Results presentation for the six months ended 30 June 2020 1 - - PowerPoint PPT Presentation

Results presentation

for the six months ended 30 June 2020

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Half-year 2020 in context Impact of Covid-19 Group review Segmental review Financial performance Outlook

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• Unprecedented events
• Persistent and prolonged electricity supply disruptions
• Covid-19 and impact of lockdown
• Subdued economy
• Recycled containerboard oversupply globally
• Improved fruit volumes
• Key management appointments
• MD Paper Converting and Company Secretary
• B-BBEE level 1 retained

Half-year 2020 in context

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Half-year 2020 in context Impact of Covid-19 Group review Segmental review Financial performance Outlook

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• Government imposed lockdown
• Level 5: 27 March to 30 April , 35 days
• Level 4: 1 May to 31 May, 31 days
• Level 3: 1 June to date…
• Restaurants: closed completely for 35 days; home deliveries only for 31 days; opened with

restrictions for 30 days in period

• Alcohol ban: 65 days in period. 88 days to date and counting
• Tobacco ban: 95 days in period. 133 days to date and counting
• Mpact listed as an essential service provider from the onset
• Stringent safety and hygiene practices across all operations
• Business adapted quickly
• Excellent response from all employees, customers and suppliers
• Non-essential production lines shut as required
• QSR, beverage, tobacco and recycling sectors

Impact of Covid-19

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Impact of Covid-19…continued

• Liquidity
• Increased borrowing facilities
• Postponement of 2019 final dividend
• Debtors collections and inventory levels (make to order)
• Non-essential capex postponed
• Costs well contained
• Rentals, salary reductions, reviewed non-essential contracts, temporary plant

closures

• Employees
• Safety, health and wellness
• Revised shift arrangements for business continuity
• UIF Ters / leave
• Making a difference in our communities

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Half-year 2020 in context Impact of Covid-19 Group review Segmental review Financial performance Outlook

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Financial review

from continuing operations¹

4,948 5,132 5,062 5,595 5,944

2,000 4,000 6,000 8,000 10,000 12,000 2018 2019 2020

R million

HY1 HY2

10 543 11 076

Group revenue

206 255 127 545 469 4.2% 5.0% 2.5%

200 400 600 800 2018 2019 2020

R million

HY1 HY2 HY1 margin

751 724

• Revenue down 1.4% to R5.1bn
• Lower average selling prices in the

Paper business

• Impact of lockdown
• External sales volume down 4.7%
• Q2 2020 down 6.4%
• EBITDA of R396m
• Lower paper mill margins
• Inventories and bad debt provisions up

R41m

• Electricity interruptions
• Underlying operating profit of R127m
• Underlying EPS of 9.0 cents (June

2019: 57 cents)

• Operating cash flow of R698m
• ROCE at 9.4% (June 2019: 11.5%)
• No interim dividend declared

1. Excluding Mpact Polymers. Actual 2018 and 2019 has been restated to exclude Mpact Polymers

Underlying operating profit

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Half-year 2020 in context Impact of Covid-19 Group review Segmental review Financial performance Outlook

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Paper business

3,901 4,078 4,006 4,360 4,649

2,000 4,000 6,000 8,000 10,000 2018 2019 2020

R million

HY1 HY2

8 261 8 727

Segment revenue

219 296 184 475 420 5.6% 7.3% 4.6%

200 400 600 800 2018 2019 2020

R million

HY1 HY2 HY1 margin

694 716

• Revenue down 1.7% to R4bn
• Lower average prices
• Volumes down 4.8%
• Paper converting down 6.7%
• Paper mill sales up 1.9%,

excluding rolled pulp, Recycling sales down 11.8%

• Q2 2020 volumes down 6.5%
• Good growth in fruit sector
• Underlying operating profit down

37.8% to R184m

• Lower gross margin - product and

market mix

• Springs mill power outage - R27m
• Impact of lockdown
• Strong operating cash flow of R564m

Underlying operating profit

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Plastics business

1,062 1,076 1,071 1,251 1,310

500 1,000 1,500 2,000 2,500 3,000 2018 2019 2020

R million

HY1 HY2

2 313 2 386

Segment revenue

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• 18

104 83

• 50

50 100 150 2018 2019 2020

R million

HY1 HY2

130 83

• Revenue of R1.1bn in line with prior
• Average prices increased by 3.4%
• Sales volumes declined by 3.9%
• Good growth in FMCG, Bins &

Crates offset by declines in Preforms & Closures, Trays & Films

• Q2 2020 volumes down 5.3%
• Underlying operating loss of R18m
• Inventories and bad debt provisions

up R37m and R5m, respectively

• Contraction in Preforms & Closures in

Q2 2020

• Improvement in Trays and Films post

restructuring

• Solid performances in FMCG and Bins

& Crates

• Strong operating cash flows R193m

Underlying operating profit

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Half-year 2020 in context Impact of Covid-19 Group review Segmental review Financial performance Outlook

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Variable costs

from continuing operations

Notes: 1. Paper business raw materials include purchased paper, wood, pulp and recovered paper 2. Plastic raw materials include styrene, PET, HDPE, PVC and polypropylene and post consumer PET bottles 3. Other variable costs include chemicals, packaging costs and stock movements.

40 60 80 100 120 140 Jun-18 Jun-19 Jun-20 Index (June 2018 = 100) ZAR US$

Benchmark recovered paper prices (OCC)

70 80 90 100 110 120 130 140 Jun-18 Jun-19 Jun-20 Index(ZAR) (June 2018 = 100) P1 P2 P3

Benchmark polymer prices

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

3,172 3,295 +3.9%

3.8% 0.9% 5.2% 2.7% 85.6%

1,640 1,595 563 534 341 344 420 436 208 386 500 1,000 1,500 2,000 2,500 3,000 3,500 HY1 2019 HY1 2020 R million Paper business raw material Plastics business raw material Energy Selling & distribution costs Other

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Fixed costs

from continuing operations

• Fixed costs down 3.9%
• Depreciation down 15.7%
• Impairment on plant and

equipment end 2019

• Personnel cost decreased

2.6%

• Lower overtime cost and

performance bonus

• Voluntary salary

reductions between April and June

• 3.9%

15.7% 1.5% 2.6%

911 887

477 484 319 269

200 400 600 800 1,000 1,200 1,400 1,600 1,800 HY1 2019 HY1 2020 Depreciation and amortisation Net operating expenses Personnel costs 1 707 1 640

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Financial review

from continuing operations

R million HY1 2019 HY1 2020 change Underlying operating profit 255 127 (50.3%) Net finance costs (123) (95) (22.8%) Loss from equity accounted investees and impairment charge (2) (7) >100% Underlying profit before tax 130 25 (80.3%) Tax charge before special items (25) (7) (70.9%) Non-controlling interests (7) (3) (51.7%) Underlying earnings 98 15 (84.2%) Special items, net of tax 1

• (>100%)

Reported earnings for the period 99 15 (84.4%) Underlying earnings per share (cps) 57.0 9.0 (84.2%)

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ROCE and net debt

from continuing operations

• ROCE of 9.4% (June 2019: 11.5%)
• Reflects lower earnings
• Net debt closed at R1,938m
• Improved working capital
• Gearing decreased to 34.8%

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 2. Net debt includes lease liabilities

11.5% 9.4% 11.8% 0% 2% 4% 6% 8% 10% 12% 14% 2019 2020 ROCE %

Return on Capital Employed (ROCE)¹

HY1 Full Year

2,695 1,938 2,292

500 1,000 1,500 2,000 2,500 3,000 2019 2020 R millions

Net debt²

HY1 Full year

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Net finance cost and net debt

from continuing operations

R million Full year 2019 HY1 2019 HY1 2020 Change HY1 2019 vs HY1 2020 Net debt - close 2 292 2 695 1 938 (28.1%) Net debt - average 2 550 2 638 2 349 (11.0%) Net finance costs 245 123 95 (22.8%) Gearing % 38.2% 35.9% 34.8% (1.1) Interest cover (underlying EBIT) (times) 3.0 2.1 1.3 Net debt to EBITDA (times) 1.7 2.1 1.7

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Trade working capital

from continuing operations

• Trade working capital decreased by

R453m

• Lower inventory levels
• Decline in raw material

stock due to lower collection of recovered paper

• Lower stock holding of

containerboard

2,520 2,067 24.9% 20.4% 500 1,000 1,500 2,000 2,500 3,000 HY1 2019 HY1 2020

Trade working capital % of revenue

R million

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Movement in net debt

from continuing operations

(2 292) 394 304 (161) (99) (20) (64) (1 938)

• 2,500
• 2,000
• 1,500
• 1,000
• 500

500 Net debt at December 2019 Cash generated from

• perations

before working capital Working capital inflows Capital expenditure Interest paid Income tax paid Other items Net debt at June 2020 R million

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Taxation

R million HY1 2019 HY1 2020 change Taxation charge 25 7 (70.9%) Effective tax rate 29.6% 28.6% (1.0) Tax paid 32 20 (38.6%)

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Capital expenditure cash flows

1. Excludes Corporate capital expenditure of R20 million (June 2019: R8 million) which comprise spends related mainly to the purchase of Land and Buildings.

Paper business Plastics converting business

138 106 126

2019 2020 HY1 HY2

79 35 96

2019 2020 HY1 HY2

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Dividends

• No interim dividend declared
• Uncertainty of the impact of the lockdown and Covid-19

pandemic

• Final cash dividend of 42 cps for the year ended 31 December 2019

will be paid on 7 September 2020

• Details announced on SENS on 30 April 2020

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Half-year 2020 in context Impact of Covid-19 Group review Segmental review Financial performance Outlook

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Outlook

• Uncertainty regarding impact of lockdown measures and power
• utages
• Some recovery in QSR demand in July, however the beverage and

tobacco sectors remain weak

• Expect good demand for fruit packaging in the second half and

improved demand in other sectors as lockdown regulations are eased

• Global containerboard and cartonboard prices rising off a low

base, but oversupply will continue to put pressure on sales

• Focus will be on cash preservation as in HY1 2020
• Mpact’s strong balance sheet and experienced management team

gives confidence that the Group will be able to navigate these challenges