Mpact invests R521m on pushing its paper

JSE-LISTED Mpact is to spend R521 million in further investments over the next 12 months to drive its paper business.

Mpact said on Wednesday that the investments would be funded from existing cash resources and borrowing facilities.

Chief executive Bruce Strong said the group expected the capital investments and lower recovered paper prices to deliver growth and improve operating margins in the paper business.

Strong said some of the investments were beginning to bear fruit and had contributed to the group’s overall performance during the six months to end June.

“In particular, the Felixton paper mill has progressed well,” Strong said.

Mpact invested more than R1.5 billion last year.

Upgrade

Strong said the Felixton mill upgrade, a new corrugator commissioned in Port Elizabeth in January and a good citrus crop benefited the group during the period.

The paper business grew revenue by 5.3 percent due to higher average selling prices during the period in review while revenue from the plastics unit decreased 5.3 percent to R1.1bn due to subdued sales volumes.

The plastics converting business fell 11.7 percent, primarily because of declines in preforms, crates and jumbo bins.

Mpact Polymers reported an operating loss of R39m from R30m last year, with production in line with the prior period, but below expectation.

Strong said Mpact expected the difficulties in the plastics converting business to persist in the medium term.

He said the group, however, expected Mpact Polymers to benefit from higher selling prices, increased throughput and lower finance costs in the future.

Mpact is one of the leading paper and plastics packaging businesses in southern Africa.

The group was unbundled from Mondi in 2011.

The group reported a 12.93 percent decline in profit to R50.5m, down from R58m while headline earnings per share lowered to 30.5 cents a share, down from 33.9c compared with last year.

Earnings before interest, tax, depreciation and amortisation of R443.4m increased 2.5 percent, primarily as a result of an improved gross margin and well contained fixed costs.

Revenue increased by 2.9 percent to R5bn, with external sales volumes decreasing by 5.1 percent because of lower external sales of recovered paper by Mpact Recycling.

The group declared a gross cash dividend of 15c an ordinary share.

Mpact shares declined 2.77 percent on the JSE on Wednesday to close at R23.50.