Paper and packaging group Mondi achieved a “steady improvement” in its finances for the six months ended June 30, as cost control and capital spend benefits mitigated a tough pricing environment, Mondi group CE David Hathorn said on Thursday.

The company reported a 3% increase in underlying operating profit to €377-million for the six months under review, while underlying earnings a share at €0.52 were up 5%.

Hathorn pointed out that, were the company reporting in South African rands, the increase in operating profit would have been more than 25%.

He noted that the company had spent about €1.3-billion on acquisitions and €1.8-billion in capital investment over the past five years.

“And despite all of that spend we have seen return on capital going up, which is a nice trend to see,” he added.

During the six-month period, the company had generated a 16% return on capital.

Meanwhile, Mondi pointed out that, as expected, average benchmark selling prices across the group’s key paper grades, except for recycled containerboard, were lower than those of the previous year.

Average benchmark recycled containerboard prices were 10% above those of the first half of 2013 and 2% above the levels of the second half of 2013. Also, certain downstream packaging businesses, most notably corrugated packaging and consumer packaging, saw an increase in average price levels on the back of higher input costs.

Mondi’s cash generated from operations increased 2% year-on-year to €439-million, while capital expenditure (capex) amounted to €249-million.

Net debt at June 30 was €1.75-billion, an increase of €130-million from December 31.

The company further noted that its South African division benefitted from the weakening of the rand against both the euro and the dollar during the period.

The South African division delivered an operating profit of €58-million for the six-month period, a 32% increase on that of the prior corresponding period.

Meanwhile, highlights in the European market, for the period, included the successful commissioning of the 155 000 t bleached kraft paper machine at the Štěti mill, in the Czech Republic, and the acquisition of Graphic Packaging International’s industrial bags operations and kraft paper mill in the US.

“Together with the group’s ongoing capital expenditure programme, including significant projects at our Ružomberok, Świecie and Syktyvkar operations, we are confident that these investments will deliver strongly into the future,” he stated.

Further, he said that, in the near term, expected price increases in some of Mondi’s packaging paper grades should provide positive momentum; however, as in prior years, the second half of the year would be impacted by the planned yearly mill maintenance shutdowns.

“Market fundamentals remain sound, which, coupled with a continued economic recovery, should prove positive for further growth in the packaging businesses,” he said.

FUTURE GROWTH
Meanwhile, Hathorn added that Mondi continued to invest in its business for future growth.

Over the next two years, the company would invest €1.1-billion of capex on specific projects focusing on “incremental earnings” and “stay-in-business” goals, Hathorn told Engineering News Online.

He added that the company was also actively working on integrating the recently acquiredGraphic Packaging International business.

“We think that that business has very significant upside [potential]. We paid $100-million for a €437-million business, which would imply that the business has not done that well recently.

“[However], we believe integration with our facility, extracting synergies and driving plant optimisation and project development will see us deliver significant improvements in the profitability of that business,” he said.

Further, he also noted that the company would continue to be on the lookout for potential future acquisition opportunities, stating that Mondi’s balance sheet was “in great shape”.

“If the right opportunities come at the right value we will take advantage of them. Otherwise, there is no absolute need to do it. It is a question of finding the right opportunities that can create value,” he explained.

Mondi declared an interim dividend of €0.13 a share.