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Mondi: Focus on developing packaging with emerging market bias

By Joe Whitworth+

19-May-2014

Mondi AGM reveals 2013 performance
Mondi AGM reveals 2013 performance

Mondi has said it wants to grow its packaging interests, which currently contribute around 70% of group revenues, especially in emerging markets.

The firm said the focus over the last year has been on integrating and optimising the acquisitions made in 2012 and delivering the capital projects over the past two years.

During its AGM, it added it will continue to invest appropriately to maintain and improve the competitiveness of the uncoated fine paper business.

The interim management statement updates the financial performance and position since 31 December 2013, based on management accounts up to 31 March 2014 and estimated results for April.

Packaging opportunities

David Hathorn, CEO, said it sees great opportunities to develop segments offering exposure to consumer related packaging.

“We continue to develop our presence in emerging markets, which offer us inherent cost and growth benefits, while recognising in some areas, most notably Consumer Packaging, that there are also opportunities to develop and leverage our competencies in mature markets," he said. 

“Overall, approximately 62% of the group's net operating assets and 51% of revenue by destination are currently in emerging markets.”

First quarter underlying operating profit of €183m was 13% above the comparable prior year period (€162m), 14% above the fourth quarter of 2013 €161m.

Sales volumes were in line with the comparable prior year period, and above the previous quarter, mainly due to the scheduling of maintenance shuts in the second half of the prior year.

Hathorn added that the trading environment remains ‘mixed’.

“As anticipated selling prices for a number of the group's key paper grades are currently below those of the prior year. However, fundamentals in our core markets remain generally solid and price increases in certain grades are under discussion.”

The Packaging Paper business benefited from higher average pricing in all key grades and good volume growth.

Downstream Fibre Packaging was challenged by rising paper prices, but generally made progress in recovering margins.

Uncoated Fine Paper continued to deliver strong results despite the structural demand decline seen in mature Western European markets.

The South Africa Division also made progress during the year and is now delivering in excess of the group's 13% through-the-cycle hurdle rate.

Worker fatality

Speaking at the AGM, David Williams, joint chairman, said the firm ‘deeply regrets’ that four contractors were fatally injured during the year, two in Russia and two in South Africa.

Mondi said its total recordable case rate (TRCR) has steadily improved over the past five years.

In February 2013, two people were fatally injured when scaffolding collapsed on a project site during work in the new pulp storage tower at the Syktyvkar mill and in October two people lost their lives after being struck by falling debris during planned maintenance work in one of the recovery boilers at the Richards Bay mill.

“As an outcome of the investigations into these two incidents, all our operations have assessed their top five risks,” said Mondi.  

“Action plans are being developed with the aim of engineering out the risks and, where it is not possible to do so, implementing robust procedures and controls to manage residual risks.”

In its previous AGM statement the firm reported that two people were fatally injured during the year, one in Finland and one in Russia.

Pricing pressure

As expected, average selling prices in Europe for all key paper grades were lower than the prior year comparable period and the previous quarter, with the exception of recycled containerboard.

The corrugated packaging business benefitted from further pass through of prior period recycled containerboard price increases, while pricing in the South Africa Division was higher than the comparable prior year period in equivalent currency terms.

There was some increase in key input costs over the quarter, with increases in wood costs and paper for recycling affecting the European operations.

Offsetting these increases is the benefit from the various energy optimisation projects and restructuring initiatives completed during the prior year.