JSE-listed paper and plastics packaging business and recycler Mpact saw revenue decrease by 1.1% to R6.17-billion during the half-year period to June 30, down from R6.24-billion in the comparable 2023 interim period, primarily owing to a 2.1% decrease in sales volumes.

However, the company increased its net asset value (NAV) a share by 9% to R34.11.

Underlying operating profit decreased to R423-million, down from R531-million for the 2023 half-year period, as a result of lower selling prices in the paper business, the under-recovery of fixed costs and higher depreciation from major projects capitalised towards the end of 2023.

“The group generated earnings before interest, taxes, depreciation and amortisation of R763-million and cash from operations of R516-million, and although lower than last year, this demonstrates our resilience through the cycle,” says Mpact CEO Bruce Strong.

The company also declared an interim dividend of 30c a share.

“This dividend is a bit lower than the one in the prior year's half-year period, but that is because we remain cautious. We will review the dividend again in the second half of the year,” he tells Engineering News.

“We still expect our full-year earnings to be under pressure relative to last year. Should demand pick up notably, the second half of this financial year could be better than the corresponding period of last year, although this may not be enough to fully offset the first half decline in earnings,” he adds.

“However, any recovery in the economy should translate into improved demand, which we are well positioned to meet.”

State-owned utilities Transnet and Eskom, together with their commitment to proactively respond to challenges, should further support growth in South Africa, and will benefit the prospects of all manufacturers.

“These improvements will also directly benefit our fruit-exporting customers who have already invested extensively for growth,” notes Strong.

“Additionally, if municipalities are fixed and start to deliver services for which they are responsible, this will provide a huge boost not only to our business, but to the economy,” he says.

Further, there was little to no festive season peak during the 2023 festive season, nor a peak during the following Easter period.

“If we see a peak in the festive season this year, such as from lower inflation and consumers diverting less cash to backup power and water, we should see a substantial improvement in the second half of the year.

“However, demand remains subdued at the moment. If there is a pick-up, this will translate to our bottom line. We remain optimistic for the medium-term outlook,” says Strong.

Business and consumer sentiment have started to improve on the back of the positive outcome of the national elections, lower inflation, no loadshedding since April 2024, and a possible interest rate cut later this year, he adds.

Meanwhile, Mpact continues to drive its value-enhancing strategy of aligning to growth sectors with sustainable returns, prioritising growth sectors and investments in innovative, higher-margin and sustainable products, and enhancing its operational resilience.

“The Mkhondo mill upgrade project of R1.3-billion is progressing well, with construction underway and most of the critical equipment ordered. The project is expected to be completed as planned during the first half of next year,” says Strong.

Mpact believes the best value is created through projects that boost its organic growth, although the company also keeps a lookout for acquisitions that can be bolted on and integrated into the business that can add value, notes Mpact CFO Hannes Snyman.

The company's net debt increased to R3.2-billion after it had invested R490-million in capital projects, R73-million in acquiring a 30% interest in blow-moulding water tank manufacturer Africa Tanks and paid R111-million in dividends to shareholders.

“We have sufficient headroom from our existing bank facilities and remain comfortably within our bank debt covenants,” he notes.

Return on capital employed for total operations was 14.4%, down from 18.8% at June 2023, owing to large capital outlays for strategic growth projects still in progress.

“We are expecting an increase in containerboard and carton board sales volumes. However, lower average selling prices may partially reduce the benefits of the positive operating leverage for the group,” says Strong.

The performance of the plastics business is anticipated to improve on the back of recent investments in bins and crates, which may be partially offset by lower sales in the preforms and closures business.

“The disposal of Versapak is expected to be completed by the end of the financial year, subject to regulatory approvals, and the net proceeds will be used to reduce debt,” he notes.

Mpact continues to invest in the sustainability of its businesses, and its investments in solar power are delivering benefits, with the company generating 16 MW and saving R18-million during the first half of the year, says Strong.

“Coupled with generators, these investments have increased our resilience, including in terms of weathering the impact of loadshedding and mitigating high electricity costs and increases.”

While the company's upgrade of its Mkhondo mill is to produce more paper for fruit packaging, which is a growing market sector, the upgrade will also see the mill produce sodium lignosulphonate, which is an additive used for concrete and will mainly be exported.

"This should bring in about R250-million to R300-million a year. However, the upgrade is also shrinking the environmental footprint of the mill,” Strong notes.