Mpact has leveraged opportunities it identified in the market through investments, acquisitions and production realignments, in spite of the tough trading environment in South Africa characterised by depressed consumer demand, CEO Bruce Strong said yesterday.
Mpact is the largest paper and plastics packaging and recycling business in southern Africa.
In the six months to June 30, headline earnings per share from continuing operations fell 35% to 122.2 cents compared with 188.2 cents at the interim stage last year. The interim dividend was lowered to 30 cents a share from 45 cents.
Earnings for the year were not expected to exceed the high levels of last year, but the investments being made in high growth markets such as the fruit industry, convenience retail and online retail, would benefit in the medium term, Strong said in an interview.
On April 1, 2024, Mpact Plastic Containers Castleview acquired a 30% stake in Africa Tanks for R73 million. Africa Tanks makes plastic water tanks for the residential, commercial and agricultural markets and is the first blow-moulding water tank manufacturer in southern Africa.
Strong said the tanks were of a better quality, in terms of for instance the layering of the plastic and UV protection, and aesthetically more pleasing, than competitor bulk water tanks that were on the market.
On July 31, Mpact entered into a agreement with Greenpath Recycling, a subsidiary of Sinica Manufacturing, to sell the Versapak division as a going concern for R268m, as part of product realignment, with the price to be adjusted based on stock on hand and the value of employee liabilities. Proceeds would be used to settle debt.
Driving the value enhancing strategy saw the R1.3 billion Mkhondo mill upgrade project progressing well, with construction under way and critical equipment ordered. The project was expected to be completed as planned in the early part of next year, said Strong.
Solar PV generated power amounting to 16MWp saved the group over R18m in electricity costs during the first half of the year.
Strong said the group had demonstrated its resilience through the weak economic environment as indicated by the 9% increase in net asset value per share to R34.11, earnings before interest tax depreciation and amortisation of R763m and cash from operations of R516m.
Underlying operating profit decreased to R423m from R531m, as a result of lower selling prices in the Paper business, under-recovery of fixed costs and higher depreciation from major projects capitalised towards the end of 2023.
The lower selling prices in the Paper business continued into the second half, but there were signs of prices starting to firm in international markets. The low selling prices was being countered by expeditiously managing volumes and costs, said Strong.
In the interim period the slowdown in containerboard and cartonboard sales necessitated production downtime at the three paper mills to manage inventory and conserve cash. This resulted in downtime of about 13% of capacity, which included eight days at the Springs mill due to utility outages.
On the outlook for the second half, he said business and consumer sentiment had started to improve on the back of the positive outcome of the national elections, lower inflation, no load shedding since April and the prospect of an interest rate cut later this year.
He said any recovery in the economy should translate into improved demand which the group was well positioned to meet. Recent changes and improvements at Transnet and Eskom, together with their commitment to proactively respond to challenges, should further support growth in South Africa.
He said that should demand increase notably in the second half, the second half financial performance could be better than the same period last year, but it may not be enough to fully offset the first half decline in earnings.
The performance of the Plastics business was anticipated to improve on the back of recent investments in Bins & Crates, which may be partially offset by lower sales in the Preforms & Closures business.
BUSINESS REPORT