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

The sugar tax and lower demand from bottling firms continue to stifle Mpact’s plastics business, CEO Bruce Strong says.

The plastics business’s poor showing in the year to December counteracts the improved performance of the firm’s paper unit, which has benefited from recent capital expenditure. The investments include the R800m expansion of the Felixton paper mill in KwaZulu-Natal.

Mpact is a  recycler of recovered paper and plastic collections and has operations in Namibia, Botswana and Mozambique.

Speaking after the release of the company’s financial results, Strong said the plastics business, whose revenue fell 3% to R2.4bn, struggled because of the introduction of the sugar tax and bottling firm’s decision to produce their own bottles instead of buying them from Mpact.

The sugar tax has affected sales of soft drinks. “Consumption patterns have changed as a result of the introduction of the sugar tax,” he said.

The plastics business — which manufactures a range of packaging products for the food, beverage, personal care and retail markets — was likely to struggle in the new financial year.

“That business will still have a difficult year,” Strong said.

 The business’s underlying operating profit plunged 29% to R49.5m.

The plastics unit also experienced a strike towards the end of 2018, with the National Union of Metalworkers of SA (Numsa) demanding higher wages.

The paper business benefited from the Felixton upgrade, lower recovered paper prices and increased corrugated packaging sales.

MPact expected a stronger performance from the paper business in the current financial year, partly thanks to higher fruit volumes in the Western Cape following the drought. In the year, the operation increased revenue by 7% to R8.3bn. 

“We have a good business model. Our integrated business model is focused on closing the loop in the plastic and paper packaging through recycling and beneficiation,” Strong said.

The company generally benefited from the global shift towards recycled products, he said.

Mpact’s total revenue grew 5% to R10.6bn, while earnings per share increased 25% to 208c a share. Operating profit jumped 47.3% to R672m on the back of strong performance in the second of the financial year.

Mpact, which increased final dividend by 37.5% to 55c a share, reduced its net debt by 5.3% to R2.1bn.

njobenis@businesslive.co.za