Dual-listed Mondi’s record financial performance during the year ended December 31 reflected the consequences of the company’s strategy of supporting and investing in low-cost assets, with sustainable margin benefits and exposure to high-growth products and regions, which had been in place for many years, Mondi CEO David Hathorn said on Friday.

He noted that, in terms of high-growth markets, the company had specifically focused on emerging markets, adding that currently more than half of the group’s revenue was derived from these.

“We are delighted with the company’s performance [during 2013] and it is in line with what we expected to achieve, so we are pleased with the progress we have made,” Hathorn told Engineering News Online.

Mondi on Friday reported a 22% increase in underlying operating profit to €699-million for the period under review.

Excluding the effects of acquisitions made in the prior year, underlying operating profit was still up by 11%, driven by particularly strong performances from the group’s packaging paper business and South Africa division.

Underlying earnings of 95c a share grew by 37% compared with those of the prior year, with higher finance charges offset by a lower effective tax rate and reduced noncontrolling interest charges.

Return on capital employed (ROCE), a key performance metric for the group, was 15.3%, a record for Mondi despite the dilutive effect of the acquisitions made in 2012. ROCE over the past three years, averaging 14.6%, was consistently above the company’s through-the-cycle hurdle rate of 13%.

The company’s diluted headline earnings a share for the year to end December totalled 91.1c from 62.7c a year earlier.

The company remained strongly cash generative with net debt reducing to €1.62-million, compared with €1.87-million at December 31, 2012, notwithstanding the €405-million invested in capital expenditure projects during the year, while cash generated from operating activities exceeded €1-billion for the first time.

Mondi proposed a final dividend of 26.45c a share, bringing the total dividend for the year to 36c a share.

Meanwhile, Mondi said its packaging paper business was the standout performer during the period under review, benefitting from higher average pricing in all key grades and good volume growth.

The downstream fibre packaging business was challenged by rising paper prices, but generally made good progress in recovering margins, while the uncoated fine paper business continued to deliver strong results despite the structural demand decline seen in mature Western European markets.

Further, the group’s South Africa division made good progress during the year and was now delivering well in excess of the group’s 13% through-the-cycle hurdle rate.

“The South African business has improved dramatically reflecting the combination of five years of work. We have seen some changes made in that business to focus on the high-quality [assets] that now remain, which have a better long-term sustainable future,” Hathorn said.

The South Africa division’s underlying profit for the year under review amounted to €93-million, an increase of 35% year-on-year, while ROCE was 16%.

Hathorn added that the South African business’ outlook remained encouraging for the year ahead.

“We have had price increases at the back end of last year and in the first quarter of this year in domestic products, [which] will be supportive of profitability and [will support the company’s] export book, which makes up about 40% of the business,” he said.

Meanwhile, over the past two years, the company focused on integrating and improving the efficiency of the significant acquisitions made towards the end of 2012 and delivering the major capital projects initiated.

Hathorn added that a number of the company’s capital projects were delivered on during the year, all within budget.

“The projects that are still in progress remain within budget and on target for their scheduled completion dates over the coming two years,” he said.

Further, the company also expected to see some price recovery during 2014, which boded well for Mondi as its business was well positioned and invested.

“[In future], our focus will be much the same [as that of 2013], finishing off the capital projects and taking advantage of improved price environments,” Hathorn said.