Packaging company Mpact halved its interim dividend from 30c to 15c, the company said on Tuesday.
Presenting Mpact’s financial results for the six months ended June 30, CEO Bruce Strong said headline earnings a share decreased by 64% to 33.9c from 94.9c in the first six months of the prior year, while underlying operating profit dropped to R169-million from R322-million in the prior comparable period.
“The group results for the first half of this year reflect a weaker trading environment in South Africa and recent capital investments, which have not yet contributed to profitability,” he noted.
Earnings before interest, taxes, depreciation and amortisation of R432.6-million declined by 21.7% year-on-year, owing to lower domestic sales volumes in the paper and plastics businesses and higher recovered paper costs.
This, together with higher depreciation, resulted in an underlying operating profit of R169.1-million.
Strong noted that, despite the current challenging environment and high levels of uncertainty in the domestic market, Mpact made good progress on implementing several major capital investments that are aimed at ensuring sustainable growth for the group over the long term.
Revenue in the paper business, meanwhile, grew 7.4% to R3.7-billion.
External sales volumes, excluding the Remade acquisition, declined 1.7%, owing to lower domestic sales volumes, increased competition in the domestic recycled containerboard market, the effects of the drought on fruit packaging and subdued consumer demand.
“Higher international recovered paper prices and increased local demand led to higher recovered paper costs in the manufacture of containerboard and cartonboard, which could not be fully recovered in selling prices,” Strong noted.
The plastics business’s revenue decreased 8.5% year-on-year to R1.2-billion owing to a combination of muted consumer demand and reduced packaging to the agricultural sector.
Subdued volumes and average prices in the plastics business led to a lower operating profit of R27.2-million.
Mpact anticipates that, with the prevailing trading conditions, consumer spending will remain subdued in the second half of the reporting period and competition will remain intense across most of the group’s product segments.
The effects of the prolonged drought in several fruit growing regions will also continue to negatively affect the group’s fruit packaging volumes.
Mpact polymers is expected to have an improved full-year trading performance compared with the prior year, with improved quality, increased throughput and products that are well accepted in the market.
The Felixton paper mill upgrade project is progressing well, with its paper machine successfully commissioned as scheduled during July.
Initial indications regarding quality, throughput and cost are encouraging with the mill planning to ramp up to full capacity by the end of 2018.
The final major construction concerns the automated finished goods warehouse, which is planned for completion in December.
“While challenging economic conditions are expected to continue, we remain confident in our ability to weather the storm and to realise profitable growth over the medium term,” Strong said.