In its pursuit to capitalise on the global push towards a circular economy, paper and plastics packaging manufacturer Mpact has managed to expand into new, higher-margin product areas domestically and internationally, as well as increase profitability.

Reporting on its financial performance for the six months ended June 30, the company notes an operating profit increase of 37% year-on-year to R531-million, as well as headline earnings a share growth of 33% from 142c for the six months ended June 30, 2022, to 188c in the reporting period.

Mpact has declared in interim dividend of 45c apiece, building on the 40c dividend paid in the prior corresponding period.

The company attributes its higher operating profit to improved profitability in the plastics business, higher selling prices in the paper business since October 2022 and benefits of completed projects having realised.

The group’s 7.2% year-on-year increase in revenue to R5.3-billion for the six months under review was assisted by higher selling prices, which were partly offset by lower sales volumes in paper manufacturing and converting.

Paper manufacturing sales volumes were lower in the reporting period, owing to subdued customer demand and the late arrival of containerboard and carbonboard imports ordered by customers last year when there were global shortages.

In the paper converting operations, Mpact reports both agricultural and industrial sales volumes were down year-on-year, with declines in grapes, pome fruit and stone fruit driving the agricultural sales decline. Lower industrial volumes were a result of subdued consumer demand and negative effects of loadshedding.

The paper business nonetheless performed well with operating profit up almost 20% year-on-year to R548-million.

Operating profit also increased to R63-million from R3.5-million over the reporting periods in the plastics business.

Mpact has been investing in its bins and crates business, as well as consolidated its performs and closures sites in 2022, which supported the increased profitability.

The group’s net debt has increased to R2.6-billion as at June 30, from R2.3-billion in December 2022, owing to R843-million in capital investment undertakings in line with the group’s strategy.

CEO Bruce Strong comments that the company has navigated through tough economic conditions owing to its investment thesis and prudent growth strategy.

He says all operations reported improved performances in the six months under review, which was underpinned by successful investments in new capacity and alternative power and water supplies.

“Our unwavering commitment to closing the loop in paper and packaging places us at the forefront of this transformative movement and improves profitability, while giving the group a sustainable growth trajectory.”

Among Mpact’s main challenges in the reporting six months were high levels of inflation, despite it having reduced from last year’s levels, which pushes up costs of electricity, coal, fuel and certain imported raw materials, particularly those affected by the weaker rand.

Mpact points out that the significant global supply chain constraints that hindered the sourcing of raw materials in the prior corresponding six months have improved in the reporting period.

Another challenge, loadshedding, is being mitigated through demand curtailment agreements with Eskom and Mpact’s own installed solar generation capacity. The company has modified its processing operations to respond to the curtailment requirements up to Stage 6 loadshedding without materially reducing production.

Some of the group’s converting operations remain affected by loadshedding and still need to amend production schedules. In this regard, where feasible, Mpact uses diesel generators to be able to meet customer requirements.

Mpact is due to complete new solar generation installations totalling 6.7 MW at the Springs Mill and Castleview facilities during the second half of this year. These projects will bring the group’s total solar generation capacity to 16.1 MW.

The company is still holding its plastic trays and films business, Versapak, for sale.

Looking ahead, Strong expects cost inflation to continue declining; however, input costs are likely to remain elevated, while consumer demand will likely continue to be muted owing to loadshedding and a weaker rand compared with 2022.

These factors will continue to affect demand for some of Mpact’s products and put pressure on margins.

Nonetheless, Mpact expects its strategy of investing in innovative, higher-margin and sustainable products to yield benefits for the group, including returns for shareholders.

“We have strategically targeted sectors that are projected to grow in the foreseeable future, and these sectors are also somewhat insulated from South African consumer spending patterns. Some of our key areas of focus include fruit exports, convenience shopping, recycling and waste management,” Strong states, adding that home grocery shopping has significantly supported demand for recycled paper bags, while fruit exporters are increasingly making use of returnable crates.

Strong tells Engineering News that recycled or returnable packaging is undoubtedly the way of the future, and Mpact will continue positioning itself accordingly.