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May 03, 2012

Mondi operating profit falls, says demand picking up

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JSE- and LSE-listed pulp and paper group Mondi on Thursday reported lower underlying operating profit as the weaker trading environment seen towards the end of 2011 continued into the early part of 2012.

But the company said demand was improving, with its sales volumes in the three months to the end of March, on average, higher than in the previous quarter.

Underlying operating profit fell to €120-million in the first quarter, from €132-million in the final quarter of 2011 and €179-million in the prior year.

Although selling prices across all major paper grades were on average lower than those achieved in the previous quarter, Mondi said a trend of improving prices towards the end of the quarter was evident. The benefits of these improving prices, partly offset by rising fibre input costs, were expected to be realised from the second quarter onwards.

Average input costs were lower than the prior quarter, but increased during the period with closing benchmark prices being higher than those at December 31.

Benchmark hardwood pulp prices had increased by 15% at March 31 from December 31 levels and recovered paper increased by 30% over the same period.

Wood costs remained at similar levels to those of the previous quarter and spot prices have started to increase on the back of improving demand, with the expectation of further price recovery in noncontracted volumes as the year progresses.

Price increases of up to 10% have been announced effective from June.

Mondi’s South Africa division’s underlying operating profit was well down on the prior comparable year period and the final quarter of 2011.

Domestic sales of uncoated fine paper and pulp improved, while export sales of white-top containerboard saw lower average selling prices and weaker volumes owing to ongoing destocking in Europe.

Lower pulp selling prices severely impacted returns; however, prices have trended upwards from their lows in January, which should contribute to an improved performance in the second quarter, the group said.

The South African business, Mondi Shanduka Newsprint, also continued to be impacted by a rising cost base, largely owing to a series of significant electricity price hikes.

Mondi stated that selling price increases had been negotiated and were expected to take effect from the second quarter, restoring Mondi Shanduka Newsprint to a reasonable level of profitability.

The group’s cash flow for the quarter remained strong, while working capital levels were maintained in the targeted range of 10% to 12% of turnover.

Capital expenditure was at similar levels to that incurred in each of the previous two quarters of 2011 and was expected to increase during the remainder of the year as expenditure on the energy and debottlenecking investment projects start to ramp up.

The group said in a statement that its financial position at March 31 remained robust with net debt reducing further from €831-million on December 31 to €792-million.

The successful completion in April of the tender offer to acquire the 34% noncontrolling interest in its Polish unit, Mondi Swiecie, to increase the group’s holding to 93.2%, resulted in cash outflow of about €235-million in mid-April.

The company said a process had been implemented to acquire the remaining shares from those shareholders who did not respond to the initial offer, which was expected to result in a further outflow of about €60-million in the second quarter.

Further, Mondi has maintained its investment grade credit ratings from Moody’s (Baa3 outlook positive) and Standard & Poor’s (BBB- outlook positive). The average maturity of the group’s committed debt facilities was 4.2 years compared with 4.3 years as at December 31, with unused committed borrowing facilities in excess of €750-million after taking the Mondi Swiecie acquisition into consideration.

“Overall performance for the first quarter of 2012 was in line with our expectations. As anticipated, the generally weaker trading environment seen towards the end of the prior year continued into the early part of the first quarter,” the company assured.

The reviewed results for the half-year ending June 30 would be published on or around August 7.

Edited by: Mariaan Webb
Creamer Media Senior Researcher and Deputy Editor Online

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