A more optimistic outlook for Mpact

SALIENT FEATURES

Net asset value per share up 6% to R35.76
Cash generated from operations of R1.9 billion
Revenue up 4% to R13.3 billion
Underlying operating profit of R923 million
Headline earnings per share of 324 cents
Total dividend per share of 105 cents
Good progress on strategic projects

Johannesburg, 10 March 2025 – Mpact, the largest paper and plastics packaging business and recycler in southern Africa, reported their results for the year ended 31 December 2024, today. The Group experienced a challenging trading environment for most of the 2024 financial year, despite positive sentiment emerging from the May 2024 election. Trading was hampered by a weak economy underpinned by high interest rates, cost inflation, load shedding and other service delivery failures, negatively affecting consumer and business confidence.

Bruce Strong, Mpact Chief Executive Officer, said: “Despite these challenges, Mpact achieved strong cash flow from operations for the year of R1.9 billion and an increase of 6% in NAV per share to R35.76. Gearing reduced to 29% and net debt to R2.4 billion as at 31 December 2024, from R2.7 billion in the prior year, a reduction of 11%, after investing R1.0 billion in capital projects and paying out R155 million in dividends.”

Several of Mpact’s operations delivered commendable performances despite the headwinds. However, these were insufficient to counterbalance the harsh trading conditions experienced during the first nine months of the year. Consequently, the Group’s operating profit of R923 million for the year decreased from the high levels achieved in 2023, which benefited from a strong recovery in Paper margins following selling price increases at the end of 2022.

We made good progress on our strategic capital projects and portfolio optimisation through investments and disposals aligned with our strategy which embraces the circular economy. We also continued to engineer solutions at our operations to mitigate the impact of infrastructural failures.

The Mkhondo paper mill upgrade project, which represents an investment of R1.3 billion, aims to enhance the Group’s product portfolio by adding new export revenue streams and higher-value products. The project team is doing well to navigate a number of challenges, including cost pressures, a tornado, and excessive rain from December 2024 to February 2025 which hindered construction. The project is scheduled to be commissioned by the end of June 2025.

The sale of Versapak was successfully concluded with effect from 1 November 2024, with the sale proceeds of R255 million and approximately R50 million in recouped working capital being used to reduce the Group’s debt, strengthening our balance sheet.

During the year, Mpact Plastic Containers acquired a 30% interest in Africa Tanks (Pty) Ltd (Africa Tanks), one of South Africa’s leading water tank manufacturers. The investment will provide Africa Tanks with some of the capital required to achieve economies of scale and accelerate its growth plans.

Group revenue from continuing operations for the year ended 31 December 2024 increased by 3.6% to R13.3 billion (2023: R12.8 billion). This was primarily driven by a 3.0% increase in sales volumes in our Paper business and an improved product mix in Plastics due to increased sales in Bins & Crates.

Underlying operating profit declined to R923 million (2023: R1.210 billion), due to an under-recovery of higher fixed costs, as well as non-recurring expenses at FMCG Wadeville, following the restructuring and consolidation over the past few years.

OPERATIONAL OVERVIEW

Paper business

Revenue for the Paper business increased by 2.7% to R11.0 billion (2023: R10.7 billion) due to a 3.0% increase in sales volumes. Volumes increased mostly due to improved containerboard export demand in the latter part of 2024, after being subdued for most of the year. However, the benefit of increased volumes was offset by lower average selling prices in our Paper Manufacturing business than the prior year, leading to lower profitability in the Paper business.

Underlying operating profit for the year declined to R909 million (2023: R1.2 billion), primarily due to an under-recovery of higher fixed costs, which resulted in operating margins declining to 8.3% (2023: 10.9%).

The Recycling business successfully maintained recovered paper stock levels, ensuring a consistent supply to our paper mills and external customers despite fluctuating market conditions. Recovered paper prices were up year-on-year, with sharp increases in the second half of 2024 offsetting the declines in the first half of the year.

The Paper Manufacturing business successfully adapted its market approach to the prevailing conditions, significantly increasing containerboard sales in the second half of the year, mainly through exports. This led to better paper machine utilisation and commercial downtime reducing to 6.6% of capacity for the year, compared to 13% in 2023. However, the benefits were offset by lower average selling prices.

The Paper Converting business maintained overall sales volumes year-on-year, with a marginal increase in average selling prices. We continue to experience pleasing growth in the fruit sector and have enhanced our supply capabilities to fruit customers in Mpumalanga, Limpopo and the Eastern Cape following the investments in the Mbombela and Gqeberha corrugated facilities. Sales to the industrial market remained subdued in line with the broader economy.

Plastics business

Revenue in the Plastics business increased by 8.0% to R2.3 billion (2023: R2.2 billion) due to an improved product mix from higher sales in all Plastics operations other than FMCG Wadeville, which declined as expected following the expiry of two supply contracts in June 2024.

Following the upgrades at the Castleview factory, the Bins & Crates business delivered a 96% increase in operating profit compared to the prior year. The agriculture sector continued to experience significant growth throughout the year, with notable increases in demand for avocado and blueberry crates and jumbo bins, especially in the second half of the year. Retail sales were also higher.

Disappointingly, the profit gain in the Bins & Crates business was more than offset by non-recurring expenses in FMCG Wadeville following the restructuring and site consolidation over the past few years. This, in addition to the anticipated reduced sales in Wadeville, resulted in a decline in the Plastics business operating profit of 52.7% to R89 million (2023: R189 million).

OUTLOOK

Mpact is well positioned to capitalise on any economic recovery in South Africa. However, based on our most recent trading, the domestic economy remains subdued despite lower interest rates and reduced inflation.

The outlook for the fresh fruit export sector is promising, which should benefit the Paper Converting and Bins & Crates businesses. The Paper Converting business is also well positioned for any recovery in the local economy.

An improvement in the Plastics FMCG business’ profitability is anticipated this year after the travails of 2024, and the Bins & Crates business is expected to benefit from the increased utilisation of recently upgraded capacity and new product lines.

We remain confident in our value-enhancing strategy and committed to executing it effectively. Mpact’s strategy focuses on growth sectors and investments in innovative, higher-margin, and sustainable products. These sectors include fruit exports, returnable transit packaging, convenience shopping, and recycling, some of which are somewhat insulated from South African consumer spending patterns.

Strong concluded: “Our strategy aims to consistently yield tangible benefits for the business and improved returns for our shareholders.”

ENDS