Johannesburg, 7 August 2019 – Mpact, the largest paper and plastics packaging and recycling business in Southern Africa, reported a 29.4% improvement in underlying operating profit for the six months ended 30 June 2019, which reflects further benefits from recent capital investments, particularly in the Paper business.
Bruce Strong, Chief Executive Officer of Mpact, commented: “Our efforts in driving the circular economy and closing the loop through our integrated business model continued through the period. Mpact is one of few businesses that collects nearly every product category we produce for it to be recycled. Over the past four years, we have invested over R1.6 billion in capital projects and other investments designed to reduce, reuse or recycle packaging. The improvement in the Group’s financial performance was pleasing considering the difficult trading environment. Another highlight is that Mpact Operations, the major subsidiary of the Group, achieved a Level 1 B-BBEE contributor status during the period, an acknowledgement of our efforts in transformation that goes well beyond compliance.”
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 Group revenue increased by 4.2% to R5.2 billion compared to the prior period, with external sales volumes increasing by approximately 1%. Underlying operating profit of R217.7 million was 29.4% higher than the comparable prior period (June 2018: R168.3 million) primarily due to improved containerboard margins.
The Paper business reported revenue growth of 4.1% to R4.1 billion, with sales volumes in line with the prior period. Sales volumes in Recycling increased off a low base, while volumes in the rest of the Paper business declined by 8.1%, mainly as a result of lower containerboard exports, which were affected by global oversupply.
Working capital at the end of the period was high because of excess stock carried through from the first quarter of the year, as sales in both the domestic and export markets did not meet forecast. During the second quarter, all three paper mills took commercial downtime and external containerboard purchases were reduced to manage inventory.From 1 January 2019, Mpact increased its shareholding in West Coast Paper Traders (WCPT) to 60% (June 2018: 49%). The effect of consolidating WCPT was 0.6% in revenue.
Notwithstanding decreased sales volumes, underlying operating profit in the Paper business of R295.9 million increased by 35.0%, mainly as a result of improved containerboard margins, offset by lower domestic sales.Revenue of R1.1 billion was reported by the Plastics business, an increase of 3.3%, with plastics converting volumes declining by 2.7% on the back of subdued demand.
Underlying operating profit in the Plastics converting business was at breakeven (June 2018: R25.4 million) as a result of continued price pressures across all businesses, with the biggest impact being in trays and films.
Mpact Polymers reported an operating loss of R37.5 million (June 2018: R38.4 million), due to low throughput and selling prices. Total sales volumes increased 22% when compared to the prior period to 3,783 tons, but benchmark recycled PET selling prices declined 6.5%.
The new label washing and wet grinding equipment was installed, with the latter currently being optimised. These additions will increase throughput, reduce dirt and other contaminants carried forward to the wash plant, and thus improve product quality.Basic and headline earnings per share for the period were 40.2 cents (June 2018: 29.7 cents) and 39.0 cents (June 2018: 30.5 cents) respectively. Underlying earnings per share increased by 25.1% to 39.4 cents (June 2018: 31.5 cents). Underlying earnings per share before the effects of adopting IFRS 16 increased by 47.9% to 46.6 cents.
Net debt increased to R3.0 billion (June 2018: R2.2 billion), mainly due to adopting IFRS 16 and increases in working capital. Mpact has concluded the refinancing of R2.6 billion of its bank facilities, subject to the fulfilment of certain conditions precedent.Brett Clark, Chief Financial Officer of Mpact, commented: “Through refinancing R2.6 billion of its existing bank facilities, Mpact has lowered its cost of funding while at the same time extending the terms of these facilities to between three and five years. The facilities have been structured as revolving credit and general banking facilities to allow increased flexibility.”
Bruce Strong concluded: “There are currently no signs of any meaningful improvement in the South African economy. We nevertheless expect better sales from the agricultural sector during the second half of the year as a consequence of good growth in citrus fruit volumes, which had a late start to the season. Mpact’s integrated business model is uniquely focused on closing the loop in paper and plastic packaging through recycling and beneficiation. We continue to work with our customers in developing new processes, products and opportunities that will enable them to realise their sustainability goals.”
Issued on behalf of:
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
Issue date: 7 August 2019
JSE code: MPT
Mpact is the largest paper and plastics packaging and recycling business in Southern Africa with customers that include packaging converters, fruit producers, FMCG companies and other consumer and industrial packaging companies. Mpact’s integrated business model is uniquely focussed on closing the loop in plastic and paper packaging through recycling and beneficiation of recyclables.
Mpact has 43 operating sites, 21 of which are manufacturing operations located in South Africa, Namibia and Mozambique. Sales in South Africa accounted for approximately 87% of Mpact’s total revenue for the current period, while the balance was predominantly to customers in the rest of Africa.
Mpact Operations (Pty) Ltd is a B-BBEE Level 1 contributor.
As at 30 June 2019 Mpact employed 5,187 people (December 2018: 5,062 people).