JSE-listed paper and packaging group Mpact has reinstated a final dividend of 50c apiece for the year ended December 31, 2021.

It did not declare a dividend for 2020 in order to exercise caution over capital following the outbreak of Covid-19 in South Africa and the resultant lockdowns.

For 2021, the company generated 13% higher revenue from continuing operations at R11.5-billion. Underlying earnings before interest and taxes (Ebit) grew by 56% year-on-year to R948-million in the reporting year, while underlying earnings a share increased by 93% year-on-year to 360c.

Mpact’s return on capital employed increased to 17.8%, reflecting the company’s resilience and solid market demand for sustainable packaging.

CEO Bruce Strong says the year brought with it unprecedented supply chain constraints globally and across sectors, which impacted on the availability and price of raw materials.

The prices of paper, plastic polymers, electricity and several process chemicals escalated well above inflation in the year under review.

However, the supply chain challenges have led to increased demand from customers for locally produced products, from which Mpact benefitted. Strong mentions that Mpact has also benefited from increased demand as a result of uncertainties around imports amid the Ukrainian crisis.

Strong tells Engineering News that the supply chain constraint situation will not likely change in the next six months and, as a mitigating measure, Mpact has started holding more stocks of raw material and sourcing products from other markets wherever possible.

Robust customer demand helped to offset the significant increase in the cost of inputs, including raw materials, electricity and fuel.

Strong reports that the paper business enjoyed strong local containerboard and cartonboard demand. This while the paper converting division benefited from the recovery in the industrial and quick service restaurant sectors, and growth from new product sales.

The paper business contributed R875-million to underlying Ebit.

The plastics business contributed R200-million to underlying Ebit, thanks to good demand in the bins and crates segment and a recovery of volumes in the preforms and closures segment; however, this was offset by lower demand in the fast-moving consumer goods segment.

In the year under review, Mpact decided to disclose the Versapak business – part of the plastics business – as a discontinued operation, after deciding to sell it as a going concern.

The company believes Versapak’s products are not fully aligned with Mpact’s strategy. Mpact is in the early stages of discussion with potential buyers and expects the sale to take several months to complete.

Meanwhile, Mpact expects to continue benefitting from strong global containerboard and carbonboard demand, as well as increased demand, overall, for locally-produced products.

The company remains cautious over consumer spending, as monetary policy may tighten and as the effects of Covid-19 persist.

Mpact also expects the upward inflationary pressure arising from global supply chain disruptions, exacerbated by the Ukrainian conflict, to continue for the foreseeable future.

Strong says he remains confident about the company’s prospects in the South African market, thanks to a strong fruit exports industry, and other strong exporting industries.

Despite these immediate challenges, the company is working on the successful implementation of several projects and growth opportunities totalling more than R700-million to support customer-focused growth, innovation and sustainability, and to build on Mpact’s integrated business model (based on a circular economy).

Strong says these projects include continuous investment in renewable energy – the company will have 12 MW of solar plants commissioned by year-end, building on the 5 MW of generation capacity that came online in 2021.

It aims to have 25 MW of renewable energy online by 2027.  

Other investments will include improvements in bins and crates and increasing recycling rates, as well as ensuring water and electricity efficiency.