Paper and packaging company Mondi has reported a 27% year-on-year rise in its underlying operating profit for the third quarter ended September 30, to €22-million, with a good performance posted by all business units and strong incremental contributions from the packaging paper, uncoated fine paper and the South Africa divisions.

As expected, underlying operating profit was 13% lower than in the second quarter, reflecting the impact of planned maintenance shuts in a number of key operations and the usual seasonal slowdown in demand in certain segments.

Selling prices in local currency terms for most of the group’s key paper grades were generally stable to higher versus both the second quarter and the comparable prior year period.

The South Africa division benefited from higher average domestic selling prices, higher export prices for hardwood pulp and currency gains.

“As expected, fair value gains on forestry assets were lower than the previous quarter and the comparable prior year period,” the company held.

Like-for-like sales volumes were up on the comparable prior year period with the exception of kraft paper, which was impacted by softer demand in certain export markets and the closure of the Finland-based Lohja plant in the first half of the year.

Among the key input costs, wood, energy and chemical costs remained stable in local currency terms, while average benchmark European paper for recycling costs rose by 13% over the previous quarter.

Polyethylene prices remained volatile, with the average price level higher than the prior quarter.

“There was a mixed impact in the period from currencies to which the group is exposed.

“The South Africa division benefited from the weaker rand against both the dollar and euro, while the weakening of the Russian rouble during the third
quarter had a net negative translation effect on the profits from the domestically focused uncoated fine paper business,” the company stated.

During the quarter under review, a number of planned maintenance shuts took place at various containerboard, kraft paper and uncoated fine paper operations, with several more planned at the group’s Swiecie mill, in Poland, and Steti mill, in the Czech Republlic.

For the full year, based on prevailing selling prices, the impact of maintenance shuts on underlying profit was still expected to be around €90-million, of which the third-quarter effect was around €35-million.

DIVISIONAL SHOWING
The packaging paper division’s containerboard business benefited from higher average selling prices, offset in part by higher paper for recycling costs.

Average benchmark European virgin containerboard prices increased by 2% and recycled containerboard by 5% over the previous quarter as previously announced price increases came into effect.

Demand remained good in all grades, said the group.

“While European kraft paper markets remain stable, sack kraft export volumes are under some pressure owing to a combination of political instability in the Middle East and North Africa and a slowdown in demand in certain south-east Asian markets,” it maintained.

The fibre packaging business benefited from volume growth and a reduction in
fixed costs in comparison with the comparable prior year period, as a result of commercial excellence initiatives and the benefits of completed restructuring activities.

Corrugated packaging margins were negatively impacted by rising recycled containerboard input costs, while the integration of the bags business acquired in the US continued to progress according to plan.

The expected seasonally weaker demand in industrial bags would likely lead to lower profitability in the fourth quarter, compared with the third quarter, the company cautioned.

The consumer packaging business, meanwhile, continued to make good progress, with higher like-for-like sales volumes and improved margins on the comparable prior year period.

During the quarter, the sale of noncore operations in Germany and Malaysia was completed, in line with the group’s strategy of focusing on higher value-added segments.

In September, the group announced that it had signed an agreement for the acquisition of Ascania nonwoven Germany for €54-million, strengthening Mondi’s position as a supplier of hygiene components.

Completion remains subject to competition clearance.

Mondi’s uncoated fine paper business was impacted by the usual seasonal weakness in the third quarter, planned maintenance shuts and the weaker Russian rouble.

Average European benchmark selling prices were up around 1% over the previous quarter, while price increases of between €25/t and €50/t, depending on grade, were successfully implemented in Europe during the quarter, while a price increase of 5% had been announced for the Russian market from October.

The unintegrated mills in Austria remained under pressure from higher euro pulp prices in the three months under review.

CAPITAL INVESTMENT
Good progress was being made on the group’s major capital investment projects although the ramp-up of the recently rebuilt paper and in-line coating machine at the group’s Steti mill was slower than expected.

As a result, the group expected to deliver an incremental €50-million contribution to underlying operating profit in 2015 from its capital investment programme.

In July, the first phase of the €166-million Swiecie recovery boiler project was commissioned on schedule, and a number of the smaller projects intended to modernise some packaging paper and converting operations had been completed and were in the process of ramp-up and optimisation.

CASH FLOW
Strong cash generation from operating activities more than offset the cash outflows related to the group’s capital expenditure programme and financing activities, resulting in a reduction in net debt during the quarter, with further deleveraging expected by the end of the year.

Finance charges were lower than in the preceding quarter and the comparable prior year period, primarily owing to lower average net debt levels and a reduction in exposure to higher-cost Russian rouble-denominated debt.

Mondi said it would continue to benefit from stable to higher selling prices in a number of key grades and the contributions from its capital investment programme.

“Currency volatility has had a limited impact on the group, while costs remain generally stable. With our robust business model, clear strategic focus and culture of continuous improvement, management remains confident of continuing to deliver industry leading performance and making good progress for the year,” it concluded.

Reviewed results for the year ending  December 31 would be published on or around February 25.