Paper and plastic packaging solutions firm Mpact on Thursday reported headline earnings of 102.9c a share, enabling the JSE-listed company to declare a maiden dividend of 40c a share for the year ended December 31.
The company’s underlying operating profit was up by 6.4%, to R517-million, on the back of 7.5% increased revenue at R6.15-billion, excluding the group’s paper merchant business, which it sold in March 2011.
“Our return on capital employed at 13.8% is very encouraging, as this is our key measure of business health," CEO Bruce Strong said in a conference call discussing the group’s results.
Mpact also lowered its gearing from 96% a year ago, to 35% in the current financial year, a position Strong feels “comfortable” with. The increase in underlying earnings was attributable mainly to lower financing costs and strong cash generation in the second half of the year.
As a result of the reduced debt, finance costs were reduced by 24.8% to R291-million.
Strong said the group experienced challenging trading conditions, with demand being under pressure across the industry for most of the reporting period.
“We attribute this mainly to the continued uncertain economic conditions prevailing, both globally and locally,” Strong added.
In the first half of the year, local demand for packaging was also negatively affected by import substitution of paper, packaging and finished goods as a result of the strength of the rand. This meant that local customers rather imported products similar to that of Mpact at cheaper prices, owing to the effect of the strong rand.
The company embarked on proactive interventions to enable cost savings to be achieved, resulting in both the paper and plastics businesses realising improved operating performances, which offset the effects of reduced volumes.
Mpact’s listing on the JSE on July 11 last year, and the subsequent demerger from parent group Mondi on July 18, enabled the company to position itself as a significant independent and focused paper and plastics packaging company.
The company reported a 3.8% increase in revenue at R4.57-billion from its paper business, which accounts for 74% of its total revenue.
“In line with seasonal trends, sales volumes for the second half of the year exceeded the first. However, volumes for the full-year were down on the comparable prior year period, mainly attributable to lower domestic sector growth, import substitution and reduced exports,” Strong pointed out.
The underlying operating profit of R560-million was 6.4% higher than the comparable period in 2010, owing to productivity improvements, cost savings and higher average selling prices.
Meanwhile, the company’s plastics division reported revenue growth of 20.4%, at R1.58-billion, owing to increased volumes and higher average selling prices.
Selling prices in this business increased as a result of higher raw material costs.
The underlying operating profit for the period increased by 25.6%, to R114-million over the comparable period in 2010, owing to higher sales volumes and cost savings.
The company expected margins in the paper business to remain under pressure as lower international paper prices and the threat of import substitution limit its ability to fully recover cost increases, especially energy, transport and labour.
“Despite this, our strong market position in the paper business remains a key competitive advantage,” Strong said.
In the plastics business, Mpact would continue with the optimisation of its existing operations, while seeking further opportunities to increase the company’s rigid plastic packaging producer market share.