Mpact posts strong profit growth, but warns of price hikes

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Paper and plastics packaging and recycling business, Mpact released its interim results on Monday.
Paper and plastics packaging and recycling business, Mpact released its interim results on Monday.
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  • The packaging group Mpact posted a 31% increase in its profit for the half year to end-June.
  • This was thanks to strong local demand. 
  • Discussions are underway with paper customers over price hikes this year.
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Package maker Mpact has had a strong half-year performance, but has warned of possible price hikes in October as input costs continue to climb.

The group produces paper and plastic packaging used in fruit production and fast-moving consumer goods (FMCG). Its business also includes recycling.

In its results for the six months ended 30 June 2022, the group reported that its headline earnings per share grew by 31% to 142 cents. It declared an interim gross cash dividend of 40 cents per ordinary share.

Mpact attributed its strong performance to strong local demand, which it expects will continue, and sales growth of new products.

The packaging manufacturer's paper business saw a 5.9% revenue jump to R4.9 billion in the interim period, while the revenue growth of its plastics business remained flat, with a 1.2% increase to R849 million.

Despite a strong performance, the group experienced challenges during the six months, including problems at local ports, bad weather and ongoing global supply chain constraints. The company has increased its raw material stocks to cushion it against delays and uncertainty.

The company said its fruit packaging division was impacted by uncertainty due to sanctions related to the war in Ukraine, which has resulted in farmers delaying harvesting and packaging of some of their products.

READ | Entrepreneur sisters recycle your plastic to make bricks, and it works

The FMCG operations took a hard knock from the KwaZulu-Natal floods earlier this year, losing seven days of production at its Pinetown factory. As a result, that division's underlying operation profit declined from R40.5 million in 2021, to R3.5 million.

Mpact said it implemented price increases at the end of 2021 due to rising input costs and there could be another increase soon. 

"Input costs  … have continued to escalate since the end of June 2022, putting further pressure on margins. Discussions are underway with paper customers regarding selling price increases to be implemented in October 2022," Mpact said in its results on Monday.

Its share price remained flat in quiet trading on Monday morning. Mpact shares are down 22% from peaks reached in January this year.

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