Mpact focuses on green packaging, while it gears up to generate power for grid
Group homes in on home deliveries trend and hopes to supply electricity to Eskom
Paper and plastic packaging group Mpact is homing in on the evolving home deliveries trend as customer demand for sustainable eco-friendly packaging grows. This is while it beefs “inexplicable hostility”. up its self-generating power capabilities in hopes of supplying to the national grid.
Industrial packagers in SA have been battling against persistent global supply chain disruptions, flooding in KwaZulu-Natal, unprecedented load-shedding, and municipal service interruptions such as water outages.
Bruce Strong, CEO of Mpact, said that demand for sustainably produced packaging is not just a fad, but a growing trend that is becoming important to customers.
He pointed to Mpact benefiting from the “remarkable and substantial” uptake of home delivery bags by retailers that are adjusting their offerings to deliver across many Living Standards Measure (LSM) homes.
Strong was speaking just days after the company delivered a strong second half for the current financial year due to strong demand for carton board despite price increases in the period owing to higher raw material costs globally.
“Three or four years ago we did not produce a single paper bag for home deliveries and [now] we produce a significant quantity and its increasing monthly,” Strong said, pointing out that Mpact participates in the entire value chain, from collecting waste to the actual production of the in-demand eco-friendly bags.
Mpact is juggling increasing “inquiries and orders for products that are considered to be more sustainable by brand owners and retailers”.
While admitting certain applications lack a sustainable alternative, Strong said it is highly unlikely that consumers will return to using less sustainable products.
He said the the company is focusing on home deliveries as consumers do not need to increase the size of their baskets when switching from traditional bricks-and-mortar shopping to online for packages to benefit.
“We have aligned ourselves ... with sectors that can transcend some of the local challenges ... and exploit some of the opportunities that arise from the macroeconomic challenges, those that are not completely dependent on the SA consumer spending growth to achieve success. The best example there is home deliveries,” said Strong.
“For us, it means more packaging volumes, which we are very grateful for,” he said.
The pandemic and lockdowns have changed online shopping. Packagers have since experienced a recovery from lockdown during the first half of last year, particularly in the beverage sector, the quick-service restaurants and home deliveries where growth is strong.
Mpact’s newly developed range of paper-based pellets for fruit and vegetable has capitalised on the sustainability trend.
“We’ve already doubled sales in the last six months compared to the year earlier and we are seeing sustained demand from those products,” he said.
Another area in which consumers are lapping up Mpact’s sustainably developed offerings is paper courier bags. While the group may have started off from a zero base, growth in that product offering has been “tremendous”.
Mpact CFO Brett Clark said the banks’ confidence in the company is improving as its credit risk is reducing, allowing the group to renew its long-term debt facilities at low margins last week.
Sustainability targets are now added to its funding, setting targets for the reduction and efficient usage of water and power.
“If we meet those targets we will reduce our funding further,” said Clark.
The Mpact board is embroiled in a tussle with major shareholder Caxton over the remuneration of nonexecutive directors and nondisclosure of a cartel investigation against it.
Caxton, which holds a 34% shareholding in the company, has bemoaned “inexplicable hostility” towards its intention to acquire control of Mpact.
In a statement on Friday, Caxton lamented that the Mpact board had not complied with its fiduciary duties in failing to disclose adequate details of the pending cartel case against it and a close competitor and co-accused Golden Era, which has been under investigation by the Competition Commission since 2016.
Meanwhile, the company’s Felixton paper mill project, intended to increase annual recycled containerboard capacity by 16,000 tonnes, is on schedule to be completed in 2023. More paper mill projects are under consideration.
The nearly R1bn investment in the low-cost production mill in Richards Bay over the past five years will cause it to increase its capacity to make recycled container boards 8% while maintaining a low carbon footprint. The energy efficiency of the facility will be “comparable to the best in the world”, Strong said.
The company said while it has not yet consulted the state or Eskom after President Cyril Ramaphosa’s announcement that paper mills would be approached for their surplus energy, it is more than ready to “be a part of the solution”.
Strong said that by end-August Mpact will have nearly 11MW of solar power, with about 60% of it available for use at weekends. By the end of next year it will have 17MW of solar, about half of which will be available to others at weekends.
Under the current regime it is hard to integrate it into the grid, he said.
“That power that is generated on the site is just being wasted, and if we could feed that back into the grid we could supplement Eskom’s supply. It would not only reduce demand from Eskom’s generation but it would also reduce the cost because at the moment it’s not going anywhere. It’s being wasted,” said Strong.
“We are building more [plants] and should have 25MW of solar power by 2027.”
Mpact’s share price fell 2.76% to R28.20 on Wednesday. By Friday it had risen to R29, having fallen 13.84% for the year so far.
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