Mondi’s profits hit by weaker demand but organic growth investments bring optimism

22 Feb 2024 --- Mondi has released its full-year results for 2023, with the paper and packaging giant reporting reduced profits due to lower prices and weaker demand. However, cash generation improved on the prior year, bringing the company increased flexibility to meet future demand, especially within sustainable packaging.

The group’s underlying EBITDA was down to €1,201 million (US$1,300 million) versus €1,848 million (US$2,010 million), with a margin of 16.4% (2022: 20.8%). Its revenue also dropped to €7,330 million (US$7,920 million) versus €8,902 million (US$9,660 million) in 2022.

“While underlying EBITDA was lower than the very strong performance in the prior year, our cash generation remained ahead of last year at €1,312 million (US$1,420 million),” says company CEO Andrew King.

“This strong cash generation gives us the strategic flexibility to continue investing in our business through-cycle, supported by our confidence in the long-term structural growth of the markets we operate in and our leading positions within them.”

“In the first quarter of 2024, selling prices are generally lower than the averages achieved in the second half of 2023. However, we are seeing improvements in our order books and implementing price increases across our range of paper grades. Input costs remain elevated compared to historical levels but have broadly stabilized since the end of 2023.”

The year also saw Mondi complete the sale of its Russian assets, concluding the group’s exit from the country.

Mega-merger potential
The results come after Mondi confirmed a potential merger with multinational packaging business DS Smith, which would create Europe’s biggest containerboard manufacturer.

Further consolidation was expected in the industry after Smurfit Kappa combined with West Rock and Berry Global merged with Glatfelter.Mondi expects its organic growth project investments to spur its underlying EBITDA from 2025.

“The industry is going through a period of consolidation and rationalization as major groups look for further growth opportunities,” UK packaging expert Neil Farmer tells Packaging Insights.

“Mondi and DS Smith are both looking for economies of scale and supply chain efficiencies and have major consumer goods producers as clients.”

“DS Smith recently renewed its contract as the sole supplier of corrugated in Europe with Mondelēz and its huge portfolio of brands. This type of relationship would be attractive going forward, building on DS Smith’s expertise with major consumer goods producers.”

Rabobank senior analyst for Packaging & Logistics Natasha Valeeva explained in an interview why industry consolidation was expected amid difficult market conditions for the corrugated sector since the COVID-19 pandemic.

Organic growth projects
Meanwhile, Mondi claims to have made “good progress” in delivering its €1.2 billion (US$1.3 billion) of approved investments in organic growth projects, which remain on track and on budget.

“We expect these projects to deliver a meaningful EBITDA contribution from 2025,” says King.

These projects are diversified across the group’s value chain, products and geographic reach and comprise €0.6 billion (US$0.65 billion) of investments in Corrugated Packaging and €0.6 billion of investments in Flexible Packaging.

By the end of 2024, the company expects to have invested around 80% of the approved amount.

In Corrugated Packaging, most of these projects are at or close to start-up, including investments at the Kuopio mill (Finland), Świecie mill (Poland) and Polish corrugated solutions plants. The Duino mill (Italy) is expected to start up in 2025 as planned.

In Flexible Packaging, the company says it has made progress with most projects, including the new paper machine at Štětí (Czech Republic), which is expected to ramp up from 2025.

In addition, it recently completed the acquisition of the Hinton Pulp mill in Alberta (Canada) for US$5 million. The mill has the capacity to produce around 250,000 tons of pulp per annum and will provide the group with access to local, high-quality fiber from a well-established wood basket.

“We remain well positioned to capitalize as demand improves with our strong operational leverage and organic growth investment projects,” adds King.

“It is our continued confidence in the future of our business which has resulted in the Board recommending a total ordinary dividend for the year of 70.0 euro cents per share, in line with 2022.”

By Joshua Poole

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