Workers' fate unknown as Mondi shuts Durban machine
Group cites declining production margins following rapid rise in hardwood pulp input costs
Packaging and paper group Mondi Group said on Friday it would cease production at one of its uncoated fine paper machines at Merebank, Durban during the second half of the current financial year.
The decision could lead to job losses but Mondi CEO Peter Oswald said the consequences of the move on the workforce were still under discussion.
In addition to possible retrenchments, the company was considering absorbing affected employees into other areas within the business. The matter had not been finalised, Oswald said.
Mondi attributed the decision to cease production to declining margins on unintegrated paper production following the rapid rise in hardwood pulp input costs. Oswald said the decision had led to a net special item charge of €18-million in the six months ended June 30.The machine was operating at a production capacity of 70,000 tons per annum, the company said.
According to Mondi, the €18m was made up of €13m in restructuring costs and €5m for impairment of assets.
In the six months, Mondi maintained the momentum of strong performance on the back of strong demand and higher prices across its packaging businesses.
Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) were up 17% at €852-million, while profit before tax increased by 6% to €490-million. Basic underlying earnings were up 26% to 89.2 euro cents per share. Cash generated from operations was up 18%.
Mondi’s net debt increased from €1,532m to €2,450m. The group attributed the increase to the payment of the 2017 special dividend of €484m at the end of May and the completion of acquisitions totalling €415m in the first half of the financial year.
Mondi declared an interim dividend of 21.45 euro cents per share.“We benefited from good demand across our packaging businesses as well as higher average selling prices, while remaining focused on initiatives to drive performance and mitigate inflationary pressures on our cost base. We saw a strong operational performance across the pulp and paper businesses, with the exception of the extended shut at our Richards Bay mill (in SA),” Oswald said.
He said Mondi’s capital expenditure programme of €750m was expected to contribute to earnings from the next financial year. He said the usual seasonal downturn in uncoated fine paper would affect performance in the second half of the year.
“We also expect continued pressure on the cost base across the group, mitigated by our ongoing proactive and comprehensive cost-reduction programmes,” Oswald said.
He said measures to keep costs under control included centralised procurement and increased digitisation.Ron Kiplin, a portfolio manager at Cratos Wealth, said on Friday that Mondi was taking steps to mitigate rising input costs “with positive results to date”.
Oswald said work on the company’s new 300-000-ton-per-annum kraft top white machine and related pulp mill upgrade at its Ružomberok, Slovakia mill was progressing, with start-up of the pulp mill expected in late 2019.
The group said its major capital projects in the Czech Republic, Slovakia and Russia will increase its current saleable pulp and paper production by about 9% when in full operation. It said its capital expenditure was expected to be in line with the previous estimate of between €700m and €800m a year in 2018 and 2019.