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Preliminary annual results for the year ended 31 December 2019 and declaration of a cash dividend
Mpact Limited
(Incorporated in the Republic of South Africa)
(Company registration number 2004/025229/06)
Income tax number: 9003862175
JSE Share Code: MPT JSE ISIN: ZAE 000156501
("Mpact" or "the Group" or "the Company")
PRELIMINARY ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2019
AND DECLARATION OF A CASH DIVIDEND
SALIENT FEATURES FROM CONTINUING OPERATIONS
- Revenue increased by 5.1% to R11.1 billion (2018: R10.5 billion)
- Underlying EBITDA up 7% to R1,374 million (2018: R1,284 million)
- Underlying operating profit down 3.7% to R724 million (2018: R752 million)
- Underlying earnings per share of 192 cents (2018: 248 cents)
- Return on Capital Employed (ROCE) of 11.8% (2018: 11.9%)
- Total gross cash dividend of 60 cents per share (2018: 70 cents per share)
- Mpact Operations (Pty) Ltd achieved Level 1 B-BBEE (2018: Level 4 B-BBEE)
COMPANY PROFILE
Mpact is the largest paper and plastics packaging and recycling business in Southern Africa with customers
that include packaging converters, fruit producers and FMCG companies. Mpact's integrated business model
is uniquely focused on closing the loop in plastic and paper packaging through recycling and beneficiation of
recyclables.
As at 31 December 2019, Mpact employed 5,142 people (2018: 5,062 people) and had 41 operating sites,
20 of which are manufacturing operations, located in South Africa, Namibia, and Mozambique. Sales in South
Africa account for approximately 90% of Mpact's total revenue for the current year while the balance was
predominantly to customers in the rest of Africa.
GROUP PERFORMANCE
The Group's financial results for the year ended 31 December 2019 reflect very tough trading conditions, with
reduced local and export demand coupled with lower profit margins. Benefits from recent capital investments
such as the Felixton paper mill upgrade and the new corrugator in Port Elizabeth partially offset the effects
of the challenging trading environment.
During the year the Group's polyethylene terephthalate (PET) recycling operation, Mpact Polymers (Pty)
Ltd (Mpact Polymers), was closed and it is therefore reported as a discontinued operation. The reason for
the closure is that the recycled PET selling price was below Mpact Polymers' cash cost of production and
was expected to remain so for the foreseeable future.
Group revenue from continuing operations of R11.1 billion was 5.1% higher than the prior year.
Effective 1 January 2019, Mpact adopted the new IFRS 16 Lease standard (IFRS 16) which decreased profit
before tax by R33 million and underlying earnings per share by 14.0 cents.
Underlying earnings before interest, tax, depreciation and amortisation (Underlying EBITDA) from continuing
operations increased 7.0% to R1,374 million (excl. IFRS 16, R1,276 million), while underlying operating profit
(EBIT) of R724 million decreased by 3.7%. ROCE at 31 December 2019 was 11.8% (2018: 11.9%).
Paper business
The Paper business reported a 5.4% increase in segment revenue for the year to R8.7 billion (2018: R8.3 billion)
due to higher average selling prices. External sales volumes decreased due to lower export and local demand,
particularly for containerboard and cartonboard.
Mpact increased its shareholding in West Coast Paper Traders (WCPT) to 60% (December 2018: 49%)
effective 1 January 2019 which increased revenue by 1%.
Working capital at the end of the period remained high due to sales not meeting expectations. The paper
mills took commercial downtime equating to approximately 10% of their annual capacity (2018: 0%).
Underlying operating profit increased by 3.1% to R716 million (2018: R694 million) due to the consolidation
of WCPT and higher gross margin.
Plastics business
Revenue in the Plastics converting business was up 3.2% to R2.4 billion (2018: R2.3 billion) due to higher
sales volumes of preforms and closures.
Underlying operating profit of R83 million (2018: R130 million) declined from the prior year due to lower
margins realised in the trays and films and FMCG businesses. The operating profit margin was 3.5%
(December 2018: 5.6%).
Discontinued operation
On 14 November 2019, the Board of Mpact approved a decision to discontinue its PET recycling operation,
Mpact Polymers, which was previously included in the Plastics reporting segment. In December 2019, Mpact
Polymers commenced voluntary business rescue proceedings and was deconsolidated from the Group. Its
profit and loss statement for the reporting period is disclosed separately as a discontinued operation. The net
effect of deconsolidation is that the Groups balance sheet as at 31 December 2019 does not reflect any
assets and liabilities attributable to Mpact Polymers. The basic and headline loss per share attributable to
Mpact Polymers as a discontinued operation, were 37.1 cents (2018: 39.7) and 36.7 cents (2018: 39.7), respectively.
Impairment of goodwill, plant and equipment
Deteriorating market conditions, together with Mpact's share price trading below its net asset value during most
of the past year has resulted in an impairment of R1.3 billion, comprising R549 million of goodwill and R742
million of plant and equipment, raised against the Springs and Piet Retief paper mills as well as the trays and
films business. This non-cash charge equates to approximately 633.2 cents per share and is excluded from
headline and underlying earnings per share. Notwithstanding the impairments these businesses remain
operational.
Net finance costs
Net finance costs from continuing operations increased to R245 million (2018: R209 million) mainly due to
interest charged on lease liabilities of R38 million following the adoption of IFRS 16.
Tax
The effective tax rate before special items was 25.7% (2018: 20.3%). In the prior year, the Group benefited
from S12I allowances which resulted in a lower effective tax rate.
Earnings per share
Underlying basic earnings per share and headline earnings per share for the year were 191.8 cents (2018: 247.7 cents)
and 185.8 cents (2018: 235.3 cents), respectively.
Net debt
Mpact successfully concluded the refinancing of its bank facilities during 2019. Net debt at the end of the year
from continuing operations was R2.3 billion (2018: R1.8 billion). The increase in net debt is primarily due to the
adoption of IFRS 16 lease liabilities of R321 million. This has resulted in a gearing ratio of 38.2% (2018: 27.9%).
The gearing ratio excluding IFRS 16 is 32.8%.
OUTLOOK
There is still no indication of any meaningful improvement in the South African economy, which is aggravated
by debilitating power outages.
The global oversupply of containerboard and cartonboard persists while we expect the dynamics supporting
recycled fibre availability to continue for the remainder of the year. We will prioritise cash preservation and
mitigating the effects of the weak economy through cost savings, efficiency gains and product innovation.
To date, there has been no discernible impact on the Group's sales or supply chains from the current
coronavirus outbreak. We continue to monitor the potential impact and will take steps where possible to mitigate
the effects.
Mpact's integrated business model is uniquely focused on closing the loop in paper and plastic packaging.
Through our increased focus on innovation and the introduction of new product offerings, we will continue to
work with our customers to develop new markets.
Cash dividend
Notice is hereby given that the Board has declared a final gross cash dividend of 42 cents for the year ended
31 December 2019 (33.60 cents net of dividend withholding tax) per ordinary share. The dividend has been
declared from income reserves. A dividend withholding tax of 20% will be applicable to all shareholders who
are not exempt.
The Company's total number of issued ordinary shares at the date of this announcement is 173,304,517.
Mpact's income tax reference number is 9003862175.
Salient dates for the cash dividend distribution
2020
Publication of dividend declaration Wednesday, 4 March
Last day of trade to receive a dividend Tuesday, 31 March
Shares commence trading "ex" dividend Wednesday, 1 April
Record date Friday, 3 April
Payment date Monday, 6 April
All times provided are South African local times. The above dates and times are subject to change. Any material
change will be announced on the SENS.
Share certificates may not be dematerialised or rematerialised between Wednesday, 1 April 2020 and Friday,
3 April 2020, both days inclusive.
Financial summary from continuing operations
Year Year
ended ended
31 31
December December Change
2019 2018 %
R'million Restated
Revenue 11,076 10,543 5.1%
Underlying operating profit(1) 724 752 (3.7%)
Underlying profit before tax(2) 495 571 (13.5%)
Net debt 2,292 1,830 25.3%
Return of capital employed (%) 11.8 11.9 (0.1)
Total gross dividend for the year (cents) 60 70 (14.3%)
Basic earnings per share (cents) (443.7) 224.8 (+100%)
Basic underlying earnings per share (cents) 191.8 247.7 (22.6%)
Basic headline earnings per share (cents) 185.8 235.3 (21.0%)
(1) Underlying operating profit is the Group operating profit before special items.
(2) Underlying profit before tax is the Group profit before tax and before special items.
This short-form announcement is the responsibility of the directors and is only a summary of the
information in the full audited announcement and itself is not audited. Any investment decision should be
based on the full audited announcement which is available on our website
https://www.mpact.co.za/investors-relations/financial-results/2020/FY2019.pdf, and on
https://senspdf.jse.co.za/documents/2020/JSE/ISSE/MPT/FY2019.pdf
Deloitte & Touche, the Group's independent auditor, has audited the consolidated annual financial statements
of Mpact Limited and has expressed an unmodified audit opinion on the consolidated annual financial statements.
The auditor's report (with Key Audit Matters) issued on the Consolidated Annual Financial Statements
('AFS') and the actual Consolidated Annual Financial Statements can be accessed at:
https://www.mpact.co.za/investor-relations/financial-results/2020/AFSFY2019.pdf
The full audited announcement is also available at our registered offices at no charge during office hours.
AJ Phillips BW Strong
Chairman Chief Executive Officer
4 March 2020
DIRECTORS
Independent Non-Executive:
AJ Phillips (Chairman), NP Dongwana, NB Langa-Royds, PCS Luthuli, M Makanjee, TDA Ross, AM Thompson
Executive:
BW Strong (Chief Executive Officer), BDV Clark (Chief Financial Officer)
Company secretary:
Karen Waldeck
CorpStat Governance Services (Pty) Ltd
CorpStat Governance Services (Pty) Ltd was appointed on 26 November 2019 following the passing of the
Group's previous company secretary, Mrs MN Sepuru.
Registered office:
4th Floor, No.3 Melrose Boulevard, Melrose Arch, 2196
(Postnet Suite #179, Private Bag X1, Melrose Arch, 2076)
Transfer secretaries:
Link Market Services South Africa Proprietary Limited
13th Floor, Rennie House, 19 Ameshoff Street, Braamfontein, 2001 (PO Box 4844, Johannesburg, 2000, South Africa)
Sponsors:
Rand Merchant Bank (a division of FirstRand Bank Limited)
1 Merchant Place, corner Fredman Drive and Rivonia Road, Sandton, 2196 (PO Box 786273, Sandton, 2146)
Auditors:
Deloitte & Touche
Deloitte Place, The Woodlands, Woodland Drive, Woodmead, Sandton, 2196 (Private Bag X6, Gallo Manor, 2052)
Date: 04-03-2020 08:00:00
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