Mpact CEO Bruce Strong says the R2.5bn investment the packaging giant announced at President Cyril Ramaphosa’s investment drive forms part of the R2.9bn the cash-flush group earmarked for projects targeting sectors like export fruit, convenience shopping and recycling.
These are areas where Mpact expects sustained growth that is partly shielded from SA’s consumer spending growth.
The share price of the group — which covers paper and plastics packaging and recycling businesses and which released its annual report at the end of last week — fell more than 4% since the beginning of 2023, but it climbed more than 250% over the past three years.
Speaking to Business Day, the head of Mpact said he is “cautiously optimistic” about opportunities and prospects in the areas the company does business. It is also engaging in upgrades and expansion of its facilities as it gears up for an influx of demand for its plastic and paper packaging solutions.
“While it’s important to note that the general economy of SA is going to remain under pressure, there are pockets or sectors of the economy which are about to grow in the coming years,” he said, citing fruit exporting as one.
“In our corrugated business where we make boxes for fruit, we are spending nearly R700m on upgrading our various lines and reconfiguring our production capabilities to produce boxes for our fruit customers who are expanding quite extensively in the next couple of years in SA,” Strong told Business Day.
“If we weren’t investing in the fruit packaging sector, it could well be that four or five years down the line SA will have a lot of fruit but nowhere to put it, and it will be difficult to ship it because there won’t be enough capacity of packaging.”
While citrus exports from SA provide more than 140,000 local jobs and bring in R30bn of export revenue a year according to the Citrus Growers Association, a stalemate regarding new EU regulations affecting SA citrus exports could spell disaster for fruit exporters if not resolved.
Farmers have warned of an expected loss of R500m and 20% of export oranges produced for Europe not being shipped if the government does not intervene to stop the EU from requiring refrigeration of oranges. This could leave some farmers without a livelihood.
“In terms of the existing citrus fruit plantings that are in the ground but not yet producing, the citrus sector is destined to grow by 6% per annum between now and 2030 ... just on that basis alone you need quite a lot more capacity to meet the requirements for those export fruit boxes,” said Strong.
Noting the many headwinds the citrus export sector has to contend with — including port inefficiencies — Strong said Mpact had not based its modelling on the full extent of that expected growth. Rather, it had opted to take a conservative view, basing investment models on far more modest numbers but nevertheless expecting a jump in growth.
Of its overall capital commitment of R2.9bn, Mpact said R1.6bn was to be spent in the next 12 months including the R1.2bn earmarked for its Mkhondo mill project. That project is expected to be completed in three years.
The second biggest single investment is in the factory in Gauteng that makes plastic crates for the fruit, soft drinks and beer sectors. Other upgrades will happen at the Mpacts Paper Converting business and at its plastic containers plant in Castleview and in Brits, as well as the group’s recycling and export handling facility in KwaZulu-Natal. There will also be expansion into renewable energy across the business.
The CEO of the R4.1bn JSE-listed firm said these projects generally have returns on investment of 20% or more, “so they are generally very profitable projects from our perspective” and are expected to come online from the end of this year, with the last one completed about mid-2025.
“It will be (funded through) a combination of cash flow from operating activities and debt, so we have sufficient facilities to fund these projects as we’ve got a very profitable business,” he said, “and then we do have debt facilities and our funders have been very supportive of these projects”.
The group also recently bought R40m worth of crate-making and ancillary plant equipment from close competitor Nampak, which is struggling with a R5bn debt pile after an ill-fated expansion into Africa.
The strategy, according to Strong, is to focus on sectors that are not dependent on consumer spending growth to realise benefits, such as recycling and home deliveries.
“As we see growth in convenience shopping, it doesn’t necessarily mean there is consumer spending growth but that there is a change in consumer spending habits where consumers are demanding more to be delivered to their homes, which inevitably means more packaging, and we have to make the bags and boxes they use for home deliveries,” said Strong.
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