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Johannesburg - Paper and packaging company Mondi [JSE:MND] said on Thursday sales volumes in the first quarter continued on the recovery path first observed in the last quarter of its previous financial year.
"Similarly, the upward momentum in selling prices of most of our key grades seen in the fourth quarter of 2009 has continued, with previously announced price increases successfully implemented and maintained," said Mondi in its first-quarter results announcement.
That resulted in profit going "moderately up" on the previous comparable quarter, "well above the comparable period in the prior year". Higher export prices helped the South African division grow from a low base.
Mondi continued its three-year restructuring exercise with a sale of its corrugated box plants in the UK to Smurfit Kappa Group. It bought industrial and consumer bag operations in France, Spain and Italy from the same company.
The strategy is to strengthen its market position in Western Europe, while focusing more on its core market of manufacturing uncoated fine paper.
It used the proceeds of €51m (R510m) to reduce its debt pile of €1.5bn. In a separate but similar transaction announced on Wednesday, Mondi realised €60m in profits from the sale of paper merchant Europapier, which will also be used to reduce debt.
During the same period, it successfully launched a €500m seven-year bond to settle short- and medium-term debt.
Stanlib Asset Management analyst Warren Buhai said the various transactions were an attempt by Mondi to get rid of non-performing businesses. "It has been doing it for the last three years and is now closer to the end of the process," said Buhai.
Another factor was that these were low-margin businesses whose only purpose was to link paper producers to the market - the end consumer. By offloading Europapier, Mondi was simply getting rid of a middle man and focusing on its core business.
"The result is that Mondi is a much more defensive company with low gearing and relatively well positioned to take advantage of the improving economy," said Buhai. That is because Mondi plays a large role in packaging, which is linked to economic performance as more goods move when gross domestic product improves.
Mondi seems confident of further growth in demand, as it has recently announced price increases of 5% to 12% for its uncoated fine paper in Europe.
Buhai says the use of uncoated fine paper, typically in office stationery, will always increase with economic growth and improvement in information technology.
"The more you use your computer, the more you print."
- Fin24.com
