THE recently released first quarter trading update from paper and packaging heavyweight Mondi reveals a mixed picture of the packaging industry.
The unaudited results state that operating profit for the first quarter of 2018 of €295 million (R4.41 billion) was 15% above the comparable prior year period and 6% up on the fourth quarter of 2017.
Higher average selling prices and profit improvement initiatives across the Group more than offset higher operating costs, the impact of maintenance shuts and negative currency effects. Like-for-like sales volumes were stable on the comparable prior year period, with growth in Packaging Paper offset by lower volumes in Uncoated Fine Paper due to the extended maintenance shut at Richards Bay. Selling prices for the Group’s key paper grades were, on average, above both the comparable prior year period and the previous quarter as the upward pricing momentum witnessed during 2017 continued.
“Costs were generally higher than the comparable prior year period and the previous quarter. Among key input costs, wood, energy and chemical costs were higher than the comparable prior year period,” the company said in a statement.
The notable exception was paper for recycling costs, where average benchmark European prices were down 15% compared to the first quarter of 2017, and 16% lower sequentially, as the Chinese import ban continued to impact global trade. Cash fixed costs were higher, largely as a result of the impact of maintenance shuts. Currency movements had a net negative impact on operating profit versus the comparable prior year period, driven mainly by a weaker US dollar and Russian rouble relative to the euro, and a net negative impact when compared to the fourth quarter of 2017 mainly as a result of a stronger South African rand. The report also revealed the impact of the prolonged maintenance shut down at the Richards Bay mill.
“The estimated impact on operating profit of maintenance shuts completed during the period was around €35 million (2017: €10 million). Based on prevailing market prices, we estimate that the impact of maintenance shuts on operating profit for 2018 will be around €115 million (2017: €95 million), slightly above our previous estimate, of which around half will be incurred in the first half of the year (H1 2017: €40 million).” According to the group, the outlook for the business remains positive. “We continue to experience a strong pricing environment in a number of our key product segments, supported by good demand growth, although we do continue to see inflationary cost pressures across the Group and currencies are currently a headwind.
“With our robust business model, clear customer focus and culture of driving performance, we remain confident of sustaining our track record of delivering value accretive growth.”