Upbeat Mondi rolls out strong first-quarter results

PACKAGING and paper company Mondi delivered a strong performance in the first quarter of 2018, with its business outlook remaining positive as a result of a strong pricing environment for several of its key products.

Underlying operating profit for the quarter increased by 15 percent to €295 million (R4.37 billion) as compared to €256m reported last year. The group attributed this growth to higher average selling prices and profit improvement initiatives across the group, which more than offset higher operating costs, the impact of maintenance shutdown and negative currency effects.

The group said costs were generally higher than the comparable prior year period and the previous quarter.

“Among key input costs, wood, energy and chemical costs were higher than the previous quarter. The notable exception was paper for recycling costs, where average benchmark European prices were down 15 percent compared to the first quarter of 2017, and 16 percent lower sequentially, as the Chinese import ban continued to impact global trade. Cash fixed costs were higher, largely as a result of the impact of maintenance shut downs,” Mondi said.

Like-for-like sales volumes were stable on the comparable prior year period, with growth in Packaging Paper offset by lower volumes in Uncoated Fine Paper due to the extended maintenance shutdowns at Richards Bay. Selling prices for the group’s key paper grades were, on average, above both the comparable prior year period and the previous quarter as the upward pricing momentum witnessed during 2017 continued, the group said.

A prolonged maintenance shutdown at its Richards Bay mill took place during the quarter. The estimated impact on operating profit of maintenance shuts completed during the period was around €35m, up from €10m.

“Based on prevailing market prices, we estimate that the impact of maintenance shutdowns on operating profit for 2018 will be about €115m, up from €95m, slightly above our previous estimate,” the group said.

It said strong cash generation from operating activities more than offset the cash outflows related to its capital expenditure programme and financing activities, resulting in a positive cash flow during the quarter and lower net debt at the end of the quarter compared to restated net debt as at the end of December.

Finance charges were lower than the comparable prior year period, primarily due to the redemption of the 5.75 percent €500m Eurobond on maturity in April 2017.

In April, Mondi issued a 1.625 percent €600m Eurobond with an eight-year term under its euro medium-term note programme, thereby extending the group’s maturity profile and ensuring strong liquidity.

The group said currency movements had a net negative impact on operating profit versus the comparable prior year period, driven mainly by a weaker US dollar and Russian rouble relative to the euro, and a net negative impact when compared to the fourth quarter of 2017, mainly as a result of a stronger rand.

Mondi said the outlook for the business remained positive.

“With our robust business model, clear customer focus and culture of driving performance, we remain confident of sustaining our track record of delivering value-accretive growth,” the group said.

Cobus Cilliers, an investment analyst at 36ONE Asset Management, said Mondi’s first-quarter trading update was stronger than the market was expecting.