All about costs

Finweek English Edition - - Cover Cover - SAPPI AND MONDI

can’t be di­rectly com­pared. Both are in the same broad in­dus­try and pro­duce pulp. How­ever, Sappi is the big player in the fine pa­per mar­ket (typ­i­cally glossy pub­li­ca­tions) while Mondi dom­i­nates the un­coated fine pa­per mar­ket – what we call of­fice pa­per.

Both are cur­rently strug­gling un­der slow­ing de­mand and over­ca­pac­ity in some mar­kets: but where Mondi seems to have a clear ad­van­tage – which it iden­ti­fied more than 10 years ago – was to fo­cus its re­sources and growth prospects on lower cost emerg­ing mar­kets.

Mondi CEO David Hathorn says its low cost base is one of the group’s com­pet­i­tive ad­van­tages, with 65% of as­sets in emerg­ing mar­kets keep­ing pro­duc­tion costs in the low­est quar­tile of the cost curve. Mondi also re­ceives 46% of its rev­enue from emerg­ing mar­kets. Pri­mary fo­cus is on East­ern Europe, where Mondi spent part of its €875m cap­i­tal ex­pen­di­ture bill last year on ex­pand­ing and mod­ernising plants in Rus­sia and Poland.

Sappi claims its mills are among the most ef­fi­cient in the world. That’s no doubt true. But with the mills based in West­ern Europe, they en­tail higher costs, par­tic­u­larly labour.

Like Sappi, Mondi is un­der pres­sure from over­ca­pac­ity in its mar­kets and ear­lier this year closed a mill in Hun­gary. But its lower cost base is an ad­van­tage that should re­ally come through when de­mand again picks up.

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