Africa's largest paper and plastics packaging group Mpact says it's upbeat about its prospects even as tough economic conditions weigh on consumer spending. After more than doubling its dividend in 2022, it is eyeing continued tailwinds including SA's strong fruit exports, as well the ongoing shift to home deliveries by increasingly environmentally conscious consumers.
Higher selling prices and strong demand helped operating profit rise almost a quarter in the group's year to end-December, with the company upping its dividend 130% to 115c per share, which is almost twice its 2019 payout.
Recent global supply chain disruptions had benefitted a company that generates almost 90% of its revenue in SA, CEO Bruce Strong told News24, with Mpact meeting some demand that would otherwise have been met by imports.
Strong demand from fruit exporters is expected to continue, and the company is spending R1.2 billion upgrading its mill in south east Mpumalanga to meet demand from exporters. This forms part of a focus on growth areas that will shield it from consumer spending, including convenience shopping, recycling, and waste management.
Valued at over R4 billion on the JSE, Mpact is the largest paper and plastics packaging and recycling business in Southern Africa with customers that include packaging converters, fruit producers and fast-moving consumer goods companies. At the end of December, the group employed 5 156 people and had 43 operating sites.
Strong said despite pressure on consumer spending, it still expects to benefit from the shift to grocery deliveries, saying "there was no doubt whatsoever" that increased constraints on consumers wouldn't derail a trend towards more environmentally friendly packaging.
The company, for example, makes the Checkers Sixty60 paper delivery bags, and the shift online is still positive for Mpact.
"A number of our products are not dependent on consumer spending growth for our prosperity, so fruit exports is an example. The move towards convenience shopping doesn't need consumer spending growth to see a benefit for our business because that is just a change in consumer spending patterns," he said.
New products
Strong said a major focus of the group was on innovation - not just for end-use products, but also manufacturing - with the company, for example, introducing paper pallets to replace plastic ones for fruit exports.
Mpact is also introducing a new product mainly for export - although it is just new for it - an additive for cement, which will generate dollar revenue.
While not management's main priority, the company was looking to improve offshore revenue, he said. For some years it has been renting plastic containers to fruit exporters, and then selling them in Europe, a line of business it still has great ambitions for.
"As an SA business the best thing you can do at the end of the day is try have your costs in rands and generate revenue in dollars," said Strong.
Load shedding
Mpact has also largely escaped a material hit from load shedding, given that its paper mills - which run 24/7 - are subject to load curtailment rather than shedding, requiring them to cut consumption by about 30%.
Strong said this still "required some engineering," but the company had adapted its shifts, while it is also beefing up its own electricity generation, although it remains dependent on Eskom.
Generators were also being installed, or operations made ready for them, he said, while the company is also pursuing similar backups in terms of water. Load shedding was now a "known-known" in SA, said Strong, and would have an effect on all businesses, even if it was just on general consumer demand. "We will adapt," he said.
However, load shedding had benefitted Mpact via fast food sales, he said, given many turned to it when being unable to cook at home.
Mpact rolled out an additional 5.3MW of solar at a further five plants in 2022, bringing the current total to 9.4MW at 10 operating sites.
We have also already approved plans for a further 6.7MW at two sites in 2023. An additional 10.6MW is in the pipeline for another two sites, pending approval," it said.Several of its converting operations already have back-up generators, with the group saying it is evaluating the electrical infrastructure requirements to have generators installed where practical at other sites to increase its operational resilience when the electricity infrastructure fails.
Mpact's shares had risen 1.67% to R30.49 in afternoon trade on Tuesday, bringing their gains so far in 2023 to almost 5%.
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