Mondi CEO Shrugs off Economic Weakness as Prices Hold Steady

Updated on
  • South African paper, packaging company profit increases 27%
  • Order books remain good amid positive demand, CEO Hathorn Says

Mondi Ltd., a South African manufacturer of packaging and paper goods from industrial bags to office stationery, expects stable or higher prices for its products even as global economic growth slows.

“Our order books remain good, demand trends remain positive and the pricing environment remains favorable,” Chief Executive Officer David Hathorn said by phone on Thursday. “We haven’t seen any real change on the back of global uncertainty over the last month.”

The company, which is based in Johannesburg and has operations in more than 30 countries, is spending more than 500 million euros ($564 million) a year to build, expand and improve facilities as it seeks to increase output and lower costs. Mondi is also evaluating potential acquisitions for its packaging business, Hathorn said.

Mondi’s underlying operating profit advanced 27 percent to 221 million euros for the three months through September, compared with 174 million euros a year earlier, the company said in a statement earlier on Thursday. Like-for-like sales volumes increased, with the exception of kraft paper, and the company also benefited from the weaker rand against both the dollar and the euro.

Economic Slowdown

The shares declined 1 percent to 299.33 rand at 1:51 p.m. in Johannesburg, valuing the company at 145 billion rand. The stock has risen 59 percent this year, making it the ninth-best performer on the FTSE/JSE Africa All Shares Index.

A slowdown in emerging markets driven by weak commodity prices forced the International Monetary Fund to cut its outlook for global growth this year to 3.1 percent from a July forecast of 3.3 percent. Next year the world economy will expand 3.6 percent, less than the 3.8 percent projected in July.

Even so, the price of uncoated fine paper is increasing after global production declined, Hathorn said. While containerboard markets may show some volatility as new capacity comes online in the next 18 months, prices should remain broadly flat, the CEO said. Stability is also a “reasonable assumption” for sack-kraft paper, used in cement bags, he said.

While European kraft-paper markets remain steady, sack-kraft export volumes are under pressure due to a combination of political instability in the Middle East and north Africa and a slowdown in demand in certain south-east Asian markets, Mondi said . It’s too early to provide details on the potential impact of the “slightly softer” export market, Hathorn said.

The company’s investment plan will add 50 million euros to underlying profit this year compared with a previous outlook of 60 million euros, Mondi said. This is due to the slower-than-expected start of a rebuilt machine in the Czech Republic.

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