Mondi Profit Advances as Cost Controls Offset Lower Prices

Mondi Ltd., South Africa’s biggest packaging and paper company, said first-half earnings rose 3 percent as cost controls helped to offset a decline in sales caused by lower prices.

Adjusted operating profit advanced to 377 million euros ($504.4 million) for the six months through June, compared with 366 million euros a year ago, the Johannesburg-based company said today in a statement. Sales fell to 3.15 billion euros from 3.34 billion euros.

“Strong cost management and contributions from successfully completed strategic capital investments, together with the benefits from downstream integration in key packaging segments, enabled the group to offset the impact of lower prices in a number of paper grades,” Chief Executive Officer David Hathorn said in the statement.

Mondi shares fell as much as 2.4 percent and traded 0.9 percent lower at 182.10 rand as of 1:21 p.m. in Johannesburg, the lowest since May 22. The stock almost doubled in value in 2013, according to data compiled by Bloomberg.

The “outlook for the paper packaging grades is confident,” David O’Brien, a Dublin-based analyst at Goodbody Stockbrokers, said in e-mailed response to questions. “The performance of the consumer packaging division and cautious outlook here is a concern.”

Economic Recovery

Mondi, listed in Johannesburg and London and a member of the U.K.’s FTSE 100 Index, is focusing on emerging markets including China to reduce reliance on developed economies. The company is also increasing prices for kraftliner packaging in Europe to take advantage of higher demand. Investment for the three years ending 2015 will amount to 500 million euros, according to Hathorn.

“Anticipated price increases in some of the group’s packaging paper grades should provide positive momentum,” the company said. “Market fundamentals remain sound, which, coupled with a continued economic recovery, should prove positive for further growth in the packaging businesses.”

Mondi bought the U.S. bags and kraft paper business of Graphic Packaging for $105 million at the end of June. Further economic sanctions on Russia, where the company has 15 percent of its capital, could affect the business. Sales in Russia fell to 282 million euros compared with 314 million euros a year ago, according to the statement.

“Possible additional sanctions and/or other measures on Russia could have a material adverse effect on Mondi’s business, financial condition and/or results of operations,” the company said.

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