Packaging and recycling company Mpact is optimistic that the unbundling of Eskom and the move by Transnet to open its rail networks to third parties will enable the private investment needed to resolve SA’s electricity and logistics constraints.
While SA consumers and businesses welcomed the absence of load-shedding for the majority of last year, Mpact continued to be affected by electricity outages due to failed infrastructure, as well as frequent water outages.
Within the first two months of this year, the group’s operations in Ekurhuleni, which include a large paper mill and corrugated factory, saw a period of eight days without water or electricity supply.
“We’re trying to work with the municipalities to satisfy Eskom’s requirements and we hope that gains some traction soon because these interruptions are quite debilitating,” Mpact CEO Bruce Strong told Business Day.
Strong said the unbundling of Eskom is “one of the most encouraging developments over the past several years”, which should enable more focused, private investment in the country’s electricity supply. “Once you do that, I think those problems will be resolved quite quickly,” he said.
He was less concerned about SA’s electricity supply from a generation point of view, with plenty of investment being provided by private enterprises, particularly in terms of solar, but said the “last mile to the factories” remained a challenge, with most municipalities not having invested in infrastructure.
Added to water and electricity disruptions were persistent logistics challenges stemming from the country’s ageing road and port infrastructure, which remain a challenge this year despite some improvement in the performance of SA’s ports “compared to where they were last year”, said Strong.
Amid the deterioration of Transnet’s rail network, some of the group’s factories — which receive coal by train — have been forced to rely on trucks for their coal deliveries in the recent past, with the shift weighing on Mpact’s operational efficiency.
Strong was also optimistic about the introduction of third-party access to the national rail network, saying: “There are many opportunities to move trucks from the road back on to rail, and that would take a huge burden off some of the road networks.”
Despite expecting an improvement in SA’s service delivery this year, Mpact reported a weaker financial performance for the year to end-December, with headline earnings per share (HEPS) falling 30% to 323.6c.
The group cited a weak economy and challenging trading environment as the primary culprits, with high interest rates, inflation and service delivery failures negatively affecting consumer and business confidence last year.
The formation of the government of national unity (GNU) following last year’s election had an “unequivocal” positive effect on confidence among consumers and businesses, said Strong. However, “there’s still a lot of evidence that consumers are under pressure”.
Exports, convenience shopping
With the domestic economy remaining subdued, Strong said the company was focused on sectors which were more insulated from SA consumer spending patterns, including fruit exports and convenience shopping.
The group is a leading supplier of packaging for export fruit, a sector which Mpact expects to grow by well above 3% a year.
The shift towards convenience shopping among SA’s largest grocery stores, such as the Checkers Sixty60 service, has also boosted the demand for paper shopping bags, with paper demand from this sector growing by 30% last year.
Strong said the group continued to benefit from the “very encouraging” growth in convenience shopping, which required more packaging, as well as big shifts from plastic to paper and glass to plastic.
The election of US President Donald Trump has the potential to disrupt global trade and hurt SA’s agricultural exports to the US, particularly in citrus if the African Growth and Opportunity Act (Agoa) is not renewed this year. However, Strong said the effect on overall fruit exports would be minor.
Geopolitical uncertainty is a concern, he said, but the US was threatening even its closest allies and neighbours and SA’s relative position was unlikely to worsen greatly.
Mpact said several of its operations delivered “commendable performances despite the headwinds”.
A 3% increase in sales volumes from Mpact’s paper business and “an improved product mix in plastics due to increased sales of bins and crates” saw group revenue from continuing operations climbing by 3.6% year on year to R13.29bn.
However, the stable operating performance was not enough to offset harsh trading conditions in the first nine months of the year. As a result, operating profit was down to R925m, compared with R1.117bn in the previous year.
“Despite these challenges, Mpact achieved strong cash flow from operations for the year of R1.9bn and an increase in net asset value per share to R35.76,” said Strong.
Net debt fell 11% to R2.4bn, with the group investing R1bn in capital projects and another R155m in dividend payouts for the period under review.
Mpact declared a total dividend of 105c per share.
Update: March 10 2025
This story has been updated with new information.
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