Mpact upbeat about 2021 after reporting record cash flow
• Group cuts debt more than a third as customers show preference for local suppliers during the Covid-19 pandemic
SA’s largest paper and plastics packaging group, Mpact, has received a boost from customers preferring local suppliers amid Covid-19, cutting debt more than a third due to record cash flows in its year to endDecember.
The group is optimistic about 2021 in light of robust citrus crops and a rebound in containerboard prices, CEO Bruce Strong told Business Day.
“Those fruit exports will still happen even if the economy is contracting,” said Strong. Many of Mpact’s products are likely to fare well despite pressure on consumer spending, he said.
The group, which is valued at about R2.7bn on the JSE, said revenue was flat in its year to end-December at R11.1bn, but cash generated from operations almost doubled to R1.9bn, amid cost cutting and strong performance towards year’s end. Mpact generates more than 87% of sales in SA, employing about 5,000 people at 39 operating sites in SA, Mozambique and Namibia. Group net debt fell 38.6% to R1.4bn, with Mpact opting not to declare a dividend, though it bought back shares.
The group returned R345m to shareholders by buying back 14.5% of its shares between September 2020 and end-January 2021 at an average price of R13.48 per share, representing a 38% discount to its net asset value per share.
The group’s share price has since risen about 40% from that purchase price, and was trading 4% higher at R19 on Friday morning — having more than doubled over the past six months. Strong said Mpact views pressure on the share as symptomatic of general market pressure on numerous companies in 2020.
Robust cash generation stemmed from careful working capital management, such as inventories, as well as salary sacrifices, and general efficiencies, he said, though the group has not embarked on large-scale job cuts.
A recovery in the prices of container boards, which are used for items such as boxes, is an additional reason for optimism. Manufacturing capacity and waste paper collection, a key input, were disrupted during the pandemic.
The group’s paper business, which contributes just more than three quarters of group revenue, experienced a 3.5% revenue decline to end-December, though its performance picked up towards year’s end that has continued into 2021.
Earnings before interest, taxation, depreciation and amortisation (ebitda), a measure of operating profit, fell almost 15% to R1.17bn, though the group reported record operating profit in its fourth quarter. Ebitda is a measure of the underlying profitability of a firm’s operations.
During the year, the group’s Springs paper mill lost more than 50 production days due to the catastrophic failure of a municipal substation in Ekurhuleni. This resulted in a loss of gross profit for the group of about R91m and other related
A RECOVERY IN THE PRICES OF CONTAINER BOARDS IS AN ADDITIONAL REASON FOR OPTIMISM
direct costs of R9m.
An insurance claim has been submitted and an interim settlement of R35m has been approved by the insurers, of which the net proceeds of R25m have been included in Mpact’s results. The balance of the claim has not yet been settled or accounted for, the group said.
The loss in gross profit directly attributable to the Covid-19 lockdowns is estimated to be R70m, Mpact said.