MPACT AFFECTED BY SUBDUED MARKETS

Media Release

SALIENT FEATURES FROM CONTINUING OPERATIONS

• Revenue increased by 5.1% to R11.1 billion (December 2018: R10.5 billion)
• Underlying EBITDA up 7% to R1,374 million (December 2018: R1,284 million)
• Underlying operating profit down 3.7% to R724 million (December 2018: R752 million)
• Underlying earnings per share of 192 cents (December 2018: 248 cents)
• Return on Capital Employed (ROCE) of 11.8% (December 2018: 11.9%)
• Total gross cash dividend 60 cents per share (December 2018: 70 cents per share)
• Mpact Operations (Pty) Ltd achieved Level 1 B-BBEE (2018: Level 4 B-BBBEE)

Johannesburg, 4 March 2020 – Mpact, the largest paper and plastics packaging business and recycler in southern Africa, reported its results for the year ended 31 December 2019 stating that the Group experienced tough trading conditions.  

Bruce Strong, Chief Executive Officer of Mpact, commented: “Trading over the past year across most of our businesses has been very challenging from a demand perspective. The South African economy remained weak and business and consumer confidence have been hit hard by load shedding and uncertainty in a number of areas. This had a marked effect on our customers and particularly our consumer-facing businesses. Sales volumes were under pressure across most sectors.  

Notwithstanding the trading environment, underlying EBITDA from continuing operations of R1,276 billion was in-line with the prior year with underlying operating profit of R724 million, declining 3.7%. Recent capital investments such as the Felixton paper mill upgrade and the new corrugator in Port Elizabeth contributed positively to the results. 

Good progress was made in developing innovative packaging alternatives for our customers, some of which were recognised with a number of awards.  During the year our paper punnets and paper bags for grapes, tomato’s and other fruit gained prominence and market acceptance, and can now be seen on retail shelves locally and abroad.  Our investment into shopper bags has been positive, with two additional paper bag formers installed in 2019. The shopper bags are made from 100% recycled paper produced at Mpact’s Felixton mill, providing a strong, sustainable substitute for plastic shopper bags.

One of the most difficult decisions we took this year was to shut the PET recycling plant, Mpact Polymers because we were unable to get a sustainable price for our recycled PET. Consequently, Mpact Polymers has been deconsolidated from the Group, and its profit and loss statement for the reporting period is disclosed separately as a discontinued operation.”

Group revenue from continuing operations of R11.1 billion was 5.1% higher than the prior year’s
R10.5 billion, with higher average selling prices offsetting lower sales volumes.

Effective 1 January 2019, Mpact adopted the new accounting lease standard – IFRS 16 which decreased profit before tax by R33 million and underlying earnings per share by 14.0 cents.

Underlying operating profit from continuing operations decreased by 3.7% to R724 million            (December 2018: R752 million) with ROCE at 11.8% (2018: 11.9%).

The Paper business reported a 5.4% increase in segment revenue for the year to R8.7 billion (December 2018: R8.3 billion) due to higher average selling prices. External sales volumes decreased due to lower export and local demand, particularly for containerboard and cartonboard.

Working capital at the end of the period remained high due to sales not meeting expectations. The Paper mills took commercial downtime equating to approximately 10 % of their annual capacity.             (December 2018: 0%)

Underlying operating profit increased by 3.1% to R716 million (December 2018: R694 million) due to a higher gross margin and the consolidation of West Coast Paper Traders (WCPT). Mpact increased its shareholding in WCPT to 60% (December 2018: 49%), effective 1 January 2019.

Revenue in the Plastics converting business was up 3.2% to R2.4 billion (December 2018: R2.3 billion) due to higher sales volumes of preforms and closures.

Underlying operating profit of R83 million (December 2018: R130 million) declined from the prior year due to lower margins realised in the trays and films and FMCG businesses. The operating profit margin was 3.5% (December 2018: 5.6%).

Underlying basic earnings per share and headline earnings per share for the year were 191.8 cents (2018: 247.7 cents) and 185.8 cents (2018: 235.3 cents), respectively. The total dividend per share for the year was 60 cents, a decrease of 14.3% to the prior year’s dividend of 70 cents.

Mpact successfully concluded the refinancing of its bank facilities during the year. Net debt at the end of the year from continuing operations was R2.3 billion (2018: R1.8 billion). The increase in net debt is primarily due to the adoption of IFRS 16 lease liabilities of R321 million. This has resulted in a gearing ratio of 38.2% (2018: 27.9%). The gearing ratio excluding IFRS 16 is 32.8%.

Deteriorating market conditions resulted in an impairment of R1.3 billion comprising
R549 million of goodwill and R742 million of plant and equipment, raised against the Springs and Piet Retief paper mills as well as the trays and films business. This non-cash charge equates to approximately
633.2 cents per share and is excluded from headline and underlying earnings per share. Notwithstanding the impairments, these businesses remain operational.

“Looking to the year ahead, there is still no indication of any meaningful improvement in the South African economy, which is aggravated by the debilitating power outages. The global oversupply of containerboard and cartonboard persists while we expect the dynamics supporting recycled fibre availability to continue for the remainder of the year. We will prioritise cash preservation and mitigating the effects of the weak economy through cost savings, efficiency gains and product innovation. Mpact’s integrated business model is uniquely focused on closing the loop in paper and plastic packaging. Through our focus on innovation and the introduction of new product offerings, we will continue to work with our customers to develop new markets.,” concluded Strong.