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Good growth in paper business offset by decline in plastics

08 August 2018

  • Revenue increased by 2.9% to R5.0 billion (June 2017: R4.8 billion)
  • EBITDA of R443 million (June 2017: R433 million)
  • Underlying operating profit of R168 million (June 2017: R169 million)
  • Underlying earnings per share of 31.5 cents (June 2017: 34.3 cents)
  • Gearing improved to 34.4% (June 2017: 36.3%)
  • Interim gross dividend of 15 cents per share (June 2017: 15 cents per share)

Johannesburg, 8 August 2018. Mpact, one of the leading paper and plastics packaging businesses in southern Africa, today reported interim results for the six months ended 30 June 2018.

Bruce Strong, Chief Executive Officer of Mpact, stated: "We are pleased that our capital investments in the Paper business are beginning to contribute to the Group's performance. In particular the Felixton paper mill, which was upgraded last year, has progressed well. Unfortunately the gains made in Paper were offset by a disappointing performance in the Plastics business."

The Felixton mill upgrade, a new corrugator commissioned in Port Elizabeth in January and a good citrus crop benefitted the Group during the period. These benefits were countered by overcapacity in the styrene trays sector, drought in the Eastern Cape and Western Cape as well as subdued consumer demand. "The improved business sentiment experienced earlier in the year unfortunately failed to translate into growth," Strong added.

Group revenue of R5.0 billion was 2.9% higher than the comparable prior period, with external sales volumes decreasing by 5.1% due to lower external sales of recovered paper by Mpact Recycling. Higher average prices reflect a favourable sales mix variance. Excluding the Recycling business, external sales volumes increased by 3.8%.

Earnings before interest, tax, depreciation and amortisation ("EBITDA") of R443.4 million increased by 2.5% primarily as a result of an improved gross margin and well contained fixed costs. Underlying operating profit of R168.3 million was in line with the prior comparable period (June 2017: R169.1 million).

Net finance costs increased by 12.7% to R112.4 million (June 2017: R99.7 million). The increase in finance costs was affected by interest capitalised on the Felixton mill upgrade project in the comparable prior year period as well as higher average net debt during the period.

The effective tax rate for the period was 29.6% (June 2017: 29.8%), higher than the statutory rate of 28% mainly due to the non-recognition of deferred tax in Mpact Polymers.

Basic and headline earnings per share for the period were 29.7 cents (June 2017: 34.3 cents) and 30.5 cents (June 2017: 33.9 cents), respectively. Underlying earnings per share of 31.5 cents (June 2017: 34.3 cents) was achieved.

The Group's balance sheet remains strong with its gearing ratio improving to 34.4% from 36.3% at 30 June 2017.

The Paper business grew revenue by 5.3% due to higher average selling prices, with volumes declining 5.0% because of lower external recovered paper sales following the closure of a customer's newsprint machine in October 2017 and increased integration of recovered paper into the Group's paper mills. Sales volumes, excluding the Recycling business, increased by 6.5% compared to the comparable prior period with growth of 9.4% in containerboard and cartonboard and 2.1% in converted paper packaging. Sales volumes of fruit packaging increased marginally due to good growth in citrus, avocados and bananas, offsetting the declines attributable to the drought in the Eastern Cape and Western Cape.

Underlying operating profit of R219.2 million increased by 23.8%, mainly because of higher throughput and gross profit at the Felixton mill as well as good cost control.

The new corrugator in Port Elizabeth, which was successfully commissioned during January 2018, performed in line with expectations and the new converting equipment will be commissioned during September 2018.

Revenue in the Plastics business decreased by 5.3% to R1.1 billion due to lower sales volumes, partially offset by higher average selling prices, which were up 6.4%. Sales volumes in the Plastics converting business declined by 11.7% primarily because of declines in preforms, crates and jumbo bins. Backward integration by customers and the effects of sugar tax lead to lower preform sales. Crate sales reduced due to subdued demand and the end of a supply contract in January 2018, while jumbo bin sales were impacted by the drought.

Underlying operating profit in the Plastics Converting business was R26.0 million compared to R56.7 million in the comparable prior period, mainly due to overcapacity in the styrene sector which resulted in lower margins.

Mpact Polymers reported an operating loss of R39.0 million (June 2017: R30.0 million), with production in line with the prior period, but below expectation. The business experienced low yields and higher maintenance costs due to dirty feedstock of post-consumer PET bottles and inadequate washing facilities. As a result, new bottle washing equipment will be installed in the fourth quarter of 2018.

Strong concluded: "The benefits from the capital investments and lower recovered paper prices are expected to improve operating margins in the Paper business during the second half of the year. We are expecting the difficult trading conditions affecting the Plastics converting business during first half of 2018 to persist. Mpact Polymers should benefit from higher selling prices, increased throughput and lower finance costs compared to the second half of 2017. While the last two years has been very challenging, our significant investments are expected to bear fruit in the second half of the year and beyond."

Issued on behalf of: Mpact Limited

Contact: Bruce Strong, Chief Executive Officer
Tel: +2711 994-5508

Compiled and released by: Keyter Rech Investor Solutions

Contact: Marlize Keyter
Tel: 083 701 2021 / 087 351 3810
Email: mkeyter@kris.co.za

Issue date: 8 August 2018

JSE code: MPT
Website: www.mpact.co.za

About Mpact:
Mpact is one of the largest paper and plastics packaging businesses in southern Africa, with leading market positions in recovered paper collection, corrugated packaging, recycled-based cartonboard and containerboard, polyethylene-terephthalate (”PET”) preforms and trays, recycled PET (”PET”) and plastic jumbo bins. These market positions allow Mpact to meet the increasing requirements of its customers and achieve economies of scale and cost effectiveness at the various operations.

Mpact has 41 operating sites, of which 22 are manufacturing operations, in South Africa, Namibia, and Mozambique. Sales in South Africa account for approximately 89% of Mpact’s total revenue for the current year while the balance was predominantly to customers in the rest of Africa.

As at 31 December 2017 Mpact employed 4,889 people (December 2016: 4,998 people).