentally sensitive products.
The Garbie branded bags, which are made by Astrapak subsidiaries East Rand Plastics and Peninsula Packaging, are available at supermarkets countrywide and are also sold under own-name brands.
Astrapak does not make degradable shopping bags, as its exposure to the carrier bag market is limited to two machines. This has cushioned the group from the impact of regulations introduced last year requiring consumers to pay for bags.
Nampak and Transpaco, which have a much bigger exposure to the shopping bag market, have borne the brunt of falling demand, which has cut production and caused retrenchments.
Astrapak last week released a trading statement advising shareholders that it expected headline earnings to be between 10 percent and 30 percent higher than the restated 73.8c for the year to February.
Mark Ingham, an independent equity analyst who forecast earnings growth of about 25 percent, said the dedicated plastic packaging manufacturer, which focuses on flexibles, rigids and shrinkwrap films used for products such as frozen vegetables, bread packets and apple bags, had benefited from the market's move towards plastic packaging, which was currently the "sweet" sector of the industry.
"Although profits from the flexible division are likely to be disappointing, largely due to the strengthened rand, this should be offset by the profit improvement in rigid packaging, for which demand has been good," he said.
"The films division has also done fairly well and is expected to achieve double-digit profit figures."
Ingham said the flexibles division was sensitive to currency movements, as local food industry volumes fell when imports were cheaper, affecting the demand for packaging.
Lavan Gopaul, a BP Bernstein portfolio manager, pointed out that Astrapak's diversification of products across many industries and sectors gave it the flexibility to perform well under differing trading conditions.
Ingham expected volume growth in plastic packaging to have been in the 3 percent to 4 percent range for the year.
"However, this will not be evident in the revenue line because products have been priced lower," he said.
Astrapak would also benefit from cost trimming and contracts with the petroleum industry, as well as a motivated and energetic team.
Ingham said volume growth in the 2005 financial year would also be robust, spurring continued real improvement in the company's earnings.
"Earnings outperformance will be complemented by a strong balance sheet, tight working capital management and a steady reduction in both interest-bearing debt and interest pay," he said.
"Enhanced tradability of the shares, a proactive investor relations effort ... growing confidence in management's delivery, as evidenced by strong institutional investor interest, have contributed to Astrapak's impressive share price performance."
The shares closed 1c up at R8.15 on Friday, in line with the support services sector, which moved up 0.24 percent.