Mondi Profit Rises 29% as Volumes Increase and Costs Decline

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Mondi Ltd., the largest producer of kraft paper and industrial bags in Europe, said first-quarter earnings rose 29 percent as sales volumes advanced and input costs declined at its operations on the continent. The shares rose the most in five years.

Underlying operating profit increased to 236 million euros ($266 million) compared with 183 million euros a year earlier, Johannesburg-based Mondi said in a statement on Wednesday. Sales volumes climbed across most businesses.

Mondi said it benefited from a stronger U.S. dollar relative to the euro, which weakened 11 percent against the greenback in the three months through March. This helped reduce costs and boost selling prices, which were also higher in Russia and South Africa, it said.

Mondi shares gained as much as 8.3 percent, the most since May 2010, and traded 7.8 percent higher at 262.67 rand as of 9:30 a.m. in Johannesburg. The stock has gained 39 percent this year, valuing the company at 128 billion rand ($10.6 billion). It’s the ninth best performer on the FTSE/JSE Africa All-Share Index in 2015.

“It appears like high single-digit upgrades to forecasts” will be required, David O’Brien, paper and packaging analyst at Dublin-based Goodbody, said in an e-mailed note. “It is very encouraging to see the benefits of the group’s capital investments clearly helping performance.”

The company forecasts increased inflationary pressures in some of the emerging markets in which it operates, Mondi said on Wednesday. The recent recovery in oil prices will also have a negative effect on costs, Mondi said. Brent, a benchmark for crude, has advanced 49 percent since reaching a 2015 low on Jan. 13.

The company is focused on growing its packaging business, which accounts for more than 70 percent of total revenue, Chief Executive Officer David Hathorn said in Mondi’s 2014 annual report. It also supplies wood pulp and paper products.

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