Mpact Limited Annual Results 31 December 2013
2013 in context and financial highlights Operating review Financial review Strategy and outlook Appendices 2
2013 in context Muted GDP and consumer spending growth Good growth in the fruit sector translated to growth in packaging and bulk bins Market share gains in certain categories Industrial action across many sectors no material effect on Mpact Benefit of weaker rand in Paper business partially offset in Plastics business Raw material costs, particularly polymers, chemicals and pulp, escalated well above inflation Neelin Naidoo appointed MD of Plastics November 2013 Price recovery in last quarter in both Paper and Plastics 3
R millions R millions Financial highlights 8 000 6 000 4 000 2 000 0 700 600 500 400 300 200 100 0 Group revenue 7 698 6 821 5 718 6149 4 178 3 611 2 986 3 275 2 732 2 874 3 210 3 520 2010 2011 2012 2013 HY1 HY2 Group underlying operating profit 655 585 475 524 8.6% 8.2% 8.5% 419 7.8% 363 319 304 171 205 222 236 2010 2011 2012 2013 HY1 HY2 margin Revenue up 12.9% to R7.7bn Volume growth of 4.0% Selling price increase and product mix of 8.9% Underlying operating profit up 12.0% to R655m Fixed costs well controlled Margin down to 8.5% from 8.6% Under-recovery of polymer cost increases Underlying earnings per share up 22.2% to 233.5 cents ROCE up to 17.3% (2012: 16.0%) Final dividend of 58cps, up 16.0% Gearing down to 28.1% (2012: 28.6%) Note: Revenue and underlying operating profit excludes Paperlink for the 2010 and 2011 financial years. 4
2013 in context and financial highlights Operating review Financial review Strategy and outlook Appendices 5
R millions R millions Paper business 6 000 5 000 4 000 3 000 2 000 1 000 0 700 600 500 400 300 200 100 External revenue 5 574 5 042 4 407 4 573 3 023 2 655 2 293 2 413 2 114 2 160 2 387 2 551 2010 2011 2012 2013 HY1 HY2 Underlying operating profit 1 635 562 511 11.4% 477 11.2% 11.2% 384 10.8% 331 291 285 192 220 231 251 Revenue up 10.5% to R5.6bn Volumes up 3.2% (organic 3.0%, acquisition 0.2%) Average prices up 7.5% for the year Underlying operating profit up 13.0% to R635m Stringent cost control Partially offset by exchange rate driven raw material cost increases Good progress on projects and acquisition of controlling interest in Detpak South Africa Revenue Operating profit 0 2010 2011 2012 2013 HY1 HY2 margin Paper 72% Paper 86% 1. For comparative purposes, full year 2010 and 2011 underlying operating profit has been restated to reflect corporate costs of R50 million directly attributable, but previously not charged to the Paper business. 6
R millions R millions Plastics business Revenue 2 500 2 124 2 000 1 577 1 778 1 500 1 310 1 155 955 862 1 000 691 500 619 715 823 969 0 2010 2011 2012 2013 HY1 HY2 Underlying operating profit 1 Revenue up 19.4% to R2.1bn Volumes up 10.7% (trays, bins and crates, and beverages) Average prices up 8.7% Underlying operating profit down 9.3% to R106m Under-recovery of average polymer prices which were up 21% Margin down to 5.0% FMCG sector still under pressure 120 100 80 60 40 20 0 117 100 106 6.6% 77 6.3% 5.9% 80 77 72 54 5.0% 23 23 37 34 2010 2011 2012 2013 HY1 HY2 margin Acquired remaining minority interest in Versapak Revenue Plastics 28% Operating profit Plastics 14% 1. For comparative purposes, full year 2010 and 2011 underlying operating profit has been restated to reflect corporate costs of R14 million directly attributable, but previously not charged to the Plastics business. 7
2013 in context and financial highlights Operating review Financial review Strategy and outlook Appendices 8
Financial summary Revenue 12.9% R7.7 billion Underlying operating profit 12.0% R655 million Underlying EPS 22.2% 233.5 cents per share Final dividend 16.0% 58 cents per share ROCE 1 1.3 17.3% Gearing % 0.5 28.1% 1. Return on capital employed (ROCE) is an annualised measure based on underlying operating profit plus share of equity accounted investees net earnings divided by average capital employed before impairments. 9
Index(ZAR) (Dec 2011 = 100) R millions Index(ZAR) (Dec 2011 = 100) Variable costs +16.3% 5 000 4 500 4 000 3 500 3 000 2 500 2 000 1 500 1 000 500 0 3 647 404 530 649 370 1 694 479 584 812 450 1 755 517 653 1 068 492 2 017 2011 2012 2013 Paper business raw materials 2 Plastic raw material Other 3 1 4 080 4 747 Energy Selling & distribution costs Plastic raw material cost up 31.5% (per tonne up 20.8%) 7.9% 11.8% 31.5% 9.3% 14.9% 130 120 110 100 Source: RISI PPI Asia, Old Corrugated Containers, CNF China US$, converted to ZAR 180 160 140 120 100 60 Dec-11 Dec-12 Dec-13 80 90 80 70 Benchmark recovered paper prices Old Corrugated Containers Benchmark polymers prices 60 Dec-11 Dec-12 Dec-13 Styrene PET HDPE Source: Mpact Notes: 1. Paper business raw material include purchased paper, wood, pulp, bagasse and recovered paper. 2. Plastic raw materials include styrene, PET, HDPE, PVC and polypropylene 3. Other variable costs include chemicals, packaging costs. 10
R millions Fixed costs +6.5% 2 500 2 000 1 979 323 2 157 327 2 296 355 8.7% Total fixed costs up 6.5% (cost per tonne 2.5%) 1 500 610 673 704 4.6% Includes acquired business costs 1 000 500 1 046 1 157 1 237 6.9% Continued focus on cost management 0 2011 2012 2013 Depreciation and amortisation Maintenance and net operating expenses Personnel costs 11
Financial review R millions 2012 2013 Change H1 2012 H2 2012 H1 2013 H2 2013 1 Underlying operating profit 585 655 12.0% 222 363 236 419 Net finance cost (128) (114) 10.6% (64) (64) (60) (54) Share of profit from equity accounted investees 9 9-2 7 4 5 Underlying operating profit before tax 466 550 18.2% 160 306 180 370 Tax before special items (140) (151) (8.2%) (50) (90) (51) (100) Total non-controlling interests (13) (17) (37.8%) (6) (7) (3) (14) Underlying earnings 313 382 21.9% 104 209 126 256 Special items, net of tax (4) (2) 60.5% (4) 0 0 (2) Reported earnings for the year 309 380 23.1% 100 209 126 254 Underlying earnings per share (cents) 191.1 233.5 22.2% 63.7 127.4 77.0 156.5 1. Underlying operating profit includes operating profit of subsidiaries before special items. 12
R millions ROCE % ROCE and net debt 18% 17% 16% 15% 14% 13% 12% 11% 10% Return on capital employed (ROCE) 17.3% 16.0% 13.8% 13.1% 2010 2011 2012 2013 ROCE of 17.3% as a result of improvement in profitability 1 850 1 700 1 718 Net debt Gearing at 28.1% (December 2012: 28.6%) 1 550 1 400 1 307 Net debt up to R1.1bn 1 250 1 100 1 056 1 116 950 11 July 2011 at listing 2011 2012 2013 1. Return on Capital Employed (ROCE) is an annualised measure based on underlying operating profit plus share of equity accounted investees net earnings divided by average capital employed before impairments. 13
R million Movements in net debt 1500 1000 1028 500 0-221 -122-113 -118-84 -43-500 -387-1000 -1056-1116 -1500 Net debt at December 2012 Cash generated from operation before working capital Working capital movements Income tax paid Capital expenditure Interest paid Dividend paid to equity holders Acquisitions Other items Net debt at December 2013 14
Net finance costs and net debt R millions 2012 2013 Change Net debt - close 1,056 1,116 (5.7%) Net debt - average 1,377 1,332 3.3% Net finance costs 128 114 10.6% Gearing % 28.6% 28.1% 0.5 Interest cover (underlying EBIT) 4.6 times 5.7 times Net debt to EBITDA 1.2 times 1.1 times Net finance costs lower by 10.6% to R114m: Lower average net debt and interest rates over the period Improved cash management Facility of R2.0bn maturing in 2016 15
Taxation R millions 2012 2013 Change 1 Taxation charge 138 150 (8.7%) Effective tax rate 30.0% 27.4% 2.6 Tax paid 38 122 (>100%) Effective tax rate down to 27.4% due mainly to the repayment in 2012 of a loan on which the interest was not tax deductible Recognised tax losses of R260 million in subsidiaries 1. Includes tax on special items. 16
R millions Working capital Working capital % of revenue 1 200 15.5% 15.2% 1 100 14.1% 13.6% 1 000 900 800 Increase in working capital % of revenue due to: 700 600 500 400 300 887 868 929 1 171 Lower trade payables due to early payments to suppliers to take advantage of settlement discounts 200 100 0 2010 2011 2012 2013 1. Working capital includes inventories, trade receivables and trade payables. 17
R million R million Capital expenditure analysis Capital expenditure by business 385 356 326 262 136 132 164 148 224 249 162 114 1 Depreciation and amortisation 350 311 315 322 151 147 138 152 159 168 184 199 1 2010 2011 2012 2013 2010 2011 2012 2013 Paper Plastics Paper Plastics 2 Capital expenditure to depreciation 104% 111% 109% 84% 2010 2011 2012 2013 1. Excludes Corporate (2013: Capital expenditure of R2 million, depreciation and amortisation of R5 million). 2. Includes reallocated depreciation and amortisation charge from Corporate. 18
Cents per share Dividends 100 80 70 80 60 40 50 58 20 0 40 20 22 2011 2012 2013 Interim Final 2012 2013 Dividend cover (times) 2.7 2.9 Salient dates for final 2013 dividend: Last day to trade to receive a dividend Wednesday, 30 April 2014 Shares commence trading ex dividend Friday, 2 May 2014 Record date Friday, 9 May 2014 Payment date Monday, 12 May 2014 19
2013 in context and financial highlights Operating review Financial review Strategy and outlook Appendices 20
Our strategy Leading market positions Customer focused operating structure Focus on performance Scale Decentralised structure Financial returns Capability Innovation and capability Skilled and motivated people Products and geographies Intimate understanding of the value chain Smart simplicity 21
Felixton Paper Mill upgrade Phase 1 Phase 2 Total project Capex budget R155 million R610 million R765 million Commissioned 1H2015 2H2017 Additional capacity 20,000 tonnes 40,000 tonnes 60,000 tonnes Rationale Enhance product offering and quality Increase cost competitiveness Improvement in environmental footprint and efficiencies Increase capacity from 155 000 tonnes p.a. to 215 000 tonnes p.a. Move towards fully recycled fibre usage Funding Debt facilities Cash flow from operations Enhance earnings, whilst exceeding through-the-cycle ROCE target of 15% 22
Outlook Subdued demand growth is expected to remain a challenge in 2014 compounded by raw material cost inflation driven by the exchange rate Focus on growth projects, profitability, cash generation and ROCE Group is well positioned in the sectors in which it operates 23
Thank you 24
Mpact projects 25
CSI projects 26 20
Mpact business overview Mpact Paper Plastics Primary product categories Recovered paper collection Packaging and industrial papers such as cartonboard and containerboard Corrugated packaging Detpak Quick Service Restaurant (QSR) packaging Primary product categories PET bottles and preforms, hot fill bottles, PET jars and closures Large injection moulded containers PET and styrene trays, fast food containers and clear plastic films Other plastic packaging No. 1 in corrugated packaging No. 1 in recycled based cartonboard and containerboard No. 1 in recovered paper collection No. 1 in PET preforms No. 1 in styrene trays No. 1 in plastic jumbo bins Sources: Mpact, BMI Report (2013), PAMSA and PRASA CENTRES OF EXCELLENCE Human Resources, Safety, Health, Environment SHARED SERVICES Finance, IS&T, Stellenbosch R&D Employing 3,998 people, 32 operating sites 27
Disclaimer This document including, without limitation, those statements concerning the demand outlook, expansion projects and its capital resources and expenditure, may be considered to be forward looking statements. By their nature, forward-looking statements involve risk and uncertainty and, although Mpact believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Accordingly, results could differ materially from those set out in the forward-looking statements as a result of, among other factors, changes in economic and market conditions, success of business and operating initiatives, changes in the regulatory environment and other government action and business and operational risk management. While Mpact has taken reasonable care to ensure the accuracy of the information presented, Mpact accepts no responsibility for any consequential, indirect, special or incidental damages, whether foreseeable or unforeseeable, based on claims arising out of misrepresentation or negligence arising in connection with a forward-looking statement. This document is not intended to contain any profit forecasts or profit estimates. 28