Southern Africa’s largest paper and plastics packaging business and recycler Mpact has announced the sale of its Versapak division to Greenpath Recycling, a subsidiary of Sinica Manufacturing. This move is part of Mpact’s broader strategy to optimize its portfolio and focus on core operations.
Versapak is known for producing styrene and PET trays, punnets, and vinyl cling film. It operates out of two locations: Paarl in the Western Cape and Roodekop in Gauteng. On the other hand, Sinica Manufacturing, based in Benoni, specializes in plastic packaging products, including polystyrene meal boxes, trays, vinyl film, and vacuum bags.
According to a regulatory notice from the JSE, the net asset value of Versapak was $13.1 million as of December 31, 2023. The final purchase price for the sale will be adjusted based on the amount of stock available at the time of the transaction. The deal excludes Versapak’s cash, debtors, creditors, and two properties used for its operations, which Greenpath plans to lease.
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Why is Mpact selling Versapak?
Mpact decided to sell Versapak after a strategic review in 2021 aimed at portfolio optimization, concluding that Versapak’s products were not fully aligned with the company’s long-term strategy. By selling Versapak, Mpact can better focus on its main business areas. For Sinica, the acquisition will complement its product range and strengthen its market presence.
Following the 2021 review, the division has been classified as held-for-sale, with its pre-tax profit attributable to the assets being sold which amount to $9.6 million for the year ended December 31, 2023. This profit includes a $4 million fair value gain from the remeasurement of plant and equipment.
Investment in Africa Tanks
In addition to the Versapak sale, Mpact has made a strategic equity investment in Africa Tanks, a vertical tank manufacturer, to address water supply challenges. This move is aimed at mitigating issues related to drought, water shedding, and deteriorating infrastructure.
Mpact CEO Bruce Strong noted that the demand for water storage and rainwater harvesting is expected to grow due to ongoing infrastructure and water supply challenges.
This investment is poised to help the company expand its operations into the Eastern and Western Cape, providing the necessary capital to achieve economies of scale.
Financial performance and future outlook
The sale of Versapak and the investment in Africa Tanks come as Mpact prepares to release its financial results for the six months ending June 30. The packaging giant indicated that its headline earnings per share from continuing operations are expected to decline by 37.8% to 32.5%. This decline is attributed to lower profit margins and reduced demand for containerboard and cartonboard.
Despite the challenges, Mpact’s Plastics business reported increased revenue across all three divisions, mainly driven by higher sales volumes in the Bins and Crates and fast-moving consumer goods (FMCG) sectors. The operating profit for the Plastics business is expected to be in line with the previous period, with recent investments in Bins and Crates offsetting decreases in other areas.
Group earnings before interest, tax, depreciation, and amortization are projected to decrease by approximately 8% from $43.7 million in the prior year, largely due to the under-recovery of fixed costs and higher depreciation from major projects.
