Johannesburg - Mondi Group (MND, MNP) said on Thursday that it has seen an improvement in the results from the Europe & International division in the quarter ended March, but this was offset by a decline in the South Africa Division.
Releasing its interim management statement on Thursday, the group said in its South Africa division, first quarter underlying operating profit was marginally above the comparable period last year, but significantly down on the fourth quarter 2008, impacted by lower pulp, woodchip and uncoated fine paper export prices together with lower woodchip export volumes.
The domestic prices for uncoated fine paper continue to hold up, although there are signs of softening volumes. Open market pulp prices appear to be stabilizing, albeit at low levels, with the re-emergence of buyers from China.
In April agreement was reached on the settlement of a further seven land claims in South Africa. Structured around the initial Mondi land claims model as a sale and leaseback agreement, Mondi retains ownership of the forests whilst meeting the needs of the land restitution process in South Africa, it said.
In the Europe & International division, operating profit was up on a weak fourth quarter of 2008, driven by better performances from Bags & Specialities and Uncoated Fine Paper.
To balance weak demand across all businesses, around 127 000 tonnes of market related downtime was taken in the first quarter, representing around 12% of capacity and similar to the downtime taken in the final quarter of 2008.
While selling prices remain under pressure, decreasing input costs, notably wood, waste paper, chemicals and other variable costs, together with the restructuring actions taken in exiting higher cost capacity are helping to offset the revenue pressures.
Underlying operating profit in the Uncoated Fine Paper business was up on the fourth quarter of 2008, although down on the comparable period in the prior year. Results from the Russian operation were particularly strong, with marginally improved domestic selling prices supported by good cost control.
Combined with decreasing pulp input costs at the non-integrated facilities, this more than offset the impact of lower European selling prices (copy paper down 3% since the year end).
In the Corrugated business trading remains extremely challenging, it said. Weak demand continues to put pressure on containerboard prices.
Average recycled containerboard prices in the first quarter were down around 33% on the comparable period in the prior year, and by the end of the quarter prices were down around 10% on those at the year end.
Similarly, virgin containerboard prices are down around 10% since the beginning of the year.
Results from the Polish operations continued to be impacted by the strong Polish zloty as the business delivered into forward currency contracts taken out under the group's six month's rolling hedge programme. Under this programme, the weakening of the Polish zloty seen at the end of 2008 and into early 2009 will start to benefit the business late in the second quarter, it said.
The Bags & Specialities business was strongly up on a very weak fourth quarter of 2008 on better volumes, strong cost control and a good performance from the consumer flexibles segment. The Business continues to be affected by weak demand in kraft paper and industrial bags with pricing now being impacted, although there has been some recent pick up in order books since the lows reached over the December 2008 - January 2009 period, when destocking appeared to be at its height.
Significant market related downtime was taken in the quarter to balance inventories, albeit at lower levels than seen in the final quarter of 2008.
The previously announced mothballing of two of the higher cost kraft paper machines in the group (Stambolijski and Dynas PM5) will become effective towards the end of the second quarter, reducing the group's fixed cost base in the second half of 2009. Profitability in the Specialities Business unit has improved since the fourth quarter of 2008 on the back of a strong performance from the consumer flexibles segment driven by lower plastic resin input costs and stable pricing.
- I-Net Bridge