Paper and packaging group Mondi says underlying core profit rose more than a quarter in the three months ending September with higher input costs passed on to customers.
The world’s largest producer of kraft paper has benefited from robust e-commerce activity during Covid-19, increased demand for more environmentally friendly products, and having large and stable suppliers.
The group said on Thursday sustained demand for key products helped it grow core profit in its third quarter, despite it facing higher input costs, including energy, transport and chemicals.
CEO Andrew King said during an investor presentation that supplies were tight for some of it main products, including containerboard that is used in boxes, and kraft paper, whose uses include protecting surfaces during construction.
“We are struggling, quite frankly, to meet all the demand out there,” he said.
“There are some strong structural growth drivers here, e-commerce is not going to go away,” said King, adding that demand for more sustainable packaging was “just gaining momentum”.
Underlying earnings before interest, taxation, depreciation and amortisation (ebitda), or core profit, in the three-month period rose 27% year on year — and 9% from the previous quarter — to €388m (R6.7bn), the company said in a trading update.
The group’s two biggest segments are corrugated packaging, used in boxes, and flexible packaging, which includes paper bags, with many of these products used in e-commerce packaging.
The two units collectively generated almost three-quarters of operating profit in the group’s half-year to end-June.
Demand for corrugated packaging continued to be strong across all end-uses, and prices were increased across its portfolio of containerboard grades, Mondi said on Thursday.
King said there was also evidence of increasing demand for sustainability in this business segment. For example more customers using rigid boxes for structural support instead of polystyrene.
Flexible packaging delivered strong volume growth in consumer, building and construction, e-commerce and specialised applications, Mondi said, adding that strong order books had also allowed it to raise prices across its range of kraft papers and paper bags.
Cost pressures
Mondi operates about 100 sites in more than 30 countries across Europe, Russia, North America and Africa, and employs about 26,000 people. At the end of its 2020 year, 70% of operating assets were in Europe, 12% in SA, and 11% in Russia.
The group, like all businesses globally, is grappling with rising energy costs, with natural gas prices recently increasing to a seven-year high. In Europe, prices have risen fivefold.
Mondi said on Thursday it expects energy costs in Europe to remain elevated in its fourth quarter, but demand remains strong and it is implementing price increases across the business that will support the recovery of ongoing inflationary pressures.
The group generates about 70% of its energy requirements from biomass, and in Europe it supplements this with natural gas and electricity.
Mondi CFO Mike Powell said on Thursday that energy costs are forecast at about €500m in the group’s 2021 year to end-December, from €320m in 2020, though he noted that year had seen lower volumes. In 2019, energy cost about €400m, he said. Mondi generated €1.35bn in core profit in 2020, down 18% year on year.
Mondi was down 0.46% at R365.36 on the JSE at midday, but has risen 6.5% so far this year and about 12% since the start of 2020.
Update: October 7 2021
This article has been updated with additional information throughout.
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