MPACT, the largest paper and plastics packaging business and recycler in southern Africa, traded resiliently in the six months to June 30 and has set aside R500 million in new investments to build three new factories and increase renewable energy capacity.
In the six months to June 30, underlying earnings per share were up sharply to 121 cents from 9c in the same period last year.
Headline earnings a share increased by 112.1c to 120.5c.
Chief executive Bruce Strong said operating profit increased 165 percent to R337m. Strong cash flow resulted in debt decreasing to R1.47 billion from R1.9bn, despite a R257m share buyback in January – the buyback represented a substantial return of funds to shareholders and reduced the shares in issue by 14.5 percent.
He said in an interview that the new investments included a bulk plastics plant in Gauteng, a recycling facility in North West Province and a large recycling, warehouse and handling facility in KwaZulu-Natal, while the group’s solar energy capabilities would be increased to 10.5 megawatts from 4MW.
He said the robust results were testimony to the ingenuity and perseverance of management and staff, considering that global supply chains were “in turmoil” and the other challenges that the group faced through the Covid-19 environment.
The strong demand in the first half was expected to continue across most businesses, but might be partially offset by recent unrest in KwaZulu-Natal and parts of Gauteng as well as supply chain constraints across most sectors.Margins were expected to improve as raw material cost increases were recovered through increases in selling price.
Strong said the KZN operations were closed for 8 days, which resulted in lost gross profit due to reduced production of about R20m, while gross profit might also be negatively affected by a further R20m due to lost sales, which might be partially recovered by year-end. The third wave of the Covid-pandemic had limited impact on business continuity to date.
“Our strong financial position and proven strategy enables us to take advantage of the changes in the global economy as it begins to recover from last year’s slump. Customers continue to look to more sustainable solutions sourced locally, instead of relying on imports and unsustainable packaging formats,” he said.
Customers were also demanding higher environmental, social and governance standards from suppliers, which positioned Mpact “extremely well as a customer-focused business,” said Strong.
Revenue increased 16.3 percent to R5.9bn. The paper business benefited from improved global container-board prices and increased local sales at higher average prices while the plastics business also experienced increased demand.
Recovered paper costs increased, partly offsetting the benefits of higher container-board prices. The plastics business saw higher polymer costs. Paper business revenue of R4.6bn was up 15.8 percent, with sales volumes increasing 12.7 percent.
The recovery in the industrial and quick service restaurant sectors and growth in the agricultural sector benefited the paper converting business.
Good growth in citrus volumes were anticipated in the second half and there had been increased plantings in the fruit sector as a whole, he said.
Operating profit from the paper business of R347.1m was up 88.6 percent.
Revenue in the plastics business increased 18.3 percent to R1.3bn, with a strong recovery in sales volumes. Plastics operating profit increased to R34.6m from a loss in the prior period of R17.7m.
Mpact’s shares closed 3.52 percent higher at R26.50 on the JSE yesterday.
BUSINESS REPORT ONLINE