Durban - South African packaging and paper group Mondi expects completed projects in Richards Bay and Syktyvkar in Russia to start making good contributions to group earnings.
However, the company admits it is facing some challenges with its operations in the other parts of the world, such as in the Czech Republic.
“We are making good progress on our capital investment projects. The recently completed projects in our Richards Bay and Syktyvkar mills are making good contributions. Ramp-up of the rebuilt paper and inline coating machine in Steti [Czech Republic] remains challenging,” the group said.
It said its investment at Swiecie in Poland was progressing well. The Polish investment is set to provide an additional 100 000 tons a year of softwood pulp and 80000 tons a year of lightweight kraftliner.
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“Obtaining approval for tax incentives and permission for the proposed new paper machines at our Steti and Ruzomberok [Slovakia] mills is ongoing and work has started on the modernisation of the Steti pulp mill,” the group said in a trading update.
Mondi also saw positive signs in some areas of the business units, which reported growth in sales volumes.
“Sales volumes grew across the group’s packaging paper, fibre packaging and consumer packaging business units compared to the first quarter of 2016. This was further enhanced by the acquisitions in our corrugated and consumer packaging businesses during 2016,” the group said.
The selling prices for the group’s main paper grades were on average below those of the comparable prior year as prices decreased last year.
“As highlighted, during the first quarter of 2017, we implemented price increases across a number of our paper grades, although these had only limited impact in the quarter.”
The group said wood costs were higher than in the comparable prior year and benchmark paper for recycling prices rose 17 percent compared with the first quarter of last year.
Benchmark polyethylene prices were higher on the back of higher crude oil prices while energy costs rose due to the weather conditions in Europe and higher energy input costs.
It said inflationary cost pressure resulted in higher fixed costs and depreciation charge because of the impact of its capital investment programme.
In the quarter to March, the group reported underlying operating profit fell 6 percent to e252 million [R3.6billion] compared with e269m in the corresponding quarter last year.
It attributed the decline to inflationary cost pressures and lower selling prices.
Mondi shares fell 2.39 percent yesterday to R344.78.