Mpact expects their products targeted at the export, convenience shopping, recycling and waste management sectors to grow in future. Picture: Antoine de Ras
MPACT, the largest paper and plastics packaging business and recycler in Africa, is facing relentless cost pressures, forcing it to charge higher prices.
“Input costs have continued to escalate since the end of June 2022, putting further pressure on margins. Discussions are under way with paper customers regarding selling price increases, to be implemented in October 2022,” chief executive Bruce Strong said at the release of the group’s results for the six months to June 30.
In the six-month period to June 30, the group managed to beat rising input costs by raising prices. Macroeconomic uncertainty and persistent global supply chain constraints caused difficulties in the cost and availability of most raw materials and new capital equipment.
“Where possible, we increased raw material inventory to mitigate long lead times and periods of uncertainty,” said Strong.
The group’s fruit sector sales in particular faced many of the problems of our time after being impacted by uncertainty from the sanctions related to the Russia- Ukraine conflict – fruit producers have delayed decisions on harvesting and packaging of some products until they are able to establish which markets to service and how.
Mpact’s operations were also impacted in the six-month period by other factors, including local port constraints and adverse weather in some regions, Strong said.
He said they were nevertheless pleased, however, with their financial results, which were attained on the back of strong demand for containerboard and cartonboard, and good growth in new product sales.
Trading was mixed, with good sales volume growth in the QSR (quick service restaurant), beverage and home delivery sectors. This was partly offset by declines in other FMCG (fast moving consumer goods) sectors, as well as fruit packaging.
There had also been progress on strategy, including a number of capital investments.
Delays in the manufacturing and shipping of capital equipment for a number of projects, ordered from Europe and Asia, resulted in delays in some project completions. Project costs were, however, contained within budget, with a few exceptions, he said.
Group revenue increased 5.2 percent to R5.7 billion, with sales volumes falling one percent.
The Baywhite distribution agreement with Mondi terminated at the end of December 2021 – revenue excluding Baywhite increased 13 percent and sale volumes by 6.3 percent.
Underlying operating profit (EBIT) increased by 21.5 percent to R387.1 million due to strong domestic demand in the paper business, partly offset by lower sales volumes in the plastics business, and higher input costs.
“Indications are the supply and demand balance will remain tight for the foreseeable future. The Felixton paper mill project, which will increase recycled containerboard capacity by 16,000 tons per annum, is on schedule to be completed in 2023, and further paper mill projects are under consideration,” said Strong.
Margins in the paper converting business would be under pressure due to the substantial containerboard cost increases expected in the last quarter, which may not be fully recovered in selling prices, he said.
Projects to increase corrugated capabilities to service the growing export fruit sector, and in particular citrus, were expected to be completed by the end of 2024.
The plastics division would benefit from the consolidation of the two preform and closures factories in Wadeville in the third quarter, and an improvement in the bins and crates business was anticipated.
Strong said they expected their products targeted at the export, convenience shopping, recycling and waste management sectors to grow in future.
– BUSINESS REPORT