Mpact, the largest paper and plastics packaging business and recycler in Africa, improved operating profit and generated good cash flows in most of its business in 2023 in spite of a very difficult trading environment that pushed sales volumes lower.
The increase in operating profit was due to improved margins over the previous year, which offset declines in sales volume, CEO Bruce Strong said Friday. Headline earnings per share grew by 8%.
He said in a telephone interview that while the business could operate through load shedding following investments in generators and solar power for the past few years, and through load curtailments programmes with Eskom, the problem was the impact of load shedding on consumer demand.
“We are seeing that up to Stage 4 load shedding consumers go about their business and shop normally. But at Stage 6, they just seem to stop spending,” he said. Consumer demand was currently weak after not properly recovering from the impact of severe load shedding last September.
“We are pleased that our strategy and focus on expanding in sectors with market growth opportunities and adopting a business model aligned to the circular economy has yielded positive benefits. These have been underpinned by investments in new capabilities as well as alternative power and water supply infrastructure to increase our operational resilience,” he said.
Global supply chain constraints that affected raw material sourcing in 2022 improved in 2023. Input costs saw some relief around mid-year, particularly in plastic polymers, recovered paper, and pulp, but polymer prices had increased since year end.
Other costs increased through last year, such as electricity, coal, fuel, and certain imported raw materials, influenced by the weakening rand. Some of the cost reductions were passed on to consumers in the second half. However, costs remained high at this point, he said.
The group paper mills and most converting operations had demand curtailment agreements with Eskom and solar generation capacity and process designs allowed the group to meet most of its power requirements up to Stage 5.
Additional generators were also installed at multiple sites during the year, and a generator readiness programme was implemented.
Another 6.7MWp of solar PV capacity was added, bringing the total solar capacity to about 16MWp.
Other projects such as the Mpact Plastic Containers’ (Bins& Crates) Castleview factory expansion and upgrades to the Gqeberha Paper Converting factory and Mkhondo Paper Mill were on track, he said.
Group revenue from continuing operations increased 3.6% compared to the prior year to R12.8 billion, despite sales volumes falling 10.7%.
Record cash from operations of R2bn (R1bn) was achieved. Underlying operating profit increased to R1.21bn (R1.16bn) mainly as a result of a recovery in margins, and some of the recently completed projects.
Paper business revenue increased 3.3% compared to the prior year to R10.7bn, due to higher selling prices, partly offset by an 11.2% reduction in sales volumes.
Volumes were negatively affected by subdued consumer demand, lower fruit exports due to adverse weather, and customers’ overstocking with imported containerboard and cartonboard ordered in 2022 when there were shortages, but only delivered in 2023.
However, fruit export customers were optimistic about this year’s season, he said. Underlying operating profit of R1.2bn (R1.1bn) increased by 5.3%.
The increase was due to improved margins and operational performance, partly offset by lower sales and production volumes.
The Felixton Mill and Mbombela Corrugated upgrade projects were completed in the second half following planned downtime.
Revenue in the Plastics business of R2.2bn (R2bn) increased 5.9%. Sales volumes fell by 3.8% with improved volumes in Bins & Crates and FMCG offset by a decline in Preforms & Closures.
Higher sales volumes in Bins & Crates were underpinned by recent investments. Underlying operating profit of R189m decreased by 4.5%,.
Strong said the upcoming national elections adding another level of uncertainty to the operating environment.
A significant improvement in the Bins & Crates business was expected during 2024, which was expected to be partly offset by lower sales in Preform & Closures.
BUSINESS REPORT