Lower containerboard sales and a loss in its Mpact Polymers business led to a 6% year-on-year decrease in JSE-listed Mpact’s underlying operating profit to R321.7-million for the six months ended June 30.
The group’s basic and underlying earnings a share decreased by 29.6% to 95.2c, while headline earnings a share for the period were down by 29.4% to 94.9c.
Net debt rose by 12.5% to R1.9-billion owing to investments in major capital projects and the acquisition of independent trader of recyclable material Remade.
Group revenue of R4.7-billion was 6.2% higher than the prior comparable period, with 1.7% of this growth attributable to acquisitions.
External sales volumes, measured in tonnes, declined by 0.8% with good growth in plastics, but offset by a decline in paper volumes.
“In the first half of 2016, businesses within the group achieved varied levels of performance. The plastics business excluding Mpact Polymers showed pleasing revenue and operating profit growth, while in the paper business corrugated showed its resilience in a difficult market also growing revenue and operating profit,” CEO Bruce Strong said on Thursday.
Revenue in the paper business increased by 5.6% to R3.5-billion, with average selling prices increasing 5.8% but sales volumes declining 0.2%.
Paper volumes included sales by the recently acquired Remade business, without which volumes would have decreased 6.6%.
The decline in external sales resulted from an integrated competitor increasing its containerboard production and replacing products previously supplied by Mpact. Lower external sales volumes were partly mitigated by increased integration
of containerboard into Mpact's own corrugated business.
In light of the decline in sales volumes, uncertain demand in the near term and relatively high waste paper prices, paper production was reduced by 4% of capacity
during the six months under review.
Notwithstanding the current imbalance in domestic recycled containerboard supply and demand, Mpact remains confident in the rationale for the R765-million Felixton paper mill upgrade, which began in 2014.
The second phase is due to be completed during the second half of 2017.
Meanwhile, revenue in the plastics business increased by 10.2% to R1.3-billion, owing to volume growth of 5.6% and higher selling prices.
Plastics converting achieved volume growth of 4.2% with good growth in bins, crates, preforms and closures partially offset by lower sales in trays, films and fast-moving consumer goods.
Mpact Polymers' recycled polyethylene terephthalate sales for the period reached 2 361 t, of which 643 t were supplied to external customers.
Mpact expects subdued trading conditions to continue across most sectors it services throughout the second half of this year, while earnings are likely to be impacted on by a higher effective tax rate and higher finance costs.
“The conditions in South Africa are under pressure and that is likely to continue in this period,” said Strong.
He stated that the effects of excess recycled containerboard capacity in South Africa would continue to exert pressure on profits in the paper business.
“We remain concerned about the possible effects of the drought in certain regions of South Africa despite relief brought by the recent rain,” he added.
Mpact declared an interim gross dividend of 30c an ordinary share, unchanged from the same period last year.