/ 23 February 2010

Mondi full-year profit drops

Paper-maker Mondi on Tuesday reported a 44% decline in headline earnings per share due to lower sales and prices last year, and said it could make further supply cuts to match flagging demand.

South Africa’s Mondi, which is also listed in London, said headline EPS, the key measure of profitability in South Africa, fell to 11,4 euro cents from 20,3 cents in 2008.

The global paper industry has been mired in a slump caused by soft demand and overcapacity that was exacerbated by last year’s recession, which hammered advertising spending.

Europe’s top paper and board maker, Finland’s Stora Enso, earlier this month reported a small fourth-quarter profit that beat forecasts, helped by cost cuts, while Norwegian newsprint specialist Norske Skog missed expectations.

Mondi said its future performance would largely depend on the pace and extent of the global economic recovery.

“While there has been substantial industry capacity rationalisation over the past year, further supply-side reductions may be required to ensure that supply and demand are balanced,” the company said in a statement.

Mondi said a steady improvement in order volumes, with some price recovery in the European packaging grades, coupled with the group’s restructuring last year had set up the company to perform well in the year ahead.

The company’s efforts of restructuring its cost base in light of falling demand saw it save €251-million, significantly exceeding its €180-million target. In just more than two years, Mondi has exited, either temporarily or permanently, about 930 000 tonnes of high-cost paper capacity and closed or sold 18 converting sites.

“Mondi is confident that the actions taken over the past year place the business in a stronger competitive position than it was when it entered the downturn, allowing it to take full advantage of any improvement in the business cycle,” it said.

The company said it would pay a final dividend of 7 euro cents per share, giving a total dividend of 9,5 euro cents per share for the year, 25% lower than the previous year.

Mondi said its net debt fell to €1,5-billion despite about €300-million spent on major capital projects.

Nordic paper-makers said weak demand affected fourth-quarter earnings and warned the economic upturn was unlikely to bring an early end to a slump that has battered the industry for the best part of a decade. — Reuters