After experiencing a demanding period in the year ended December 31, 2025, JSE-listed paper and plastics packaging and recycling company Mpact has managed to grow underlying earnings before interest, taxes, depreciation and amortisation by 1.2% year-on-year to R1.5-billion.

The group reported 5% higher revenue year-on-year at R14-billion but lower headline earnings per share of R3.07, compared with R3.24 in the prior year.

Mpact’s underlying operating profit decreased by 1% year-on-year to R914-million owing to an increase in depreciation of plant and equipment.

Positively, Mpact’s total dividend a share amounted to 60c for the year, compared with a total dividend of R1.05 in the prior year, and its net asset value a share increased by 6% year-on-year to R37.76.

Return on capital employed was 10.9% in the year under review, compared with 11.7% in the prior year, primarily owing to the substantial recent capital investment to upgrade the Mkhondo mill, in the Western Cape, which has not yet contributed to earnings.

Overall, Mpact’s underlying profit before tax amounted to R683-million for the year, which compares with an underlying profit before tax of R708-million having been reported in the prior year.

The company is experiencing sustained economic pressure and difficult trading conditions across several of its markets. Domestically, Mpact’s performance was impacted on by weak demand, infrastructure constraints and global industry headwinds.

Mpact did achieve good volume growth in containerboard and agricultural packaging, supported by strong demand from the fruit sector; however, these gains were partially offset by margin pressure in the paper business and softer demand in certain industrial and consumer-related segments.

The plastics business delivered a notable improvement in operating profit, driven by cost base restructuring, an improved product mix and operational efficiencies.

Mpact has been undertaking strategic investment and portfolio optimisation, including an upgrade of the Mkhondo mill.

The upgrade enhances Mpact’s competitiveness in export-oriented agricultural packaging and supports long-term growth.

In turn, portfolio actions such as the sale of Versapak and the potential closure of the Springs mill reflect a continued focus on disciplined capital management and strengthening the balance sheet.

The group also continues to invest in its energy resilience, having reached installed solar PV capacity of about 18 MW in the year under review, which is delivering meaningful electricity cost savings.

OPERATIONS

Mpact reported lower underlying profit of R804-million, compared with R932-million in the prior year, in its paper segment owing to lower margins and under-recovery of higher fixed costs, which increased by 5.9% owing to the Mkhondo mill upgrade.

The global paper industry is in a prolonged downturn with structural overcapacity across most paper grades, which continues to depress selling prices. Locally, Mpact says, weak demand and above-inflationary increases in utility costs made imported paper increasingly competitive.

For example, cartonboard sales from the Springs mill declined by 2.3% year-on-year owing to subdued local demand and import competition. The mill took 32 days of commercial downtime in the year under review to manage inventory levels, compared with nine days in 2024.

Mpact has started with a retrenchment process in downscaling the Springs mill operations. The mill has experienced a sustained deterioration in competitiveness, including owing to the stronger rand as of late, with prices of cartonboard imports from several countries being below the mill’s cost of production.

Mpact did manage to increase overall containerboard sales by 8.8% in the period after successful interventions at the end of 2024 to increase exports and displace imports in the local market – using the improved competitiveness of the Felixton mill.

Mpact’s paper converting business reported 3.2% higher revenue in the year under review, driven by good growth in the fruit sector but slightly offset by lower industrial sales.

In August, Mpact increased its shareholding in Seyfert Corrugated Western Cape from 49% to 74%. Seyfert manufactures corrugated packaging products for the agriculture sector, which the group considers an area of growth.

Meanwhile, underlying operating profit doubled to R179-million in the plastics segment in the reporting year owing to an increase in gross profit and a reduction in fixed costs. Mpact made a concerted effort to reduce controllable costs in the bins and crates and other plastics businesses and expects a much-improved performance in plastics overall this year.

Mpact’s net debt stands at R2.51-billion as of December 31, with gearing of 28.7%.

EXECUTIVE VIEW

Mpact CEO Bruce Strong says that, while overall performance was mixed in the reporting year, Mpact made important progress in improving its strategic position through disciplined capital investment, portfolio optimisation and operational improvements.

He expects South Africa’s economic environment to remain weak this year, with ongoing pressure on consumers, persistent infrastructure challenges and increased competition from imported products.

“Global economic uncertainty is also likely to continue weighing on demand across several sectors.”

Despite these headwinds, Strong anticipates Mpact’s recent investments and optimisation initiatives to enhance resilience and competitiveness. The agricultural segment remains structurally attractive, supported by export-led growth.

Strong expects the company’s plastics business to deliver a stronger performance this year after the completion of cost base restructuring, while the benefits of recent capital investments in the paper business will build progressively over time.

“With the bulk of our major investment cycle completed, including the commissioning of the Mkhondo mill upgrade, we are shifting focus to converting the asset base into stronger earnings, cash generation and improved returns.

“Portfolio actions already taken, together with capital discipline and operational efficiency initiatives, are intended to strengthen the balance sheet and support sustainable shareholder returns as we move through 2026,” Strong concludes.