Paper and plastics packaging business and recycler Mpact says it continued to face a persistently challenging trading environment during the six months ended June 30, resulting in trading and profitability ending below expectations.

The general economy remained subdued, despite lower interest rates and inflation, while uncertainty across local and global markets negatively impacted on business confidence, Mpact says.

Despite the economic downturn, the group benefited from its strategic alignment with growth sectors and increased competitiveness.

Good volume growth was realised in containerboard and fruit packaging. These gains, however, were offset by declines in industrial sales volumes owing to portfolio optimisation and depressed consumer demand.

“We continue to make good progress on our strategic capital projects, which focus on growth sectors and investments in innovative, higher-margin, and sustainable products. We remain confident in our value-enhancing strategy and prospects, notwithstanding the recent headwinds.

“Our solar PV generated power, amounting to 16 MW, resulted in a saving of over R20-million in electricity costs during the first half of the year,” CEO Bruce Strong says.

“The R1.3-billion upgrade project at the Mkhondo mill has reached a significant milestone, with construction and commissioning of the sodium lignosulphonate (SLS) plant complete, and the pulp mill upgrade in its final stage of construction.

“We are encouraged by the progress and remain on track to complete the pulp mill commissioning during the third quarter of this year.

“Thereafter, we will require several months to optimise both plants to reach design specifications and conduct SLS customer trials. This marks a major step forward in enhancing our operational capabilities and product portfolio to support future growth,” Strong informs.

Meanwhile, the global cyclical downturn in the paper industry led to lower margins in the group’s Paper business, as selling prices decreased more than input costs, particularly owing to higher local recovered paper prices.

Mpact anticipates this will remain the case for the remainder of the year.

“Despite this challenging environment, we were able to grow local and export containerboard volumes due to the competitive position of our Felixton paper mill, albeit at lower margins,” Strong avers.

Demand from the fruit sector was up on the first half of 2024, with good growth in plastic crates and citrus cartons, partially offset by lower sales volumes in banana and avocado cartons.

Mpact anticipates continued growth in the agricultural sector in the second half of the year.

The industrial market remained weak, impacting on the group’s Springs mill, the Paper Converting business and beverage crates.

As anticipated, FMCG Wadeville’s volume declined significantly following the expiry of two supply contracts with a major customer in June 2024.

Group revenue from continuing operations for the period ended increased by 3.2% to R6.37-billion from R6.17-billion as at June 2024, primarily driven by increased containerboard sales volumes in the Paper business.

Revenue growth achieved in the Paper business was offset by higher variable costs, particularly increased recovered paper prices and energy costs, as well as lower sales volumes in the Plastics business, leading to a 2.8% reduction in the group’s gross profit.

Underlying earnings before interest, taxes, depreciation and amortisation decreased by 14.5% to R625-million from R731-million, and operating profit by 25.5% to R315-million from R423-million.

An interim dividend of 30c apiece has been declared.

OPERATIONS

Revenue for the Paper business increased by 6.9% to R5.4-billion owing to a 5.9% increase in sales volumes and a 1% increase in the average selling price.

Volumes increased owing to improved containerboard sales, somewhat offset by lower cartonboard and corrugated sales volumes.

The Recycling business successfully increased collection volumes during the period to ensure a consistent supply to the group’s paper mills and external customers.

Recovered paper prices were up significantly compared to the prior period owing to continued export demand, especially from India.

Paper Manufacturing increased containerboard sales volumes by 20.3% following the successful interventions at the end of 2024 to increase exports and displace imports in the local market, using the improved competitiveness of the Felixton mill following the recent upgrade.

This approach mitigated the impact of cheap recycled containerboard imports, and no commercial downtime was incurred at Felixton or Mkhondo during the current period, Mpact points out.

Performance at the Mkhondo mill was impacted on by construction related to the upgrade project.

Cartonboard sales volumes from the Springs paper mill declined by 9.5% owing to subdued local market conditions and import competition.

Springs mill took 15 days of commercial downtime in the current period to manage stock levels. In addition, the mill incurred 18 days of downtime owing to external utility supply interruptions.

Paper Converting’s revenue was down 1.3% compared with the prior period, with lower sales volumes partially offset by an increase in the average selling price.

Corrugated sales to the fruit sector were flat and industrial sales were lower owing to weak demand.

Revenue in the Plastics business decreased by 14.7% to R936-million from R1.01-million primarily owing to lower sales volumes at FMCG Wadeville, as anticipated, as well as lower beverage crate sales in Bins & Crates.

Despite the decline in profitability in the first half of the year, Mpact expects an improved full-year result from the Plastics business compared with the prior year, aligned to profitability in this business typically being weighted towards the second half of the year.

“. . . we expect 2025 to be similar,” the company states.

OUTLOOK

A significant uplift in the South African economy seems unlikely in the near term. Coupled with a challenging global backdrop, Mpact says it expects trading conditions to remain difficult in the second half of the year, with a corresponding impact on profitability.

Despite these challenges, it says it will continue to focus on realising benefits from its portfolio optimisation and other strategic projects.

Based on current projections, no commercial downtime is anticipated at the containerboard mills. However, continued pressure on selling prices is expected to offset the positive operating leverage benefits.

Mpact also anticipates cartonboard prices and sales volumes remaining under pressure owing to weak local demand and competitive imports.

Unplanned utility disruptions continue to be an issue, particularly at the Springs paper mill and some other Ekurhuleni-based operations.

The Mkhondo mill upgrade project is on track for the construction and commissioning of the pulp mill to be completed during the third quarter, following about four weeks of downtime.

Thereafter, the group will require several months to optimise both the new SLS plant and upgraded pulp mill to reach design specifications and conduct SLS customer trials.

The contribution from this project to the group’s overall profitability will be limited for the 2025 financial year.

Mpact says it continues to see good growth from the agricultural sector in Paper Converting and Bins & Crates, which has been a strategic focus area for the group.

It also expects an improved full-year result from the Plastics business compared to the prior year.

Both FMCG Wadeville and Bins & Crates have restructured their cost base, which, along with higher sales volumes, should improve margins.