Competition Commission clears Mpact of anticompetitive allegations

SOUTH AFRICA – Paper and packaging group Mpact has announced the resolution of a Competition Commission matter concerning alleged anticompetitive conduct between itself and another company, dating back to 2016.

Mpact was a respondent in an anticompetitive conduct complaint initiated by the commission. The initial investigation involved interactions between a former Mpact employee and a competitor representative regarding corrugated packaging.

A second recycling investigation arose from this initial investigation. It was related to historic conduct due to a shortage of recyclable material necessary for paper production.

In a statement to shareholders, Mpact explained that to continue supplying paper to its customers, including the competitor, it facilitated the short-term supply of baled recyclable material from one of its significant suppliers.

The conduct involved communications between the parties regarding a supplier’s request to change an agreed price.

Once this conduct was brought to the attention of the Mpact board in 2016, the board immediately engaged with the commission and has cooperated since.

Mpact applied for corporate leniency concerning the investigations. Under its leniency policy, the commission is not seeking to impose a penalty against Mpact, and the other company has settled the complaint without any admission of liability.

This resolution is a relief to Mpact, which delivered a resilient performance for the year ended 31 December 2023, reporting headline earnings per share growth of 8% in a challenging economic environment.

Bruce Strong, Mpact Chief Executive Officer, stated, “While the trading conditions were extremely difficult, we are pleased that our strategy and focus on expanding in sectors with market growth opportunities and adopting a business model aligned to the circular economy has yielded positive benefits.

“These have been underpinned by successful investments in new capabilities and alternative power and water supply infrastructure to increase our operational resilience.”

Despite the weak economy, further weighed down by load shedding and other public infrastructure failures, Mpact improved underlying operating profit and good cash generation from operations.

The increase in operating profit was due to improved margins compared to the previous year, which offset declines in sales volumes.

Global supply chain constraints that affected raw material sourcing in 2022 improved during the year. Input costs were relieved around mid-year, particularly in plastic polymers, recovered paper, and pulp.

However, other costs increased, such as electricity, coal, fuel, and certain imported raw materials influenced by the weakening rand. During the second half of the year, Mpact was able to pass on some cost reductions to customers.

During the year, Mpact reached key milestones in its strategic development, including significant progress in capital investment projects for growth and operational resilience and business portfolio optimization.

Another 6.7MWp of solar PV capacity was added, bringing the group’s total solar capacity to approximately 16MWp.

Other projects, such as the Mpact Plastic Containers’ Castleview factory expansion and upgrades to the Gqeberha Paper Converting factory and Mkhondo Paper Mill, are on track to meet targeted financial returns.

Group revenue from continuing operations for the year ended 31 December 2023 increased by 3.6% to R12.8 billion (US$699.45m) compared to the prior year, despite a 10.7% decrease in sales volumes.

The group achieved record cash generated from operations of R2.0 billion (US$109.29m) compared to R1.0 billion (US$54.64m) in 2022, and underlying operating profit increased to R1.21 billion (US$66.12m) compared to R1.16 billion (US$63.39m) in 2022, primarily due to a profit recovery and some recently completed projects.

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