Poor sales at plastics unit weigh on Mpact

Poor sales volumes look set to pull down Mpact’s plastics business during the rest of the financial year, counteracting the improved fortunes of its paper division, says CEO Bruce Strong.

A combination of backward integration by customers and the effect of the sugar tax would keep the plastics business on the back foot for the rest of the year, the firm said on Wednesday.

Mpact’s plastics business manufactures a range of packaging products for the food, beverage, personal care, agriReits cultural and retail markets. The division’s poor showing stood out in Mpact’s results for the six months to the end of June, reporting a decline of 5.3% in revenue to R1.1bn and an operating loss of R30m.

An improved performance by its paper business, largely thanks to the impact of capital investments, led to revenue from that division increasing 7.4% to R3.7bn.

“In particular the Felixton paper mill, which was upgraded last year, has progressed well. Unfortunately the gains made in paper were offset by a disappointing performance in the plastics business,” Strong said.

Mpact is a leading manufacturer and recycler of paper and plastics in SA, and also has operations in Namibia, Botswana and Mozambique.

In the six months, Mpact benefited from the completion of its R765m Felixton mill upgrade in KwaZulu-Natal, a R150m new corrugated factory commissioned in Port Elizabeth in January and a good citrus crop.

The Felixton mill project entailed the upgrade of a paper mill to increase total capacity by 60,000t, while the corrugated factory in Port Elizabeth is meant to cater for growing demand for citrus packaging in the Eastern Cape.

But the group was still up against overcapacity in the styrene trays sector, drought in the Eastern Cape and Western Cape as well as subdued consumer demand.

The investments are expected to bear fruit in the second half of the financial year and beyond, Mpact said.

The recent rains in the Western Cape were unlikely to immediately change the outlook for the business.

“The drought in the Eastern Cape is still severe,” Strong said.

While there was improvement in citrus fruit volumes, the situation remained dire for grapes, apples and pears, Strong said, adding that consumer demand was likely to remain subdued for the remainder of the year and the beginning of the 2019 financial year.

Overall, Mpact’s revenue rose 2.9% to R5bn, while operating profit declined 3% to R164.2m. Earnings per share fell 13.4% to 29.7c. An interim dividend of 15c was maintained.

Mpact’s share price was down nearly 7% in early trade on Wednesday and closed 2.77% lower at R23.50.