Packaging Manufacturer Mpact Lifts Basic Underlying Earnings Per Share 19-2 in First Half

Highlights for the six months ended 30 June 2014:

• Revenue of R4 billion up 13.2%
• Underlying operating profit up 14.5% to R270 million
• Basic underlying earnings per share up 19.2% to 91.8 cents (June 2013: 77.0 cents)
• Return on Capital Employed of 16.9% (June 2013: 15.5%)
• Interim gross cash dividend of 26 cents per share up 18.2% (June 2013:22 cents per share)
• Gearing down to 32.5% (June 2013: 35.6%)

JOHANNESBURG, 13 August 2014 – Mpact, a leading manufacturer of paper and plastics packaging, today reported an improvement of 14.5% in its underlying operating profit to R270 million in the six months to 30 June 2014, on the back of revenue growth of 13.2% to R4 billion.

In reporting its half-year performance today, Mpact attributed the results mainly to a favourable sales mix and improved productivity.

Basic underlying earnings per share improved by 19.2% to 91.8 cents per share compared the same period last year. Mpact said this was a result of the increase in operating profit and unchanged finance costs. The Board of Mpact has declared an interim gross cash dividend of 26 cents per ordinary share, up 18.2% on the prior period’s interim dividend.

Mpact also announced today that it has entered into an agreement with the Industrial Development Corporation (IDC) to build a state-of-the-art polyethylene terephthalate (PET) recycling plant in Gauteng. The plant is due to be commissioned during the second half of 2015 at a total investment cost of R350 million. The business will be held in a newly-formed company, Mpact Polymers (Pty) Ltd, in which Mpact holds 79% and the IDC 21%.

The Group said that the trading environment in its first half was characterised by subdued GDP and consumer spending growth. A decline in fruit exports resulted in a reduced demand for fruit packaging. Further, escalation in input costs was above inflation, driven by rand depreciation, administered prices and wage settlements.

Mpact reported that higher average selling prices only partially offset raw material and distribution cost increases, leading to a decline in gross margin when compared to the same period in 2013. External sales volume grew 1.8% during the period.

Improved productivity and fixed cost saving across the Group helped to improve the operating profit margin to 6.8% from 6.7% in the comparable prior period.

Return on Capital Employed (ROCE), a key performance measure for Mpact, improved to 16.9% compared to 15.5% in the same period last year.

The R765-million upgrade of the Felixton paper mill, announced in March 2014, and which is due to be completed in 2017, progressed according to plan during the period under review.

Mpact improved its B-BBEE status from a Level 6 at 31 December 2013 to Level 5 as of March 2014.

In the Paper business, Mpact said revenue for the period was up 14.2% to R2.9 billion with external sales volume growth of 2.1%. Detpak SA, the business acquired in September 2013 contributed 0.9% to external sales volume growth. Underlying operating profit increased by 11.7% to R280.7 million (June 2013: R251.3 million). Productivity improvements resulting from recent investments in the Corrugated business, as well as fixed cost savings across the Paper business, partially offset the under-recovery of increased raw material costs.

In the Plastics business, revenue increased by 10.4% to R1.1 billion due to higher average selling prices. Sales volumes measured in tons were in line with the comparable prior period, with good volume growth in bins and crates offset by a decline in certain products in the FMCG business due to rationalisation.

Underlying operating profit increased by 28.0% to R43.9 million (June 2013: R34.3 million) with margins increasing to 4.1% from 3.5% as a result of a more favourable product mix and management of fixed costs.

The Group’s net debt at 30 June 2014 was R1.4 billion, a decrease of R76 million from 30 June 2013. Average net debt was 4.4% lower than the comparable prior period with gearing of 32.5% (June 2013: 35.6%)

To meet changing operational requirements and to remain competitive within the Mpact Plastics FMCG business, agreement has been reached with all affected parties to close the converting factory situated in Robertville, Gauteng and relocate certain plant to other Plastics operations. The closure is expected to be completed by the end of the 2014 financial year at an estimated non-recurring cost of R23 million, which will be accounted for in the second half.

The direct financial cost of the four-week-long industrywide strike that affected six plastics converting operations during July is estimated to be R20 million, which may be partly recovered during the balance of the year.

Comment on the first half by Bruce Strong, chief executive officer of Mpact Limited: “Mpact’s results for the first half of 2014 reflect the Group’s resilience, established market positions and the benefits derived from investments made over past years to improve productivity.

“We continue to identify investment opportunities that offer the prospect of enhanced shareholder returns while meeting our other strategic objectives.

“In the second half of 2014 we expect a significant challenge to recover cost inflation while economic growth remains modest. Despite this we remain confident in our strategy, well established market positions and ability to generate shareholder returns.”

ENDS