JSE-listed packaging company Mpact’s basic underlying earnings a share for the year ended December 31, increased by 15.3% to 269.2c, while revenue increased by 11.9% year-on-year to R8.6-billion, owing to a drop in the oil price, capital expenditure investments and higher average selling prices.

The company noted that 2014 had been a successful year for Mpact, despite many challenges.

“Economic growth in South Africa remained subdued throughout the period with protracted strikes in the mining sector, as well as the metals and engineering sector, which, for the purposes of union bargaining units, included the group's plastics business,” Mpact said in a statement.

It also reported a slight contraction in the gross margin, owing to sales volume growth being negatively impacted by lower sales of corrugated boxes and cartonboard and the rationalisation of certain unprofitable product lines in Mpact's fast-moving consumer goods (FMCG) plastics business. 

Per unit costs for certain key inputs to the business, such as electricity, wages, waste paper and polymers, had increased well above producer price index (PPI) and consumer price index (CPI) inflation of 5.8% and 5.3% respectively. 

The paper business was affected by the decline in fruit export volumes from South Africa, which were down about 2%, attributable to adverse weather having reduced apple and pear crops.

However, underlying operating profit increased by 14.8% to R751-million, owing to productivity gains and other cost savings, while the operating profit margin increased from 8.5% to 8.7%.

The group’s paper business’ revenue increased by 12.5% year-on-year to R6.3-billion. External sales volume growth of 0.9% reflected lower agricultural and cartonboard sales.

Meanwhile, its plastics division’s revenue increased by 10.4% year-on-year to R2.3-billion, despite a strike, which affected six of the group’s operations and cost it R6-million in revenue losses, as well as the R23-million closure of the lossmaking Robertville FMCG plastics operation.

Sales volumes measured in tons were 1.7% higher than the prior period, with good volume growth in bins, crates, preforms and closures partially offset by a decline in the FMCG business, which was down 12.4% as a result of rationalisation.

Tray and film volumes were in line with the prior year despite subdued market conditions. Average prices increased by 8.7%, only partially offsetting higher polymer prices, which continued to escalate during the first half of the year, but levelled out in the second half of the financial year. 

OUTLOOK
The group expected the broader South African economy to remain subdued this year. Speaking to Engineering News Online in a telephone interview, Mpact CEO Bruce Strong said there would be “some things” that would benefit the company.

“The oil prices are lower and, while [this] may not lead to volume growth, it certainly helps throughout the supply chain – not only in our business, but it [filters through] to our customers and suppliers, reducing distribution costs,” he said.

Further, Strong noted that fruit exports were expected to perform better than in 2014.

The group’s operations had also been affected by load-shedding and Mpact noted that interventions had been put in place to reduce the impact of electricity supply constraints on operations.

PROJECTS
In the year under review, Mpact had continued to commit capital investment to enable sustainable returns and meet customer requirements. To this end, more than R1-billion was approved for strategic capital projects that were progressing according to plan.

Commissioning of the first phase of Mpact’s R765-million Felixton Mill rebuild, in KwaZulu-Natal, was within budget and on schedule for completion in mid-2015. The primary benefits of this phase would be productivity and cost improvements and an additional 20 000 t/y of production capacity.

Sales of the additional capacity during the year would be a function of raw material availability and price, as waste paper supply was expected to remain constrained for the year. The final phase of the project was on schedule to be completed by the end of 2017. 

Further, the group’s R350-million recycled polyethylene terephthalate (PET) project, in Gauteng, was scheduled for commissioning in the second half of the year. The collection of used PET bottles was under way and was progressing according to expectations. The project was on schedule and within budget.

Meanwhile, as part of its expansion into other African countries, the company, in December 2014, acquired Botswana-based paper bag and sack manufacturer Pyramid.

“It is a relatively small business in the overall context of our group, but this marks our first entry into Botswana,” Strong noted.

Mpact already had a presence in Namibia, Mozambique and Zimbabwe, while also selling into East and West Africa. “We are hoping to, in time, find opportunities in some of the bigger markets outside the Southern African Development Corridor,” he added.