Packaging manufacturer Mpact expects earnings will fall by a third when it reports interim results in August, as its paper business grappled with subdued demand and lower selling prices.
However, the JSE-listed group was upbeat that its plastics business had increased revenue across all three divisions, primarily driven by higher sales volumes in the bins and crates and fast-moving consumer goods businesses.
Southern Africa’s largest paper and plastics packaging business and recycler said in a statement on Monday that headline earnings per share (HEPS) for its total operations were expected to fall 28.6%-33.8% to 140c-151c for the six months to end-June. HEPS is a profit measure that strips out one-off items.
It said HEPS from continuing operations were expected to slip 32.5%-37.8% to 117c-127c.
“Containerboard and cartonboard demand remained subdued and selling prices were lower than the comparable prior year period,” Mpact said. “This resulted in reduced revenue and operating profit in the paper business and necessitated production downtime at the paper mills to manage inventory levels and conserve cash.”
The group said it was making progress in selling its discontinued plastic trays and films business, Mpact Versapak.
Its plastics business was expected to record an operating profit increase in bins and crates on recent investments. However, this was offset by decreases in the other two businesses it said.
Mpact, which has a market capitalisation of R4.3bn, was among the companies that benefited from pandemic-related lockdowns, which spurred the rise of online convenience shopping. It made significant investments to ensure it could cash in on high demand.
In 2021 the board approved spending of more than R500m to support customer-focused growth, innovation and sustainability, targeting sectors such as export fruit, convenience shopping and recycling.
The group said its earnings before interest, taxes, depreciation and amortisation (ebitda) were expected to decrease 8% from R797m in the prior comparable period.
Similarly, its underlying operating profit would fall about 20% from the R532m reported last year, mainly due to the under-recovery of fixed costs as well as higher depreciation from major projects which were capitalised towards the end of 2023.
Net debt rose from R2.6bn in December to R3.2bn due to the Mkhondo paper mill upgrade and working capital cash outflows. The increased average net debt would see net finance costs climb to about R150m from R132m. However, Mpact maintained that it remained comfortably within its bank covenants.
Mpact’s interim results for the six months ended June 30 are expected on or about August 5.
Last month, the board failed to persuade investors to back its remuneration policy, with more than half of shareholders voting against the proposed salary increase for executives.
Two-fifths of the Johannesburg-based company’s investors also snubbed the non-executive directors remuneration and its bid to renew its existing general authority to provide financial assistance to its subsidiaries.
Mpact’s share price slipped 2.74% to end at R28.70 on Monday.
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