JSE-listed Mpact has reported that, despite a weak macroeconomic backdrop, only partly mitigated by lower inflation and interest rates compared with the same period last year, Mpact’s paper converting and plastics businesses delivered volume and profitability growth for the six months ended June 30.

In a trading statement, Mpact says this reflected progress on strategic development projects focused on growth sectors, supported by investments in innovative, higher-margin and sustainable products.

These gains were, however, more than offset by lower paper mill margins, primarily owing to reduced containerboard and cartonboard selling prices.

The company explains that trading conditions deteriorated materially during the second quarter as the war in the Middle East contributed to higher input costs, softer demand and lower business confidence.

The agricultural sector was also negatively affected by severe adverse weather conditions, including hail and flooding in parts of the Eastern and Western Cape during the period.

Mpact notes that the group’s performance is historically weighted towards the second half of the financial year, supported by seasonal demand patterns in key markets.

In addition, the company says full benefits of recent strategic capital projects, including the Mkhondo mill upgrade, have yet to be realised and are expected to support the group’s medium-term growth and margin improvement.

The company says that its earnings before interest, taxes, depreciation and amortisation (Ebitda) are expected to decrease by about 4% compared with the prior period’s R642-million, mainly owing to lower profitability in paper manufacturing, which more than offset gains in the paper converting and plastics businesses.

Additionally, Mpact notes that its underlying operating profit is expected to decrease by about 16% compared with the prior period’s R337-million, primarily owing to the lower Ebitda and higher depreciation following completion of the Mkhondo upgrade project.

Net finance costs are expected to increase by about 13% mainly owing to the non-recurrence of interest capitalised to the Mkhondo project in the prior period.

Net debt as at June 30 decreased to about R2.6-billion from R3-billion in the prior period.

Mpact says the group’s balance sheet remains healthy and Mpact remains comfortably within its bank covenants.

DISCONTINUED OPERATION

Meanwhile, Mpact notes that the Springs mill shut its coated cartonboard machine, BM6, on May 10. BM6 has accordingly been classified as a discontinued operation in the group’s financial reports.

Springs mill’s uncoated coreboard machine, BM3, will continue to operate and is reported under continuing operations.

BM6 reported an underlying Ebitda loss of about R25-million and an underlying operating loss of R30-million for the period. The closure resulted in one-off restructuring, impairment and retrenchment costs amounting to about R299-million, which are disclosed as special items in the financial reports and therefore excluded from underlying profit.

These costs comprise cash retrenchment and restructuring costs of R104-million, together with non-cash charges relating to the impairment of plant and equipment of R54-million, and capital spares and other inventory of R141-million.

The company says cash costs incurred were more than offset by the recoupment of working capital related to BM6.

The company explains that BM6 is distinct from Mpact’s Felixton and Mkhondo containerboard mills, which are structurally competitive following more than R2-billion of investment over the recent past and remain well positioned to operate sustainably.

CONTINUING OPERATIONS, TOTAL OPERATIONS

Mpact has advised shareholders that it expects to report earnings per share (EPS) for the six months ended June 30 for continuing operations of between 45c and 55c a share, a decrease of between 57.2% and 47.7%.

For total operations, the company expects to report an EPS of between a loss of 106c and 118c a share, a decrease of between 212.5% and 225.3%.

Moreover, headline earnings per share (HEPS) for continuing operations for the period are expected to be between 45c and 55c a share, a decrease of between 56.8% and 47.2%.

For total operations, HEPS is expected to be between a loss of 82c and 92c a share, a decrease of between 188.2% and 198.9%.

Underlying EPS for continuing operations is expected to be between 45c and 55c a share, a decrease of between 57.3% and 47.8%, while underlying EPS for total operations is expected to be between 30c and 40c a share, a decrease of between 68.2% and 57.5%.