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Ex-pack Corrugated Cartons Ltd. has admitted that it is not the market leader after the private sector industry body raised the red flag over what it alleged as misleading information in the former’s prospectus for the Rs. 700 million Initial Public Offering (IPO).
The admission, following representations made by the Lanka Corrugated Cartons Manufacturers Association (LCCMA) and resultant controversy, comes ahead of the official opening of the IPO tomorrow.
Subsequently, Ex-pack, following a directive from the Colombo Stock Exchange (CSE), issued an addendum to the prospectus saying it was not the “market leader” but “a leader”. Having explained the basis for its claim, Ex-pack however said the admission has no impact on the IPO price and that there is no change to the fundamentals of the business.
LCCMA, welcomed the timely action by the CSE over what the apex industry association described as “material misinformation” about the company and the industry.
The prospectus and information memorandum, inter alia, claimed that Ex-pack was the “undisputed market leader” in the Corrugated Manufacturing Cartons Industry, “with a market share of 18.3% in 2021,” and LCCMA found it misleading as there was no factual basis for this statement.
LCCMA wrote to the CSE stating that there are indeed a number of other corrugated manufacturing companies with higher sales turnover annually and on a month-on-month basis, and also many corrugated manufacturing companies in the industry with a higher production capacity of approximately 4,000 tons per month. Ex-pack is part of the LCCMA and is represented in its Ex-Co.
Though commending Ex-pack for its pioneering efforts, LCCMA regretted the misrepresentation by such a member and said its complaint was a bona fide duty to prevent the circulation of such misinformation to the public, given its material nature. It further stated that it was their responsibility to ensure that each of its members operate in good faith, particularly when dealing with the money of the public.
In Deputy Chairman Sydney Gajanayake’s representation to the CSE, LCCMA established that Packwell Lanka Ltd., and collectively Unidil Packaging Ltd. and Unidil Packaging Solution Ltd., had higher volume sales, production and turnover in value. It also said that Star Packaging, Econopack Industries and Korean Spa Packaging operate with a higher production capacity installed of around 4,000 tons per month.
Gajanayake said there may indeed be other companies who had achieved higher sales volumes, which may in fact prove that they were the market leader and not Ex-pack. LCCMA’s original request for a postponement of the Ex-pack IPO until rectification is completed.
However, the CSE, having sought clarifications from the Joint Managers and Financial Advisors to the Issue relating to the IPO of Ex-pack and considered the representations, directed the company to make an addendum to the Prospectus covering the following aspects:
“1. Duly amend all references made in the Prospectus, Research Report, connected documents and all other publications, both printed and electronic/online, which referred to the company being the market leader.
2. Disclose therein as to whether the aforesaid amendment has any impact to the content of the Prospectus and the Research Report specifically in respect of the IPO issue price or provide an appropriate negative statement(s).
3. Disclose therein that all references made to the sales figures of the competitors in all documentations (i.e., including the Prospectus, Research Report, printed and online promotional materials etc.) should be considered as deleted, subsequent to such addendum.”
In compliance, Ex-pack said: “As informed to the CSE when tendering our Prospectus and Research Report for approval, we based our claims to be the Market Leader and our market share, and related information, on the findings of the detailed Internal Research Report on the Sri Lankan corrugated market which was carried out with reasonable care and in good faith.
“The findings of the Internal Research Report were based on a combination of four methodologies as outlined below:
1. Sales tonnage of each player by interviewing staff and internal stakeholders of the largest corrugators.
2. Monthly waste output of corrugators obtained from key players of the waste recycling industry in order to determine the monthly production of individual players.
3. The volumes of paper consumed/utilised by us, vis-à-vis the estimates of competitors’ usage as extracted from available sources.
4. Analysis of the published information of a key competitor.”
Ex-pack reiterated that only one competitor, namely Unidil Packaging Ltd., whose business volumes for financial year 2020/2021 have been made public via the annual report published of the said competitor’s parent company on the CSE.
“While we stand by our initial estimates and the basis through which these were arrived, we acknowledge that there is now an unverified competing claim for market leadership,” Ex-pack said.
With this in mind, in the interest of time and the broader interest of the commitments Ex-pack said it made to current and future public shareholders and other stakeholders, it does not envisage this to be a matter of any significance and hence, are happy to be considered as “one” of the largest corrugators in the market.
“Furthermore, our strong financial performance, robust dividend policy, and maintaining international standards of management practices and corporate governance, have a larger bearing on the public issue and form a significant part of the investment thesis of Ex-pack Corrugated Cartons Ltd., put forward to our prospective shareholders,” the company said.
“The reference to market leadership and approximate market share only demonstrates the stature and the extent of our presence in the market and has relatively little or no bearing on the Public Issue of our shares. We would like to reiterate that there is no change to the fundamentals of the business, and this Disclosure and Addendum causes absolutely no change to our forecasted financials, valuation, and IPO price,” Ex-pack added.
The addendum is as follows.
Addendum to the Ex-pack Corrugated Cartons Ltd. Prospectus dated 6 October 2021.
With reference to the Prospectus submitted to the Colombo Stock Exchange dated 6 October 2021 and in line with the CSE letter dated 18 October 2021, please be informed that the following amendments listed below are by this addendum and taken to read as shown herein instead of as printed in the aforementioned Prospectus.
All references to Ex-pack Corrugated Cartons being the “The market leaders in the Corrugated Cartons Industry” in the Prospectus and the Research Report have been amended to “One of the market leaders in the Corrugated Cartons Industry”.
Details of the addendum are as follows;
Section 1 - The Issue - 1.6.1 Basis of Determination of Consideration for which shares are to be issued –
01 Qualitative factors. (Page 28 of the Prospectus)
Heading - “Market Leader in the Corrugated Cartons Industry” amended to “One of the market leaders in the Corrugated Cartons Industry”
Paragraph 3 – “Ex-pack is the market leader in the corrugated cartons industry in Sri Lanka. Whilst there are few other players in the market, Ex-pack has been able to lead the industry with close to market share of 18.3% in 2021,” amended to “Ex-pack is one of the market leaders in the corrugated cartons industry in Sri Lanka.”
Please note that the graph underneath paragraph 3 named “Sales” is to be considered as deleted.
Please note that footnote 1 of page 28 is to be considered as deleted.
Section 3 - The Company – 3.1 Overview of the Company. (Page 43 of the Prospectus).
Paragraph 1 – “Over the years, Ex-pack has established itself as the leading corrugated cartons manufacturer in Sri Lanka by providing end-to-end services whilst maintaining impeccable service quality,” amended to “Over the years, Ex-pack has established itself as a leading corrugated cartons manufacturer in Sri Lanka by providing end-to-end services whilst maintaining impeccable service quality.”
Section 3 - The Company – 3.1 Overview of the Company– 3.1.4 Key Milestones of the Company. (Page 45 of the Prospectus).
Please note that the point mentioned under the year “2015” as “Become the Market leader by achieving 1925 MT” is to be considered as deleted.
Section 3 - The Company – 3.1 Overview of the Company– 3.1.8 The core competencies of the company. (Page 51 of the Prospectus).
Paragraph 3 – “Ex-pack is the leading corrugated cartons manufacturer in Sri Lanka due to its exemplary service quality maintained over a decade,” amended to “Ex-pack is one of the leading corrugated cartons manufacturers in Sri Lanka due to its exemplary service quality maintained over a decade.”
Please note that footnote 1 of page 51 is to be considered as deleted.
Section 3 - The Company – 3.1 Overview of the Company– 3.1.11 Customers. (Page 62 of the Prospectus).
Heading – “Ex-pack - The Market Leader” amended to “Ex-pack – One of the Market Leaders in the Corrugated Cartons Industry”
Paragraph 5 – “Over the past eight years, Ex-pack’s market potential has seen promising growth, with the help of its highly strategic marketing efforts and its overall strategic approach. Ex-pack has been at the forefront in the industry, accounting for approximately 18.3% of the market share, surpassing seven major players in the market,” amended to “Over the past eight years, Ex-pack’s market potential has seen promising growth, with the help of its highly strategic marketing efforts and its overall strategic approach.”
Please note that footnote 1 of page 62 is to be considered as deleted.
Paragraph 5 - “These core competencies blended together have created an exceptional value chain that has given Ex-pack a competitive advantage in order to sustain and secure market leadership,” amended to “These core competencies blended together have created an exceptional value chain that has given Ex-pack a competitive advantage in order to sustain and secure its market position.”
Please note that paragraph 6 of page 62 to be considered as deleted.
Section 3 - The Company – 3.1 Overview of the Company– 3.1.17 Sustainability (Page 77 of the Prospectus).
Paragraph 5 – “As the leader in packaging and being an environmentally friendly organisation, Ex-pack will be the first corrugated carton manufacturer in Sri Lanka to obtain both Carbon Neutral and LEED certification,” amended to “As a leader in packaging and being an environmentally friendly organisation, Ex-pack will be the first corrugated carton manufacturer in Sri Lanka to obtain both Carbon Neutral and LEED certification.”
Section 3 - The Company – 3.15 Management Discussion and Analysis. (Page 99 of the Prospectus).
Paragraph 1 – “Despite factory closures in April 2020 and partial operations during the rest of the first quarter, the company was able to gain momentum to deliver a successful year and cement their position as the market leader,” amended to “Despite factory closures in April 2020 and partial operations during the rest of the first quarter, the company was able to gain momentum to deliver a successful year and cement their current market position.”
Annexure 4 – Section 4. (Page 206 of the Prospectus).
Heading – “4.1 Ex-pack, the market leader in corrugated packaging to benefit from the cyclical economic trends driving consumer businesses,” amended to “4.1 Ex-pack, one of the market leaders in corrugated packaging to benefit from the cyclical economic trends driving consumer businesses.”
Paragraph 1 – “Ex-pack is the market leader in the Sri Lankan corrugated packaging industry, with a capacity of 2,750 MT per month,” amended to “Ex-pack is one of the market leaders in the Sri Lankan corrugated packaging industry, with a capacity of 2,750 MT per month.”
Paragraph 1 – “We expect the capital raise to boost Ex-pack’s overall market leadership position with production capacity increasing by 45.5% by FY2025 while consolidated manufacturing processes, better technology, and improved access to the market will drive operational synergies,” amended to “We expect the capital raise to boost Ex-pack’s overall market position with production capacity increasing by 45.5% by FY2025 while consolidated manufacturing processes, better technology, and improved access to market will drive operational synergies.”
Please note that Figure 4-1: Ex-pack is the market leader in corrugated packaging in Sri Lanka is to be considered as removed.
Further Disclosures
