Paper and packaging group Mondi plans to spend billions of rand in expanding its manufacturing plants despite falling prices for paper and pulp grades weighing down on profits.
The group, which recently promoted CFO Andrew King to CEO, has maintained investments in a move to increase production.
King said the company’s programme to invest in projects was on track. Mondi’s approved projects in 2020 were between €700m (R11.8bn) and €800m and €450m and €550m in 2021.
“Having commissioned the pulp mill rebuild at our Ružomberok mill Slovakia in the second half of the year, we are making good progress on the related investment in a new 300,000 tonne kraft top white machine at the same site and previously announced major capital investment projects at our Syktyvkar in Russia and Štětí in the Czech Republic mills,” he said.
Mondi’s pipeline of projects includes the conversion of a container board machine at Štětí to be dedicated to the production of speciality kraft paper. The projected, expected to be commissioned by the end of 2020, will result in an additional 75,000 tonnes a year of specialty kraft paper.
The company, with net debt at the end of December of €2.2bn, said it was upgrading the Richards Bay mill to improve reliability and avoid unplanned shutdowns.
King said the company, which manufactures and sells packaging and paper products, had smaller expansionary projects at packaging operations to increase production.
In the past three years, Mondi’s major capital projects cumulatively contributed an estimated €75m of annual incremental operating profit. “The incremental operating profit contribution from capital investment projects in 2019 was about €30m and we expect to generate a further €40m in 2020,” the company said.
Mondi’s revenue fell 3% to €7.26bn in its year to end-December, while profit before tax was relatively flat at €1.1bn (R18.4bn). The company attributed the decrease in revenue to lower selling prices and a slide in sales.
Earnings before interest, taxes, depreciation, and amortization was down 6% to €1,65bn.
“Strong performances from flexible packaging and engineered materials helped to mitigate the margin pressures seen in corrugated packaging and uncoated fine paper in the face of market-driven price decreases,” Mondi said.
“Input costs were generally higher year on year, though we did see some cost relief in the second half of the year”. The company said it experienced higher wood costs in Russia, SA and northern Europe while costs in certain countries in central and Eastern Europe were lower.
Mondi increased operating profit by 2% to €1.2bn and upped its total ordinary dividend 9% to 83 euro cents.
King said strong operational performance, cost control measures and the contribution from acquisitions and capital investment projects, partially offset the effects of market pressures in a number of pulp and paper grades.
“Input cost relief, our ongoing profit improvement programmes and customer-centric innovation initiatives, and the benefits from our capital expenditure pipeline will continue to support our performance,” said King.
In morning trade on Thursday, Mondi’s share price rose 1.58% to R318.97, having fallen 9.24% over the past 12 months.