Tight costs offset sales fall to lift Mondi profit

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Kamlesh Bhuckory

MONDI’S first-half earnings rose 3 percent as cost controls helped to offset a decline in sales caused by lower prices.

Adjusted operating profit rose to e377 million (R5.4 billion) for the six months to June from e366m a year ago, the paper group said yesterday. Sales fell to e3.15bn from e3.34bn.

“Strong cost management and contributions from successfully completed strategic capital investments, together with the benefits from downstream integration in key packaging segments, enabled the group to offset the impact of lower prices in a number of paper grades,” chief executive David Hathorn said.

Mondi shares fell 1.25 percent to close at R181.52 yesterday. The stock almost doubled in value last year, data show.

The “outlook for the paper packaging grades is confident”, said David O’Brien, a Dublin-based analyst at Goodbody Stockbrokers. “The performance of the consumer packaging division and cautious outlook here is a concern.”

Mondi, listed in Johannesburg and London and a member of the UK’s FTSE 100 index, is focusing on emerging markets including China to reduce reliance on developed economies. The company is also increasing prices for kraftliner packaging in Europe to take advantage of higher demand.

Hathorn said investment for the three years ending next year would amount to e500m.

“Anticipated price increases in some of the group’s packaging paper grades should provide positive momentum,” the company said. “Market fundamentals remain sound, which, coupled with a continued economic recovery, should prove positive for further growth in the packaging businesses.”

Mondi bought the US bags and kraft paper business of Graphic Packaging for $105m (R1.1bn) at the end of June. Further economic sanctions on Russia, where the company has 15 percent of its capital, could affect the business. Sales in Russia fell to e282m compared with e314m a year ago.

“Possible additional sanctions and/or other measures on Russia could have a material adverse effect on Mondi’s business, financial condition and/or results of operations,” the company said. – Bloomberg

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