Johannesburg, 2 March 2017. Today Mpact, one of the leading paper and plastics packaging businesses in southern Africa, reported final results for year ended 31 December 2016.
Commenting on the results, Bruce Strong, Chief Executive Officer of Mpact said, “The Group results for the year reflect challenging trading conditions. The converting businesses in Paper and Plastics did well to grow revenue and maintain underlying operating profit margins, building on their good performances in the previous year. However, the benefits were outweighed by higher recovered paper input costs, lower sales of containerboard, a higher effective tax rate and higher finance costs, as well as a loss incurred in Mpact Polymers.
Notwithstanding the headwinds, the Group made progress with its strategic investment programme during the year, which included the acquisition of the Remade recycling business, the Felixton paper mill upgrade, Mpact Polymers and other expansion projects in the Paper and Plastics businesses.
On the transformation front, we are pleased that the Mpact Foundation Trust, established in 2015, awarded 15 fully-funded tertiary education bursaries to dependents of Mpact employees during the year.”
Group revenue increased 5.8% to R10.1 billion, while the underlying operating profit of R784.4 million was 13.7% lower than the prior year.
Revenue in the Paper business increased 5.2% to R7.4 billion. The Paper converting business, which includes the corrugated business, delivered a stable performance, growing revenue and maintaining margins, despite the drought, challenging trading conditions and increased levels of competition. This performance was offset by negative results in the balance of the Paper business due to higher recovered paper input costs and lower containerboard sales volumes, resulting in an underlying operating profit in the paper business of R664.1 million (31 December 2015: R803 million). Lower containerboard sales volumes were a result of certain customers increasing containerboard capacity in their own paper mills during the first quarter of the year. This also caused a shortage of recovered paper, a key raw material, which led to higher input costs that were not fully recovered in selling prices.
Strong said, “Notwithstanding the current imbalance in domestic recycled containerboard supply and demand, we remain confident in the rationale of the R765 million Felixton paper mill upgrade, which is due to be completed during the second half of 2017.”
The Plastics business increased its revenue by 8.6% to R2.8 billion due to higher selling prices and a favourable mix of products sold. Sales volumes in the Plastics converting business were in line with the prior year, while sales of recycled PET (rPET) from Mpact Polymers totalled 7,603 tonnes, up from 370 tonnes in 2015. Underlying operating profit of R168.4 million declined 15.3% from the prior year, mainly as a result of the loss incurred in Mpact Polymers.
“The loss in Mpact Polymers was greater than planned during the ramp-up phase because of higher costs of production and lower average rPET selling prices. On the positive side, all of the required approvals from major customers have been secured and they are now using Mpact’s rPET, which is branded Savuka™, in their packaging,” explained Strong.
During the period, the Group initiated the closure of its plastics manufacturing operation in Zimbabwe, which it concluded in December 2016. For the year ended 31 December 2015, the Zimbabwe manufacturing operation reported a turnover of approximately R87 million (less than 1% of Group turnover).
The Group’s net finance costs increased by 44.7% to R191.0 million, “due to higher interest rates on higher net debt during the year, as well as the borrowing costs related to the Mpact Polymers project and Phase 1 of the Felixton mill upgrade no longer being capitalised, following their commissioning in 2015,” said Mpact Chief Financial Officer, Brett Clark.
Underlying earnings per share for the year of 252.7 cents (December 2015: 366.9 cents) were impacted by a higher effective tax rate and higher borrowing costs compared to the prior year.
“Notwithstanding significant capital investment, the Group’s balance sheet remains strong, with gearing of 33.6% and a return on capital employed of 14.2%,” said Clark. Mpact declared a total gross dividend of 95 cents per ordinary share (December 2015: 110 cents per share).
“The economic outlook for 2017 remains subdued and most of the factors that impacted negatively on the profitability of the Group in 2016 are likely to persist.
The completion of the R765 million Felixton mill upgrade, due in the second half of 2017, is on schedule and within budget. As part of the project, the mill is scheduled to be shut for 50 days starting at the end of May 2017. This will result in a non-recurring reduction in earnings for the financial year. Once completed, this upgrade will significantly improve the mill’s cost competiveness, product quality and offering.
We anticipate an improved trading performance in Mpact Polymers on the back of increased demand for rPET, higher throughput and a better yield. We remain optimistic about the prospects of this business, given the progress thus far and the need to increase recycling rates of PET.
Our focus in the short term is to improve profitability and ROCE despite the prevailing trading conditions. In addition, we will continue to pursue strategic growth opportunities across the Group. These include the expansions of the Port Elizabeth corrugating facility as well as the Mpact Plastics Containers facilities in Brits and Atlantis, all of which were approved by the Board during 2016,” concluded Strong.
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Mpact is one of the leading paper and plastics packaging businesses in southern Africa, listed on the JSE’s Main Board in the Industrial - Paper and Packaging sector. The Group has leading market positions in southern Africa in recovered paper collection, corrugated packaging, recycled-based cartonboard and containerboard, polyethylene-terephthalate (“PET”) preforms, recycled PET (“rPET”), styrene trays and plastic jumbo bins. These leading market positions allow Mpact to meet the increasing requirements of its customers and achieve economies of scale and cost effectiveness at the various operations.
Mpact has 42 operating sites, of which 21 are manufacturing operations, in South Africa, Namibia, Mozambique and Botswana. Sales in South Africa account for approximately 90% of Mpact’s total revenue for the current year while the balance was predominantly to customers in the rest of Africa.
As at 31 December 2016, Mpact employed 4,998 people. (December 2015: 4,467 people)