After two difficult trading years, paper and packaging group Mondi on Monday reported a significant increase in its full-year earnings, buoyed by a recovery in demand, which led to a positive pricing environment.

The Johannesburg- and London-listed group reported a 312% jump in headline earnings for 2010 to €0,47 a share from €0,11 a share the previous year.

Basic earnings a share of €0,44 a share increased from a loss of €0,065 a share in 2009, while operating profit rose by 73% to €509-million.

CEO David Hathorn said that demand across most of the group’s main product lines recovered to precrisis levels and above, which created a favourable environment for price increases.

“Recent industry adjustments have also resulted in generally stronger market fundamentals,” he added.

In September, Mondi decided to exit the European uncoated fine paper (UFP) market, owing to poor profitability and to focus on the South African and African markets, which led to the group mothballing its 120 000 t UFP machine in Merebank, South Africa.

The only new UFP machine, within the next two to three years, would be built in Russia, with a capacity of 150 000 t.

Hathorn said that while the UFP market had not yet fully recovered with demand being about 7% down on precrisis levels, Mondi’s UFP business was already 4% above precrisis levels as it was mostly driven by emerging markets and not Western European markets.

During the year, the group saw UFP prices increase by 11% and 12% compared with the bottom of crisis levels.

Hathorn said that an additional price increase of about 5% was expected during the first quarter of 2011.

Further, the global corrugated paper business saw a return to demand and price levels similar to precrisis levels, with kraft prices increasing by 45%, recycled board prices increasing with 30% and white top paper prising rising by 20%. Increased price levels were significantly higher than prices at the bottom cycle of the economic crisis, said Hathorn.

“No new capacity would be brought on line in this market segment for the next three years, which would further strengthen market fundamentals.”

Mondi’s sackraft paper market also showed a quicker recovery than global markets, with global volumes still 7% below precrisis levels, while Mondi’s volumes were 1% below precrisis levels.

All in all, Hathorn emphasised that supply and demand fundamentals boasted well for the company’s performance during 2011, even among increasing input cost pressures.

CFO Andrew King said that the group’s input cost increased significantly during the year, with wood prices rising 30% and recovered pulp prices more than doubling.

King also noted that while energy and chemical costs had increased across the group, electricity prices in South Africa, which have almost doubled over the past three years, with further increases of about 65% in the next two years, were particularly concerning to the company.

In addition, electricity demand in the country was expected to continue to outstrip supply until new generation capacity was brought on stream, which was unlikely to be before 2013.

Hathorn said that Mondi would continue to monitor electricity consumption and had invested in projects to increase its own generation capacity and reduce its dependence on the national energy provider.

Currently, the group’s Richard Bay operation was completely self-sufficient in generating its own power, while Mondi had also shut down two plants at its Merebank operation.

“We will definitely be looking at further optimising our operations and exploring additional cogeneration capacity opportunities, once there is more clarity around the regulatory environment.”

Meanwhile, Mondi said it would increase its capital expenditure from €151-million or about 64% of its depreciation charge, closer to about 80% of its depreciation charge, together with the €50-million that still had to be spent on its expansionary capital investments.

Mondi declared a final dividend of €0,165 a share, giving a total dividend of €0,20 for the year, an increase of 111% compared to 2009.