RESULTS PRESENTATION for the six months ended 30 June 2018 - PowerPoint PPT Presentation

RESULTS PRESENTATION for the six months ended 30 June 2018

HALF-YEAR 2018 IN CONTEXT • FINANCIAL REVIEW • OPERATING REVIEW • FINANCIAL PEFORMANCE • OUTLOOK

Half-year 2018 in context  Operating profit in line with comparable prior period  Paper business showed good improvement  Offset by declines in the Plastics business  External factors that impacted the Group’s results included:  Chinese policy on waste importation  Overcapacity in styrene  Drought  Sugar tax  Progress on strategic projects:  Felixton mill and PE corrugator performing in line with expectations  Mpact Polymers disappointing due to feedstock quality – bottle washing equipment ordered, commissioning towards the end of 2018  New PET extruder/thermo-formers commissioned in May 2018 – doubling tray capacity  B-BBEE Level 4 on new codes  Controllable costs and working capital well managed  Balance sheet remains strong 3

• HALF-YEAR 2018 IN CONTEXT FINANCIAL REVIEW • OPERATING REVIEW • FINANCIAL PEFORMANCE • OUTLOOK

Financial review  Revenue up 2.9% to R5.0bn Group revenue  Volumes down 5.1% 12,000  10 120 10 099 Up 3.8% excluding Recycling 10,000  Average price increase reflects 8,000 R million 5,287 5,411 favourable sales mix variance 6,000  4,000 EBITDA of R443m up 2.5% 4,976 4,833 4,688 2,000  Underlying operating profit of R168m in line 0 with comparable prior period 2016 2017 2018  HY1 HY2 Gains in Paper reflect benefits of Felixton mill project and recovered Underlying operating profit paper prices 1,000  Offset by declines in Plastics 784 800  Underlying earnings of 31.5 cps (June 6.9% R million 600 2017: 34.3 cps) 457 462 400 3.5% 3.4%  Gearing improved to 34.4% (June 2017: 288 200 36.3%) 322 169 168 0  ROCE of 7.4% (June 2017: 10.6%) 2016 2017 2018 HY1 HY2 HY1 margin  Interim dividend of 15 cps 5

• HALF-YEAR 2018 IN CONTEXT • FINANCIAL REVIEW OPERATING REVIEW • FINANCIAL PEFORMANCE • OUTLOOK

Paper business  Revenue up 5.3% to R3.9bn Segment revenue  Segment volumes declined by 5.0% 10,000  Up 6.5% excluding Recycling 7 745 8,000 7 425  Containerboard and cartonboard R million 6,000 4,025 3,962 up 9.4% 4,000  Converted paper packaging up 2,000 3,916 3,720 2.1% 3,463  Recycling volumes declined due to 0 2016 2017 2018 increased integration and closure of HY1 HY2 customer’s newsprint machine  Average price increase reflects Underlying operating profit 1,000 favourable sales mix variance 800 664  Underlying operating profit up 23.8% to R million 600 R219m 8.4% 443 372  Higher throughput and gross profit from 400 266 Felixton mill post rebuild 5.6% 200 4.8%  Average recovered paper prices in line 292 219 177 with 1H2017 0 2016 2017 2018  PE corrugator performing well HY1 HY2 HY1 margin 7

Plastics business – Converting 1 Segment revenue 3,000  Revenue down 5.3% to R1.1bn 2 699 2 388 2,500  Volumes down 11.7% 2,000 1,442 R million  Primarily due to preforms, crates and 1,267 1,500 jumbo bins 1,000  Average price up 6.4% 1,257 1,121 500 1,062 0 2016 2017 2018 HY1 HY2  Underlying operating profit of R26m Underlying operating profit  Lower gross profit in styrene due to 300 255 overcapacity in sector 250  Drought effect on jumbo bin sales 200 136 9.5% R million 142  Customer backward integration into 150 preforms and sugar tax 100 5.1% 85  119 New PET tray capacity commissioned May 50 2.4% 57 2018, benefit expected 2H2018 26 0 2016 2017 2018 Note: HY1 HY2 HY1 margin 1. Plastics Converting is defined as the Plastics business excluding Mpact Polymers. 8

Plastics business – Mpact Polymers  Operating loss of R39m (June 2017: R30m)  Production in line with prior period, below target  Low yields and higher maintenance costs due to dirty feedstock and inadequate washing facilities – bottle washing equipment to be installed in 4Q2018  Global PET benchmark prices up on prior period  Profitability will continue to be undermined until new equipment is commissioned despite higher anticipated throughput and selling prices 2H2018  Balance sheet restructure successfully completed in July 2018  IDC senior loan facility restructured into:  R83m interest bearing loan (Prime + 1%)  R146m non-interest bearing subordinated loan  IDC increased shareholding by 10% at nominal value (IDC shareholding: 31%, Mpact: 69%)  Further cash injection by way of shareholders subscribing for preference shares of R90m, ranking ahead of subordinated loans 9

• HALF-YEAR 2018 IN CONTEXT • FINANCIAL REVIEW • OPERATING REVIEW FINANCIAL PEFORMANCE • OUTLOOK

Financial performance Revenue R5.0 billion 2.9% Underlying operating profit R168 million No change Underlying EPS 8.2% 31.5 cents per share Interim dividend No change 15 cents per share 3.2 ROCE 7.4% Gearing % 1.9 34.4% 11

Variable costs Benchmark recovered paper +2.4% prices (OCC) 3,500 180 3 194 3 118 160 (June 2016 = 100) 5.0% 354 3,000 337 140 13.2% Index 438 120 387 2,500 100 300 11.9% 335 R million 2,000 80 529 0.8% 525 60 1,500 40 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 1,000 ZAR US$ 1.5% 1,542 Source: RISI – PPI Asia, Old Corrugated Containers (OCC), CNF China US$, 1,565 converted to ZAR 500 Benchmark polymer prices 120 0 HY1 2017 HY1 2018 (June 2016 = 100) 110 1 2 Paper business raw materials Plastic raw materials Index(ZAR) Energy Selling & distribution costs 3 Other 100  Lower volumes of recovered paper purchases, offset by increased virgin containerboard 90  Lower plastic raw material cost 80  Volumes down 11.7% Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Notes: 1. Paper business raw materials include purchased paper, wood, pulp and recovered paper. P1 P2 P3 2. Plastic raw materials include styrene, PET, HDPE, PVC, polypropylene and post consumer PET bottles 3. Other variable costs include chemicals, packaging costs and stock movements. 12 Source: Mpact

Fixed costs  Fixed costs up 4.3% +4.3% 1,800 1 614  1 547 Personnel costs excluding cost 1,600 4.4% 275 capitalised to the Felixton project 264 1,400 increased by 6.6% 1,200 R million 1.3% 485 491  1,000 Net operating expenses down 1.3% 800  Cost saving and unrealised 600 foreign exchange gains 7.8% 854 400 792 200 0 HY1 2017 HY1 2018 Personnel costs Net operating expenses Depreciation and amortisation 13

Financial review R million HY1 2017 HY1 2018 change Underlying operating profit 169 168 (0.5%) Net finance costs (100) (112) 12.7% Earnings from equity accounted investees and profit on disposals 5 13 >100% Underlying profit before tax 74 69 (6.9%) Tax charge before special items (22) (20) (7.7%) Non-controlling interests 6 5 (14.1%) Underlying earnings 58 54 (7.2%) Special items, net of tax - (3) 100% Reported earnings for the year 58 51 (12.9%) Underlying earnings per share (cps) 34.3 31.5 (8.2%) 14

ROCE and net debt 1 Return on Capital Employed (ROCE) 25%  ROCE of 7.4% (June 2017: 10.6%) 20% 16.7%  Investments in new capital projects 14.2% ROCE % 15% 10.6% 10% 7.7% 7.4% 5% 0% 2016 2017 2018 HY1 Full Year  Net debt marginally decreased to R2.2bn Net debt  Investments in capital projects offset 2,500 2,291 2,244 2,217 2,001 1,943 by improvement in trade working 2,000 R millions capital 1,500  Gearing improved to 34.4% 1,000 (June 2017: 36.3%) 500 0 2016 2017 2018 HY1 Full year Return on Capital Employed (ROCE) is an annualised measure based on underlying operating profit plus share of equity accounted i nvestees’ net earnings divided by 1. average capital employed before impairments. 15

Trade working capital Trade working capital % of revenue 19.9% 2,000 18.9% 18.0%  Trade working capital reduced by R130m 1,500  Improved creditor payment terms R million 1,000 1,923 1,793 1,772 500 0 HY1 2016 HY1 2017 HY1 2018 16

Movement in net debt 500 440 31 0 (6) (36) (43) (117) (242) -500 R million -1,000 -1,500 -2,000 (2 217) (2 244) -2,500 Net debt at Cash Working Capital Interest paid Income tax Dividend Other items Net debt at December generated capital expenditure paid paid to equity June 2018 2017 from movements holders operations before working capital 17

Net finance cost and net debt Full year HY1 HY1 R million 2017 2017 2018 change Net debt - close 2 244 2 291 2 217 (3.2%) Net debt - average 2 316 2 304 2 492 8.2% Net finance costs 203 100 112 12.7% Gearing % 34.8% 36.3% 34.4% (1.9) Interest cover (underlying EBIT) (times) 2.3 1.7 1.5 Net debt to EBITDA (times) 2.2 2.0 2.2 18

Taxation HY1 HY1 R million 2017 2018 change Taxation charge ¹ 22 20 (7.7%) Effective tax rate 29.8% 29.6% (0.2) Tax paid 47 6 (87.9%)  Effective tax rate marginally lower, primarily due to  Non-recognisition of deferred tax in Mpact Polymers  Full year effective tax rate is expected to be higher than FY2017  Non-recurring S12i tax incentive of R114m for the Felixton mill rebuild recognised in 2H2017 Note: 1. Taxation charge excludes tax on special items 19