SA’s largest paper and plastics packaging group, Mpact, says red tape is preventing it from selling additional power it has into the national grid.
“We’ve been fortunate to have started our solar installations six years ago and we already have 9.4MW across the group and by the end of this year we will have 16MW,” CEO Bruce Strong said. “And by the end of next year, we will have 27MW of solar across the group.”
Strong said the Johannesburg-based group identified opportunities to sell additional power into the national grid as some of its plants operate five days a week but produce solar power seven days a week. However, red tape and regulations made it difficult.
“We do have opportunities to supply into the national grid ... but because of the current structure of various municipalities, we are not able to sell that additional power into the grid at the moment,” he said.
Mpact does foresee prospects in power supply in the future when regulations change.
“We will be able to wield that power, even between our own operations but it has to be done through the grid and until that regulation is in place, unfortunately, that power is being wasted,” he said.
After upgrades and solar installations that kicked off in 2017, Mpact is producing 9.4MW of power at 10 operating sites and has set its sights on reducing its dependence on Eskom even further. Strong said plans are already approved for a further 6.7MWp at two sites in 2023 while an additional 10.6MWp is in the pipeline for another two sites, pending approval.
The group, which released its annual results on Tuesday, said shoring up solar power at its plants, strong local demand in the paper business and higher average selling prices helped it weather a challenging operating environment.
While some of Mpact’s operations have not been powered up with alternative power solutions and rely on backup generators, like its factory in Paarl, the CEO said the group is evaluating the electrical infrastructure requirements to have generators installed where practical at other sites to increase operational resilience when the electricity infrastructure fails.
The group, valued at about R4.4bn on the JSE, reported revenue increased by 7.1% in its year to end-December to R12.4bn, mainly due to higher average selling prices.
Operating profit rose 23% and allowed Mpact to raise its interim dividend by 75c, bringing the total dividend for the year to 115c per share thanks to full-year profit growth driven by strong demand for containerboard, carton board and its converted paper products.
Highlighting that consumer spending has come under pressure and is expected to remain so throughout the year, Strong said Mpact will set its growth target ambitions in sectors that are not dependent on consumer spending patterns.
This includes fruit exports, recycling and home deliveries. “We’ve gone for exports of fruit while our recycling initiatives don’t need consumer spending growth to see growth in those areas,” he said.
“We’ve got changing consumer patterns like home delivery where you don’t need growth in consumer spending to see the benefit of home deliveries coming through our business.”
Strong said as people look more and more to paper as opposed to other plastic alternatives, the paper packaging business is well positioned to benefit from high demand in spite of subdued consumer spending.
Moreover, the booming citrus industry is a “compelling project” that Mpact will pursue in the medium term, while paper packaging locally will remain a growth segment driven by strong demand.
“The citrus sector is destined to grow quite substantially over the next 10 years and one of the main concerns has been not having enough raw materials to package their goods.”
“And so our investment at the Mkhondo mill, which is R1.2bn, is really aimed at making sure that they have the paper that’s required to make the boxes that they use to export the fruit,” he said.
In 2022, the board approved a R1.2bn capital injection into its Mkhondo Paper Mill in Mpumalanga, with the aim of meeting growing virgin containerboard demand for quality, sustainable, fresh produce packaging driven by robust growth in the SA export fruit sector.
Additionally, Mpact said its fresh pack paper punnets, which usually package tomatoes in supermarkets are another growth area the group is eyeing.
Competing against the likes of Nampak, Transpaco and Mondi in the packaging sector, Mpact is among the largest paper and plastics packaging and recycling businesses in Southern Africa. Customers include packaging converters, fruit producers and fast-moving consumer goods companies.
Mpact’s share price was up 2.57% to R30.76 on Tuesday.
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