Mpact readies for prolonged services collapse

Packaging and recycling major Mpact is bracing for a possible collapse of the country’s power supply, saying self-reliance was becoming increasingly crucial as insurance underwriters in 2023 began to exclude cover for certain risks arising from state entities.

In the build-up to elections in May, SA has been without power outages for at least 30 days.

However, in Mpact’s latest annual report released on Friday, CEO Bruce Strong lamented that load-shedding had increased considerably during 2023, reaching unprecedented levels that affected confidence and demand.

“The fragility of Eskom, Transnet and municipalities persisted, manifesting in the unreliable supply of electricity, water, rail, port and logistics infrastructure and services, and extensive costs to the SA economy,” said Strong.

“During 2023, insurance underwriters began to exclude cover for certain risks arising from these entities.”

Strong said in response to the power failures, a group-wide generator readiness programme was preparing Mpact factories “that lack permanent generators to operate key production facilities in the event of prolonged municipal electricity supply failures. Unfortunately, such failures are becoming more frequent.

“We are also developing blackout plans aimed at minimising the effect in case of a collapse of the national electricity grid,” he said.

Mpact added 6.6 megawatt peak (MWp) of solar photovoltaics (PV) capacity during 2023, bringing its total solar capacity to about 16MWp. The newest installations are at the Springs Paper Mill and the Castleview plant.

The company said it was in the planning phase for a further 11MWp at its Mkhondo Paper Mill and Mbombela factory and considering additional expansions, where feasible.

Additionally, Mpact has been enhancing the resilience and infrastructure of its information and communications technology systems and securing bulk water supplies.

The CEO said significant capital, fuel and time have had to be diverted from its other business to ensure that most of its key sites have both solar PV and generators installed to enhance resilience and allow it to operate up to stage 5 without significant production stoppages. However, some converting operations had to adjust production schedules, it said.

Strong’s sentiment was echoed by group chair Anthony Phillips, who said “the lack of service delivery and the collapse of key infrastructure, including our harbours, rail and road networks, continued to escalate, to the detriment of the SA economy”.

The weakness was evident across many of Mpact’s businesses as volumes were negatively affected by subdued consumer demand, lower fruit exports due to adverse weather conditions, and customers’ overstocking with imported containerboard and carton board ordered during the crisis in 2022 when there were severe shortages globally, but only delivered during 2023.

Consequently, the Felixton and Mkhondo mills took unprecedented commercial downtime to conserve cash and manage costs.

Despite the challenging environment, Mpact achieved record cash flow from operations of R2bn and recorded an 11% increase in net asset value per share to R33.63.

Group revenue for the year was up 3.6% to R14bn, while underlying earnings before interest and taxes improved by 6.7% to R1.3bn.

Headline earnings per share rose 8% to 512.3c as its strategy of investing in innovative, higher-margin and sustainable products yielded tangible benefits. 

The JSE-listed group, which has a R3.8bn market capitalisation, said it was unceasing in its quest to invest financial capital in the growing fruit export packaging market, convenience shopping and e-commerce that was driving the need for sustainable home paper bags and boxes for home deliveries.

Mpact converts pre- and post-consumer recyclable materials into innovative plastic and paper packaging products through investments in leading-edge recycling and packaging technologies.

Among these innovations is the novel packaging concept, Freshflow, which is designed to improve ventilation and preserve the quality of fresh grapes during transportation.

SA is the third-largest exporter of table grapes and is world-renowned for the quality of its grapes, while the sector has been grappling with challenges such as extended transit times and unreliable infrastructure.

According to the SA Table Grape Industry, overall table grape exports increased 17% to 73.5-million cartons in 2023/24 from 63.9-million the previous season. 

Mpact’s innovation helps to preserve the quality of fresh produce during arduous export journeys — an important factor for local produce exporters particularly as export markets such as the EU continue to tighten their import regulations for fruit such as oranges.

The group said the innovation could hold far-reaching benefits for the agricultural sector’s sustainability and competitiveness as the Freshflow configuration was set to offer exporters a reduction in payload costs of as much as 15%.

“Application of the new packaging entails transitioning from the conventional container set-up and pallet standards used for transporting table grapes to an optimised system,” Mpact said. “The result holds numerous advantages, particularly in terms of cost savings and environmental considerations.

“Adopting innovative and efficient packaging solutions can enhance the competitiveness of growers by providing better-quality products and potentially reduce costs,” said Mpact, adding it had conducted additional trials in December on the most recent table grape harvest to test this packaging solution further.

“Based on the outcomes, we will also explore ways in which this solution can add value to customers in other produce categories,” it said.

Mpact shares closed 0.54% lower at R25.61 on Friday.

gumedemi@businesslive.co.za