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Mpact’s interim earnings, revenue increase despite many headwinds

8th August 2022

By: Darren Parker

Creamer Media Contributing Editor Online

     

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JSE-listed paper and plastic packaging manufacturer Mpact has reported an improved trading performance for the six months ended June 30, with group revenue for the period having increased by 5.2% year-on-year to R5.7-billion.

The company attributed this to strengthened local demand for both container board and carton board, as well as good growth in new product sales – despite overall sales volumes having decreased by 1% in the period under review.

Moreover, higher selling prices implemented at the end of 2021 helped to mitigate sharply escalating input costs, the company reported on August 8.

Underlying operating profit – earnings before interest and tax – increased by 21.5% year-on-year to R387.1-million, which Mpact said was attributable to strong domestic demand in the paper business, partly offset by lower sales volumes in the plastics business and the higher input costs.

Revenue of R4.9-billion was 5.9% higher year-on-year. The 1% decrease in sales volumes was owing to lower Baywhite sales. Excluding Baywhite, the paper segment revenue increased by 15.3% and external sales volumes increased by 7.4%.

The company said that trading was mixed across the rest of the business, with good sales volume growth in the quick service restaurant, beverage and home delivery sectors, partly offset by declines in other fast-moving consumer goods (FMCG) sectors, as well as fruit packaging.

Mpact noted that fruit packaging had been affected by the uncertainty arising from the sanctions related to the Russia-Ukraine conflict, as fruit producers have delayed decisions on the harvesting and packaging of some products until they are able to establish which markets to service and how.

These operations were negatively affected by several factors, including port constraints in South Africa and adverse weather in some regions.

Revenue in Mpact’s plastics business increased by 1.2% year-on-year to R848.6-million year-on-year, while sales volumes declined by 6.4% owing to lower sales in bins and crates operations.

Meanwhile, FMCG operations were in line with last year, while the company’s preform and closures operations went up marginally.

Meanwhile, macroeconomic uncertainties and persistent global supply chain constraints hampered various aspects of Mpact’s business, particularly in terms of the cost and availability of most raw materials and new capital equipment.

The company said that, where possible, it increased raw material inventory to mitigate long lead times and periods of uncertainty.

Despite these external challenges, Mpact said there had been “meaningful progress” on the implementation of its future growth strategy, which included several capital investments.

However, delays in the manufacturing and shipping of capital equipment for various projects – ordered mostly from Europe and Asia – negatively impacted some completion dates.

The company said it had, however, contained project costs to within the approved budgets, with a few exceptions related to exchange rate movements and shipping delays.

In addition to the ongoing global challenges, Mpact said it had successfully navigated the lingering effects of the unrest that occurred during July last year in KwaZulu-Natal, the April floods in the province that caused widespread disruptions and infrastructure damage, drought in the Eastern Cape, unprecedented load-shedding levels, as well as other municipal service interruptions countrywide.

Mpact reported a 31.1% year-on-year increase in headline earnings a share to 142c, while basic and underlying basic earnings a share increased by 28% year-on-year to 138.9c.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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