Trading for the first five months of this year has been strong for paper and packaging manufacturer Mpact, with underlying profit exceeding pre-pandemic comparatives in both the plastics and paper businesses.
Group revenue for the period ended May 31, 2021, was R4.8-billion and exceeded the prior comparative period by 16%, while underlying operating profit more than doubled to R240-million.
Mpact’s paper business benefited from improved global containerboard prices, increased local sales and higher average prices, the company reports.
The benefits of higher containerboard prices were partly offset by higher waste paper costs, which Mpact says have increased dramatically since the end of 2020, along with a general increase in demand and pricing for commodities.
Sales of plastic packaging products benefitted from increased demand in most sectors, but the benefit of increased sales was partially offset by significant increases in polymer prices, the company explains.
Revenue for the period for the paper business increased by about 15% when compared with the prior period, as this business benefitted from strong local containerboard demand during the period, improved production performance and a favourable product and market mix.
While low-margin rolled pulp was produced to use excess capacity in the prior period, no rolled pulp was produced nor sold in the current period, and Mpact says demand for the company’s regular product remains strong across all of its mills.
Paper converting sales volumes benefitted from the recovery in the industrial and Quick Service Restaurant (QSR) sectors.
Growth in the agricultural sector was partly offset by a later start to the citrus season compared with the prior period. Nevertheless, Mpact notes that the 2021 citrus crop is still predicted to be up by as much as 8% on that of the prior year.
Since the successful 2020 commercial launch of the “Freshpact” range of fresh produce paper trays and punnets, sales volume of these products have grown significantly, with other successful recent innovations including the paper grape bags and paper courier bags.
A second interim payment of R30-million has been approved by insurers relating to the Springs Mill electricity supply interruption in 2020, of which the net proceeds of R26-million will be included in the interim results as sundry income, Mpact says.
Meanwhile, revenue in the plastics business for the five months increased by about 20% when compared with the prior period, with good growth across all business units.
While plastics showed a significant improvement in profitability, higher polymer prices have not yet been fully recovered in selling prices, Mpact laments.
Net finance costs for the six months ending June 30 are estimated to be lower by about 25% and are attributable to lower average net debt and interest rates, and the effective tax rate is estimated at about 28%.
Additionally, cash generated from operating activities during the first six months of the year is expected to be offset by higher working capital, owing to increased stockholdings of raw materials to ensure continuity of supply.
This, together with the payment made for shares repurchased, will result in net debt increasing from the December 2020 levels, but net debt is expected to be well below the net debt of R1.9-billion as at June 30, 2020.
Further, Mpact confirms that it is investing to take advantage of the significant structural shifts in the global economy as it rebounds from the Covid-19 slump, re-orientates itself towards investing in green growth and prioritises environmental, social and governance standards.
These shifts have increased demand for the company’s range of products and seen both new and existing clients, as well as the financial markets, taking a keen interest in its circular economy business model.
To ensure that Mpact remains well positioned to take advantage of a sustained increase in customer demand across the business segments, the board has recently approved over R500-million in investments to support growth and innovation, improve margins, and ensure the resilience and sustainability of Mpact’s operations.
Over the next 24 months, Mpact is building its new purpose-built facilities while investing in new technology, plants, equipment and solar power production that will improve efficiencies and expand its capacity to meet growing customer demand.
The key projects include Mpact Plastic Containers’ establishment of two new operating sites, Mpact Recycling’s development of a new purpose-built facility in KwaZulu-Natal as well as investments in Mpact Corrugated and Detpak’s paper converting capabilities, and the expansion of the group’s solar photovoltaic generation portfolio by building more than 6 MW of solar generation capacity at five plants.
This will increase Mpact’s total installed renewable energy generating capacity to over 10 MW by the end of 2022 and deliver environmental and social benefits essential to Mpact’s sustainability.
“Collectively, these new capex projects allow us to take advantage of our unique circular economy business model while positioning Mpact to deliver sustained revenue and margin enhancing growth,” the company comments, adding that it has a strong balance sheet and sufficient debt facilities to implement its strategy.