Mpact, the largest paper and plastics packaging business and recycler in Africa that lifted operating profit a sturdy 37% to R530.7 million for the six months to June 30, continues to optimise its portfolio to sell higher value products in sectors of growing demand.
The interim dividend was raised to 45 cents a share from 40 cents. Headline earnings a share increased 33% to 188 cents.
CEO Bruce Strong said in an environment where they might face sales volume declines and high cost inflation, they would focus on cost and working capital management, including through “carefully calibrated commercial downtime if and when necessary.”
He said the past six months had seen a “very pleasing performance” despite the tough economy. Overall sales volumes had declined 10% in the first half, he said in a telephone interview.
He said the decline was due to destocking and lower consumer demand, but there were signs that destocking had bottomed out.
Nevertheless, revenues, profits and interim dividend were all up in the first half. “All operations saw improved performances, underpinned by our successful investments in both new capacity and alternative power and water supplies,” he said.
The group’s value-enhancing strategy, and by pursuing innovation, had enabled its expansion into new, higher-margin product areas domestically and offshore.
For example the Felixton Paper Mill upgrade project would increase the production of quality lightweight recycled containerboard, typically used for deliveries, and for which there was currently “tremendous growth”, by an additional 16 000 tons a year, he said. The project was expected to be commissioned by the end of September.
The Mbombela paper converting project in Nelspruit, scheduled to be completed by the end of December, entails equipment upgrades to meet the group’s fruit growing customer requirements, who were expanding, and for which the group was seeing strong demand.
The Paper business’ second half profitability would be affected by planned downtime at the Felixton Mill and the Mbombela plant for these projects. Strong said there remained a good pipeline of growth projects.
Load shedding had increased considerably compared to the first half of last year. Installed solar generation capacity and process designs meant the group was able to respond to the curtailments up to Stage 6 load shedding without materially reducing production. Investment into solar power would continue.
Group revenue increased 8.7% to R6.2 billion. The higher operating profit was mainly due to better profitability of the Plastics business, higher selling prices in the Paper business, and benefits of completed investment projects.
In the Paper business revenue climbed 7.2% of R5.3bn due to higher selling prices, partly offset by lower sales volumes .
Paper manufacturing sales volumes decreased, due to subdued consumer demand and to the late arrival of imports of containerboard and cartonboard ordered by customers last year when there were global shortages.
A slowdown in containerboard sales and high customer inventories necessitated production downtime of capacity at the containerboard mills to avoid locking up cash in working capital. The Mkhondo and Felixton plants took downtime of about 13% of their capacity.
In Paper Converting, both agricultural and industrial sales volumes were down. In the agricultural sector, good growth in citrus, avocado, tomato, and banana packaging volumes was offset by declines in grapes, pome fruit and stone fruit which were affected by adverse weather in the Western and Eastern Cape growing areas in late 2022.
Despite this, the business lifted operating profit 19.8% to R548.3m from higher selling prices and a recovery from the impact of the 2022 floods in KwaZulu-Natal.
During July, the Springs Mill experienced 18 days of production downtime due to supply interruptions of water and electricity from the City of Ekurhuleni, which had since been resolved.
In the Plastics business revenue increased 17% to R992.5m with operating profit increasing to R63.2m from R3.5m. This was due to recent investments in the Bins and Crates business and consolidation of the Preforms and Closures sites in 2022.
BUSINESS REPORT