Southern Africa’s largest paper-and-plastics packaging business and recycler, Mpact, says it is targeting the fruit export, convenience shopping, recycling and waste-management sectors, which it says are tipped for huge growth as they are shielded from SA consumer spending patterns.
This comes as the Johannesburg-based group reported price increases and strong SA demand had helped profits rise almost a quarter in its half-year to end-June, cautioning that margins are under strain from surging costs, and it is already in talks with clients about further price hikes.
Group revenue increased by 5.2% to R5.7bn to end-June and after-tax profit rose 24.57% to R242.3m, Mpact reported on Monday, despite volumes coming under pressure from supply-chain disruptions and Russia’s invasion of Ukraine.
Supply issues put pressure on the production of bins and crates, and uncertainty over Ukraine also prompted many fruit exporters to hold off on harvesting and packaging, with port constraints adding to the pressure.
But the company benefited from strong SA demand for paper and containerboard, with all paper machines fully booked to end-September.
Meeting consumer requirements
On Monday, Mpact said it would continue exploring growth opportunities in segments that could survive the cyclical nature of commodities and were essential for consumers regardless of prevailing high inflationary pressures while it invests to meet customers’ requirements and extends its innovative product offering.
“Importantly, several of our products are targeted at sectors which are expected to grow in the foreseeable future, and are partly shielded from SA consumer spending patterns,” it said highlighting the fruit exports, convenience shopping, recycling and waste-management sectors.
This is as the group looks to close the loop in paper and packaging, and position itself to benefit from the ongoing drive towards a circular economy by brand owners, manufacturers and governments alike.
Despite a decline in the first half of the year, port constraints in SA and adverse weather in some regions, Mpact — citing the Citrus Growers Association’s (CGA) forecasted higher growth in citrus export volumes from SA for the full-year of 2022 when compared to the prior period — said it was looking to take advantage of the high export volume growth expected in the fruit sector.
“If this materialises, we expect to benefit in both the paper-converting and plastic bins and crates businesses,” CEO Bruce Strong said, adding that various projects to increase its corrugated capabilities to service the growing export fruit sector, and in particular citrus, are expected to be completed by the end of 2024.
In the year to date, about 91.5-million tonnes of citrus have been shipped out of SA, according to the latest CGA data, up from 79.6-million in 2021.
Packaging giants such as Nampak, Mondi and Mpact have benefited from the rising demand for ready-to-eat and packaged foods due to the busy lifestyles of consumers, coupled with the increasingly young population, especially working women, which also drives the demand for packaged food and other goods.
Focused on capacity-building
With 45 operating sites across SA and in Namibia and Mozambique, 22 of which are manufacturing operations, the group expects to grow its reach and capacity as a number of its plant revamps and upgrades come to completion over the next two years, which will beef up its capacity.
Last year, Mpact committed to investing R500m in new technology, plants, equipment and solar-power production, which it said would improve efficiencies and expand capacity.
Its focus on this was evident in the company’s net debt, which increased to R2.2bn in the six months from R1.7bn in December, mainly as a result of investments in capital projects and working capital cash outflows, which it said were both expected.
Several of our products are targeted at sectors [that] are expected to grow in the foreseeable future, and are partly shielded from SA consumer spending patterns.
— Mpact
Mpact said the new plastic-crate recycling facility in Brits and the development of the new Castleview factory are also expected to contribute more meaningfully during the second half of the year.
Mpact has injected R178m into the expansion of its capabilities at Castleview in a bid to extend innovative product offerings, including a food-grade production facility and automated warehouse expected to be completed in the fourth quarter, followed by an expected improvement in the bins-and-crates business.
Its R30m investment into its Brits facility is meant to double the recycling capacity of used bins, crates and other products.
The group said it would continue to invest to meet customers’ requirements while also growing organically and through acquisition.
“This strategy has enabled the business to report stronger earnings as the company continues to innovate and evolve into new, higher-margin product areas, creating tangible returns for all shareholders,” Strong said.
Meanwhile, the company is in discussions with potential buyers for the Mpact Versapak business, whose net-asset value stood at R337.3bn as of June 30.
The board decided to sell the producer of plastic trays, films and sheeting as its products were not fully aligned with Mpact’s strategy.
The group said the held-for-sale asset had reported improved revenue of R509bn, up from R427.9bn in the previous matching period, while net earnings also rose to R27.8m from R18.2m, equating to basic earnings per share (EPS) of 19.3c from 12.3c.
Mpact opted to pay a 40c interim dividend, from none previously, equating to a R59.27m payout. The group, valued at R4.29bn on the JSE, did, however, declare a 50c final dividend in 2021.
Update: August 8 2022
This story has been updated with new information throughout.
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