Mondi Group boosted by low-cost emerging markets

The company reported that its half-year operating profit grew by 8% to €263m (£206.3m) on sales of €3bn, an increase of 7%.

Its pre-tax profit fell 32% to £171m owing to closure costs.

Mondi chief executive David Hathorn said: “This is a good result in a softening European market.”

There were good performances from the bags and specialities unit within the Europe & International division, which benefited from higher kraft paper and converted bag prices.

However, this was partially offset by reduced profits from the corrugated unit, which dropped 31% to €37m as demand from the building industry slowed.

Box prices, having increased since the end of 2007, have now started to level off and recycled waste fibre costs, up 20%, also had an impact on results, the company said.

Tire Kutsan, the Turkish corrugated packaging firm acquired in July 2007, continues to “underperform”, mainly owing to softer demand and local competition.

The company said construction of the new €305m recycled containerboard machine at Swiecie in Poland is progressing well, orders for the main machine have been placed and completion is on track for the second half of 2009 and within budget.

The investment in the new €45m box plant and associated infrastructure has been delayed pending agreement on the availability of subsidies.

It said that the €525m modernisation project for Mondi’s Russian mill is also making “good progress” with completion targeted for mid to late 2010.

While Europe is increasingly challenging, Mondi’s focus on driving down costs and exposure to the growth markets of emerging Europe and Russia, where demand is good, all contributed to growth in underlying profit of 18% compared with the first half of 2007.

The division delivered €50m in cost savings.

The South Africa division saw a small 2% increase in profit of €1m, although sales fell by 7% to €274m. The corrugated packaging unit reported a 25% in operating profit to €15m.

Hathorn said South Africa should see a “further improvement” as actions to increase profits continue to take effect.

“Overall Mondi expects to make progress for the year as a whole,” he added.

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