JSE-listed paper and plastics packaging business and recycler Mpact's product innovation, research and new production capacity is targeting sectors like export fruit, convenience shopping, recycling and waste management.

The company is expecting to see sustained growth in these sectors, which are also partly shielded from South African consumer spending patterns.

“Mpact continues to make good progress on several strategic initiatives that focus on growth sectors and the circular economy where we see significant opportunity for long-term value creation. These are primarily organic projects that will extend our innovative product and service offering, generate sustainable energy and make a positive impact on our communities.

“We have also focused on portfolio optimisation and alignment with our strategy to grow where the growth is and divest where appropriate,” said Mpact CEO Bruce Strong.

The company had reconfigured its Felixton Paper mill to produce home delivery bags made from 100% recycled paper, in response to demands from a retailer client.

“Five years ago, we did not produce these Sustainabags and home delivery bags were being made from virgin paper pulp. Convenience often means more packaging and our role is to ensure that only the necessary packaging is used, that the packaging is recyclable and is collected for recycling,” he explained.

The Felixton Paper mill also achieved record production of 210 646 t for 2022, up 9% year-on-year. This result exceeds the 2017 rebuild project target capacity and was achieved on the back of recent mill optimisation and debottlenecking initiatives, he illustrated.

“We are excited by the new R1.2-billion Mkhondo Mill project because it will allow us to better innovate and exploit these higher value growth areas.

“Looking forward, we will continue implementing our value-enhancing strategy and optimise the business portfolio while pursuing organic and in-organic growth. Our business and our competitive advantage is the circular economy because what goes around as sustainable packaging, comes back around as sustainable profit,” he added.

Mpact increased revenue to R12.4-billion in its financial year ended December 31, up by 7.1% compared with the prior financial year.

Underlying operating profit, or earnings before interest and taxes (Ebit), improved by 22.9% to R1.16-billion, up from R948-million in the 2021 financial year. Underlying earnings a share of 455.7c increased by 26.7% from 359.6c in the prior year.

Meanwhile, the company's gearing increased to 32.5% in 2022 from 29.4% the year before, and its net debt increased in line with its expectations to R2.3-billion from R1.8-billion in the 2021 financial year, mainly owing to higher capital investments of R1-billion, as well as increased working capital, Strong noted.

In February, Mpact secured an additional R1.45-billion, four-year committed debt facility in order to ensure it has sufficient headroom during the implementation phase of the recently announced Mkhondo Mill project and other additional capital projects.

Further, the company declared a final gross cash dividend of 75c an ordinary share, bringing the total dividend a share for the year to 115c, which represents dividend cover of four times which is a 130% increase from 50c a share in the prior year, said Mpact CFO Brett Clark.

While cost inflation may reduce from the high levels of the past year, Mpact expects costs to remain elevated and consumer spending to remain under pressure. This, in turn, may affect demand for some of its products and place pressure on margins, he noted.

“The management team's primary focus is on implementing our value-enhancing strategy that aims to optimise the business portfolio and foster organic and inorganic growth. This strategy has resulted in stronger earnings and has facilitated the company's innovation and expansion into new, higher-margin product areas, thereby delivering tangible benefits to all shareholders,” said Strong.

“Mpact's integrated business model is designed to close the loop in paper and packaging, which makes it well-positioned to benefit from the global push towards a circular economy, spearheaded by brand owners, manufacturers, and governments,” he added.

Specifically, the paper business is expected to continue to benefit from good domestic containerboard and cartonboard demand, with all paper machine capacity fully allocated to customers until the end of September. Additionally, the recovery of higher manufacturing costs through increased selling prices in the final quarter of 2022 will be positive for the business.

Further, the Felixton Mill upgrade project, aimed at increasing the production of lightweight recycled containerboard by an additional 16 000 t/y is scheduled to be completed during the third quarter of 2023, he said.

However, margins in the paper converting business are expected to remain under pressure owing to significant containerboard cost increases, which may not be fully recovered in selling prices, Clark noted.

The plastics business, meanwhile, is anticipated to benefit from the consolidation of the two preform and closures factories in Wadeville during 2022.

“We also continue to work on optimising production efficiencies, along with increased profitability in the bins and crates business, as the new Castleview factory gains critical mass,” said Strong.

He outlined some of the projects Mpact is undertaking to extend its innovative product and service offering. Other projects have been and are being implemented to increase recycling of bins and crates and reduce costs and increase collection and processing of recyclables.

To increase the company's energy resilience, it rolled out 5.3 MW of solar photovoltaic systems at a further five plants during the year, bringing its total capacity to 9.4 MW at ten sites. The development of a further 6.7 MW of capacity has been approved at two sites in 2023 for R170-million, with an additional 10.6 MW of capacity at two sites in the pipeline, pending board approval, he highlighted.

“Several of our converting operations already have back-up generators and we are evaluating the electrical infrastructure requirements to have generators installed, where practical, at other sites to increase our operational resilience when the electricity infrastructure fails,” he highlighted.

The company aims to have 25 MW of solar energy capacity by 2027, and will probably get to this point earlier, he added.