Mondi back to earth after highs in 2022
• Profitability took a hit in the year to end-December after selling prices declined more than input costs
Paper and packaging firm Mondi says lower selling prices, the effect of customer destocking and softer market demand driven by weak economic conditions, had hampered its profitability in the year to the end of December.
The UK- and SA-listed paper major is implementing price increases across its range of paper grades while banking on its €1.2bn organic growth investments to turn around its fortunes.
Mondi reported earnings before interest, taxes, depreciation and amortisation (ebidta) dropped 35% to €1.2bn from €1.8bn in the prior year. Basic headline earnings per share (Heps) fell 45% to 145.3c from 264.2c, the company said.
Delivering Mondi’s full-year results on Thursday, CEO Andrew King said 2023 was a tough year, in contrast with the highs of 2022.
Corrugated packaging, flexible packaging and uncoated fine paper divisions all reported lower earnings as selling prices declined more than input costs, battering profitability.
Selling prices were lower in the reporting period, with sharp declines during the first half followed by a period of stabilisation in the second half, according to the firm.
However, in the uncoated fine paper business, which reported a 32% decline in underlying ebidta to €289m, Mondi said its scale and diversity helped buffer it from some of the hits it took in Europe as SA’s uncoated fine paper market conditions were broadly stable.
“Our geographic and product diversification supported our performance with higher uncoated fine paper and pulp sales volumes in SA mitigating lower European volumes,” King said.
Pulp sales volumes in SA were also higher after the startup of the rebuilt recovery boiler at Mondi’s integrated Richards Bay mill. Additionally, the business received income from an insurance claim in the year relating to the 2022 floods in KwaZulu-Natal.
King said Mondi was seeing improving demand in its order books and implementing price increases across a range of products.
Having successfully implemented price increases in early 2024 of uncoated fine paper, Mondi announced price increases in February across its range of containerboard grades and is gearing up to implement price increases in kraft paper, which it expects to take effect from the second quarter of 2024.
“So far in 2024, selling prices are lower than average 2023 price levels,” the CEO said. “We are seeing improvements in our order books and implementing price increases across our range of paper grades.”
It is looking to recover input costs, which remain higher than historical levels, though they have broadly stabilised since the end of 2023, according to King.
Despite the lower underlying earnings, Mondi exhibited strong cash-generative characteristics with cash generated from operations increasing in the year to €1.3bn from €1.2bn in 2022.
The board declared a dividend of €0.70 a share, in line with the prior year.
King said the strong through-cycle cash generation continued to support its investment in the business and ensured Mondi was well positioned to meet future demand for sustainable packaging and paper products.
Mondi, which recently completed its exit from Russia, has invested €1.2bn in diversified organic growth investment projects across its value chain, products and geographic reach as part of its growth strategy. These include €0.6bn of investments in corrugated packaging and the same amount for investments in flexible packaging.
“By the end of 2024, we expect to have invested around 80% of the approved amount,” King said. “We expect these projects to deliver a meaningful ebitda contribution from 2025.”
In early February, the paper giant expressed interest in buying DS Smith, a UK-listed global paper and cardboard box manufacturer. It recently bought the Canadian Hinton Pulp mill for $5m (R94.7m) as part of its strategy to bulk up production of kraft paper and paper bags, amid growing market demand for sustainable packaging products.
The CEO maintained that transitioning to sustainable solutions would remain a priority, pointing out that 84% of Mondi’s products now complied with the criteria to be either reusable, recyclable or compostable.
Mondi has a premium listing on the London Stock Exchange, where the group is an FTSE 100 constituent, and also has a secondary listing on the JSE, where it has a R145bn market capitalisation.
Group shares were up 3.08% to R339.31 on Thursday.
MONDI INVESTED €1.2BN IN DIVERSIFIED ORGANIC GROWTH PROJECTS ACROSS ITS VALUE CHAIN, PRODUCTS AND GEOGRAPHIC REACH