ALEC HOGG: The Mondi Group, born as the pulp and paper arm of Anglo American Corporation here in South Africa, today announced the spinning off of its local packaging operation. They are worth about R4bn and the business will be listed separately on the JSE.
I asked the chief executive, David Hathorn, whether this meant Mondi intends selling up in South Africa.
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DAVID HATHORN: No, absolutely not, just the packaging assets. Our biggest business in South Africa is our big forestry, Richards Bay and Merebank Mill – those remain with us. This is purely the packaging assets, which is a fairly small part of the Mondi group. It is principally a South African integrated corrugating business and, more recently, a very nice developing position in the South African rigid plastics market.
ALEC HOGG: So under 10% of your global turnover but still in itself big enough to be separately listed – nearly R6bn worth of sales a year.
DAVID HATHORN: That’s right, so it is a … business, it’s a nice business, it’s got great market share, it’s got leadership. It’s a market leader in the corrugating game, it’s the market leader in each of its respective flexible packaging product lines. So it is really well positioned and has grown nicely over recent years and I think is well positioned to continue to do very nicely in the future. …
When we formed the South African packaging business, which is known as Mondi Packaging South Africa, in 2005, and we brought Shanduka in as a 40% shareholder at that stage, our stated intention was to allow it to grow beyond its current corrugating position and dilute Mondi over time. Its move into the rigids game was a first step in that direction. That business is now running a lot better, so they’re gaining confidence to want to make the next move in due course. We felt therefore it was time to separate them, strengthen their balance sheet, list them separately as a domestic industrial player in South Africa and let them pursue that broader based packaging strategy.
ALEC HOGG: Was there ever any thought of, perhaps, selling this part of the business off to an operation like Nampak?
DAVID HATHORN: One couldn’t is the simple answer. All the strategics here would have major anti-trust issues – the strategics that are big enough to contemplate buying it. So that’s not an option. Really, I think the only alternative is the listing option.
ALEC HOGG: What is the packaging market like in South Africa? Why I ask that is, is it sufficiently fragmented to give Mondi Packaging an opportunity to grow by acquisition?
DAVID HATHORN: Yes, there are still enough meaningful smaller players around to enable it to grow by acquisition and certainly it will also grow organically. …
ALEC HOGG: David, after this transaction, what percentage of Mondi Group’s assets will be in South Africa relative to other parts of the world?
DAVID HATHORN: 17%, about, will be in South Africa; Russia will be not a dissimilar amount, slightly smaller; Central Eastern Europe will be a lot bigger and then Western Europe is the remaining small part of it. We’ve got a bit elsewhere. But South Africa becomes, roughly, 17% of the total group.
ALEC HOGG: From what level at the moment?
DAVID HATHORN: They’re about 25%, 27% at the moment, 25% at the moment.
ALEC HOGG: So it’s quite a significant decline. Would it then no longer be the largest part of Mondi?
DAVID HATHORN: It would still be the single largest geographic location, if you take Poland as a stand-alone geographic location, etc. So it would still be the single largest but clearly much more evenly spread now between South Africa, Poland, Czechoslovakia and Russia. Those are the big geographic spots that we’re in.
ALEC HOGG: David Hathorn is the chief executive of Mondi.
This interview was broadcast on The SAfm Market Update with Moneyweb (SAfm 104-107fm, weekdays at 18:00 to 18:30)
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