MPACT, the listed paper and packaging business and recycler, will focus investment inwards as the group tackles a variety of challenges in the new financial year, including a possible escalation of raw material costs due to the crisis in Ukraine.
The group, which yesterday released annual results, said it had bought back shares worth R257 million in the year to December 31, and shares worth R88m the year before.
It also declared a final dividend of 50 cents per share, compared with zero dividend declared in the 2020 financial year, returning another R74m to shareholders.
Chief executive Bruce Strong, in an interview with BR, said the focus for the new financial year was on investing in the group, and the board had approved more than R700m in new capital investments to support growth and innovation, improve margins, and ensure the resilience and sustainability of operations.
He said the share buybacks were done when they were trading below net asset value, but the shares were currently well ahead of net asset value.
Mpact’s share price traded 3.8 percent higher at R32.20 yesterday morning, after rising 55.2 percent over 12 months. Strong said net asset value was about R26 per share.
Mpact was hit by supply chain constraints globally and across all sectors which affected raw material and chemical prices with electricity hikes, increasing costs well above inflation. The crisis in Ukraine was likely to exacerbate this, he said.
On the other hand, the group was benefiting from a shift by local producers to source packaging locally rather than import packaging, he said. The aim was to increase prices in line with raw material prices - in the first half of last year there had been a lag in recovering higher raw material costs through higher prices, he said.
Strong said there were, however, no significant interruptions to operations from the shortages, and customer demand exceeded capacity in certain businesses.
The revenue increase was due to a 8.8 percent increase in sales volumes and a 3.8 percent increase in the average price.
Underlying EBIT (earnings before interest and tax) from continuing operations increased by 56 percent to R948m and underlying earnings per share increased by 93 percent to 360 cents.
Paper segment revenue increased 12.2 percent to R9.7bn, with strong local container and carton board demand. The paper converting division benefited from a recovery in the industrial and quick service restaurant sectors as well as growth from new products sales.
Underlying EBIT for the paper business increased by 51.5 percent to R875m.
Revenue in the plastics business was up 14.2 percent to R1.9bn due to good demand in Bins and Crates and a recovery of volumes in Preforms and Closures, offset by lower demand in fast-moving consumer goods. Underlying EBIT increased by 33.7 percent to R200m due to good growth across most sectors and a lower depreciation charge, partially offset by delays in increasing selling prices to recover higher polymer costs.
The plastic trays and films business, Versapak did not align with Mpact’s strategy and the company was in the early stages of engagement with potential buyers - the sale might take several months to complete.
For the year ended December 31, 2021, Versapak reported revenue of R920m and net earnings of R2m versus net earnings of R15m last year.
BUSINESS REPORT ONLINE