Mondi toasts strong performance
MONDI’S underlying operating profit increased 27% year on year to €221m in the third quarter, with a “good performance” from all business units.
MONDI’S underlying operating profit soared 27% year on year to €221m in the third quarter, with a “good performance” from all business units, especially packaging paper, uncoated fine paper and South African operations.
In an interim management statement yesterday, the international paper and packaging group said that, as expected, underlying operating profit was 13% down on the second quarter after planned maintenance shutdowns in some key operations, and also because of the seasonal slowdown in demand in certain business segments.
“Demand was positive across the board,” CEO David Hathorn said. Selling prices in local currency terms for most of Mondi’s key paper grades were largely stable to higher than in both the second quarter and the same period last year.
Like-for-like sales volumes were up year on year, with the exception of kraft paper, which was affected by softer demand in certain export markets and the closure of the Lohja plant in Finland in the first half after it struggled to make ends meet. The plant produced speciality kraft papers for flexible packaging, food, hygiene and medical products, and release liners.
Among key group input costs, wood, energy and chemical costs remained stable in local currency terms, while average benchmark European paper costs for recycling rose by 13% over the previous quarter. Polyethylene prices remained volatile, with average prices higher than in the previous quarter, Mondi said.
Currencies to which Mondi is exposed produced a mixed financial effect in the period. The South African division benefited from the weaker rand against the dollar and the euro. About two-thirds of South African production is for export.
The weaker Russian rouble during the third quarter had a net negative translation effect into euro on the profits from the domestically focused Russian uncoated fine paper business.
Justin Jordan, an equity researcher at Jefferies International in London, said yesterday that the 27% rise in operating profit in the third quarter resulted from strong contributions from packaging paper, uncoated fine paper and South African operations, which all benefited from stable or higher product prices and capital investments.
“Mondi is benefiting from a gradual recovery in European industrial production and consumer spending,” he said.
Jefferies confirmed the share as a buy on its “progressive dividends” and “sector leading” 19% return on capital employed.
Mill maintenance negatively affected profit by €35m in the third quarter, up from €30m in the same quarter last year. During the quarter, planned maintenance shutdowns took place at containerboard, kraft paper and uncoated fine paper plants.
The group plans maintenance shutdowns in the fourth quarter at its large Swiecie paper mill in Poland and Steti mill in the Czech Republic. Mondi said it was making good progress on major capital investment projects, but the ramp-up of the recently rebuilt paper and in-line coating machine at the Steti mill had been slower than expected, and would nominally affect annual profitability.
Mr Hathorn said this was a “technically complex process” that coated paper with silicon.
In July, the first phase of the €166m Swiecie recovery boiler project in Poland was commissioned on schedule. Mondi also said a number of smaller projects intended to modernise some packaging paper and converting operations had been completed, and were in the process of being optimised.