Softer market hits Mondi growth

Softer market hits Mondi growth

ECONOMIC NEWS

Business Day - Nov 1st 2011, 08:28

Maintenance shutdowns reduce underlying operating profit, moderated selling prices in softer market partly offset by lower input costs 

MONDI Group, the global pulp and paper maker, said underlying operating profit of €136m in the third quarter was well above the same period last year, but significantly below the €175m of the second quarter this year.

In its interim management statement to the end of last month, the group said broad macroeconomic weakness was slowing demand and putting moderate pricing pressure on certain of its products. Mondi said demand weakness was largely driven by destocking. This made predicting near-term underlying demand trends difficult.

It also said lower underlying operating profit in the third quarter from the preceding quarter reflected the effect of planned maintenance shutdowns. These were estimated to have hit underlying operating profit by about €20m, along with the generally softer trading environment.

But Mondi said it would continue to enforce production downtime where appropriate, and that supply-side fundamentals for core product grades remained good.

"The world is a moderately softer place than it has been, and there is an impact of destocking taking place," CEO David Hathorn said yesterday.

He said the bulk of destocking was internal to Mondi, and not its clients, and downtime in the third quarter would lead to a leaner fourth quarter this year.

However, the group said its robust financial position, low-cost operating model, and performance focus left it well positioned to deliver strong returns.

Mondi said that macro-economic uncertainties also moderately lowered sales prices, but this was partly offset by stable or reduced input costs.

It said most emerging market currencies to which it was exposed were slightly weaker against the euro when compared to the second quarter. This provided a small, positive contribution to performance, and renewed dollar strength was also supporting European pricing.

"People were a bit more optimistic earlier this year," Barend Ritter, an analyst at Sanlam Investment Management, said yesterday. He said while Mondi’s statement met expectations, the market had rolled these back a bit in the quarter.

Mondi said some weakness in demand led to lower Kraft paper sales volumes.

But it said export demand for Kraft paper remained good, and sales prices were generally stable through the quarter.

The underlying operating profit of Mondi’s South African operations, while down on the comparable prior-year period, was significantly up on the second quarter of this year.