Mpact, the largest paper and plastics packaging business and recycler in southern Africa plans to benefit from numerous capital investments coming on stream this year even as its trading environment remains in line with the subdued economy.

In the 12 months to December 31, the group experienced the positive sentiment emerging from the May 2024 election, but the trading environment had otherwise proved challenging, underpinned by high interest rates, cost inflation, loadshedding, and other service delivery failures, which negatively affected business and consumer confidence.

Nevertheless, said CEO Bruce Strong, despite a decline in profit - headline earnings a share fell 29.9% to 323.6 cents a share - the group produced strong cash flow from operations of R1.9 billion, near its highest recorded number, and net asset value increased 6% to R35.76 a share.

In addition, gearing was at its lowest level in four years after debt fell 11% to R2.4bn from R2.7bn, this after paying R1bn in capital projects and R155m in dividends, Strong said in a telephonic interview on Monday.

“We made good progress on capital projects and portfolio optimisation through investments and disposals aligned with our strategy that embraces the circular economy. We also engineered solutions at our operations to mitigate the impact of infrastructural failures,” he said.

The R1.3bn Mkhondo paper mill upgrade to add new export revenue streams and higher-value products was expected to be commissioned by the end of June 2025, despite some construction delays after a tornado and excessive rain from December 2024 to February 2025, he said.

Underlying operating profit fell to R923m from R1.21bn due to fixed costs under-recoveries and once-off expenses at FMCG Wadeville, following the restructuring and consolidation over the past few years. Strong said these once-off costs related to the exit of a contract by a soft drink bottler, and were now largely out of the system.

Following the Castleview factory upgrade, the Bins & Crates business saw a 96% increase in operating profit and more market growth was planned, off 17% volumes growth over the past year, said Strong. The agriculture sector experienced significant growth, with increased demand for avocado and blueberry crates and jumbo bins, especially in the second half.

Disappointingly, this profit gain was offset by non-recurring expenses in FMCG Wadeville.

The Versapak sale was concluded from November 1, 2024, with proceeds of R255m and about R50m in recouped working capital being used to reduce group debt.

During the year, Mpact Plastic Containers acquired a 30% interest in Africa Tanks, one of South Africa’s leading water tank manufacturers. The investment would provide Africa Tanks with some of the capital required to achieve economies of scale and accelerate its growth.

Group revenue from continuing operations increased by 3.6% to R13.3bn. This was primarily driven by a 3% increase in sales volumes in the Paper business and an improved product mix in Plastics due to increased sales in Bins & Crates.

.Revenue for the Paper business increased 2.7% to R11bn due to a 3% increase in sales volumes. Volumes increased mostly due to improved containerboard export demand in the latter part of 2024, after being subdued for most of the year.

There were however lower average selling prices in Paper Manufacturing, leading to lower profitability in the Paper business. Underlying operating profit declined to R909m from R1.2bn.

The Recycling business maintained recovered paper stock levels, ensuring a consistent supply to paper mills and external customers, despite fluctuating market conditions.

Recovered paper prices were up year-on-year, with sharp increases in the second half of 2024 offsetting the declines in the first half of the year.

The Paper Manufacturing business significantly increasing containerboard sales in the second half of the year, mainly through exports. This led to better paper machine utilisation and commercial downtime. Benefits were offset by lower average selling prices.

The Paper Converting business maintained sales volumes, with a marginal increase in average selling prices. The fruit sector saw continued growth, and supply capabilities were enhanced to fruit customers in Mpumalanga, Limpopo, and the Eastern Cape following the investments in the Mbombela and Gqeberha corrugated facilities.

Revenue in the Plastics business increased 8% to R2.3bn due to an improved product mix from higher sales in all Plastics operations other than FMCG Wadeville, which fell as expected following the expiry of two supply contracts in June 2024. The Plastics business operating profit declined to to R89m from R189m.

“The outlook for the fresh fruit export sector is promising, which should benefit the Paper Converting and Bins & Crates businesses. The Paper Converting business is also well positioned for any recovery in the local economy,” said Strong. An improvement in the Plastics FMCG business’ profitability was anticipated this year.

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Mpact reports lower profit but healthier balance sheet and strong cash flows