Mondi sees a rosy future despite global uncertainty

MONDI, the South African manufacturer of packaging and paper goods from industrial bags to office stationery, expects stable or higher prices for its products, even as global economic growth slows.

“Our order books remain good, demand trends remain positive and the pricing environment remains favourable,” chief executive David Hathorn said yesterday. “We haven’t seen any real change on the back of global uncertainty over the last month.”

The company, based in Johannesburg, has operations in more than 30 countries. It is spending more than € 500 million (R7.58 billion) a year to build, expand and improve facilities as it seeks to increase output and lower costs. Mondi was also evaluating potential acquisitions for its packaging business, Hathorn said.

Mondi’s underlying operating profit advanced 27 percent to € 221m for the three months to September, compared with € 174m a year earlier, the company said yesterday. Like-forlike sales volumes increased, except for kraft paper, and the company also benefited from the weaker rand against both the dollar and the euro.

Slowdown

The shares declined 1.25 percent to R298.50 at the close on the JSE yesterday, valuing the company at R144.97bn. The stock has risen 59 percent this year, making it the ninth-best performer on the FTSE/JSE Africa all share index.

A slowdown in emerging markets driven by weak commodity prices forced the Inter- national Monetary Fund to cut its outlook for global growth this year to 3.1 percent from a July forecast of 3.3 percent. Next year the world economy should expand 3.6 percent, less than the 3.8 percent projected in July.

Even so, the price of uncoated fine paper was increasing after global production declined, Hathorn said. While container board markets might show some volatility as new capacity came online in the next 18 months, prices should remain broadly flat, the chief executive said. Stability was also a “reasonable assumption” for sack-kraft paper, used in cement bags, he said.

While European kraft-paper markets remain steady, sack-kraft export volumes are under pressure, due to a combination of political instability in the Middle East and north Africa and a slowdown in demand in certain south-east Asian markets. It was too early to provide details on the potential impact of the “slightly softer” export market, Hathorn said.

The company’s investment plan would add € 50m to underlying profit this year, compared with a previous outlook of € 60m, Mondi said. This is due to the slower-than-expected start of a rebuilt machine in the Czech Republic. – Bloomberg