Mpact FY HEPS plunge 30%, flags challenging operating environment

Mpact, a leading paper and packaging company in South Africa, faced a challenging year in 2024 due to a mix of factors such as load shedding, cautious consumer behavior before the elections, and post-election optimism. Despite these hurdles, Mpact managed to increase group revenue by 3.6% in the year ending December, driven by higher sales volumes in its paper business. However, profit from continuing operations dropped by 26.7% to R569.7 million, influenced by high interest rates, cost inflation, and service delivery failures that dented consumer and business confidence. Bruce Strong, the CEO of Mpact, discussed the company's performance and outlook in an interview with CNBC Africa. Strong highlighted the impact of load shedding and election uncertainty on consumer behavior, which affected demand for Mpact's products in the first part of the year. The company saw improvements in the last quarter as interest rates dropped and inflation eased, leading to a slight uptick in performance. Despite the ongoing economic challenges in South Africa, Mpact remains optimistic about its prospects. The company has leveraged opportunities such as exporting container board paper from its Felixton paper mill and catering to growing consumer trends like e-commerce and home deliveries. Mpact's strategic investments and strong balance sheet position the company to overcome future obstacles. Strong emphasized the importance of managing inflationary pressures and aligning prices with efficiency gains to maintain profitability. While the company faced margin pressures in the reporting period, it achieved a record cash flow from operations and reduced its debt, indicating financial resilience. Looking ahead, concerns about the global supply chain and geopolitical uncertainties pose additional challenges for Mpact. The company is monitoring developments such as potential trade wars and tariff impacts to navigate the changing landscape. Strong expressed confidence in Mpact's ability to adapt to uncertain conditions, drawing on the resilience ingrained in South African businesses. In response to questions about AGOA and its potential renewal, Strong downplayed the impact on Mpact's business, citing diversification in export markets. Mpact's investments in the fruit sector align with the anticipated growth in citrus exports, mitigating risks associated with trade agreements. Despite setbacks in Mozambique due to political unrest, Mpact remains committed to supporting its operations in the region. As the South African economy faces subdued growth prospects, businesses like Mpact are closely watching policy decisions that could affect corporate taxes and VAT. Strong emphasized the importance of fostering an environment that stimulates growth and consumer participation while balancing fiscal measures. As Mpact navigates the challenges ahead, the company stands resilient with a focus on innovation, diversification, and financial prudence.