South African paper and plastics packaging maker Mpact reported a slump in half-year earnings on Tuesday and halved its interim dividend but said its investments should help boost profit from next year.
Mpact’s headline earnings per share in the six months to the end of June fell 64% to 33.9 cents from 94.9 cents while underlying operating profit dropped to R169 million ($12.8 million) from R322 million .
Its shares fell as much as 4% before recovering to trade 0.80% higher at R27.60 at 0912 GMT.
“The first quarter of this year saw significant sales volume declines, firstly driven by destocking and also driven by lack of confidence amongst consumers, which reflected in their spending, and in the second quarter the low consumer spending continued,” chief executive Bruce Strong told Reuters.
“The group is nearing the end of an extensive capital investment programme with many of the investments expected to reflect positively in the group’s earnings and returns from 2018,” the company said.
Mpact, which was spun out of packaging and paper group Mondi , has spent about R3 billion ($226 million) over the last five years upgrading mills, commissioning recycling bottle plants and acquiring a collector and trader of recyclable material to enhance its competitive position.
The company is in the process of getting its R765 million Felixton paper mill in KwaZulu-Natal, which was commissioned in July, up to full capacity.
Africa’s second biggest economy slid into recession in March and business and consumer confidence have been dented by high unemployment and credit downgrades by two of the top three ratings agencies following economic and political turmoil.
Underlying profit at Mpact’s paper business fell 39.4% to R177 million, while profit from plastics dropped 61% due to lower average prices and sales volumes.
Mpact, which also operates in Namibia, Mozambique and Botswana, declared an interim dividend of 15 cents per share, down 50%.
“Prevailing trading conditions indicate that consumer spending will remain subdued for the second half of the reporting period and competition will remain intense across most of the group’s products segments,” Mpact said.