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Mpact’s Operating Profit Up 27% – Bruce Strong – CEO, Mpact

Half-year results for the paper and plastics packaging group.

HANNA BARRY: You’re with Moneyweb on the Market Update here on SAfm, paper and plastics packaging group, Mpact, reported an 11% climb in revenue this morning to R4.4bn for the half-year to June. Operating profit up very strong, 27%, to R342m. We’re joined on the line now by Mpact CEO, Bruce Strong. Bruce, thanks for your time. Healthy fruit exports it seems to European nations helped to boost these results. Mpact packs fruit for table grape exporters, among others, how many boxes of fruit does Mpact pack on average each month?

BRUCE STRONG: Well, Hanna, it’s hard to say on average but the South African fruit industry is well over 2m cartons a year and we pack a fair percentage of that. So it is an important part of our business but it’s not the only part, we have a number of other businesses and fruit is one of them, and we have a very long association with that sector and we have invested extensively to supply their needs and to develop our products accordingly.

HANNA BARRY: Is that sector a growing sector in South Africa?

BRUCE STRONG: It must be remembered that the fruit sector certainly is everything that is local, so it’s the one thing that is very much homegrown, if I can use that term, and that is positive for the South African economy because everything homegrown obviously has to be packaged here and sent off and the benefits of that are clear. They do face a number of challenges, the sector generally, but the one thing that really impresses about the fruit growers in South Africa is their resilience, many of these businesses have been around for several generations, they’ve seen a lot of ups and downs and they are at the forefront of the industry. So we are very proud to be associated with them and also able to benefit from their growth. There are a number of the exporters in South Africa who have grown extensively over the past years and will continue to grow but there’s no doubt that they face some of the challenges that you’re seeing across the industry in South Africa and they’re having to deal with that but they have shown the resilience at the same time to overcome.

HANNA BARRY: Mpact itself is quite exposed to the fast moving consumer goods sector, being a packing company, the consumer is under pressure, as we know, are you seeing the impact of a cash-strapped consumer reflected in your business?

BRUCE STRONG: Yes, I think it would be fair to say that when it comes to the fast moving consumer goods sector of our business things are more subdued than they are in other sectors. Just the manufacturing data that came out yesterday I think did show a contraction in manufacturing but there was a 2.8% growth in food and beverage and that reflects the numbers we are seeing in our business. But there’s no doubt that consumers in South Africa are under pressure, on the one hand that’s a big challenge but on the other hand it presents an opportunity for innovative companies because as they’re under pressure one has to bring to the market more cost effective packaging that not only displays the same strength and display characteristics but comes in at a price which is affordable and especially if one considers how more and more pack sizes are becoming smaller in certain cases, there you’ve got to make sure the packaging costs don’t become such an impediment to actually distributing the goods that they’re not able to be consumed at the right price. So as an innovative company, as a company that’s investing in the sector, we see that as somewhat of an opportunity to differentiate ourselves and that’s reflective in the investments that we are currently undertaking. So for example in our PET business, in the plastic side, we’re investing in the recycling stream there and on the corrugated side and the other paper sides we’re investing in lighter weight products that deliver the same strength performance, higher graphics for example, to display the products more prominently and to differentiate them. Those are the things that I think are necessary in these times to make sure that one’s business is more resilient than others.

HANNA BARRY: Is there a lot of pressure coming through from product providers to who you are providing this packaging to do exactly what you’ve just described?

BRUCE STRONG: Absolutely, you’re finding right through the chain, you’ve got a number of these brand owners who are demanding lighter weight packaging. Packaging is obviously something that is absolutely necessary to ensure the safe passage of goods and its fit for consumption when it arrives at the consumer’s house or the point of consumption. So nobody I think doubts the necessity of packaging but at the same time everybody wants to look at one, the amount of cost involved in packaging but two, also the recycling stream, making sure that the packaging that is used can be recycled. We are very pleased to be an integral part of the recycling industry in South Africa, which incidentally employs over 100 000 people. We have a big network and footprint of recycling across the country, we are a big buyer of recycled product and recently we’ve just commissioned a R350m recycle PET plant, which will see us putting recycled product into bottles and jars that are going to be used for food packaging as well.

HANNA BARRY: That’s certainly very encouraging. Mpact, I believe, recycling some 400 000-odd tons of waste every year, what are the benefits of this other than you mentioned the number of jobs that the sector employs but what are the benefits to the economy of recycling and the environment?

BRUCE STRONG: Ja, the most obvious is the reduction of landfill space that is required, so that’s the first thing. So less landfill means less capital investment in landfill, the transport can be short circuited in terms of collecting the waste at the point of consumption, delivering others goods, that’s a positive thing. So the whole value chain is certainly enhanced through the efforts of recycling but as importantly, the importance of having a downstream industry in South Africa is that one can beneficiate effectively raw material that is created in South Africa. So the worst scenario would be you’ve got consumption here and the collected recyclables is exported and that does happened in some countries where the downstream industries are not healthy or haven’t been well invested. In our case in South Africa and I think it needs to happen more and more, we need to invest in the beneficiation of recyclable products and that’s what we’re doing with our recycled PET plant and incidentally that’s what we’re doing by spending R765m in northern KwaZulu-Natal on our Felixton paper mill, where we’ll also increase the amount of recycled paper going through there, which should see a further increase of the recovery rates of paper in South Africa, which can only be good overall.

HANNA BARRY: Let’s move now to labour, labour issues once again in the spotlight as mining houses look to cut jobs and when wage negotiations get underway Mpact employs around 4300 people or even slightly more than that, presumably many of these are in low paid packing positions, is labour and the cost of labour really a big issue at the moment for the group?

BRUCE STRONG: Well, I think the cost of labour is always going to be one of the key factors in the production process, we acknowledge that and we are proud to be an employer in South Africa and an employer that people are happy to work with. It wouldn’t be correct to say most of our jobs are in low paid packing jobs, in fact, our industries are quite technologically advanced and consequently a large percentage of our workforce is very skilled and certainly skilled in the areas that we require them and we invest a lot of money in those skills. So I think when it comes down to the question of labour, I have to take it back one step and say our entire being as manufacturers in South Africa and as Mpact is about competitiveness and that competitiveness also extends to the productivity of labour. So it’s not only about cost, it’s more about the productivity and competitiveness of that labour. So one can pay a price, provided one is getting the output that is economical from that labour and I think that’s what most businesses in South Africa need to be working towards. We certainly are and that is to making sure the productivity matches the price that we are paying for the labour.

HANNA BARRY: Bruce Strong is the CEO of paper and plastics packaging group, Mpact.

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