Capital investments in JSE-listed Mpact’s paper business are starting to contribute to the group’s performance, CEO Bruce Strong said on Wednesday.
Reporting on the group’s results for the six months ended June 30, he noted that the gains made in the paper business had, however, been offset by a disappointing performance by the group’s plastics business.
Mpact’s earnings before interest, taxes, depreciation and amortisation increased by 2.5% year-on-year to R443.4-million for the six months under review.
Strong said this was primarily as a result of an improved gross margin and well contained fixed costs.
Underlying operating profit of R168.3-million was, meanwhile, in line with the prior comparable period.
Net profit decreased to R45.6-million for the six months under review, compared with a net profit of R52.3-million in the prior comparable period, while earnings a share decreased to 29.7c, from 34.3c in the first half of 2017.
The Felixton paper mill upgrade; a new corrugator, commissioned in Port Elizabeth, in January; and a good citrus crop benefitted the group during the six months under review.
These benefits were offset by overcapacity in the styrene trays sector, the drought in the Eastern Cape and Western Cape, as well as subdued consumer demand.
“The improved business sentiment experienced earlier in the year unfortunately failed to translate into growth,” Strong added.
Group revenue of R5-billion was 2.9% higher than the comparable prior period, with external sales volumes having decreased by 5.1%, owing to lower external sales of recovered paper by Mpact Recycling.
Higher average prices reflect a favourable sales mix variance. Excluding the recycling business, external sales volumes increased by 3.8%.
The paper business grew revenue by 5.3% as a result of higher average selling prices, with volumes declining 5% because of lower external recovered paper sales following the closure of a customer’s newsprint machine in October 2017 and increased integration of recovered paper into the group’s paper mills.
Sales volumes, excluding the recycling business, increased by 6.5% compared with the comparable prior period with growth of 9.4% in containerboard and cartonboard and 2.1% in converted paper packaging.
Underlying operating profit of R219.2-million increased by 23.8%, mainly because of higher throughput and gross profit at the Felixton mill as well as good cost control.
The new corrugator in Port Elizabeth performed in line with expectations and the new converting equipment will be commissioned during September.
Revenue in the plastics business decreased by 5.3% to R1.1-billion as a result of lower sales volumes, partially offset by higher average selling prices, which were up 6.4%.
Underlying operating profit in the plastics converting business was R26-million, compared with R56.7-million in the comparable prior period, mainly due to overcapacity in the styrene sector which resulted in lower margins.
Mpact Polymers reported an operating loss of R39-million, with production in line with the prior period, but below expectation.
“While the last two years has been very challenging, our significant investments are expected to bear fruit in the second half of the year and beyond,” Strong said.