Mpact CEO Bruce Strong. Picture: SUPPLIED
Mpact CEO Bruce Strong. Picture: SUPPLIED

Mpact shares fell 7% on Wednesday morning, after the packing group reported a drop in its first-half net profit, citing a disappointing performance in its plastic business.

Group net profit fell to R45.6m in the six months to end-June, from R52.3m in the matching period a year ago, despite a slight increase (3%) in revenue to R5bn.

This came as the underlying operating profit in the plastics converting business more than halved to R26m, from R56.7m, due to due to what the company said was overcapacity in the styrene sector, which resulted in lower margins.

Mpact Polymers reported an operating loss of R39m, an improvement from R30m a year ago, with production in line with the previous period, but below expectations. The business experienced low yields and higher maintenance costs due to dirty feedstock of post-consumer PET (polyethylene-terephthalate) bottles and inadequate washing facilities.

But underlying operating profit in the paper business rose 23% to R219.2m due to higher throughput and gross profit at the Felixton mill as well as good cost control.

"We are pleased that our capital investments in the paper business are beginning to contribute to the group’s performance. In particular, the Felixton paper mill, which was upgraded last year, has progressed well," CEO Bruce Strong said in the results statement.

"Unfortunately, the gains made in paper were offset by a disappointing performance in the plastics business."

Headline earnings per share (HEPS) for the period dropped to 30.5c, from 33.9c in the year-earlier period, while the dividend was held steady at 15c per share.

The share price was down 7% to R22.51 in midmorning trade on the JSE, valuing the company at R3.88bn.

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