Mpact delivers strong gains in half-year profit, shipping challenges remain

Paper and plastics packaging producer Mpact delivered a strong performance in the half-year ended 30 June 2022, on the back of solid local demand for both containerboard and cartonboard as well as good growth in new product sales.

The group reported a 21.5% increase in operating profit to R387 million (2021: R319 million), mainly supported by its paper business and higher selling prices implemented at the end of 2021 to curb rising input costs.

Headline earnings per share increased 31.1% to 142 cents (June 2021: 108.3 cents) while basic earnings per share climbed 28% to 138.9 cents (2021: 108.5 cents).

Revenue rose 5.2% to R5.7 billion when compared with the prior period.

Mpact says its results could have been better, but were partly affected by lower sales volumes in the plastics business.

“Trading was mixed across the rest of the business, with good sales volume growth in the [quick service restaurant] QSR, beverage and home delivery sectors, partly offset by declines in other [fast-moving consumer goods] FMCG sectors as well as fruit packaging,” Mpact CEO Bruce Strong said.

“Fruit packaging has been impacted by the uncertainty arising from the sanctions related to the Russia-Ukraine conflict, as fruit producers have delayed decisions on harvesting and packaging of some products until they are able to establish which markets to service and how. Their operations were impacted by [several] factors including port constraints in South Africa and adverse weather in some regions.”

Read: A look at the ripple effect of the Russia-Ukraine conflict

The group says its trading environment was faced with global supply chain constraints that impacted the cost and availability of most raw materials and new capital equipment. It saw delays in the manufacturing and shipping of capital equipment ordered mainly from Europe and Asia.

However, raw material inventory was increased to mitigate long lead times and periods of macroeconomic uncertainty.

Project costs were restricted to approved budgets, but a few exceptions related to shipping delays and exchange rate movements remain.

Paper

Mpact’s paper business segment recorded a 5.9% hike in revenue to R4.9 billion (June 2021: R4.6 billion). The increase was supported by improved consumer demand in the industrial and QSR sectors as well as growth in new product sales ranging from home delivery and courier paper bags. Sales were however partially impacted by the lower demand from the fruit sector.

The segment’s operating profit was up 31.8% to R457.6 million as a result of improved trading.

Read: New EU law could see R600m worth of SA citrus en route to Europe destroyed

Plastics

Revenue in the plastics business increased 1.2% to R848.6 million while sales volumes dipped to 6.4% due to lower sales in its Bins and Crates operations, however FMCG operations were in line with the prior period.

“Production of bins and crates was lower than the prior period as a result of delays in the arrival of new equipment from overseas, and in part due to operational issues impacting sales,” it said.

“This equipment was required to offset the planned relocation of existing equipment between plants as part of the establishment of the new Castleview factory in Gauteng.”

Operating profit in the plastics segment decreased to R3.5 million (June 2021: R40.5 million) due to lower sales volumes and costs associated with the KwaZulu-Natal floods of R11.6 million.

Read: SA halts shipping at key port of Durban after heaviest downpour in six decades

Outlook

Mpact says it expects to continue to benefit from strong domestic containerboard and cartonboard demand as all its paper machines are fully booked until the end of current annual supply agreements, which will be end of September.

However, supply and demand balance will remain tight for the foreseeable future due to ongoing global supply chain constraints, the tightening of monetary policy globally as well as market uncertainty arising from the Russia-Ukraine conflict and its effect on the costs of energy and food.

“In the face of continued macroeconomic uncertainty, the focus of the Mpact management team remains on the value-enhancing strategy of the business aimed at optimising our portfolio and growing organically and through acquisition,” Strong added.

“Mpact’s integrated business model is uniquely focused on closing the loop in paper and packaging, positioning the group to benefit from the ongoing drive towards a circular economy by brand owners, manufacturers and governments alike.”

The group declared an interim dividend of 40 cents per share.

Listen as Simon Brown chats to Tim Holden, MD of Caxton, which holds a large stake in Mpact (or read the transcript here):

Palesa Mofokeng is a Moneyweb intern.