Mondi’s discipline packs a punch
International packaging and paper group Mondi delivered "excellent" results in the six months to June, with all business units delivering significantly improved results, CEO David Hathorn said on Thursday, 6 August 2015. Underlying operating profit of €490m soared 30% from a year earlier, with underlying earnings of 67.8 euro cents per share rising 31%. This was underpinned by turnover advancing 10%, higher volumes, generally good prices and acquisitions. "It is an excellent set of numbers, both operationally and financially," Hathorn said.
He said good cost control and contributions from recently completed capital projects had allowed the group to deliver a return on capital employed of 19% in the period.
Hathorn also said that the company’s lower global costs of production — much of which is situated in eastern and central Europe — provided an "inherent advantage" to the packaging and paper group. This included lower timber costs and lower costs for a "highly productive" workforce, as well as "top end" production facilities.
Cash generated from operations of €538m was up 23%. This included gains from delivery on capital projects and acquisitions, and recently completed projects delivering ahead of plan.
Current major projects were on time and on budget, Hathorn said.
Justin Jordan, an equity researcher at Jefferies International in London, said that by disciplined capital allocation and acquisition spend since Mondi’s 2007 dual listing — and the exiting of poorly performing operations — the group had improved its return on capital employed from 9.2% in the three years ending 2009, to 14.6% in the three years ending 2013, and 19% in the first half of this year. "With ongoing strategic capital investments, we see potential for further [return on capital employed] improvement in 2015-18," he said.
The turnaround of the group’s US bags business acquired this year was on track, the group said. It bought industrial bags and kraft paper business Graphic Packaging International for $105m on a debt-and cash-free basis. The US company had sales of about $437m in the year ended March 2014.
Mondi reported a record financial performance in the year to December 2013. It continued to defy tough global markets last year, citing an "excellent financial performance" in its most recent annual results. "I am pleased to report another strong performance, building on the good results achieved in the prior year," Hathorn said.
Mondi’s profitability gains have primarily been driven by investments in making the business more efficient and cost-competitive. This reduces input and energy costs while boosting output volumes.
"We continue to assess opportunities for value-enhancing growth and cost optimisation through major capital investments, centred on our high-quality, low-cost packaging paper assets in central Europe while still being open to value-enhancing growth through acquisition," Hathorn added.
Despite Mondi’s South African markets having slowed down slightly, the group’s domestic business was now largely driven by exports and had benefited from rand weakness, he said.
Source: Business Day (Edited)