JSE-listed paper and plastics packaging and recycling company Mpact has reported a 4% year-on-year increase in revenue to R13.3-billion for the year ended December 31, 2024, despite a challenging trading environment for most of the financial year.

“We are optimistic about our exposure to growth sectors, including fruit export and convenience shopping. Despite investing R1-billion during the year, we returned 75c a share, or R155-million, in dividends to shareholders.

“This demonstrates our commitment to returning cash to shareholders while developing our prospects into the future,” CEO Bruce Strong tells Engineering News.

The outlook for the fresh fruit export sector is promising, which should benefit the Paper Converting and bins and crates businesses. The Paper Converting business is also well positioned for any recovery in the local economy, he says.

“An improvement in the Plastics fast-moving consumer goods business’ profitability is anticipated this year after the travails of 2024, and the bins and crates business is expected to benefit from the increased use of recently upgraded capacity and new product lines.”

While Mpact remains cautious of the local economy and believes that interest rates need to drop further and inflation must decline more, although it has moderated since the end of the 2023 financial year.

Further, while Mpact is well positioned to capitalise on any economic recovery in South Africa, based on its most recent trading, the domestic economy remains subdued despite lower interest rates and reduced inflation.

“We are seeing opportunities in the export market that we can benefit from during this year that we did not have in the prior year. We have invested throughout the economic cycle - without undue risk because they were investments in products we are able to sell and for which there is already demand.

“With these upgrades, we have some additional capacity and are able to deploy it if there is an uptick in the economy. On the downside, pricing remains under pressure, as do costs, although costs are under less pressure. We were in a tough position last year, which has moderated somewhat, and we aim to get the balance right,” he says.

The revenue increase for the 2024 financial year was primarily driven by a 3% increase in sales volumes in its paper business and an improved product mix in plastics owing to increased sales in bins and crates.

Trading was hampered by a weak economy underpinned by high interest rates, cost inflation, loadshedding and other service delivery failures, which negatively affected consumer and business confidence.

“Despite the challenging trading environment, cash flow from operations for the year was R1.9-billion and net asset value a share increased by 6% to R35.76.

“Gearing reduced to 28.8%, which is the lowest level in four years, from 32.9% in the 2023 financial year. Net debt decreased to R2.4-billion from R2.7-billion in the prior year, which is a reduction of 11% after Mpact invested R1-billion in capital projects and paid out R155-million in dividends,” he highlights.

Its underlying operating profit declined to R923-million, down from R1.21-billion in the 2023 financial year, owing to an under-recovery of higher fixed costs, as well as non-recurring expenses at FMCG Wadeville following the restructuring and consolidation over the past few years.

“We made good progress on our strategic capital projects and portfolio optimisation through investments and disposals aligned with our strategy which embraces the circular economy. We also continued to engineer solutions at our operations to mitigate the impact of infrastructure failures.”

Specifically, the Mkhondo paper mill upgrade project, which represents an investment of R1.3-billion, aims to enhance the group’s product portfolio by adding new export revenue streams and higher-value products.

The project team is doing well navigating a number of challenges, including cost pressures, a tornado and excessive rain from December 2024 to February that hindered construction, Strong says.

The project is scheduled to be commissioned by the end of June.

The Mkhondo upgrade will add revenue to the business in three ways, including producing up to 35 000 t of SRS powder, albeit not during the first year of operation. Secondly, the upgrade will increase the mill's capacity by about 10 000 t/y to 142 000 t/y, says Mpact CFO Hannes Snyman.

The third area the upgrade would add revenue was by increasing the amount of virgin materials it can use up to 50% from about 20% currently. The upgrade in the pulping capacity will improve the virgin capacity of the mill, he says.

Additionally, the sale of Versapak was successfully concluded with effect from November 1, 2024, with the sale proceeds of R255-million and approximately R50-million in recouped working capital being used to reduce the group’s debt and strengthen the balance sheet, Strong says.

OUTLOOK
Mpact remains confident in and committed to its value-enhancing strategy, which focuses on growth sectors and investments in innovative, higher-margin and sustainable products.

The sectors include fruit exports, returnable transit packaging, convenience shopping, and recycling, some of which are somewhat insulated from South African consumer spending patterns.

Meanwhile, Mpact's solar-generated power increased by 79% in 2024, leading to savings of more than R40-million in electricity costs during the year compared to power that it would otherwise have bought from municipalities or Eskom.

The group's solar PV generation capacity is currently 16 MW, with further expansions of between 1.5 MW and 2 MW underway at its operations. These should bring the total to 18 MW with the aim to get to 25 MW of installed solar power by 2027, says Strong.

“Additionally, we are investigating adding 66 MW at Mkhondo and selling excess power onto the grid, if the economics are viable. We believe the project is technically feasible, and we have had some confirmations of this. We are busy with the environmental impact assessment, which will get us going, and we will evaluate the project over the next three to four months to see whether it will work,” he says.