Mpact recycling operations in Tulisa Park, southeast of Johannesburg. Picture: SUPPLIED
Mpact recycling operations in Tulisa Park, southeast of Johannesburg. Picture: SUPPLIED

Paper and plastics packaging group Mpact reported disappointing annual results to December 2017 reflecting years of economic stagnation in SA and the drought.

But the group acknowledges internal factors have also caused a slump in earnings, amid structural changes in SA’s paper industry. Underlying operating profit of R457m fell 41.7% from R784m in December 2016.

Headline earnings per share were down 32% in the period, as return on capital employed of 7.7% was nearly half that of a year earlier at 14.2%.

About 89% of Mpact’s revenue came from SA in the period, with the balance mainly from the rest of Africa.

“We are obviously not happy to have a decline in earnings. It reflects the economy in general,” CEO Bruce Strong said.

But he was optimistic that total investment of nearly R1.3bn in the Felixton paper mill in KwaZulu-Natal, the new Mpact Polymers plant in Gauteng and a corrugated packaging plant in Port Elizabeth would soon start paying dividends.

The results were affected by volatility in recycled paper markets spurred by China’s imposition of strict quality measures on imported waste. A shortage of raw plastics feedstock and poorer quality recycled plastics inputs led to output drops in the plastics converting businesses.

“Paper mills that were expected to close were bought and remained open, creating overcapacity,” 36One analyst Daniel Isaacs said.

This came after Sappi had sold two mills to South African-based packaging manufacturers, ramping up competition.

“At the same time waste-paper prices rocketed due to global supply and demand issues,” Isaacs said.

Damon Buss, an analyst at Electus Fund Managers, said the Felixton upgrade had also hurt profits. “The mill is only expec-ted to be at full capacity by the end of 2018.”

Mpact’s share price closed 1.8% up at R27.70.