Mpact enters plastic recycling sector with R350m PET plantComment on this story
MPACT was venturing into plastic recycling with plans to build a plant for R350 million in partnership with the Industrial Development Corporation (IDC), the listed packaging group announced yesterday.
The plastic recycling plant will process about 29 000 tons of polyethylene terephthalate (PET) bottles a year, generating 21 000 tons of new raw material directly from waste material that would otherwise be sent to landfill sites.
The new PET recycling plant will be situated in Wadeville, Germiston and is due to be commissioned during the second half of next year. The business will be held in newly formed company Mpact Polymers, in which Mpact will hold a 79 percent stake and the IDC 21 percent.
The new development fits with the company’s growth strategy, which includes identifying new investment opportunities.
The company posted strong results for the six months to June yesterday. Basic underlying earnings a share increased by 19.2 percent to 91.8c, Mpact reported, on the back of a 13.2 percent rise in revenue to R4 billion, while underlying operating profit gained 14.5 percent to R270m.
The group attributed its performance to a favourable sales mix and improved productivity.
Mpact chief executive Bruce Strong said the entry into plastic recycling was an exciting opportunity. “Mpact is starting a new venture that will add an important dimension to our business. It is an excellent fit with our strategy and will enhance our position as a leading beneficiator of recyclables in South Africa.”
The new investment will help create about 1 000 jobs directly and indirectly, in addition to a saving of about 180 000m3 of landfill space each year – the equivalent of 75 Olympic-size swimming pools.
Strong said the PET plant investment, together with the R765m investment announced in March to upgrade the Felixton paper mill, were evidence of Mpact’s commitment to exploit sound growth opportunities.
On Mpact’s half-year performance, Strong said the results reflected the group’s resilience, established market positions and the benefits derived from investments made over past years to improve productivity.
Mpact said the general trading environment in the first half was characterised by subdued growth in gross domestic product and consumer spending. The company also saw a decline in fruit exports that resulted in low demand for fruit packaging.
Dirk van Vlaanderen, an investment analyst at Kagiso Asset Management, said Mpact had delivered an encouraging set of first-half results despite a weak consumer environment, slower agricultural demand and meaningful input costs pressure.
“We are impressed by Mpact’s ability to deliver good top-line growth and margin improvement despite consumer demand and cost headwinds. Such a result speaks to the ongoing investment by management into improving processes, driving efficiency gains and the inflation-buffering benefit of Mpact’s vertically integrated business model.”
Van Vlaanderen said the R350m investment in a new plastic recycling plant in Gauteng was positive for the plastics division and should help secure supply and reduce polymer costs, adding further margin support to this division over time.
He was also of the view that despite the strong performance in the first half, Mpact’s management had an uphill task to deliver a solid second half as the next six months were likely to see continued consumer and input-cost headwinds, as well as an estimated R20m impact from a four-week-long industry strike in July.
Mpact’s share price rose 2.91 percent to R31.80 yesterday.