South Africa’s Mpact reported a 34% drop in full-year earnings on Wednesday as lower demand in its home market and drought in fruit-growing regions hurt the maker of paper and plastic packaging.
South Africa declared a national disaster this month after drought afflicted Cape Town and Eastern Cape.
Supplies have yet to recover from an El Nino-triggered drought that began two years ago which is now raising the risk of a water shortage that could hit industrial and agricultural output.
Mpact reported headline earnings per share (heps) for the year to December 31 of 166.3 cents, down from 252.7 cents a year earlier. HEPS is the main profit gauge in South Africa and strips out certain one-off items.
Underlying operating profit fell to R457 million ($38.7 million) from R784 million.
“Consumer demand, which remained subdued as it was at the end of 2016, affected domestic sales across most of our businesses,” group chief executive Bruce Strong told Reuters.
“Those effects were made worse by high waste paper prices …and finally the drought in the East and Western Cape put pressure on fruit packaging volumes.”
Sales in South Africa account for approximately 89% of Mpact’s revenue.
Mpact, which also has operations in Namibia, Mozambique and Botswana, said group revenue of R10.1 billion and sales volumes were flat.
Strong said while 2017 was the most challenging year for the group from a trading perspective since listing, “we believe we are well positioned now to see improvements in the business.”
The group has been investing in rebuilding mills, new machinery and acquisitions to expand its recycling capabilities and in corrugated packaging.
Recent investments, which include a R765 million rebuild at its Felixton paper mill and a 150 million corrugator in Port Elizabeth, will start contributing to profit this year and have a full effect in 2019, Strong said.