Paper and packaging group Mondi is spending about €1 billion (R17bn) on various expansionary projects as it yesterday flagged an interim 66 percent rise in pre-tax profit boosted by higher prices due to decreased timber supplies.
Mondi chief executive Andrew King said: "The performance was strong across the group in the first half of 2022. We achieved strong price realisation while maintaining tight cost control against a backdrop of strong inflationary pressures".
King said: "The expansionary projects in our continuing operations are already approved or under advanced evaluation, which we anticipate will generate mid-teen returns when in full operation. We continue to actively consider further capital investments for growth in the packaging markets in which we operate".
In its results for the six months ended June 30, 2022, Mondi said pre-tax profits from continued operations for the period under review increased by 66 percent to €933m from €566m as revenue rose by 37 percent to €4.5bn reflecting the benefit of the implemented selling price increases.
The board declared an interim dividend for the half year of 21.67 euro cents, up from 20.0 euro cents.
According to Mondi, the packaging businesses continued to demonstrate the benefits of its integrated value chain.
Uncoated Fine Paper performance recovered strongly, benefiting from the successful commissioning of the rebuilt recovery boiler in Richards Bay, South Africa, in early 2022 and good price momentum in all markets.
Input costs were significantly up in the first half of 2021 and sequentially, due to materially higher energy, wood, resins, transport, chemical, and paper for recycling costs.
"Energy costs were driven by sharp increases in the price of European gas and electricity. Our pulp and paper mills generate most of their energy needs internally, with biomass sources accounting for around 80 percent of the fuels used in this process, thereby mitigating the impact of the significant surge in external fuel costs," the group said.
The group said it was investing €125m in Corrugated Packaging in its Kuopio mill situated in Finland to increase semi-chemical fluting capacity by around 55000 tonnes, enhance product quality, drive cost competitiveness and strengthen the mill’s environmental performance, with start-up expected in the fourth quarter of 2023.
"We are also investing €95m to debottleneck kraft liner production by 55000 tonnes at our Świecie mill (Poland), with commissioning expected during 2024," it said.
Mondi said it was investing around €185m across its Central and Eastern European Corrugated Solutions plant network.
"We are investing €65 million in our consumer flexibles plants, cementing our leading position in the fast-growing pet food packaging market.
"We also plan to invest around €50 million to enhance our coating capabilities and meet our customers' growing demand for innovative, sustainable paper-based packaging with the necessary barrier properties," the group said.
Looking forward, King said pricing remained strong going into the second half.
"Although we anticipate continued inflationary pressures on our cost base and ongoing supply chain challenges. While significant geopolitical and macroeconomic uncertainties remain, we expect a year of good progress," he said.
In May, the group announced that it was divesting its R11.4bn operations in Russia.
"The divestment process is underway. The disposal of such significant assets is operationally and structurally complex, and it is being undertaken in an evolving political and regulatory environment," Mondi said.
Mondi's share price decreased by almost 5 percent on the JSE in intraday trade yesterday at R312.66. They have increased by 13.78 percent in the past three years.