Results presentation for the six months ended 30 June 2019 - - PowerPoint PPT Presentation

Results presentation

for the six months ended 30 June

2019

2

Half-year 2019 in context

Financial review Operating review Financial performance Outlook

3

Half-year 2019 in context

• Good progress developing sustainable packaging alternative for customers
• Paper bags, punnets, returnable crates and PET tray recycling (with PETCO)
• Increased profits in challenging market
• Benefits from recent capital investments; and
• Higher average selling prices in Paper business, stable recovered paper cost;

partially offset by

• Lower domestic demand
• Eskom load shedding
• Elections
• Climatic conditions affecting fruit harvest timing
• Working capital above target
• Higher stock carried forward from Q1
• Sales volumes below forecast
• Successfully refinanced existing bank facilities of R2.6bn
• Mpact Operations achieved a B-BBEE Level 1 contributor status

4

Half-year 2019 in context

Financial review

Operating review Financial performance Outlook

5

Financial review

4,833 4,976 5,182 5,287 5,636

2,000 4,000 6,000 8,000 10,000 12,000 2017 2018 2019

R million

HY1 HY2

10 120 10 612

Group revenue

169 168 218 288 504 3.5% 3.4% 4.2%

200 400 600 800 2017 2018 2019

R million

HY1 HY2 HY1 margin

457 672

• Revenue up 4.2% to R5.2bn
• External volumes up approximately 1%
• Underlying operating profit up 29.4% to

R218m

• Improved containerboard margins,
• ffset by declines in the Versapak and

Paper converting business

• Underlying earnings increased 25.1% to

39.4 cents per share (cps), excl. IFRS16, up 47.9% to 46.6 cps (June 2018: 31.5 cps)

• Gearing up to 39.9%, excl. IFRS16, up to

36.8% (June 2018: 34.4%)

• ROCE up to 10.3%, excl. IFRS16, up to

10.6% (June 2018: 7.4%)

• Interim dividend of 18 cps, up 20%

Underlying operating profit

Note: 1. Underlying operating profit is the Group operating profit before special items.

6

Half-year 2019 in context Financial review

Operating review

Financial performance Outlook

7

Paper business

3,720 3,916 4,078 4,025 4,370

2,000 4,000 6,000 8,000 10,000 2017 2018 2019

R million

HY1 HY2

7 745 8 286

Segment revenue

177 219 296 266 475 4.8% 5.6% 7.3%

200 400 600 800 2017 2018 2019

R million

HY1 HY2 HY1 margin

443 694

• Revenue up 4.1% to R4.1bn
• Consolidation of WCPT increased

revenue by 0.6%

• Sales volumes in line with prior period
• Recycling volumes up off low base
• Containerboard exports down due to

global supply/demand

• Containerboard/cartonboard domestic

sales down 3%

• Paper Converting sales down 2.6%
• Average prices affected by product

mix

• Underlying operating profit up 35.0% to

R296m

• Improved margins in containerboard
• Stable recovered paper cost
• Improved efficiencies
• Commercial shuts at paper mills

during Q2 (~4% of annual capacity)

Underlying operating profit

8

Plastics business

1,157 1,090 1,126 1,297 1,292

500 1,000 1,500 2,000 2,500 3,000 2017 2018 2019

R million

HY1 HY2

2 454 2 382

Segment revenue

27 (13) (37) 43 63 2.3%

• 1.2%
• 3.3%
• 50

50 100 2017 2018 2019

R million

HY1 HY2 HY1 margin

70 50

Plastic Converting

• Revenue up 1.3% to R1.1bn
• Sales volumes down 2.7% due to

subdued demand

• Average prices up 4%, i.e. less than

raw material cost escalation

• Underlying operating profit down to

breakeven (June 2018: R25.5m)

• Margin pressure across all

businesses, but especially Versapak Mpact Polymers

• Operating loss of R37.5m (June 2018:

R38.4m loss)

• Low production and selling prices
• Total sales volumes up 22% to 3,783

tons

• Production down 8.9% to 3,496 tons
• New bottle washing and wet grinding

equipment commissioned

• Capacity evaluation underway

Underlying operating profit

9

Half-year 2019 in context Financial review Operating review

Financial performance

Outlook

10

Financial summary

Revenue Underlying operating profit Underlying EPS Interim dividend ROCE Gearing %

4.2%

R5.2 billion R218 million 39.4 cents per share 18 cents per share 10.3% 36.8%

1

Notes: 1. Gearing % excludes the impact of adopting IFRS 16

11

Variable costs

Notes: 1. Paper business raw materials include purchased paper, wood, pulp and recovered paper. 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

20 40 60 80 100 120 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Index (June 2017 = 100) ZAR US$

Benchmark recovered paper prices (OCC)

1,542 1,640 335 349 525 562 438 420 354 235 500 1,000 1,500 2,000 2,500 3,000 3,500 HY1 2018 HY1 2019 R million Paper business raw materials Energy Plastic raw materials Selling & distribution costs Other 50 70 90 110 130 150 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Index(ZAR) (June 2017 = 100) P1 P2 P3

Benchmark polymer prices

• Lower recovered paper prices partly offset

higher virgin paper costs

Source: Mpact Source: RISI – PPI Asia, Old Corrugated Containers (OCC), CNF China US$, converted to ZAR

3 194 3 206 +0.4%

4.1% 7.0% 4.2% 6.4% 33.6%

12

Fixed costs

• Fixed costs up 8.9%
• Personnel cost up due to the acquisition
• f West Coast Paper Traders and the

introduction of new labour legislation

• Increase in net operating expenses offset

by lower rent cost

• Depreciation and amortisation includes

R49m in respect of IFRS 16

+8.9%

2.3% 8.3%

548 289 49 854 925

485 496 275 338

200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 HY1 2018 HY1 2019 Depreciation and amortisation Net operating expenses Personnel costs 1 614 1 759

22.9%

R million

13

Financial review

R million HY1 2018 HY1 2019 change HY1 2019 before IFRS 16 Change vs HY1 2018 Underlying operating profit 168 218 29.4% 215 28.0% Net finance costs (112) (129) 14.5% (108) (3.6%) Profit / (loss) from equity accounted investees 13 (4) (>100%) (4) >100% Underlying profit before tax 69 85 23.2% 103 49.3% Tax credit/(charge) before special items (20) (25) 28.1% (31) 55.0% Non-controlling interests 5 7 53.1% 7 53.1% Underlying earnings 54 67 25.5% 79 46.3% Special items, net of tax (3) 1 >100% 1 >100% Reported earnings for the period 51 68 36.0% 80 56.9% Underlying earnings per share (cps) 31.5 39.4 25.1% 46.6 47.9%

14

Net finance cost and net debt

R million Full Year 2018 HY1 2018 HY1 2019 Change vs net debt Change vs net debt after IFRS 16

Net debt Lease liabilities

(IFRS 16)

Net debt after IFRS 16 Average net debt 2 388 2 492 2 512 428 2 940 0.8% 18.0% Net finance cost 220 112 108 21 129 (3.6%) 15.2% Net debt – close 2 125 2 217 2 565 435 3 000 15.7% 35.3% Gearing % 32.2% 34.4% 36.8% 39.9% 2.4 5.5 Interest cover (underlying EBIT) (times) 3.1 1.5 2.0 1.7 Net debt to EBITDA (times) 1.7 2.2 2.0 2.2

15

ROCE and net debt

• ROCE of 10.3%, excl. IFRS16, up to 10.6% (June

2018: 7.4%)

• Reflects improved earnings when compared to

the prior year period

• Net debt increased to R2.6bn, excluding IFRS 16

Lease liabilities of R435m

• Negative working capital outflows
• Gearing up to 36.8%, excluding IFRS 16 (June 2018:

34.4%)

1

10.6% 7.4% 10.3% 7.7% 10.7% 0% 5% 10% 15% 20% 25% 2017 2018 2019 ROCE %

Return on Capital Employed (ROCE)

HY1 Full Year

2,291 2,217 3,000 2,244 2,125

500 1,000 1,500 2,000 2,500 3,000 2017 2018 2019 R millions

Net debt

HY1 Full year

435 2,565

1. Return on Capital Employed (ROCE) is an annualised measure based on underlying operating profit plus share of equity accounted investees’ net earnings divided by average capital employed before impairments.

16

Movement in net debt¹

(2 125) 567 (487) (247) (120) (32) (94) (27) (2 565)

• 3,000
• 2,500
• 2,000
• 1,500
• 1,000
• 500

500 1,000 Net debt at December 2018 Cash generated from

• perations

before working capital Working capital

• utflows

Capital expenditure Interest paid Income tax paid Dividend paid to equity holders Other items Net debt at 30 June 2019 R million

1. Excludes a non-cash flow acquisition of lease liabilities (IFRS 16)

17

Trade working capital

• Increase in trade working capital

attributable to:

• Higher finished goods stock in the

Paper business due to export and domestic sales below forecast

• Interventions
• Paper mill commercial shuts
• Reduced external

containerboard purchases

• Trade working capital should normalise

by year-end

1,923 1,793 2,548 19.9% 18.0% 24.6% 500 1,000 1,500 2,000 2,500 3,000 HY1 2017 HY1 2018 HY1 2019

Trade working capital % of revenue

R million

18

Re-financing of existing bank facilities

• Agreements signed
• Subject to meeting standard conditions precedent
• Lenders include Standard Bank, Rand Merchant Bank and Nedbank
• KZN Growth Fund fixed rate funding to be settled
• Competitive rates

Term Type¹ Commitment R million 3 year RCF and GBF 900 4 year RCF 850 5 year RCF 850 Total re-finance of existing facilities 2,600

1. Revolving credit facilities (RCF) and General banking facilities (GBF)

19

Taxation

R million HY1 2018 HY1 2019 change Taxation charge 20 25 28.1% Effective tax rate 29.6% 29.1% (0.5) Tax paid 6 32 >100%

• Effective tax rate higher than the statutory tax rate due to the non-recognition of

deferred tax in Mpact Polymers

20

Capital expenditure cash flows

Paper business Plastics business

Note: 1. Excludes Corporate capital expenditure of R8 million which comprise spends related mainly to the purchase and improvements to of Land and Buildings.

289 121 138 280 138

2017 2018 2019 HY1 HY2

102 91 100 77 122

2017 2018 2019 HY1 HY2

569 179 259 213

• Capital expenditure below depreciation
• Current focus on optimising recent investments

21

Dividends

15 15 18 40 55 20 40 60 80 2017 2018 2019

Cents per share Interim Final

55 70

• Up 20% on prior period
• To be paid in cash

Salient dates for the 2019 interim cash dividend Publication of dividend declaration Wednesday, 7 August 2019 Last day of trade to receive a dividend Tuesday, 3 September 2019 Shares commence trading “ex” dividend Wednesday, 4 September 2019 Record date Friday, 6 September 2019 Payment date Monday, 9 September 2019

22

Half-year 2019 in context Financial review Operating review Financial performance

Outlook

23

Outlook

• No indication of meaningful improvement in the SA economy
• Better sales to the agricultural sector
• Containerboard and cartonboard sales volumes and margins under pressure
• Partly mitigated by cost savings, improved efficiencies and product mix
• Stable recovered paper costs
• Mpact Polymers continue to focus on increasing plant yield, quality, throughput

and sustainable pricing

• Mpact’s integrated business model is uniquely focused on closing the loop in

paper and plastic packaging through recycling and beneficiation

• Working with customers to realise their sustainability goals