SOUTH AFRICA – Paper and plastic packaging producer and recycler Mpact has reported a strong performance for the six months ended 30 June 2023 with operating profit increasing by 37% to R530.7 million when compared to the prior period.

According to the company, its group revenue for the six months increased by 8.7% to R6.2 billion compared to the prior period, despite sales volumes decreasing by 10.2%.

Operating profit (EBIT) increased by 37.1% to R530.7 million (June 2022: R387.1 million) mainly due to an improvement in profitability of the Plastics business, higher selling prices in the Paper business implemented in October 2022, and the benefits of recently completed investment projects.

Bruce Strong, Mpact Chief Executive Officer, said: “It’s been a very pleasing performance despite the tough economic conditions.

“Our revenues, profits and interim dividend are all up, which validates our investment thesis, and our prudent growth strategy.

“All operations reported improved performances, underpinned by our successful investments in both new capacity and alternative power and water supplies, which have increased our operational resilience.”

In the paper business, the company registered revenue of R5.3 billion, 7.2% higher than the same prior period (June 2022: R4.9 billion), due to higher selling prices which were partly offset by lower sales volumes in both paper manufacturing and converting.

Paper manufacturing sales volumes decreased, due to subdued consumer demand and the late arrival of imports of containerboard and cartonboard ordered by customers last year when there were global shortages.

In Paper Converting, both agricultural and industrial sales volumes were down compared to the prior period.

In the agricultural sector, good growth in citrus, avocado, tomato, and banana packaging volumes was offset by declines in grapes, pome fruit and stone fruit which were affected by adverse weather in the Western and Eastern Cape growing areas in late 2022.

Industrial sector volumes declined due to subdued consumer demand and the negative effects of load shedding.

Despite this, the business performed well with operating profit up 19.8% to R548.3 million as a result of higher selling prices and a recovery from the impact of the 2022 floods in KwaZulu-Natal (KZN).

While there were no insurance proceeds received in the current period, the prior period included insurance proceeds of R47 million.

In the plastic business, the company posted revenue of R992.5 million, an increase of 17% (June 2022: R848.6 million) with operating profit increasing to R63.2 million (June 2022: R3.5 million).

This was on the back of recent investments in the Bins & Crates business and the consolidation of the Preforms & Closures sites in 2022.

This strong performance was achieved despite lower volumes in FMCG and Preform & Closures businesses due to lower consumer demand as the financial health of the consumer continues to deteriorate.

Outlook

For the rest of this financial year, the Plastics business is expected to benefit further from recent investments in the Bins & Crates business, and continued portfolio optimization and cost improvement initiatives, notes the company.

The Paper business’ profitability during the second half of the year will be affected by planned downtime at the Felixton Mill and the Mbombela paper converting plant for the implementation of capital projects, which will benefit the business in the future.

The Felixton Mill upgrade project is aimed at increasing the production of quality lightweight recycled containerboard by an additional 16,000 tonnes per annum and is expected to be commissioned by the end of September.

The Mbombela paper converting project, which is scheduled to be completed by the end of December, entails equipment upgrades to meet the growing needs of our fruit customers in the region, who are expanding.

Strong concluded: “Our management team is dedicated to executing our value-enhancing strategy, designed to optimize our business portfolio and drive both organic and inorganic growth.

“We will continue to focus on the management of costs and working capital, including through carefully calibrated commercial downtime if and when necessary.”

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