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Mpact’s successful capital investments in paper business deliver 47% increase in underlying operating profit

13 March 2019

Highlights:

  • Revenue up 5% to R10.6 billion
  • Underlying operating profit up 47% to R672 million
  • Underlying earnings per share up 25% to 208.0 cents
  • Return on Capital Employed increased to 10.7%
  • Gearing improved to 32.2%
  • Final dividend increased 37.5% to 55 cents per share

Johannesburg, 13 March 2019 Mpact, the largest paper and plastics packaging business and recycler in southern Africa, reported a 47% improvement in underlying operating profit to R672 million for the year ended 31 December 2018.

Bruce Strong, Chief Executive Officer of Mpact, commented: “The Group’s financial results reflect an improved trading performance in the second half of the year in the Paper business, which benefitted from the successful Felixton paper mill upgrade and other capital projects, lower recovered paper prices and increased corrugated packaging sales. In contrast, our Plastics business had a difficult year.”

Mpact was honoured as the overall winner of the 2018 Sustainability Award at the National Business Awards and recognised for its innovative sustainable packaging at the 2018 Gold Pack awards.

During the year good progress was made with various transformation initiatives resulting in the Group achieving a Level 4 B-BBEE status measured against the new codes. Dalisu Holdings, a black-owned business, of which Mpact is a minority shareholder, focuses on commercialising by-products from the paper manufacturing business and has been successful in finding more customers for its dust suppression product. It also made good progress during the year in securing financing and planning for a new R250 million investment into a processing plant based at one of Mpact’s paper mills, construction of which will start in the first half of 2019.

The Group, which holds leading market positions in recovered paper and plastic collection, corrugated packaging, recycled-based cartonboard and containerboard, polyethylene-terephthalate (“PET”) preforms and trays, recycled PET (“rPET”) and plastic jumbo bins, reported that revenue increased by 4.9% to R10.6 billion compared to the prior year with external sales volumes being unchanged.

Underlying earnings per share increased by 25.1% to 208.0 cents compared to 166.3 cents in the prior year. Return on Capital Employed improved to 10.7% (2017: 7.7%).

Basic and headline earnings per share for the year were 185.1 cents and 195.6 cents respectively (December 2017: 162.1 cents and 164.5 cents, respectively).

The Group’s balance sheet remains strong with net debt at R2.1 billion (31 December 2018), a decrease of 5.3% from R2.2 billion (31 December 2017). The gearing ratio decreased to 32.2% (December 2017: 34.8%).

The Paper business’ revenue increased by 7.0% to R8.3 billion. External sales volumes, excluding recycling, increased by 3.7%, with higher sales volumes of containerboard and corrugated packaging. The increase in containerboard sales volumes was due to higher production following the Felixton paper mill upgrade. Growth in corrugated fruit packaging volumes predominantly in citrus, avocados and bananas was partially offset by declines attributable to the drought in the Western Cape.

Underlying operating profit in the Paper business increased by 56.7% to R694.4 million due to improved gross profit. Margins improved as a result of a lower recovered paper costs and higher global containerboard prices.

Revenue reported by the Plastics business of R2.4 billion was 3.0% lower than the prior year. Sales volumes in the Plastics Converting business were down 10.6% as a result of backward integration by customers and the effects of sugar tax on preform sales. In addition, crate and jumbo bin sales were lower than the prior year due to subdued demand, attributable in part to the drought.

Underlying operating profit in the Plastics business of R49.5 million declined 29%. The FMCG business had a pleasing year, however, the challenges in Mpact Polymers as well as the trays and films business continued.

The delays in improving the performance of Mpact Polymers’ PET recycling plant were disappointing. The Mpact Polymers’ balance sheet was successfully restructured during the year with support from the Industrial Development Corporation (“IDC”), the other shareholder in the business. It did however take longer than expected to negotiate the terms of the restructuring which delayed the ordering of the much needed bottle washing and wet grinding equipment. The new washing line was eventually installed in February 2019 and the wet grinding equipment is scheduled to be installed at the end of April 2019. As part of the restructure, the IDC increased its shareholding by 10% to 31%.

“Looking to the year ahead, we expect further improvement in the operating performance of the Paper business as the recent capital projects are optimised and fruit volumes improve in the Western Cape following the drought. We will also focus on realising the potential of the Mpact Polymers PET recycling plant and improving profitability in the Plastics business.

Mpact’s integrated business model is uniquely focused on closing the loop in plastic and paper packaging through recycling and beneficiation. Our product and business development efforts are geared towards capitalising on opportunities arising from the global shift towards recycled products. Ultimately doing more, without using more,” concluded Strong.

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: 13 March 2019
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 40 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 2018 Mpact employed 5,062 people (December 2017: 4,889 people).