Mondi can deliver sustainably despite global challenges, inflation

JSE-listed packaging and paper company Mondi says its earnings before interest, taxes, depreciation and amortisation (Ebitda) for the third quarter was €450-million, 55% higher than the Ebitda of €290-million reported for the third quarter of 2021.

It notes that, during the quarter ended September 30, higher average selling prices and overall volume growth more than offset significant cost pressures.

Input costs were significantly higher in the quarter, both year-on-year and sequentially, largely owing to higher wood and energy costs. Increased demand and tight market conditions for wood continue to impact availability and pricing.

Mondi was able to mitigate the impact of significantly higher European gas and electricity costs as most of its pulp and paper mills generate the majority of their energy needs internally, with about 80% of the fuels used in this process obtained from biomass sources, and only around 10% of fuel sourced from natural gas.

Meanwhile, the company is looking to mitigate the effect of inflationary pressures on the cost base through its cost control initiatives.

“While significant geopolitical and macroeconomic uncertainties remain and we anticipate continued inflationary pressures on our cost base as we enter the fourth quarter, we are confident that the group will continue to demonstrate its resilience and deliver a year of good progress,” says Mondi CEO Andrew King.

“The group remains well-placed to deliver sustainably into the future, underpinned by our integrated cost advantaged asset base, culture of continuous improvement, portfolio of sustainable packaging solutions and the strategic flexibility offered by our unique platform for growth, strong cash generation and financial position,” he adds.

During the third quarter, the company's Corrugated Packaging business unit benefitted from higher average selling prices compared with the prior comparable quarter, leveraging the group's innovative product portfolio and strong customer proposition. Corrugated Solutions box volumes were lower in the quarter, driven by generally softer demand when compared with the strong volume growth delivered in the prior year.

Further, Flexible Packaging performed well, with resilient demand during the period. Price increases across its range of kraft papers and packaging products were implemented during the quarter, where not fixed by annual or semi-annual contracts.

Additionally, Uncoated Fine Paper achieved higher average selling prices and grew pulp volumes in the quarter, while uncoated fine paper volumes were lower.

“Our ambitious expansionary capital investment programme is progressing well, as we continue to invest in our cost-advantaged asset base to capture opportunities in our structurally growing packaging markets, enhance our competitiveness and deliver sustainably into the future,” notes King.

“Mondi delivered strongly in the third quarter. My sincere thanks go to all of my colleagues for their ongoing agility and commitment in challenging times. We continue to partner with our customers, helping to lead the way towards a circular economy with our unique portfolio of innovative and sustainable packaging and paper solutions. We also remain focused on operational efficiency and cost control.”

Further, Mondi's €1-billion expansionary capital investment programme is progressing well and the company expects these projects to deliver mid-teen returns when in full operation.

“As part of this programme, we have recently approved the investment in a new 210 000 t/y kraft paper machine at our flagship Štětí mill, in Czech Republic, for €400-million. This cost-advantaged machine will meet the growing demand for sustainable paper-based flexible packaging to better serve our customers. Start-up is expected in 2025, with full production ramp up by 2027,” King says.

Adding to its pipeline of growth projects, in August the company agreed to acquire the Duino mill near Trieste, in Italy.

“We plan to convert the existing lightweight coated mechanical paper machine into a high-quality, cost-competitive recycled containerboard machine with an annual capacity of around 420 000 t. The total acquisition and capital investment cost is estimated at around €240-million. The mill is ideally located to source paper for recycling, supply Mondi's Corrugated Solutions plants in Central Europe and Turkey as well as to serve the growing local Italian market.

“This project provides an opportunity to grow our packaging business, build on our integrated platform and broaden our geographic reach. The acquisition is subject to competition clearance and other closing conditions with completion expected in the fourth quarter of 2022. The converted machine is expected to start up in 2025 and deliver mid-teen returns when in full operation.”

Meanwhile, Mondi continues to actively consider further investment opportunities to serve its customers’ growing demand for sustainable packaging solutions, improve its environmental footprint and further improve its cost competitiveness.

RUSSIA
The group's third-quarter Ebitda excludes its Russian operations, or Mondi Syktyvkar. Its Russian operations have been classified as held for sale and presented as discontinued operations. In the third quarter, the Russian operations generated profit after tax of €104-million, from Ebitda of €129-million.

On August 12, the company announced that it had entered into an agreement to sell its most significant facility in Russia, namely Joint Stock Company Mondi Syktyvkar, together with two affiliated entities to Augment Investments Limited for a consideration of Rb95-billion, or around €1.5-billion at current exchange rate, payable in cash on completion.

The disposal is conditional on the approval of the Russian Federation’s Government Sub-Commission for the Control of Foreign Investments and customary antitrust approvals. The planned remittance of the excluded cash balance of Rb16-billion by form of dividend to Mondi before completion requires the approval of the Ministry of Finance of the Russian Federation. These approvals remain outstanding.