Packaging manufacturer Mpact forecasts interim earnings will surge by as much as almost 40% on an improved performance in its plastics segment and higher selling prices in the paper division.
But the paper and plastics packager, which is valued at R4bn on the JSE, warned that net debt had increased by R313m to R2.6bn after investing R843m in capital projects.
In a statement on Tuesday, Mpact said that headline earnings per share (HEPS) — which strips out one-off and exceptional items — for its total operations in the six months to end-June are expected to rise between 30.3% and 37.3% from 430.1c in the previous corresponding period. The group is scheduled to publish its financial statements on August 4.
The firm said the profit increase was due to higher selling prices in the paper business; a recovery from the impact of the April 2022 floods in KwaZulu-Natal; the consolidation of the preforms and closures operations; and investments in bins and crates in the plastics segment.
“Mpact continues to benefit from its strategic investment projects, the expansion into new higher-margin product areas, and increased operational resilience due to investments in its own alternative power and water supplies,” it said in a statement.
However, the performance of the plastics division excludes the company’s plastic trays and films business, Versapak, which in the half-year period saw its net asset held-for-sale decrease to R173m from R337m in the prior comparative period.
“The company is currently in discussions with potential buyers for the business,” the group said in Tuesday’s statement, adding the sale could take several months to complete.
Group revenue for the six months ended 30 June 2023 is expected to increase by about 9% year on year as the packager banks on higher average selling prices partially offsetting lower sales volumes.
Mpact was among companies that benefited from the global pandemic-related lockdowns, which spurred the rise of online shopping, and the group has been investing further to cash in on continued high demand.
In 2021, the board approved investments of more than R500m to support customer-focused growth, innovation and sustainability, targeting such as export fruit, convenience shopping and recycling.
For the 2022 financial year, the group has earmarked R255m for the first phase of an expansion ofthe Castleview plastics container plant in Germiston. A further R178m is reserved for the next phases, plus an additional R77m for an expanded 10,800-pallet automated warehouse.
Its last big investment was a R1.2bn capital injection into the Mkhondo Paper Mill, as the group looks to capitalise on the surging demand for containerboard, driven by booming fruit exports.
In March, Mpact bought R40m worth of crate-making and ancillary plant equipment from competitor Nampak, which is struggling with a R5bn debt pile after an ill-fated expansion into Africa.
The purchase and the capital investment saw debt rising to R2.6bn by June from R2.3bn in December and R1.76bn in 2021.
Caxton, the group’s biggest shareholder, has said it is concerned about the debt levels and is challenging a number of aspects of Mpact’s corporate governance, which are “similarly worrisome”.
Caxton, a printing and publishing group, has had its sights on Mpact for years and built a 34% stake, but negotiations on a full takeover have failed, leading to a legal battle.
Mpact shares were up 0.41% to R26.97 in afternoon trade on the JSE, but have fallen 8% in the past six months.
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