Mpact FY16 earnings fall amid tough trading conditions

Challenging trading conditions, along with higher recovered paper costs, lower containerboard sales, a higher effective tax rate and finance costs, and a loss in its Mpact Polymers business, negatively impacted on JSE-listed Mpact’s results for the 2016 financial year.

Headline earnings a share fell to 242c for the year ended December 31, down from 365.8c in 2015.

Underlying earnings of 252.7c a share were down 31.1% year-on-year owing to a higher effective tax rate and higher borrowing costs compared with the prior year.

Net finance costs increased by 44.7% to R191-million for the year under review, owing to higher interest rates on higher net debt during the year.

On a more positive note, Mpact reported that the converting businesses of Paper and Plastics did well to grow revenue and maintain underlying profit margins.
 
The group’s balance sheet remains strong, with gearing of 33.6% and a return on capital employed of 14.2%,” said CEO Bruce Strong.

Group revenue increased 5.8% to R10.1-billion, but its underlying operating profit of R784.4-million was 13.7% lower year-on-year. 
 
Revenue in the paper business increased 5.2% to R7.4-billion.

The paper converting business, which includes the corrugated business, delivered a stable performance, growing revenue and maintaining margins, despite the drought, challenging trading conditions and increased levels of competition.

“This performance was offset by negative results in the balance of the paper business owing to higher recovered paper input costs and lower containerboard sales volumes, resulting in an underlying operating profit in the paper business of R664.1-million,” the group highlighted.

The plastics business increased its revenue by 8.6% to R2.8-billion owing to higher selling prices and a favourable mix of products sold. 

Sales volumes in the plastics converting business were in line with the prior year, while sales of recycled polyethylene terephthalate (PET) from Mpact Polymers totalled 7 603 t, up from 370 t in 2015.  

Underlying operating profit of R168.4-million declined 15.3% from the prior year, mainly as a result of the loss incurred by Mpact Polymers.

Strong told Engineering News Online that, despite the headwinds, the group had made progress with its strategic investment programme during the year, which included the acquisition of the Remade recycling business, as well as investments in the upgrade of the Felixton paper mill and other expansion projects in the Paper and Plastics businesses.

The completion of the R765-million Felixton mill upgrade, due in the second half of this year, is on schedule and within budget. The mill is scheduled to be shut for 50 days starting at the end of May 2017.

“This will result in a nonrecurring reduction in earnings for this financial year. Once completed, this upgrade will significantly improve the mill’s cost competiveness, product quality and offering,” he explained.

“We remain optimistic about the prospects of this business, given the progress thus far and the need to increase recycling rates of PET.”