Tag: Mondi

How Sappi changed its spots and its fortunes

Around 30% of Sappi shares are held by the Public Investment Corp, the Government Employees Pension Fund and the Industrial Development Corp — and that is a fat vote of confidence in the group from government.

This is, after all, a company that has struggled to appeal to the broader market in the years since the global financial crisis began. This is probably because it took seven years to more than double from below R20 to about R40 between 2009 and 2015. Now, having shot up to around R100 more recently, it’s been deemed a great-value share.

Sappi delivered “robust” full-year results to September 2017 on “strong growth” from speciality packaging and its dissolving wood pulp business. Full-year profit of $338m rose from $319m in 2016.

The group has further reduced debt in the period, as it continues to reorientate operations away from the core business of fine-coated paper used in upmarket advertising and publishing materials.

The focus now is on high-margin dissolving wood pulp, also called chemical cellulose, used in making clothing and textiles — and on specialised packaging products.

But the turnaround has been long and slow, and only the most optimistic supporters have stuck around. The recent upward rush may also have reached a peak for now, says Electus Fund Managers analyst Mish-al Emeran, as the “low-hanging fruit” has been picked.

“[There is a] need to strike a balance between growth and the risk of oversupplied markets. We think the share price reflects the turnaround, [but] key catalysts have played out,” he says.

Chemical cellulose is the key area of growth for Sappi, Emeran says. But there could be significant additional global supply in the medium term. In the past year there was strong demand for the product, Sappi says, growing at double digits.

This is why the group’s capital expenditure in 2018 is expected to increase to $450m as it continues to convert mills in SA, Europe and North America to produce greater amounts of its chemical cellulose and speciality packaging. The latter is a sector that has enormously benefited SA pulp, packaging and paper manufacturer Mondi, as the Internet cut into Sappi’s traditional fine-coated paper markets.

Mondi has built up world-class packaging production assets in emerging European markets, while Sappi has been hampered by more expensive output costs at its mills and factories in developed European countries. Mondi only really ever made office paper, so the Internet has not been as damaging to its paper business.

But with the move to chemical cellulose and also speciality packaging, Sappi is starting to reassert itself. Both Sappi and Mondi have significant facilities in SA, Europe and the US, which supply world markets. Meanwhile, with the rand remaining weak, SA is a good place for basic product inputs, including competitive forestry resources.
For Sappi, Europe is its biggest market at 41% of sales, followed by Asia at 26%, and the US 23%. SA accounts for 10% of the total. Coated paper is still Sappi’s biggest product segment, at 56% of all sales. Speciality paper makes up 11%, commodity paper 7% and chemical cellulose 20%. But with spending during 2018 focused on higher-margin growth segments, including chemical cellulose and speciality packaging, this will position Sappi for stronger profitability from 2019 onwards, says CEO Steve Binnie.

“We have been through a period of being very conservative,” Binnie says. “We halved debt over the past four years from $2.5bn to $1.3bn.

“Our success in bringing our debt levels to below our targeted leverage ratio of less than two times net debt to [earnings before interest, tax, depreciation and amortisation] in [financial 2016] meant we could turn our attention to increased investments in growth projects.”

Markets for chemical cellulose are predicted to grow at about 5%/year.

Sappi supplies about 20% of the global market – much of this to China, India and Indonesia. The product is also widely used in cigarette filters, cellophane, pharmaceuticals and in making foodstuffs.

But Binnie says demand for textiles has been so good that Sappi has not yet had the opportunity to enter these other markets.

Emeran says management has done well to turn the business around. He says balance-sheet strength and flexibility have been restored, amid good cost control across divisions. Investors will also be pleased that Sappi’s dividend in 2017 leapt 36% to US$0.15 year-on-year.

Wade Napier, diversified resources analyst at Avior Capital Markets, says Sappi “is very comfortable” in terms of its balance sheet. He says it has never fully repaid its debt because debt is a useful means of enhancing equity returns in a low global interest-rate environment.

By Mark Allix for Business Live

Low paper prices hurt Mondi 

South African packaging and paper company Mondi said on Thursday underlying operating profit for the first quarter of 2017 was down 6% due to lower selling prices and inflationary cost pressures.

Underlying operating profit fell to 252-million euros ($274-million) in the three months through March from 269 million euros a year ago, Mondi, which is also listed in London said in a statement.

The figure was up 12% on the fourth quarter last year due to higher sales volumes and prices.

“Strong sales volume growth was more than offset by a significantly lower forestry fair value gain, inflationary cost pressures and lower average selling prices,” the company said.

The packaging paper division was impacted by lower selling prices for containerboard, while significantly lower gains on the value of its forestry assets, lower average export selling prices for hardwood pulp and white top kraftliner products, and a stronger rand impacted the South Africa division.

“As previously advised, we are experiencing some inflationary cost pressures across the Group and the forestry fair value gain is expected to be lower than in 2016,” the company said.

*($1 = 0.9195 euros).

By Nqobile Dludla for www.moneyweb.co.za

Packaging and paper group Mondi has confirmed that the European Commission is conducting an inspection at its Vienna office.

“Mondi understands the investigation is focused on kraft paper and industrial bags,” the group said, and that it was co-operating with the investigation.

“Mondi is committed to complying with all applicable competition laws and is not aware of any wrongdoing or contravention of the relevant legislation,” the group said.

The European Commission announced about a year ago that its antitrust officials were performing unannounced inspections of the premises of several companies in the kraft paper and industrial sack segment.

It said at the time it was concerned that the companies in question might have violated article 101 of the Treaty on the Functioning of the European Union, which prohibits anticompetitive practices such as price fixing and customer allocation.

Source: www.businesslive.co.za

Russia’s Federal Antimonopoly Service (FAS) has opened a case against a subsidiary of Mondi for violating what it says are “elements of the antimonopoly laws”.

FAS says it “suspects” Mondi Syktyvkar, which it describes as Russia’s largest paper producer, of failing to comply with aspects of federal law; in particular “monopolistically fixing the high price for offset paper”.

Mondi has said that it had not received “any FAS notification to this effect” and had no further details of the probe.

“Mondi is committed to complying with all applicable antimonopoly laws and believes it has not violated any such laws.”

Lora Rossler, group head of communications at Mondi, said that the group’s offset uncoated fine paper sales in Russia comprised about 10% of its Europe and international uncoated fine paper sales, or “less than 2%” of group sales.

Mondi’s share slipped 2.2% to close at R277.95 on the JSE.
“A recently observed increase of prices for offset paper has elements of violating the antimonopoly law,” Nelli Galimkhanova, head of the FAS department for industry control, said in a statement on the authority’s Web site on Friday.

“Upon considering all case circumstances and the arguments given by the respondent, the FAS commission shall make a decision,” she says.

FAS says it found last year the costs of offset paper rose about 50% for Russian consumers, but this did not match the change in the costs of production and sale of such paper.

It had earlier initiated inspections of Russia’s largest cellulose and paper industry makers.

Offset paper refers to paper used for printing books and magazines and not to single office-style paper for photocopying.

FAS also says it was continuing to “watch the situation” in Russian cellulose-and-paper markets, and that it monitored costs on a quarterly basis.

Justin Jordan, equity analyst at Jefferies International in London, says Russian authorities had not contacted Mondi formally.

“What happens from here? Likely nothing, in Jefferies’s view. Worst case scenario, a modest fine,” he says.

Jordan says that Mondi had increased offset reel paper prices by 25% in Russian currency terms last year, due to domestic Russian cost inflation.

However, he says that market sentiment was the “real issue here”, following an earlier European Union investigation into possible price-fixing in industrial sack markets.

Mondi last month said it had not been affected by unannounced inspections at several companies in the European kraft paper and industrial bags sector.

By Mark Allix for www.bdlive.co.za

Packaging and paper group Mondi has announced an increase in full year pre-tax profit to €796-million from €619-million a year ago.

On a per share basis, earnings were 124 euro cents, up from 97.4 euro cents in the previous year. Underlying earnings for the full year was 133.7 euro cents per share.

Group revenue climbed 7% to €6,819-billion from €6,402-billion in the prior year.

In a separate release, Mondi group said it plans to sell interest in uncoated fine paper operations in Austria, Hausmening and Kematen known as Neusiedler to subsidiary Mondi SCP for €30-million. Remaining 49% of SCP is with Eco-invest. The transaction is expected to complete in March 2016.

David Hathorn, Mondi group chief executive says its outlook for the business remains positive. However, the company sees some softness in certain of its packaging paper grades and sees firmer prices in the European uncoated fine paper markets following recent industry capacity rationalisation.

Source: www.nasdaq.com

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My Office News Ⓒ 2017 - Designed by A Collective


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