Plastic plant loss hits Mpact profits

Mpact’s annual results to December 2016 reflect higher recovered paper costs, lower containerboard sales, a higher effective tax rate and rising finance costs compared with 2015.

This comes as the paper and plastics packaging converter is commissioning various capex projects, but had not yet seen full returns. Most pertinently, a loss at its new Mpact Polymers recycled plastic plant in Gauteng, which has had ramp-up problems, hurt profits.

“The loss is much greater than we hoped it had been,” CEO Bruce Strong said on Thursday, without giving a number. The plant was running at about 40% capacity and would only be fully operational by 2018.

Group revenue rose 5.8% to R10bn, as underlying operating profit of R784m fell from R909m in 2015.

The return on capital employed of 14.2% was well down on the 18.9% previously. But the group said its paper and plastics converting operations had grown revenues and maintained underlying operating profit margins.

Dirk van Vlaanderen, associate portfolio manager at Kagiso Asset Management, said the recent fall in Mpact’s earnings had been driven by start-up losses at Mpact Polymers and a “seismic shift” in SA’s competitive paper market. But he expected gains in profitability in the medium term.