Mondi warns over profits as costs weigh on paper maker
MONDI warned its full-year profits would be hit by rising costs and negative foreign currency movements, sending shares across the paper and packaging sector lower yesterday.
The FTSE 100 business said that although the prices of its products have climbed this year, this would not offset the rising cost of wood, energy and chemicals, as well as the falling value of the US dollar and the “sharply weaker” Turkish lira.
“Continuing cost pressures and negative currency impacts are expected to result in an underlying performance for the year modestly below market expectations,” it warned.
It said planned shutdowns of some of its paper mills would also hit profits in the fourth quarter. Mondi’s shares plummeted 7.8pc to £19.26, their lowest price since March, while DS Smith, which has a large packaging arm, was down 2.1pc at 490p.
Fellow packaging group Smurfit Kappa lost 2.9pc to end at £22.10, making it the second largest faller on the blue-chip index, behind Mondi.
Mondi, which has its headquarters and a secondary listing in Johannesburg, produces packaging materials, boxes and paper for a variety of uses. It was spun out of mining giant Anglo American in 2007.
Despite rising costs, it reported that its underlying operating profit for the third quarter of the year was €245m (£219m), up 8pc compared to the same period a year ago.
Mark Fielding, analyst at UBS, said: “We would expect the share to be slightly weaker on this announcement given a generally favourable backdrop on the pricing side being offset by the cost increases.” He maintained his “buy” rating on the stock, saying the outlook for Mondi was “attractive” in the medium term.
The news comes just five months after Mondi appointed Peter Oswald as chief executive, after the departure of long-standing boss David Hathorn, who had been in his role for 17 years.