Johannesburg, 8 August 2017. Today Mpact, one of the leading paper and plastics packaging businesses in southern Africa, reported unaudited interim results for the six months ended 30 June 2017.
Commenting on the results, Bruce Strong, Chief Executive Officer of Mpact said, “The Group results for the first half of 2017 reflect a weaker trading environment in South Africa and recent capital investments which have not yet contributed to profitability. Notwithstanding the current challenging environment and high levels of uncertainty in the domestic market, Mpact made good progress on implementing several major capital investments which are aimed at ensuring sustainable growth for the Group over the long term."
Group revenue increased 3.1% to R4.8 billion. Excluding Remade, which was acquired in May 2016, Group revenue increased 0.3% and external sales volumes declined 1.8%, reflective of the subdued domestic demand and increased competition, partially offset by higher exports.
Earnings before interest, tax, depreciation and amortisation (EBITDA) of R432.6 million declined by 21.7% due to lower domestic sales volumes in the Paper and Plastics businesses and higher recovered paper costs. This, together with higher depreciation resulted in an underlying operating profit of R169.1 million.
The Group’s net finance costs increased by 9.7% to R99.7 million, due to higher interest rates on higher net debt during the period.
Return on Capital Employed of 10.6% (June 2016: 16.7%) for the period reflects the weaker trading environment and recent capital investments that are in the process of being optimised.
Revenue in the Paper business grew 7.4% to R3.7 billion. External sales volumes excluding the Remade acquisition declined 1.7%. This was a result of lower domestic sales volumes, increased competition in the domestic recycled containerboard market, effects of the drought on fruit packaging and subdued consumer demand.
Underlying operating profit of R177.0 million was down 39.4% on the back of lower domestic sales volumes, higher recovered paper costs and R24 million lost contribution related to the planned project downtime at the Felixton paper mill. Higher international recovered paper prices and increased local demand led to higher recovered paper costs in the manufacture of containerboard and cartonboard, which could not be fully recovered in selling prices.
Plastics business revenue decreased 8.5% to R1.2 billion due to a combination of muted consumer demand and reduced packaging to the agricultural sector because of the drought. Total sales of SavukaTM at Mpact Polymers improved during the period to 3,896 tonnes PET (June 2016: 2,361 tonnes).
Subdued volumes and average prices in the Plastics business led to a lower operating profit of R27.2 million.
Basic and headline earnings per share for the period were 34.3 cents (June 2016: 95.2 cents) and 33.9 cents (June 2016: 94.9 cents), respectively.
Net debt increased to R2.3 billion (June 2016: R1.9 billion) after investing R411 million in property, plant and equipment and utilising R141 million to fund working capital. Mpact maintained a strong balance sheet during the period, with the gearing ratio at 36.3%.
“Despite the current tough trading conditions, the Group successfully refinanced R950 million of committed interest-bearing borrowings maturing in December 2017, for an additional four years,” said Mpact Chief Financial Officer, Brett Clark.
Mpact declared an interim gross dividend of 15 cents per share (June 2016: 30 cents per share).
Mpact anticipates that with the prevailing trading conditions, consumer spending will remain subdued for the second half of the reporting period and competition will remain intense across most of the Group’s product segments. The effects of the prolonged drought in several fruit growing regions will also continue to negatively affect the Group’s fruit packaging volumes.
Mpact Polymers is expected to show an improved full year trading performance compared to the prior year with improved quality, increased throughput and products which are well accepted in the market.
The Felixton paper mill upgrade project is progressing well. The paper machine was successfully commissioned as scheduled during July 2017. Initial indications regarding quality, throughput and cost are encouraging with the mill planning to ramp up to full capacity by the end of 2018. The final major construction concerns the automated finished goods warehouse which is planned for completion in December 2017.
The Group is nearing the end of an extensive capital investment program with many of the investments expected to reflect positively in the Group’s earnings and returns from 2018.
Strong concluded, “While challenging economic conditions are expected to continue, we remain confident in our ability to weather the storm and to realise profitable growth over the medium term.”
Group Communications Manager
Tel: 011 994 5547
Mpact is one of the leading paper and plastics packaging businesses in southern Africa, listed on the JSE’s Main Board in the Industrial - Paper and Packaging sector. The Group has leading market positions in southern Africa in recovered paper collection, corrugated packaging, recycled-based cartonboard and containerboard, polyethylene-terephthalate (“PET”) preforms and trays, recycled PET (“rPET”), styrene trays and plastic jumbo bins. These leading 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 42 operating sites, of which 21 are manufacturing operations, in South Africa, Namibia, Mozambique and Botswana. Sales in South Africa account for approximately 89% of Mpact’s total revenue for the current period while the balance was predominantly to customers in the rest of Africa.
As at 30 June 2017 Mpact employed 4,994 people. (December 2016: 4,998 people)