Results presentation for the six months ended 30 June 2019 - PowerPoint PPT Presentation

Results presentation for the six months ended 30 June 2019

Half-year 2019 in context Financial review Operating review Financial performance Outlook 2

Half-year 2019 in context  Good progress developing sustainable packaging alternative for customers  Paper bags, punnets, returnable crates and PET tray recycling (with PETCO)  Increased profits in challenging market  Benefits from recent capital investments; and  Higher average selling prices in Paper business, stable recovered paper cost; partially offset by  Lower domestic demand  Eskom load shedding  Elections  Climatic conditions affecting fruit harvest timing  Working capital above target  Higher stock carried forward from Q1  Sales volumes below forecast  Successfully refinanced existing bank facilities of R2.6bn  Mpact Operations achieved a B-BBEE Level 1 contributor status 3

Half-year 2019 in context Financial review Operating review Financial performance Outlook 4

Financial review Group revenue  Revenue up 4.2% to R5.2bn 12,000  External volumes up approximately 1% 10 612 10 120 10,000  8,000 Underlying operating profit up 29.4% to 5,636 5,287 R million R218m 6,000  Improved containerboard margins, 4,000 5,182 offset by declines in the Versapak and 4,833 4,976 2,000 Paper converting business 0 2017 2018 2019  HY1 HY2 Underlying earnings increased 25.1% to 39.4 cents per share (cps), excl. IFRS16, up Underlying operating profit 47.9% to 46.6 cps (June 2018: 31.5 cps) 800 672  Gearing up to 39.9%, excl. IFRS16, up to 600 36.8% (June 2018: 34.4%) 457 R million 400  504 ROCE up to 10.3%, excl. IFRS16, up to 288 10.6% (June 2018: 7.4%) 4.2% 3.5% 200 3.4% 218  169 168 Interim dividend of 18 cps, up 20% 0 2017 2018 2019 HY1 HY2 HY1 margin Note: 5 1. Underlying operating profit is the Group operating profit before special items.

Half-year 2019 in context Financial review Operating review Financial performance Outlook 6

Paper business Segment revenue 10,000  Revenue up 4.1% to R4.1bn 8 286 7 745  8,000 Consolidation of WCPT increased revenue by 0.6% R million 6,000 4,370 4,025  Sales volumes in line with prior period 4,000  Recycling volumes up off low base  Containerboard exports down due to 2,000 4,078 3,916 3,720 global supply/demand 0  Containerboard/cartonboard domestic 2017 2018 2019 sales down 3% HY1 HY2  Paper Converting sales down 2.6%  Underlying operating profit Average prices affected by product mix 800 694  Underlying operating profit up 35.0% to 600 R296m 443 R million  475 Improved margins in containerboard 400  7.3% Stable recovered paper cost 266  5.6% Improved efficiencies 4.8% 200  Commercial shuts at paper mills 296 219 177 during Q2 (~4% of annual capacity) 0 2017 2018 2019 HY1 HY2 HY1 margin 7

Plastics business Segment revenue Plastic Converting 3,000  Revenue up 1.3% to R1.1bn 2 454  2 382 2,500 Sales volumes down 2.7% due to 2,000 subdued demand R million 1,297 1,292  Average prices up 4%, i.e. less than 1,500 raw material cost escalation 1,000 1,157 1,126 1,090 500  Underlying operating profit down to 0 breakeven (June 2018: R25.5m) 2017 2018 2019  HY1 HY2 Margin pressure across all businesses, but especially Versapak Underlying operating profit 100 Mpact Polymers  Operating loss of R37.5m (June 2018: 70 50 2.3% R38.4m loss) 50  43 Low production and selling prices R million  63 Total sales volumes up 22% to 3,783 27 -1.2% tons 0 (13)  Production down 8.9% to 3,496 tons (37)  -3.3% New bottle washing and wet grinding -50 equipment commissioned 2017 2018 2019  Capacity evaluation underway HY1 HY2 HY1 margin 8

Half-year 2019 in context Financial review Operating review Financial performance Outlook 9

Financial summary Revenue R5.2 billion 4.2% Underlying operating profit R218 million Underlying EPS 39.4 cents per share Interim dividend 18 cents per share ROCE 10.3% 1 Gearing % 36.8% Notes: 10 1. Gearing % excludes the impact of adopting IFRS 16

Variable costs Benchmark recovered paper +0.4% prices (OCC) 120 3,500 3 206 3 194 100 (June 2017 = 100) 33.6% 235 354 3,000 80 420 Index 4.1% 438 60 2,500 562 40 7.0% 525 R million 2,000 20 349 4.2% 335 0 1,500 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 1,000 ZAR US$ 1,640 6.4% Source: RISI – PPI Asia, Old Corrugated Containers (OCC), CNF China US$, 1,542 converted to ZAR 500 Benchmark polymer prices 150 0 HY1 2018 HY1 2019 130 (June 2017 = 100) Paper business raw materials Energy Index(ZAR) Plastic raw materials Selling & distribution costs 110 Other 90  Lower recovered paper prices partly offset 70 higher virgin paper costs 50 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Notes: 1. Paper business raw materials include purchased paper, wood, pulp and recovered paper. P1 P2 P3 2. Plastic raw materials include styrene, PET, HDPE, PVC, polypropylene and post consumer PET bottles 3. Other variable costs include chemicals, packaging costs and stock movements 11 Source: Mpact

Fixed costs +8.9% 2,000  1 759 Fixed costs up 8.9% 1,800 289  1 614 Personnel cost up due to the acquisition 49 1,600 338 22.9% of West Coast Paper Traders and the 275 1,400 introduction of new labour legislation 548 R million 1,200 496 485  Increase in net operating expenses offset 2.3% 1,000 by lower rent cost 800 600  Depreciation and amortisation includes 925 854 400 R49m in respect of IFRS 16 8.3% 200 0 HY1 2018 HY1 2019 Depreciation and amortisation Net operating expenses Personnel costs 12

Financial review HY1 HY1 HY1 2019 Change R million 2018 2019 change before vs HY1 IFRS 16 2018 Underlying operating profit 168 218 29.4% 215 28.0% Net finance costs (112) (129) 14.5% (108) (3.6%) Profit / (loss) from equity accounted investees 13 (4) (>100%) (4) >100% Underlying profit before tax 69 85 23.2% 103 49.3% Tax credit/(charge) before special (20) (25) 28.1% (31) 55.0% items Non-controlling interests 5 7 53.1% 7 53.1% Underlying earnings 54 67 25.5% 79 46.3% Special items, net of tax (3) 1 >100% 1 >100% Reported earnings for the period 51 68 36.0% 80 56.9% Underlying earnings per share 31.5 39.4 25.1% 46.6 47.9% (cps) 13

Net finance cost and net debt Change Change vs net vs net Full Year HY1 HY1 2019 debt debt 2018 2018 after R million IFRS 16 Net debt Lease Net debt liabilities after IFRS 16 (IFRS 16) Average net debt 2 388 2 492 2 512 428 2 940 0.8% 18.0% Net finance cost 220 112 108 21 129 (3.6%) 15.2% Net debt – close 2 125 2 217 2 565 435 3 000 15.7% 35.3% Gearing % 32.2% 34.4% 36.8% 39.9% 2.4 5.5 Interest cover (underlying EBIT) 3.1 1.5 2.0 1.7 (times) Net debt to EBITDA (times) 1.7 2.2 2.0 2.2 14

ROCE and net debt 1 Return on Capital Employed (ROCE) 25%  ROCE of 10.3%, excl. IFRS16, up to 10.6% (June 20% 2018: 7.4%)  Reflects improved earnings when compared to 15% ROCE % the prior year period 10.6% 10.7% 10.3% 10% 7.7% 7.4% 5% 0% 2017 2018 2019 HY1 Full Year Net debt 3,000 3,000  435 Net debt increased to R2.6bn, excluding IFRS 16 2,291 2,500 2,244 2,217 2,125 Lease liabilities of R435m R millions 2,000  Negative working capital outflows 1,500 2,565  Gearing up to 36.8%, excluding IFRS 16 (June 2018: 1,000 34.4%) 500 0 2017 2018 2019 HY1 Full year Return on Capital Employed (ROCE) is an annualised measure based on underlying operating profit plus share of equity accounted i nvestees’ net earnings divided by 1. 15 average capital employed before impairments.

Movement in net debt¹ 1,000 567 500 0 (27) (32) (94) (120) (247) -500 (487) R million -1,000 -1,500 -2,000 (2 125) -2,500 (2 565) -3,000 Net debt at Cash Working Capital Interest paid Income tax Dividend Other items Net debt at December generated capital expenditure paid paid to equity 30 June 2018 from outflows holders 2019 operations before working capital 16 1. Excludes a non-cash flow acquisition of lease liabilities (IFRS 16)

Trade working capital Trade working capital % of revenue  Increase in trade working capital attributable to: 3,000  Higher finished goods stock in the 24.6% Paper business due to export and domestic sales below forecast 2,500 19.9%  Interventions 18.0%  2,000 Paper mill commercial shuts  R million Reduced external containerboard purchases 1,500 2,548  Trade working capital should normalise by year-end 1,000 1,923 1,793 500 0 HY1 2017 HY1 2018 HY1 2019 17

Re-financing of existing bank facilities Term Type¹ Commitment R million 3 year RCF and GBF 900 4 year RCF 850 5 year RCF 850 Total re-finance of existing facilities 2,600  Agreements signed  Subject to meeting standard conditions precedent  Lenders include Standard Bank, Rand Merchant Bank and Nedbank  KZN Growth Fund fixed rate funding to be settled  Competitive rates 1. Revolving credit facilities (RCF) and General banking facilities (GBF) 18