Mondi, the South African packaging company that joined the UK’s benchmark FTSE 100 index last month, is opening factories in China and Iraq as it follows clients into emerging markets to boost earnings.
Customers including Procter & Gamble and Nestlé were tapping booming local demand for products such as diapers and microwaveable food and Mondi had to stay close to meet specific requirements in each market, chief executive David Hathorn said last week.
Mondi this year inaugurated a plant in China’s Jiangsu province to supply stretchy films for Procter & Gamble’s range of Pampers diapers, he said.
Asian demand for hygiene consumer products is helping Hathorn to transform the 46-year-old company into a packaging specialist and move away from the traditional printing and writing paper business that is suffering amid the rise of digital offerings.
The strategy is paying off for Mondi as first-half earnings gained 35 percent and sales rose 18 percent to e3.3 billion (R44.2bn).
“Growth will be in packaging and our bias will be towards consumer packaging,” Hathorn said. “If you go back over a 20-year history, Mondi used to be a printing and writing paper company, gradually we have evolved and moved into becoming a packaging company.”
Mondi, which operates in 30 countries with more than 25 700 employees and was spun off from Anglo American in 2007, said half of sales now stemmed from higher-growth emerging markets, with packaging accounting for two-thirds.
This year it also opened a cement bags plant in Sulaimaniyah, northern Iraq, to tap growing demand in the country, according to the company’s website.
The new Chinese factory supplies Procter & Gamble with the stretch materials in the frontal tape and waistband of diapers. The plant helped to cut costs and to meet the specific requirements of Procter & Gamble, Hathorn said.
“In addition to taking advantage of lower production costs, it makes sense to convert the film reels to the finished product as close to the customer as possible rather than to import the end product,” he said.
Tracking clients as far as Jiangsu and producing food pouches with as many as seven layers of film to allow meat and dairy products to stay fresher for longer has helped make Mondi the top performer in South Africa’s benchmark stock index.
Dual listed in London and Johannesburg, the shares have surged 82 percent this year, valuing it at R80.8 billion. On Friday it closed 0.1 percent up at R167.97 on the JSE.
As the 2008 financial crisis led to plant closures in the industry, Mondi sold peripheral assets and focused on plants with the capacity to supply packaging of different sizes and colours to keep pace with changing consumer tastes. That has added industrial and consumer clients on top of the corrugated packaging market.
Hathorn said while Mondi’s focus was currently on emerging markets, demand for packaging offerings was also rising in established markets. “We are not fixated with emerging markets. In the consumer packaging space, the Western market is also very good,” he said.
“So we make a lot of stuff in Poland for example and sell to Germany. Cost is an important part of our strategy.”
Mondi says it is benefiting as consumer goods companies seek to reduce packaging weight, replace environmentally critical materials such as aluminium foil with multi-layer paper and extend the shelf life of products through improved packaging.
Justin Jordan, an equity analyst at Jefferies, says it makes sense for international consumer goods companies to source the packaging from paper companies with factories in different markets.