SIMON BROWN: I’m chatting with Bruce Strong, CEO of Mpact. Results for the year-end December: revenue up 12.6%, underlying earnings per share up 93.2%, and a dividend of 50 cents now, compared to no dividend in the previous year, which of course was the pandemic year. Bruce, I appreciate the time today. Going through the numbers – and we’ll dig into some of the details, – you’re seeing good demand for both your paper and your plastic divisions.
BRUCE STRONG: Yes, we have seen fairly robust demand across most sectors, underpinned on the one hand by recovery from Covid, but on the other from import substitution where the supply chain issues globally have led to customers seeking more product supplied locally. We’ve been a beneficiary of that.
SIMON BROWN: That was going to be my point. Obviously in the past we would’ve imported some; you can now pick up that slack. You mentioned that your inputs to the manufacturing processes therefore are mostly if not entirely local, and you’re not getting the same sort of supply constraints that many CEOs I speak to are experiencing.
BRUCE STRONG: Yeah, that’s true. We do have a few imported materials, but if our imports in terms of raw materials constitute 5% of the total input, I’d be surprised.
Our suppliers are generally local, which has been very beneficial in this last year.
SIMON BROWN: What about price increases? I’m thinking particularly polymers and the like that go into your plastic. Have you been able to take those increase – assuming you’re experiencing [them] – and pass them on to customers?
BRUCE STRONG: There’s no doubt that we’ve experienced tremendous pressure and upward pricing pressure when it comes to commodities going into our business. Actually, in the first half of last year we were very unsuccessful in getting those prices recovered, the selling prices. We did recover some in the last half and particularly towards the end of the year. For example, in our paper business we were able to readjust our prices to take account of those input cost increases. Very much what happens in the next couple of months is going to determine how much that translates into better profitability this year, but we are [working] to make sure that happens.
SIMON BROWN: I suppose part of that comes back to the point, if I can’t get that box or PET [plastic] or whatever it might be from the UK, I’m perhaps going to be a little less price-resistant if there is someone with a local supply.
BRUCE STRONG: That’s exactly correct. What we are seeing now is most customers are not asking too much about the price. They want to be sure that they’re going to get product before they start complaining about the price.
SIMON BROWN: Do you send much out of the country? I know you’ve got a bit, but your export mostly is for local consumption?
BRUCE STRONG: About 12% of our revenue is derived from exports, and that did decline in the last year because we’ve focused our production on local customers. But it’s sitting around 12% export revenue.
SIMON BROWN: If we look at the local market, in these results you mentioned that the board has approved another R700 million of spend. You’re comfortable in the space you’re in, learning to live with Covid and expanding at an operational level to meet, I imagine, the future demand you perceive.
BRUCE STRONG: Indeed. We’ve been around many years and we’ve got a very experienced management team, so we’ve seen a few cycles. Each one is unique. This one seems to give us the opportunity to put investments in capacity that otherwise we wouldn’t have considered. We are not naïve, though. We realise that this is a cyclical business and it’s only a matter [of time before] things revert to something different. But I think there is a window of opportunity and we are taking advantage of that.
I think the investments are well timed, especially the ones we’ve already put in, because I think the prices of equipment and things like that from Europe and other places are going to go up – and that’s if you can get the equipment.
So on the whole our board shows confidence based on our history of delivering against these projects generally, and the markets that we know.
In South Africa we still seeing quite good demand for export fruit packaging because the fruit sector is the one sector that’s really a shining light in South Africa. It is growing and expected to grow further down the line, so we will look to capitalise on it.
SIMON BROWN: I think a lot of people, when they think packaging, think of the box that our Takealot orders come in, or we think the bottle that perhaps our shampoo or honey or whatever it might be arrives in. But it’s actually a sector with a lot of innovation. You mentioned something called PETZorb … – it’s a sector that actually has a fair bit of innovation within the broader packaging space.
BRUCE STRONG: Well, there’s no doubt whatsoever, that’s true. PETZorb is a unique product which removes the need for an absorbent pad in a meat tray because the cells that are in that particular tray absorb or contain the meat through surface tension. That’s one example.
But if you go and look globally, packaging is becoming smarter. We are already putting RFID chips and other technology into our plastic crates, which [gives] our customers, for example municipalities [more information]. Every wheelie bin we sell now has got a pin (?) so we are able to sell a revenue model to municipalities, to tell them how many bins there are out there, whose house they’re sitting outside, so they can compare that to their revenue model and see that they are actually collecting the fees for the bin that’s at your house, which has not necessarily been happening.
To give an example, we’ve done surveys for certain municipalities where we found that they’re only charging for like 60% of the bins that are actually out there. So there is integration of smart technologies into our packaging. They are presenting opportunities as well.
SIMON BROWN: I hadn’t even thought of the ‘smart’ in that sense. We’ll leave it there. Bruce Strong is CEO of Mpact. Bruce, as always I appreciate the time.