Mondi is ben­e­fit­ing from higher prices

Added strength through cost con­tain­ment, as well as con­tri­bu­tions from re­cent ac­qui­si­tions

Cape Times - - COMPANIES - SANDILE MCHUNU sandile.mchunu@inl.co.za

MONDI, a global leader in pack­ag­ing and pa­per, re­ported a strong per­for­mance in the third quar­ter to end Septem­ber, ben­e­fit­ing from higher aver­age sell­ing prices across fi­bre pack­ag­ing and un­coated fine pa­per, good cost con­tain­ment and con­tri­bu­tions from re­cent ac­qui­si­tions.

As a re­sult un­der­ly­ing earn­ings be­fore, in­ter­est, tax, de­pre­ci­a­tion and amor­ti­sa­tion (Ebitda) rose by 30 per­cent to €466 mil­lion (R7.85 bil­lion), up from €359m com­pared to last year.

How­ever, the group said that it con­tin­ued to see man­age­able up­ward pres­sure on its cost base, with in­put costs up on the com­pa­ra­ble prior year pe­riod and more mod­er­ately up when com­pared to the sec­ond quar­ter. “The no­table ex­cep­tion was pa­per for re­cy­cling costs, where aver­age bench­mark Euro­pean prices were down 42 per­cent on the prior year,” the group said.

It added that cash fixed costs were higher as a re­sult of the im­pact of mill main­te­nance shuts and in­fla­tion­ary cost pres­sures, mit­i­gated by on­go­ing cost re­duc­tion ini­tia­tives.

The planned mill main­te­nance shut-downs dur­ing the quar­ter had an es­ti­mated im­pact on un­der­ly­ing Ebitda of around €30m. Go­ing into the fourth quar­ter, the group is look­ing to ben­e­fit from sta­ble pric­ing in key fi­bre based prod­uct seg­ments.

Cobus Cilliers, an in­vest­ment an­a­lyst at 36One As­set Man­age­ment, said over­all this was a great re­sult from a good man­age­ment team.

“The big up-tick in earn­ings can partly be at­trib­ut­able to the sup­ply in Kraft­liner be­ing tight, which in turn caused the price in­creases over the past twelve months. This com­bined with good ex­e­cu­tion and good cost con­trol from the Mondi man­age­ment team pro­duc­ing a good re­sult for the third quar­ter,” Cilliers said.

De­spite the in­crease in earn­ings in the quar­ter, the group’s share price was down by 1.55 per­cent on the JSE in early trade yes­ter­day and closed at R347.47. Cilliers said the re­cent de­cline in the share price was due to in­vestor con­cerns over a po­ten­tial over­sup­ply sit­u­a­tion in con­tainer board in the US over the next three years.

“The en­tire pa­per and pack­ag­ing sec­tor was neg­a­tively im­pacted on this news. This neg­a­tive sen­ti­ment feels over­done, as Mondi man­age­ment men­tioned in the in­vestor call to­day (Thurs­day) that China has taken out more ca­pac­ity in con­tainer­board than what the US will be adding,” Cilliers said.

Ron Klipin, a se­nior an­a­lyst at Cratos Cap­i­tal, said con­sis­tent de­liv­ery by man­age­ment with good cap­i­tal al­lo­ca­tion skills had re­sulted in a sub­stan­tial in­crease in re­turns over the past decade.

“Man­age­ment be­lieve they will not be un­duly chal­lenged by ris­ing in­put prices due to on­go­ing mea­sures to man­age costs. The ex­ten­sive geo­graphic foot­print and in­te­grated busi­ness model en­ables them to con­trol the sup­ply chain,” he said.

Klipin said mar­kets were favourable for Mondi with higher sell­ing prices for fi­bre pack­ag­ing, with strong Kraft pa­per de­mand, helped by a switch from plas­tic car­rier bags.

“Cur­rently de­mand ex­ceeds the avail­able sup­ply, so the ca­pac­ity con­straint is pos­i­tive for pric­ing into 2019 to 2020,” Klipin added.

AN­TOINE DE RAS African News Agency (ANA)

STRONG Kraft pa­per de­mand, helped by a switch from plas­tic car­rier bags, au­gurs well for Mondi. | /

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