Mondi sees strong final quarter, says rand a 'major headwind'

Paper and packaging group Mondi expects to continue to deliver a strong performance in the last quarter of the year, but warned that the continued strengthening of emerging market currencies was impacting on the competitiveness of some of the group’s businesses.

The group, led by CEO David Hathorn, on Monday indicated in an interim management statement that its underlying profit for the third quarter of the year, ended September 30, had been the highest so far, this year.

Underlying profit was also “well in excess” of that of 2009.

The group’s Europe and International division had continued to perform well during the third quarter.

The South African division’s underlying operating profit had also been significantly better than that of the second quarter of the year, owing to ongoing cost saving initiatives and higher pulp sales.

However, the strong rand had continued to put the division under pressure, Hathorn noted in a conference call.

South Africa’s National Treasury last week stated that the local currency has appreciated by 7,5% against the dollar and by 6,1% against a trade-weighted basket of currencies since December last year.

Hathorn stated that at these strong currency levels, the competitiveness of its South African businesses was impinged upon.

The rand remains a “major headwind”, he noted.

The strengthening of the Czech koruna and the Polish zloty against the euro have also had a “detrimental” effect on the export competitiveness of the group’s businesses in those two countries.

Mondi further warned that the strengthening of the euro against the dollar could have a negative impact on pricing in Europe for products influenced by global trade flows.

In addition, while the weakening of the Russian rouble against the euro was supportive of paper prices in the Russian market, there was a negative euro-translation effect, the group added.

Meanwhile, Hathorn noted that Mondi anticipated demand for its products to continue improving, albeit at more moderate levels than in the past 12 months.

The group’s order books have remained strong throughout the third quarter, with sales volumes having been impacted on by planned maintenance shutdowns at a number of plants during the quarter.

Demand levels for the majority of the group’s products, excluding uncoated fine paper, have recovered to, or improved on, precrisis levels.

Nevertheless, the group’s fourth-quarter results would be impacted on, to some extent, from planned maintenance shutdowns at the Steti and Franschach kraft paper mills in the Czech Republic and Austria respectively.

The Richards Bay mill, in South Africa, would also be shut down for maintenance in the fourth quarter.

Meanwhile, pricing for the various product groups has also achieved “satisfactory” levels, noted Hathorn, indicating that no further price increases would be implemented at this stage.

Further, while input costs have remained high throughout the third quarter, the rapid increases seen in the first two quarters of the year were not repeated. The impact of these costs had also been offset by a number of cost-saving initiatives.

Mondi had also further reduced its net debt to €1,54-billion as at September 30, compared with net debt of €1,63-billion as at the end of June.

The group was planning to use the €60-million in proceeds from the sale of its Europaper business to the Heinzel Group to further reduce its net debt. The deal was expected to be concluded this month.