Mondi First-Quarter Profit Rises on Energy, Currency Gains

Mondi Ltd., South Africa’s biggest packaging and paper company, said first-quarter earnings increased 13 percent as efficiency gains and a rebound in consumer packaging demand helped offset lower paper prices.

Adjusted operating profit for the three months through March rose to 183 million euros ($251 million) from 162 million euros a year earlier, the Johannesburg-based company said in a statement today. Sales were little changed.

Mondi is raising prices for kraftliner packaging in Europe as demand increases, while the cost of paper on the continent declined across all grades, the company said. South African sales and a weaker rand contributed to improved performance in its domestic market, while energy savings helped to offset an increase in the cost of wood and recycling.

“Mondi is benefiting from energy and production efficiency gains and a modest foreign currency tailwind helping to offset lower paper prices,” Justin Jordan, a London-based analyst at Jefferies Group LLC, said in an e-mailed response to questions today. “Profits from consumer packaging improved sequentially, benefiting from greater fast-moving consumer-goods product mix, despite muted European volume growth.”

Plant Investments

The company is currently investing 500 million euros over three years, ending 2015. About 190 million euros will be spent on major plants in Europe and South Africa in the first half of 2014 and the investments will boost profits, Chief Executive Officer David Hathorn said in a phone interview today.

“It’s giving us -- on an annualized basis -- about 30 to 40 million profit benefit. We’ve got some benefit of that in the first quarter.”

The shares rallied as much as 3.3 percent to 186 rand, the highest intraday price since April 7, and traded up 1.5 percent to 182.70 rand by 4:24 p.m. in Johannesburg. The shares have gained 1.7 percent this year, after almost doubling in 2013.

Mondi has suffered from a 5.3 percent decline in the Russian ruble against the dollar this year, the second-worst performer of 24 emerging market currencies tracked by Bloomberg. Russia accounts for 11 percent of Mondi production with 80 percent of that sold locally, Jordan said in an e-mailed note to clients.

“While the group remains vigilant of the ongoing political developments in the Ukraine, to date they have had no material impact on the group’s operations,” Hathorn said. “For a more macro perspective, if the political uncertainty in the area leads to slower economic growth, then that would be of concern to Mondi.”

Net debt narrowed by 41 million euros to 1.58 billion euros at the end of March from 2013, the company said.

“The debt level is likely to continue to come down,” Hathorn said. “We are very cash generative even with the investments we are undertaking.”

Before it's here, it's on the Bloomberg Terminal.